Lannett Announces Fiscal 2020 Second-Quarter Financial Results

Net sales

$530 million to $550 million, up from $525 million to $545 million

$530 million to $550 million, up from $525 million to $545 million

Gross margin %

Approximately 32.5% to 34.5%, down from approximately 33.5% to 35.5%

Approximately 39% to 41%, down from approximately 40% to 42%

R&D expense

$34 million to $36 million, unchanged

$34 million to $36 million, unchanged

SG&A expense

$69 million to $72 million, unchanged

$63 million to $66 million, unchanged

Restructuring expense

$2 million to $3 million, down from $2 million to $4 million

$ --

Asset impairment charges

$2 million

$ --

Interest and other

$67 million to $69 million, down from $70 million to $72 million

$51 million to $53 million, down from $54 million to $56 million

Effective tax rate

Approximately 16% to 17%, unchanged

Approximately 21% to 22%, down from approximately 22% to 23%

Adjusted EBITDA*

N/A

$145 million to $160 million, unchanged

Capital expenditures

$20 million to $25 million, unchanged

$20 million to $25 million, unchanged

**A reconciliation of Adjusted amounts to most directly comparable GAAP amounts can be found in the attached financial tables.

LANNETT COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

ASSETS

 (UNAUDITED)

Current assets:

December 31, 2019

June 30, 2019

Cash and cash equivalents

$                   119,176

$       140,249

Accounts receivable, net

158,498

164,752

Inventories

152,090

143,971

Prepaid income taxes

6,949

-

Assets held for sale

3,757

9,671

Other current assets

8,709

13,606

Total current assets

449,179

472,249

Property, plant and equipment, net

183,631

186,670

Intangible assets, net

422,849

411,229

Operating lease right-of-use assets

6,015

-

Deferred tax assets

111,514

109,305

Other assets

7,896

7,960

TOTAL ASSETS

$    1,187,413

LIABILITIES

Current liabilities:

Accounts payable

$                     30,883

$         13,493

Accrued expenses

10,750

5,805

Accrued payroll and payroll-related expenses

12,238

19,924

Rebates payable

48,447

46,175

Royalties payable

20,298

16,215

Restructuring liability

515

2,315

Income taxes payable

-

2,198

Current operating lease liabilities

1,848

-

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

101,939

66,845

Other current liabilities

2,851

3,652

Total current liabilities

229,769

176,622

Long-term debt, net

606,073

662,203

Long-term operating lease liabilities

5,358

-

Other liabilities

14,712

14,547

TOTAL LIABILITIES

855,912

853,372

STOCKHOLDERS' EQUITY

Common stock ($0.001 par value, 100,000,000 shares authorized; 39,851,828 and 38,969,518 shares issued; 38,698,403 and 38,010,714 shares outstanding at

December 31, 2019 and June 30, 2019, respectively)

40

39

Additional paid-in capital

317,012

317,023

Retained earnings

25,002

32,075

Accumulated other comprehensive loss

(578)

(615)

Treasury stock(1,153,425 and 958,804 shares at December 31, 2019 and June 30, 2019, respectively)

(16,304)

(14,481)

Total stockholders' equity

325,172

334,041

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 

$                1,181,084

$    1,187,413

LANNETT COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

 (UNAUDITED)

 (UNAUDITED)

Three months ended 

Six months ended 

December 31,

December 31,

2018

2019

2018

Net sales

$      136,110

$        193,718

$      263,452

$        348,772

Cost of sales 

86,663

115,751

164,319

203,441

Amortization of intangibles

8,153

8,157

15,181

16,380

Gross profit

41,294

69,810

83,952

128,951

Operating expenses:

Research and development expenses

6,906

9,723

15,846

19,533

Selling, general, and administrative expenses

17,421

23,197

38,729

43,785

Restructuring expenses

192

213

1,580

1,235

Asset impairment charges

-

-

1,618

369,499

Total operating expenses

24,519

33,133

57,773

434,052

Operating income (loss)

16,775

36,677

26,179

(305,101)

Other income (loss):

Loss on extinguishment of debt

-

-

(2,145)

-

Investment income

430

556

1,159

935

Interest expense

(16,694)

(21,512)

(35,986)

(42,945)

Other

(735)

(712)

199

(1,008)

Total other loss

(16,999)

(21,668)

(36,773)

(43,018)

Income (loss) before income tax

(224)

15,009

(10,594)

(348,119)

Income tax expense (benefit)

(5,308)

2,647

(3,521)

(72,953)

Net income (loss)

$          5,084

$          12,362

$         (7,073)

$      (275,166)

Earnings (loss) per common share:

     Basic

$             0.13

$              0.33

$           (0.18)

$            (7.30)

     Diluted (1)

$             0.13

$              0.32

$           (0.18)

$            (7.30)

Weighted average common shares outstanding:

     Basic

38,605,052

37,761,176

38,457,159

37,674,200

     Diluted (1)

40,557,503

39,112,547

38,457,159

37,674,200

(1) Effective with the 4.5% Senior Convertible Note issued on September 27, 2019, the diluted earnings per share was calculated based on the "if-converted" method.

