ACETO Corporation (Nasdaq:ACET), focused on the global marketing,
sale and distribution of Human Health products, Pharmaceutical
Ingredients and Performance Chemicals, announced today financial
results for the first quarter of fiscal 2018 ended September 30,
2017.
First Quarter Fiscal 2018 versus First
Quarter Fiscal 2017
- Net sales of $185.3 million versus $128.0 million, a 44.7%
increase
- Gross profit of $40.0 million versus $30.8 million, a 29.7%
increase
- Net income of $0.5 million versus $4.4 million, a 89.6%
decrease
- Diluted EPS of $0.01 versus $0.15, an 93.3% decrease
- Non-GAAP Adjusted Net Income of $10.7 million versus $8.3
million, a 29.1% increase
- Non-GAAP Adjusted EPS of $0.30 versus $0.28, a 7.1%
increase
Management Commentary
“Our legacy Rising Pharmaceuticals business
posted its first year-over-year increase in quarterly sales in over
a year, supported by new product launches in the second half of
fiscal 2017. In addition, Human Health segment sales
benefited from the addition of the Citron and Lucid products.
However, pricing pressure on the more mature products in the legacy
Rising portfolio and the inclusion of the Citron and Lucid
products, which carry a lower gross margin, contributed to a
contraction in segment profitability,” said William C. Kennally,
III, Chief Executive Officer of ACETO. “On the strength of the cash
flow generated by our stable Pharmaceutical Ingredients and
Performance Chemicals segments and a significant improvement
in our Human Health accounts receivable collections, we generated
$44 million in operating cash flow, which gave us ample funds to
pay down $24 million of long-term debt for a leverage ratio of
3.71x at quarter end.
“While our first quarter results were largely
in-line with our expectations and we still plan to launch 15 to 20
products in fiscal 2018, the timing of some of our product launches
will be delayed due to API constraints and technical challenges,
issues which we expect to fully resolve as the year progresses.
Additionally, our current view of industry conditions is now
indicating greater than previously expected headwinds in terms of
both competitive intensity and the impact from ongoing customer
consolidations. As a result, we are lowering our net sales and
profit guidance. Nevertheless, we believe we remain well positioned
to weather what has become a prolonged generics industry downturn
and grow net sales, based on the steady supply of new products to
launch, our strong balance sheet and our steady cash generating
businesses. With our large and diversified portfolio of 140 generic
drug products and robust pipeline of 115 product candidates,
consisting of 60 ANDAs approved or on file at the FDA and 55
products under development, our strategic transition toward human
health will continue to move forward,” concluded Mr. Kennally.
Please see fiscal 2018 guidance provided within
this press release after the financial review.
First Quarter Financial
Review
Net sales for the first quarter of fiscal 2018
were $185.3 million, an increase of 44.7% from $128.0 million
reported in the first quarter of fiscal 2017. Total Company gross
profit was $40.0 million, an increase of 29.7%, compared to $30.8
million in the first quarter of fiscal 2017. Gross margin for the
first quarter was 21.6% compared to 24.1% in the prior year
period.
Human Health segment sales were $106.0 million,
an increase of 121.4%, compared to $47.9 million for the first
quarter of fiscal 2017. The revenue increase primarily reflects the
addition of $55.1 million from the acquisition of certain products
and related assets of Citron and Lucid. Gross profit for the Human
Health segment was $24.6 million, an increase of 73.5%, compared to
$14.2 million for the first quarter of fiscal 2017, reflecting the
addition of certain products and related assets of Citron and
Lucid. Gross margin for the first quarter was 23.2%, compared to
29.7% in the prior year period. The decrease in gross margin was
due to the addition of relatively lower gross margin from the
Citron and Lucid products and to the decline of gross profit for
certain legacy Rising products.
Pharmaceutical Ingredients segment sales were
$36.6 million, a decrease of 9.9%, compared to $40.6 million for
the first quarter of fiscal 2017. The segment’s sales decrease was
driven by lower sales of domestic APIs. Gross profit in the quarter
was $5.8 million, a 16.0% decrease compared to $7.0 million for the
first quarter of fiscal 2017. Gross margin for the first quarter
was 16.0%, compared to 17.1% in the prior year period. The decrease
in gross profit and margin was driven by lower sales of domestic
APIs and a less favorable product mix in APIs.
