Hi-Tech Pharmacal's third fiscal quarter net sales decrease 7% to $59.9 million

Mar 11 2014

Hi-Tech Pharmacal Co., Inc. (NASDAQ:HITK) today reported results for the third fiscal quarter ended January 31, 2014.

• Net sales of $59.9 million for the third quarter compared to $64.3 million for the same prior year period
• GAAP income of $8.4 million or $0.59 per diluted share for the third quarter
• Adjusted non-GAAP net income of $10.6 million or $0.75 per diluted share for the third quarter
• Net sales of $169.0 million for the nine month period compared to $173.9 million for the same prior year period
• GAAP income of $14.1 million or $1.00 per diluted share for the nine month period
• Adjusted non-GAAP net income of $28.3 million or $2.01 per diluted share for the nine month period

Quarterly Results

For the three months ended January 31, 2014, the Company reported net sales of $59,902,000, a decrease of 7% from $64,331,000 for the same period last year.

During the quarter ended January 31, 2014, net sales of generic pharmaceutical products were $47,761,000, a decrease of 12% compared to $54,148,000 for the same fiscal 2013 period. The primary reason for the decrease was due to lower sales of Fluticasone Propionate nasal spray. Sales of Fluticasone decreased to $10,900,000 from $23,000,000 in the same fiscal 2013 period as the Company sold fewer units at a lower average price. Higher sales of Guaiatussin AC, Lactulose, Clobetasol and sales of the newly launched Bromfenac ophthalmic solution partially offset this decrease.

Sales for the Health Care Products division ("HCP"), which markets the Company's branded OTC products, decreased 20% to $4,106,000 for the three months ended January 31, 2014 compared to $5,104,000 for the same fiscal period in the prior year due to lower sales of Zostrix^® and Sinus Buster^®. Additionally, sales of Diabetic Tussin^® decreased due to a weaker cough, cold and flu season.

Sales for ECR Pharmaceuticals ("ECR"), which markets the Company's branded prescription products, were $8,035,000 for the three months ended January 31, 2014, up 58% from $5,079,000 for the same period in the prior year. The increase was primarily due to a price increase for TussiCaps^®. In addition, sales of our Zolvit^® formula increased during the period after rebranding it as Lortab^®.

Cost of goods sold decreased to $27,962,000 for the three months ended January 31, 2014 from $31,452,000, 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. Additionally, the Company sold more units of higher margin generic product and fewer units of lower margin product. Price increases across most ECR product lines also contributed to this trend.

Selling, general and administrative expenses decreased to $14,212,000 from $16,538,000, a 14% decrease compared to the same fiscal 2013 period. The decrease was partially due to decreases in legal and accounting expenditures, and advertising for the HCP division. As a percentage of sales, SG&A decreased to 24% from 26% for the three months ended January 31, 2014.

Amortization expense for the quarter ended January 31, 2014 was $1,651,000, a slight increase from $1,618,000 for the comparable fiscal 2013 period due to intangible asset purchases during the fiscal year.

For the three months ended January 31, 2014, research and product development costs decreased by 25% to $4,449,000 from $5,964,000 for the comparable fiscal 2013 period due to the timing of spending on projects requiring clinical trials.

For the three months ended January 31, 2014, the Company recorded GAAP net income of $8,351,000, a 41% increase from net income of $5,940,000, for the same period in the prior year. On a fully diluted share basis, EPS increased 37% to $0.59 from $0.43 in the prior year. The Company reported adjusted non-GAAP quarterly net income of $10,605,000 or $0.75 per fully diluted share for the three months ended January 31, 2014, compared to adjusted non-GAAP net income of $8,512,000 or $0.62 per fully diluted share for the same period in the prior year.

On August 26, 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 April of 2014.