Hi-Tech Pharmacal Reports Sales of $58.5 million for the Fourth Quarter Ended April 30, 2013

  Hi-Tech Pharmacal Reports Sales of $58.5 million for the Fourth Quarter   Ended April 30, 2013  Business Wire  AMITYVILLE, N.Y. -- July 9, 2013  Hi-Tech Pharmacal Co., Inc. (NASDAQ: HITK) today reported results for the fourth quarter and year ended April 30, 2013.    *Net sales of $58.5 million for the fourth quarter compared to $61.3     million for the same prior year period   *GAAP loss of $4.6 million or $0.34 per diluted share for the fourth     quarter   *Adjusted non-GAAP net income of $6.9 million or $0.50 per diluted share     for the fourth quarter   *Net sales of $232.4 million for the fiscal year compared to $230.0 million     for the same prior year period   *GAAP income of $16.3 million or $1.19 per diluted share for the fiscal     year   *Adjusted non-GAAP net income of $31.0 million or $2.28 per diluted share     for the fiscal year               Fourth Quarter                       Fiscal Year                   2013            2012              2013            2012 Net              $ 58,473,000         $ 61,292,000       $ 232,384,000       $ 230,003,000 sales GAAP net         $ (4,617,000 )       $ 9,989,000        $ 16,251,000        $ 48,351,000 income Adjusted non-GAAP         $ 6,868,000          $ 11,033,000       $ 31,049,000        $ 51,796,000 net income GAAP Diluted          $ (0.34      )       $ 0.73             $ 1.19              $ 3.59 EPS Adjusted non-GAAP         $ 0.50               $ 0.81             $ 2.28              $ 3.85 Diluted EPS  (see Table I for reconciliation to GAAP numbers)  Fourth Quarter Results  For the three months ended April 30, 2013, the Company reported net sales of $58,473,000, a decrease of 5% from $61,292,000 for the same period last year.  During the quarter ended April 30, 2013, net sales of generic pharmaceutical products were $48,906,000, a decrease of 7% compared to $52,699,000 for the same fiscal 2012 period. The primary reason for the change was a decrease in sales of Fluticasone Propionate nasal spray. Sales of Fluticasone Propionate nasal spray totaled $19,600,000, down from $28,400,000 in the same fiscal 2012 period due to lower average prices. New product launches such as Nystatin oral suspension, Lidocaine 5% ointment, Levetiracetam oral solution, and Paregoric partially offset this decline in sales.  Sales for the Health Care Products division (“HCP”), which markets the Company’s branded OTC products, decreased 7% to $4,912,000 for the three months ended April 30, 2013 compared to $5,265,000 for the same fiscal period in the prior year. The decrease was primarily due to lower sales of Diabetic Tussin^® which was partially offset by an increase in sales of MagOx^®.  Sales for ECR Pharmaceuticals (“ECR”), which markets the Company’s branded prescription products, were $4,655,000 for the three months ended April 30, 2013, up 40% from $3,328,000 for the same period in the prior year. The increase was due to increased sales of TussiCaps^®, which was acquired in fiscal 2012. Higher sales of Bupap^® also contributed to this increase in ECR sales for the quarter.  Cost of goods sold increased to $31,182,000 for the three months ended April 30, 2013 from $29,461,000, and increased as a percentage of sales to 53% from 48% of sales. The increase in cost of goods sold as a percentage of net sales is primarily due to pricing declines for Fluticasone Propionate nasal spray. This trend was partially offset by launches of new generic products with above average margins and increased sales of higher margin products in the ECR subsidiary.  Selling, general and administrative expenses increased to $14,700,000 from $13,731,000, a 7% increase compared to the same fiscal 2012 period. The increase was primarily due to additional selling and marketing expenses in the ECR subsidiary. As a percentage of sales, SG&A increased to 25% from 23% for the three months ended April 30, 2013.  Amortization expense for the quarter ended April 30, 2013 was $1,606,000, a slight decrease from $1,618,000 for the comparable fiscal 2012 period.  For the three months ended April 30, 2013, Research and Development costs increased by 5% to $3,552,000 from $3,372,000 for the comparable fiscal 2012 period as a result of increased spending on internal projects for the generic division, which include five projects that require clinical trials. Clinical trials for two of these projects were ongoing during the quarter.  In the fourth quarter of 2013, the Company established a $15,500,000 settlement and loss contingency accrual to cover potential settlement or other outcomes in connection with the investigation by the Texas Health and Human Services Commission relating to the submission of price information. Additionally, the Company established a $700,000 accrual for the settlement of a class action lawsuit relating to the advertising of Nasal Ease^®.  The Company reported adjusted non-GAAP quarterly net income of $6,868,000 or $0.50 per fully diluted share for the three months ended April 30, 2013, compared to adjusted non-GAAP net income of $11,033,000 or $0.81 per fully diluted share for the same period in the prior year.  Full Year Results  For the fiscal year ended April 30, 2013, the Company reported net sales of $232,384,000, an increase of 1% from $230,003,000 for the same period last year.  Sales of generic pharmaceutical products were $196,262,000, a decrease of 1% compared to $197,877,000 for the prior year. The decrease was primarily due to pricing declines of Fluticasone Propionate nasal spray. Sales of Fluticasone Propionate nasal spray decreased to $86,100,000 for the current fiscal year versus $99,400,000 in the previous fiscal year as the Company sold more units at a lower average price. The Company benefited from recent product launches such as Nystatin oral suspension, Lidocaine 5% ointment, Levetiracetam oral solution, and Paregoric which helped offset lower sales of Fluticasone.  Sales for the HCP division, which markets the Company’s branded OTC products, increased 3% to $17,700,000 for the fiscal year ended April 30, 2013 compared to $17,234,000 for the prior year. Stronger sales of Mag-Ox^® led the increase in addition to sales of Sinus Buster^®, which was acquired in the prior year.  