GAAP

Adjusted

Net sales

$685 million to $695 million, updated from $680 million to $700 million

$685 million to $695 million, updated from $680 million to $700 million

Gross margin %

Approximately 42%, down from 42% to 43%

Approximately 48%, down from 48% to 49%

R&D expense

$30 million to $32 million, down from $36 million to $38 million

$30 million to $32 million, down from $36 million to $38 million

SG&A expense

$79 million to $81 million, Unchanged

$71 million to $73 million, Unchanged

Integration and restructuring related expense

$4 million to $5 million, unchanged

$ --

Loss on Sale of Intangible asset

$16 million

$ --

Interest expense and other

$79 million to $80 million, Up from $77 million to $78 million

$62 million to $63 million, Unchanged

Effective tax rate

Approximately 35%, down from approximately 39%

Approximately 28%, up from approximately 27%

Capital expenditures

Approximately $50 million, changed from the range of $45 million to $55 million

Approximately $50 million, changed from the range of $45 million to $55 million

Contact:

Robert Jaffe

Robert Jaffe Co., LLC

(424) 288-4098

LANNETT COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

March 31, 2018

June 30, 2017

ASSETS

Current assets:

Cash and cash equivalents

$            114,016

$       117,737

Investment securities

9,089

27,091

Accounts receivable, net

238,767

204,066

Inventories

133,290

122,604

Prepaid income taxes

16,563

16,703

Other current assets

10,045

6,592

Total current assets

521,770

494,793

Property, plant and equipment, net

267,398

243,148

Intangible assets, net

420,582

453,861

Goodwill

339,566

339,566

Deferred tax assets

18,713

52,753

Other assets

29,462

19,191

TOTAL ASSETS

$         1,597,491

$    1,603,312

LIABILITIES

Current liabilities:

Accounts payable

$              67,501

$         44,720

Accrued expenses

5,832

12,499

Accrued payroll and payroll-related expenses

9,318

4,833

Rebates payable

41,267

44,593

Royalties payable

9,540

3,015

Restructuring liability

3,328

5,431

Settlement liability

-

17,000

Short-term borrowings and current portion of long-term debt

66,845

60,117

Total current liabilities

203,631

192,208

Long-term debt, net

784,689

843,530

Other liabilities

2,199

6,452

TOTAL LIABILITIES

990,519

1,042,190

Commitments and contingencies

STOCKHOLDERS' EQUITY

Common stock ($0.001 par value, 100,000,000 shares authorized; 38,176,302 and 37,528,450 shares issued; 37,305,266 and 36,919,296 shares outstanding at March 31, 2018 and June 30, 2017, respectively)

38

37

Additional paid-in capital

303,376

292,780

Retained earnings

317,823

277,774

Accumulated other comprehensive loss

(450)

(222)

Treasury stock (871,036 and 609,154 shares at March 31, 2018 and June 30, 2017, respectively)

(13,815)

(9,247)

Total stockholders' equity

606,972

561,122

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 

$         1,597,491

$    1,603,312

LANNETT COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share data)

Three months ended 

Nine months ended 

March 31,

March 31,

2018

2017

2018

2017

Net sales

$      174,386

$        165,720

$      513,652

$        498,223

Settlement agreement

-

(4,000)

-

(4,000)

Total net sales

$      174,386

$        161,720

$      513,652

$        494,223

Cost of sales 

99,036

81,553

267,503

227,527

Amortization of intangibles

8,293

7,737

23,971

24,361

Gross profit

67,057

72,430

222,178

242,335

Operating expenses:

Research and development expenses

2,730

8,340

20,861

30,650

Selling, general, and administrative expenses

14,112

17,629

61,643

56,958

Acquisition and integration-related expenses

-

1,256

83

3,674

Restructuring expenses

1,421

1,568

2,983

5,332

Loss on sale of intangible asset

15,514

-

15,514

-

Intangible asset impairment charges

-

-

-

88,084

Total operating expenses

33,777

28,793

101,084

184,698

Operating income

33,280

43,637

121,094

57,637

Other income (loss):

Investment income

719

1,037

4,208

3,085

Interest expense

(22,842)

(22,373)

(64,440)

(68,700)

Other

(662)

(35)

2,473

(298)

Total other loss

(22,785)

(21,371)

(57,759)

(65,913)

Income (loss) before income tax

10,495

22,266

63,335

(8,276)

Income tax expense (benefit)

(2,275)

7,337

23,286

(2,003)

Net income (loss)

12,770

14,929

40,049

(6,273)

Less: Net income attributable to noncontrolling interest

-

-

-

34

Net income (loss) attributable to Lannett Company, Inc.

