Akorn, Inc. (Nasdaq: AKRX), a leading specialty pharmaceutical
company, today announced its preliminary financial results for the
third quarter of 2019.
Third Quarter 2019 and Recent Business
Highlights
- Net revenue was $176 million, up $11 million, 6% from the prior
year quarter
- Net income was $48 million, compared to $70 million loss in the
prior year quarter
- Adjusted EBITDA was $29 million, compared to $10 million in the
prior year quarter
- Generated positive operating cash flow during the third
quarter
- Launched five new products year-to-date including one in the
third quarter: Diclofenac Sodium Topical Gel 1%
- Received five ANDA approvals year-to-date including two in the
third quarter: Azelastine Hydrochloride Nasal Spray, 0.15% and
Betamethasone Dipropionate Lotion USP (Augmented), 0.05%
- Continued progress on operational initiatives leading to
stability in backorders and significant reduction in failure to
supply penalties
See "Non-GAAP Financial Measures" below.
Douglas Boothe, Akorn’s President and Chief Executive Officer,
stated, “Our third quarter results reflect the continued progress
and momentum we have built year-to-date. The positive
operating cash flow generation, significant decrease in failure to
supply penalties, and continued margin improvements were driven by
our commitment to operational excellence. As a result of our
third quarter performance and current expectations for the fourth
quarter, we are updating our net loss and affirming our revenue and
adjusted EBITDA guidance for full year 2019.”
Boothe continued, “We are confident in our long-term strategy
and are pleased with the progress we have made in our efforts to
refinance our debt and return to long-term profitability and value
creation for our stakeholders.”
Summary Financial Results for the Quarter Ended
September 30, 2019
Akorn's reported net revenue was $176.2 million for the three
month period ended September 30, 2019, representing an
increase of $10.6 million, or 6.4%, as compared to net revenue of
$165.6 million for the three month period ended September 30,
2018. The increase in net revenue in the period was primarily
due to increases of $11.0 million and $4.6 million in organic
revenue and new products, respectively, partially offset by a
decline in discontinued products revenue of $5.0 million. The
$11.0 million increase in organic revenue was due to approximately
$37.0 million, or 23.4% of favorable price variance primarily due
to price increases on certain exclusive products partially offset
by $25.9 million, or 16.4% in volume decline. The volume
decline was principally due to the effect of competition on a
number of products, including Myorisan® and Fluticasone Rx as well
as supply shortfalls from the continued production ramp-up at our
Somerset manufacturing facility.
Consolidated gross profit for the quarter ended
September 30, 2019, was $71.4 million, or 40.5% of net
revenue, compared to $57.3 million, or 34.6% of net revenue, in the
corresponding prior year quarter. The increase in the gross
profit percentage was principally due to favorable price and
product mix and timing of costs associated with FDA compliance
related improvement activities.
GAAP net income for the third quarter of 2019, was $47.7
million, or $0.38 per diluted share, compared to GAAP net loss of
$(70.1) million, or $(0.56) per diluted share, for the same quarter
of 2018. Included in GAAP net income for the third quarter of
2019 was an income tax benefit of approximately $66.3 million which
was primarily due to the release of a tax reserve as a result of an
IRS approval of an accounting method change related to the timing
of deductions for chargebacks and rebates. After a net
adjustment of $(45) million to net income for non-GAAP items,
adjusted diluted earnings per share for the third quarter of 2019
was $0.02, compared to $(0.06) in the same quarter of 2018, after a
net adjustment of $63 million to net income for non-GAAP
items. See "Non-GAAP Financial Measures" below.
Earnings before interest, taxes, depreciation and amortization
(EBITDA) was $17.5 million for the third quarter of 2019, compared
to $(56.2) million for the third quarter of 2018. Adjusted
EBITDA, which is a non-GAAP measure used by management to evaluate
the performance of the Akorn business, was $29.0 million for the
third quarter of 2019, compared to $10.0 million for the third
quarter of 2018. See "Non-GAAP Financial Measures" below.
Summary Financial Results for the Nine Months Ended
September 30, 2019
Akorn's reported net revenue was $520.2 million for the nine
month period ended September 30, 2019, representing a decrease
of $20.5 million, or 3.8%, as compared to net revenue of $540.6
million for the nine month period ended September 30, 2018.
The decrease in net revenue in the period was primarily due to
$16.4 million and $12.1 million decline in organic revenue and
discontinued products, respectively, that were partially offset by
$8.0 million increase in net revenue from new products. The
$16.4 million decline in organic revenue was due to approximately
$77.7 million, or 15.0% in volume declines partially offset by
$61.3 million, or 11.8% of favorable price variance primarily due
to price increases on certain exclusive products. The volume
decline was principally due to the effect of competition on a
number of products including Fluticasone Rx, Aminocaproic Tablets,
Nembutal and Ephedrine as well as supply shortfalls from the
continued production ramp-up at our Somerset manufacturing
facility.
Consolidated gross profit for the nine month period ended
September 30, 2019, was $192.9 million, or 37.1% of net
revenue, compared to $220.8 million, or 40.8% of net revenue, in
the corresponding prior year period. The decline in the gross
profit percentage was principally due to increased costs associated
with FDA compliance related improvement activities and increased
inventory loss that was partially offset by favorable price and
product mix.
GAAP net loss was $(146.1) million for the nine month period
ended September 30, 2019, or $(1.16) per diluted share,
compared to GAAP net loss of $(186.9) million for the nine month
period ended September 30, 2018, or $(1.49) per diluted
share. After a net adjustment of $133 million to net income
for non-GAAP items, adjusted diluted earnings per share for the
nine months ended September 30, 2019 was $(0.10), compared to
$0.10 in the corresponding period in the prior year, after a net
adjustment of $199 million to net income for non-GAAP items.
