Lannett Reports Fiscal 2017 Second-Quarter Financial Results

--Net Sales Increased 35% to Approximately $171 Million; Company Continues to Expect Strong Fiscal Year--

PHILADELPHIA, Feb. 1, 2017 /PRNewswire/ -- Lannett Company, Inc. (NYSE: LCI) today reported financial results for its fiscal 2017 second quarter ended December 31, 2016.  The company completed the acquisition of Kremers Urban Pharmaceuticals Inc. (KU) on November 25, 2015; accordingly, fiscal 2016 second-quarter financial results include a partial quarter of the operations of KU.

Lannett Logo

"Higher sales across a number of products and the addition of KU's operations were key drivers to the 35% increase in our fiscal 2017 second quarter net sales," said Arthur Bedrosian, chief executive officer of Lannett.  "Our outlook for the current fiscal year remains strong.  During the quarter, we received several product approvals and continued to make excellent progress integrating KU's operations and consolidating our manufacturing, sales, R&D and distribution functions.  And more recently, we voluntarily paid down $75 million of debt, lowering our annualized cash interest expense by approximately $4 million, and our board of directors approved a plan to invest in our pain management facilities, which will significantly increase our active pharmaceutical ingredients (APIs) production and bolster our efforts to vertically integrate."

For the fiscal 2017 second quarter, net sales increased 35% to $170.9 million from $127.1 million for the second quarter of fiscal 2016.  Gross profit was $88.1 million compared with $71.6 million.  Gross profit as a percentage of net sales was 52% compared with 56% in last year's second quarter, primarily due to the inclusion of a full quarter of KU's lower-margin business in the current year period, as well as amortization of acquired intangible assets and other purchase accounting related expenses.  Research and development (R&D) expenses increased to $9.9 million from $9.1 million for the fiscal 2016 second quarter.  Selling, general and administrative (SG&A) expenses were $18.1 million compared with $14.7 million.  Acquisition and integration-related expenses were $1.0 million compared with $17.6 million in the prior-year second quarter.  In the second quarter of fiscal 2017, the company recorded restructuring expenses of $1.7 million related to a cost reduction plan implemented in February 2016 and an impairment charge of $23.0 million related to an in-process R&D project.  Operating income was $34.3 million compared with $30.3 million.  Interest expense was $23.3 million compared with $11.8 million for the second quarter of fiscal 2016.  Net income attributable to Lannett was $8.2 million, or $0.22 per diluted share, compared with $13.5 million, or $0.36 per diluted share, for the fiscal 2016 second quarter. 

For the fiscal 2017 second quarter reported on a Non-GAAP basis, adjusted net sales increased to $170.9 million from $127.1 million for the second quarter of fiscal 2016.  Adjusted gross profit was $96.2 million, or 56% of adjusted net sales, compared with $81.0 million, or 64% of adjusted net sales, for the fiscal 2016 second quarter.  Adjusted R&D expenses increased to $9.9 million from $9.1 million.  Adjusted SG&A expenses were $17.0 million compared with $11.6 million.  Adjusted operating income increased to $69.3 million from $60.4 million for the prior-year second quarter.  Adjusted net income attributable to Lannett was $34.5 million, or $0.92 per diluted share, compared with $35.4 million, or $0.95 per diluted share, for the fiscal 2016 second quarter.

Guidance for Fiscal 2017
The company has revised its GAAP guidance to reflect, among other things, the non-cash impairment charge of approximately $23 million.  On an adjusted basis, the company expects profitability to remain unchanged.  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; unchanged

$675 million to $685 million; unchanged

Gross margin %

51.0% to 52.0%; down from 51.5% to 52.5%

57.0% to 58.0%; down from 57.5% to 58.5%

R&D expense

$46 million to $48 million; down from $49 million to $51 million

$46 million to $48 million; down from $49 million to $51 million

SG&A expense

$74 million to $76 million, up from $72 million to $74 million;