Performance Chemicals segment sales were $42.7
million, an increase of 8.0% compared to $39.5 million for the
first quarter of fiscal 2017, largely due to higher sales of
agricultural and pigment intermediates in the Specialty Chemicals
business. Gross profit was $9.5 million, a decrease of 1.9%,
compared to $9.7 million for the first quarter of fiscal 2017.
Gross margin was 22.3% for the first quarter, compared to 24.5% in
the prior year period. The decrease in gross profit and margin was
primarily due to lower sales of certain agricultural protection
products and a less favorable product mix of specialty chemical
products.
Total selling, general and administrative
expenses were $31.1 million compared to $21.0 million in the same
period last year, a 48.2% increase, with $5.4 million of the
increase attributable to amortization expense associated with the
purchase of intangible assets related to the Citron and Lucid
product purchase. Also included in selling, general and
administrative expenses for the first quarter of 2018 were $4.1
million of one-time costs associated with the departure of the
company’s former CEO. Research and Development expenses in the
first quarter totaled $1.6 million compared to $1.1 million in the
prior year period. The majority of R&D expenses are milestone
based and fluctuate quarterly.
Operating income totaled $7.2 million, a
decrease of 17.6% from the first quarter of fiscal 2017. Net income
was $0.5 million, or $0.01 per diluted share, compared to net
income of $4.4 million, or $0.15 per diluted share, for the
comparable quarter of fiscal 2017. Non-GAAP Adjusted Net Income was
$10.7 million in the first quarter, compared to $8.3 million in the
prior period, a 29.1% increase. Non-GAAP Adjusted Earnings per
Share were $0.30, compared to $0.28 in the year ago first quarter,
a 7.1% increase.
Fiscal 2018 Guidance
For the fiscal year ending June 30, 2018, at
current exchange rates, ACETO is providing financial guidance as
follows:
- Total revenues to increase approximately 15% to 20%;
- Reported diluted GAAP earnings per share between $0.23 and
$0.33;
- Diluted Non-GAAP earnings per share between $1.05 and
$1.15.
The Company's fiscal 2018 financial guidance is
based in part on the following assumptions:
- Generic industry headwinds continued in our first fiscal
quarter and we are expecting annual price erosion in the low double
digits percentage;
- R&D expense of approximately $10 million; and
- Total generic product launches of 15 to 20.
Senior Financial Executive
Changes
On October 26, 2017, Doug Roth, Senior Vice
President and Chief Financial Officer of ACETO, announced his
retirement from the company, effective March 31, 2018. The company
has commenced a search for his replacement. Also, on October 27,
2017, Fran Scally, ACETO Vice President, Financial Reporting,
Compliance and Risk, was designated to serve as the company’s chief
accounting officer, effective immediately.
Conference Call
Management will host a conference call to
discuss the operating and financial results at 9:00 a.m. ET on
Friday, November 3, 2017. To participate in the conference
call, please dial (877) 317-6789 or (412) 317-6789 approximately 10
minutes prior to the call. Please reference conference ID #
10112224.
The call is also being webcast with an
accompanying presentation, which can be accessed through the
investor relations section of the Company’s website,
www.aceto.com. Please access the website 15 minutes prior to
the start of the call to download and install any necessary audio
software and download the presentation.
A telephone replay of the conference call will
be available from 11:00 a.m. ET on November 3, 2017 until 11:59
p.m. ET on November 10, 2017 and may be accessed by calling (877)
344-7529 and referencing conference ID # 10112224. An
archived replay of the conference call will also be available in
the investor relations section of the Company’s website.