EBITDA was $(105.6) million for the nine month period ended
September 30, 2019, compared to $(135.4) million for the nine
month period ended September 30, 2018. Adjusted EBITDA, which
is a non-GAAP measure used by management to evaluate the
performance of the Akorn business, was $60.7 million for the nine
month period ended September 30, 2019, compared to $69.2
million for the nine month period ended September 30, 2018.
See "Non-GAAP Financial Measures" below.
Updated Full Year 2019 Guidance
The Company is affirming its net revenue and adjusted EBITDA
guidance, and updating other guidance as noted below:
- Net revenue for the year is expected to be in the range of $690
million to $710 million
- Net loss for the year is expected to be in the range of $(193)
million to $(178) million. The change is primarily driven by
a tax benefit during the three month period ended
September 30, 2019, which was due to the release of a reserve
for an uncertain tax position.
- Adjusted EBITDA for the year is expected to be in the range of
$71 million to $86 million
- Expecting approximately $30 million in capital expenditures, a
decrease from previous guidance
- Expecting approximately $50 million for FDA compliance and data
integrity assessment expenditures
Status of Akorn Pending ANDA Filings
As of October 31, 2019, Akorn had 34 ANDAs pending at the FDA,
representing approximately $5.6 billion in annual branded and
generic market value according to IQVIA.
| Filed |
|
|
Tentative Approval |
Pending |
Total |
| $ in millions |
|
|
Count |
Value * |
Count |
Value * |
Count |
Value * |
|
Ophthalmic |
Brand ** |
|
4 |
$ |
1,195 |
9 |
$ |
2,996 |
13 |
$ |
4,191 |
|
|
Generic |
|
1 |
|
13 |
3 |
|
110 |
4 |
|
123 |
|
Injectable |
Brand ** |
|
— |
|
— |
2 |
|
9 |
2 |
|
9 |
|
|
Generic |
|
1 |
|
127 |
6 |
|
870 |
7 |
|
997 |
| Topical |
Brand ** |
|
— |
|
— |
— |
|
— |
— |
|
— |
|
|
Generic |
|
— |
|
— |
3 |
|
54 |
3 |
|
54 |
| Other |
Brand ** |
|
— |
|
— |
— |
|
— |
— |
|
— |
|
|
Generic |
|
— |
|
— |
5 |
|
238 |
5 |
|
238 |
| Total |
|
|
6 |
$ |
1,335 |
28 |
$ |
4,277 |
34 |
$ |
5,612 |
* The value, shown in millions, is the market size estimate
based on IQVIA data for the trailing 12 months ended August 2019
and excludes any trade and customary allowances and
discounts. The IQVIA market size is not a forecast of our
future sales.
** The label "brand" indicates that the pending ANDA filing is
for a product that has not yet had generic competition, therefore
the market value is that of the branded reference drug. All
filings reported in the table are generic filings.
Conference Call and Webcast Details:
As previously announced, Akorn’s management will hold a
conference call with interested investors and analysts at 10:00
a.m. EDT on October 31, 2019, to discuss these results and updates
in more detail. To access the live webcast, please go to
Akorn’s Investor Relations web site at
http://investors.akorn.com. The dial-in number to access the
call is (844) 249-9382 in the U.S. and Canada and +1 (270) 823-1530
for international callers. The conference ID is 4344329.
A webcast replay of the conference call will be available
shortly following the conclusion of the call and will be available
for 90 days following the call. To access the webcast replay,
please go to Akorn’s Investor Relations web site at
http://investors.akorn.com.
About Akorn:
Akorn, Inc. is a specialty pharmaceutical company engaged in the
development, manufacture and marketing of multisource and branded
pharmaceuticals. Akorn has manufacturing facilities located
in Decatur, Illinois; Somerset, New Jersey; Amityville, New York;
Hettlingen, Switzerland and Paonta Sahib, India that manufacture
ophthalmic, injectable and specialty sterile and non-sterile
pharmaceuticals. Additional information is available on
Akorn’s website at www.akorn.com.
Non-GAAP Financial Measures:
To supplement Akorn’s financial results presented in accordance
with U.S. generally accepted accounting principles ("GAAP"), the
Company uses certain non-GAAP (also referred to as “adjusted” or
“non-GAAP adjusted”) financial measures in this press release and
the accompanying tables, including (1) EBITDA, (2) adjusted EBITDA,
(3) adjusted net income, (4) adjusted diluted earnings per share,
(5) net debt, and (6) net debt to adjusted EBITDA ratio.
These non-GAAP measures adjust for certain specified items that are
described in this release. The Company believes that each of
these non-GAAP financial measures is helpful in understanding its
past financial performance and potential future results. The
non-GAAP financial measures are not meant to be considered in
isolation or as a substitute for or superior to comparable GAAP
measures.
Akorn’s management uses these measures in analyzing its business
and financial condition. Akorn’s management believes that the
presentation of these and other non-GAAP financial measures provide
investors greater transparency into Akorn’s ongoing results of
operations allowing investors to better compare the Company’s
results from period to period.