ECR, which markets the Company’s branded prescription products, contributed $18,422,000 in sales for the full fiscal year, up 24% from $14,892,000 for the fiscal year ended April 30, 2012. The increase was due to higher sales of TussiCaps^®, which was acquired in fiscal 2012. Increased sales of Bupap^® and DexPak^® also contributed to this increase in ECR sales for the fiscal year.  Cost of goods sold as a percentage of sales was 50% for the year ended April 30, 2013 compared to 44% for the year ended April 30, 2012. Pricing declines for Fluticasone Propionate nasal spray were partially offset by launches of new generic products with above average margins as well as increased sales in the higher margin ECR subsidiary.  Selling, general and administrative expenses increased to $53,575,000 from $44,698,000 primarily due to an increase of $4,428,000 in selling, marketing and severance costs at the ECR subsidiary as the Company restructured its sales organization. Additionally, advertising expense increased to $10,603,000 in fiscal 2013 from $8,864,000 in fiscal 2012 primarily to support the re-launch of Nasal Ease^® and the newly acquired Sinus Buster^® brand in the HCP division.  Amortization expense increased to $6,742,000 from $5,341,000, a 26% increase compared to the same fiscal 2012 period. The increase was due to intangible asset purchases over the last fiscal year which includes TussiCaps^® and Sinus Buster^®.  Research and Development costs increased by 41% to $17,331,000 from $12,256,000 as the Company increased spending on internal projects for the generic division. Additionally, the Company increased expenditures on five projects requiring clinical trials, four of which it has undertaken with partners. Clinical trials for three of these projects were ongoing during the year.  Royalty income decreased to $1,789,000 from $3,000,000 primarily because royalties on sales of certain divested products came to an end in June 2012.  In the fourth quarter of 2013, the Company established a $15,500,000 settlement and loss contingency accrual to cover potential settlement or other outcomes in connection with the investigation by the Texas Health and Human Services Commission relating to the submission of price information. Additionally, the Company established a $700,000 accrual for the settlement of a class action lawsuit relating to the advertising of Nasal Ease^®.  Adjusted non-GAAP net income decreased to $31,049,000 or $2.28 per fully diluted share in fiscal 2013 compared to adjusted non-GAAP net income of $51,796,000 or $3.85 per fully diluted share for the prior year.  David Seltzer, President and CEO, commented: “The Company showed growth while facing several challenges along the way. Pricing of Fluticasone Nasal Spray, our best selling product saw steeper price declines than we expected throughout the fiscal year. However we continue to reduce our costs to partially offset this pricing decline. In addition, we had some one-time expenses associated with restructuring the ECR sales force under new leadership of Dr. Cameron Durrant. In our Health Care Products division, we spent more heavily on advertising to promote consumer products Nasal Ease^® and Sinus Buster^®, which we acquired last year. We believe that the investment we made in each of our branded divisions will enable them to grow and become more profitable. The increase in research and development spending in our generic division enabled us to build a pipeline of products developed in house and some recently licensed products which will drive our future growth.”  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 expense 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.  Conference Call Information  The Company will hold a conference call to discuss its financial results today, July 9, 2013, at 10 a.m. Eastern Time.  To access the conference call, dial toll free 877-280-4953, or 857-244-7310 for international callers, five minutes before the conference. The passcode of the conference call is 15156675.  A replay of the conference call will be available after 12:00 p.m. on July 9, 2013, for one week by calling toll free 888-286-8010, or 617-801-6888 for international callers. The passcode for the replay is 38645450. Additionally, the conference call will be available on the Hi-Tech Pharmacal Investor Relations web page at www.hitechpharm.com.  Other Information  The following table shows Hi-Tech’s current R&D pipeline:  (Dollars in Billions)                                                        Hi-Tech           Partnered        Total Products                  #      Market     #     Market     #    Market At FDA                    14     $  1.0     4     $  1.6     18     $  2.6 Development               21     $  2.5     4     $  1.4     25     $  3.9  The pipeline includes sterile ophthalmic products, controlled substances, topicals, oral solutions and suspensions and solid dosage forms.  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, the impact of competitive products and pricing, product demand and market acceptance, new product development, the regulatory environment, including without limitation, reliance on key strategic alliances, availability of raw materials, fluctuations in operating results, loss of customers or employees, the possibility that legal proceedings may be instituted against Hi-Tech and 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.                                                                               