Lannett Announces Fiscal 2020 Third-Quarter Financial Results

GAAP

Adjusted**

Net sales

$535 million to $545 million, from $530 million to $550 million

$535 million to $545 million, from $530 million to $550 million

Gross margin %

Approximately 29.5% to 31.5%, down from approximately 32.5% to 34.5%

Approximately 37% to 39%, down from approximately 39% to 41%

R&D expense

$31 million to $32 million, down from $34 million to $36 million

$31 million to $32 million, down from $34 million to $36 million

SG&A expense

$75 million to $77 million, up from $69 million to $72 million

$65 million to $67 million, up from $63 million to $66 million

Restructuring expense

$2 million to $3 million, unchanged

$ --

Asset impairment charges

$16 million, up from $2 million

$ --

Interest and other

$66 million to $68 million, down from $67 million to $69 million

$50 million to $51 million, down from $51 million to $53 million

Effective tax rate

Approximately 16% to 17%, unchanged

Approximately 21% to 22%, unchanged

Adjusted EBITDA*

N/A

$137 million to $147 million, down from $145 million to $160 million

Capital expenditures

$15 million to $20 million, down from $20 million to $25 million

$15 million to $20 million, down from $20 million to $25 million

**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

(UNAUDITED)

(In thousands, except share and per share data)

ASSETS

March 31, 2020

June 30, 2019

Current assets:

Cash and cash equivalents

$          101,455

$     140,249

Accounts receivable, net

180,356

164,752

Inventories

135,955

143,971

Prepaid income taxes

8,414

-

Assets held for sale

2,678

9,671

Other current assets

14,450

13,606

Total current assets

443,308

472,249

Property, plant and equipment, net

181,408

186,670

Intangible assets, net

401,044

411,229

Operating lease right-of-use assets

9,774

-

Deferred tax assets

111,793

109,305

Other assets

11,824

7,960

TOTAL ASSETS

$  1,187,413

LIABILITIES

Current liabilities:

Accounts payable

$            33,834

$       13,493

Accrued expenses

14,115

5,805

Accrued payroll and payroll-related expenses

13,121

19,924

Rebates payable

43,304

46,175

Royalties payable

21,362

16,215

Restructuring liability

61

2,315

Income taxes payable

-

2,198

Current operating lease liabilities

1,045

-

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

95,064

66,845

Other current liabilities

2,850

3,652

Total current liabilities

224,756

176,622

Long-term debt, net

599,553

662,203

Long-term operating lease liabilities

10,189

-

Other liabilities

14,115

14,547

TOTAL LIABILITIES

848,613

853,372

STOCKHOLDERS' EQUITY

Common stock($0.001 par value, 100,000,000 shares authorized; 39,898,838

 and 38,969,518 shares issued; 38,741,712 and 38,010,714 shares outstanding at

March 31, 2020 and June 30, 2019, respectively)

40

39

Additional paid-in capital

319,064

317,023

Retained earnings

8,410

32,075

Accumulated other comprehensive loss

(641)

(615)

Treasury stock(1,157,126 and 958,804 shares at March 31, 2020 and June 30, 2019, respectively)

(16,335)

(14,481)

Total stockholders' equity

310,538

334,041

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 

$       1,159,151

$  1,187,413

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,

2020

2019

2020

2019

Net sales

$    144,372

$    172,794

$    407,824

$    521,566

Cost of sales 

94,380

99,571

258,699

303,012

Amortization of intangibles

8,316

7,906

23,497

24,286

Gross profit

41,676

65,317

125,628

194,268

Operating expenses:

Research and development expenses

7,441

9,838

23,287

29,371

Selling, general, and administrative expenses

22,147

21,649

60,876

65,434

Restructuring expenses

191

452

1,771

1,687

Asset impairment charges

13,989

-

15,607

369,499

Total operating expenses

43,768

31,939

101,541

465,991

Operating income (loss)

(2,092)

33,378

24,087

(271,723)

Other income (loss):

Loss on extinguishment of debt

-

(413)

(2,145)

(413)

Investment income

393

925

1,552

1,860

Interest expense

(16,177)

(21,485)

(52,163)

(64,430)

Other

(380)

(401)

(181)

(1,409)

Total other loss

(16,164)

(21,374)

(52,937)

(64,392)

Income (loss) before income tax

(18,256)

12,004

(28,850)

(336,115)

Income tax expense (benefit)