Investors should note that these non-GAAP financial measures
used to present financial guidance are not prepared under any
comprehensive set of accounting rules or principles and do not
reflect all of the amounts associated with the Company’s results of
operations as determined in accordance with GAAP. Investors
should also note that these non-GAAP financial measures have no
standardized meaning prescribed by GAAP and; therefore, have limits
in their usefulness to investors. In addition, from
time-to-time in the future there may be other items that the
Company may exclude for purposes of its non-GAAP financial
measures; likewise, the Company may in the future cease to exclude
items that it has historically excluded for purposes of its
non-GAAP financial measures. Because of the non-standardized
definitions, the non-GAAP financial measures as used by Akorn in
this press release and the accompanying tables may be calculated
differently from, and therefore may not be directly comparable to,
similarly titled measures used by the Company’s competitors and
other companies.
Set forth below is the definition of each non-GAAP financial
measure as used by the Company in this press release and a full
reconciliation of each non-GAAP financial measure to the most
directly comparable GAAP financial measures.
EBITDA, as defined by the Company, represents
net income (loss) before net interest income (expense), provision
(benefit) for income taxes and depreciation and amortization.
Adjusted EBITDA, as defined by the Company, is
calculated as follows:
Net income (loss), (minus) plus:
Interest income (expense),
netProvision (benefit) for income taxesDepreciation and
amortizationNon-cash expenses, such as impairment of long-lived
assets, share-based compensation expense, and amortization of
deferred financing costsOther adjustments, such as legal
settlements, restatement expenses and various merger and
acquisition-related expenses, employee retention expense,
refinancing advisory fees, fixed asset impairment, executive
termination expenses, data integrity investigations &
assessment, gain on disposal of fixed assets, andFresenius
transaction & litigation
Adjusted EBITDA is deemed by the Company to be a useful
performance indicator because it includes an add back of non-cash
or non-recurring operating expenses that have no impact on
continuing cash flows as well as other items that are not expected
to recur and therefore are not reflective of continuing operating
performance.
Adjusted net income (loss), as defined by the
Company, is calculated as follows:
Net income (loss), (minus) plus:
Amortization expenseNon-cash
expenses, such as impairment of long-lived assets, share-based
compensation expense, and amortization of deferred financing
costsOther adjustments, such as legal settlements, restatement
expenses and various merger and acquisition-related expenses,
employee retention expense, refinancing advisory fees, fixed asset
impairment, executive termination expenses, data integrity
investigations & assessment, gain on disposal of fixed assets,
andFresenius transaction & litigationLess an estimated tax
provision, net of the benefit from utilizing net operating loss
carry-forwards effected for the adjustments noted above
Adjusted diluted earnings per share, as defined
by the Company, is equal to adjusted net income divided by the
actual or anticipated diluted share count for the applicable
period. The Company believes that adjusted net income and
adjusted diluted earnings per share are meaningful financial
indicators, to both Company management and investors, in that they
exclude non-cash income and expense items that have no impact on
current or future cash flows, as well as other income and expense
items that are not expected to recur and therefore are not
reflective of continuing operating performance.
Net debt, as defined by the Company, is gross
debt including Akorn’s term loan less cash and cash
equivalents.
Net debt to adjusted EBITDA ratio, as defined
by the Company, is net debt divided by the trailing twelve months
adjusted EBITDA.
The shortcomings of non-GAAP financial measures as guidance or
performance measures are that they provide a view of the Company’s
results of operations without including all events during a
period. For example, adjusted EBITDA does not take into
account the impact of capital expenditures on either the liquidity
or the financial performance of the Company and likewise omits
share-based compensation expenses, which may vary over time and may
represent a material portion of overall compensation expense.
Adjusted net income does not take into account non-cash expenses
that reflect the amortization of past expenditures, or include
share-based compensation, which is an important and material
element of the Company's compensation package for its directors,
officers and other key employees. Due to the inherent
limitations of non-GAAP financial measures, investors should
consider non-GAAP measures only as a supplement to, not as a
substitute for or as a superior measure to, measures of financial
performance prepared in accordance with GAAP. Investors and
