Welcome to the Lannett Company Fiscal 2018 First Quarter Financial Results Conference Call. My name is Katarina and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Please note, that this conference is being recorded. I will now turn the call over to Robert Jaffe, Investor Relations for Lannett Company. Please go ahead.

Thank you, Katarina. Good afternoon everyone and thank you for joining us today to discuss Lannett Company's fiscal 2018 first quarter financial results. On the call today are Arthur Bedrosian, Chief Executive Officer; and Marty Galvan, Chief Financial Officer. This call is being broadcast live at www.lannett.com. A playback will be available for at least three months 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 forecast of certain aspects of the company's future, and actual results could differ materially from those stated or implied. In addition, during the course of this call, we refer to non-GAAP financial measures that are not prepared in accordance with U.S. Generally Accepted Accounting Principles and may be different from non-GAAP financial measures used by other companies. Investors are encouraged to review Lannett's press release announcing its fiscal 2018 first quarter financial results for the company's reasons for including non-GAAP financial measures in its earnings announcement. The reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is also contained in the company's press release issued earlier today. This afternoon, Arthur will provide a brief overview of the quarter. Then Marty will discuss the financial results in more detail, including the company's revised fiscal 2018 guidance, followed by Arthur's concluding remarks. We will then open the call for questions. With that said, I will now turn the call over to Arthur Bedrosian. Arthur?

Thanks, Robert and good afternoon everyone. We have a lot to discuss today. Let's begin with several recent, very positive developments that positions Lannett to continue bear a longer term growth. In the past two months we received five product approvals, announced the dismissal of prejudice of a Class Action lawsuit involving average wholesale price reporting and turn into a licensing agreement that will allow us to market generic Thalidomide and filed our 505(b)(2) New Drug Application for our proprietary C-Topical product. I'll discuss some of these in more detail shortly. Regarding our fiscal 2018 first quarter, net sales were $155 million compared with $161.6 million in last year's first quarter. We are pleased that as we send in the last earnings call, we are off to a strong year with sales in the current year first quarter rebounding from the challenges we faced in the preceding quarter. Key contributors to the first quarter improvement were strong sales across several product categories. Looking ahead, we are on-track to launch a number of previously approved product in the second half of the current fiscal year. Importantly, we continue working closely with the FDA shortage site and coordinating with our supply partners and customers to prevent potential drug shortages and avoid disruption in the supply to patients on important medications. We have already received purchase orders from customers that previously purchased competitor's products. As a result of the anticipated product launches has expected increase in sales I just mentioned, we have revised our guidance for fiscal 2018. With that, I'll turn it over to Marty. Marty?

Thank you, Arthur and good afternoon everyone. As was mentioned earlier, I will be referring to non-GAAP financial measures. The reconciliation of the GAAP to non-GAAP numbers can be found in today's press release. Our earnings release also includes a schedule of our net sales by medical indication. Now for the financial results on a non-GAAP adjusted basis. For the fiscal 2018 fourth quarter, net sales were $155.0 million compared with $161.6 million for the first quarter of fiscal 2017. Gross profit was $76.7 million or 50% of net sales compared with $94.0 million or 58% of net sales for the prior year first quarter. R&D expenses were $7.4 million compared with $12.4 million. SG&A expenses declined to $18.7 million from $20.9 million. Operating income was $50.7 million compared with $60.7 million for the prior year first quarter. Interest expense decreased to $16.4 million from $18.1 million. Net income attributable to Lannett was $22.7 million or $0.60 per diluted share compared with $29.0 million or $0.77 per diluted share with the fiscal 2017 first quarter. Turning to our balance sheet, at September 30, 2017, cash, cash equivalents and investment securities totaled $116.4 million. We continue to make significant progress paying down debt to as current balance of $895 million; and we remain well within our required debt covenant ratios. Turning now to our guidance; as Arthur mentioned, we have substantially increased our expectations for the current fiscal year. Our revised guidance for the fiscal 2018 full year on an adjusted basis is as follows; net sales in the range of $710 million to $720 million, up from $655 million to $665 million. Adjusted gross margin as a percentage of net sales remains unchanged at approximately 51% to 52%, adjusted R&D expense remains unchanged in the range of $46 million to $48 million. Adjusted SG&A expense ranging from $77 million to $79 million, up from $73 million to $75 million. Adjusted interest expense in the range of $66 million to $67 million, down from $67 million to $68 million. The full year adjusted effective tax rate to be approximately 35%, unchanged. And lastly, capital expenditures in fiscal 2018 in the range of $65 million to $75 million; unchanged from previous guidance. Regarding the phasing of the quarters in fiscal 2018, we expect net sales in the second quarter to increase approximately 25% compared with the first quarter. Net sales for the third and fourth quarter were anticipated to be consistent with each other. We expect gross margin percentage to increase in the second quarter compared with the first quarter and remain consistent over the remainder of the year. In addition, operating expenses are expected to increase in the second quarter compared with the first quarter and be consistent over the next three quarters. As a remainder, while we have a deep pipeline, including a large number of product at locations currently pending at the FDA, our guidance does not include sales from these products. Nor does our outlook include sales of the 11 pending entries [ph] of our strategic partners or the benefit from any potential acquisitions, strategic alliances or possible further paydowns of debt. With that, I will turn the call back over to Arthur.

