Taro Pharmaceutical Industries Ltd. (NYSE:TARO) (“Taro” or the “Company”) today provided unaudited financial results for the three and nine months ended December 31, 2017.

Quarter ended December 31, 2017 Highlights ─ compared to December 31, 2016

  • Net sales of $155.5 million decreased $64.9 million, the result of continuing increased competition and the challenging pricing environment, particularly in the U.S.; despite an increase in overall volumes.
  • Gross profit of $102.9 million decreased $64.4 million, and as a percentage of net sales was 66.2% compared to 75.9%.
  • Research and development (R&D) expenses of $17.5 million were down slightly from the comparable quarter.
  • Selling, marketing, general and administrative expenses (SG&A) increased $1.5 million to $21.8 million.
  • Settlements and loss contingencies of $1.9 million in 2017 related to a payroll tax settlement in Israel.
  • Operating income of $61.8 million decreased $67.3 million and as a percentage of net sales was 39.7% as compared to 58.5%.
  • Foreign Exchange (FX) income of $3.7 million decreased $14.8 million from $18.5 million, principally the result of the strength of the Canadian dollar vs. U.S. dollar.
  • Other income of $0.6 million decreased $8.4 million, principally due to the sale of Keveyis in December 2016.
  • Tax expense increased $33.9 million to $54.4 million resulting in an effective tax rate of 76.6% compared to 12.8%. The tax provision for the current quarter includes a $38.0 million expense for the estimated impact of the re-measurement of the Company's estimated net deferred tax asset at December 31, 2017, as a result of the Tax Cuts and Jobs Act. Excluding the impact from the one-time re-measurement, the Company's tax expense would be approximately $16.4 million and the effective tax rate would be approximately 23.1% for the current quarter.
  • Net income attributable to Taro was $18.0 million compared to $139.8 million, resulting in diluted earnings per share of $0.45 compared to $3.42 for the same period last year. Excluding the impact of the aforementioned one-time tax re-measurement, net income attributable to Taro would be $54.8 million, or diluted earnings per share of $1.37.

Nine Months ended December 31, 2017 Highlights ─ compared to December 31, 2016

  • Net sales of $486.7 million decreased $196.3 million, the result of continuing increased competition and the challenging pricing environment; despite an increase in overall volumes.
  • Gross profit of $344.6 million decreased $182.8 million and as a percentage of net sales was 70.8% compared to 77.2%.
  • R&D expenses of $50.1 million were down slightly from the prior year.
  • SG&A expenses of $64.4 million increased $1.0 million.
  • Operating income of $228.2 million decreased $185.0 million, and as a percentage of net sales was 46.9% as compared to 60.5%.
  • Interest and other financial income of $14.0 million, increased $3.2 million.
  • FX expense of $48.5 million in 2017 compared to FX income of $26.0 million in 2016 ─ an unfavorable impact of $74.5 million, principally the result of the strength of the Canadian dollar vs. U.S. dollar.
  • Other income of $1.4 million decreased $9.0 million, principally due to the sale of Keveyis in December 2016.
  • Tax expense decreased $15.2 million to $71.3 million, however, the effective tax rate increased to 36.5% from 18.8%. Excluding the impact of the one-time tax re-measurement, tax expense would be approximately $33.3 million, a decrease of $53.2 million, and the effective tax rate would be 17.0%.
  • Net income attributable to Taro was $124.9 million compared to $373.4 million, resulting in diluted earnings per share of $3.10 compared to $8.99. Excluding the impact of the one-time tax re-measurement, net income attributable to Taro would be $161.7 million, or diluted earnings per share of $4.01.

Mr. Uday Baldota, Taro’s CEO stated, “As is well known, and we have continuously stated, the generic industry continues to experience a very difficult pricing environment and competitive pressures, which is reflected in our financial performance. Nevertheless, we continue to invest in our R&D pipeline and develop other initiatives that should continue to keep us well positioned in the market.”

Cash Flow and Balance Sheet Highlights

  • Cash flow provided by operations for the nine months ended December 31, 2017, was $225.8 million compared to $320.5 million for the nine months ended December 31, 2016.
  • As of December 31, 2017, cash, including short-term and long-term bank deposits and marketable securities, increased $148.6 million to $1.6 billion from March 31, 2017. Cash reflects the $54.9 million impact from the Company’s share repurchases during the current fiscal year.

