Hi-Tech Pharmacal Co., Inc. (NASDAQ:HITK) today reported results
for the second fiscal quarter ended October 31, 2013.
- Net sales of $58.6 million for the
second quarter compared to $57.5 million for the same prior year
period
- GAAP income of $1.2 million or $0.08
per diluted share for the second quarter
- Adjusted non-GAAP net income of $10.0
million or $0.71 per diluted share for the second quarter
- Net sales of $109.1 million for the six
month period compared to $109.6 million for the same prior year
period
- GAAP income of $5.7 million or $0.41
per diluted share for the six month period
- Adjusted non-GAAP net income of $17.7
million or $1.26 per diluted share for the six month period
Three Months Ended
October 31, Six Months Ended October 31, 2013
2012 2013 2012 Net
sales $ 58,601,000 $ 57,537,000 $ 109,102,000 $ 109,580,000 GAAP
net income $ 1,187,000 $ 8,924,000 $ 5,737,000 $ 14,928,000
Adjusted non-GAAP net income $ 10,013,000 $ 11,426,000 $ 17,727,000
$ 19,740,000 GAAP Diluted EPS $ 0.08 $ 0.66 $ 0.41 $ 1.10 Adjusted
non-GAAP Diluted EPS $ 0.71 $ 0.84 $ 1.26 $ 1.45 Diluted Shares
14,066,000 13,584,000 14,055,000 13,573,000
(see Table I for reconciliation to
GAAP numbers)
Quarterly Results
For the three months ended October 31, 2013, the Company
reported net sales of $58,601,000, an increase of 2% from
$57,537,000 for the same period last year.
During the quarter ended October 31, 2013, net sales of generic
pharmaceutical products were $47,732,000, an increase of 1%
compared to $47,286,000 for the same fiscal 2013 period. The
primary reason for the slight change was due to higher sales of
Buprenorphine, Clobetasol and Lidocaine ointment which was
partially offset by a decrease in sales of Fluticasone Propionate
nasal spray. Sales of Fluticasone Propionate nasal spray totaled
$13,700,000, down from $21,500,000 in the same fiscal 2013 period
as the Company sold fewer units at a lower average price.
Sales for the Health Care Products division (“HCP”), which
markets the Company’s branded OTC products, decreased 12% to
$4,100,000 for the three months ended October 31, 2013 compared to
$4,658,000 for the same fiscal period in the prior year. The
decrease was primarily due to lower sales of Zostrix® and
Diabetiderm® which were partially offset by a reduction in the use
of promotional discounts for Nasal Ease®.
Sales for ECR Pharmaceuticals (“ECR”), which markets the
Company’s branded prescription products, were $6,769,000 for the
three months ended October 31, 2013, up 21% from $5,593,000 for the
same period in the prior year. The increase was primarily due to a
price increase for TussiCaps®.
Cost of goods sold decreased to $27,291,000 for the three months
ended October 31, 2013 from $27,948,000, and decreased as a
percentage of sales to 47% from 49% of sales. The decrease in cost
of goods sold as a percentage of net sales is primarily due to
lower input costs and new manufacturing equipment that has enabled
productivity improvements. Price increases across most ECR product
lines and a reduction in pricing promotions in the HCP division
also contributed to this trend.
Selling, general and administrative expenses increased to
$13,607,000 from $11,706,000, a 16% increase compared to the same
fiscal 2013 period. The increase was due to several factors
including legal expenses related to the sale of the Company, a
$750,000 fairness opinion fee paid to Nomura Securities, an
increased number of contract sales representatives in the ECR
division and an increase in stock-based compensation. As a
percentage of sales, SG&A increased to 23% from 20% for the
three months ended October 31, 2013.
Amortization expense for the quarter ended October 31, 2013 was
$1,651,000, a decrease of 6% from $1,761,000 for the comparable
fiscal 2013 period as certain intangibles reached full amortization
in the prior year.
For the three months ended October 31, 2013, Research and
Development costs increased by 52% to $5,091,000 from $3,343,000
for the comparable fiscal 2013 period as a result of spending on
projects requiring clinical trials.
In the second fiscal quarter of 2014, the Company increased its
accrual in connection with the investigation by the Texas Health
and Human Services Commission by $9,500,000 based on current
information and discussions with the State of Texas.
For the three months ended October 31, 2013, the Company
recorded GAAP net income of $1,187,000, a decrease from net income
of $8,924,000, for the same period in the prior year. On a fully
diluted share basis, EPS decreased to $0.08 from $0.66 in the prior
year. The Company reported adjusted non-GAAP quarterly net income
of $10,013,000 or $0.71 per fully diluted share for the three
months ended October 31, 2013, compared to adjusted non-GAAP net
income of $11,426,000 or $0.84 per fully diluted share for the same
period in the prior year.