Thanks Marty. I'd like to briefly discuss and provide an update regarding our Board of Directors recent announcement to initiate the search for our new CEO. I'll do my best to provide answer to questions that I have received from some of you over the last several weeks. As previously disclosed, the Board has retained an executive search firm to help identify potential candidates to assume the role of CEO. Once the new CEO is appointed, I will step down. The Board has formed the search committee of two independent directors to screen initial candidates. The full Board will vote on the appointment at -- excuse me [ph], the full Board will vote on the and appoint the new CEO. The search has only recently begun and no timetable has been set to name the new CEO. I expect to remain a Member of the Board through the end of my current term. The possibility exists that I will remain with the company in a strategic advisory position though such a role has not been formally defined or offered. I expect to discuss any further role as a strategic advisor with the Board at the appropriate time. With regards to Lannett's ongoing relationship with Jerome Stevens Pharmaceuticals, the contract expires in about a year and a half from today. In recent weeks, two separate Lannett Board Members meet independently with, and have spoken with senior executives at Jerome Stevens. It is my understanding conversations will continue. Turning back to our business, regarding the integration of Kremers Urban, we continue to drive the manufacturing efficiency through the shift in production volume from Pennsylvania to our Seymour Indiana facility. During the first quarter we filed the FDA one product transfer and during the second quarter, we expect to follow two additional product transfers. Additional manufacturing efficiencies were achieved by keeping cost steady while increasing sales volumes. With regards to our pipeline, we currently have pending in the FDA 13 ANDAs, including eight with Paragraph IV certifications. As I mentioned earlier, also pending at the FDA is our new drug application for C-Topical. This new drug application submission utilizes the 505(b)(2) pathway and is supported by two Phase 3 studies. These multi-step studies of 800 patients, as well as the Phase 1 pharmacokinetic study were completed successfully. This filing the company's first new drug application to approve old clinical trial studies. I'm extremely proud of this accomplishment and have high esteem [ph] for their efforts. The five approvals we received in September and October were Esomeprazole Magnesium Delayed-Release Capsules, Dexmethylphenidate Hydrochloride Tablets, Oxycodone and Acetaminophen Tablets; two separate approvals for Lansoprazole Delayed-Release Capsules USP, approval for the full prescription product and another -- the other one for [indiscernible] product. We're very optimistic that we want to seek several more FDA approvals in the coming months. In addition to our own filings, we have the U.S. distribution agreement for 11 product application pending at the FDA through our collaboration with HEC Group of China. It is worth noting, that one of the pending ANDA is currently on FDA's shortage list and ATC has indicated making that product available within 60 days. I just returned from meeting with ATC Group senior management, we explored more accomplished steps to strengthening alliance to include Cody's delayed drug development strategy for new and innovative APIs. ATC has advanced its in-house API development and aligning the two companies scientist can only strengthen the marketing opportunities related to ATC distributing LCI products in China, and the net introducing additional ATC products in United States. The distribution of also 22 LCI products in China by ATC has been delayed due to proposed changes by China's Food & Drug Administration related to bioequivalence testing and marketing authorization requirements. We are confident that our [indiscernible] subsidiary has the capabilities and expertise to be a valuable resource once the change reclamences [ph]. Nevertheless, our lines with ATC continues to identify mutual opportunities and we believe the future of this relationship is even brighter turning to growth plans announced by China's President, Xi Jinping. Turning briefly to news about the State's Attorney general mandate complaint [ph], we cannot comment on the detail of allegation in an ongoing litigation but we believe the allegations are meritless. Having said that, Lannett manufacturers only one drug mentioned in the amended complaint. The product Doxycycline Monohydrate represents a small percentage of the company sales. More importantly, the marketplace for this drug was intensely competitive and demonstrated by the fact that during the relevant time period Lannett lost substantial market share to competitors. With regards to our planned expansion of Cody Labs, construction of our API expansion project is progressing according to plan with sealed structure of the building now finished, that targeted the complete construction has missed fiscal 2020. To summarize, we completed a solid beginning to our current fiscal year. We have significantly increased our guidance for fiscal 2018 and we continue to advance multiple strategy designed to grow the company over these years and longer term. Fiscal 2018 may well be one of the strongest years in our company's history, stay tuned. With that overview, we would now like to address any questions you may have. Operator?

