LCI Lannett Company Inc

GAAP

Adjusted

Net sales

$640 million to $645 million, up from $615 million to $635 million

$640 million to $645 million, up from $615 million to $635 million

Gross margin %

Approximately 37%, changed from 37% to 38%

Approximately 44%, changed from 44% to 45%

R&D expense

$37 million to $38 million, up from $35 million to $37 million

$35 million to $36 million, up from $33 million to $35 million

SG&A expense

$82 million to $84 million, up from $78 million to $81 million

$70 million to $71 million, up from $66 million to $69 million

Restructuring expense

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

$ --

Asset impairment charges

$369 million, unchanged

$ --

Interest and other

$84 million to $85 million, down from $84 million to $86 million

$65 million to $66 million, down from $66 million to $68 million

Effective tax rate

Approximately 22%, changed from 22% to 23%

Approximately 23%, changed from 22% to 23%

Capital expenditures

$28 million to $31 million, down from $30 million to $35 million

$28 million to $31 million, down from $30 million to $35 million

LANNETT COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

March 31, 2019

June 30, 2018

ASSETS

Current assets:

Cash and cash equivalents

$            205,207

$         98,586

Accounts receivable, net

151,804

252,651

Inventories

136,352

141,635

Prepaid income taxes

101

15,159

Assets held for sale

14,644

13,976

Other current assets

7,246

4,863

Total current assets

515,354

526,870

Property, plant and equipment, net

193,121

233,247

Intangible assets, net

401,973

424,425

Goodwill

-

339,566

Deferred tax assets

102,541

22,063

Other assets

18,620

29,133

$    1,575,304

LIABILITIES

Current liabilities:

Accounts payable

$              31,564

$         56,767

Accrued expenses

8,423

7,425

Accrued payroll and payroll-related expenses

18,677

7,819

Rebates payable

41,873

49,400

Royalties payable

10,423

5,955

Restructuring liability

270

6,706

Liabilities held for sale

847

-

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

66,845

66,845

Total current liabilities

178,922

200,917

Long-term debt, net

711,341

772,425

Other liabilities

2,046

3,047

TOTAL LIABILITIES

892,309

976,389

STOCKHOLDERS' EQUITY

Common stock ($0.001 par value, 100,000,000 shares authorized; 38,858,670

and 38,256,839 shares issued; 37,908,587 and 37,380,517 shares outstanding at March 31, 2019 and June 30, 2018, respectively)

39

38

Additional paid-in capital

314,591

306,817

Retained earnings

39,661

306,464

Accumulated other comprehensive loss

(571)

(515)

Treasury stock(950,083 and 876,322 shares at March 31, 2019 and June 30, 2018, respectively)

(14,420)

(13,889)

Total stockholders' equity

339,300

598,915

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 

$         1,231,609

$    1,575,304

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,

2019

2018

2019

2018

Net sales

$      172,794

$        174,386

$      521,566

$        513,652

Cost of sales 

99,571

99,036

303,012

267,503

Amortization of intangibles

7,906

8,293

24,286

23,971

Gross profit

65,317

67,057

194,268

222,178

Operating expenses:

Research and development expenses

9,838

2,730

29,371

20,861

Selling, general and administrative expenses

21,649

14,112

65,434

61,643

Acquisition and integration-related expenses

-

-

-

83

Restructuring expenses

452

1,421

1,687

2,983

Loss on sale of intangible asset

-

15,514

-

15,514

Asset impairment charges

-

-

369,499

-

Total operating expenses

31,939

33,777

465,991

101,084

Operating income (loss)

33,378

33,280

(271,723)

121,094

Other income (loss):

Investment income

925

719

1,860

4,208

Interest expense

(21,485)

(22,842)

(64,430)

(64,440)

Loss on extinguishment of debt

(413)

-

(413)

-

Other

(401)

(662)

(1,409)

2,473

Total other loss

(21,374)

(22,785)

(64,392)

(57,759)

