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ACETO Reports Fiscal 2016 Third Quarter Results

PORT WASHINGTON, N.Y., May 05, 2016 (GLOBE NEWSWIRE) -- ACETO Corporation (Nasdaq:ACET), an international company engaged in the marketing, sale and distribution of Human Health products, Pharmaceutical Ingredients and Performance Chemicals, announced today financial results for the third quarter of fiscal 2016 ended March 31, 2016.

Third Quarter Fiscal 2016 versus Third Quarter Fiscal 2015

  • Net sales of $157.9 million versus $145.8 million, an 8.3% increase
  • Gross profit of $38.3 million versus $36.6 million, a 4.6% increase
  • Net income of $10.4 million versus $8.4 million, a 23.9% increase
  • Diluted EPS of $0.35 versus $0.29, a 20.7% increase
  • Non-GAAP Adjusted Net Income of $12.5 million versus $10.0 million, a 24.2% increase
  • Non-GAAP Adjusted EPS of $0.42 versus $0.34, a 23.5% increase

Management Commentary

“We are pleased with the results we achieved in the third quarter of fiscal 2016.  Consistent with our performance for the first half of fiscal 2016 both GAAP and non-GAAP Adjusted EPS growth for the third quarter were strong and well ahead of net sales growth,” said Sal Guccione, Chief Executive Officer of ACETO.

“Each of our business segments contributed to the 8.3% increase in net sales.  Human Health, our largest segment, increased sales by 4.4% driven by growth in our Rising Pharmaceuticals generic business. Pharmaceutical Ingredients realized strong sales from international markets and grew by 13% in the quarter, producing an above-average contribution to total company net sales. Performance Chemicals, benefitting from seasonally strong agricultural sales, also contributed to the quarter’s sales growth. Gross profit for the quarter increased by 4.6% driven by growth in both the Pharmaceutical Ingredients and Performance Chemicals segments partially offset by a modest decrease in the Human Health segment,” Mr. Guccione added.

“As we enter the last quarter of our fiscal year, we remain on track with our previous guidance for fiscal 2016 and expect to achieve a low single-digit increase in net sales, a high single-digit to low double-digit increase in net income on a GAAP basis, and low double-digit growth on a non-GAAP Adjusted basis.  This outlook for the balance of fiscal 2016 takes into account increased competition in our Rising Pharmaceuticals business and sales headwinds on specialty chemicals arising from the devaluation of the Chinese currency.  We continue to invest in new products and, having spent $6.3 million in R&D for the first nine months of fiscal 2016, we project our full year spend to be approximately $8 million.  We therefore expect to deliver results for the fiscal year that continue to reflect our strategy of transitioning towards Human Health,” Mr. Guccione concluded.    

Third Quarter Financial Review

Net sales for the third quarter of fiscal 2016 were $157.9 million, an increase of 8.3% from $145.8 million reported for the third quarter of fiscal 2015. Total Company gross profit was $38.3 million, an increase of 4.6%, compared to $36.6 million for the third quarter of fiscal 2015. Gross margin for the third quarter was 24.2% compared to 25.1% for the prior year period.

Human Health segment sales were $58.8 million, an increase of 4.4%, compared to $56.3 million for the third quarter of fiscal 2015. The revenue increase was primarily due to an increase in sales at Rising, which was partially offset by a small sales decrease in the Nutritional business. Gross profit for the Human Health segment was $19.1 million, a decrease of 4.2%, compared to $20.0 million for the third quarter of fiscal 2015. Gross margin for the third quarter was 32.5%, compared to 35.4% in the prior year period. The decrease in gross profit and margin was related to product mix, increased chargebacks and price protection on certain finished dosage form generic products at Rising.

Pharmaceutical Ingredients segment sales were $45.8 million, an increase of 13.1%, compared to $40.5 million for the third quarter of fiscal 2015. The increase in sales was due primarily to higher international sales of APIs and pharmaceutical intermediates. Gross profit in the quarter was $8.6 million, a 29.6% increase compared to $6.7 million for the third quarter of fiscal 2015. Gross margin for the third quarter was 18.9%, compared to 16.5% in the prior year period. The increase in both gross profit and margin was due to the higher international sales achieved in both APIs and intermediates.