other readers are encouraged to review the related GAAP financial
measures and the reconciliation of non-GAAP measures to their most
directly comparable GAAP measures as presented in this press
release.
Cautionary Note Regarding Forward-Looking
Statements
This press release includes statements that may constitute
"forward-looking statements", including expectations regarding the
Company’s business plan and initiatives, financial performance,
product launches, pending ANDA filings, the financial guidance for
2019, the non-binding agreement in principle to settle the
Securities Class Action Litigation, and other statements regarding
the Company’s plans and strategy. When used in this document,
the words “will,” “expect,” “continue,” “scheduled,” “plans,”
“believe,” “anticipate,” “estimate,” “intend,” “could,” “strives”
and similar expressions are generally intended to identify
forward-looking statements. These statements are made
pursuant to the safe harbor provisions of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. A number of
important factors could cause actual results of the Company and its
subsidiaries to differ materially from those indicated by such
forward-looking statements. These factors include, but are
not limited to: (i) the effect of the Delaware Court of
Chancery’s October 1, 2018 decision against the Company and the
Delaware Supreme Court’s December 7, 2018 order affirming the
Chancery Court’s decision on the Company’s ability to retain and
hire key personnel, its ability to maintain relationships with its
customers, suppliers and others with whom it does business, or its
operating results and business generally, (ii) the risk that
ongoing or future litigation against the defendants or related to
the court’s decision may result in significant costs of defense,
indemnification and/or liability, (iii) the outcome of the
investigation conducted by the Company, with the assistance of
outside consultants, into alleged breaches of FDA data integrity
requirements relating to product development at the Company and any
actions taken by the Company, third parties or the FDA as a result
of such investigations, (iv) the difficulty of predicting the
timing or outcome of product development efforts, including FDA and
other regulatory agency approvals and actions, if any, (v) the
timing and success of product launches, (vi) difficulties or delays
in manufacturing, (vii) the Company’s increased indebtedness and
obligation to comply with certain covenants and other obligations
under its standstill agreement with its first lien term loan
lenders (the “Standstill Agreement”), (viii) the Company’s
obligation under the Standstill Agreement to enter into a
comprehensive amendment that is satisfactory in form and substance
to the first lien term loan lenders, (ix) the risk that the holders
of a significant number of shares may opt out of and elect not to
participate in or be bound by the Securities Class Action
Settlement Agreement, (x) the risk that the Securities Class Action
Settlement Agreement may not obtain the necessary approval by the
court or may be terminated in accordance with its terms, (xi) the
risk that insurance proceeds, common shares or other consideration
contemplated to be exchanged pursuant to the proposed settlement is
not available at the appropriate time and (xii) such other risks
and uncertainties outlined in the risk factors detailed in Part I,
Item 1A, “Risk Factors,” of the Company’s Annual Report on Form
10-K for the fiscal year ended December 31, 2018 (as filed with the
Securities and Exchange Commission (“SEC”) on March 1, 2019) and in
Part II, Item 1A, “Risk Factors,” of the Company’s Quarterly Report
on Form 10-Q for the fiscal quarter ended March 31, 2019 (as filed
with the SEC on May 9, 2019) and June 30, 2019 (as filed with the
SEC on August 2, 2019) and other risk factors identified from time
to time in the Company’s filings with the SEC. Readers should
carefully review these risk factors, and should not place undue
reliance on the Company’s forward-looking statements. These
forward-looking statements are based on information, plans and
estimates at the date of this press release. The Company
undertakes no obligation to update any forward-looking statements
to reflect changes in underlying assumptions or factors, new
information, future events or other changes.
AKORN, INC.CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME/(LOSS)(In Thousands, Except Per Share
Data)(Unaudited)
| |
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
| |
2019 |
|
2018 |
|
2019 |
|
2018 |
| Revenues, net |
$ |
176,244 |
|
|
$ |
165,625 |
|
|
$ |
520,172 |
|
|
$ |
540,632 |
|
| Cost of sales (exclusive of
amortization of intangibles, included within operating expenses
below) |
104,842 |
|
|
108,363 |
|
|
327,273 |
|
|
319,863 |
|
| GROSS PROFIT |
71,402 |
|
|
57,262 |
|
|
192,899 |
|
|
220,769 |
|
| |
|
|
|
|
|
|
|
| Selling, general and
administrative expenses |
55,550 |
|
|
63,197 |
|
|
189,090 |
|
|
209,949 |
|
| Research and development
expenses |
9,334 |
|
|
12,439 |
|
|
27,543 |
|
|
36,454 |
|
| Amortization of
intangibles |
9,375 |
|
|
13,613 |
|