Income (loss) before income tax

12,004

10,495

(336,115)

63,335

Income tax expense (benefit)

1,359

(2,275)

(71,594)

23,286

Net income (loss)

$        10,645

$          12,770

$          40,049

Earnings (loss) per common share:

     Basic

$             0.28

$              0.34

$           (7.01)

$              1.08

     Diluted

$             0.27

$              0.33

$           (7.01)

$              1.05

Weighted average common shares outstanding:

     Basic

37,842,224

37,136,945

37,729,099

37,064,781

     Diluted

39,330,847

38,287,005

37,729,099

38,112,193

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

$     9,838

$      21,649

$           452

$        33,378

$ 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

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, 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)

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 GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION (UNAUDITED)

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

Three months ended March 31, 2018

Net sales

Cost of sales

Amortization
of intangibles

Gross Profit

Gross Margin %

R&D expense

SG&A expense

Acquisition and
integration-
related
expenses

Restructuring expenses

Loss on sale of
intangible asset

Operating income

Other income (loss)

Income
before
income tax

Income tax
expense
(benefit)

Net income

Diluted
earnings
per share

(g)

GAAP Reported

$ 174,386

$99,036

$        8,293

$ 67,057

38%

$    2,730

$   14,112

$              -

$         1,421

15,514

$ 33,280

$ (22,785)

$ 10,495

$ (2,275)

$   12,770

$   0.33

Adjustments:

Depreciation of Fixed Assets step-up (a)

-

(1,335)

-

1,335

-

-

-

-

-

1,335

-

1,335

-

1,335

Amortization of intangibles (b)

-

-

(8,293)

8,293

-

-

-

-

-

8,293

-

8,293

-

8,293

Restructuring expenses (c)

-

-

-

-

-

-

-

(1,421)

-

1,421

-

1,421

-

1,421

Loss on sale of intangible asset (d)

-

-

-

-

-

-

-

-

(15,514)

15,514

15,514

-

15,514

Non-cash interest (e)

-

-

-

-

-

-

-

-

-

-

6,642

6,642

-

6,642

Tax adjustments (f)

-

-

-

-

-

-

-

-

-

-

-

-

15,508

(15,508)

Non-GAAP Adjusted

$   174,386

$  97,701

$              -

$   76,685

44%

$     2,730

$    14,112

$               -

$               -

$                     -

$   59,843

$   (16,143)

$  43,700

$   13,233

$     30,467

$    0.80

(a)

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

(b)

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

(c)

To exclude expenses associated with the 2016 Restructuring Plan 

(d)

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

(e)

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

(f)

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

(g)

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

LANNETT COMPANY, INC.

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

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

Nine months ended March 31, 2018

Net sales

Cost of sales

Amortization
of intangibles

Gross Profit

Gross Margin %

R&D expense

SG&A expense

Acquisition and
integration-
related
expenses

Restructuring expenses

Loss on sale of
intangible asset

Operating income

Other income (loss)

Income
before
income tax

Income tax
expense

Net income

Diluted
earnings
per share
(j)

GAAP Reported

$ 513,652

$267,503

$      23,971

$222,178

43%

$  20,861

$   61,643

$              83

$         2,983

$             15,514

$121,094

$ (57,759)

$ 63,335

$ 23,286

$   40,049

$   1.05

Adjustments:

Depreciation of Fixed Assets step-up (a)

-

(4,005)

-

4,005

-

-

-

-

-

4,005

-

4,005

-

4,005

Amortization of intangibles (b)

-

-

(23,971)

23,971

-

(582)

-

-

-

24,553

-

24,553

-

24,553

Acquisition and integration-related expenses (c)

-

-

-

-

-

-

(83)

-

-

83

-

83

-

83

Restructuring expenses (d)

-

-

-

-

-

-

-

(2,983)

-

2,983

-

2,983

-

2,983

Loss on sale of intangible asset (e)

-

-

-

-

-

-

-

-

(15,514)