Fiscal Year Ended April 30,             Three Months Ended April 30,                       2013            2012              2013           2012        Net sales            $ 232,384,000       $ 230,003,000       $ 58,473,000       $ 61,292,000 Cost of goods         117,304,000       100,804,000       31,182,000       29,461,000  sold                                                                                  Gross profit           115,080,000         129,199,000         27,291,000         31,831,000                                                                                  Costs and expenses: Selling, general and            53,575,000          44,698,000          14,700,000         13,731,000 administrative expense Amortization           6,742,000           5,341,000           1,606,000          1,618,000 expense Research and product                17,331,000          12,256,000          3,552,000          3,372,000 development costs Royalty income         (1,789,000  )       (3,000,000  )       (386,000   )       (707,000   ) Contract research               (102,000    )       (428,000    )       (100,000   )       (202,000   ) (income) Settlements and loss               16,200,000          —                   16,200,000         — contingencies Interest               541,000             410,000             100,000            163,000 expense Interest (income) and          (291,000    )      (887,000    )      (108,000   )      (191,000   ) other                                                                                  Total                $ 92,207,000       $ 58,390,000       $ 35,564,000      $ 17,784,000                                                                                   Income (loss) before                 22,873,000          70,809,000          (8,273,000 )       14,047,000 provision for income taxes Provision for income tax            6,622,000         22,458,000        (3,656,000 )      4,058,000   expense (benefit)                                                                                  Net income           $ 16,251,000       $ 48,351,000       $ (4,617,000 )     $ 9,989,000   (loss)                                                                                  Basic earnings (loss) per           $ 1.22             $ 3.75             $ (0.34      )     $ 0.77        share                                                                                  Diluted earnings             $ 1.19             $ 3.59             $ (0.34      )     $ 0.73        (loss) per share                                                                                  Weighted average common shares                 13,302,000          12,878,000          13,571,000         13,049,000 outstanding,  basic Effect of potential             345,000           573,000           —                629,000     common shares                                                                                  Weighted average common shares                13,647,000        13,451,000        13,571,000       13,678,000  outstanding,  diluted                                                                                                 Table I  Hi-Tech Pharmacal Co., Inc.  Reconciliation of Non-GAAP Measures                    Three Months Ended April 30,                      2013                                                       2012                                                                                            Non-GAAP                Non-GAAP                              Non-GAAP               Non-GAAP                      GAAP                                                      GAAP                                                                          Adjustments             As Adjusted                           Adjustments            As Adjusted Net sales            $ 58,473,000       $ —                     $ 58,473,000       $ 61,292,000       $ —                    $ 61,292,000 Cost of goods         31,182,000       —                     31,182,000       29,461,000       —                    29,461,000  sold                                                                                                                               Gross profit           27,291,000         —                       27,291,000         31,831,000         —                      31,831,000                                                                                                                               Costs and expenses: Selling, general and                        14,700,000         —                       14,700,000         13,731,000         —                      13,731,000 administrative expense Amortization           1,606,000          1,606,000(a  )          —                  1,618,000          1,618,000(a )          — expense Research and product                        3,552,000          —                       3,552,000          3,372,000          —                      3,372,000 development costs Royalty income         (386,000   )       —                       (386,000   )       (707,000   )       —                      (707,000   ) Contract research               (100,000   )       —                       (100,000   )       (202,000   )       —                      (202,000   ) (income) Settlements and loss               16,200,000         16,200,000(b )          —                  —                  —                      —  contingencies Interest               100,000            —                       100,000            163,000            —                      163,000 expense Interest (income) and          (108,000   )      —                     (108,000   )      (191,000   )      —                    (191,000   )  other                                                                                                                               Total                $ 35,564,000      $ 17,806,000           $ 17,758,000      $ 17,784,000      $ 1,618,000           $ 16,166,000                                                                                                                                Income (loss) before                        (8,273,000 )       (17,806,000  )          9,533,000          14,047,000         (1,618,000  )          15,665,000 provision for income taxes Provision for income                       (3,656,000 )      (6,321,000   )(c)      2,665,000        4,058,000        (574,000    )(c)      4,632,000   tax expense (benefit)                                                                                                                               Net income           $ (4,617,000 )     $ (11,485,000  )        $ 6,868,000       $ 9,989,000       $ (1,044,000  )        $ 11,033,000  (loss)                                                                                                                               Basic earnings (loss)               $ (0.34      )                             $ 0.51            $ 0.77                                   $ 0.85         per share                                                                                                                               