Lannett Reports Fiscal 2017 First-Quarter Financial Results

--Net Sales Increased 52% to Approximately $162 Million; Company Revises Guidance for Fiscal 2017--

PHILADELPHIA, Nov. 3, 2016 /PRNewswire/ -- Lannett Company, Inc. (NYSE: LCI) today reported financial results for its fiscal 2017 first quarter ended September 30, 2016.  The company completed the acquisition of Kremers Urban Pharmaceuticals Inc. (KU) on November 25, 2015; accordingly, fiscal 2017 first-quarter financial results include the operations of KU.

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"We are pleased to report in our fiscal 2017 first quarter a topline increase of 52 percent, which was largely due to the addition of KU's operations," said Arthur Bedrosian, chief executive officer of Lannett.  "Net sales were approximately $162 million compared with $106 million in the same period last year.  Our first quarter performance includes strong sales on certain products, offset by the effect of competitive pressure on a number of our other products.  In addition, contract manufacturing revenues were lower than anticipated due to timing of product shipments.

"Looking ahead, we recently announced positive results of a Phase III clinical trial of our proprietary product, as well as successful FDA inspections of three of our facilities and FDA approval of our Buprenorphine and Naloxone sublingual tablets product.  These milestones, in conjunction with our ongoing progress to reduce costs and integrate KU, are important steps toward achieving our near-term goals and executing our long-term strategy."

Commenting on the company's revised guidance for fiscal 2017, Bedrosian added, "We have a deep product pipeline, including a significant number of ANDAs currently pending at the FDA, which has the potential to add considerable upside to our updated forecasts.  We expect the remaining quarters of the current fiscal year to be stronger than our first quarter performance, and our adjusted full-year profitability to be higher than last year."

For the fiscal 2017 first quarter, net sales increased 52% to $161.6 million from $106.4 million for the first quarter of fiscal 2016.  Gross profit was $81.9 million compared with $77.4 million.  Gross profit as a percentage of net sales was 51% compared with 73% in last year's first 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 $12.4 million from $6.5 million for the fiscal 2016 first quarter.  Selling, general and administrative (SG&A) expenses were $21.3 million compared with $15.5 million.  Acquisition and integration-related expenses were $1.4 million compared with $3.9 million in the prior-year first quarter.  In the first quarter of fiscal 2017, the company recorded restructuring expenses of $2.1 million related to a cost reduction plan implemented in February 2016.  Also in the first quarter of fiscal 2017, the company recorded an impairment charge of $65.1 million related to the intangible asset value attributable to Methylphenidate Hydrochloride Extended-Release tablets.  Operating loss was $20.3 million versus operating income of $51.4 million.  Income tax benefit was $12.9 million compared to income tax expense of $17.1 million in the prior-year first quarter.  Interest expense was $23.0 million compared with $60 thousand for the first quarter of fiscal 2016.  Net loss attributable to Lannett was $29.4 million, or $0.80 per share, compared to net income attributable to Lannett of $33.2 million, or $0.89 per diluted share, for the fiscal 2016 first quarter. 

For the fiscal 2017 first quarter reported on a Non-GAAP basis, adjusted net sales increased to $161.6 million from $106.4 million for the first quarter of fiscal 2016.  Adjusted gross profit was $94.0 million, or 58% of adjusted net sales, compared with $77.8 million, or 73% of adjusted net sales, for the fiscal 2016 first quarter.  Adjusted R&D expenses increased to $12.4 million from $6.5 million.  Adjusted SG&A expenses were $20.9 million compared with $13.9 million.  Adjusted operating income increased to $60.7 million from $57.3 million for the prior-year first quarter.  Adjusted net income attributable to Lannett was $29.0 million, or $0.77 per diluted share, compared with $37.1 million, or $0.99 per diluted share, for the fiscal 2016 first quarter.