$        12,770

$          14,929

$        40,049

Earnings (loss) per common share attributable to Lannett Company, Inc.:

     Basic

$             0.34

$              0.41

$             1.08

$            (0.17)

     Diluted

$             0.33

$              0.40

$             1.05

$            (0.17)

Weighted average common shares outstanding:

     Basic

37,136,945

36,849,208

37,064,781

36,785,829

     Diluted

38,287,005

37,752,304

38,112,193

36,785,829

LANNETT COMPANY, INC.

RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION (UNAUDITED)

(In thousands, except percentages, share and per share data)

Three months ended March 31, 2018

Net sales

Cost of

sales

Amortization

of intangibles

Gross

Profit

Gross

Margin %

R&D

expense

SG&A

expense

Acquisition and

integration-

related

expenses

Restructuring

expenses

Loss on sale of

intangible asset

Operating

income

Other

income

(loss)

Income

before

income

tax

Income tax

expense

(benefit)

Net income

Net income

attributable to

noncontrolling

interest

Net income

attributable to

Lannett

Company, Inc.

Diluted

earnings

per share

(g)

GAAP Reported

$     174,386

$      99,036

$            8,293

$          67,057

38%

$          2,730

$    14,112

$                    -

$          1,421

15,514

$          33,280

$      (22,785)

$     10,495

$     (2,275)

$         12,770

$                 -

$          12,770

$         0.33

Adjustments:

Depreciation of Fixed Assets step-up (a)

-

(1,335)

-

1,335

-

-

-

-

-

1,335

-

1,335

-

1,335

-

1,335

Amortization of intangibles (b)

-

-

(8,293)

8,293

-

-

-

-

-

8,293

-

8,293

-

8,293

-

8,293

Restructuring expenses (c)

-

-

-

-

-

-

-

(1,421)

-

1,421

-

1,421

-

1,421

-

1,421

Loss on sale of intangible asset (d)

-

-

-

-

-

-

-

-

(15,514)

15,514

15,514

-

15,514

-

15,514

Non-cash interest (e)

-

-

-

-

-

-

-

-

-

-

6,642

6,642

-

6,642

-

6,642

Tax adjustments (f)

-

-

-

-

-

-

-

-

-

-

-

-

15,508

(15,508)

-

(15,508)

Non-GAAP Adjusted

$       174,386

$        97,701

$                  -

$           76,685

44%

$            2,730

$     14,112

$                   -

$                -

$                    -

$          59,843

$        (16,143)

$     43,700

$      13,233

$          30,467

$                 -

$          30,467

$          0.80

(a)

Relates to depreciation of a fair value step-up in property, plant and equipment related to the acquisition of Kremers Urban Pharmaceuticals, Inc. ("KUPI") 

(b)

Relates to amortization of purchased intangible assets primarily related to the acquisitions of KUPI and Silarx Pharmaceuticals, Inc. 

(c)

To exclude expenses associated with the 2016 Restructuring Plan 

(d)

To exclude a loss realized on a sale of an intangible asset 

(e)

To exclude non-cash interest expense primarily associated with debt issuance costs 

(f)

To exclude the impact of the revaluation of net long term deferred tax assets related to the Tax Cut and Jobs Act legislation ("2017 Tax Reform"), partially offset by the tax effect of the pre-tax adjustments included at applicable tax rates

(g)

The weighted average share number for the three months ended March 31, 2018 is 38,287,005 for both the GAAP and the non-GAAP earnings per share calculations 

LANNETT COMPANY, INC.

RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION (UNAUDITED)

(In thousands, except percentages, share and per share data)

Three months ended March 31, 2017

Total net

sales

Cost of

sales

Amortization

of intangibles

Gross

Profit

R&D

expense

SG&A

expense

Acquisition and

integration-

related

expenses

Restructuring

expenses

Operating

income

Other

income

(loss)

Income

before

income

tax

Income tax

expense

Net income

Net income

attributable to

noncontrolling

interest

Net income

attributable to

Lannett

Company, Inc.