FDA Approvals and Filings

The Company recently received approval from the U.S. Food and Drug Administration (“FDA”) for four Abbreviated New Drug Applications (“ANDAs”): Clindamycin Phosphate and Benzoyl Peroxide Gel, 1.2%/5%, Butenafine Hydrochloride Cream, 1%, Fexofenadine Hydrochloride Oral Suspension 30 mg/5 mL, and Adapalene and Benzoyl Peroxide Gel, 0.1% / 2.5%. The Company currently has a total of thirty ANDAs awaiting FDA approval, including six tentative approvals.

Share Repurchase Program - Returning Capital to Shareholders

On November 23, 2016, the Company announced that its Board of Directors approved a $250 million share repurchase of ordinary shares. Under this authorization, repurchases may be made from time to time at the Company’s discretion, based on ongoing assessments of the capital needs of the business, the market price of its stock, and general market conditions. The repurchase authorization enables the Company to purchase its ordinary shares from time to time through open market purchases, negotiated transactions or other means, including 10b5-1 trading plans in accordance with applicable securities laws or other restrictions. On November 7, 2017, the Board extended the share repurchase program for one year.

During the current fiscal year, through January 31, 2018, the Company has repurchased 671,300 shares at an average price of $104.36. In total, under this program, the Company has repurchased 1,190,265 shares, with $125.7 million remaining under the authorization.

About Taro

Taro Pharmaceutical Industries Ltd. is a multinational, science-based pharmaceutical company, dedicated to meeting the needs of its customers through the discovery, development, manufacturing and marketing of the highest quality healthcare products. For further information on Taro Pharmaceutical Industries Ltd., please visit the Company’s website at www.taro.com.

SAFE HARBOR STATEMENT

The unaudited consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments necessary to present fairly the financial condition and results of operations of the Company. The unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 20-F, as filed with the SEC.

Certain statements in this release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements that do not describe historical facts or that refer or relate to events or circumstances the Company “estimates,” “believes,” or “expects” to happen or similar language, and statements with respect to the Company’s financial performance, availability of financial information, and estimates of financial results and information for fiscal year 2018. Although the Company believes the expectations reflected in such forward-looking statements to be based on reasonable assumptions, it can give no assurances that its expectations will be attained. Factors that could cause actual results to differ include general domestic and international economic conditions, industry and market conditions, changes in the Company's financial position, litigation brought by any party in any court in Israel, the United States, or any country in which Taro operates, regulatory and legislative actions in the countries in which Taro operates, and other risks detailed from time to time in the Company’s SEC reports, including its Annual Reports on Form 20-F. Forward-looking statements are applicable only as of the date on which they are made. The Company undertakes no obligations to update, change or revise any forward-looking statement, whether as a result of new information, additional or subsequent developments or otherwise.

**Financial Tables Follow**

     
TARO PHARMACEUTICAL INDUSTRIES LTD.
SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(U.S. dollars in thousands, except share data)

 
Quarter Ended Nine Months Ended
December 31, December 31,
2017201620172016
Sales, net $ 155,461 $ 220,395 $ 486,697 $ 682,973
Cost of sales 52,545 53,053 142,118 155,366
Impairment   —     —     —     184  
Gross profit 102,916 167,342 344,579 527,423
 
Operating Expenses:
Research and development 17,457 18,001 50,110 50,766
Selling, marketing, general and administrative 21,830 20,312 64,421 63,450
Settlements and loss contingencies   1,860     —     1,860     —  
Operating income 61,769 129,029 228,188 413,207
 
Financial (income) expense, net:
Interest and other financial income (4,962 ) (3,961 ) (14,040 ) (10,814 )
Foreign exchange (income) expense (3,718 ) (18,533 ) 48,506 (25,998 )
Other gain, net   622     9,009     1,430     10,466  
Income before income taxes 71,071 160,532 195,152 460,485
Tax expense   54,411     20,483     71,262     86,467  
Income from continuing operations 16,660 140,049 123,890 374,018
Net loss from discontinued operations attributable to Taro   (47 )   (137 )   (239 )   (314 )
Net income 16,613 139,912 123,651 373,704
Net (loss) income attributable to non-controlling interest   (1,359 )   94     (1,212 )   334  
Net income attributable to Taro $ 17,972   $ 139,818   $ 124,863   $ 373,370  
 