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 December 31, 2019

Net sales

Cost of

sales

Amortization

of intangibles

Gross

Profit

Gross

Margin %

R&D

expense

SG&A

expense

Restructuring

expenses

Operating

income

Other

income

(loss)

Income (loss)

before income

tax

Income tax

expense

(benefit)

Net income 

Diluted

earnings per

share (i)

GAAP Reported

$ 136,110

$86,663

$        8,153

30%

$    6,906

$   17,421

$            192

$    16,775

$ (16,999)

$            (224)

$    (5,308)

$     5,084

$          0.13

Adjustments:

Amortization of intangibles (a)

-

-

(8,153)

8,153

-

-

-

8,153

-

8,153

-

8,153

Cody API business (b)

-

(206)

-

206

(85)

(161)

-

452

-

452

-

452

Depreciation on capitalized software costs (c)

-

-

-

-

-

(1,058)

-

1,058

-

1,058

-

1,058

Decommissioning of Philadelphia sites (d)

-

(303)

-

303

-

-

-

303

-

303

-

303

Restructuring expenses (e)

-

-

-

-

-

-

(192)

192

-

192

-

192

Non-cash interest (f)

-

-

-

-

-

-

-

-

3,563

3,563

-

3,563

Other (g)

-

(209)

-

209

-

(135)

-

344

630

974

-

974

Tax adjustments (h)

-

-

-

-

-

-

-

-

-

-

8,111

(8,111)

Non-GAAP Adjusted

$   136,110

$  85,945

$              -

$   50,165

37%

$     6,821

$    16,067

$               -

$      27,277

$   (12,806)

$           14,471

$       2,803

$     11,668

$           0.27

(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 the costs related to the decommissioning and shutdown of the Philadelphia manufacturing and distribution sites 

(e)

To exclude expenses associated with the Cody API Restructuring Plan 

(f)

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

(g)

To primarily exclude a settlement related to a shareholder derivative lawsuit against certain current and former officers and directors of the Company 

(h)

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

(i)

The weighted average share number for the three months ended December 31, 2019 is 40,557,503 for GAAP and 46,198,445 for the non-GAAP earnings per share calculations. Effective with the 4.5% Senior Convertible Note issued on September 27, 2019, the diluted earnings per share was calculated based on the "if-converted" method.

LANNETT COMPANY, INC.

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

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

Six months ended December 31, 2019

Net sales

Cost of sales

Amortization

of intangibles

Gross

Profit

Gross

Margin %

R&D

expense

SG&A

expense

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 (k)

GAAP Reported

$ 263,452

$ 164,319

$      15,181

$ 83,952

32%

$  15,846

$   38,729

$         1,580

1,618

$    26,179

$ (36,773)

$       (10,594)

$    (3,521)

$    (7,073)

$      (0.18)

Adjustments:

Amortization of intangibles (a)

-

-

(15,181)

15,181

-

-

-

-

15,181

-

15,181

-

15,181

Cody API business (b)

-

(1,928)

-

1,928

(505)

(375)

-

-

2,808

-

2,808

-

2,808

Depreciation on capitalized software costs (c)

-

-

-

-

-

(2,117)

-

-

2,117

-

2,117

-

2,117

Decommissioning of Philadelphia sites (d)

-

(1,292)

-

1,292

-

-

-

-

1,292

-

1,292

-

1,292

Restructuring expenses (e)

-

-

-

-

-

-

(1,580)

-

1,580

-

1,580

-

1,580

Asset impairment charges (f)

-

-

-

-

-

-

-

(1,618)

1,618

-

1,618

-

1,618

Non-cash interest (g)

-

-

-

-

-

-

-

-

-

7,571

7,571

-

7,571

Loss on extinguishment of debt (h)

-

-

-

-

-

-

-

-

-

2,145

2,145

-

2,145

Other (i)

-

(417)

-

417

-

(2,224)

-

-

2,641

(336)

2,305

-

2,305

Tax adjustments (j)

-

-

-

-

-

-

-

-

-

-

-

9,110

(9,110)

