Lannett Reports Solid Fiscal 2018 First-Quarter Financial Results, Significantly Increases Fiscal 2018 Guidance

PHILADELPHIA, Nov. 6, 2017 /PRNewswire/ -- Lannett Company, Inc. (NYSE: LCI) today reported financial results for its fiscal 2018 first quarter ended September 30, 2017.

“In recent weeks, we announced a number of very positive developments that position our company for continued near- and longer term growth,” said Arthur Bedrosian, chief executive officer of Lannett. “These include the filing of our first 505(b)(2) New Drug Application for C-Topical, five product approvals, the dismissal of a class action lawsuit and the signing of a license agreement that will allow us to market generic Thalidomide. Regarding our fiscal 2018 first quarter performance, we reported solid financial results, rebounding well from challenges in the preceding fourth quarter. Key contributors to the quarter were strong sales across several product categories, which led to an 11% increase compared with the fourth quarter of fiscal 2017.

“Looking ahead, we are on track for a strong year and have raised our full-year guidance. We continue to expect to launch in the current fiscal year a number of previously approved products. In addition, we successfully coordinated with our partners and customers to prevent a potential drug shortage and avoid a disruption in the supply to patients of two important medications.”

For the fiscal 2018 first quarter, net sales were $155.0 million compared with $161.6 million for the first quarter of fiscal 2017. Gross profit was $67.7 million, or 44% of net sales, compared with $81.9 million, or 51% of net sales. Research and development (R&D) expenses decreased to $7.4 million from $12.4 million for the fiscal 2017 first quarter. Selling, general and administrative (SG&A) expenses decreased to $19.0 million from $21.3 million. Restructuring expenses were $0.5 million compared with $2.1 million. In last year’s first quarter, the company recorded an impairment charge of $65.1 million related to acquired intangible assets. Operating income was $40.7 million versus operating loss of $20.3 million. Interest expense declined to $20.9 million from $23.0 million for the first quarter of fiscal 2017. Income tax expense was $7.4 million versus income tax benefit of $12.9 million in the prior-year period. Net income attributable to Lannett was $13.3 million, or $0.35 per diluted share, compared to net loss attributable to Lannett of $29.4 million, or $0.80 per share, for the fiscal 2017 first quarter.

For the fiscal 2018 first quarter reported on a Non-GAAP basis, adjusted net sales were $155.0 million compared with $161.6 million for the first quarter of fiscal 2017. Adjusted gross profit was $76.7 million, or 50% of adjusted net sales, compared with $94.0 million, or 58% of adjusted net sales, for the prior year first quarter. Adjusted R&D expenses were $7.4 million compared with $12.4 million. Adjusted SG&A expenses declined to $18.7 million from $20.9 million. Adjusted operating income was $50.7 million compared with $60.7 million for the prior-year first quarter. Adjusted interest expense declined to $16.4 million from $18.1 million for the first quarter of fiscal 2017. Adjusted net income attributable to Lannett was $22.7 million, or $0.60 per diluted share, compared with $29.0 million, or $0.77 per diluted share, for the fiscal 2017 first quarter.

Guidance for Fiscal 2018
Based on its current outlook the company revised its financial guidance for the 2018 fiscal year as follows:

 GAAP Adjusted ---- -------- Net sales $710 million to $720 million, up from $655 million to $665 million $710 million to $720 million, up from $655 million to $665 million --------- ----------------------------------- ----------------------------------- Gross margin % 46% to 47%, unchanged 51% to 52%, unchanged ------------- --------------------- --------------------- R&D expense $46 million to $48 million, unchanged $46 million to $48 million, unchanged ----------- ----------------------------------- ----------------------------------- SG&A expense $78 million to $80 million, up from $75 million to $77 million $77 million to $79 million, up from $73 million to $75 million ------------ ----------------------------------- ----------------------------------- Integration and restructuring related expense $4 million to $5 million, unchanged $- ---------------- ----------------------------------- --- Interest expense $85 million to $86 million, down from $88 million to $89 million $66 million to $67 million, down from $67 million to $68 million ---------------- ----------------------------------- ----------------------------------- Effective tax rate Approximately 35%, unchanged Approximately 35%, unchanged ------------------ ---------------------------- ---------------------------- Capital expenditures $65 million to $75 million, unchanged $65 million to $75 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 its fiscal 2018 first quarter ended September 30, 2017. The conference call will be available to interested parties by dialing 800-447-0521 from the U.S. or Canada, or 847-413-3238 from international locations, passcode 45894701. 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. 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.