[Operator Instructions] And our first question comes from Greg Gilbert from Deutsche Bank.

Thanks, good afternoon. I have a few. I'm going to start with levo. Can you comment Marty on the sales in the quarter and talk about any business wins and what you factored in for your new guidance for levo?

We'll keep levo in the quarter was -- as run rate, I think $45 million for the quarter. Going forward, yet we expect to see little bit increase. Arthur?

Quite frankly Greg, we don't know what that increase will be until we actually receive orders and start shipping. So we don't want to get ahead of ourselves but we do anticipate it will grow further than the run rate we're currently talking about for this quarter.

And do you see that higher run rate is pretty sticky or temporary?

Well, this isn't something, it's sticky is it; it's always us to decide whether you're going to stay with a vendor or not when you're the customer, some of the choices. But we're kind of glowy [ph] people here, so we've got a customer that's going to hold on to business. Still connected, operator?

It looks like Greg still is on the line.

Okay. Greg, did you have any follow-up questions? Greg, if you could hear us, we're not able to hear you there.

And we'll go to our next question. We have Gary Nachman from BMO. Please go ahead.

Hi, good afternoon. Just more specifically on the increased revenue guidances; is most of that from new approvals that you received in the last several months? What's the timing of those launches and when will be the most meaningful ones? And would levo the way you were just describing to Greg, would that be included in the increased guidance, the higher run rate for levo?

Yes. Okay, couple of things there Gary. As far as the new products -- yes, our previous guidance, excuse me, we had some of the new products that had been already proven long. We had some of them, we had about 9 of them in the previous guidance, now that number is upto 13. So 13 of these products had been approved, but not voiced [ph], they are in the guidance. There is different amounts of money but in total, the contribution from these new products is about equal, we've made some adjustments to some timing, changes in things of that nature but net-net, the contribution in the previous guidance, as well as this guidance those are consistent on numbers. As far as levo in the outlook, we levo is one of the stronger players amongst all the price that are increasing. We had increases elsewhere and we also had some decreases resulting in the $55 million increase in our guidance at midpoint.

Okay. And as far as new launches, when are most of those going to occur and which are going to be the most meaningful ones? And it sounds like there is going to be a meaningful step-up in 2Q but then you expected to sort of flat line after that or stay at that level?