Diluted

earnings

per share

(h)

GAAP Reported

$ 161,720

$ 81,553

$           7,737

$    72,430

45%

$       8,340

$ 17,629

$           1,256

$       1,568

$ 43,637

$   (21,371)

$  22,266

$   7,337

$ 14,929

$             -

$        14,929

$    0.40

Adjustments:

Settlement agreement (a)

4,000

-

-

4,000

-

-

-

-

4,000

-

4,000

-

4,000

-

4,000

Depreciation of Fixed Assets step-up (b)

-

(1,335)

-

1,335

-

-

-

-

1,335

-

1,335

-

1,335

-

1,335

Amortization of intangibles (c)

-

-

(7,737)

7,737

-

(365)

-

-

8,102

-

8,102

-

8,102

-

8,102

Acquisition and integration-related expenses (d)

-

-

-

-

-

-

(1,256)

-

1,256

-

1,256

-

1,256

-

1,256

Restructuring expenses (e)

-

-

-

-

-

-

-

(1,568)

1,568

-

1,568

-

1,568

-

1,568

Non-cash interest (f)

-

-

-

-

-

-

-

-

-

5,688

5,688

-

5,688

-

5,688

Tax adjustments (g)

-

-

-

-

-

-

-

-

-

-

-

7,679

(7,679)

-

(7,679)

Non-GAAP Adjusted

$   165,720

$  80,218

$                 -

$      85,502

52%

$         8,340

$  17,264

$                 -

$             -

$   59,898

$     (15,683)

$    44,215

$  15,016

$  29,199

$              -

$         29,199

$     0.77

(a)

 Relates to an adjustment to a settlement agreement with a former customer 

(b)

 Relates to depreciation of a fair value step-up in property, plant and equipment related to the acquisition of Kremers Urban Pharmaceuticals, Inc. ("KUPI") 

(c)

 Relates to amortization of purchased intangible assets primarily related to the acquisitions of KUPI and Silarx Pharmaceuticals, Inc. 

(d)

 Relates to acquisition and integration-related expenses primarily related to the acquisition of KUPI 

(e)

 To exclude expenses associated with the 2016 Restructuring Plan 

(f)

 To exclude non-cash interest expense primarily associated with debt issuance costs 

(g)

 The tax effect of the pre-tax adjustments included at applicable tax rates 

(h)

 The weighted average share number for the three months ended March 31, 2017 is 37,752,304 for both the GAAP and the non-GAAP earnings per share calculations 

LANNETT COMPANY, INC.

RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION (UNAUDITED)

(In thousands, except percentages, share and per share data)

Nine months ended March 31, 2018

Net

sales

Cost of

sales

Amortization

of intangibles

Gross

Profit

Gross

Margin %

R&D

expense

SG&A

expense

Acquisition and

integration-

related

expenses

Restructuring

expenses

Loss on sale of

intangible asset

Operating

income

Other

income

(loss)

Income

before

income

tax

Income tax

expense

Net income

Net income

attributable to

noncontrolling

interest

Net income

attributable to

Lannett

Company, Inc.

Diluted

earnings

per share

(j)

GAAP Reported

$ 513,652

$ 267,503

$         23,971

$  222,178

43%

$     20,861

$ 61,643

$                83

$       2,983

$        15,514

$ 121,094

$   (57,759)

$  63,335

$ 23,286

$   40,049

$             -

$        40,049

$    1.05

Adjustments:

Depreciation of Fixed Assets step-up (a)

-

(4,005)

-

4,005

-

-

-

-

-

4,005

-

4,005

-

4,005

-

4,005

Amortization of intangibles (b)

-

-

(23,971)

23,971

-

(582)

-

-

-

24,553

-

24,553

-

24,553

-

24,553

Acquisition and integration-related expenses (c)

-

-

-

-

-

-

(83)

-

-

83

-

83

-

83

-

83

Restructuring expenses (d)

-

-

-

-

-

-

-

(2,983)

-

2,983

-

2,983

-

2,983

-

2,983

Loss on sale of intangible asset (e)

-

-

-

-

-

-

-

-

(15,514)

15,514

15,514

-

15,514

-

15,514

Non-cash interest (f)

-

-

-

-

-

-

-

-

-

-

15,656

15,656

-

15,656

-

15,656

Litigation settlement gain (g)

-

-

-

-

-

-

-

-

-

-

(3,500)

(3,500)

-

(3,500)

-

(3,500)

Other (h)

-

-

-

-

-

(7,405)

-

-

-

7,405

-

7,405

-

7,405

-

7,405

Tax adjustments (i)