(1,664)

1,359

(5,185)

(71,594)

Net income (loss)

$    (16,592)

$    (23,665)

$  (264,521)

Earnings (loss) per common share:

     Basic

$        (0.43)

$          0.28

$        (0.61)

$        (7.01)

     Diluted (1)

$        (0.43)

$          0.27

$        (0.61)

$        (7.01)

Weighted average common shares outstanding:

     Basic

38,707,049

37,842,224

38,539,850

37,729,099

     Diluted (1)

38,707,049

39,330,847

38,539,850

37,729,099

(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 March 31, 2020

Net sales

Cost of sales

Amortization of intangibles

Gross Profit

Gross Margin %

R&D expense

SG&A expense

Restructuring expenses

Asset impairment charge

Operating income (loss)

Other income (loss)

Income (loss) before income tax

Income tax expense (benefit)

Net income (loss) 

Diluted earnings (loss) per share (k)

GAAP Reported

$   144,372

$  94,380

$         8,316

29%

$      7,441

$     22,147

$              191

13,989

$      (2,092)

$   (16,164)

$          (18,256)

$      (1,664)

$    (16,592)

$          (0.43)

Adjustments:

Amortization of intangibles (a)

-

-

(8,316)

8,316

-

-

-

-

8,316

-

8,316

-

8,316

Cody API business (b)

-

(983)

-

983

(47)

(58)

-

-

1,088

-

1,088

-

1,088

Depreciation on capitalized software costs (c)

-

-

-

-

-

(1,058)

-

-

1,058

-

1,058

-

1,058

Decommissioning of Philadelphia sites (d)

-

(192)

-

192

-

-

-

-

192

-

192

-

192

Branded prescription drug fee (e)

-

-

-

-

-

(2,957)

-

-

2,957

-

2,957

-

2,957

Restructuring expenses (f)

-

-

-

-

-

-

(191)

-

191

-

191

-

191

Asset impairment charge (g)

-

-

-

-

-

-

-

(13,989)

13,989

-

13,989

-

13,989

Non-cash interest (h)

-

-

-

-

-

-

-

-

-

3,430

3,430

-

3,430

Other (i)

-

(1,168)

-

1,168

(29)

(354)

-

-

1,551

357

1,908

-

1,908

Tax adjustments (j)

-

-

-

-

-

-

-

-

-

-

-

4,832

(4,832)

Non-GAAP Adjusted

$    144,372

$  92,037

$               -

$    52,335

36%

$      7,365

$     17,720

$                -

$             -

$      27,250

$   (12,377)

$           14,873

$       3,168

$     11,705

$           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, including costs to transfer products to other locations 

(e)

To exclude the federally mandated branded prescription drug fee related to Levothyroxine, a product the Company no longer sells 

(f)

To exclude expenses associated with the Cody API Restructuring Plan 

(g)

To exclude an impairment charge associated with an agreement to distribute Methylphenidate AB 

(h)

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

(i)

To exclude costs primarily related to the write-down of property, plant and equipment as well as COVID-19 special recognition payments 

(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 March 31, 2020 is 38,707,049 for GAAP and 46,132,471 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 March 31, 2019

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

$   172,794

$       99,571

$         7,906

$   65,317

38%

$       9,838

$        21,649

$            452

$           33,378

$   (21,374)

$   12,004

$     1,359

$     10,645

$      0.27

Adjustments:

Amortization of intangibles (a)

-

-

(7,906)

7,906

-

-

-

7,906

-

7,906

-

7,906

Cody API business Held for Sale (b)

-

(1,342)

-

1,342

(775)

(979)

-

3,096

-

3,096

-

3,096

Depreciation on capitalized software costs (c)

-

-

-

-

-

(1,058)

-

1,058

-

1,058

-

1,058

Legal and financial advisory costs (d)

-

-

-

-

-

(961)

-

961

-

961

-

961

Decommissioning of Philadelphia sites (e)

-

(1,760)

-

1,760

-

-

-

1,760

-

1,760

-

1,760

Restructuring expenses (f)

-

-

-

-

-

-

(452)

452

-

452

-

452

Non-cash interest (g)

-

-

-

-

-

-

-

-

4,514

4,514

-

4,514

Loss on extinguishment of debt (h)

-

-

-

-

-

-

-

-

413

413

-

413

Other (i)

-

(625)

-

625

-

(1,188)

-

1,813

352

2,165

-

2,165

Tax adjustments (j)