Performance Chemicals segment sales were $53.3 million, an increase of 8.9%, compared to $48.9 million for the third quarter of fiscal 2015, due primarily to higher agricultural protection products sales. Gross profit was $10.5 million, an increase of 5.5%, compared to $10.0 million for the third quarter of fiscal 2015. Gross margin was 19.7% for the third quarter compared to 20.4% in the prior year period.  Both specialty chemicals and agricultural protection products contributed to the increased gross profit compared to last year. The decline in the gross margin was due to product mix.

Total selling, general and administrative expenses were up modestly at $19.5 million compared to $19.1 million in the same period last year, a 2.3% increase.  Selling, general and administrative expenses included $1.2 million of transaction costs related to a potential acquisition target. Research and Development expenses in the third quarter totaled $2.3 million compared to $2.1 million in the prior year period. The majority of R&D expenses are milestone based and can fluctuate quarterly.

Operating income totaled $16.5 million, an increase of 6.8% over the third quarter of fiscal 2015. Net income was $10.4 million, or $0.35 per diluted share, compared to net income of $8.4 million, or $0.29 per diluted share, for the comparable quarter of fiscal 2015. Non-GAAP Adjusted Net Income was $12.5 million in the third quarter, compared to $10.0 million in the prior period, a 24.2% increase. Non-GAAP Adjusted Earnings per Share were $0.42, compared to $0.34 in the year ago third quarter, a 23.5% increase.

Conference Call

Management will host a conference call to discuss the operating and financial results at 9:00am ET on Friday, May 6, 2016.  To participate in the conference call, please dial (800) 446-1671 or (847) 619-7054 approximately 10 minutes prior to the call. Please reference conference ID # 42245729. 

A live webcast of the conference call will be available in the Investor Relations section of the Company’s website, www.aceto.com.  Please access the website 15 minutes prior to the start of the call to download and install any necessary audio software.

A telephone replay of the conference call will be available from 11:30 a.m. ET on May 6, 2016 until 11:59 p.m. ET on May 13, 2016 and may be accessed by calling (888) 843-7419 and referencing conference ID # 42245729.  An archived replay of the conference call will also be available in the investor relations section of the Company’s website.

Use of Non-GAAP Financial Information

In addition to U.S. GAAP results, this press release also includes certain non-GAAP financial measures as defined by the SEC. This measure, Adjusted Net Income, represents net income excluding amortization of intangibles, debt extinguishment, amortization of debt discount and debt issuance costs and transaction costs related to acquisitions.  These items should not be reviewed in isolation or considered substitutes of the Company’s financial results as reported in accordance with GAAP.  Due to the nature of these items, it is important to identify these items and to review them in conjunction with the Company’s financial results reported in accordance with GAAP.  The exclusion of these items also allows investors to compare results of operations in the current period to prior periods’ results based on the Company’s fundamental business performance and analyze the operating trends of the business.  The exclusion of these items also allows management to evaluate the performance of its business units.

Pursuant to the requirements of Regulation G, reconciliations of Adjusted Net Income to U.S. GAAP net income are presented in the table Non-GAAP Reconciliation of this press release.

About ACETO

ACETO Corporation, incorporated in 1947 and with offices and operations in 10 countries, is engaged in the marketing, sale and distribution of Human Health products (finished dosage form generics and nutraceuticals), Pharmaceutical Ingredients (pharmaceutical intermediates and active pharmaceutical ingredients) and Performance Chemicals (specialty chemicals and agricultural protection products).