Net income per ordinary share from continuing operations attributable to Taro:
Basic and Diluted $ 0.45   $ 3.42   $ 3.10   $ 9.00  
 
Net loss per ordinary share from discontinued operations attributable to Taro:
Basic and Diluted $ (0.00 ) * $ (0.00 ) * $ (0.00 ) * $ (0.01 )
 
Net income per ordinary share attributable to Taro:
Basic and Diluted $ 0.45   $ 3.42   $ 3.10   $ 8.99  
 
Weighted-average number of shares used to compute net income per share:
Basic and Diluted   40,079,339     40,961,015     40,294,226     41,541,010  
 
* Amount is less than $0.01
May not foot due to rounding.
 
       
TARO PHARMACEUTICAL INDUSTRIES LTD.
SUMMARY CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands)
 
December 31, March 31,
2017 2017
ASSETS (unaudited) (audited)
CURRENT ASSETS:
Cash and cash equivalents $ 569,193 $ 600,399
Short-term and current maturities of long-term bank deposits 419,324 782,813
Marketable securities 403,261 3,548
Accounts receivable and other:
Trade, net 197,799 203,924
Other receivables and prepaid expenses 168,160 266,280
Inventories 149,186 141,045
Long-term assets held for sale, net   —   1,015
TOTAL CURRENT ASSETS 1,906,923 1,999,024
Long-term deposits and marketable securities 214,226 70,685
Property, plant and equipment, net 190,468 180,085
Deferred income taxes 79,643 10,324
Other assets   30,629   29,635
TOTAL ASSETS $ 2,421,889 $ 2,289,753
 
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade payables $ 23,885 $ 16,394
Other current liabilities   189,688   193,443
TOTAL CURRENT LIABILITIES 213,573 209,837
Deferred taxes and other long-term liabilities   4,842   6,110
TOTAL LIABILITIES 218,415 215,947
 
Taro shareholders' equity 2,198,374 2,067,494
Non-controlling interest   5,100   6,312
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,421,889 $ 2,289,753
 
       
TARO PHARMACEUTICAL INDUSTRIES LTD.
SUMMARY CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(U.S. dollars in thousands)
 
Nine Months Ended December 31,
2017 2016
Cash flows from operating activities:
Net income $ 123,651 $ 373,704
Adjustments required to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 12,022 11,067
Impairment for long-lived assets — 184
Realized loss (gain) on sale of marketable securities and long-lived assets 96 (8,517 )
Change in derivative instruments, net (4,641 ) 4,501
Effect of change in exchange rate on inter-company balances and bank deposits 56,903 (30,017 )
Deferred income taxes, net 61,540 (13,138 )
Decrease (increase) in trade receivables, net 6,704 (13,411 )
Increase in inventories, net (5,261 ) (9,120 )
(Increase) decrease in other receivables, income tax receivable, prepaid expenses and other (28,957 ) 16,744
Increase (decrease) in trade, income tax, accrued expenses, and other payables 3,513 (11,542 )
Loss from marketable securities, net   225     —  
Net cash provided by operating activities   225,795     320,455  
 
Cash flows from investing activities:
Purchase of plant, property & equipment, net (17,742 ) (26,377 )
(Investment in) proceeds from other intangible assets (1,608 ) 955
Proceeds from short-term bank deposits 225,895 250,854
Proceeds from (investment in) long-term deposits and other assets 187,725 (301,616 )
(Investment in) proceeds from marketable securities, net   (598,578 )   95  
Net cash used in investing activities   (204,308 )   (76,089 )
 
Cash flows from financing activities:
Purchase of treasury stock   (54,921 )   (269,712 )
Net cash used in financing activities   (54,921 )   (269,712 )
 
Effect of exchange rate changes on cash and cash equivalents   2,228     (1,765 )
Decrease in cash and cash equivalents (31,206 ) (27,111 )
Cash and cash equivalents at beginning of period   600,399     576,757  
Cash and cash equivalents at end of period $ 569,193   $ 549,646  
 
Cash Paid during the year for:
Income taxes $ 42,592   $ 76,772  
Non-cash operating transactions:
Sale of intangible asset $ —   $ 7,500  
Non-cash investing transactions:
Purchase of property, plant and equipment included in accounts payable $ 1,390   $ 354  
Non-cash financing transactions:
Purchase of treasury stock $ 781   $ 3,602