Lannett Announces Fiscal 2019 First-Quarter Financial Results; Re-Affirms Adjusted Guidance For Fiscal 2019
PHILADELPHIA, Nov. 7, 2018 /PRNewswire/ -- Lannett Company, Inc. (NYSE: LCI) today reported financial results for its fiscal 2019 first quarter ended September 30, 2018.
"For the fiscal 2019 first quarter, net sales and adjusted net income exceeded our expectations," said Tim Crew, chief executive officer of Lannett. "A key driver to our performance was the combined contribution of new products launched since January 1(st) of this year. Our plans for the balance of fiscal 2019 include additional product launches of both recently acquired and internally developed products.
"We made solid progress on other fronts to position the company for continued improvement. During the first quarter and into the current period, we completed several transactions that added a number of attractive market ready products to our portfolio. In addition, we significantly increased our cash position and finalized a cost reduction plan that we expect when fully implemented will generate annualized cost savings of approximately $66 million comparing fiscal 2020 to fiscal 2018 expenses. We plan to re-invest or redeploy approximately $33 million of the cost savings back into our business. The plan includes decreased spending throughout the organization and workforce reductions. As part of the plan, we also intend to sell our Cody Laboratories active pharmaceutical ingredients business, a move that will provide immediate and substantial expense reductions and allow us to better focus on nearer and medium term growth opportunities.
"Given the above, we are excited about our future and accordingly, we have re-affirmed the company's fiscal 2019 adjusted financial guidance."
For the fiscal 2019 first quarter, on a GAAP basis, net sales were $155.1 million compared with $155.0 million for the first quarter of fiscal 2018. Gross profit was $59.1 million, or 38% of total net sales, compared with $67.7 million, or 44% of total net sales. Research and development (R&D) expenses were $9.8 million compared with $7.4 million for the fiscal 2018 first quarter. Selling, general and administrative (SG&A) expenses increased to $20.6 million from $19.0 million. Restructuring expenses were $1.0 million compared with $0.5 million. As previously disclosed, the company recorded in its fiscal 2019 first quarter non-cash charges totaling $369.5 million related to the full impairment of goodwill, resulting from the non-renewal of the distribution agreement with Jerome Stevens Pharmaceuticals when the contract expires in March 2019, and the impairment of certain long-lived assets as a result of the plan to sell its Cody Laboratories API business. Operating loss was $341.8 million compared to operating income of $40.7 million. Interest expense was $21.4 million compared with $20.9 million for the first quarter of fiscal 2018. The company recorded an income tax benefit of $75.6 million versus income tax expense of $7.4 million in the prior-year period. Net loss was $287.5 million, or $7.65 per share, versus net income of $13.3 million, or $0.35 per diluted share, for the fiscal 2018 first quarter.
For the fiscal 2019 first quarter reported on a Non-GAAP basis, adjusted net sales were $155.1 million compared with $155.0 million for the first quarter of fiscal 2018. Adjusted gross profit was $68.7 million, or 44% of adjusted net sales, compared with $76.7 million, or 50% of adjusted net sales, for the prior-year first quarter. Adjusted R&D expenses were $9.8 million compared with $7.4 million. Adjusted SG&A expenses were $19.2 million compared with $18.7 million. Adjusted operating income was $39.6 million compared with $50.7 million for the prior-year first quarter. Adjusted interest expense was $16.9 million compared with $16.4 million for the first quarter of fiscal 2018. Adjusted income tax expense was $5.9 million compared with $12.5 million in the prior-year period. Adjusted net income was $16.9 million, or $0.44 per diluted share, compared with $22.7 million, or $0.60 per diluted share, for the fiscal 2018 first quarter.
Guidance for Fiscal 2019
Based on its current outlook, the company has revised its GAAP estimates to, among other things, include asset impairment charges of $369 million and re-affirmed adjusted financial guidance for the 2019 fiscal year (minor increases to estimates of Net sales and R&D expense), as follows:
GAAP Adjusted
Net
sales
$585 million to $615 million
$585 million to $615 million
---
Gross
margin
% 38% to 39% 44% to 45%
---
R&D
expense
$32 million to $36 million
$30 million to $34 million
---
SG&A
expense
$75 million to $78 million
$63 million to $66 million
---
Restructuring
expense
$3 million to $4 million
$ --
---
Asset
impairment
charges
$369 million
$ --
---
Interest
expense
$81 million to $83 million
$63 million to $65 million
---
Effective
tax
rate 22% to 23% 22% to 23%
---
Capital
expenditures
$30 million to $35 million
$30 million to $35 million
---
The financial guidance table above includes "Asset impairment charges." This item was not included in the guidance provided on August 28, 2018, because, at that time, the company could not estimate the amount or a reasonable range of amounts of such impairment.
Product Launches / Cost Savings
The company has posted additional information related to new product launches and cost savings on its website. If interested, please visit http://lannett.investorroom.com/news-releases.