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

Acquisition, integration-related and restructuring expense

$10 million to $11 million; unchanged

$0; unchanged

Impairment charge

$88 million; up from $65 million

$0; unchanged

Interest expense

$88 million to $89 million; down from $90 million to $91 million

$69 million to $70 million; down from $71 million to $72 million

Effective tax rate

Approximately 32%; down from 34%

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 second quarter ended December 31, 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 44223455.  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 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)







December 31, 2016


June 30, 2016








ASSETS






Current assets:





Cash and cash equivalents

$                   247,253


$       224,769

Investment securities

11,870


14,094

Accounts receivable, net

222,986


211,722

Inventories


130,238


114,904

Deferred tax assets

45,375


40,892

Other current assets

7,886


6,434

Total current assets

665,608


612,815

Property, plant and equipment, net

227,053


216,638

Intangible assets, net

470,065


575,503

Goodwill



339,566


333,611

Deferred tax assets

31,782


11,556

Other assets


18,848


13,895

TOTAL ASSETS


$                1,752,922


$    1,764,018















LIABILITIES





Current liabilities:





Accounts payable


$                     43,772


$         34,720

Accrued expenses


11,662


9,247

Accrued payroll and payroll-related expenses

8,910


10,572

Rebates payable


36,785


21,894

Royalties payable


3,550


5,127

Restructuring liability

5,347


4,130

Settlement liability


8,000


7,000

Income taxes payable

1,483


743

Acquisition-related contingent consideration

35,000


35,000

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

178,239


178,236

Total current liabilities

332,748


306,669

Long-term debt, net

867,221


883,612

Settlement liability

9,167


12,526

Other liabilities


7,136


6,754

TOTAL LIABILITIES

1,216,272


1,209,561

Commitments and contingencies











STOCKHOLDERS' EQUITY




Common stock($0.001 par value, 100,000,000 shares authorized; 37,443,721




 and 37,150,165 shares issued; 36,838,519 and 36,604,202 shares outstanding at




December 31, 2016 and June 30, 2016, respectively)

37


37

Additional paid-in capital

288,906


283,301

Retained earnings


257,119


278,355

Accumulated other comprehensive loss

(257)


(295)

Treasury stock(605,202 and 545,963 shares at December 31, 2016 and June 30, 2016, respectively)

(9,155)


(7,349)

Total Lannett Company, Inc. stockholders' equity

536,650


554,049

Noncontrolling interest

-


408

Total stockholders' equity

536,650


554,457

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 

$                1,752,922


$    1,764,018

 

LANNETT COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share data)












Three months ended 


Six months ended 



December 31,


December 31,



2016


2015


2016


2015










Net sales


$             170,944


$        127,059


$             332,503


$        233,492

Cost of sales 


75,154


51,800


145,974


80,619

Amortization of intangibles


7,737


3,614


16,624


3,801

Gross profit


88,053


71,645


169,905


149,072

Operating expenses:









Research and development expenses


9,939


9,069


22,310


15,597

Selling, general, and administrative expenses


18,069


14,666


39,329


30,202

Acquisition and integration-related expenses


1,027


17,585


2,418


21,527

Restructuring expenses


1,712


-


3,764


-

Intangible asset impairment charges


23,000


-


88,084


-

Total operating expenses


53,747


41,320


155,905


67,326

Operating income


34,306


30,325


14,000


81,746

Other income (loss)









Investment income (loss)


1,021


975


2,048


(135)

Interest expense


(23,333)


(11,772)


(46,327)


(11,832)

Other


(266)


(30)


(263)


(30)

Total other loss


(22,578)


(10,827)


(44,542)


(11,997)

Income (loss) before income tax


11,728


19,498


(30,542)


69,749

Income tax expense (benefit)


3,542


5,958


(9,340)


23,013

Net income (loss)


8,186


13,540


(21,202)


46,736

Less: Net income attributable to noncontrolling interest


14


20


34


35

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


$                 8,172


$          13,520


$             (21,236)


$          46,701










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









     Basic


$                    0.22


$              0.37


$                  (0.58)


$              1.28

     Diluted


$                    0.22


$              0.36


$                  (0.58)