Non-GAAP financial measures exclude, among others, the effects of (1) amortization of purchased intangibles and other purchase accounting entries, (2) acquisition and integration-related expenses, (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 increase in sales of select products, successfully launching and commercializing previously approved products, receiving approval for and successfully commercializing C-Topical, successfully commercializing Thalidomide and achieving the financial metrics stated in the company’s guidance for fiscal 2018, 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) September 30, 2017 June 30, 2017 ------------------ ------------- ASSETS ------ Current assets: Cash and cash equivalents $92,461 $117,737 Investment securities 23,973 27,091 Accounts receivable, net 243,326 204,066 Inventories 125,390 122,604 Prepaid income taxes 13,494 16,703 Deferred tax assets - - Other current assets 9,325 6,592 ----- ----- Total current assets 507,969 494,793 Property, plant and equipment, net 249,276 243,148 Intangible assets, net 447,797 453,861 Goodwill 339,566 339,566 Deferred tax assets 48,592 52,753 Other assets 22,587 19,191 TOTAL ASSETS $1,615,787 $1,603,312 ========== ========== LIABILITIES ----------- Current liabilities: Accounts payable $49,229 $44,720 Accrued expenses 13,042 12,499 Accrued payroll and payroll- related expenses 6,706 4,833 Rebates payable 47,336 44,593 Royalties payable 2,480 3,015 Restructuring liability 4,498 5,431 Settlement liability 14,500 17,000 Income taxes payable - - Acquisition-related contingent consideration - - Short-term borrowings and current portion of long-term debt 63,556 60,117 ------ ------ Total current liabilities 201,347 192,208 Long-term debt, net 831,665 843,530 Settlement liability - - Other liabilities 6,504 6,452 TOTAL LIABILITIES 1,039,516 1,042,190 --------- --------- Commitments and contingencies STOCKHOLDERS’ EQUITY -------------------- Common stock ($0.001 par value, 100,000,000 shares authorized; 37,672,233 and 37,528,450 shares issued; 37,034,055 and 36,919,296 shares outstanding at September 30, 2017 and June 30, 2017, respectively) 38 37 Additional paid-in capital 295,282 292,780 Retained earnings 291,031 277,774 Accumulated other comprehensive loss (221) (222) Treasury stock(638,178 and 609,154 shares at September 30, 2017 and June 30, 2017, respectively) (9,859) (9,247) ------ ------ Total Lannett Company, Inc. stockholders’ equity 576,271 561,122 Noncontrolling interest - - Total stockholders’ equity 576,271 561,122 ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $1,615,787 $1,603,312 ========== ========== 

 LANNETT COMPANY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In thousands, except share and per share data) Three months ended September 30, ------------- 2017 2016 ---- ---- Net sales $154,961 $161,559 Cost of sales 79,553 70,820 Amortization of intangibles 7,737 8,887 Gross profit 67,671 81,852 ------ ------ Operating expenses: Research and development expenses 7,409 12,371 Selling, general and administrative expenses 19,038 21,260 Acquisition and integration-related expenses 18 1,391 Restructuring expenses 527 2,052 Intangible asset impairment charge - 65,084 Total operating expenses 26,992 102,158 ------ ------- Operating income (loss) 40,679 (20,306) ------ ------- Other income (loss): Investment income (loss) 1,164 1,027 Interest expense (20,912) (22,994) Other (251) 3 ---- --- Total other income (loss) (19,999) (21,964) ------- ------- Income (loss) before income tax 20,680 (42,270) Income tax expense (benefit) 7,423 (12,882) ----- ------- Net income (loss) 13,257 (29,388) Less: Net income attributable to noncontrolling interest - 20 --- --- Net income (loss) attributable to Lannett Company, Inc. $13,257 $(29,408) ======= ======== Earnings (loss) per common share attributable to Lannett Company, Inc. Basic $0.36 $(0.80) Diluted $0.35 $(0.80) Weighted average common shares outstanding: Basic 36,992,064 36,699,267 Diluted 37,730,656 36,699,267 

