Lannett Announces Record Net Sales For Fiscal 2016 Fourth-Quarter And Full-Year

--Company Reports Fourth Quarter Net Sales Increased 70% to Approximately $169 Million, GAAP Diluted EPS of $0.10, Adjusted Diluted EPS of $0.73; Provides Guidance for Fiscal 2017--

PHILADELPHIA, Aug. 23, 2016 /PRNewswire/ -- Lannett Company, Inc. (NYSE: LCI) today reported financial results for its fiscal 2016 fourth quarter and full year ended June 30, 2016.  As previously announced, the company completed the acquisition of Kremers Urban Pharmaceuticals Inc. (KU) on November 25, 2015.  Accordingly, fiscal 2016 fourth-quarter and full-year financial results include the operations of KU since the acquisition date. 

Lannett Logo

"Our record net sales for the fourth quarter were driven by the addition of KU's operations and higher sales of key products," said Arthur Bedrosian, chief executive officer of Lannett.  "Today's announcement builds upon our recent positive momentum and caps a number of significant successes over the last six months.  These achievements include refinancing a sizable portion of debt that will result in savings of approximately $170 million in cash interest over the life of the loans, expanding and advancing our robust pipeline, receiving a number of product approvals and making solid progress on our cost reduction program.  All of which, combined with our increased size and scale resulting from our acquisition strategy, gives us great confidence in Lannett's future."

For the fiscal 2016 fourth quarter, total net sales increased 70% to $168.9 million from $99.3 million for the fourth quarter of fiscal 2015.  Gross profit was $79.9 million compared with $72.0 million.  Gross profit as a percentage of net sales was 47% compared with 72% in last year's fourth quarter, primarily due to the inclusion of KU's lower-margin business, as well as amortization of acquired intangible assets and other purchase accounting related expenses.  Research and development (R&D) expenses increased to $13.0 million from $7.0 million for the fiscal 2015 fourth quarter.  Selling, general and administrative (SG&A) expenses were $22.0 million compared with $12.3 million.  Acquisition and integration-related expenses were $4.2 million compared with $1.7 million in the prior-year fourth quarter.  In the fourth quarter of fiscal 2016, the company recorded restructuring expenses of $2.4 million related to a cost reduction plan implemented in February 2016 and an impairment charge of $8.0 million related to acquired intangible assets.  Operating income was $30.4 million compared with $51.0 million.  The company recorded an income tax benefit of $2.9 million in the fourth quarter of fiscal 2016 versus income tax expense of $17.2 million in the prior-year period.  Interest expense was $27.1 million compared with $88 thousand for the fourth quarter of fiscal 2015.  Net income attributable to Lannett was $3.6 million, or $0.10 per diluted share, compared to net income attributable to Lannett of $33.9 million, or $0.91 per diluted share, for the fiscal 2015 fourth quarter. 

For the fiscal 2016 fourth quarter reported on a Non-GAAP basis, adjusted total net sales increased to $168.9 million from $99.3 million for the fourth quarter of fiscal 2015.  Adjusted gross profit was $91.9 million, or 54% of adjusted total net sales, compared with $72.2 million, or 73% of adjusted total net sales, for the fiscal 2015 fourth quarter.  Adjusted R&D expenses increased to $13.1 million from $7.0 million.  Adjusted SG&A expenses were $17.8 million compared with $12.3 million.  Adjusted operating income increased to $61.0 million from $52.9 million for the prior-year fourth quarter.  Adjusted net income attributable to Lannett was $27.5 million, or $0.73 per diluted share, compared with $35.2 million, or $0.94 per diluted share, for the fiscal 2015 fourth quarter.