Exactly more in the second half of our fiscal year. Gary, the -- and most of it occurring in fourth quarter, the -- as we commented on before, large part of this is, as we're shifting production in front of Philadelphia at the Seymour and getting the additional capacity industry [ph] where it is a legacy clear reservant [ph] site and the main driver of why we delayed in launching these recently approved products but -- yes, everything is --everything except one smaller product; with all these products that worked food but not yet launched, they are all now in the guidance and finally in fourth quarter.

Okay. And then Arthur, maybe you could comment on what you said very briefly about your Jerome Stevens and just elaborate on those discussions at the Board level to the extent that you can? And when will be have greater visibility if that contract is actually extended?

Well, I can't stick for the discussions I wasn't present for with regards to the two Board Members that meet with the Styanwalk [ph] family. One of them is Vice Chairman and he was there previously. So as far as one of the contract, the contract doesn't expire till the March of 2019, whether it needs to be renewed; so in the prior -- let's history of the renewal, so one renewal. It occurred in August, prior to March, so I was expecting not until next year would the discussion about any renewal of that agreement come about. Quite frankly, the only about with us here at Lannett, both contractually and without the contract over 15 years. I'm very pleased with the success we've had working together with each other because they are an extraordinary good company to work with as well. You know, partnerships worked on both sides like a good marriage, so I suspected that will continue.

Okay. And then last question for you Arthur. Just at a high level, what do you think of impacts at Amneal [ph] combining to compete more effectively in this very challenging generic environment? Do you think that you guys really need to get bigger at some point? You've had some new wins recently in the pipeline but do you think you will need that scale at some point to compete more effectively? Thanks.

Everybody agrees size matters, so that is the goal, longer the skill story. And definitely, we need to expand and grow through the acquisitions, mergers, whatever it is for product-wise distribution agreements. I think what Paul did is recognize -- I know Paul, so I may be biased in his favor but I simply than what Paul realized is, independent company really struggling against the consolidation goes up on the customer side. So the only way to fight the attack with the deal would that really be more valuable to their customer group. One of the grade to be more valuable is to end up having to -- have more product line and things like that. So from that point of view, that makes sense to me, both companies probably more as strong as they would be combined. However, combining companies is we'll know it's easier to do than execute; so the execution is critical for the success of the merger. But certainly the concept makes sense, and it's something -- and really would drove us back in 2015 to do the acquisition refit [ph]. When you look at the future of the industry, it's hard not to know what the future is going to hold for us because you've seen this consolidation going off with sometime, and maybe narrow down three major customers for example but the trend is to going off for the past 15-20 years. So I think anybody is not looking at the future is now paying attention with us already transpired. So I think we certainly would be open to discussions like that, we are a public company. We are not in a position to say we're not going to talk to anyone and it does make sense but it depends on who you pointed out [ph]. I guess, there are more synergies in the two companies merging together, do they have a lot of overlapping products or not, do they open up new opportunities for both companies, those can be -- would be the most successful ones. So that's probably the best way I could answer that one.

Okay, great. Thank you.

And our next question comes from Matt Hewitt from Craig-Hallum Capital. Please go ahead.

Hi, this is Charlie on for Matt. Congrats on the great quarter guys. First question, kind of related to the shortages. You mentioned two shortages, specifically within the press release. First, are they both related to Puerto Rico? And then, can you talk -- can you speak a little bit more about the HEC product shortage, is that a third product or is that one of the two?

First of all, there is no shortages. What we said is that release was trying to prevent shortages, we tend to work with the FDA [indiscernible] to prevent being shortage, not dealing with the shortage. So that's to correct that question. The other one, occasionally some of the products get on and off the shortage list; one of the products that was on that recently is one of the ATC products that is awaiting the FDA -- you know, the FDA reinspected that facility, we're reigning towards the approval of those products to come through and then we don't like which of the products have a priority, so out of 11 products, we signal that one of them has been in a costing shortage, no shortage that kind of situation. So now, we would go after the product that has more opportunity in the marketplace than a product that had less opportunities. So there has been some real shortage on one of that product, the other ones it was just preventing ones by working with FDA.

Okay. That’s helpful. And then related to the large contract, you guys have previously disclosed its now back on, large customers that's now back on contract. Is there any update there have you guys expanded the relationship further?