 LANNETT COMPANY, INC. RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED INFORMATION (UNAUDITED) ($ in millions) Fiscal Year 2018 Guidance ------------------------- Non-GAAP GAAP Adjustments Adjusted ---- ----------- -------- Net sales $710 - $720 - $710 - $720 Gross margin percentage 46.0% - 47.0% 5% (a) 51.0% to 52.0% R&D expense $46 - $48 - $46 - $48 SG&A expense $78 - $80 ($1) (b) $77 - $79 Integration and Restructuring expense $4 - $5 ($4 - $5) (c) - Interest expense $85 - $86 ($19) (d) $66 - $67 Effective tax rate approx. 35% - approx. 35% Capital expenditures $65 - $75 - $65 - $75 (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 primarily reflects expenses related to the 2016 Restructuring Plan (d) The adjustment primarily reflects non-cash interest expense associated with debt issuance costs 

 LANNETT COMPANY, INC. RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION (UNAUDITED) (In thousands, except percentages, share and per share data) Three months ended September 30, 2017 ------------------------------------- Net sales Cost of Amortization Gross Gross R&D SG&A Acquisition and Restructuring Operating Other Income Income tax Net income Net income Net income Diluted sales of intangibles Profit Margin % expense expense integration- expenses income income before expense attributable to attributable to earnings related (loss) income tax noncontrolling Lannett per share expenses interest Company, Inc. (g) --- --- -------- --- --- GAAP Reported $154,961 $79,553 $7,737 $67,671 44% $7,409 $19,038 $18 $527 $40,679 $(19,999) $20,680 $7,423 $13,257 $ - $13,257 $0.35 Adjustments: ------------ Depreciation of Fixed Assets step- up (a) - (1,335) - 1,335 - - - - 1,335 - 1,335 - 1,335 - 1,335 Amortization of intangibles (b) - - (7,737) 7,737 - (365) - - 8,102 - 8,102 - 8,102 - 8,102 Acquisition and integration- related expenses (c) - - - - - - (18) - 18 - 18 - 18 - 18 Restructuring expenses (d) - - - - - - - (527) 527 - 527 - 527 - 527 Non-cash interest (e) - - - - - - - - - 4,560 4,560 - 4,560 - 4,560 Tax adjustments (f) - - - - - - - - - - - 5,123 (5,123) - (5,123) Non-GAAP Adjusted $154,961 $78,218 $ - $76,743 50% $7,409 $18,673 $ - $ - $50,661 $(15,439) $35,222 $12,546 $22,676 $ - $22,676 $0.60 ======== ======= ================ ======= === ====== ======= ================= ================= ======= ======== ======= ======= ======= ================== ======= ===== (a) Relates to depreciation of a fair value step-up in property, plant and equipment related to the acquisition of Kremers Urban Pharmaceuticals, Inc. (“KUPI”) (b) Relates to amortization of purchased intangible assets primarily related to the acquisitions of KUPI and Silarx Pharmaceuticals, Inc. (c) Relates to acquisition and integration-related expenses primarily related to the acquisition of KUPI (d) To exclude expenses associated with the 2016 Restructuring Plan (e) To exclude non-cash interest expense primarily associated with debt issuance costs (f) The tax effect of the pre-tax adjustments included at applicable tax rates (g) The weighted average share number for the three months ended September 30, 2017 is 37,730,656 for both the GAAP and the non-GAAP earnings per share calculations 