On August 27, 2013, the Company entered into a definitive
agreement under which Akorn, Inc. (“Akorn”) will acquire the
Company for cash. Under the terms of the agreement, Akorn will
acquire the Company for $640,000,000, or $43.50 per share. Akorn
intends to fund the transaction through a combination of Hi-Tech
cash assumed and approximately $600,000,000 in term loan
borrowings. The acquisition will be subject to customary
conditions, including termination of the waiting period under the
provisions of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended. Pending the satisfaction of such customary
conditions, the Company anticipates closing the transaction in the
first quarter of 2014.
Non-GAAP Financial Measures
The Company is disclosing non-GAAP financial measures when
providing financial results. Primarily due to settlements and loss
contingency accruals, the Company believes that an evaluation of
its ongoing operations (and comparisons of its current operations
with historical and future operations) would be difficult if the
disclosure of its financial results were limited to financial
measures prepared only in accordance with accounting principles
generally accepted in the U.S. (“GAAP”). In addition to disclosing
its financial results determined in accordance with GAAP, the
Company is disclosing certain non-GAAP results that exclude items
such as amortization and depreciation expense, share-based
compensation expense, interest expense and income, and other costs
related to settlements and loss contingency accruals in order to
supplement investors' and other readers' understanding and
assessment of the Company's financial performance, because the
Company's management uses these measures internally for
forecasting, budgeting and measuring its operating performance.
Whenever the Company uses such a non-GAAP measure, it will provide
a reconciliation of non-GAAP financial measures to the most closely
applicable GAAP financial measure. Investors and other readers are
encouraged to review the related GAAP financial measures and the
reconciliation of non-GAAP measures to their most closely
applicable GAAP measure set forth below and should consider
non-GAAP measures only as a supplement to, not as a substitute for
or as a superior measure to, measures of financial performance
prepared in accordance with GAAP.
Other Information
Hi-Tech is a specialty pharmaceutical company developing,
manufacturing and marketing generic and branded prescription and
OTC products. The Company specializes in difficult to manufacture
liquid and semi-solid dosage forms and produces a range of sterile
ophthalmic, otic and inhalation products. The Company’s Health Care
Products division is a leading developer and marketer of OTC
products for the diabetes marketplace. Hi-Tech’s ECR
Pharmaceuticals subsidiary markets branded prescription
products.
This press release contains certain future projections and
forward-looking statements (statements which are not historical
facts) with respect to the anticipated future performance of
Hi-Tech made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Such future projections
and forward-looking statements are not assurances, promises or
guarantees and investors are cautioned that all future projections
and forward-looking statements involve significant business,
economic and competitive risks and uncertainties, many of which are
beyond Hi-Tech’s ability to control or estimate precisely,
including, but not limited to, (1) the impact of competitive
products and pricing, (2) product demand and market acceptance, (3)
new product development, (4) the regulatory environment, (5)
reliance on key strategic alliances, (6) availability of raw
materials, (7) fluctuations in operating results, (8) loss of
customers or employees, (9) the possibility that legal proceedings
may be instituted against Hi-Tech, (10) the occurrence of any
event, change or other circumstances that could give rise to the
termination of Hi-Tech’s merger agreement with Akorn, (11) the
failure to obtain Hi-Tech stockholder approval of the merger with
Akorn or the failure to satisfy any of the other closing conditions
to the merger, (12) the failure of Akorn to obtain the necessary
financing arrangements set forth in the commitment letter providing
for its financing of the merger, (13) risks related to disruption
of management’s attention from Hi-Tech’s ongoing business
operations due to the transaction, (14) the effect of the
announcement of the merger on the ability of Hi-Tech to retain and
hire key personnel and maintain relationships with its customers,
suppliers and others with whom it does business, or on its
operating results and business generally, and (15) other results
and other risks detailed from time to time in Hi-Tech’s filings
with the Securities and Exchange Commission. The actual results
will vary from the projected results and such variations may be
material. These statements are based on management’s current
expectations and assumptions concerning the future performance of
Hi-Tech and are naturally subject to uncertainty and changes in
circumstances. No representations or warranties are made as to the
accuracy or completeness of any of the information contained
herein, including, but not limited to, any assumptions or
projections contained herein or forward-looking statements based
thereon. We caution you not to place undue reliance upon any such
forward-looking statements which speak only as of the date made,
except to the extent specifically dated as of an earlier date.
Hi-Tech is under no obligation, and expressly disclaims any such
obligation, to update, alter or correct any inaccuracies herein,
whether as a result of new information, future events or
otherwise.