Non-GAAP Adjusted

$   263,452

$   160,682

$              -

$ 102,770

39%

$    15,341

$    34,013

$               -

$            -

$      53,416

$   (27,393)

$           26,023

$       5,589

$     20,434

$        0.49

(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 the costs related to the decommissioning and shutdown of the Philadelphia manufacturing and distribution sites 

(e)

To exclude expenses associated with the Cody API Restructuring Plan 

(f)

To exclude impairment charges primarily associated with an operating lease right-of-use asset 

(g)

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

(h)

To exclude the loss on extinguishment of debt primarily related to the partial repayment of the outstanding Term Loan A balance 

(i)

To primarily exclude accrued separation costs related to the Company's former Chief Financial Officer as well as gains on sales of assets previously held for sale, partially offset by legal settlements 

(j)

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

(k)

The weighted average share number for the six months ended December 31, 2019 is 38,457,159 for GAAP and 43,723,412 for the non-GAAP earnings (loss) per share calculations. Effective with the 4.5% Senior Convertible Note issued on September 27, 2019, the diluted earnings per share was calculated based on the "if-converted" method.

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 December 31, 2018

Net sales

Cost of sales

Amortization

of intangibles

Gross

Profit

Gross

Margin %

R&D

expenses

SG&A

expenses

Restructuring

expenses

Operating

income

Other

income

(loss)

Income

before

income tax

Income tax

expense

Net income

Diluted

earnings

per share (k)

GAAP Reported

$193,718

$   115,751

$        8,157

$ 69,810

36%

$    9,723

$      23,197

$           213

$     36,677

$ (21,668)

$ 15,009

$   2,647

$   12,362

$    0.32

Adjustments:

Depreciation of fixed assets step-up (a)

-

(1,124)

-

1,124

-

-

-

1,124

-

1,124

-

1,124

Amortization of intangibles (b)

-

-

(8,157)

8,157

-

-

-

8,157

-

8,157

-

8,157

Cody API business Held for Sale (c)

-

(3,486)

-

3,486

(862)

34

-

4,314

-

4,314

-

4,314

Depreciation on capitalized software costs (d)

-

-

-

-

-

(1,058)

-

1,058

-

1,058

-

1,058

Legal and financial advisory costs (e)

-

-

-

-

-

(2,430)

-

2,430

-

2,430

-

2,430

Decommissioning of Philadelphia sites (f)

-

(2,265)

-

2,265

-

-

-

2,265

583

2,848

-

2,848

Restructuring expenses (g)

-

-

-

-

-

-

(213)

213

-

213

-

213

Non-cash interest (h)

-

-

-

-

-

-

-

-

4,396

4,396

-

4,396

Other (i)

-

(1,126)

-

1,126

(210)

(2,318)

-

3,654

285

3,939

-

3,939

Tax adjustments (j)

-

-

-

-

-

-

-

-

-

-

7,199

(7,199)

Non-GAAP Adjusted

$  193,718

$     107,750

$              -

$   85,968

44%

$     8,651

$        17,425

$              -

$       59,892

$   (16,404)

$  43,488

$    9,846

$     33,642

$     0.86

(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 Cody API business Held for Sale which was classified as Held for Sale as of September 30, 2018 

(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 as well as the Cody Restructuring Plan 

(h)

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

(i)

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

(j)

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

(k)

The weighted average share number for the three months ended December 31, 2018 is 39,112,547 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)

Six months ended December 31, 2018

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

before

income tax

(loss)

Income tax

expense

(benefit)

Net income

(loss)

Diluted

earnings

(loss) per

share (l)

GAAP Reported

$  348,772

$   203,441

$      16,380

$  128,951

37%

$  19,533

$43,785

$         1,235

$       369,499

$ (305,101)

$ (43,018)

$(348,119)

$  (72,953)

$     (275,166)

$  (7.30)

Adjustments:

Depreciation of fixed assets step-up (a)

-

(2,459)

-

2,459

-

-

-

-

2,459

-

2,459

-

2,459

Amortization of intangibles (b)

-

-

(16,380)

16,380

-

-

-

-

16,380

-

16,380

-

16,380

Cody API business Held for Sale (c)

-

(3,486)

-

3,486

(862)

34

-

-

4,314

-

4,314

-

4,314

Depreciation on capitalized software costs (d)

-

-

-

-

-

(2,116)

-

-

2,116

-

2,116

-

2,116

Legal and financial advisory costs (e)

-

-

-

-

-

(2,430)

-

-

2,430

-

2,430

-

2,430

Decommissioning of Philadelphia sites (f)

-

(2,265)