 LANNETT COMPANY, INC. RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION (UNAUDITED) (In thousands, except percentages, share and per share data) Three months ended September 30, 2016 ------------------------------------- Net sales Cost of Amortization Gross Gross R&D SG&A Acquisition Restructuring Intangible Operating Other Income Income tax Net Net income Net income (loss) Diluted sales of intangibles Profit Margin % expense expense and integration- expenses asset income income (loss) before expense income attributable to attributable to earnings related impairment (loss) (loss) income tax (benefit) (loss) noncontrolling Lannett Company, (loss) per expenses charge interest Inc. share (i) --- --- --- ---- ---- --------- GAAP Reported $161,559 $70,820 $8,887 $81,852 51% $12,371 $21,260 $1,391 $2,052 $65,084 $(20,306) $(21,964) $(42,270) $(12,882) $(29,388) $20 $(29,408) $(0.80) Adjustments: ------------ Depreciation of Fixed Assets step- up (a) - (1,336) - 1,336 - - - - - 1,336 - 1,336 - 1,336 - 1,336 Amortization of Inventory step-up (b) - (1,938) - 1,938 - - - - - 1,938 - 1,938 - 1,938 - 1,938 Amortization of intangibles (c) - - (8,887) 8,887 - (365) - - - 9,252 - 9,252 - 9,252 - 9,252 Acquisition and integration- related expenses (d) - - - - - - (1,391) - - 1,391 - 1,391 - 1,391 - 1,391 Restructuring expenses (e) - - - - - - - (2,052) - 2,052 - 2,052 - 2,052 - 2,052 Intangible assets impairment charges (f) - - - - - - - - (65,084) 65,084 - 65,084 - 65,084 - 65,084 Non-cash interest (g) - - - - - - - - - - 4,870 4,870 - 4,870 - 4,870 Tax adjustments (h) - - - - - - - - - - - - 27,524 (27,524) - (27,524) Non-GAAP Adjusted $161,559 $67,546 $ - $94,013 58% $12,371 $20,895 $ - $ - $ - $60,747 $(17,094) $43,653 $14,642 $29,011 $20 $28,991 $0.77 ======== ======= ================ ======= === ======= ======= ================ =============== ============= ======= ======== ======= ======= ======= === ======= ===== (a) Relates to depreciation of a fair value step-up in property, plant and equipment related to the acquisition of Kremers Urban Pharmaceuticals, Inc. (“KUPI”) (b) Relates to amortization of a fair value step-up in inventory related to the acquisition of KUPI (c) Relates to amortization of purchased intangible assets primarily related to the acquisitions of KUPI and Silarx Pharmaceuticals, Inc. (d) Relates to 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 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 (h) The tax effect of the pre-tax adjustments included at applicable tax rates (i) The weighted average share number for the three months ended September 30, 2016 are 36,699,267 and 37,585,994 for the GAAP and non-GAAP earnings (loss) per share calculations, respectively 

 LANNETT COMPANY, INC. NET SALES BY MEDICAL INDICATION Three months ended (in thousands) September 30, ------------- Medical Indication 2017 2016 ------------------ ---- ---- Antibiotic $3,349 $3,780 Anti Psychosis 14,991 17,320 Cardiovascular 11,306 12,694 Central Nervous System 8,818 10,350 Gallstone 6,564 12,883 Gastrointestinal 14,553 18,052 Glaucoma 2,668 5,783 Migraine 15,015 7,160 Muscle Relaxant 3,791 3,532 Pain Management 5,761 6,608 Respiratory 1,647 2,213 Thyroid Deficiency 47,214 39,838 Urinary 2,997 5,101 Other 12,696 11,182 Contract Manufacturing revenue 3,591 5,063 ----- ----- Net Sales $154,961 $161,559 ======== ======== 

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