Use of Non-GAAP Financial
Information
In addition to U.S. GAAP results, this press
release also includes certain non-GAAP financial measures as
defined by the SEC. These measures, Adjusted Net Income and
Adjusted EPS, are based upon net income excluding amortization of
intangibles, debt extinguishment, amortization of debt discount and
debt issuance costs, transaction costs related to acquisitions and
the impact of Accounting Standards Update (“ASU”) 2016-09. These
items should not be reviewed in isolation or considered substitutes
of the Company’s financial results as reported in accordance with
GAAP. Due to the nature of these items, it is important to
identify these items and to review them in conjunction with the
Company’s financial results reported in accordance with GAAP.
The exclusion of these items also allows investors to compare
results of operations in the current period to prior periods’
results based on the Company’s fundamental business performance and
analyze the operating trends of the business. The exclusion
of these items also allows management to evaluate the performance
of its business units.
Pursuant to the requirements of Regulation G,
reconciliations of Adjusted Net Income and Adjusted EPS to U.S.
GAAP net income and GAAP EPS are presented in the table Non-GAAP
Reconciliation of this press release.
About ACETO
ACETO Corporation, incorporated in 1947, is
focused on the global marketing, sale and distribution of Human
Health products (finished dosage form generics and nutraceutical
products), Pharmaceutical Ingredients (pharmaceutical intermediates
and active pharmaceutical ingredients) and Performance Chemicals
(specialty chemicals and agricultural protection products). With
business operations in nine countries, ACETO distributes over 1,100
chemical compounds used principally as finished products or raw
materials in the pharmaceutical, nutraceutical, agricultural,
coatings and industrial chemical industries. ACETO's global
operations, including a staff of 25 in China and 12 in India, are
distinctive in the industry and enable its worldwide sourcing and
regulatory capabilities.
FORWARD-LOOKING STATEMENTS
This news release contains forward-looking
statements as that term is defined in the federal securities
laws. The events described in forward-looking statements
contained in this news release may not occur. Generally,
these statements relate to our business plans or strategies,
projected or anticipated benefits or other consequences of ACETO’s
plans or strategies, financing plans, projected or anticipated
benefits from acquisitions that ACETO may make including the
recently announced acquisition of products from Citron Pharma, LLC,
or a projection involving anticipated revenues, earnings or other
aspects of ACETO’s operating results or financial position, and the
outcome of any contingencies. Any such forward-looking
statements are based on current expectations, estimates and
projections of management. ACETO intends for these forward-looking
statements to be covered by the safe-harbor provisions for
forward-looking statements. Words such as "may," "will," "expect,"
"believe," "anticipate," "project," "plan," "intend," "estimate,"
and "continue," and their opposites and similar expressions are
intended to identify forward-looking statements. The
forward-looking statements contained in this press release include,
but are not limited to, the Company’s sales and earnings guidance
and statements regarding the expected impact of product
launches. ACETO cautions you that these statements are not
guarantees of future performance or events and are subject to a
number of uncertainties, risks and other influences, many of which
are beyond ACETO’s control, which may influence the accuracy of the
statements and the projections upon which the statements are
based. Factors that could cause actual results to differ
materially from those set forth or implied by any forward-looking
statement include, but are not limited to, risks and uncertainties
discussed in ACETO’s reports filed with the Securities and Exchange
Commission, including, but not limited to, ACETO’s Annual Report on
Form 10-K for the fiscal year ended June 30, 2017 and other
filings. Copies of these filings are available at
www.sec.gov.
Any one or more of these uncertainties, risks
and other influences could materially affect ACETO’s results of
operations and whether forward-looking statements made by ACETO
ultimately prove to be accurate. In addition, periodic
high-margin product sales may have a positive material financial
impact in a given quarter that may be non-recurring in future
quarters, thereby rendering one quarter's performance not useful as
a predictor of future quarters' results. ACETO’s actual
results, performance and achievements could differ materially from
those expressed or implied in these forward-looking
statements. ACETO undertakes no obligation to publicly
update or revise any forward-looking statements, whether from new
information, future events or otherwise.