15,514

15,514

-

15,514

Non-cash interest (f)

-

-

-

-

-

-

-

-

-

-

15,656

15,656

-

15,656

Litigation settlement gain (g)

-

-

-

-

-

-

-

-

-

-

(3,500)

(3,500)

-

(3,500)

Other (h)

-

-

-

-

-

(7,405)

-

-

-

7,405

-

7,405

-

7,405

Tax adjustments (i)

-

-

-

-

-

-

-

-

-

-

-

-

12,978

(12,978)

Non-GAAP Adjusted

$   513,652

$263,498

$              -

$ 250,154

49%

$    20,861

$    53,656

$               -

$               -

$                     -

$ 175,637

$   (45,603)

$ 130,034

$   36,264

$     93,770

$    2.46

(a)

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

(b)

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

(c)

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

(d)

To exclude expenses associated with the 2016 Restructuring Plan 

(e)

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

(f)

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

(g)

To exclude a settlement gain associated with patent litigation  

(h)

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

(i)

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

(j)

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

LANNETT COMPANY, INC.

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

($ in millions)

Fiscal Year 2019 Guidance

Non-GAAP

GAAP

Adjustments

Adjusted

Net sales

 $640 - $645 

-

 $640 - $645 

Gross margin percentage

approx. 37%

7%

 (a) 

approx. 44%

R&D expense

 $37 - $38 

($2)

 (b) 

 $35 - $36 

SG&A expense

 $82 - $84 

($12 - $13)

 (c) 

 $70 - $71 

Restructuring expense

 $2 - $3 

 ($2 - $3) 

 (d) 

-

Asset impairment charges

$369

($369)

 (e) 

-

Interest and other

 $84 - $85 

($19)

 (f) 

 $65 - $66 

Effective tax rate

approx. 22%

1%

 (g) 

approx. 23%

Capital expenditures

 $28 - $31 

-

 $28 - $31 

(a) The adjustment primarily reflects amortization of purchased intangible assets related to the acquisition of Kremers Urban Pharmaceuticals, Inc. ("KUPI") and, to a lesser extent, the cost of sales associated with the Cody API business which was classified as Held For Sale as of September 30, 2018

(b) To exclude R&D expense associated with the Cody API business

(c) To exclude various expenses associated with the Company's overall cost savings initiatives, which includes the Cody API business; legal and financial advisory costs; as well as nonrecurring compensation-related expenses.  In addition, it also excludes depreciation on previously capitalized software integration costs associated with the KUPI acquisition

(d) To exclude expenses associated with the 2016 Restructuring Plan and Cody Restructuring Plan

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

(f) The adjustment primarily reflects non-cash interest expense associated with debt issuance costs and the loss on extinguishment of debt related to open market repurchases of Term Loans

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

LANNETT COMPANY, INC.

NET SALES BY MEDICAL INDICATION

Three months ended

Nine months ended

(in thousands)

March 31,

March 31,

Medical Indication

2019

2018

2019

2018

Antibiotic

$    3,789

$    3,801

$  12,066

$  10,701

Anti-Psychosis

20,616

9,336

45,540

47,127

Cardiovascular

22,783

18,514

70,233

39,955

Central Nervous System

9,424

8,395

22,808

24,137

Gallstone

3,041

3,828

7,744

15,674

Gastrointestinal

11,735

16,562

36,783

46,171

Glaucoma

659

875

1,719

5,706

Migraine

9,846

12,888

32,134

43,387

Muscle Relaxant

3,238

3,299

9,538

10,309

Pain Management

5,856

6,594

19,771

18,483

Respiratory

498

2,324

2,676

6,200

Thyroid Deficiency

55,210

69,975

197,564

185,983

Urinary

2,105

33

5,262

5,870

Other

16,062

12,376

37,230

38,178

Contract Manufacturing revenue

7,932

5,586

20,498

15,771

   Net Sales

$ 172,794

$ 174,386

$ 521,566

$ 513,652