For the 2016 fiscal year, total net sales were $542.5 million compared with $406.8 million for fiscal 2015.  Fiscal 2016 total net sales were reduced by a previously announced, pre-tax, non-recurring settlement agreement of $23.6 million, which was recorded as a reduction to net sales during the fiscal 2016 third quarter.  Gross profit was $286.5 million compared with $306.4 million.  Gross profit as a percentage of net sales was 53% compared with 75% for fiscal 2015, primarily due to the inclusion of KU's lower-margin business, as well as amortization of acquired intangible assets and other purchase accounting related expenses.  R&D expenses increased to $45.1 million from $30.3 million for fiscal 2015.  SG&A expenses were $68.3 million compared with $45.2 million.  Acquisition and integration-related expenses were $27.2 million compared with $4.3 million in the prior year.  Fiscal 2016 included restructuring expenses of $7.2 million and the impairment charge of $8.0 million.  Operating income was $130.8 million compared with $226.5 million.  Interest expense was $65.9 million compared with $207 thousand for fiscal 2015.  Net income attributable to Lannett was $44.8 million, or $1.20 per diluted share, compared with $149.9 million, or $4.04 per diluted share, for fiscal 2015.

For the fiscal 2016 full year reported on a Non-GAAP basis, adjusted total net sales increased to $566.1 million from $406.8 million for fiscal 2015.  Adjusted gross profit was $348.1 million, or 61% of adjusted total net sales, compared with $306.6 million, or 75% of adjusted total net sales, for fiscal 2015.  Adjusted R&D expenses increased to $45.1 million from $30.3 million.  Adjusted SG&A expenses were $59.0 million compared with $45.2 million.  Adjusted operating income increased to $244.0 million from $231.1 million for the prior year.  Adjusted net income attributable to Lannett was $127.8 million, or $3.42 per diluted share, compared with $153.0 million, or $4.12 per diluted share, for fiscal 2015. 

Guidance for Fiscal 2017
Based on its current outlook the company provided financial guidance for the 2017 fiscal year as follows:

 


GAAP

Adjusted

Net sales

$690 million to $700 million

$690 million to $700 million

Gross margin %

50% to 51%

55% to 56%

R&D expense

$49 million to $51 million

$49 million to $51 million

SG&A expense

$68 million to $70 million

$67 million to $69 million

Acquisition related, integration and restructuring expense

$10 million to $11 million

$0

Interest expense

$93 million to $94 million

$71 million to $72 million

Effective tax rate

Approximately 34%

Approximately 34%

Capital expenditures

$55 million to $65 million

$55 million to $65 million

 

Conference Call Information and Forward-Looking Statements
Later today, the company will host a conference call at 4:30 p.m. ET to review its results of operations for the fiscal 2016 fourth quarter and full year ended June 30, 2016.  The conference call will be available to interested parties by dialing 888-771-4371 from the U.S. or Canada, or 847-585-4405 from international locations, passcode 43115576.  The call will be broadcast via the Internet at www.lannett.com.  Listeners are encouraged to visit the website at least 10 minutes prior to the start of the scheduled presentation to register, download and install any necessary audio software.  A playback of the call will be archived and accessible on the same website for at least three months.

Discussion during the conference call may include forward-looking statements regarding such topics as, but not limited to, the company's financial status and performance, regulatory and operational developments, and any comments the company may make about its future plans or prospects in response to questions from participants on the conference call.

Use of Non-GAAP Financial Measures
This news release contains references to Non-GAAP financial measures, including Adjusted net income attributable to the Company, and its components, as well as Adjusted earnings per diluted share, which are financial measures that are not prepared in conformity with United States generally accepted accounting principles (U.S. GAAP).  Management uses these measures internally for evaluating its operating performance.  The Company's management believes that the presentation of Non-GAAP financial measures provides useful supplementary information regarding operational performance, because it enhances an investor's overall understanding of the financial results for the Company's core business.  Additionally, it provides a basis for the comparison of the financial results for the Company's core business between current, past and future periods.  Non-GAAP financial measures should be considered only as a supplement to, and not as a substitute for or as a superior measure to, financial measures prepared in accordance with U.S. GAAP.  Detailed reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures are included with this release.

Adjusted net income and Adjusted earnings per diluted share exclude, among others, the effects of (1) the amortization of purchased intangibles, (2) acquisition and integration-related expenses and other purchase accounting entries, (3) non-cash interest expense, as well as (4) certain other items considered unusual or non-recurring in nature. 