I think which obviously the contract - that lastly came back. Actually, they never [indiscernible] was $20 million. So, let me stay with what I know is factual, but there isn’t more movement more request for close, more quotations going out. I do expect that business to grow further as we sit here. So, the relation is very strong on a personal basis. But we do our businesses that - pricing and market share. We’re not chasing out the market share per say. We take that for profits of the net. So sometimes we are given opportunities, but we find that the opportunities do not fit in with our process scores. We try to be more profitable in the space than most of our competitors. So anytime we don't grow in volume, it's because we've chosen not to chase after those opportunities. So, it’s a kind of balance on both sides. We don’t need each other, but we both have needs for our own businesses as well.

Okay. Thank you.

You are welcome.

Our next question comes from Andrew Finkelstein from Susquehanna. Please go ahead.

Hi, good evening and thanks for taking the question. I was hoping you could talk a bit more about levothyroxine in relation to FDA, you trying to accelerate approvals for even some of the more difficult to manufacture products and how you view the possibility of more competition there? And then, secondly if you could talk more about the sumatriptan opportunity you know where your market position has improved and how durable you think that maybe?

Yes, let’s go with FDA. I don’t know of any FDA policy that’s going to have difficulty to approve products. What FDA is trying to accomplish is to eliminate potential shortages or a lack of competition within the marketplace. In the case of levothyroxine sodium they are really no problem. You have three brands in the market and three generic companies on the market. Putting aside the issue of one of my competitors on the generic side, certainly Mylan and Lannett are capable of supplying market, so on the 3 brand companies for that product so with five of us constantly in the marketplace as far as I know my other competitor on the generic side still got inventory in the stream of commerce, we don't sit like the only reason for FDA to accelerate approval for that product. So, it's not like there is a need for that particular drug. We'll take August then enroll, in general, yes FDA is trying to look it up soon as well as one generic, no generic and get those products in the market because they’ve been criticized that the approvals that are coming through are sixth and seventh and eighth approvals on an existing generic product that's already on the market really not making any major changes in the marketplace. And I think FDA is respecting that complaint or that criticism and doing what they can to fix that. The other request of [ph]. It’s hard to say, when one of our authorized generic competitor in this case drops out, we are the first generic to the market for this product. We became the first generic a few years ago we decided to go after this particular drug. We’re not realizing we'd be the first generic and possibly the only generic on the market has turned out to be the case recently and we’ve - FDA that with the story of withdrawal I’d say temporarily of the authorized generic that we’re still available to supply the market and there are no shortages in the marketplace. One other reasons we work closely with FDA short size isn't just to flood the market with our product it’s to control and minimize hoarding which is one of the major factors involved in shortages. So, we don't know why people who place huge orders in warehouse material thereby exacerbating a shortage situation when there shouldn't be one. So, we've seen there is an increase in sales in the product and now we continue to enjoy the fact that we’re the only generic for that product.

And do you have any visibility on the timeline where you're the only product?

No. Because I don't know my competitors are thinking we heard from their releases to their customers, memorandum to their customer that they expect it to be out in the market for about a year.

Great. Thank you very much.

Okay. Thank you.

And our next question comes from Scott Henry from ROTH Capital. Please go ahead.

Hi. Good afternoon and thank you for taking the questions. Martin, did I hear you correct that you expect 25% sequential revenue growth in Q2?

Correct. That’s correct Scott.

So, I mean that’s a good chunk of revenues. I think yes, I mean that's $35 million to $40 million. And my question is where do you expect those to show up, I mean that's not just a little bit that's a big chunk.

Yes, well. There are several products. It’s across the board really. There's a bit of a waiting towards levothyroxine. But that being said we have several of our main products are improving. Things like - we’ve been talking about that. We are seeing some strength going into the second quarter, so I mean those were couple of the larger improvements. We see over some increase there. So it’s several products, but yes there is waiting towards the approval.

Okay. And it sounds like you expect to step up in Q2 and then somewhat consistent in the second half of the year, but I think when I run the numbers it actually a slight decline I imagine some of these benefits are one-time and they kind of erode in the fourth quarter.