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 2019 first quarter ended September 30, 2018. The conference call will be available to interested parties by dialing 866-436-9172 from the U.S. or Canada, or 630-691-2760 from international locations, passcode 47800134. 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, the impact of the non-renewal of the distribution agreement with Jerome Stevens Pharmaceuticals, successfully launching and commercializing recently acquired and previously approved products, realizing enhanced efficiencies, successfully consummating transactions with new and existing alliance partners and successfully launching and commercializing products included therein, and achieving the financial metrics stated in the company's guidance for fiscal 2019, 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.
FINANCIAL SCHEDULES FOLLOW
LANNETT COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
ASSETS
---
Current assets: September 30, 2018 June 30, 2018
Cash and cash equivalents $150,327 $98,586
Accounts receivable, net 205,350 252,651
Inventories 145,915 141,635
Prepaid income taxes 1,690 15,159
Assets held for sale 13,245 13,976
Other current assets 7,859 4,863
Total current assets 524,386 526,870
Property, plant and equipment,
net 195,880 233,247
Intangible assets, net 416,016 424,425
Goodwill 339,566
Deferred tax assets 99,761 22,063
Other assets 21,612 29,133
TOTAL ASSETS $1,257,655 $1,575,304
LIABILITIES
---
Current liabilities:
Accounts payable $48,558 $56,767
Accrued expenses 5,732 7,425
Accrued payroll and payroll-
related expenses 10,009 7,819
Rebates payable 36,489 49,400
Royalties payable 5,878 5,955
Restructuring liability 6,911 6,706
Liabilities held for sale 2,010 -
Short-term borrowings and
current portion of long-term
debt 66,845 66,845
Total current liabilities 182,432 200,917
Long-term debt, net 760,127 772,425
Other liabilities 3,073 3,047
TOTAL LIABILITIES 945,632 976,389
STOCKHOLDERS' EQUITY
---
Common stock ($0.001 par value, 100,000,000 shares
authorized; 38,665,268
and 38,256,839
shares issued; 37,734,758 and 37,380,517 shares
outstanding at
September 30, 2018 and
June 30, 2018, respectively)
39 38
Additional paid-in capital 310,135 306,817
Retained earnings 16,653 306,464
Accumulated other comprehensive
loss (509) (515)
Treasury stock(930,510 and
876,322 shares at September
30, 2018 and June 30, 2018,
respectively) (14,295) (13,889)
Total stockholders' equity 312,023 598,915
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,257,655 $1,575,304
===
LANNETT COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(UNAUDITED)
Three months ended
September 30,
2018 2017
Net sales $155,054 $154,961
Cost of sales 87,690 79,553
Amortization of intangibles 8,223 7,737
Gross profit 59,141 67,671
Operating expenses:
Research and development
expenses 9,810 7,409
Selling, general, and
administrative expenses 20,588 19,038
Acquisition and integration-
related expenses 18
Restructuring expenses 1,022 527
Asset impairment charges 369,499
Total operating expenses 400,919 26,992
Operating income (loss) (341,778) 40,679
Other income (loss):
Investment income 379 1,164
Interest expense (21,433) (20,912)
Other (296) (251)
Total other loss (21,350) (19,999)
Income (loss) before income
tax (363,128) 20,680
Income tax expense (benefit) (75,600) 7,423
Net income (loss) $(287,528) $13,257
Earnings (loss) per common
share:
Basic $(7.65) $0.36
Diluted $(7.65) $0.35
Weighted average common
shares outstanding:
Basic 37,586,327 36,992,064
Diluted 37,586,327 37,730,656
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, 2018
---
Net sales
Cost of
Amortization Gross Gross
R&D
SG&A
Restructuring
Asset impairment
Operating
Other
Income (loss)
Income tax Net income Diluted
sales of intangibles Profit Margin % expense expense expenses charges income (loss) income before income expense (loss) earnings
(loss) tax (benefit) (loss) per
share (h)
---
GAAP Reported $155,054 $87,690 $8,223 $59,141 38% $9,810 $20,588 $1,022 369,499 $(341,778) $(21,350) $(363,128) $(75,600) $(287,528) $(7.65)
Adjustments:
---
Depreciation of
Fixed Assets step-
up (a) - (1,335) 1,335 1,335 1,335 1,335
Amortization of
intangibles (b) - (8,223) 8,223 8,223 8,223 8,223
Restructuring
expenses (c) - (1,022) 1,022 1,022 1,022
Asset impairment
charges (d) - (369,499) 369,499 369,499 369,499
Non-cash interest
(e) - 4,538 4,538 4,538
Other (f) - (1,340) 1,340 1,340 1,340
Tax adjustments (g) - 81,504 (81,504)
Non-GAAP Adjusted $155,054 $86,355
$ - $68,699 44% $9,810 $19,248
$ -
$ - $39,641 $(16,812) $22,829 $5,904 $16,925 $0.44
(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) To exclude