|
30,390 |
|
|
39,985 |
|
| Impairment of goodwill |
— |
|
|
— |
|
|
15,955 |
|
|
— |
|
| Impairment of intangible
assets |
— |
|
|
29,649 |
|
|
10,748 |
|
|
112,998 |
|
| Litigation rulings,
settlements and contingencies |
(11,625 |
) |
|
14,344 |
|
|
63,254 |
|
|
13,944 |
|
| TOTAL OPERATING EXPENSES |
62,634 |
|
|
133,242 |
|
|
336,980 |
|
|
413,330 |
|
| OPERATING INCOME/(LOSS) |
8,768 |
|
|
(75,980 |
) |
|
(144,081 |
) |
|
(192,561 |
) |
| Amortization of deferred
financing costs |
(8,581 |
) |
|
(1,304 |
) |
|
(15,540 |
) |
|
(3,912 |
) |
| Interest expense, net |
(18,982 |
) |
|
(11,691 |
) |
|
(50,650 |
) |
|
(32,331 |
) |
| Other non-operating
income/(expense), net |
208 |
|
|
436 |
|
|
806 |
|
|
(18 |
) |
| |
|
|
|
|
|
|
|
| (LOSS) BEFORE INCOME
TAXES |
(18,587 |
) |
|
(88,539 |
) |
|
(209,465 |
) |
|
(228,822 |
) |
| Income tax (benefit) |
(66,257 |
) |
|
(18,399 |
) |
|
(63,355 |
) |
|
(41,951 |
) |
| |
|
|
|
|
|
|
|
| NET INCOME/(LOSS) |
$ |
47,670 |
|
|
$ |
(70,140 |
) |
|
$ |
(146,110 |
) |
|
$ |
(186,871 |
) |
| NET INCOME/(LOSS) PER
SHARE |
|
|
|
|
|
|
|
| NET INCOME/(LOSS) PER SHARE,
BASIC |
$ |
0.38 |
|
|
$ |
(0.56 |
) |
|
$ |
(1.16 |
) |
|
$ |
(1.49 |
) |
| NET INCOME/(LOSS) PER SHARE,
DILUTED |
$ |
0.38 |
|
|
$ |
(0.56 |
) |
|
$ |
(1.16 |
) |
|
$ |
(1.49 |
) |
| |
|
|
|
|
|
|
|
| SHARES USED IN COMPUTING NET
INCOME/(LOSS) PER SHARE |
|
|
|
|
|
|
|
| BASIC |
126,144 |
|
|
125,462 |
|
|
125,920 |
|
|
125,346 |
|
| DILUTED |
126,826 |
|
|
125,462 |
|
|
125,920 |
|
|
125,346 |
|
| |
|
|
|
|
|
|
|
| COMPREHENSIVE
INCOME/(LOSS) |
|
|
|
|
|
|
|
| Net income/(loss) |
$ |
47,670 |
|
|
$ |
(70,140 |
) |
|
$ |
(146,110 |
) |
|
$ |
(186,871 |
) |
| Unrealized holding (loss) on
available-for-sale securities, net of tax of $0 and $2 for the
three month periods ended September 30, 2019 and 2018, and $1 and
$3 the nine month periods ended September 30, 2019 and 2018,
respectively. |
— |
|
|
(4 |
) |
|
(3 |
) |
|
(9 |
) |
| Foreign currency translation
(loss) |
(2,135 |
) |
|
(4,669 |
) |
|
(1,179 |
) |
|
(11,867 |
) |
| Pension liability adjustment
gain, net of tax of ($10) and ($1) for the three month periods
ended September 30, 2019 and 2018, and ($29) and ($3) for the nine
month periods ended September 30, 2019 and 2018, respectively. |
39 |
|
|
4 |
|
|
113 |
|
|
12 |
|
| COMPREHENSIVE
INCOME/(LOSS) |
$ |
45,574 |
|
|
$ |
(74,809 |
) |
|
$ |
(147,179 |
) |
|
$ |
(198,735 |
) |
| |
AKORN, INC.CONDENSED
CONSOLIDATED BALANCE SHEETS(In Thousands, Except
Share Data)
| |
September 30, 2019 (Unaudited) |
|
December 31, 2018 |
| ASSETS |
|
|
|
| CURRENT ASSETS |
|
|
|
|
Cash and cash equivalents |
$ |
205,542 |
|
|
$ |
224,868 |
|
|
Trade accounts receivable, net |
142,871 |
|
|
153,126 |
|
|
Inventories, net |
167,701 |
|
|
173,645 |
|
|
Prepaid expenses and other current assets |
17,842 |
|
|
32,180 |
|
|
TOTAL CURRENT ASSETS |
533,956 |
|
|
583,819 |
|
| PROPERTY, PLANT AND EQUIPMENT,
NET |
322,119 |
|
|
334,853 |
|
| OTHER LONG-TERM ASSETS |
|
|
|
|
Goodwill |
267,923 |
|
|
283,879 |
|
|
Intangible assets, net |
243,926 |
|
|
284,976 |
|
|
Right-of-use assets, net - Operating leases |
23,016 |
|
|
— |
|
|
Other non-current assets |
7,424 |
|
|
7,730 |
|
|
TOTAL OTHER LONG-TERM ASSETS |
542,289 |
|
|
576,585 |
|
|
TOTAL ASSETS |
$ |
1,398,364 |
|
|
$ |
1,495,257 |
|
| LIABILITIES AND SHAREHOLDERS’
EQUITY |
|
|
|
| CURRENT LIABILITIES |
|
|
|
|
Trade accounts payable |
$ |
52,389 |
|
|
$ |
39,570 |
|
|
Income taxes payable |
165 |
|
|
— |
|
|
Accrued royalties |
7,285 |
|
|
6,786 |
|
|
Accrued compensation |
29,695 |
|
|
19,745 |
|
|
Accrued administrative fees |
32,400 |
|
|
36,767 |
|
|
Current portion of accrued legal fees and contingencies |
40,891 |
|
|
52,413 |
|
|
Current portion of lease liability - Operating leases |
2,334 |
|
|
— |
|
|
Accrued expenses and other liabilities |
12,235 |
|
|
15,542 |
|
|
Current portion of long-term debt (net of deferred financing
costs) |
838,517 |
|
|
— |
|
|
TOTAL CURRENT LIABILITIES |
1,015,911 |
|
|
170,823 |
|
| LONG-TERM LIABILITIES |
|
|
|
|
Long-term debt (net of non-current deferred financing costs) |
— |
|
|
820,411 |
|
|
Deferred tax liability |
943 |
|
|
566 |
|
|
Uncertain tax liabilities |
2,285 |
|
|
49,990 |
|
|
Long-term lease liability - Operating leases |
22,562 |
|
|
— |
|
|
Long-term portion of accrued legal fees and contingencies |
37,000 |
|
|
— |
|
|
Pension obligations and other liabilities |
7,255 |
|
|
9,601 |
|
|
TOTAL LONG-TERM LIABILITIES |
70,045 |
|
|
880,568 |
|
|
TOTAL LIABILITIES |
1,085,956 |
|
|
1,051,391 |
|
| SHAREHOLDERS’ EQUITY |
|
|
|
|
Preferred stock, $1 par value - 5,000,000 shares authorized; no
shares issued or outstanding at September 30, 2019 and December 31,
2018. |
— |
|
|
— |
|
|
Common stock, no par value – 150,000,000 shares authorized;
126,145,832 and 125,492,373 shares issued and outstanding at
September 30, 2019 and December 31, 2018, respectively. |
590,274 |
|
|
574,553 |
|
|
Accumulated deficit |
(253,278 |
) |
|
(107,168 |
) |
|
Accumulated other comprehensive (loss) |
(24,588 |
) |
|
(23,519 |
) |
|
TOTAL SHAREHOLDERS’ EQUITY |
312,408 |
|
|
443,866 |
|