This press release does not constitute a solicitation of any
vote or approval on the merger. In connection with the proposed
merger transaction, Hi-Tech filed with the Securities and Exchange
Commission (“SEC”) a definitive proxy statement on November 7, 2013
and mailed or otherwise provided it to its stockholders. On
November 27, 2013, Hi-Tech filed with the SEC a proxy statement
supplement which it mailed or otherwise provided to its
stockholders. BEFORE MAKING ANY VOTING DECISION ON THE MERGER,
HI-TECH’S STOCKHOLDERS ARE URGED TO READ THE DEFINITIVE PROXY
STATEMENT AND THE PROXY STATEMENT SUPPLEMENT IN THEIR ENTIRETY AND
ANY OTHER DOCUMENTS FILED WITH THE SEC IN CONNECTION WITH THE
PROPOSED MERGER OR INCORPORATED BY REFERENCE THEREIN BECAUSE THEY
WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER AND
THE PARTIES TO THE PROPOSED MERGER. Hi-Tech’s stockholders and
other investors will be able to obtain a free copy of the proxy
statement, proxy statement supplement, as well as other filings
containing information about Hi-Tech and Akorn, without charge, at
the SEC’s Internet site (http://www.sec.gov). Copies of the proxy
statement, proxy statement supplement and other documents filed by
Hi-Tech with the SEC may also be obtained, without charge, by
directing a request to Hi-Tech Pharmacal Co., Inc., 369 Bayview
Avenue, Amityville, New York 11701, Attention: Investor Relations,
Telephone: (631) 789-8228.
Participants in the
Solicitation
Hi-Tech and its directors and executive officers may be deemed,
under SEC rules, to be participants in the solicitation of proxies
from the stockholders of Hi-Tech in connection with the proposed
transaction. Information regarding the names, affiliations and
interests of these persons in the proposed transaction is included
in the Hi-Tech proxy statement referred to above filed with the
SEC. Additional information regarding the directors and executive
officers of Hi-Tech is also included in Hi-Tech’s 2013 annual
report, which was filed with the SEC on July 11, 2013. These
documents are or will be available free of charge at the SEC’s web
site (http://www.sec.gov) and from Investor Relations at Hi-Tech at
the address described above.
Three Months
Ended October 31, Six Months Ended October 31,
2013 2012 2013
2012 Net sales $ 58,601,000 $ 57,537,000 $ 109,102,000 $
109,580,000 Cost of goods sold 27,291,000
27,948,000 52,367,000 54,670,000
Gross profit 31,310,000 29,589,000 56,735,000 54,910,000
Costs and expenses: Selling, general and administrative
expense 13,607,000 11,706,000 26,549,000 22,337,000 Amortization
expense 1,651,000 1,761,000 3,309,000 3,518,000 Research and
product development costs 5,091,000 3,343,000 9,050,000 7,815,000
Royalty income (276,000 ) (400,000 ) (570,000 ) (1,035,000 )
Contract research (income) (55,000 ) (2,000 ) (554,000 ) (2,000 )
Settlements and loss contingencies 9,500,000 — 10,200,000 —
Interest expense 69,000 147,000 176,000 303,000 Interest (income)
and other (52,000 ) (77,000 ) (90,000 )
(123,000 ) Total $ 29,535,000 $ 16,478,000 $
48,070,000 $ 32,813,000 Income (loss) before
provision for income taxes 1,775,000 13,111,000 8,665,000
22,097,000 Provision for income tax expense (benefit)
588,000 4,187,000 2,928,000
7,169,000 Net income (loss) $ 1,187,000
$ 8,924,000 $ 5,737,000 $ 14,928,000
Basic earnings (loss) per share $ 0.09 $ 0.67 $ 0.42
$ 1.13 Diluted earnings (loss) per share $
0.08 $ 0.66 $ 0.41 $ 1.10
Weighted average common shares outstanding, basic 13,690,000
13,238,000 13,635,000 13,154,000 Effect of potential common shares
376,000 346,000 420,000
419,000 Weighted average common shares
outstanding, diluted 14,066,000 13,584,000
14,055,000 13,573,000
Table I
Hi-Tech Pharmacal Co., Inc.