FORWARD LOOKING STATEMENTS

This news release contains forward-looking statements as that term is defined in the federal securities laws.  The events described in forward-looking statements contained in this news release may not occur.  Generally, these statements relate to our business plans or strategies, projected or anticipated benefits or other consequences of ACETO’s plans or strategies, financing plans, projected or anticipated benefits from acquisitions that ACETO may make, or a projection involving anticipated revenues, earnings or other aspects of ACETO’s operating results or financial position, and the outcome of any contingencies.  Any such forward-looking statements are based on current expectations, estimates and projections of management. ACETO intends for these forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements. Words such as "may," "will," "expect," "believe," "anticipate," "project," "plan," "intend," "estimate," and "continue," and their opposites and similar expressions are intended to identify forward-looking statements.  The forward-looking statements contained in this press release include, but are not limited to, statements regarding the Company’s strategic initiatives including selling finished dosage form generic drugs, and statements regarding the prospects for long-term growth.   ACETO cautions you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond ACETO’s control, which may influence the accuracy of the statements and the projections upon which the statements are based.  Factors that could cause actual results to differ materially from those set forth or implied by any forward-looking statement include, but are not limited to, risks and uncertainties discussed in ACETO’s reports filed with the Securities and Exchange Commission, including, but not limited to, ACETO’s Annual Report on Form 10-K for the fiscal year ended June 30, 2015 and other filings. Copies of these filings are available at www.sec.gov.  

Any one or more of these uncertainties, risks and other influences could materially affect ACETO’s results of operations and whether forward-looking statements made by ACETO ultimately prove to be accurate. In addition, periodic high-margin product sales may have a positive material financial impact in a given quarter that may be non-recurring in future quarters, thereby rendering one quarter's performance not useful as a predictor of future quarters' results.  ACETO’s actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements.  ACETO undertakes no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise.

(Financial Tables Follow)

 

Aceto Corporation and Subsidiaries
 Consolidated Statements of Income 
(in thousands, except per share amounts)
             
             
  (unaudited)   (unaudited)
  Three Months Ended   Nine Months Ended
  March 31,   March 31,
    2016     2015       2016     2015  
Net sales   $   157,926   $   145,796     $  423,100   $   400,364  
Cost of sales       119,637       109,198         314,362       306,096  
Gross profit       38,289       36,598         108,738       94,268  
Gross profit %     24.24 %   25.10 %     25.70 %   23.55 %
           
Selling, general and             
  administrative expenses       19,498       19,067         56,377       56,320  
Research and development expenses       2,319       2,101         6,280       3,223  
Operating income        16,472       15,430         46,081       34,725  
           
Other expense, net of interest expense       (928 )     (1,804 )       (2,461 )     (2,969 )
           
Income before income taxes         15,544       13,626         43,620       31,756  
Income tax provision        5,120       5,215         15,628       11,909  
Net income    $   10,424   $   8,411     $   27,992   $   19,847  
           
Net income per common share   $   0.36   $   0.29     $   0.96   $   0.69  
           
Diluted net income per common share   $   0.35   $   0.29     $   0.95   $   0.68  
           
Weighted average shares outstanding:            
  Basic       29,158       28,773         29,085       28,710  
  Diluted       29,620       29,267         29,536       29,216  
         

 

Aceto Corporation and Subsidiaries  
Consolidated Balance Sheets  
(in thousands, except per-share amounts)  
           
  (unaudited)        
  March 31,
2016
    June 30,
2015
 
         
Assets  
Current Assets:  
  Cash and cash equivalents $   53,093       $   34,020    
  Investments     2,394           3,416    
  Trade receivables: less allowance for doubtful          
    accounts: March 31, 2016 $509; and June 30, 2015 $691     176,777           161,521    
  Other receivables     12,459           10,611    
  Inventory     100,314           95,596    
  Prepaid expenses and other current assets     3,726           3,096    
  Deferred income tax asset, net     2,511           2,050    
           
        Total current assets     351,274           310,310    
           
           
Property and equipment, net      10,151           10,456    
Property held for sale     6,574           6,574    
Goodwill     67,893           67,870    
Intangible assets, net     81,647           78,997    
Deferred income tax asset, net     19,664           9,972    
Other assets     7,397           5,595    
 
Total Assets $   544,600       $   489,774    
 
Liabilities and Shareholders' Equity  
 
Current liabilities:  
  Current portion of long-term debt $   197       $   10,197    
  Accounts payable     60,860           54,962    
  Accrued expenses     49,284           59,841    
        Total current liabilities     110,341           125,000    
           