Diluted earnings (loss)               $ (0.34      )                             $ 0.50            $ 0.73                                   $ 0.81         per share                                                                                                                               Weighted average common                        13,571,000                                 13,571,000         13,049,000                                13,049,000 shares outstanding, basic Effect of potential             —                                        183,000          629,000                                 629,000     common shares                                                                                                                               Weighted average common                       13,571,000                               13,754,000       13,678,000                              13,678,000  shares outstanding, diluted                                                                                                                                                                                    Fiscal Year Ended April 30,                      2013                                                         2012                                                                                               Non-GAAP                Non-GAAP                                Non-GAAP               Non-GAAP                      GAAP                                                        GAAP                                                                            Adjustments             As Adjusted                             Adjustments            As Adjusted Net sales            $ 232,384,000       $ —                     $ 232,384,000       $ 230,003,000       $ —                    $ 230,003,000 Cost of goods         117,304,000       —                     117,304,000       100,804,000       —                    100,804,000  sold                                                                                                                                  Gross profit           115,080,000         —                       115,080,000         129,199,000         —                      129,199,000                                                                                                                                  Costs and expenses: Selling, general and                        53,575,000          —                       53,575,000          44,698,000          —                      44,698,000 administrative expense Amortization           6,742,000           6,742,000(a  )          —                   5,341,000           5,341,000(a )          — expense Research and product                        17,331,000          —                       17,331,000          12,256,000          —                      12,256,000 development costs Royalty income         (1,789,000  )       —                       (1,789,000  )       (3,000,000  )       —                      (3,000,000  ) Contract research               (102,000    )       —                       (102,000    )       (428,000    )       —                      (428,000    )  (income) Settlements and loss               16,200,000          16,200,000(b )          —                   —                   —                      —  contingencies Interest               541,000             —                       541,000             410,000             —                      410,000 expense Interest (income) and          (291,000    )      —                     (291,000    )      (887,000    )      —                    (887,000    ) other                                                                                                                                  Total                $ 92,207,000       $ 22,942,000           $ 69,265,000       $ 58,390,000       $ 5,341,000           $ 53,049,000                                                                                                                                    Income (loss) before                        22,873,000          (22,942,000  )          45,815,000          70,809,000          (5,341,000  )          76,150,000 provision for income taxes Provision for income                       6,622,000         (8,144,000   )(c)      14,766,000        22,458,000        (1,896,000  )(c)      24,354,000   tax expense (benefit)                                                                                                                                  Net income           $ 16,251,000       $ (14,798,000  )        $ 31,049,000       $ 48,351,000       $ (3,445,000  )        $ 51,796,000   (loss)                                                                                                                                  Basic earnings       $ 1.22                                     $ 2.33             $ 3.75                                    $ 4.02         per share                                                                                                                                  Diluted earnings per         $ 1.19                                     $ 2.28             $ 3.59                                    $ 3.85         share                                                                                                                                  Weighted average common                        13,302,000                                  13,302,000          12,878,000                                 12,878,000 shares outstanding, basic Effect of potential             345,000                                   345,000           573,000                                  573,000      common shares                                                                                                                                  Weighted average common                       13,647,000                                13,647,000        13,451,000                               13,451,000   shares outstanding, diluted  (a) Amortization expense (b) Net charge related to settlements and loss contingencies (c) Total tax effect for non-GAAP pre-tax adjustments measured at enacted statutory rates  Contact:  Hi-Tech Pharmacal Co., Inc. William Peters, 631-789-8228 CFO  
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