$              1.25










Weighted average common shares outstanding:









     Basic


36,810,388


36,388,542


36,754,828


36,349,597

     Diluted


37,676,370


37,388,450


36,754,828


37,401,878

 

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



December 31,


December 31,



GAAP




Non-GAAP


GAAP




Non-GAAP



Reported


Adjustments


Adjusted


Reported


Adjustments


Adjusted



2016


2016


2016


2015


2015


2015














Net sales


170,944


-


170,944


127,059


-


127,059

Cost of sales 


75,154


(404)

 (a) 

74,750


51,800


(5,760)

 (a) 

46,040

Amortization of intangibles


7,737


(7,737)

 (b) 

-


3,614


(3,614)

 (b) 

-

Gross profit


88,053


8,141


96,194


71,645


9,374


81,019

Operating expenses:













Research and development expenses


9,939


-


9,939


9,069


-


9,069

Selling, general, and administrative expenses


18,069


(1,080)

 (c) 

16,989


14,666


(3,102)

 (c) 

11,564

Acquisition and integration-related expenses


1,027


(1,027)

 (d) 

-


17,585


(17,585)

 (d) 

-

Restructuring expenses


1,712


(1,712)

 (e) 

-


-


-


-

Intangible asset impairment charges


23,000


(23,000)

 (f) 

-


-


-


-

Total operating expenses


53,747


(26,819)


26,928


41,320


(20,687)


20,633

Operating income


34,306


34,960


69,266


30,325


30,061


60,386

Other income (loss):


(22,578)


5,403

 (g) 

(17,175)


(10,827)


2,663

 (g) 

(8,164)

Income before income tax


11,728


40,363


52,091


19,498


32,724


52,222

Income tax expense


3,542


13,992

 (h) 

17,534


5,958


10,826

 (h) 

16,784

Net income


8,186


26,371


34,557


13,540


21,898


35,438

Less: Net income attributable to noncontrolling interest


14


-


14


20


-


20

Net income attributable to Lannett Company, Inc.


8,172


26,371


34,543


13,520


21,898


35,418














Earnings per common share attributable to Lannett Company, Inc.













     Basic


$             0.22




$             0.94


$             0.37




$             0.97

     Diluted


$             0.22




$             0.92


$             0.36




$             0.95














Weighted average common shares outstanding:













     Basic


36,810,388




36,810,388


36,388,542




36,388,542

     Diluted


37,676,370




37,676,370


37,388,450




37,388,450














(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 acquisition of Kremers Urban Pharmaceuticals, Inc. ("KUPI")

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

(c) To exclude separation expenses associated with a former employee and amortization of purchased intangibles related to the acquisition of KUPI

(d) To exclude acquisition and integration-related expenses primarily related to the acquisition of KUPI

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

(f) To exclude an impairment charge related to a certain intangible asset acquired as part of the KUPI acquisition

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

(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)
















Six months ended


Six months ended



December 31,


December 31,



GAAP




Non-GAAP


GAAP




Non-GAAP



Reported


Adjustments


Adjusted


Reported


Adjustments


Adjusted



2016


2016


2016


2015


2015


2015














Net sales


332,503


-


332,503


233,492


-


233,492

Cost of sales 


145,974


(3,678)

 (a) 

142,296


80,619


(5,900)

 (a) 

74,719

Amortization of intangibles


16,624


(16,624)

 (b) 

-


3,801


(3,801)

 (b) 

-

Gross profit


169,905


20,302


190,207


149,072


9,701


158,773

Operating expenses:













Research and development expenses


22,310


-


22,310


15,597


-


15,597

Selling, general, and administrative expenses


39,329


(1,445)

 (c) 

37,884


30,202


(4,754)

 (c) 

25,448

Acquisition and integration-related expenses


2,418


(2,418)

 (d) 

-


21,527


(21,527)

 (d) 

-

Restructuring expenses


3,764


(3,764)

 (e) 

-


-


-


-

Intangible asset impairment charges


88,084


(88,084)