Long-term debt, net     117,229           99,960    
Long-term liabilities     6,365           7,542    
Environmental remediation liability     2,236           2,995    
Deferred income tax liability     9,578           66    
        Total liabilities     245,749           235,563    
           
Commitments and contingencies          
           
Shareholders' equity:          
  Preferred stock, 2,000 shares authorized; no shares issued and outstanding     -            -     
  Common stock, $.01 par value:          
    (75,000 shares authorized at March 31, 2016 and 40,000 shares authorized at June 30, 2015;          
    29,585 and 29,147 shares issued and outstanding at March 31, 2016 and June 30, 2015, respectively)     296           292    
  Capital in excess of par value     113,793           93,807    
  Retained earnings     189,849           167,208    
  Accumulated other comprehensive loss     (5,087 )         (7,096 )  
        Total shareholders' equity     298,851           254,211    
 
Total liabilities and shareholders' equity $   544,600       $   489,774    
 

 

Aceto Corporation 
Diluted Net Income Per Common Share Excluding Charges (Non-GAAP Reconciliation) 
(in thousands, except per share amounts)
 
  (unaudited)
Three Months
 
Ended March 31,
2016
  (unaudited) 
Diluted Net
Income Per
Common Share
Three Months
Ended March 31,
2016
  (unaudited)
Three Months
Ended March 31,
2015
  (unaudited) 
Diluted Net
Income Per
Common Share
Three Months
Ended March 31,
2015
  (unaudited) Nine
Months Ended
March 31, 2016
  (unaudited)
Diluted Net
Income Per
Common Share
Nine Months
Ended March
31, 2016
  (unaudited)
Nine Months
Ended March
31, 2015
  (unaudited)
Diluted Net
Income Per
Common Share
Nine Months
Ended March
31, 2015
 
                                 
Net income, as reported     $ 10,424     $   0.35     $ 8,411     $   0.29       $ 27,992     $   0.95     $ 19,847     $   0.68    
                                       
Adjustments:                                      
                                       
  Amortization of intangible assets         2,883         0.10         2,564         0.08           8,325         0.29         7,726         0.26    
  Amortization of debt discount (non-cash interest expense)       1,184         0.04         -          -            1,771         0.06         -          -     
  Amortization of debt issuance costs         209         0.01         -          -            313         0.01         -          -     
  Termination of interest rate swap         -          -          -          -            420         0.01         -          -     
  Contingent consideration         (1,074 )       (0.04 )       -          -            (1,074 )       (0.04 )       -          -     
  Separation and relocation costs         -          -          -          -            -          -          99         0.00    
  Step-up of inventory         -          -          -          -            -          -          209         0.01    
                                       
                                       
Adjusted income excluding charges         13,626       0.46         10,975       0.37           37,747       1.28         27,881       0.95    
Adjustments to provision for income taxes         1,152       0.04         934         0.03           3,609       0.12         3,013         0.10    
                                       
Adjusted net income (Non-GAAP)     $   12,474     $   0.42     $   10,041     $   0.34       $   34,138     $   1.16     $   24,868     $   0.85    
                                       
                                       
Diluted weighted average shares outstanding       29,620       29,620       29,267       29,267         29,536       29,536       29,216       29,216    
 
NOTE:  Items identified in the above table are not in accordance with, or an alternative method for, generally accepted accounting principles (GAAP) in the United States. These items should not be reviewed in isolation or considered substitutes of the Company's financial results as reported in accordance with GAAP. Due to the nature of these items, it is important to identify these items and to review them in conjunction with the Company's financial results reported in accordance with GAAP. The exclusion of these items also allows investors to compare results of operations in the current period to prior period’s results based on the Company’s fundamental business performance and analyze the operating trends of the business. The exclusion of these items also allows management to evaluate performance of its business units.  
   
Investor Relations Contact:
LHA
Jody Burfening
jburfening@lhai.com
(212) 838-3777

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