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Q3 2013 Earnings Call
May 08, 2013 4:30 pm ET
Roger S. Pondel - Chief Executive Officer and President
Arthur P. Bedrosian - Chief Executive Officer, President, Director, Member of Strategic Planning Committee and Member of Chairman's Committee
Martin P. Galvan - Chief Financial Officer, Vice President of Finance and Treasurer
Dana Flanders - Canaccord Genuity, Research Division
Steven F. Crowley - Craig-Hallum Capital Group LLC, Research Division
Scott R. Henry - Roth Capital Partners, LLC, Research Division
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I'll now turn the call over to Mr. Roger Pondel, Mr. Pondel, you may begin.
Roger S. Pondel
Thanks, Leslie, and good afternoon, everyone. Thank you for joining us today to discuss Lannett Company's fiscal 2013 third quarter financial results. On the call today are Arthur Bedrosian, President and CEO; and Marty Galvan, Chief Financial Officer.
This call is being broadcast live on the Internet at www.lannett.com. A playback will be available for 3 months, accessible on Lannett's website.
I would like to make the cautionary statement and remind everyone that all of the information discussed on today's call is covered under the Safe Harbor Provisions of the Litigation Reform Act. The company's discussion will include forward-looking information reflecting management's current forecasts of certain aspects of the company's future, and actual results could differ materially from those stated or implied.
This afternoon, Arthur will provide a brief overview, and Marty will discuss the financial results for the quarter in more detail, followed by Arthur's concluding remarks. We'll then open the call to questions.
So with that said, I will now turn the call over to Arthur Bedrosian. Arthur?
Arthur P. Bedrosian
Thanks, Roger, and good afternoon, everyone. As you are probably aware, today, we reported excellent results for our fiscal third quarter. In fact, we generated record net sales and net income. The momentum we achieved in recent quarters continued, and we significantly improved our operating performance in all major areas of measurement.
For the third quarter, net sales rose significantly, up 27% over the prior year period, to $39 million. Operating income doubled to $4.7 million, and net income climbed to $3.9 million.
The quarter exceeded our expectations, which is why we pronounced preliminary results last week. I want to take this time to thank our entire team for their hard work, long hours and extraordinary achievements.
With our press release today, we also announced that we are increasing our guidance for the fiscal year, and Marty will provide the details. Marty will review our financial performance in detail momentarily.
The growth we achieved in the quarter reflects solid sales of our base products and growing market penetration from our more recently approved products. Our gross margin was positively impacted by favorable sales mix and price increases, as well as enhanced manufacturing efficiencies related to incremental sales volume.
With that brief overview, I'd like now to introduce our CFO, Marty Galvan, to review the third quarter financials in more detail. Then I will provide an operational update, and we'll open the call to questions. Marty?
Martin P. Galvan
Thank you, Arthur, and good afternoon, everyone. As Arthur mentioned, we posted excellent fiscal third quarter financial results. Starting with the top line, net sales increased 27% to $39.0 million from $30.7 million in last year's fiscal third quarter.
I want to note that the sales growth for the most recent quarter was achieved despite essentially no sales of oxycodone, for which we soon expect FDA approval of our ANDA. We had approximately $700,000 of oxycodone sales in last year's third quarter.
Net sales for our largest product category, thyroid deficiency, grew to $14.0 million or 36% of our total net sales. Our 2 other largest categories, cardiovascular and pain management, had net sales of $7.0 million and $5.0 million, respectively, representing 18% and 13% of our total net sales, respectively. As to net sales of our remaining categories: antibiotic was $3.5 million or 9% of total sales; gallstone was $1.4 million or 4%; obesity was $1.1 million, equal to 3%; migraine was $1.3 million or 3%; glaucoma was $1.6 million or 4%; gout was $1.8 million or 5%; and other represented $2.4 million or 6% of our total net sales.
Gross profit for the fiscal 2013 third quarter rose significantly, to $15.2 million from $10.9 million for last year's third quarter. As a percent of net sales, gross margin rose to 39% from 35% for the fiscal third quarter of last year. The increase was primarily due to favorable sales mix and price increases, along with enhanced manufacturing efficiencies related to our higher sales volume. Strict cost control also was an important contributor.
Regarding operating expenses, R&D expense rose to $5.2 million from $2.9 million a year ago. As we discussed in previous earnings calls this fiscal year, the increase is due to our significant incremental investment in R&D in order to drive future growth. However, we now expect Q4 R&D expense to be in the range of $4.0 million, less than we've previously anticipated, primarily because some of the planned expenses for fiscal 2013 we now expect to be incurred in the first half of fiscal 2014.
SG&A amounted to $5.2 million, down slightly from $5.6 million for the same quarter of last year.