LANNETT COMPANY, INC. PHILADELPHIA, May 3, 2016 /PRNewswire/ -- Lannett Company, Inc. (NYSE: LCI) today reported financial results for its fiscal 2016 third quarter and nine months ended March 31, 2016. As previously announced, the company completed the acquisition of Kremers Urban Pharmaceuticals Inc. (KU) on November 25, 2015. Accordingly, fiscal 2016 third quarter and year-to-date financial results include the operations of KU since the acquisition date.
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For the fiscal 2016 third quarter reported on a Non-GAAP basis, adjusted total net sales increased to $163.7 million from $99.4 million in last year's third quarter. Adjusted gross profit was $97.4 million, or 59% of net sales, compared with $75.7 million, or 76% of net sales, for the fiscal 2015 third quarter. Adjusted research and development (R&D) expenses increased to $16.4 million from $9.2 million. Adjusted selling, general and administrative (SG&A) expenses were $15.8 million compared with $11.6 million. Adjusted operating income increased to $65.2 million from $54.9 million for the prior-year third quarter. Adjusted net income attributable to Lannett was $27.9 million, or $0.75 per diluted share, compared with $36.6 million, or $0.98 per diluted share, for the fiscal 2015 third quarter.
On a GAAP basis, for the fiscal 2016 third quarter, total net sales before adjustment were $163.7 million compared with $99.4 million in last year's third quarter. As previously announced, the company recorded a pre-tax, non-recurring settlement agreement of $23.6 million during the fiscal 2016 third quarter, which was recorded as a reduction to net sales. As a result, total net sales for the fiscal 2016 third quarter were $140.1 million. Gross profit was $57.5 million compared with $75.6 million. Primarily due to the inclusion of KU's lower-margin business and the impact of the settlement agreement, gross profit as a percentage of net sales was 41% compared with 76% in last year's third quarter.
R&D expenses increased to $16.5 million from $9.2 million for the fiscal 2015 third quarter. SG&A expenses were $16.2 million compared with $11.6 million. Acquisition and integration-related expenses were $1.5 million compared with $587 thousand in the prior-year third quarter. The company implemented a restructuring plan in February 2016, which resulted in a charge of $4.7 million in the fiscal 2016 third quarter. Operating income was $18.6 million compared with $54.3 million. Interest expense was $27.0 million compared with $8 thousand for the third quarter of fiscal 2015. Net loss attributable to Lannett was $5.5 million, or $0.15 per share, compared to net income attributable to Lannett of $36.2 million, or $0.97 per diluted share, for the fiscal 2015 third quarter.
"We continued with our strategy to enhance our near and longer term prospects," said Arthur Bedrosian, chief executive officer of Lannett. "In March, we met with a key former customer to attempt to re-establish a relationship with KU and initiate a relationship with Lannett; we appreciate their willingness to quickly resolve our minor differences and look forward to a long-term association. In April, we expanded our collaboration with a strategic partner to co-develop a generic insulin product for the $21 billion U.S. market. In addition, our efforts are on track to complete the integration of KU and implement substantial cost savings throughout the organization. Looking ahead, we expect our financial performance in fiscal 2017 and beyond to benefit from three recent drug approvals and a deep pipeline that includes 31 product applications pending at the FDA.
"Our overall third quarter financial performance was affected by a number of factors. The substantial increase in net sales was driven by the first full quarter of KU operations; however, our results were impacted by interest expense related to the debt financing of the KU acquisition."
For the first nine months of fiscal 2016 reported on a Non-GAAP basis, adjusted total net sales increased to $397.2 million from $307.6 million in the comparable prior-year period. Adjusted gross profit was $256.1 million, or 64% of net sales, compared with $234.5 million, or 76% of net sales, for the first nine months of fiscal 2015. Adjusted R&D expenses were $32.0 million compared with $23.4 million. Adjusted SG&A expenses were $41.2 million compared with $32.9 million for first nine months of the prior year. Adjusted operating income increased to $182.9 million from $178.2 million. Adjusted net income attributable to Lannett was $100.4 million, or $2.69 per diluted share, compared with $117.8 million, or $3.18 per diluted share, for the fiscal 2015 first nine months.