Guidance for Fiscal 2017
The company has revised its GAAP guidance to reflect, among other things, the non-cash impairment charge of approximately $65 million.  On an adjusted basis, the company expects profitability to modestly improve.  Based on its current outlook, the company revised financial guidance for the 2017 fiscal year as follows:


GAAP

Adjusted

Net sales

$675 million to $685 million; down from $690 million to $700 million

$675 million to $685 million; down from $690 million to $700 million

Gross margin %

51.5% to 52.5%, up from 50% to 51%

57.5% to 58.5%; up from 55% to 56%

R&D expense

$49 million to $51 million; unchanged

$49 million to $51 million; unchanged

SG&A expense

$72 million to $74 million, up from $68 million to $70 million;

$70 million to $72 million; up from $67 million to $69 million

Acquisition related, integration and restructuring expense

$10 million to $11 million; unchanged

$0; unchanged

Impairment charge

$65 million

$0

Interest expense

$90 million to $91 million; down from $93 million to $94 million

$71 million to $72 million; unchanged

Effective tax rate

Approximately 34%; unchanged

Approximately 34%, unchanged

Capital expenditures

$55 million to $65 million; unchanged

$55 million to $65 million; unchanged

 

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 2017 first quarter ended September 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 43660920.  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) amortization of purchased intangibles and other purchase accounting entries, (2) acquisition and integration-related expenses, (3) impairment charge, (4) non-cash interest expense, as well as (5) 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, receiving approval and successfully commercializing the company's proprietary product, commercializing product approvals including Buprenorphine and Naloxone sublingual tablets, 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.

FINANCIAL SCHEDULES FOLLOW

 

LANNETT COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)



(Unaudited)




September 30, 2016


June 30, 2016





ASSETS

Current assets:




Cash and cash equivalents

$                     241,680


$       224,769

Investment securities

11,381


14,094

Accounts receivable, net

190,526


211,722

Inventories

127,751


114,904

Prepaid income taxes

22,933


-

Deferred tax assets

44,001


40,892

Other current assets

7,681


6,434

Total current assets

645,953


612,815

Property, plant and equipment, net

221,343


216,638

Intangible assets, net

501,167


575,503

Goodwill

339,566


333,611

Deferred tax assets

11,879


11,556

Other assets

14,148


13,895

TOTAL ASSETS

$                  1,734,056


$    1,764,018









LIABILITIES




Current liabilities:




Accounts payable

$                       43,987


$         34,720

Accrued expenses

8,289


9,247

Accrued payroll and payroll-related expenses

8,947


10,572

Rebates payable

20,103


21,894

Royalties payable

4,158


5,127

Restructuring liability

4,767


4,130

Settlement liability

9,000


7,000

Income taxes payable

-


743

Acquisition-related contingent consideration

35,000


35,000

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

178,238


178,236

Total current liabilities

312,489


306,669

Long-term debt, net

875,450


883,612

Settlement liability

10,860


12,526

Other liabilities

7,534


6,754

TOTAL LIABILITIES

1,206,333


1,209,561

Commitments and contingencies








STOCKHOLDERS' EQUITY




Common stock($0.001 par value, 100,000,000 shares authorized; 37,406,625 and 37,150,165 shares issued; 36,801,759 and 36,604,202 shares outstanding at







September 30, 2016 and June 30, 2016, respectively)

37


37

Additional paid-in capital

287,756


283,301

Retained earnings

248,947


278,355

Accumulated other comprehensive loss

(298)


(295)

Treasury stock(604,866 and 545,963 shares at September 30, 2016 and June 30, 2016, respectively)

(9,147)


(7,349)

Total Lannett Company, Inc. stockholders' equity

527,295


554,049

Noncontrolling interest

428


408

Total stockholders' equity

527,723


554,457

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 

$                  1,734,056


$    1,764,018

 

LANNETT COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share data)




Three months ended 


September 30,


2016


2015





Net sales

$      161,559


$      106,433

Cost of sales 

70,820


28,819

Amortization of intangibles

8,887


187

Gross profit

81,852


77,427

Operating expenses:




Research and development expenses

12,371


6,528

Selling, general and administrative expenses

21,260


15,536

Acquisition and integration-related expenses

1,391


3,942

Restructuring expenses

2,052


-

Intangible asset impairment charge

65,084


-

Total operating expenses

102,158


26,006

Operating income (loss)

(20,306)


51,421

Other income (loss):




Investment income (loss)

1,027


(1,110)

Interest expense

(22,994)


(60)

Other

3


-

Total other income (loss)

(21,964)


(1,170)

Income (loss) before income tax

(42,270)


50,251

Income tax expense (benefit)

(12,882)


17,055

Net income (loss)

(29,388)


33,196

Less: Net income attributable to noncontrolling interest

20


15

Net income (loss) attributable to Lannett Company, Inc.

$       (29,408)


$        33,181





Earnings (loss) per common share attributable to Lannett Company, Inc.




     Basic

$           (0.80)


$            0.91

     Diluted

$           (0.80)


$            0.89





Weighted average common shares outstanding:




     Basic

36,699,267


36,310,653

     Diluted

36,699,267


37,414,724

 

LANNETT COMPANY, INC.

RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION

(In thousands, except share and per share data)



Three months ended


Three months ended


September 30,


September 30,


GAAP




Non-GAAP


GAAP




Non-GAAP


Reported


Adjustments


Adjusted


Reported


Adjustments


Adjusted


2016


2016


2016


2015


2015


2015













Net sales

$       161,559


$                     -


$       161,559


$       106,433


$                     -


$       106,433

Cost of sales 

70,820


(3,274)

(a)

67,546


28,819


(140)

(a)

28,679

Amortization of intangibles

8,887


(8,887)

(b)

-


187


(187)

(b)

-

Gross profit

81,852


12,161


94,013


77,427


327


77,754

Operating expenses:












Research and development expenses

12,371


-


12,371


6,528


-


6,528

Selling, general, and administrative expenses

21,260


(365)

(c)

20,895


15,536


(1,652)

(d)

13,884

Acquisition and integration-related expenses

1,391


(1,391)

(e)

-


3,942


(3,942)

(e)

-

Restructuring expenses

2,052


(2,052)

(f)

-


-


-


-

Intangible asset impairment charge

65,084


(65,084)

(g)

-


-


-


-

Total operating expenses

102,158


(68,892)


33,266


26,006


(5,594)


20,412

Operating income (loss)

(20,306)


81,053


60,747


51,421


5,921


57,342

Other income (loss)

(21,964)


4,870

(h)

(17,094)


(1,170)


-


(1,170)

Income (loss) before income tax

(42,270)


85,923


43,653


50,251


5,921


56,172

Income tax expense (benefit)

(12,882)


27,524

(i)

14,642


17,055


2,034

(i)

19,089

Net income (loss)

(29,388)


58,399


29,011


33,196


3,887


37,083

Less: Net income attributable to noncontrolling interest

20


-


20


15


-


15

Net income (loss) attributable to Lannett Company, Inc.

$        (29,408)


$            58,399


$         28,991


$         33,181


$              3,887


$         37,068













Earnings (loss) per common share attributable to Lannett Company, Inc.












     Basic

$            (0.80)




$             0.79


$             0.91




$             1.02

     Diluted

$            (0.80)




$             0.77


$             0.89




$             0.99













Weighted average common shares outstanding:












     Basic

36,699,267




36,699,267


36,310,653




36,310,653

     Diluted

36,699,267




37,585,994


37,414,724




37,414,724














(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 amortization of purchased intangible assets related to the acquisition of Kremers Urban Pharmaceuticals, Inc. 

(d) To exclude separation payments associated with the retirement of an executive officer

(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 a certain intangible asset acquired as part of the Kremers Urban Pharmaceuticals Inc. acquisition

(h) To exclude non-cash interest expense primarily associated with debt issuance costs

(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

 $675 - $685 


-


 $675 - $685 

Gross margin percentage

 51.5% - 52.5% 


6%

 (a) 

 57.5% to 58.5% 

R&D expense

 $49 - $51 


-


 $49 - $51 

SG&A expense

 $72 - $74 


($2)

 (b) 

 $70 - $72 

Integration and Restructuring expense

 $10 - $11 


 ($10 - $11) 

 (c) 

-

Impairment charge

$65


($65)

 (d) 

-

Interest expense

 $90 - $91 


($19)

 (e) 

 $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 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 an impairment charge related to an intangible asset acquired as part of the Kremers Urban Pharmaceuticals Inc. acquisition

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

 

LANNETT COMPANY, INC.

SALES BY MEDICAL INDICATION






Three months ended

(in thousands)

September 30, 

Medical Indication

2016


2015

Antibiotic

$    3,780


$    2,727

Anti Psychosis

17,320


2,742

Cardiovascular

12,694


8,303

Central Nervous System

10,350


-

Gallstone

12,883


19,972

Gastrointestinal

18,052


76

Glaucoma

5,783


6,822

Migraine

7,160


5,542

Muscle Relaxant

3,532


1,661

Obesity

835


979

Pain Management

6,608


8,133

Respiratory

2,213


-

Thyroid Deficiency

39,838


41,102

Urinary

5,101


215

Other

10,347


8,159

Contract Manufacturing

5,063


-

   Net Sales

$ 161,559


$ 106,433

 

Contact:

Robert Jaffe


Robert Jaffe Co., LLC


(424) 288-4098

 

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

 

SOURCE Lannett Company, Inc.


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