Reconciliation of Non-GAAP
Measures
Three Months Ended October 31, 2013
2012 GAAP
Non-GAAP Adjustments
Non-GAAAs Adjusted
GAAP
Non-GAAP Adjustments
Non-GAAPAs Adjusted
Net sales $ 58,601,000 $ — $ 58,601,000 $ 57,537,000 $ — $
57,537,000 Cost of goods sold 27,291,000
141,000(a ) 27,150,000 27,948,000
125,000(a ) 27,823,000 Gross profit
31,310,000 (141,000 ) 31,451,000 29,589,000 (125,000 ) 29,714,000
Costs and expenses: Selling, general and administrative
expense 12,444,000 957,000(a ) 11,487,000 10,699,000 735,000(a )
9,964,000 Amortization expense 1,651,000 1,651,000(b ) — 1,761,000
1,761,000(b ) — Depreciation expense 1,163,000 1,163,000(c ) —
1,007,000 1,007,000(c ) — Research and product development costs
5,091,000 255,000(a ) 4,836,000 3,343,000 181,000(a ) 3,162,000
Royalty income (276,000 ) — (276,000 ) (400,000 ) — (400,000 )
Contract research (income) (55,000 ) — (55,000 ) (2,000 ) — (2,000
) Settlements and loss contingencies 9,500,000 9,500,000(d ) — — —
— Interest expense 69,000 69,000(e ) — 147,000 147,000(e ) —
Interest (income) and other (52,000 ) (52,000 )(f)
— (77,000 ) (77,000 )(f) —
Total $ 29,535,000 $ 13,543,000 $
15,992,000 $ 16,478,000 $ 3,754,000 $
12,724,000 Income (loss) before provision for income
taxes 1,775,000 (13,684,000 ) 15,459,000 13,111,000 (3,879,000 )
16,990,000 Provision for income tax expense (benefit)
588,000 (4,858,000 )(g) 5,446,000
4,187,000 (1,377,000 )(g) 5,564,000
Net income (loss) $ 1,187,000 $ (8,826,000 ) $
10,013,000 $ 8,924,000 $ (2,502,000 ) $ 11,426,000
Basic earnings (loss) per share $ 0.09 $ 0.73
$ 0.67 $ 0.86 Diluted earnings (loss)
per share $ 0.08 $ 0.71 $ 0.66 $ 0.84
Weighted average common shares outstanding, basic 13,690,000
13,690,000 13,238,000 13,238,000 Effect of potential common shares
376,000 376,000 346,000
346,000 Weighted average common shares
outstanding, diluted 14,066,000 14,066,000
13,584,000 13,584,000
Six Months Ended October 31,
2013 2012 GAAP
Non-GAAP Adjustments
Non-GAAP
As Adjusted
GAAP
Non-GAAP Adjustments
Non-GAAP
As Adjusted
Net sales $ 109,102,000 $ — $ 109,102,000 $ 109,580,000 $ — $
109,580,000 Cost of goods sold 52,367,000
282,000(a ) 52,085,000 54,670,000
217,000(a ) 54,453,000 Gross profit
56,735,000 (282,000 ) 57,017,000 54,910,000 (217,000 ) 55,127,000
Costs and expenses: Selling, general and administrative
expense 24,250,000 1,914,000(a ) 22,336,000 20,401,000 1,271,000(a
) 19,130,000 Amortization expense 3,309,000 3,309,000(a ) —
3,518,000 3,518,000(a ) — Depreciation expense 2,299,000
2,299,000(b ) — 1,936,000 1,936,000(b ) — Research and product
development costs 9,050,000 499,000(a ) 8,551,000 7,815,000
338,000(a ) 7,477,000 Royalty income (570,000 ) — (570,000 )
(1,035,000 ) — (1,035,000 ) Contract research (income) (554,000 ) —
(554,000 ) (2,000 ) — (2,000 ) Settlements and loss contingencies
10,200,000 10,200,000(d ) — — — — Interest expense 176,000
176,000(e ) — 303,000 303,000(e ) — Interest (income) and other
(90,000 ) (90,000 )(f) —
(123,000 ) (123,000 )(f) — Total $
48,070,000 $ 18,307,000 $ 29,763,000 $
32,813,000 $ 7,243,000 $ 25,570,000
Income (loss) before provision for income taxes 8,665,000
(18,589,000 ) 27,254,000 22,097,000 (7,460,000 ) 29,557,000
Provision for income tax expense (benefit) 2,928,000
(6,599,000 )(g) 9,527,000 7,169,000
(2,648,000 )(g) 9,817,000 Net
income (loss) $ 5,737,000 $ (11,990,000 ) $ 17,727,000
$ 14,928,000 $ (4,812,000 ) $ 19,740,000
Basic earnings per share $ 0.42 $ 1.30 $ 1.13
$ 1.50 Diluted earnings per share $ 0.41
$ 1.26 $ 1.10 $ 1.45 Weighted
average common shares outstanding, basic 13,635,000 13,635,000
13,154,000 13,154,000 Effect of potential common shares
420,000 420,000 419,000
419,000 Weighted average common shares outstanding,
diluted 14,055,000 14,055,000
13,573,000 13,573,000 (a)
Share-based compensation expense (b) Amortization
expense (c) Depreciation expense (d) Net charge related to
settlements and loss contingencies (e) Interest expense (f)
Interest (income) and other (g) Total tax effect for non-GAAP
pre-tax adjustments measured at enacted statutory rates
Hi-Tech Pharmacal Co., Inc.William Peters, CFO, 631-789-8228
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