Lannett Reports Fiscal 2016 Second Quarter Results

--Net Sales of $127 Million, GAAP EPS of $0.36, Adjusted EPS of $0.95; Company Reiterates Guidance for Fiscal 2016 Full Year--

Feb 03, 2016, 16:15 ET from Lannett Company, Inc.

PHILADELPHIA, Feb. 3, 2016 /PRNewswire/ -- Lannett Company, Inc. (NYSE: LCI) today reported financial results for its fiscal 2016 second quarter and first six months ended December 31, 2015.  As previously announced, the company completed the acquisition of Kremers Urban Pharmaceuticals Inc. (KU) on November 25, 2015.  Accordingly, fiscal 2016 second quarter and year-to-date financial results include the operations of KU since the acquisition date. 

For the fiscal 2016 second quarter, net sales increased to $127.1 million from $114.8 million in last year's second quarter.  Gross profit was $71.6 million, or 56% of net sales, compared with $87.2 million, or 76% of net sales.  Research and development (R&D) expenses increased to $9.1 million from $7.8 million for the fiscal 2015 second quarter.  Selling, general and administrative (SG&A) expenses were $14.7 million compared with $10.8 million.  Acquisition-related expenses increased to $17.6 million from $2.0 million in the comparable prior-year period.  Operating income was $30.3 million compared with $66.5 million.  Net income attributable to Lannett was $13.5 million, or $0.36 per diluted share, compared with $44.8 million, or $1.21 per diluted share, for the fiscal 2015 second quarter. 

On a Non-GAAP adjusted basis, gross profit was $81.0 million, or 64% of net sales, compared with $87.2 million, or 76% of net sales, for the fiscal 2015 second quarter.  Adjusted SG&A expenses were $11.6 million compared with $10.8 million.  Adjusted operating income was $60.4 million compared with $68.6 million for the prior-year second quarter.  Adjusted net income attributable to Lannett was $35.4 million, or $0.95 per diluted share, compared with $46.1 million, or $1.24 per diluted share, for the fiscal 2015 second quarter.

"We are making solid progress on integrating KU and implementing accelerated restructuring and cost savings measures," said Arthur Bedrosian, chief executive officer of Lannett.  "As announced earlier this week, we have begun taking definitive and immediate actions to enhance efficiencies throughout the organization and reduce costs by approximately $40 million in the first 12 months following the close of the KU acquisition.  We estimate that our actions will result in annualized cost savings of approximately $50 million by the end of fiscal 2018 and $65 million by the end of fiscal 2020. 

"We are excited about Lannett's future by building upon the strong foundation already in place and further growing our business.  Our team is focused on rapidly integrating KU, leveraging our significantly larger size and reach and advancing our deep pipeline, which includes 37 drug applications pending at the FDA and more than 50 product candidates in various stages of development."

For the first six months of fiscal 2016, net sales rose 12% to $233.5 million from $208.2 million in the comparable prior-year period.  Gross profit was $149.1 million, or 64% of net sales, compared with $158.8 million, or 76% of net sales.  R&D expenses increased to $15.6 million from $14.2 million for the fiscal 2015 first six months.  SG&A expenses were $30.2 million compared with $21.3 million in the same period of the prior year.  Acquisition-related expenses increased to $21.5 million from $2.1 million in the comparable prior-year period.  Operating income was $81.7 million compared with $121.2 million.  Net income attributable to Lannett Company was $46.7 million, or $1.25 per diluted share, compared with $79.7 million, or $2.15 per diluted share, for the first six months of fiscal 2015. 

On a Non-GAAP adjusted basis, gross profit was $158.8 million, or 68% of net sales, compared with $158.8 million, or 76% of net sales, for the first six months of fiscal 2015.  Adjusted SG&A expenses were $25.4 million compared with $21.3 million.  Adjusted operating income was $117.7 million compared with $123.3 million for the prior-year period.  Adjusted net income attributable to Lannett was $72.5 million, or $1.94 per diluted share, compared with $81.1 million, or $2.19 per diluted share, for the fiscal 2015 first six months.

Guidance for Fiscal 2016 Based on its current outlook the company reiterated its financial guidance for the fiscal 2016 full year as follows:

  • Net sales in the range of $585 million to $595 million;
  • Adjusted gross margin as a percentage of net sales of approximately 62% to 63%;
  • Adjusted R&D expense in the range of $49 million to $51 million;
  • Adjusted SG&A expense ranging from $59 million to $61 million;
  • Adjusted interest expense in the range of $50 million to $53 million;
  • The adjusted effective tax rate for the full year in the range of 34% to 35%; and
  • Capital expenditures in fiscal 2016 in the range of $35 million to $45 million.