-

-

-

-

-

-

-

-

-

-

6,363

(6,363)

Non-GAAP Adjusted

$   172,794

$       95,844

$               -

$    76,950

45%

$       9,063

$        17,463

$               -

$           50,424

$   (16,095)

$   34,329

$     7,722

$     26,607

$      0.68

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

(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 2016 Restructuring Plan as well as the Cody Restructuring Plan 

(g)

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

(h)

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

(i)

To primarily exclude separation costs related to the Company's cost reduction plan, a reversal of indemnified unrecognized tax benefits due to expirations in the statute of limitations, as well as a write-down of certain assets related to the Company's foreign subsidiary

(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 March 31, 2019 is 39,330,847 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, 2020

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 (l)

GAAP Reported

$   407,824

$   258,699

$        23,497

$     125,628

31%

$    23,287

$     60,876

$           1,771

15,607

$      24,087

$   (52,937)

$          (28,850)

$      (5,185)

$    (23,665)

$        (0.61)

Adjustments:

Amortization of intangibles (a)

-

-

(23,497)

23,497

-

-

-

-

23,497

-

23,497

-

23,497

Cody API business (b)

-

(2,911)

-

2,911

(552)

(433)

-

-

3,896

-

3,896

-

3,896

Depreciation on capitalized software costs (c)

-

-

-

-

-

(3,175)

-

-

3,175

-

3,175

-

3,175

Decommissioning of Philadelphia sites (d)

-

(1,484)

-

1,484

-

-

-

-

1,484

-

1,484

-

1,484

Branded prescription drug fee (e)

-

-

-

-

-

(2,957)

-

-

2,957

-

2,957

-

2,957

Restructuring expenses (f)

-

-

-

-

-

-

(1,771)

-

1,771

-

1,771

-

1,771

Asset impairment charges (g)

-

-

-

-

-

-

-

(15,607)

15,607

-

15,607

-

15,607

Non-cash interest (h)

-

-

-

-

-

-

-

-

-

11,001

11,001

-

11,001

Loss on extinguishment of debt (i)

-

-

-

-

-

-

-

-

-

2,145

2,145

-

2,145

Other (j)

-

(1,585)

-

1,585

(29)

(2,578)

-

-

4,192

21

4,213

-

4,213

Tax adjustments (k)

-

-

-

-

-

-

-

-

-

-

-

13,942

(13,942)

Non-GAAP Adjusted

$    407,824

$   252,719

$               -

$     155,105

38%

$    22,706

$     51,733

$                -

$             -

$      80,666

$   (39,770)

$           40,896

$       8,757

$     32,139

$         0.76

(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, including costs to transfer products to other locations 

(e)

To exclude the federally mandated branded prescription drug fee related to Levothyroxine, a product the Company no longer sells 

(f)

To exclude expenses associated with the Cody API Restructuring Plan 

(g)

To exclude impairment charges primarily associated with an agreement to distribute Methylphenidate AB 

(h)

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

(i)

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

(j)

To primarily exclude accrued separation costs related to the Company's former Chief Financial Officer, COVID-19 special recognition payments, as well as legal settlements, partially offset by gains on sales of assets previously held for sale 

(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 nine months ended March 31, 2020 is 38,539,850 for GAAP and 44,248,722 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)

Nine months ended March 31, 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 before

income tax (loss)

Income tax

expense (benefit)

Net income

(loss)

Diluted earnings

(loss) per share (m)

GAAP Reported

$     521,566

$     303,012

$        24,286

$    194,268

37%

$     29,371

$  65,434

$           1,687

$     369,499

$   (271,723)

$     (64,392)

$   (336,115)

$     (71,594)

$       (264,521)

$      (7.01)

Adjustments:

Depreciation of fixed assets step-up (a)

-

(2,459)

-

2,459

-

-

-

-

2,459

-

2,459

-

2,459

Amortization of intangibles (b)

-

-

(24,286)

24,286

-

-

-

-

24,286

-

24,286

-

24,286

Cody API business Held for Sale (c)

-

(4,828)

-

4,828

(1,637)

(945)

-

-

7,410

-

7,410

-

7,410

Depreciation on capitalized software costs (d)

-

-

-

-

-

(3,175)

-

-

3,175

-

3,175

-

3,175

Legal and financial advisory costs (e)

-

-

-

-

-

(3,389)