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ |
1,398,364 |
|
|
$ |
1,495,257 |
|
|
|
AKORN, INC.CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS(In
Thousands)(Unaudited)
| |
Nine Months Ended September 30, |
| |
2019 |
|
2018 |
| OPERATING ACTIVITIES: |
|
|
|
| Net (loss) |
$ |
(146,110 |
) |
|
$ |
(186,871 |
) |
| Adjustments to reconcile
consolidated net (loss) to net cash provided by/(used in)
operating activities: |
|
|
|
|
Depreciation and amortization |
53,237 |
|
|
61,101 |
|
|
Amortization of debt financing costs |
15,540 |
|
|
3,912 |
|
|
Impairment of intangible assets |
10,748 |
|
|
112,998 |
|
|
Goodwill impairment |
15,955 |
|
|
— |
|
|
Fixed asset impairment and other |
10,385 |
|
|
— |
|
|
Non-cash stock compensation expense |
16,034 |
|
|
17,199 |
|
|
Non-cash interest expense |
2,567 |
|
|
— |
|
|
Deferred income taxes, net |
381 |
|
|
(42,726 |
) |
|
Other |
(29 |
) |
|
467 |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
Other non-current assets |
455 |
|
|
(2,389 |
) |
|
Trade accounts receivable |
10,148 |
|
|
(22,269 |
) |
|
Inventories, net |
5,909 |
|
|
(11,422 |
) |
|
Prepaid expenses and other current assets |
12,486 |
|
|
373 |
|
|
Trade accounts payable |
15,868 |
|
|
10,752 |
|
|
Accrued legal fees and contingencies |
25,478 |
|
|
20,922 |
|
|
Uncertain tax liabilities |
(47,705 |
) |
|
646 |
|
|
Accrued expenses and other liabilities |
3,447 |
|
|
567 |
|
| NET CASH PROVIDED BY/(USED IN)
OPERATING ACTIVITIES |
$ |
4,794 |
|
|
$ |
(36,740 |
) |
| INVESTING ACTIVITIES: |
|
|
|
| Proceeds from disposal of
assets |
— |
|
|
28 |
|
| Payments for intangible
assets |
(87 |
) |
|
(50 |
) |
| Purchases of property, plant
and equipment |
(23,522 |
) |
|
(51,045 |
) |
| NET CASH (USED IN) INVESTING
ACTIVITIES |
$ |
(23,609 |
) |
|
$ |
(51,067 |
) |
| FINANCING ACTIVITIES: |
|
|
|
| Proceeds from the exercise of
stock options |
— |
|
|
546 |
|
| Stock compensation plan
withholdings for employee taxes |
(313 |
) |
|
(776 |
) |
| Payment of contingent
acquisition liabilities |
— |
|
|
(4,793 |
) |
| Lease payments |
(344 |
) |
|
(10 |
) |
| NET CASH (USED IN) FINANCING
ACTIVITIES |
$ |
(657 |
) |
|
$ |
(5,033 |
) |
| Effect of exchange rate
changes on cash and cash equivalents |
19 |
|
|
(900 |
) |
| (DECREASE) IN CASH AND CASH
EQUIVALENTS |
$ |
(19,453 |
) |
|
$ |
(93,740 |
) |
| Cash, cash equivalents, and
restricted cash at beginning of period |
225,794 |
|
|
369,889 |
|
| CASH, CASH EQUIVALENTS, AND
RESTRICTED CASH AT END OF PERIOD |
$ |
206,341 |
|
|
$ |
276,149 |
|
| SUPPLEMENTAL DISCLOSURES: |
|
|
|
| Amount paid for interest |
$ |
52,973 |
|
|
$ |
40,487 |
|
| Amount (received) paid for
income taxes, net |
$ |
(14,460 |
) |
|
$ |
9,667 |
|
| Additional capital
expenditures included in accounts payable |
$ |
3,515 |
|
|
$ |
10,504 |
|
| |
|
|
|
|
|
|
|
Reconciliation of GAAP Net Income/(Loss)
to Non-GAAP EBITDA and Adjusted EBITDA(In
Thousands)(Unaudited)
| |
Three Months Ended |
|
Nine Months Ended |
| |
|
September 30, |
|
September 30, |
| |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
| NET
INCOME/(LOSS) |
$ |
47,670 |
|
|
$ |
(70,140 |
) |
|
$ |
(146,110 |
) |
|
$ |
(186,871 |
) |
| |
|
|
|
|
|
|
|
|
| ADJUSTMENTS TO
ARRIVE AT EBITDA: |
|
|
|
|
|
|
|
| |
Depreciation expense |
7,739 |
|
|
7,050 |
|
|
22,847 |
|
|
21,116 |
|
| |
Amortization expense |
9,375 |
|
|
13,613 |
|
|
30,390 |
|
|
39,985 |
|
| |
Interest expense, net |
18,982 |
|
|
11,691 |
|
|
50,650 |
|
|
32,331 |
|
| |
Income tax (benefit) |
(66,257 |
) |
|
(18,399 |
) |
|
(63,355 |
) |
|
(41,951 |
) |
| EBITDA |
17,509 |
|
|
(56,185 |
) |
|
(105,578 |
) |
|
(135,390 |
) |
| |
|
|
|
|
|
|
|
|
| NON-CASH AND OTHER
NON-RECURRING INCOME AND EXPENSES |
|
|
|
|
|
|
|
| |
Merger and acquisition-related
expenses |
21 |
|
|
24 |
|
|
27 |
|
|
99 |
|
| |
Employee retention
expense |
1,813 |
|
|
— |
|
|
5,156 |
|
|
— |
|
| |
Data integrity investigations
& assessment |
2,660 |
|
|
5,763 |
|
|
10,679 |
|
|
22,399 |
|
| |
Fresenius transaction &
Securities Class Action Litigation |
2,690 |
|
|
9,445 |
|
|
6,135 |
|
|
35,002 |
|
| |
Refinancing advisory fees |
1,511 |
|
|
— |
|
|
11,549 |
|
|
— |
|
| |
Non-cash stock compensation
expense |
5,726 |
|
|
5,746 |
|
|
16,034 |
|
|
17,199 |
|
| |
Impairment of goodwill |
— |
|
|
— |
|
|
15,955 |
|
|
— |
|
| |
Impairment of intangible
assets |
— |
|
|
29,648 |
|
|
10,748 |
|
|
112,998 |
|
| |
Amortization of deferred
financing costs |
8,581 |
|
|
1,304 |
|
|
15,540 |
|
|
3,912 |
|
| |
Restatement expenses |
— |
|
|
69 |
|
|
(26 |
) |
|
(746 |
) |
| |
Executive termination
expenses |
— |
|
|
— |
|
|
835 |
|
|
— |
|
| |
Impairment of fixed assets and
other |
158 |
|
|
— |
|
|
10,385 |
|
|
— |
|
| |
(Gain) on disposal of fixed
assets |
— |
|
|
(204 |
) |
|
(29 |
) |
|
(224 |
) |
| |
Litigation rulings,
settlements and contingencies |
(11,625 |
) |
|
14,344 |
|
|
63,254 |
|
|
13,944 |
|
| ADJUSTED
EBITDA |
$ |
29,044 |
|
|
$ |
9,954 |
|
|
$ |
60,664 |
|
|
$ |
69,193 |
|
| |
The table below sets forth expenses included in Net (loss) that
have not been included as adjustments to arrive at EBITDA and
Adjusted EBITDA in the preceding table.