About Lannett Company, Inc.:
Lannett Company, founded in 1942, develops, manufactures, packages, markets and distributes generic pharmaceutical products for a wide range of medical indications – see financial schedule below for net sales by medical indication.  For more information, visit the company's website at www.lannett.com.

This news release contains certain statements of a forward-looking nature relating to future events or future business performance.  Any such statements, including, but not limited to, realizing the expected benefits of optimizing operations, enhancing efficiencies, significantly reducing costs, expanding the pipeline, commercializing product approvals or refinancing the debt including the cash interest cost savings, and achieving the financial metrics stated in the company's guidance for fiscal 2017, whether expressed or implied, are subject to risks and uncertainties which can cause actual results to differ materially from those currently anticipated due to a number of factors which include, but are not limited to, the difficulty in predicting the timing or outcome of FDA or other regulatory approvals or actions, the ability to successfully commercialize products upon approval, including acquired products, and Lannett's estimated or anticipated future financial results, future inventory levels, future competition or pricing, future levels of operating expenses, product development efforts or performance, and other risk factors discussed in the company's Form 10-K and other documents filed with the Securities and Exchange Commission from time to time.  These forward-looking statements represent the company's judgment as of the date of this news release.  The company disclaims any intent or obligation to update these forward-looking statements.

Contact:

Robert Jaffe


Robert Jaffe Co., LLC


(424) 288-4098

FINANCIAL SCHEDULES FOLLOW

 

LANNETT COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)








(Unaudited)





June 30, 2016


June 30, 2015

ASSETS




Current assets:




Cash and cash equivalents

$         224,769


$       200,340

Investment securities

14,094


13,467

Accounts receivable, net

211,722


91,103

Inventories

114,904


46,191

Deferred tax assets

40,892


16,270

Other current assets

6,434


3,175

Total current assets

612,815


370,546

Property, plant and equipment, net

216,638


94,556

Intangible assets, net

575,503


29,090

Goodwill

333,611


141

Deferred tax assets

11,556


12,495

Other assets

13,895


1,938

TOTAL ASSETS

$      1,764,018


$       508,766






LIABILITIES




Current liabilities:




Accounts payable

$           34,720


$         19,195

Accrued expenses

9,247


4,928

Accrued payroll and payroll-related expenses

10,572


10,397

Rebates payable

21,894


7,553

Royalties payable

5,127


-

Restructuring liability

4,130


-

Settlement liability

7,000


-

Income taxes payable

743


1,340

Acquisition-related contingent consideration

35,000


-

Short-term borrowings and current portion of long-term debt

178,236


135

Total current liabilities

306,669


43,548

Long-term debt, net

883,612


874

Settlement liability

12,526


-

Other liabilities

6,754


578

TOTAL LIABILITIES

1,209,561


45,000

Commitments and Contingencies









STOCKHOLDERS' EQUITY




Common stock ($0.001 par value, 100,000,000 shares authorized; 37,150,165 and 36,783,381 shares issued; 36,604,202 and 36,264,585 shares outstanding at June 30, 2016 and 2015, respectively)

37


37

Additional paid-in capital

283,301


236,178

Retained earnings

278,355


233,573

Accumulated other comprehensive loss

(295)


(295)

Treasury stock (545,963 and 518,796 shares at June 30, 2016 and 2015, respectively)

(7,349)


(6,080)

Total Lannett Company, Inc. stockholders' equity

554,049


463,413

Noncontrolling interest

408


353

Total stockholders' equity

554,457


463,766

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 

$      1,764,018


$       508,766

 

LANNETT COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share data)












Three months ended 


Twelve months ended 



June 30,


June 30,



2016


2015


2016


2015










Net sales


$      168,887


$        99,276


$      566,091


$      406,837

Settlement agreement


-


$                -


(23,598)