Fourth quarter is hard to say early. We don’t know, we just don’t know. We predicted what we can see somewhat clearly into our second quarter, but beyond that as we have always been trying to be conservative in our outlooks and right now we just cannot tell yet.

Sounds like things are going well.

Yes, if there is going to be surprises. I’ll put it that way.

Yes. And just from a modeling standpoint. Factor again that a lot of things are going well. When I look at that -- line that dropped down. Should I expect that to rebound or do you think this is kind of a new base going forward?

Well that that is -- product and that we are seeing some competition there. So it's probably dropping off to a run rate that makes more sense.

Okay. Thank you. And then on the migraine, I realize Sumatriptan is a nice tailwind. How far can that migraine category go and how should we think about that from Q1 to Q2. Obviously jumped significantly in Q1. Sounds like there is another step up.

Well, politician is giving everybody headache in this country.

Okay. Alright guys. And I guess just a final question, I did notice you took the interest expense down the guidance. What drove a lower interest expense guidance?

Well, that’s the - in a quarter the revolver was in place earlier like quarter-on-quarter that benefit saw $1.6 million in the quarter. That’s the revolver that we had in the first quarter of the prior year and don’t have it in this last quarter obviously. And then in terms of the guidance there is also a piece where as you recall that in the last call, we had increase of 25 basis points in each quarter and right now we’re thinking that that’s not going to be and we pull back a little bit on that.

Okay great. Thank you for taking the quarter. Congratulation.

Thank you, Scott.

And our next question comes from Elliot Wilbur from Raymond James. Please go ahead.

Hi guys, this is Lucas Lee in for Elliot and thank you for taking my questions. The first question I have is what was the price erosion you experienced during the quarter? And secondly, maybe I missed it but you've alluded during last quarter that you're negotiating with UCB to acquire two of their products. Did you provide any update on this matter? Thank you.

Well, Marty's looking at the first question. You know, which one it is?

Yes. The pricing -- so in the quarter versus last year's quarter, we are up about $7 million -- I'm sorry, down about $7 million and that was probably priced; that's about $25 million or so compared to last year's first quarter.

With regards to the second part of your question, UCB. The capital here because upfront of UCB but the real problem that really stopped us from going forward with that transaction, both drugs were schedule two and the concept for schedule drug brands in this country not only during negative but there is a global indication against those companies. It didn't seem like a prudent idea to go ahead and buy two brand products and then evolve ourselves in the litigation having all those brands since the MRI [ph] is already on the wall. So we choose to back away. One of them as you know was the [indiscernible] next product which used to tie to codon as an ingredient and that went from a schedule three to schedule two, so that was already declining in revenue as a brand, as well as generics that are out there. So those are really the fact because if they don't, they can start the best time in the world to jump in and buy this product till we kind of see what's going on within that space. We're still educating two vertically integrated and controlled drugs, if not changing our focus but with lots of the brands in that field, some of them have some history that we're not completely familiar with. So that has some hesitation. So at the moment we've turned down the opportunity to buy those two products.

Thank you.

And our next question comes from Greg Gilbert from Deutsche Bank. Please go ahead.

Sorry guys, I'm not sure what happened there with my phone. I think you covered off the levo stuff and what's in guidance. Arthur, can you talk about whether you expect pricing pressure on your base business to get better or worse or stay roughly the same in the coming quarters? That's my first question. And my second question is for you Arthur, as well. Do you have a better understanding from your Board colleagues now why they announced the discussion plan they did and how they did and when they did, now that some time has passed? Thanks.