| |
($ in thousands) |
| |
Three Months Ended |
|
Nine Months Ended |
| |
September 30, |
|
September 30, |
| |
2019 |
|
2018 |
|
2019 |
|
2018 |
| FDA compliance related
expenses |
$ |
4,566 |
|
|
$ |
9,484 |
|
|
$ |
27,407 |
|
|
$ |
9,734 |
|
| Failure to supply penalties
(recorded as a contra-revenue) |
(600 |
) |
|
3,982 |
|
|
9,625 |
|
|
14,991 |
|
| TheraTears® direct-to-consumer
advertising campaign |
1,516 |
|
|
1,299 |
|
|
3,950 |
|
|
11,174 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of GAAP Net Income/(Loss)
to non-GAAP Adjusted Net (Loss) and Adjusted Diluted (Loss)
Earnings Per Share(In Thousands, Except Per Share
Data)(Unaudited)
| |
Three Months Ended |
|
Nine Months Ended |
| |
September 30, |
|
September 30, |
| |
2019 |
|
2018 |
|
2019 |
|
2018 |
| NET INCOME/(LOSS) |
$ |
47,670 |
|
|
$ |
(70,140 |
) |
|
$ |
(146,110 |
) |
|
$ |
(186,871 |
) |
| |
|
|
|
|
|
|
|
| Income tax (benefit) |
(66,257 |
) |
|
(18,399 |
) |
|
(63,355 |
) |
|
(41,951 |
) |
| |
|
|
|
|
|
|
|
| (LOSS) BEFORE INCOME
TAXES |
$ |
(18,587 |
) |
|
$ |
(88,539 |
) |
|
$ |
(209,465 |
) |
|
$ |
(228,822 |
) |
| |
|
|
|
|
|
|
|
| ADJUSTMENTS TO ARRIVE AT
ADJUSTED NET INCOME: |
|
|
|
|
|
|
|
| Merger &
acquisition-related expenses (1) |
21 |
|
|
24 |
|
|
27 |
|
|
99 |
|
| Employee retention expense (2,
3, 4) |
1,813 |
|
|
— |
|
|
5,156 |
|
|
— |
|
| Data integrity investigations
& assessment (2) |
2,660 |
|
|
5,763 |
|
|
10,679 |
|
|
22,399 |
|
| Fresenius transaction &
litigation (2) |
2,690 |
|
|
9,445 |
|
|
6,135 |
|
|
35,002 |
|
| Refinancing advisory fees
(2) |
1,511 |
|
|
— |
|
|
11,549 |
|
|
— |
|
| Restatement expenses (2) |
— |
|
|
69 |
|
|
(26 |
) |
|
(746 |
) |
| Non-cash stock compensation
expense (2, 3, 4) |
5,726 |
|
|
5,746 |
|
|
16,034 |
|
|
17,199 |
|
| Amortization expense (5) |
9,375 |
|
|
13,613 |
|
|
30,390 |
|
|
39,985 |
|
| Impairment of goodwill
(7) |
— |
|
|
— |
|
|
15,955 |
|
|
— |
|
| Impairment of intangible
assets (7) |
— |
|
|
29,648 |
|
|
10,748 |
|
|
112,998 |
|
| Amortization of deferred
financing costs (8) |
8,581 |
|
|
1,304 |
|
|
15,540 |
|
|
3,912 |
|
| Executive termination expenses
(2) |
— |
|
|
— |
|
|
835 |
|
|
— |
|
| Impairment of fixed assets and
other (9) |
158 |
|
|
— |
|
|
10,385 |
|
|
— |
|
| Gain on disposal of fixed
assets (2, 6) |
— |
|
|
(204 |
) |
|
(29 |
) |
|
(224 |
) |
| Litigation rulings,
settlements and contingencies (10) |
(11,625 |
) |
|
14,344 |
|
|
63,254 |
|
|
13,944 |
|
| ADJUSTED INCOME/(LOSS) BEFORE
INCOME TAX |
$ |
2,323 |
|
|
$ |
(8,787 |
) |
|
$ |
(12,833 |
) |
|
$ |
15,746 |
|
| |
|
|
|
|
|
|
|
| Option exercise and RSU
vesting tax impact (11) |
— |
|
|
(1,278 |
) |
|
— |
|
|
(2,416 |
) |
| Adjustments to income tax
(benefit)/provision (11) |
— |
|
|
(596 |
) |
|
— |
|
|
6,013 |
|
| TOTAL ADJUSTED INCOME TAX
(BENEFIT)/PROVISION |
$ |
— |
|
|
$ |
(1,874 |
) |
|
$ |
— |
|
|
$ |
3,597 |
|
| |
|
|
|
|
|
|
|
| ADJUSTED NET
INCOME/(LOSS) |
$ |
2,323 |
|
|
$ |
(6,913 |
) |
|
$ |
(12,833 |
) |
|
$ |
12,149 |
|
| |
|
|
|
|
|
|
|
| ADJUSTED DILUTED EARNINGS PER
SHARE |
$ |
0.02 |
|
|
$ |
(0.06 |
) |
|
$ |
(0.10 |
) |
|
$ |
0.10 |
|
| |
|
|
|
|
|
|
|
