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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