-

-

-

-

-

-

-

-

-

-

-

-

12,978

(12,978)

-

(12,978)

Non-GAAP Adjusted

$   513,652

$   263,498

$                 -

$    250,154

49%

$       20,861

$  53,656

$                 -

$             -

$                -

$   175,637

$     (45,603)

$  130,034

$  36,264

$     93,770

$              -

$         93,770

$     2.46

(a)

 Relates to depreciation of a fair value step-up in property, plant and equipment related to the acquisition of Kremers Urban Pharmaceuticals, Inc. ("KUPI") 

(b)

 Relates to amortization of purchased intangible assets primarily related to the acquisitions of KUPI and Silarx Pharmaceuticals, Inc. 

(c)

 Relates to acquisition and integration-related expenses primarily related to the acquisition of KUPI 

(d)

 To exclude expenses associated with the 2016 Restructuring Plan 

(e)

 To exclude a loss realized on a sale of an intangible asset 

(f)

 To exclude non-cash interest expense primarily associated with debt issuance costs 

(g)

 To exclude a settlement gain associated with patent litigation  

(h)

 To exclude separation benefits associated with the former Chief Executive Officer as well as a reversal of indemnified unrecognized tax benefits due to expirations in the statute of limitations, related to the KUPI acquisition 

(i)

 To exclude the impact of the revaluation of net long term deferred tax assets related to the Tax Cut and Jobs Act legislation ("2017 Tax Reform"), partially offset by the tax effect of the pre-tax adjustments included at applicable tax rates as well as the reversal of indemnified unrecognized tax benefits related to the KUPI acquisition

(j)

 The weighted average share number for the nine months ended March 31, 2018 is 38,112,193 for both the GAAP and the non-GAAP earnings per share calculations 

LANNETT COMPANY, INC.

RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION (UNAUDITED)

(In thousands, except percentages, share and per share data)

Nine months ended March 31, 2017

Total net

sales

Cost of

sales

Amortization

of intangibles

Gross Profit

Gross

Margin %

R&D

expense

SG&A

expense

Acquisition and

integration-

related expenses

Restructuring

expenses

Intangible

asset

impairment

charges

Operating

income

Other

income

(loss)

Income

(loss) before

income tax

Income

tax

expense

(benefit)

Net income

(loss)

Net income

attributable to

noncontrolling

interest

Net income (loss)

attributable to

Lannett

Company, Inc.

Diluted

earnings

(loss) per

share (k)

GAAP Reported

$       494,223

$227,527

$         24,361

$   242,335

49%

$    30,650

$ 56,958

$             3,674

$       5,332

$       88,084

$ 57,637

$   (65,913)

$      (8,276)

$ (2,003)

$    (6,273)

$             34

$               (6,307)

$   (0.17)

Adjustments:

Settlement agreement (a)

4,000

-

-

4,000

-

-

-

-

-

4,000

-

4,000

-

4,000

-

4,000

Depreciation of Fixed Assets step-up (b)

-

(3,075)

-

3,075

-

-

-

-

-

3,075

-

3,075

-

3,075

-

3,075

Amortization of Inventory step-up (c)

-

(1,938)

-

1,938

-

-

-

-

-

1,938

-

1,938

-

1,938

-

1,938

Amortization of intangibles (d)

-

-

(24,361)

24,361

-

(1,095)

-

-

-

25,456

-

25,456

-

25,456

-

25,456

Acquisition and integration-related expenses (e)

-

-

-

-

-

-

(3,674)

-

-

3,674

-

3,674

-

3,674

-

3,674

Restructuring expenses (f)

-

-

-

-

-

-

-

(5,332)

-

5,332

-

5,332

-

5,332

-

5,332

Intangible assets impairment charges (g)

-

-

-

-

-

-

-

-

(88,084)

88,084

-

88,084

-

88,084

-

88,084

Non-cash interest (h)

-

-

-

-

-

-

-

-

-

-

15,961

15,961

-

15,961

-

15,961

Other (i)

-

-

-

-

-

(715)

-

-

-

715

-

715

-

715

-

715

Tax adjustments (j)

-

-

-

-

-

-

-

-

-

-

-

-

49,195

(49,195)

-

(49,195)

Non-GAAP Adjusted

$         498,223

$  222,514

$                 -

$     275,709

55%

$     30,650

$  55,148

$                   -

$             -

$               -

$ 189,911

$     (49,952)

$      139,959

$  47,192

$     92,767

$             34

$                92,733

$      2.46

(a)

 Relates to an adjustment to a settlement agreement with a former customer 

(b)

 Relates to depreciation of a fair value step-up in property, plant and equipment related to the acquisition of Kremers Urban Pharmaceuticals, Inc. ("KUPI") 

(c)

 Relates to amortization of a fair value step-up in inventory r

elated to the acquisition of KUPI 

(d)

 Relates to amortization of purchased intangible assets primarily related to the acquisitions of KUPI and Silarx Pharmaceuticals, Inc. 

