PHILADELPHIA, May 2, 2017 /PRNewswire/ -- Lannett Company, Inc. (NYSE: LCI) today reported financial results for its fiscal 2017 third quarter ended March 31, 2017.
"Net sales in our fiscal 2017 third quarter increased compared with the same quarter last year, largely due to volume increases, even though sales were reduced by $4.5 million as a result of Medicaid's Inflation-Adjusted Rebate program," said Arthur Bedrosian, chief executive officer of Lannett. "The program began being applied to generic drugs for the first time in calendar 2017. Despite higher net sales, our financial results were not at the level we expected due to competitive pricing pressure across a number of products, product mix and changes within distribution channels.
"Looking ahead, our business remains strong. We paid down $100 million of debt during the recently completed quarter, lowering annualized cash interest expense by approximately $5.5 million. Our goal remains to utilize free cash flow to further pay down debt. We continue to make solid progress on reducing costs, enhancing efficiencies and transferring manufacturing to our state of the art facility in Seymour, Indiana. In addition, we have a number of drug applications pending at the FDA and anticipate launching recently approved products in the first half of fiscal 2018."
For the fiscal 2017 third quarter, net sales increased to $165.7 million from $163.7 million for the third quarter of fiscal 2016. During the third quarter of last year, the company recorded a reduction to net sales of $23.6 million related to a pre-tax, one-time, settlement agreement with one of its customers. In the current year third quarter, the company recorded a $4.0 million adjustment to the settlement agreement. As a result, total net sales were $161.7 million compared with $140.1 million for the prior year third quarter. Gross profit rose 26% to $72.4 million from $57.5 million. Gross profit as a percentage of total net sales was 45% compared with 41% in last year's third quarter. Research and development (R&D) expenses decreased to $8.3 million from $16.5 million for the fiscal 2016 third quarter. Selling, general and administrative (SG&A) expenses were $17.6 million compared with $16.2 million. Acquisition and integration-related expenses were $1.3 million compared with $1.5 million in the prior-year third quarter. Restructuring expenses related to a cost reduction plan implemented in February 2016 were $1.6 million compared with $4.7 million in the third quarter of the previous year.
Operating income was $43.6 million compared with $18.6 million. Interest expense was $22.4 million compared with $27.0 million for the third quarter of fiscal 2016. Net income attributable to Lannett was $14.9 million, or $0.40 per diluted share, versus net loss attributable to Lannett of $5.5 million, or $0.15 per share, for the fiscal 2016 third quarter.
For the fiscal 2017 third quarter reported on a Non-GAAP basis, adjusted net sales increased to $165.7 million from $163.7 million for the third quarter of fiscal 2016. Adjusted gross profit was $85.5 million, or 52% of adjusted net sales, compared with $97.4 million, or 59% of adjusted net sales, for the fiscal 2016 third quarter. Adjusted R&D expenses decreased to $8.3 million from $16.4 million. Adjusted SG&A expenses were $17.3 million compared with $15.8 million. Adjusted operating income was $59.9 million compared with $65.2 million for the prior-year third quarter. Adjusted net income attributable to Lannett increased to $29.2 million, or $0.77 per diluted share, from $27.9 million, or $0.75 per diluted share, for the fiscal 2016 third quarter.
Guidance for Fiscal 2017
The company's fiscal 2017 third quarter was unfavorably impacted by a number of factors, including competitive pricing pressure, product mix and changes within distribution channels, which are expected to continue in the fourth quarter and result in slightly lower sales. The company expects its fiscal 2017 fourth quarter profitability on an adjusted basis to be similar with its fiscal 2017 third quarter.
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 third quarter ended March 31, 2017. The conference call will be available to interested parties by dialing 800-446-1671 from the U.S. or Canada, or 847-413-3362 from international locations, passcode 44816037. 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, 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.
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