expenses
associated with
the 2016
Restructuring
Plan and, to a
lesser extent,
the Cody
Restructuring
Plan
(d) To exclude asset
impairment
charges related
to goodwill and
other long-
lived assets
(e) To exclude non-
cash interest
expense
associated with
debt issuance
costs
(f) To primarily
exclude
depreciation on
previously
capitalized
software
integration
costs
associated with
the KUPI
acquisition
(g) The tax effect
of the pre-tax
adjustments
included at
applicable tax
rates
(h) The weighted
average share
number for the
three months
ended September
30, 2018 is
37,586,327 for
GAAP and
38,752,010 for
the non-GAAP
earnings (loss)
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, 2017
---
Net sales
Cost of
Amortization Gross Profit Gross
R&D
SG&A
Acquisition and
Restructuring Operating
Other
Income
Income tax
Net Diluted
sales of intangibles Margin % expense expense integration- expenses income income before expense income earnings
related (loss) income tax per share
expenses (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 $0.35
Adjustments:
---
Depreciation of
Fixed Assets step-
up (a) - (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
Acquisition and
integration-
related expenses
(c) - (18) 18 18 18
Restructuring
expenses (d) - (527) 527 527 527
Non-cash interest
(e) - 4,560 4,560 4,560
Tax adjustments (f) - 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 $0.60
(a) Relates to
depreciation of
a fair value
step-up in
property, plant
and equipment
related to the
acquisition of
Kremers Urban
Pharmaceuticals,
Inc. ("KUPI")
(b) Relates to
amortization of
purchased
intangible
assets
primarily
related to the
acquisitions of
KUPI and Silarx
Pharmaceuticals,
Inc.
(c) Relates to
acquisition and
integration-
related
expenses
primarily
related to the
acquisition of
KUPI
(d) To exclude
expenses
associated with
the 2016
Restructuring
Plan
(e) To exclude non-
cash interest
expense
primarily
associated with
debt issuance
costs
(f) The tax effect
of the pre-tax
adjustments
included at
applicable tax
rates
(g) The weighted
average share
number for the
three months
ended September
30, 2017 is
37,730,656 for
both the GAAP
and the non-
GAAP earnings
per share
calculations
LANNETT COMPANY, INC.
RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED INFORMATION (UNAUDITED)
($ in millions)
Fiscal Year 2019 Guidance
Non-GAAP
GAAP Adjustments Adjusted
Net sales
$585 - $615
$585 - $615
Gross margin percentage 38.0% - 39.0% 6%
(a) 44.0% to 45.0%
R&D expense
$32 - $36 ($2)
(b)
$30 - $34
SG&A expense
$75 - $78 ($12)
(c)
$63 - $66
Restructuring expense
$3 - $4
($3 - $4)
(d)
Asset impairment charges $369 ($369)
(e)
Interest expense
$81 - $83 ($18)
(f)
$63 - $65
Effective tax rate 22% to 23% 22% to 23%
Capital expenditures
$30 - $35
$30 - $35
(a) The adjustment primarily reflects
amortization of purchased intangible
assets related to the acquisition of
Kremers Urban Pharmaceuticals, Inc.
("KUPI") and, to a lesser extent, the
cost of sales associated with the Cody
API business which is classified as Held
For Sale as of September 30, 2018
(b) To exclude R&D expense associated
with the Cody API business which is
classified as Held For Sale as of
September 30, 2018
(c) To exclude various expenses
associated with the Company's overall
cost savings initiatives, which includes
the operating costs of the Cody API
business subsequent to September 30,
2018, the date it was classified as Held
For Sale; legal and financial advisory
costs; as well as nonrecurring
compensation related expenses. In
addition, it also excludes depreciation
on previously capitalized software
integration costs associated with the
KUPI acquisition
(d) To exclude expenses associated with
the 2016 Restructuring Plan and Cody
Restructuring Plan
(e) To exclude asset impairment charges
related to goodwill and other long-
lived assets
(f) The adjustment primarily reflects
non-cash interest expense associated
with debt issuance costs
LANNETT COMPANY, INC.
NET SALES BY MEDICAL INDICATION
Three months ended
(in thousands) September 30,
Medical Indication 2018 2017
---
Antibiotic $4,089 $3,349
Anti-Psychosis 10,889 14,991
Cardiovascular 21,770 11,306
Central Nervous System 7,197 8,818
Gallstone 2,214 6,564
Gastrointestinal 15,040 14,553
Glaucoma 548 2,668
Migraine 9,737 15,015
Muscle Relaxant 3,179 3,791
Pain Management 4,947 5,761
Respiratory 1,015 1,647
Thyroid Deficiency 53,878 47,214
Urinary 1,552 2,997
Other 14,338 12,696
Contract manufacturing
revenue 4,661 3,591
Net Sales $155,054 $154,961
Contact: Robert Jaffe
Robert Jaffe Co.,
LLC
(424) 288-4098
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SOURCE Lannett Company, Inc.