Investor Relations Contact:LHA
Jody Burfening jburfening@lhai.com(212) 838-3777
(Financial Tables Follow)
|
Aceto Corporation and
Subsidiaries |
Consolidated Statements
of Income |
(in thousands, except per share
amounts) |
|
|
|
|
|
|
|
|
|
(unaudited) |
|
Three Months Ended |
|
September 30, |
|
2017 |
|
2016 |
Net sales |
$ |
185,255 |
|
|
$ |
128,018 |
|
Cost of sales |
|
145,272 |
|
|
|
97,179 |
|
Gross profit |
|
39,983 |
|
|
|
30,839 |
|
Gross profit % |
|
21.6 |
% |
|
|
24.1 |
% |
|
|
|
|
|
|
Selling, general
and |
|
|
|
administrative expenses |
|
31,149 |
|
|
|
21,024 |
|
Research and
development expenses |
|
1,615 |
|
|
|
1,050 |
|
Operating income |
|
7,219 |
|
|
|
8,765 |
|
|
|
|
|
Other expense, net of
interest expense |
|
(5,081 |
) |
|
|
(1,985 |
) |
|
|
|
|
Income before income
taxes |
|
2,138 |
|
|
|
6,780 |
|
Income tax
provision |
|
1,684 |
|
|
|
2,395 |
|
Net income |
$ |
454 |
|
|
$ |
4,385 |
|
|
|
|
|
Net income per common
share |
$ |
0.01 |
|
|
$ |
0.15 |
|
|
|
|
|
Diluted net income per
common share |
$ |
0.01 |
|
|
$ |
0.15 |
|
|
|
|
|
Weighted average shares
outstanding: |
|
|
|
Basic |
|
34,975 |
|
|
|
29,518 |
|
Diluted |
|
35,259 |
|
|
|
29,840 |
|
|
|
|
|
|
Aceto Corporation and
Subsidiaries |
Consolidated Balance Sheets |
(in thousands, except per-share
amounts) |
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
|
|
|
September 30, 2017 |
|
June 30, 2017 |
Assets |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and
cash equivalents |
$ |
72,100 |
|
|
|
$ |
55,680 |
|
Investments |
|
3,048 |
|
|
|
|
2,046 |
|
Trade
receivables: less allowance for doubtful |
|
|
|
|
accounts:
September 30, 2017 $476; and June 30, 2017 $485 |
|
240,620 |
|
|
|
|
260,889 |
|
Other
receivables |
|
11,897 |
|
|
|
|
12,066 |
|
Inventory |
|
135,119 |
|
|
|
|
136,387 |
|
Prepaid
expenses and other current assets |
|
4,916 |
|
|
|
|
3,941 |
|
Deferred
income tax asset, net |
|
- |
|
|
|
|
546 |
|
|
|
|
|
|
Total
current assets |
|
467,700 |
|
|
|
|
471,555 |
|
|
|
|
|
|
|
|
|
|
|
Property and equipment,
net |
|
11,569 |
|
|
|
|
10,428 |
|
Property held for
sale |
|
6,250 |
|
|
|
|
7,152 |
|
Goodwill |
|
237,004 |
|
|
|
|
236,970 |
|
Intangible assets,
net |
|
277,247 |
|
|
|
|
285,081 |
|
Deferred income tax
asset, net |
|
10,991 |
|
|
|
|
19,453 |
|
Other assets |
|
7,212 |
|
|
|
|
7,546 |
|
|
|
|
|
|
|
|
|
|
Total Assets |
$ |
1,017,973 |
|
|
|
$ |
1,038,185 |
|
|
|
|
|
|
|
|
|
|
Liabilities and
Shareholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
|
|
Current
portion of long-term debt |
$ |
14,482 |
|
|
|
$ |
14,466 |
|
Accounts
payable |
|
98,013 |
|
|
|
|
90,011 |
|
Accrued
expenses |
|
114,654 |
|
|
|
|
118,328 |
|
Total
current liabilities |
|
227,149 |
|
|
|
|
222,805 |
|
|
|
|
|
|
Long-term debt,
net |
|
317,097 |
|
|
|
|
339,200 |
|
Long-term
liabilities |
|
62,743 |
|
|
|
|
61,449 |
|
Environmental
remediation liability |
|
1,754 |
|
|
|
|
2,339 |
|
Deferred income tax
liability |
|
- |
|
|
|
|
7,325 |
|
Total
liabilities |
|
608,743 |
|
|
|
|
633,118 |
|
|
|
|
|
|
|
|
|
|
Commitments and
contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity: |
|
|
|
|
|
|
|
|
Preferred
stock, 2,000 shares authorized; no shares issued and