For the first nine months of fiscal 2016 reported on a GAAP basis, total net sales before adjustment rose 29% to $397.2 million from $307.6 million in the comparable prior-year period. Total net sales, which includes the settlement agreement discussed above, were $373.6 million compared with $307.6 million. Gross profit, including the impact of the settlement agreement, was $206.6 million, or 55% of net sales, compared with $234.4 million, or 76% of net sales. R&D expenses increased to $32.1 million from $23.4 million for the first nine months of fiscal 2015. SG&A expenses were $46.4 million compared with $32.9 million. Acquisition and integration-related expenses were $23.0 million compared with $2.7 million in the prior-year period. As noted above, restructuring expenses were $4.7 million for the nine months of fiscal 2016. Operating income was $100.4 million compared with $175.5 million. Interest expense was $38.8 million compared with $119 thousand for the first nine months of fiscal 2015. Net income attributable to Lannett Company was $41.2 million, or $1.10 per diluted share, which includes the pre-tax settlement agreement discussed above. For the comparable prior-year period, net income attributable to Lannett Company was $116.0 million, or $3.13 per diluted share.
Guidance for Fiscal 2016
The company's fiscal 2016 third quarter was favorably impacted by a number of factors, including product mix and manufacturing efficiencies, which are not expected to continue in the fourth quarter. The company continues to expect its fiscal 2016 fourth quarter performance on an adjusted basis to be in line with its previous outlook.
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 third quarter ended March 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 42449989. 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 and integration-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)
March 31, 2016 June 30, 2015
-------------- -------------
ASSETS
------
Current assets:
Cash and cash equivalents $225,446 $200,340
Investment securities 12,959 13,467
Accounts receivable, net 183,624 91,103
Inventories 116,511 46,191
Prepaid income taxes 15,253 -
Deferred tax assets 23,808 16,270
Other current assets 23,995 3,175
------ -----
Total current assets 601,596 370,546
Property, plant and equipment, net 220,199 94,556
Intangible assets, net 598,418 29,090
Goodwill 313,451 141
Deferred tax assets 10,036 12,495
Other assets 8,676 1,938
TOTAL ASSETS $1,752,376 $508,766
========== ========
LIABILITIES
-----------
Current liabilities:
Accounts payable $33,038 $19,195
Accrued expenses 9,181 4,928
Accrued payroll and payroll-related expenses 6,717 10,397
Rebates payable 16,993 7,553
Royalties payable 5,779 -
Restructuring liability 3,008 -
Accrued interest payable 10,823 -
Settlement liability 10,700 -
Income taxes payable - 1,340
Acquisition-related contingent consideration 35,000 -
Current portion of long-term debt 45,640 135
------ ---
Total current liabilities 176,879 43,548
Long-term debt, net 1,008,212 874
Restructuring liability 77 -
Settlement liability 13,414 -
Other liabilities 6,268 578
TOTAL LIABILITIES 1,204,850 45,000
--------- ------
Commitments and Contingencies
STOCKHOLDERS' EQUITY
--------------------
Common stock ($0.001 par value, 100,000,000
shares authorized; 37,112,119 and
36,783,381 shares issued; 36,569,363 and
36,264,585 shares outstanding at March 31,
2016 and June 30, 2015, respectively)
37 37
Additional paid-in capital 279,874 236,178
Retained earnings 274,784 233,573
Accumulated other comprehensive loss (280) (295)
Treasury stock (542,756 and 518,796 shares
at March 31, 2016 and June 30, 2015,
respectively) (7,277) (6,080)
------ ------
Total Lannett Company, Inc. stockholders'
equity 547,138 463,413