(e)

 Relates to acquisition and integration-related expenses primarily related to the acquisition of KUPI 

(f)

 To exclude expenses associated with the 2016 Restructuring Plan 

(g)

 To exclude impairment charges related to certain intangible assets acquired as part of the KUPI acquisition 

(h)

 To exclude non-cash interest expense primarily associated with debt issuance costs 

(i)

 Primarily relates to separation expenses associated with a former employee 

(j)

 The tax effect of the pre-tax adjustments included at applicable tax rates 

(k)

 The weighted average share numbers for the nine months ended March 31, 2017 are 36,785,829 and 37,669,173 for the GAAP and non-GAAP earnings (loss) per share calculations, respectively 

LANNETT COMPANY, INC.

RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED INFORMATION (UNAUDITED)

($ in millions)

Fiscal Year 2018 Guidance

Non-GAAP

GAAP

Adjustments

Adjusted

Net sales

 $685 - $695 

-

 $685 - $695 

Gross margin percentage

 approx. 42% 

6%

(a)

 approx. 48% 

R&D expense

 $30 - $32 

-

 $30 - $32 

SG&A expense

 $79 - $81 

($8)

(b)

 $71 - $73 

Integration and Restructuring expense

 $4 - $5 

 ($4 - $5) 

(c)

-

Loss on Sale of Intangible Asset

$16

($16)

(d)

-

Interest expense and other

 $79 - $80 

($17)

(e)

 $62 - $63 

Effective tax rate

 approx. 35% 

(f)

 approx. 28% 

Capital expenditures

 approx. $50 

-

 approx. $50 

(a)

The adjustment primarily reflects amortization of purchased intangible assets and depreciation of a fair value step-up in property, plant and equipment related to the acquisition of Kremers Urban Pharmaceuticals, Inc. ("KUPI")

(b)

The adjustment reflects severance benefits to the former chief executive officer, a reversal of indemnified unrecognized tax benefits as well as amortization of purchased intangible assets related to the acquisition of KUPI

(c)

The adjustment primarily reflects expenses related to the 2016 Restructuring Plan

(d)

The adjustment reflects a loss on sale of an intangible asset acquired as part of the acquisition of KUPI

(e)

The adjustment primarily reflects non-cash interest expense associated with debt issuance costs as well as a litigation settlement gain

(f)

The adjustment primarily reflects the impact of the revaluation of net long term deferred tax assets related to the Tax Cut and Jobs Act legislation ("2017 Tax Reform")

LANNETT COMPANY, INC.

NET SALES BY MEDICAL INDICATION

Three months ended

Nine months ended

(in thousands)

March 31, 

March 31, 

Medical Indication

2018

2017

2018

2017

Antibiotic

$    3,801

$    4,474

$   10,701

$   13,047

Anti-Psychosis

9,336

14,433

47,127

47,119

Cardiovascular

18,514

14,815

39,955

39,484

Central Nervous System

8,395

11,124

24,137

32,028

Gallstone

3,828

11,157

15,674

37,465

Gastrointestinal

16,562

19,441

46,171

56,470

Glaucoma

875

4,868

5,706

15,962

Migraine

12,888

7,043

43,387

22,066

Muscle Relaxant

3,299

3,673

10,309

10,208

Pain Management

6,594

6,085

18,483

20,132

Respiratory

2,324

4,256

6,200

9,426

Thyroid Deficiency

69,975

44,999

185,983

130,267

Urinary

33

2,619

5,870

12,413

Other

12,376

14,555

38,178

36,870

Contract Manufacturing revenue

5,586

2,178

15,771

15,266

   Net Sales

174,386

165,720

513,652

498,223

Settlement agreement

-

(4,000)

-

(4,000)

   Total Net Sales

$ 174,386

$ 161,720

$ 513,652

$ 494,223