outstanding |
|
- |
|
|
|
|
- |
|
Common
stock, $.01 par value: |
|
|
|
|
|
|
|
|
(75,000
shares authorized; 30,581 and 30,094 shares issued |
|
|
|
|
|
|
|
|
and
outstanding at September 30, 2017 and June 30, 2017,
respectively) |
|
306 |
|
|
|
|
301 |
|
Capital
in excess of par value |
|
217,439 |
|
|
|
|
214,198 |
|
Retained
earnings |
|
194,171 |
|
|
|
|
195,680 |
|
Accumulated other comprehensive loss |
|
(2,686 |
) |
|
|
|
(5,112 |
) |
Total
shareholders' equity |
|
409,230 |
|
|
|
|
405,067 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders' equity |
$ |
1,017,973 |
|
|
|
$ |
1,038,185 |
|
|
|
|
|
|
|
|
|
|
|
Aceto Corporation |
Diluted Net Income Per Common Share Excluding
Charges (Non-GAAP Reconciliation) |
(in thousands, except per share
amounts) |
|
|
(unaudited)Three MonthsEndedSeptember
30,2017 |
|
(unaudited)Diluted NetIncome
PerCommon ShareThree MonthsEndedSeptember 30,2017 |
|
(unaudited)Three MonthsEndedSeptember
30,2016 |
|
(unaudited)Diluted NetIncome
PerCommon ShareThree MonthsEndedSeptember 30,2016 |
|
|
|
|
|
|
|
|
Net income, as
reported |
|
|
$ |
454 |
|
$ |
0.01 |
|
$ |
4,385 |
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets |
|
|
|
7,929 |
|
|
0.22 |
|
|
2,791 |
|
|
0.09 |
Transaction costs related to acquisitions |
|
|
|
- |
|
|
- |
|
|
1,809 |
|
|
0.06 |
Separation costs |
|
|
|
4,064 |
|
|
0.11 |
|
|
- |
|
|
- |
Amortization of debt discount (non-cash interest expense) |
|
|
|
1,304 |
|
|
0.04 |
|
|
1,223 |
|
|
0.04 |
Amortization of debt issuance costs |
|
|
|
209 |
|
|
0.01 |
|
|
209 |
|
|
0.01 |
Amortization of deferred financing costs |
|
|
|
270 |
|
|
0.01 |
|
|
- |
|
|
- |
Environmental charge |
|
|
|
902 |
|
|
0.03 |
|
|
170 |
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
Adjusted income
excluding charges |
|
|
|
15,132 |
|
|
0.43 |
|
|
10,587 |
|
|
0.36 |
Adjustments to
provision for income taxes including impact of ASU 2016-09 |
|
|
|
4,450 |
|
|
0.13 |
|
|
2,310 |
|
|
0.08 |
|
|
|
|
|
|
|
|
|
|
Adjusted net income
(Non-GAAP) |
|
|
$ |
10,682 |
|
$ |
0.30 |
|
$ |
8,277 |
|
$ |
0.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted
average shares outstanding |
|
|
|
35,259 |
|
|
35,259 |
|
|
29,840 |
|
|
29,840 |
|
NOTE: Items identified in the above table are not in
accordance with, or an alternative method for, generally accepted
accounting principles (GAAP) in the United States. These items
should not be reviewed in isolation or considered substitutes of
the Company's financial results as reported in accordance with
GAAP. Due to the nature of these items, it is important to identify
these items and to review them in conjunction with the Company's
financial results reported in accordance with GAAP. The exclusion
of these items also allows investors to compare results of
operations in the current period to prior period’s results based on
the Company’s fundamental business performance and analyze the
operating trends of the business. The exclusion of these items also
allows management to evaluate performance of its business
units. The Company does not provide reconciliations of GAAP
and non-GAAP projections as such projections are intended for
directional purposes only. |
|