$                -

Total net sales


168,887


99,276


542,493


406,837

Cost of sales 


81,407


27,250


237,371


100,344

Amortization of intangibles


7,550


76


18,629


137

Gross profit


79,930


71,950


286,493


306,356

Operating expenses:









Research and development expenses


12,962


6,984


45,054


30,342

Selling, general, and administrative expenses


21,966


12,283


68,325


45,206

Acquisition and integration-related expenses


4,190


1,665


27,190


4,321

Restructuring expenses


2,417


-


7,166


-

Intangible assets impairment charge


8,000


-


8,000


-

Total operating expenses


49,535


20,932


155,735


79,869

Operating income


30,395


51,018


130,758


226,487

Other income (loss):









Loss on extinguishment of debt


(3,009)


-


(3,009)


-

Investment income


299


235


368


1,130

Interest expense


(27,117)


(88)


(65,937)


(207)

Other


75


18


(1)


12

Total other income (loss)


(29,752)


165


(68,579)


935

Income before income taxes


643


51,183


62,179


227,422

Income tax expense (benefit)


(2,948)


17,222


17,322


77,430

Net income


3,591


33,961


44,857


149,992

Less: Net income attributable to noncontrolling interest


20


18


75


73

Net income attributable to Lannett Company, Inc.


$          3,571


$        33,943


$        44,782


$      149,919










Earnings per common share attributable to Lannett Company, Inc.









     Basic


$            0.10


$            0.94


$            1.23


$            4.18

     Diluted


$            0.10


$            0.91


$            1.20


$            4.04










Weighted average common shares outstanding:









     Basic


36,578,020


36,164,719


36,442,782


35,827,167

     Diluted


37,394,787


37,321,633


37,389,445


37,127,117

 

LANNETT COMPANY, INC.

RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION (UNAUDITED)

(In thousands, except share and per share data)
















Three months ended


Three months ended



June 30,


June 30,



GAAP




Non-GAAP


GAAP




Non-GAAP



Reported


Adjustments


Adjusted


Reported


Adjustments


Adjusted



2016


2016


2016


2015


2015


2015














Net sales


$       168,887


$                   -


$       168,887


$         99,276


$                   -


$         99,276

Settlement agreement


-


-


-


-


-


-

Total net sales


168,887


-


168,887


99,276


-


99,276

Cost of sales 


81,407


(4,445)

 (a) 

76,962


27,250


(140)

 (a) 

27,110

Amortization of intangibles


7,550


(7,550)

 (b) 

-


76


(76)

 (b) 

-

Gross profit


79,930


11,995


91,925


71,950


216


72,166

Operating expenses:













Research and development expenses


12,962


108

 (a) 

13,070


6,984


-


6,984

Selling, general, and administrative expenses


21,966


(4,159)

 (c) 

17,807


12,283


-


12,283

Acquisition and integration-related expenses


4,190


(4,190)

 (d) 

-


1,665


(1,665)

 (d) 

-

Restructuring expenses


2,417


(2,417)

 (e) 

-


-


-


-

Intangible assets impairment charge


8,000


(8,000)

 (f) 

-


-


-


-

Total operating expenses


49,535


(18,658)


30,877


20,932


(1,665)


19,267

Operating income


30,395


30,653


61,048


51,018


1,881


52,899

Other income (loss):


(29,752)


8,350

 (g) 

(21,402)


165


-


165

Income before income taxes


643


39,003


39,646


51,183


1,881


53,064

Income tax expense (benefit)


(2,948)


15,105

 (h) 

12,157


17,222


637

 (h) 

17,859

Net income


3,591


23,898


27,489


33,961


1,244


35,205

Less: Net income attributable to noncontrolling interest


20


-


20


18


-


18

Net income attributable to Lannett Company, Inc.


$           3,571


$            23,898


$         27,469


$         33,943


$              1,244


$         35,187














Earnings per common share attributable to Lannett Company, Inc.













