Lannett Company, Inc.
Q2 2023 Earnings Call Transcript

Published: 1 Feb 2023

[Operator:]

Greetings and welcome to the Lannett Company Fiscal 2023 Second Quarter Financial Results Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Robert Jaffe, Investor Relations for Lannett Company.

[Robert Jaffe:]

Good afternoon, everyone and thank you for joining us today to discuss Lannett Company’s fiscal 2023 second quarter financial results. On the call today are Tim Crew, Chief Executive Officer; John Kozlowski, the company’s Chief Financial Officer; and Steve Lehrer, who leads our insulin biosimilar initiatives. This call is being broadcast live at www.lannett.com. A playback will be available for at least 3 months on Lannett’s website. I would like to make the cautionary statement and remind everyone that forward-looking information discussed on today’s call is covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act. The company’s discussion will include forward-looking information reflecting management’s current forecast of certain aspects of the company’s future and actual results could differ materially from those stated or implied due to several factors, including those discussed in our earnings release. Additional information concerning factors that could cause actual results to differ materially is contained in our latest Form 10-K and subsequent Forms 10-Q and 8-K filed with the Securities and Exchange Commission. In addition, during the course of this call, we refer to non-GAAP financial measures that are not prepared in accordance with U.S. generally accepted accounting principles and maybe different from non-GAAP financial measures used by other companies. Investors are encouraged to review Lannett’s press release announcing its fiscal 2023 second quarter financial results for the company’s reasons for presenting non-GAAP financial measures. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures is also attached to the company’s earnings press release issued earlier today. In a moment, Tim will provide brief remarks on the company’s financial results as well as recent developments and initiatives, then John will discuss the financial results. We will then open the call for questions. With that said, I would like to turn the call over to Tim Crew. Tim?

[Tim Crew:]

Thanks, Robert and good afternoon everyone. As many of you know, the Farber family has been involved with Lannett for a long time and I will begin today acknowledging Jeff Farber, who served as a member of Lannett’s Board of Directors for the last 16 years, including Chairman from 2012 to 2018. Jeff decided not to seek reelection to the Board this year. However, we will continue to benefit from his experience and insights as Chairman Emeritus. I personally thank Jeff for his support and counsel over the last several years as we have navigated through a number of significant challenges. As Chairman Emeritus, he will continue to be an advocate for the company and an appreciated voice for the Board and management team. Next, as most of you are aware, last week, we held our Annual Meeting of Stockholders. I am pleased to report that all of the formal proposals contained in the proxy were approved by our stockholders, including the reverse stock split of Lannett’s issued and outstanding shares of common stock. The Board authorized 1-for-4 reverse stock split will become effective at 5

[John Kozlowski:]

Thanks Tim and good afternoon everyone. Turning to our financial performance, I will focus my discussion on our non-GAAP adjusted measures. For the 2023 second quarter, net sales were $80.9 million. This compares with $86.5 million for the second quarter of last year and $75.1 million in the 2023 first quarter. Gross profit increased to $15.7 million, or 19% of net sales from $9.7 million or 11% of net sales for the prior year second quarter. On a sequential quarterly basis, both gross profit and gross margin increased from the preceding two quarters. Interest expense rose to $13.3 million from $12.9 million. Net loss narrowed to $14 million or $0.34 per share from $15.9 million or $0.39 per share. We reported positive adjusted EBITDA of $1 million. Turning to our balance sheet, at December 31, 2022, cash and cash equivalents totaled approximately $56 million, which includes the receipt of the income tax refunds of approximately $19 million. Our cash balance was reduced by scheduled interest payments and unfavorable working capital changes, most notably, an increase in accounts receivable, which was impacted by the timing of receipts. At December 31st, total debt was approximately $659.4 million, comprised of first lien senior secured notes of $350 million, second lien notes of $223.1 million and convertible notes of $86.3 million. As Tim mentioned, we recently implemented a restructuring and cost reduction plan. We expect the plan will begin generating savings in the current fiscal year, rising to approximately $11 million annually once fully implemented. In addition, we estimate that the transition to the outsourced R&D function will result in the liquidity preservation of approximately $5 million to $8 million over the next 18 months to 24 months. Turning to our outlook for fiscal 2023, based in part on our better-than-expected financial results for the first half of the year, we have raised full year guidance. Specifically, we expect net sales in the range of $285 million to $305 million, up from $275 million to $300 million. Adjusted gross margin as a percentage of net sales of approximately 17% to 19%, up from approximately 15% to 17%. Adjusted R&D expense in the range of $21 million to $23 million, down from $23 million to $25 million. Adjusted SG&A expense ranging from $61 million to $63 million, up from $56 million to $59 million. Adjusted interest expense of approximately $53 million, unchanged. The full year adjusted effective tax rate in the range of approximately 20% to 22% down from approximately 23.5% to 24.5%. Adjusted EBITDA in the range of negative $5 million to positive $1 million, changed from negative $12 million to breakeven. And lastly, capital expenditures to be approximately $8 million to $10 million, changed from approximately $8 million to $12 million. Regarding the phasing of the quarters, we expect net sales, gross margin and total operating expenses in Q3 and Q4 to be comparable with net sales and gross margins coming down from Q2 levels. And total operating expenses in the second half of the year to be comparable to the total operating expenses in the first half. With that overview, we would now like to address any questions. Operator?

[Operator:]

[Tim Crew:]

Alright. It’s Tim again. Thank you for joining the call and as always, thanks to our employees, customers and partners, all working very hard to provide high-quality, low-cost medicines for patients. We look forward to sharing our progress on our next call. Have a good evening.

[Operator:]

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.