Lannett Reports Fiscal 2017 Second-Quarter Financial Results
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.
"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.
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