-

-

3,389

-

3,389

-

3,389

Decommissioning of Philadelphia sites (f)

-

(4,025)

-

4,025

-

-

-

-

4,025

583

4,608

-

4,608

Restructuring expenses (g)

-

-

-

-

-

-

(1,687)

-

1,687

-

1,687

-

1,687

Asset impairment charges (h)

-

-

-

-

-

-

-

(369,499)

369,499

369,499

-

369,499

Non-cash interest (i)

-

-

-

-

-

-

-

-

-

13,448

13,448

-

13,448

Loss on extinguishment of debt (j)

-

-

-

-

-

-

-

-

-

413

413

-

413

Other (k)

-

(1,751)

-

1,751

(210)

(3,789)

-

-

5,750

637

6,387

-

6,387

Tax adjustments (l)

-

-

-

-

-

-

-

-

-

-

-

95,066

(95,066)

Non-GAAP Adjusted

$     521,566

$      289,949

$               -

$    231,617

44%

$     27,524

$  54,136

$                -

$              -

$     149,957

$     (49,311)

$    100,646

$      23,472

$          77,174

$       1.98

(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 exclude the loss on extinguishment of debt related to open market repurchases of Term Loans 

(k)

To primarily exclude separation costs related to the Company's cost reduction plan, a special recognition incentive payment, as well as reversals of indemnified unrecognized tax benefits due to expirations in the statute of limitations 

(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 nine months ended March 31, 2019 is 37,729,099 for GAAP and 39,066,670 for the non-GAAP earnings (loss) per share calculations 

LANNETT COMPANY, INC.

RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA (UNAUDITED)

($ in thousands)

Three months ended 

March 31, 2020

Net loss

$                      (16,592)

Interest expense

16,177

Depreciation and amortization

14,508

Income tax benefit

(1,664)

EBITDA

12,429

Share-based compensation

1,870

Inventory write-down

2,432

Asset impairment charge

13,989

Investment income

(393)

Other non-operating loss

380

Restructuring expenses

191

Restructuring payments

(537)

Cody API business (a)

1,088

Branded prescription drug fee (b)

2,957

Other (c)

1,519

Adjusted EBITDA (Non-GAAP)

$                        35,925

(a)

To exclude the operating results of the ceased Cody API business

(b)

To exclude the federally mandated branded prescription drug fee related to Levothyroxine, a product the Company no longer sells

(c)

To primarily exclude COVID-19 special recognition payments as well as the costs related to the decommissioning and shutdown of the Philadelphia manufacturing and distribution sites, including costs to transfer products to other locations

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

 $535 - $545 

-

 $535 - $545 

Gross margin percentage

approx. 29.5% to 31.5%

7.5%

 (a) 

approx. 37% to 39%

R&D expense

 $31 - $32 

-

 $31 - $32 

SG&A expense

 $75 - $77 

($10)

 (b) 

 $65 - $67 

Restructuring expense

 $2 - $3 

 ($2 - $3) 

 (c) 

-

Asset impairment charges

$16

($16)

 (d) 

-

Interest and other

 $66 - $68 

($16 - $17)

 (e) 

 $50 - $51 

Effective tax rate

 approx. 16% to 17% 

5%

 (f) 

approx. 21% to 22%

Adjusted EBITDA

 N/A 

 N/A 

 $137 - $147 

Capital expenditures

 $15 - $20 

-

 $15 - $20 

(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 as well as a federally mandated branded prescription drug fee related to Levothyroxine, a product the Company no longer sells

(c)

To exclude expenses associated with the Cody API Restructuring Plan

(d)

This adjustment primarily excludes an impairment charge associated with an agreement to distribute Methylphenidate AB

(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 LOSS TO ADJUSTED EBITDA (UNAUDITED)

($ in millions)

Fiscal Year 2020 Guidance

Low

High

Net loss

$ (26.0)

$ (20.7)

Interest expense

66.0

68.0

Depreciation and amortization

56.0

57.0

Income taxes

(5.0)

(4.3)

EBITDA

91.0

100.0

Share-based compensation

10.0

10.0

Inventory write-down

10.0

11.0

Asset impairment charges

16.0

16.0

Branded prescription drug fee

3.0

3.0

Cody API business

4.0

4.0

Decommissioning of Philadelphia sites

2.0

2.0

Separation costs

1.0

1.0

Restructuring expenses

2.0

3.0

Restructuring payments

(3.0)

(4.0)