Lannett Announces Fiscal 2019 Fourth-Quarter, Full-Year Financial Results; Issues Guidance For Fiscal 2020

GAAP

Adjusted**

Net sales

$525 million to $545 million

$525 million to $545 million

Gross margin %

Approximately 33.5% to 35.5%

Approximately 40% to 42%

R&D expense

$34 million to $36 million

$34 million to $36 million

SG&A expense

$68 million to $71 million

$63 million to $66 million

Restructuring expense

$2 million to $4 million

Interest and other

$71 million to $73 million

$56 million to $58 million

Effective tax rate

Approximately 26% to 29%

Approximately 22% to 23%

Adjusted EBITDA*

N/A

$145 million to $160 million

Capital expenditures

$20 million to $25 million

$20 million to $25 million

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

June 30, 2019

June 30, 2018

ASSETS

Current assets:

Cash and cash equivalents

$         140,249

$         98,586

Accounts receivable, net

164,752

252,651

Inventories

143,971

141,635

Prepaid income taxes

-

15,159

Assets held for sale

9,671

13,976

Other current assets

13,606

4,863

Total current assets

472,249

526,870

Property, plant and equipment, net

186,670

233,247

Intangible assets, net

411,229

424,425

Goodwill

-

339,566

Deferred tax assets

109,305

22,063

Other assets

7,960

29,133

TOTAL ASSETS

$    1,575,304

LIABILITIES

Current liabilities:

Accounts payable

$           13,493

$         56,767

Accrued expenses

5,805

7,425

Accrued payroll and payroll-related expenses

19,924

7,819

Rebates payable

46,175

49,400

Royalties payable

16,215

5,955

Restructuring liability

2,315

6,706

Other current liabilities

3,652

-

Income taxes payable

2,198

-

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

66,845

66,845

Total current liabilities

176,622

200,917

Long-term debt, net

662,203

772,425

Other liabilities

14,547

3,047

TOTAL LIABILITIES

853,372

976,389

STOCKHOLDERS' EQUITY

Common stock ($0.001 par value, 100,000,000 shares authorized; 38,969,518 and 38,256,839 shares issued; 38,010,714 and 37,380,517 shares outstanding at June 30, 2019 and June 30, 2018, respectively)

39

38

Additional paid-in capital

317,023

306,817

Retained earnings

32,075

306,464

Accumulated other comprehensive loss

(615)

(515)

Treasury stock (958,804 and 876,322 shares at June 30, 2019 and June 30, 2018, respectively)

(14,481)

(13,889)

Total stockholders' equity

334,041

598,915

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 

$      1,187,413

$    1,575,304

LANNETT COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share data)

Three months ended 

Twelve months ended 

June 30,

June 30,

2018

2019

2018

Net sales

$    133,841

$       170,911

$    655,407

$       684,563

Cost of sales 

76,589

96,226

379,601

363,729

Amortization of intangibles

7,910

8,157

32,196

32,128

Gross profit

49,342

66,528

243,610

288,706

Operating expenses:

Research and development expenses

9,436

8,335

38,807

29,196

Selling, general and administrative expenses

22,214

20,553

87,648

82,196

Acquisition and integration-related expenses

-

-

-

83

Restructuring expenses

2,408

4,078

4,095

7,061

Loss on sale of intangible asset

-

-

-

15,514

Asset impairment charges

5,882

24,960

375,381

24,960

Total operating expenses

39,940

57,926

505,931

159,010

Operating income (loss)

9,402

8,602

(262,321)

129,696

Other income (loss):

Investment income

1,306

545

3,166

4,753

Interest expense

(20,194)

(21,194)

(84,624)

(85,634)

Loss on extinguishment of debt

(35)

-

(448)

-

Other

(609)

(195)

(2,018)

2,278

Total other loss

(19,532)

(20,844)

(83,924)

(78,603)

Income (loss) before income tax

(10,130)

(12,242)

(346,245)

51,093

Income tax expense (benefit)

(2,544)

(883)

(74,138)

22,403

Net income (loss)

$       (11,359)

$   (272,107)

$         28,690

Earnings (loss) per common share:

     Basic

$          (0.20)

$           (0.30)

$          (7.20)

$             0.77

     Diluted

$          (0.20)

$           (0.30)

$          (7.20)

$             0.75

Weighted average common shares outstanding:

     Basic

37,932,509

37,315,567

37,779,812

37,127,306

     Diluted

37,932,509

37,315,567

37,779,812

38,162,514

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 June 30, 2019

Net sales

Cost of sales

Amortization

of intangibles

Gross

Profit

Gross

Margin

%

R&D

expenses

SG&A

expenses

Restructuring

expenses

Asset impairment

charges

Operating

income

Other

income

(loss)

Income

(loss)

before

income tax

Income

tax

expense

(benefit)