Noncontrolling interest 388 353
Total stockholders' equity 547,526 463,766
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,752,376 $508,766
========== ========
LANNETT COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share and per share data)
Three months ended Nine months ended
March 31, March 31,
--------- ---------
2016 2015 2016 2015
---- ---- ---- ----
Net sales $163,712 $99,352 $397,204 $307,561
Settlement agreement (23,598) $ - (23,598) $ -
Total net sales 140,114 99,352 373,606 307,561
------- ------ ------- -------
Cost of sales 75,345 23,694 155,964 73,094
Amortization of intangibles 7,278 20 11,079 61
---
Gross profit 57,491 75,638 206,563 234,406
------ ------ ------- -------
Operating expenses:
Research and development
expenses 16,495 9,159 32,092 23,358
Selling, general, and
administrative expenses 16,157 11,617 46,359 32,923
Acquisition and integration-
related expenses 1,473 587 23,000 2,656
Restructuring expenses 4,749 - 4,749 -
Total operating expenses 38,874 21,363 106,200 58,937
------ ------ ------- ------
Operating income 18,617 54,275 100,363 175,469
------ ------ ------- -------
Other income (loss)
Investment income (loss) 204 (8) 69 895
Interest expense (26,988) (8) (38,820) (119)
Other (46) (26) (76) (6)
--- --- --- ---
Total other income (loss) (26,830) (42) (38,827) 770
------- --- ------- ---
Income (loss) before income
tax (8,213) 54,233 61,536 176,239
Income tax expense (benefit) (2,743) 17,973 20,270 60,208
------ ------ ------ ------
Net income (loss) (5,470) 36,260 41,266 116,031
Less: Net income attributable
to noncontrolling interest 20 27 55 55
--- --- --- ---
Net income (loss)
attributable to Lannett
Company, Inc. $(5,490) $36,233 $41,211 $115,976
======= ======= ======= ========
Earnings (loss) per common
share attributable to
Lannett Company, Inc.
Basic $(0.15) $1.01 $1.13 $3.25
Diluted $(0.15) $0.97 $1.10 $3.13
Weighted average common
shares outstanding:
Basic 36,495,961 35,880,954 36,398,030 35,715,061
Diluted 36,495,961 37,210,138 37,383,742 37,082,138
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
March 31, March 31,
--------- ---------
GAAP Non-GAAP GAAP Non-GAAP
Reported Adjustments Adjusted Reported Adjustments Adjusted
2016 2016 2016 2015 2015 2015
---- ---- ---- ---- ---- ----
Net sales 163,712 - 163,712 99,352 - 99,352
Settlement agreement (23,598) 23,598 (a) - - - -
Total net sales 140,114 23,598 163,712 99,352 - 99,352
------- ------ ------- ------ --- ------
Cost of sales 75,345 (9,004) (b) 66,341 23,694 - 23,694
Amortization of intangibles 7,278 (7,278) (c) - 20 (20) (c) -
Gross profit 57,491 39,880 97,371 75,638 20 75,658
------ ------ ------ ------ --- ------
Operating expenses:
Research and development
expenses 16,495 (90) (b) 16,405 9,159 - 9,159
Selling, general, and
administrative expenses 16,157 (365) (d) 15,792 11,617 - 11,617
Acquisition and integration-
related expenses 1,473 (1,473) (e) - 587 (587) (e) -
Restructuring expenses 4,749 (4,749) (f) - - - -
Total operating expenses 38,874 (6,677) 32,197 21,363 (587) 20,776
------ ------ ------ ------ ---- ------
Operating income 18,617 46,557 65,174 54,275 607 54,882
Other income (loss): (26,830) 5,003 (g) (21,827) (42) - (42)
------- ----- ------- --- --- ---
Income (loss) before income
tax (8,213) 51,560 43,347 54,233 607 54,840
Income tax expense (benefit) (2,743) 18,180 (h) 15,437 17,973 198 (h) 18,171
------ ------ ------ ------ --- ------
Net income (loss) (5,470) 33,380 27,910 36,260 409 36,669
Less: Net income attributable
to noncontrolling interest 20 - 20 27 - 27
--- --- --- --- --- ---
Net income (loss) attributable
to Lannett Company, Inc. (5,490) 33,380 27,890 36,233 409 36,642
====== ====== ====== ====== === ======
Earnings (loss) per common
share attributable to Lannett
Company, Inc.
