Mallinckrodt Public Limited Company (NYSE:MNK) Q1 2018 Earnings Conference Call - Final Transcript
May 08, 2018 • 08:30 am ET
up 12%. Therakos also performed well in the quarter with net sales of $57 million, up 8%.
Now let me share some details on operating metrics. Total company adjusted gross profit as a percentage of net sales decreased slightly in the period to 81.8% from 84% in the prior year, negatively impacted due to product mix.
Our adjusted SG&A as a percentage of net sales was 33%, as compared to 38.6%, with the reduction attributed primarily to the benefits from restructuring initiatives throughout 2017. We expect SG&A as a percentage of net sales to remain near these levels over the next quarter or two, as we work to further realize the synergies of the Sucampo transaction.
As a reminder of the comments made in our last earnings call, by the early 2020s, we expect to reduce the annual SG&A run rate by $100 million from the 2017 base we presented in our recast financial statements. Our board recently approved an incremental restructuring program to assist us in our SG&A reduction initiatives and the ongoing transformation of the Company.
R&D expense as a percentage of net sales was 11.2% in the quarter and includes investment in our newly acquired pipeline assets. You can expect to see both absolute R&D spending and R&D as a percentage of net sales increase in coming quarters, as we continue to invest in our pipeline projects we have underway, which Steve will go through later.
Interest expense was in line with our expectations. And our adjusted effective tax rate was 10% for the quarter. Operating cash flow for the quarter was $18 million, with free cash flow of negative $17 million. Both of these metrics were impacted due to the liabilities assumed and paid following the close of the Sucampo acquisition. We expect operating cash flow to be strong the remainder of the year and also expect roughly $0.5 billion in free cash flow on a full year basis.
Now, let's look at our debt reduction initiatives. Taking into account the recently announced $300 million repayment of the April maturity from cash on hand and the repurchase of $33 million in debt in the secondary markets at a discount in the quarter, as of today, we have reduced total debt by over $200 million since the beginning of the year. Also keep in mind we had drawn on our revolver prior to year-end in anticipation of the Sucampo transaction.
And while our primary focus in 2018 has been and will continue to be on reducing debt, we also repurchased 2.9 million shares in the quarter. As expected, our net debt leverage ratio has increased to 4.6 as defined from a covenant perspective due to the closure of the Sucampo transaction. We will continue to use a significant amount of our cash generation toward debt reduction throughout 2018.
Now let me turn the call over to Mark to provide more color on the quarter and discuss progress on our strategic priorities for 2018. Mark?
Thanks, Matt. The