Okay, let me take the question first. My prediction has stayed the same back in March and now actually started to say then that I think crisis to start to rebound by September 2018, I continue to believe that. I'm starting to see some changes in the marketplace, that doesn't mean with hundreds of thousands of generic drugs on the market that you're not going to see examples of where prices come down, a lot depends on the competitive nature of the business we're in and the people that want me to grab market share. But generally speaking, this anti-price phenomenon, where people are against anybody raising a price are ridiculous in light of what FDA wants us to do, which is upgrade facilities, meet new requirements that they're putting out there, which requires us to send more money in our operations than our facility. We cannot continue to do that if you don't raise prices on some of your products. So I think you're going to find more modest price increases, but you will see those price increases coming back. On the other hand, you also have the customer base, the three major customers. They work on profit margins on marking up the goods they buy. The lower they buy the merchandise, the lower the profit margins for them. And you're also noticing that the PBM's seem to be concerned about this margin erosion as well because they don't have the luxury of making that opportunity between the negotiated prices of the manufacturers, and once they negotiate with the insurance companies, for example. So you have a lot of people who are being punished when there's no price increases versus this aberration of a few thousand products that has the increases that affords out all these scrutiny in the first place. Most increases within the generic drug space are modest. And they're really covering salaries, overhead, new operations, upgrade the facility, and things like that. It's state-of-the-art. So I don't think you're going to see any particular change there. The second part of your question. It's a little bit tougher because I really don't have any information that I could give you as to what motivated the Board. I can certainly tell you there's no any dispute between myself and any of the board members. There's no directional dispute. Everything we've done at Lannett, the Board's approved. The acquisition, that was one vote to acquire Kremers Urban, at the time there were 6 board members. The other 5 approved the acquisition. So there's nothing related to acquisition. I'm trying to cover everybody's questions that we've gotten in. So excuse me if I'm long-winded on this one. So I just think that the -- certainly my age is probably a concern for some of the board members. As some of you know, I may look 20 years younger, but I'm going to turn 72 next month. And fortunately, for me, I don't look my age -- and I don't act my age either as well as you'd hope. But nevertheless, I think those are some of the factors. But more importantly, I didn't disagree, in 2014, that if you're a board member as I am, that you have to do succession planning. And whether that means sitting there or talking about replacing myself, which is probably a very difficult situation for any person, unless they want to leave the company. It still has to be addressed. So whether I like it or not, the right thing the board did back in 2014 was to address it. The only difference of opinion you might say I have is, the acceleration of searching for someone now versus waiting until the -- bringing in a President and planning to go ahead with that original plan. Aside from that, I don't really see a difference here. The Board felt that they'd get more candidates if there was a real knowledge out there that I was going to be replaced at some point. So that capable candidates could come forward as opposed to people that are being solicited. People would know that there's an opportunity here, and maybe we'll get the best of the best. I hope that kind of answers the questions because I'm trying to fill in for Board members who -- they haven't given me an answer that I can give you more directly. So I'm reading a little bit of the tea leaves here.

And our next question comes from Andrew Finkelstein from Susquehanna.

I was just hoping you could talk a little bit about gross margin, given the gross margin guidance is unchanged. But you have the extra volume on some products, I would think are above average. Is that not the case? Or is the gross margin balancing some additional pricing pressure on other products? What went into the dynamics of the guidance there?

I would say, Andrew, it's both those things. Actually, I think, you're answering your own question to a degree. So the sales increases that we're showing in our guidance, they're, for the most part, the higher-margin products. The [indiscernible] is coming down and that's also we're heading in the opposite direction. But yes, we do expect to, generally speaking, an ongoing price decrease, just a trend in the marketplace. So we have some of that also working into our numbers.

As you know, we continue to look at our product line. And occasionally, we do raise prices on our products on individual products. They certainly don't make the New York Times business section. But we do look at our products and look at our costing. We are moving into another facility, making changes, upgrading some of the processes that we have here at State Road have to be more modern, because you're moving to another facilities. You upgrade the processes. All those things bring -- and the cost sometimes. So we might raise prices on some of the [indiscernible] items here and there just to make sure all of our product line is as profitable as it could be. At the same time, we're also reacting where we have additional competition or more aggressive customer -- competitors out there looking for market share.

And with that, we have no further questions. I will now turn the call back to management for closing remarks.

Okay. Well, I want to thank everybody for joining today's call, and look forward to speaking to you in another quarter. So thank you, everyone.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating, and you may now disconnect.