 (f) 

-


-


-


-

Total operating expenses


155,905


(95,711)


60,194


67,326


(26,281)


41,045

Operating income


14,000


116,013


130,013


81,746


35,982


117,728

Other income (loss):


(44,542)


10,273

 (g) 

(34,269)


(11,997)


2,663

 (g) 

(9,334)

Income (loss) before income tax


(30,542)


126,286


95,744


69,749


38,645


108,394

Income tax expense (benefit)


(9,340)


41,516

 (h) 

32,176


23,013


12,860

 (h) 

35,873

Net income (loss)


(21,202)


84,770


63,568


46,736


25,785


72,521

Less: Net income attributable to noncontrolling interest


34


-


34


35


-


35

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


(21,236)


84,770


63,534


46,701


25,785


72,486














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












     Basic


$            (0.58)




$             1.73


$             1.28




$             1.99

     Diluted


$            (0.58)




$             1.69


$             1.25




$             1.94














Weighted average common shares outstanding:













     Basic


36,754,828




36,754,828


36,349,597




36,349,597

     Diluted


36,754,828




37,630,069


37,401,878




37,401,878














(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 acquisition of Kremers Urban Pharmaceuticals, Inc. ("KUPI")

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

(c) To exclude separation expenses associated with a former employee and amortization of purchased intangibles related to the acquisition of KUPI

(d) To exclude acquisition and integration-related expenses primarily related to the acquisition of KUPI

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

(f) To exclude an impairment charge related to a certain intangible asset acquired as part of the KUPI acquisition

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

(h) 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


 51.0% - 52.0% 


6%

 (a) 

 57.0% to 58.0% 


R&D expense


 $46 - $48 


-


 $46 - $48 


SG&A expense


 $74 - $76 


($2)

 (b) 

 $72 - $74 


Integration and Restructuring expense


 $10 - $11 


 ($10 - $11) 

 (c) 

-


Impairment charge


$88


($88)

 (d) 

-


Interest expense


 $88 - $89 


($19)

 (e) 

 $69 - $70 


Effective tax rate


 approx. 32% 


2%

 (f) 

 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. ("KUPI")

(b) The adjustment reflects amortization of purchased intangible assets related to the acquisition of KUPI

(c) The adjustment reflects expenses related to the 2016 Restructuring Plan as well as integration-related expenses associated with the acquisition of KUPI

(d) The adjustment reflects an impairment charge related to an intangible asset acquired as part of the KUPI acquisition

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

(f) The adjustment refects the impact of tax credits and deductions relative to expected annual pre-tax income


















 

LANNETT COMPANY, INC.

NET SALES BY MEDICAL INDICATION










Three months ended


Six months ended

(in thousands)

December 31, 


December 31, 

Medical Indication

2016


2015


2016


2015

Antibiotic

$    4,792


$    2,828


$    8,572


$    5,556

Anti Psychosis

15,365


730


32,685


3,472

Cardiovascular

11,975


13,082


24,669


21,385

Central Nervous System

10,555


6,077


20,904


6,077

Gallstone

13,425


18,719


26,308


38,691

Gastrointestinal

18,977


8,617


37,029


8,693

Glaucoma

5,311


6,543


11,095


13,365

Migraine

7,863


5,705


15,023


11,247

Muscle Relaxant

3,004


1,393


6,536


3,054

Obesity

960


851


1,795


1,830

Pain Management

7,439


8,074


14,047


16,207

Respiratory

2,957


1,396


5,170


1,396

Thyroid Deficiency

45,431


37,432


85,269


78,534

Urinary

4,693


3,378


9,794


3,593

Other

10,173


9,963


20,519


18,121

Contract Manufacturing

8,024


2,271


13,088


2,271

    Total

$ 170,944


$ 127,059


$ 332,503


$ 233,492

 

Contact:

Robert Jaffe


Robert Jaffe Co., LLC


(424) 288-4098

 

SOURCE Lannett Company, Inc.


print email rss
Lannett Investor Relations
Lannett Company Products