| (1) - Excluded from
Acquisition-related costs |
|
|
|
|
|
|
|
| (2) - Excluded from SG&A
expenses |
|
|
|
|
|
|
|
| (3) - Excluded from R&D
expenses |
|
|
|
|
|
|
|
| (4) - Excluded from Cost of
sales |
|
|
|
|
|
|
|
| (5) - Excluded from
Amortization of intangibles |
|
|
|
|
|
|
|
| (6) - Excluded from Other
non-operating (expense) income, net |
|
|
|
|
|
|
|
| (7) - Excluded from Impairment
of goodwill, intangible assets |
|
|
|
|
|
|
|
| (8) - Excluded from
Amortization of deferred financing costs |
|
|
|
|
|
|
|
| (9) - Excluded from Impairment
of fixed assets |
|
|
|
|
|
|
|
| (10) - Excluded from
Litigation rulings, settlements and contingencies |
|
|
|
|
|
|
|
| (11) - Included in Income tax
expense |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
AKORN,
INC.Reconciliation of GAAP Debt to Non-GAAP Net
Debt and Net Debt to Adjusted EBITDA Ratio(In
Thousands, Except Net Debt to Adjusted EBITDA Ratio)
| |
September 30, 2019 |
| GAAP Debt |
$ |
838,517 |
|
| Deferred financing costs |
6,918 |
|
| Total term loans
outstanding |
$ |
845,435 |
|
| Cash and cash equivalents |
205,542 |
|
| Net debt |
$ |
639,893 |
|
| |
|
| Adjusted EBITDA, trailing
twelve months ended |
$ |
40,752 |
|
| |
|
| Net debt to adjusted EBITDA
ratio |
15.7 |
|
AKORN,
INC.Reconciliation of 2019 Financial Guidance of
GAAP Net Loss to Non-GAAP Adjusted EBITDA(In
Millions)
| |
|
|
|
| |
|
|
|
| |
|
|
|
| Reconciliation of GAAP
Net Income to NON-GAAP Adjusted Net Income: |
|
| |
2019 Guidance |
| |
Lower Range |
|
Upper Range |
| GAAP NET (LOSS) |
$ |
(193 |
) |
|
$ |
(178 |
) |
| |
|
|
|
| Add: |
|
|
|
| Intangible asset amortization
expense |
40 |
|
|
40 |
|
| Share-based compensation
expense |
21 |
|
|
21 |
|
| Amortization of deferred
financing costs |
22 |
|
|
22 |
|
| Other one-time expenses |
144 |
|
|
144 |
|
| |
|
|
|
| Subtract: |
|
|
|
| Income tax (benefit) |
(63 |
) |
|
(63 |
) |
| |
|
|
|
| Adjusted NET (LOSS) |
$ |
(29 |
) |
|
$ |
(14 |
) |
| |
|
|
|
| Reconciliation of GAAP
Net Income to NON-GAAP Adjusted EBITDA |
|
| |
2019 Guidance |
| |
Lower Range |
|
Upper Range |
| NET (LOSS) |
$ |
(193 |
) |
|
$ |
(178 |
) |
| |
|
|
|
| Add: |
|
|
|
| Depreciation expense |
30 |
|
|
30 |
|
| Amortization expense |
40 |
|
|
40 |
|
| Interest expense, net |
70 |
|
|
70 |
|
| Income tax (benefit) |
(63 |
) |
|
(63 |
) |
| EBITDA |
$ |
(116 |
) |
|
$ |
(101 |
) |
| |
|
|
|
| Add: |
|
|
|
| Employee retention
expense |
7 |
|
|
7 |
|
| Data Integrity investigations
& assessment |
13 |
|
|
13 |
|
| Fresenius transaction &
litigation |
7 |
|
|
7 |
|
| Non-cash stock compensation
expense |
21 |
|
|
21 |
|
| Refinancing advisory fees |
16 |
|
|
16 |
|
| Impairment of goodwill |
16 |
|
|
16 |
|
| Impairment of intangible
assets |
11 |
|
|
11 |
|
| Amortization of deferred
financing costs |
22 |
|
|
22 |
|
| Executive termination
expenses |
1 |
|
|
1 |
|
| Impairment of fixed assets and
other |
10 |
|
|
10 |
|
| Litigation rulings,
settlements and contingencies |
63 |
|
|
63 |
|
| ADJUSTED EBITDA |
$ |
71 |
|
|
$ |
86 |
|
Investors/Media:(847)
279-6162Investor.relations@akorn.com
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