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 2016 second quarter ended December 31, 2015.  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 41706958.  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).  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.

Adjusted net income and Adjusted earnings per diluted share exclude, among others, the effects of (1) the amortization of purchased intangibles, (2) acquisition-related expenses and other purchase accounting entries, (3) non-cash interest expense, as well as (4) certain other items considered unusual or non-recurring in nature. 

The company's fiscal 2016 guidance has been provided only on a Non-GAAP basis.  This is due to the inherent difficulty of forecasting the timing or amount of items that would be included in the most directly comparable forward-looking GAAP financial measures.  Because a reconciliation is not available without unreasonable effort, it is not included in this release.

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.  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 or significantly reducing costs and achieving the financial metrics stated in the company's guidance for fiscal 2016, 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)

December 31, 2015

June 30, 2015

ASSETS

Current assets:

Cash and cash equivalents

$                       178,830

$      200,340

Investment securities

13,986

13,467

Accounts receivable, net

241,230

91,103

Inventories

124,009

46,191

Prepaid income taxes

13,689

-

Deferred tax assets

23,032

16,270

Other current assets

18,487

3,175

Total current assets

613,263

370,546

Property, plant and equipment, net

198,397

94,556

Intangible assets, net

689,061

29,090

Goodwill

234,492

141

Deferred tax assets

8,946

12,495

Other assets

8,584

1,938

TOTAL ASSETS

$                   1,752,743

$      508,766

LIABILITIES

Current liabilities:

   Accounts payable

$                         33,506

$        19,195

   Accrued expenses

14,725

4,928

   Accrued payroll and payroll-related expenses

24,011

10,397

Rebates payable

22,553

7,553

Royalties payable

6,482

-

   Income taxes payable

-

1,340

   Current portion of long-term debt

45,638

135

   Total current liabilities

146,915

43,548

Long-term debt, less current portion, net

1,014,877

874

Acquisition-related contingent consideration

35,000

-

Other liabilities

6,290

578

TOTAL LIABILITIES

1,203,082

45,000

Commitments and Contingencies

STOCKHOLDERS' EQUITY

Common stock ($0.001 par value, 100,000,000 shares authorized; 36,991,896 and 36,783,381 shares issued; 36,457,466 and 36,264,585 shares outstanding at December 31, 2015 and June 30, 2015, respectively)

37

37

Additional paid-in capital

276,219

236,178

Retained earnings

280,274

233,573

Accumulated other comprehensive loss

(269)

(295)

Treasury stock(534,430 and 518,796 shares at December 31, 2015 and June 30, 2015, respectively)

(6,988)

(6,080)

Total Lannett Company, Inc. stockholders' equity

549,273

463,413

Noncontrolling interest

388

353

Total stockholders' equity

549,661

463,766

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 

$                   1,752,743

$      508,766

 

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,

2015

2014

2015

2014

Net sales

$         127,059

$    114,822

$         233,492

$    208,209

Cost of sales 

51,800

27,600

80,619

49,400

Amortization of intangibles

3,614

21

3,801

41

Gross profit

71,645

87,201

149,072

158,768

Operating expenses:

Research and development expenses

9,069

7,836

15,597

14,199

Selling, general, and administrative expenses

14,666

10,823

30,202

21,306

Acquisition-related expenses

17,585

1,999

21,527

2,069

Total operating expenses

41,320

20,658

67,326

37,574

Operating income

30,325

66,543

81,746

121,194

Other income (loss)

Investment income (loss)

975

786

(135)

903

Interest expense

(11,772)

(73)

(11,832)

(111)

Other

(30)

-

(30)

20

Total other income (loss)

(10,827)

713

(11,997)

812

Income before income tax

19,498

67,256

69,749

122,006

Income tax expense

5,958

22,435

23,013

42,235

Net income

13,540

44,821

46,736

79,771

Less: Net income attributable to noncontrolling interest

20

10

35

28

Net income attributable to Lannett Company, Inc.

$           13,520

$       44,811

$           46,701

$       79,743

Earnings per common share attributable to Lannett Company, Inc.

     Basic

$                0.37

$           1.26

$                1.28

$           2.24

     Diluted

$                0.36

$           1.21

$                1.25

$           2.15

Weighted average common shares outstanding:

     Basic

36,388,542

35,669,904

36,349,597

35,633,917

     Diluted

37,388,450

37,074,024

37,401,878

37,025,667

 

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

2015

2015

2015

2014

2014

2014

Net sales

127,059

-

127,059

114,822

-

114,822

Cost of sales 

51,800

(5,760)

 (a) 

46,040

27,600

-

27,600

Amortization of intangibles

3,614

(3,614)

 (b) 

-

21

(21)

 (b) 

-

Gross profit

71,645

9,374

81,019

87,201

21

87,222

Operating expenses:

Research and development expenses

9,069

-

9,069

7,836

-

7,836

Selling, general, and administrative expenses

14,666

(3,102)

 (c) 

11,564

10,823

-

10,823

Acquisition-related expenses

17,585

(17,585)

 (d) 

-

1,999

(1,999)

 (d) 

-

Total operating expenses

41,320

(20,687)

20,633

20,658

(1,999)

18,659

Operating income

30,325

30,061

60,386

66,543

2,020

68,563

Other income (loss):

(10,827)

2,663

 (e) 

(8,164)

713

-

713

Income before income tax

19,498

32,724

52,222

67,256

2,020

69,276

Income tax expense

5,958

10,826

 (f) 

16,784

22,435

697

 (f) 

23,132

Net income

13,540

21,898

35,438

44,821

1,323

46,144

Less: Net income attributable to noncontrolling interest

20

-

20

10

-

10

Net income attributable to Lannett Company, Inc.

13,520

21,898

35,418

44,811

1,323

46,134

Earnings per common share attributable to Lannett Company, Inc.

     Basic

$          0.37

$             0.97

$          1.26

$             1.29

     Diluted

$          0.36

$             0.95

$          1.21

$             1.24

Weighted average common shares outstanding:

     Basic

36,388,542

36,388,542

35,669,904

35,669,904

     Diluted

37,388,450

37,388,450

37,074,024

37,074,024

(a)

To exclude amortization of a fair value step-up in inventory related to the acquisition of Kremers Urban Pharmaceuticals, Inc.

(b)

To exclude amortization of purchased intangible assets primarily related to the acquisition of Kremers Urban Pharmaceuticals, Inc. and Silarx Pharmaceuticals, Inc.

(c)

To exclude separation expenses associated with certain employees as well as integration-related expenses and amortization of purchased intangibles related to the acquisition of Kremers Urban Pharmaceuticals, Inc.

(d)

To exclude acquisition-related expenses primarily related to the acquisition of Kremers Urban Pharmaceuticals Inc.

(e)

To exclude non-cash interest expense associated with debt issuance costs

(f)

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

2015

2015

2015

2014

2014

2014

Net sales

233,492

-

233,492

208,209

-

208,209

Cost of sales 

80,619

(5,900)

 (a) 

74,719

49,400

-

49,400

Amortization of intangibles

3,801

(3,801)

 (b) 

-

41

(41)

 (b) 

-

Gross profit

149,072

9,701

158,773

158,768

41

158,809

Operating expenses:

Research and development expenses

15,597

-

15,597

14,199

-

14,199

Selling, general, and administrative expenses

30,202

(4,754)

 (c) 

25,448

21,306

-

21,306

Acquisition-related expenses

21,527

(21,527)

 (d) 

-

2,069

(2,069)

 (d) 

-

Total operating expenses

67,326

(26,281)

41,045

37,574

(2,069)

35,505

Operating income

81,746

35,982

117,728

121,194

2,110

123,304

Other income (loss):

(11,997)

2,663

 (e) 

(9,334)

812

-

812

Income before income tax

69,749

38,645

108,394

122,006

2,110

124,116

Income tax expense

23,013

12,860

 (f) 

35,873

42,235

730

 (f) 

42,965

Net income

46,736

25,785

72,521

79,771

1,380

81,151

Less: Net income attributable to noncontrolling interest

35

-

35

28

-

28

Net income attributable to Lannett Company, Inc.

46,701

25,785

72,486

79,743

1,380

81,123

Earnings per common share attributable to Lannett Company, Inc.

     Basic

$          1.28

$          1.99

$          2.24

$          2.28

     Diluted

$          1.25

$          1.94

$          2.15

$          2.19

Weighted average common shares outstanding:

     Basic

36,349,597

36,349,597

35,633,917

35,633,917

     Diluted

37,401,878

37,401,878

37,025,667

37,025,667

(a)

To exclude amortization of a fair value step-up in inventory primarily related to the acquisition of Kremers Urban Pharmaceuticals, Inc.

(b)

To exclude amortization of purchased intangible assets primarily related to the acquisition of Kremers Urban Pharmaceuticals, Inc. and Silarx Pharmaceuticals, Inc.

(c)

To exclude separation expenses associated with certain employees as well as integration-related expenses and amortization of purchased intangibles related to the acquisition of Kremers Urban Pharmaceuticals, Inc.

(d)

To exclude acquisition-related expenses primarily related to the acquisition of Kremers Urban Pharmaceuticals Inc.

(e)

To exclude non-cash interest expense associated with debt issuance costs

(f)

The tax effect of the pre-tax adjustments included above at applicable tax rates

 

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SOURCE Lannett Company, Inc.



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