     Basic


$             0.10




$             0.75


$             0.94




$             0.97

     Diluted


$             0.10




$             0.73


$             0.91




$             0.94














Weighted average common shares outstanding:













     Basic


36,578,020




36,578,020


36,164,719




36,164,719

     Diluted


37,394,787




37,394,787


37,321,633




37,321,633















(a) To exclude amortization of a fair value step-up in inventory and depreciation of a fair value step-up in property, plant and equipment related to the acquisitions of Kremers Urban Pharmaceuticals, Inc. and Silarx Pharmaceuticals, Inc.

(b) To exclude amortization of purchased intangible assets primarily related to the acquisitions of Kremers Urban Pharmaceuticals, Inc. and Silarx Pharmaceuticals, Inc.

(c) To exclude fees related to the refinancing of the 12.0% Senior Notes, separation expenses associated with a former executive officer and amortization of purchased intangibles related to the acquisition of Kremers Urban Pharmaceuticals, Inc.

(d) To exclude acquisition and integration-related expenses primarily related to the acquisition of Kremers Urban Pharmaceuticals Inc.

(e) To exclude expenses associated with the 2016 Restructuring Plan

(f) To exclude an impairment charge related to certain intangible assets acquired as part of the Kremers Urban Pharmaceuticals Inc. acquisition

(g) To exclude non-cash interest expense primarily associated with debt issuance costs and a loss from extinguishment of debt

(h) The tax effect of the pre-tax adjustments included above at applicable tax rates

 

LANNETT COMPANY, INC.

RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION (UNAUDITED)

(In thousands, except share and per share data)
















Twelve months ended


Twelve months ended



June 30,


June 30,



GAAP




Non-GAAP


GAAP




Non-GAAP



Reported


Adjustments


Adjusted


Reported


Adjustments


Adjusted



2016


2016


2016


2015


2015


2015














Net sales


$       566,091


$                   -


$       566,091


$       406,837


$                   -


$       406,837

Settlement agreement


(23,598)


23,598

 (a) 

-


-


-


-

Total net sales


542,493


23,598


566,091


406,837


-


406,837

Cost of sales 


237,371


(19,349)

 (b) 

218,022


100,344


(140)

 (b) 

100,204

Amortization of intangibles


18,629


(18,629)

 (c) 

-


137


(137)

 (c) 

-

Gross profit


286,493


61,576


348,069


306,356


277


306,633

Operating expenses:













Research and development expenses


45,054


18

 (b) 

45,072


30,342


-


30,342

Selling, general, and administrative expenses


68,325


(9,278)

 (d) 

59,047


45,206


-


45,206

Acquisition and integration-related expenses


27,190


(27,190)

 (e) 

-


4,321


(4,321)

 (e) 

-

Restructuring expenses


7,166


(7,166)

 (f) 

-


-


-


-

Intangible assets impairment charge


8,000


(8,000)

 (g) 

-


-


-


-

Total operating expenses


155,735


(51,616)


104,119


79,869


(4,321)


75,548

Operating income


130,758


113,192


243,950


226,487


4,598


231,085

Other income (loss):


(68,579)


16,016

 (h) 

(52,563)


935


-


935

Income before income taxes


62,179


129,208


191,387


227,422


4,598


232,020

Income tax expense


17,322


46,145

 (i) 

63,467


77,430


1,565

 (i) 

78,995

Net income


44,857


83,063


127,920


149,992


3,033


153,025

Less: Net income attributable to noncontrolling interest


75


-


75


73


-


73

Net income attributable to Lannett Company, Inc.


$         44,782


$            83,063


$       127,845


$       149,919


$              3,033


$       152,952














Earnings per common share attributable to Lannett Company, Inc.













     Basic


$             1.23




$             3.51


$             4.18




$             4.27

     Diluted


$             1.20




$             3.42


$             4.04




$             4.12














Weighted average common shares outstanding:













     Basic


36,442,782




36,442,782


35,827,167




35,827,167

     Diluted


37,389,445




37,389,445


37,127,117




37,127,117















(a) To exclude expense related to a settlement agreement with a former customer

(b) To exclude amortization of a fair value step-up in inventory related to the acquisitions of Kremers Urban Pharmaceutical, Inc. and Silarx Pharmaceuticals, Inc. as well as depreciation of a fair value step-up in property, plant and equipment related to the acquisition of Kremers Urban Pharmaceuticals, Inc.