-

2,265

-

-

-

-

2,265

583

2,848

-

2,848

Restructuring expenses (g)

-

-

-

-

-

-

(1,235)

-

1,235

-

1,235

-

1,235

Asset impairment charges (h)

-

-

-

-

-

-

-

(369,499)

369,499

369,499

-

369,499

Non-cash interest (i)

-

-

-

-

-

-

-

-

-

8,934

8,934

-

8,934

Other (j)

-

(1,126)

-

1,126

(210)

(2,600)

-

-

3,936

285

4,221

-

4,221

Tax adjustments (k)

-

-

-

-

-

-

-

-

-

-

-

88,703

(88,703)

Non-GAAP Adjusted

$    348,772

$     194,105

$              -

$    154,667

44%

$    18,461

$  36,673

$               -

$                 -

$      99,533

$   (33,216)

$      66,317

$     15,750

$          50,567

$     1.30

(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 Cody API business Held for Sale which was classified as Held for Sale as of September 30, 2018 

(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 as well as the Cody Restructuring Plan

(h)

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

(i)

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

(j)

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

(k)

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

(l)

The weighted average share number for the six months ended December 31, 2018 is 37,674,200 for GAAP and 38,937,705 for the non-GAAP earnings (loss) per share calculations 

LANNETT COMPANY, INC.

RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA (UNAUDITED)

($ in thousands)

Three months ended 

December 31, 2019

Net income

$                          5,084

Interest expense

16,694

Depreciation and amortization

14,089

Income tax expense

(5,308)

EBITDA

30,559

Share-based compensation

2,007

Inventory write-down

2,544

Investment income

(430)

Other non-operating loss

735

Restructuring expenses

192

Restructuring payments

(844)

Cody API business (a)

452

Decommissioning of Philadelphia sites (b)

303

Other

269

Adjusted EBITDA (Non-GAAP)

$                        35,787

(a)

To exclude the operating results of the ceased Cody API business

(b)

To exclude the costs related to the decommissioning and shutdown of the Philadelphia manufacturing and distribution sites

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

 $530 - $550 

-

 $530 - $550 

Gross margin percentage

approx. 32.5% to 34.5%

6.5%

 (a) 

approx. 39% to 41%

R&D expense

 $34 - $36 

-

 $34 - $36 

SG&A expense

 $69 - $72 

($6)

 (b) 

 $63 - $66 

Restructuring expense

 $2 - $3 

 ($2 - $3) 

 (c) 

-

Asset impairment charges

$2

($2)

 (d) 

-

Interest and other

 $67 - $69 

($16)

 (e) 

 $51 - $53 

Effective tax rate

 approx. 16% to 17% 

5%

 (f) 

approx. 21% to 22%

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) This adjustment primarily excludes an impairment charge associated with an operating lease right-of-use asset

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

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

LANNETT COMPANY, INC.

RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA (UNAUDITED)

($ in millions)

Fiscal Year 2020 Guidance

Low

High

Net income (loss)

$    (2.0)

$     6.0

Interest expense

67.0

69.0

Depreciation and amortization

56.0

57.0

Income taxes

-

2.0

EBITDA

121.0

134.0

Share-based compensation

10.0

11.0

Inventory write-down

9.0

10.0

Separation costs

1.0

1.0

Cody API business

3.0

3.0

Impairment

2.0

2.0

Restructuring expenses

2.0

3.0

Restructuring payments

(3.0)

(4.0)

Adjusted EBITDA (Non-GAAP)

$ 145.0

$ 160.0

LANNETT COMPANY, INC.

NET SALES BY MEDICAL INDICATION

Three months ended

Six months ended

($ in thousands)

December 31, 

December 31, 

Medical Indication

2019

2018

2019

2018

Analgesic

$    2,111

$    2,547

$    3,995

$    4,376

Anti-Psychosis

22,697

14,036

50,730

24,925

Cardiovascular

23,972

25,680

45,579

47,450

Central Nervous System

19,331

7,373

38,588

21,659

Endocrinology

-

88,477

-

142,355

Gastrointestinal

18,313

12,943

35,275

30,537

Infectious Disease

18,078

4,616

29,973

9,096

Migraine

10,878

12,551

20,021

22,288

Respiratory/Allergy/Cough/Cold

3,075

3,388

5,781

6,972

Urinary

1,233

1,596

1,668

3,137

Other

9,934

12,606

19,796

23,411

Contract manufacturing revenue

6,488

7,905

12,046

12,566

   Total net sales

$ 136,110

$ 193,718

$ 263,452

$ 348,772

Contact:

Robert Jaffe

Robert Jaffe Co., LLC

(424) 288-4098