Net

income

(loss)

Diluted

earnings

(loss) per

share (m)

GAAP Reported

$133,841

$     76,589

$      7,910

$ 49,342

37%

$ 9,436

$ 22,214

$       2,408

$              5,882

$    9,402

$(2,544)

$ (7,586)

$  (0.20)

Adjustments:

Amortization of intangibles (a)

-

-

(7,910)

7,910

-

-

-

-

7,910

-

7,910

-

7,910

Cody API business (b)

-

(2,233)

-

2,233

(760)

(1,394)

-

-

4,387

-

4,387

-

4,387

Depreciation on capitalized software costs (c)

-

-

-

-

-

(1,058)

-

-

1,058

-

1,058

-

1,058

Legal and financial advisory costs (d)

-

-

-

-

-

(237)

-

-

237

-

237

-

237

Decommissioning of Philadelphia sites (e)

-

(89)

-

89

(64)

-

-

-

153

-

153

-

153

Restructuring expenses (f)

-

-

-

-

-

-

(2,408)

-

2,408

-

2,408

-

2,408

Indemnification asset write-off (g)

-

-

-

-

-

(2,284)

-

-

2,284

2,284

-

2,284

Asset impairment charges (h)

-

-

-

-

-

-

-

(5,882)

5,882

5,882

5,882

Non-cash interest (i)

-

-

-

-

-

-

-

-

-

4,201

4,201

-

4,201

Loss on extinguishment of debt (j)

-

-

-

-

-

-

-

-

-

34

34

-

34

Other (k)

-

(209)

-

209

-

(195)

-

-

404

(242)

162

-

162

Tax adjustments (l)

-

-

-

-

-

-

-

-

-

-

-

6,460

(6,460)

Non-GAAP Adjusted

$  133,841

$       74,058

$            -

$  59,783

45%

$  8,612

$  17,046

$             -

$                     -

$    34,125

$  (15,539)

$     18,586

$   3,916

$  14,670

$     0.37

(a)

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

(b)

To exclude the operating results of the ceased Cody API business 

(c)

To exclude depreciation on previously capitalized software integration costs associated with the KUPI acquisition 

(d)

To exclude legal and financial advisory costs primarily related to exploring and evaluating debt and capital structure alternatives 

(e)

To exclude the costs associated with the decommissioning and shutdown of the Philadelphia manufacturing and distribution sites 

(f)

To exclude expenses associated with the Cody API Restructuring Plan 

(g)

To exclude the write-off of an indemnification asset related to the KUPI acquisition 

(h)

To exclude asset impairment charges primarily associated with the Cody API assets as well as obsolete equipment and computer software related to the consolidation of manufacturing functions 

(i)

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

(j)

To exclude the loss on extinguishment of debt related to repurchases of Term Loans 

(k)

To primarily exclude accrued separation costs related to the Company's Chief Financial Officer

(l)

To exclude the tax effect of the pre-tax adjustments included above at applicable tax rates 

(m)

The weighted average share number for the three months ended June 30, 2019 is 37,932,509 for GAAP and 39,345,258 for non-GAAP earnings (loss) 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 June 30, 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

Asset impairment

charges

Operating

income

Other

income

(loss)

Income (loss)

before income

tax

Income

tax

expense

(benefit)

Net

income

(loss)

Diluted

earnings

(loss) per

share (h)

GAAP Reported

$ 170,911

$ 96,226

$      8,157

$ 66,528

39%

$ 8,335

$ 20,553

$           -

$        4,078

$            24,960

$   8,602

$(20,844)

$       (12,242)

$  (883)

$(11,359)

$   (0.30)

Adjustments:

Depreciation of Fixed Assets step-up (a)

-

(1,335)

-

1,335

-

-

-

-

-

1,335

-

1,335

-

1,335

Amortization of intangibles (b)

-

-

(8,157)

8,157

-

-

-

-

-

8,157

-

8,157

-

8,157

Restructuring expenses (c)

-

-

-

-

-

-

-

(4,078)

-

4,078

-

4,078

-

4,078

Asset impairment charges (d)

-

-

-

-

-

-

-

-

(24,960)

24,960

24,960

-

24,960

Non-cash interest (e)

-

-

-

-

-

-

-

-

-

-

4,557

4,557

-

4,557

Other (f)

-

-

-

-

-

(3,188)

-

-

-

3,188

-

3,188

-

3,188

Tax adjustments (g)

-

-

-

-

-

-

-

-

-

-

-

-

10,443

(10,443)

Non-GAAP Adjusted

$   170,911

$  94,891

$            -

$  76,020

44%

$  8,335

$  17,365

$           -

$              -

$                     -

$  50,320

$  (16,287)

$           34,033

$  9,560

$    24,473

$      0.64

(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 Cody Restructuring Plan and, to a lesser extent, the 2016 Restructuring Plan 

(d)

To exclude asset impairment charges primarily related to the Cody Restructuring Plan, and to a lesser extent, the consolidation of manufacturing activities with respect to plant-related assets located at the Company's Townsend Road facility 

(e)

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

(f)

To primarily exclude separation benefits associated with the former Senior Vice President of Sales as well as other employees 

(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 June 30, 2018 is 37,315,567 and 38,285,208 for the GAAP and non-GAAP earnings (loss) per share calculations, respectively 

LANNETT COMPANY, INC.