Basic $(0.15) $0.76 $1.01 $1.02
Diluted $(0.15) $0.75 $0.97 $0.98
Weighted average common shares
outstanding:
Basic 36,495,961 36,495,961 35,880,954 35,880,954
Diluted 36,495,961 37,379,473 37,210,138 37,210,138
To exclude
expense related
to a settlement
agreement with
a former
(a) customer
(b) 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.
(c) To exclude
amortization of
purchased
intangible
assets
primarily
related to the
acquisition of
Kremers Urban
Pharmaceuticals,
Inc. and Silarx
Pharmaceuticals,
Inc.
(d) To exclude
amortization of
purchased
intangibles
related to the
acquisition of
Kremers Urban
Pharmaceuticals,
Inc.
(e) To exclude
acquisition and
integration-
related
expenses
primarily
related to the
acquisition of
Kremers Urban
Pharmaceuticals
Inc.
(f) To exclude
expenses
associated with
the 2016
Restructuring
Plan
(g) To exclude non-
cash interest
expense
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)
Nine months ended Nine months ended
March 31, March 31,
--------- ---------
GAAP Non-GAAP GAAP Non-GAAP
Reported Adjustments Adjusted Reported Adjustments Adjusted
2016 2016 2016 2015 2015 2015
---- ---- ---- ---- ---- ----
Net sales 397,204 - 397,204 307,561 - 307,561
Settlement agreement (23,598) 23,598 (a) - - -
Total net sales 373,606 23,598 397,204 307,561 - 307,561
------- ------ ------- ------- --- -------
Cost of sales 155,964 (14,904) (b) 141,060 73,094 - 73,094
Amortization of intangibles 11,079 (11,079) (c) - 61 (61) (c) -
Gross profit 206,563 49,581 256,144 234,406 61 234,467
------- ------ ------- ------- --- -------
Operating expenses:
Research and development
expenses 32,092 (90) (b) 32,002 23,358 - 23,358
Selling, general, and
administrative expenses 46,359 (5,119) (d) 41,240 32,923 - 32,923
Acquisition and integration-
related expenses 23,000 (23,000) (e) - 2,656 (2,656) (e) -
Restructuring expenses 4,749 (4,749) (f) - - - -
Total operating expenses 106,200 (32,958) 73,242 58,937 (2,656) 56,281
------- ------- ------ ------ ------ ------
Operating income 100,363 82,539 182,902 175,469 2,717 178,186
Other income (loss): (38,827) 7,666 (g) (31,161) 770 - 770
------- ----- ------- --- --- ---
Income before income tax 61,536 90,205 151,741 176,239 2,717 178,956
Income tax expense 20,270 31,040 (h) 51,310 60,208 928 (h) 61,136
------ ------ ------ ------ --- ------
Net income 41,266 59,165 100,431 116,031 1,789 117,820
Less: Net income attributable
to noncontrolling interest 55 - 55 55 - 55
--- --- --- --- --- ---
Net income attributable to
Lannett Company, Inc. 41,211 59,165 100,376 115,976 1,789 117,765
====== ====== ======= ======= ===== =======
Earnings per common share
attributable to Lannett
Company, Inc.
Basic $1.13 $2.76 $3.25 $3.30
Diluted $1.10 $2.69 $3.13 $3.18
Weighted average common shares
outstanding:
Basic 36,398,030 36,398,030 35,715,061 35,715,061
Diluted 37,383,742 37,383,742 37,082,138 37,082,138
(a) To exclude expense related to a
settlement agreement with a former
customer
(b) 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.
(c) To exclude amortization of purchased
intangible assets primarily related to
the acquisition of Kremers Urban
Pharmaceuticals, Inc. and Silarx
Pharmaceuticals, Inc.
(d) To exclude separation expenses
associated with certain employees as
well as amortization of purchased
intangibles related to the acquisition
of Kremers Urban Pharmaceuticals, Inc.
(e) To exclude acquisition and integration-
related expenses primarily related to
the acquisition of Kremers Urban
Pharmaceuticals Inc.
(f) To exclude expenses associated with the
2016 Restructuring Plan
(g) To exclude non-cash interest expense
associated with debt issuance costs
(h) The tax effect of the pre-tax
adjustments included above at
applicable tax rates
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SOURCE Lannett Company, Inc.