(c) To exclude amortization of purchased intangible assets primarily related to the acquisitions of Kremers Urban Pharmaceuticals, Inc. and Silarx Pharmaceuticals, Inc.

(d) To exclude separation expenses associated with former executive officers, fees related to the refinancing of the 12.0% Senior Notes as well as amortization of purchased intangibles related to the acquisition of Kremers Urban Pharmaceuticals, Inc.

(e) To exclude acquisition and integration-related expenses primarily related to the acquisition of Kremers Urban Pharmaceuticals Inc.

(f) To exclude expenses associated with the 2016 Restructuring Plan

(g) To exclude an impairment charge related to certain intangible assets acquired as part of the Kremers Urban Pharmaceuticals Inc. acquisition

(h) To exclude non-cash interest expense primarily associated with debt issuance costs and a loss from extinguishment of debt

(i) The tax effect of the pre-tax adjustments included above at applicable tax rates

 

LANNETT COMPANY, INC.





RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED INFORMATION (UNAUDITED)





($ in millions)















Fiscal Year 2017 Guidance












Non-GAAP








GAAP


Adjustments


Adjusted


















Net sales


 $690 - $700 


-


 $690 - $700 






Gross margin percentage


 50% - 51% 


5%

 (a) 

 55% to 56% 






R&D expense


 $49 - $51 


-


 $49 - $51 






SG&A expense


 $68 - $70 


($1)

 (b) 

 $67 - $69 






Integration and Restructuring expense


 $10 - $11 


 ($10 - $11) 

 (c) 

-






Interest expense


 $93 - $94 


($22)

 (d) 

 $71 - $72 






Effective tax rate


 approx. 34% 


-


 approx. 34% 






Capital expenditures


 $55 - $65 


-


 $55 - $65 































(a) The adjustment primarily reflects amortization of purchased intangible assets, amortization of a fair value step-up in inventory and depreciation of a fair value step-up in property, plant and equipment related to the acquisition of Kremers Urban Pharmaceuticals, Inc.

(b) The adjustment reflects amortization of purchased intangible assets related to the acquisition of Kremers Urban Pharmaceuticals, Inc.

(c) The adjustment reflects expenses related to the 2016 Restructuring Plan as well as integration-related expenses associated with the acquisition of Kremers Urban Pharmaceuticals, Inc.

(d) The adjustment reflects non-cash interest expense primarily associated with debt issuance costs

 

LANNETT COMPANY, INC.

SALES BY MEDICAL INDICATION










Three months ended


Twelve months ended

(in thousands)

June 30, 


June 30, 


2016


2015


2016


2015

Medical Indication








Antibiotic

$    5,842


$  2,952


$  14,558


$  12,306

Cardiovascular

15,482


9,437


53,541


55,166

Central Nervous System

15,940


-


36,291


-

Gallstone

13,959


16,293


67,348


65,262

Gastrointestinal

22,268


-


52,699


-

Glaucoma

5,965


5,225


25,336


21,145

Gout

97


90


303


6,833

Migraine

5,438


6,274


21,776


25,729

Muscle Relaxant

1,157


2,402


5,403


8,779

Obesity

956


1,052


3,809


4,004

Pain Management

6,418


8,953


29,804


27,461

Respiratory

3,279


-


9,982


-

Thyroid Deficiency

45,868


38,859


162,411


153,460

Urinary

7,250


212


17,398


212

Other

9,307


7,527


43,389


26,480

Contract Manufacturing

9,661


-


22,043


-

   Net Sales

168,887


99,276


566,091


406,837

Settlement Agreement

-


-


(23,598)


-

   Total Net Sales

$ 168,887


$ 99,276


$ 542,493


$ 406,837

 

Logo - http://photos.prnewswire.com/prnh/20150417/199461LOGO

 

SOURCE Lannett Company, Inc.


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