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

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

Twelve months ended June 30, 2019

Net sales

Cost of sales

Amortization

of intangibles

Gross

Profit

Gross

Margin

%

R&D

expenses

SG&A

expenses

Restructuring

expenses

Asset

impairment

charges

Operating

income

(loss)

Other

income

(loss)

Income

(loss)

before

income tax

Income tax

expense

(benefit)

Net income

(loss)

Diluted

earnings

(loss) per

share (n)

GAAP Reported

$  655,407

$   379,601

$    32,196

$ 243,610

37%

$ 38,807

$ 87,648

$        4,095

$ 375,381

$(262,321)

$   (83,924)

$(346,245)

$(74,138)

$ (272,107)

$   (7.20)

Adjustments:

Depreciation of fixed assets step-up (a)

-

(2,459)

-

2,459

-

-

-

-

2,459

-

2,459

-

2,459

Amortization of intangibles (b)

-

-

(32,196)

32,196

-

-

-

-

32,196

-

32,196

-

32,196

Cody API business (c)

-

(7,061)

-

7,061

(2,397)

(2,340)

-

-

11,798

-

11,798

-

11,798

Depreciation on capitalized software costs (d)

-

-

-

-

-

(4,233)

-

-

4,233

-

4,233

-

4,233

Legal and financial advisory costs (e)

-

-

-

-

-

(3,626)

-

-

3,626

-

3,626

-

3,626

Decommissioning of Philadelphia sites (f)

-

(4,114)

-

4,114

(64)

-

-

4,178

-

4,178

-

4,178

Restructuring expenses (g)

-

-

-

-

-

-

(4,095)

-

4,095

-

4,095

-

4,095

Asset impairment charges (h)

-

-

-

-

-

-

-

(375,381)

375,381

375,381

-

375,381

Indemnification asset write-off (i)

-

-

-

-

-

(3,094)

-

-

3,094

3,094

3,094

Non-cash interest (j)

-

-

-

-

-

-

-

-

-

17,649

17,649

-

17,649

Loss on extinguishment of debt (k)

-

-

-

-

-

-

-

-

-

448

448

-

448

Other (l)

-

(1,960)

-

1,960

(210)

(3,173)

-

-

5,343

977

6,320

-

6,320

Tax adjustments (m)

-

-

-

-

-

-

-

-

-

-

-

101,526

(101,526)

Non-GAAP Adjusted

$    655,407

$     364,007

$            -

$   291,400

44%

$  36,136

$  71,182

$              -

$           -

$    184,082

$     (64,850)

$    119,232

$    27,388

$      91,844

$      2.35

(a)

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

(b)

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

(c)

To exclude the operating results of the ceased Cody API business 

(d)

To exclude depreciation on previously capitalized software integration costs associated with the KUPI acquisition 

(e)

To exclude legal and financial advisory costs primarily related to exploring and evaluating debt and capital structure alternatives, including the December 2018 amendment to our Credit Agreement 

(f)

To exclude the costs associated with the decommissioning and shutdown of the Philadelphia manufacturing and distribution sites 

(g)

To exclude expenses associated with the 2016 Restructuring Plan, the Cody Restructuring Plan as well as the Cody API Restructuring Plan

(h)

To exclude asset impairment charges primarily related to goodwill and other long-lived assets

(i)

To exclude the write-off of indemnification assets related to the KUPI acquisition 

(j)

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

(k)

To exclude the loss on extinguishment of debt related to repurchases of Term Loans 

(l)

To primarily exclude separation costs related to the Company's cost reduction plan, a special recognition incentive payment as well as a litigation settlement 

(m)

To exclude the tax effect of the pre-tax adjustments included above at applicable tax rates

(n)

The weighted average share number for the twelve months ended June 30, 2019 is 37,779,812 for GAAP and 39,135,719 for the non-GAAP earnings (loss) per share calculations 

LANNETT COMPANY, INC.

RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION

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

Twelve months ended June 30, 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

Asset impairment

charges

Operating

income

Other

income

(loss)

Income

before

income

tax

Income

tax

expense

Net

income

Diluted

earnings

per

share (k)

GAAP Reported

$ 684,563

$ 363,729

$    32,128

$   288,706

42%

$ 29,196

$ 82,196

$          83

$        7,061

$         15,514

$             24,960

$ 129,696

$(78,603)

$  51,093

$ 22,403

$  28,690

Adjustments:

Depreciation of Fixed Assets step-up (a)

-

(5,340)

-

5,340

-

-

-

-

-

-

5,340

-

5,340

-

5,340

Amortization of intangibles (b)

-

-

(32,128)

32,128

-

(582)

-

-

-

-

32,710

-

32,710

-

32,710

Acquisition and integration-related expenses (c)

-

-

-

-

-

-

(83)

-

-

-

83

-

83

-

83

Restructuring expenses (d)

-

-

-

-

-

-

-

(7,061)

-

-

7,061

-

7,061

-

7,061

Loss on sale of intangible asset (e)

-

-

-

-

-

-

-

-

(15,514)

-

15,514

-

15,514

-

15,514

Asset impairment charges (f)

-

-

-

-

-

-

-

-

-

(24,960)

24,960

-

24,960

-

24,960

Non-cash interest (g)

-

-

-

-

-

-

-

-

-

-

-

20,213

20,213

-

20,213

Litigation settlement gain (h)

-

-

-

-

-

-

-

-

-

-

-

(3,500)

(3,500)

-

(3,500)

Other (i)

-

-

-

-

-

(10,593)

-

-

-

-

10,593

-

10,593

-

10,593

Tax adjustments (j)

-

-

-

-

-

-

-

-

-

-

-

-

-

23,421

(23,421)

Non-GAAP Adjusted

$   684,563

$   358,389

$            -

$     326,174

48%

$  29,196

$  71,021

$           -

$              -

$                 -

$                     -

$   225,957

$  (61,890)

$  164,067

$  45,824

$  118,243

$   3.10

(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 and Cody Restructuring Plan

(e)

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

(f)

To exclude asset impairment charges primarily related to the Cody Restructuring Plan, and to a lesser extent, the consolidation of manufacturing activities with respect to plant-related assets located at the Company's Townsend Road facility

(g)

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

(h)

To exclude a settlement gain associated with patent litigation 

(i)

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

(j)

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

(k)

The weighted average share number for the twelve months ended June 30, 2018 is 38,162,514 for both the GAAP and the non-GAAP earnings per share calculations

LANNETT COMPANY, INC.

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

($ in millions)

Fiscal Year 2020 Guidance

Non-GAAP

GAAP

Adjustments

Adjusted

Net sales

 $525 - $545 

-

 $525 - $545 

Gross margin percentage

approx. 33.5% to 35.5%

 (a) 

approx. 40% to 42%

R&D expense

 $34 - $36 

-

 $34 - $36 

SG&A expense

 $68 - $71 

 (b) 

 $63 - $66 

Restructuring expense

 $2 - $4 

 ($2 - $4) 

 (c) 

-

Interest and other

 $71 - $73 

($15)

 (d) 

 $56 - $58 

Effective tax rate

approx. 26% to 29%

(4% - 6%)

 (e) 

approx. 22% to 23%

Adjusted EBITDA

 N/A 

 N/A 

 $145 - $160 

Capital expenditures

 $20 - $25 

-

 $20 - $25 

(a)

The adjustment primarily reflects amortization of purchased intangible assets related to the acquisition of Kremers Urban Pharmaceuticals, Inc. ("KUPI")

(b)

The adjustment primarily excludes depreciation on previously capitalized software integration costs associated with the KUPI acquisition

(c)

To exclude expenses associated with the Cody API Restructuring Plan

(d)

The adjustment primarily reflects non-cash interest expense associated with debt issuance costs

(e)

The adjustment reflects the impact of tax credits and deductions relative to expected annual pre-tax income

LANNETT COMPANY, INC.

RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA (UNAUDITED)

($ in millions)

Fiscal Year 2020 Guidance

Low

High

Net income 

$                     0.6

$                     6.7

Interest expense

71.0

73.0

Depreciation and amortization

56.0

57.0

Income taxes

0.2

2.7

EBITDA

127.8

139.4

Share-based compensation

9.0

10.0

Inventory write-down

7.0

8.0

Separation costs

0.7

0.7

Cody API business

1.5

2.0

Restructuring expenses

2.0

4.0

Restructuring payments

(3.0)

(4.0)

Adjusted EBITDA (Non-GAAP)

$                 145.0

$                 160.1

LANNETT COMPANY, INC.

NET SALES BY MEDICAL INDICATION

Three months ended

Twelve months ended

($ in thousands)

June 30,

June 30,

Medical Indication

2019

2018

2019

2018

Antibiotic

$    3,325

$    3,807

$  15,391

$  14,509

Anti-Psychosis

27,913

12,430

73,453

59,557

Cardiovascular

31,235

24,056

101,467

64,011

Central Nervous System

11,362

7,652