Lannett Announces Fiscal 2018 Third-Quarter Financial Results

PHILADELPHIA, May 7, 2018 /PRNewswire/ -- Lannett Company, Inc. (NYSE: LCI) today reported financial results for its fiscal 2018 third quarter ended March 31, 2018.

"We continue to make good progress executing on our strategic initiatives," said Tim Crew, chief executive officer of Lannett. "During the quarter, we acquired five products from UCB and entered into three new agreements with our strategic alliance partners, which I am delighted to report have progressed and already created new revenue streams. To further build out our product offering, earlier today we announced the acquisition of a portfolio of primarily oral solution medications, comprised of 23 approved Abbreviated New Drug Applications (ANDAs) and one pending ANDA. Moreover, we have re-aligned and added depth and expertise to the management team, resulting in improved manufacturing output and a re-invigorated marketing plan to launch our products.

"With regard to our third quarter financial results, profitability on an adjusted basis exceeded our expectations. Our financial performance reflected the discipline of lower adjusted operating expenses and a mix of positive and negative sales variances to a few of our key products.

"Looking ahead, our plan is to launch over the next several weeks, and into fiscal 2019, a number of our previously approved and recently acquired or in-licensed products. While these launches will have a marginal financial benefit to our fiscal fourth quarter performance, we expect a more substantive impact on fiscal 2019 financial results. Also, we continue to be engaged in numerous discussions with existing and new potential partners to add even more products to our portfolio that will further diversify our revenues, provide affordable alternatives for our customers, and enhance our efficiencies and bottom line."

For the fiscal 2018 third quarter, on a GAAP basis, net sales were $174.4 million compared with $165.7 million for the third quarter of fiscal 2017. During the third quarter of last year, the company recorded a $4.0 million adjustment to a settlement agreement with one of its customers, which resulted in total net sales for the prior-year period of $161.7 million. Gross profit was $67.1 million, or 38% of total net sales, compared with $72.4 million, or 45% of total net sales. Research and development (R&D) expenses of $2.7 million benefited from a cancelled order for pre-launch inventory totaling $3.8 million. This compares with R&D expenses of $8.3 million for the fiscal 2017 third quarter. Selling, general and administrative (SG&A) expenses decreased to $14.1 million from $17.6 million. Restructuring expenses were $1.4 million compared with $1.6 million. Following a strategic evaluation of its pipeline, the company sold rights to a pipeline product to its development partner for an upfront payment and future payments based on FDA approval and other milestones. As a result of this transaction, the company recorded a loss on sale of intangible asset of $15.5 million in the current year third quarter. In the prior-year third quarter, the company recorded acquisition and integration-related expenses of $1.3 million. Operating income was $33.3 million compared with $43.6 million. Interest expense was $22.8 million compared with $22.4 million for the third quarter of fiscal 2017. The company recorded an income tax benefit of $2.3 million versus income tax expense of $7.3 million in the prior-year period. Net income attributable to Lannett was $12.8 million, or $0.33 per diluted share, compared with $14.9 million, or $0.40 per diluted share, for the fiscal 2017 third quarter.

For the fiscal 2018 third reported on a Non-GAAP basis, adjusted net sales were $174.4 million compared with $165.7 million for the third quarter of fiscal 2017. Adjusted gross profit was $76.7 million, or 44% of adjusted net sales, compared with $85.5 million, or 52% of adjusted net sales, for the prior-year third quarter. Adjusted R&D expenses were $2.7 million compared with $8.3 million. Adjusted SG&A expenses were $14.1 million compared with $17.3 million. Adjusted operating income was $59.8 million compared with $59.9 million for the prior-year third quarter. Adjusted interest expense declined to $16.2 million from $16.7 million for the third quarter of fiscal 2017. Adjusted income tax expense was $13.2 million compared with $15.0 million in the prior-year period. Adjusted net income attributable to Lannett was $30.5 million, or $0.80 per diluted share, compared with $29.2 million, or $0.77 per diluted share, for the fiscal 2017 third quarter.

Guidance for Fiscal 2018

Based on its current outlook, the company's fiscal 2018 full year net sales and adjusted profitability is unchanged, although individual elements of its financial guidance from February 7, 2018 have been revised, as follows.

                                                         GAAP                                                                  Adjusted
                                                         ----                                                                  --------

    Net sales          $685 million to $695 million, updated from $680 million to $700 million $685 million to $695 million, updated from $680 million to $700 million
    ---------                                              -----------------------------------                                     -----------------------------------

    Gross margin %                                       Approximately 42%, down from 42% to                                     Approximately 48%, down from 48% to
                                                                                           43%                                                                     49%
    -------------                                          -----------------------------------                                      -----------------------------------

    R&D expense               $30 million to $32 million, down from $36 million to $38 million        $30 million to $32 million, down from $36 million to $38 million
    -----------                                            -----------------------------------                                     -----------------------------------

    SG&A expense                                         $79 million to $81 million, Unchanged                                   $71 million to $73 million, Unchanged
    ------------                                           -----------------------------------                                     -----------------------------------

    Integration and
     restructuring
     related expense                                       $4 million to $5 million, unchanged                                                                    $ --
    ----------------                                       -----------------------------------                                                                    ----

    Loss on Sale of
     Intangible asset                                                              $16 million                                                                    $ --
    -----------------                                                              -----------                                                                    ----

    Interest expense
     and other                  $79 million to $80 million, Up from $77 million to $78 million                                   $62 million to $63 million, Unchanged
    ----------------                                       -----------------------------------                                     -----------------------------------

    Effective tax rate                                            Approximately 35%, down from                                              Approximately 28%, up from
                                                                             approximately 39%                                                      approximately 27%
    ------------------                                           -----------------------------                                             ---------------------------

    Capital             Approximately $50 million, changed                                      Approximately $50 million, changed
     expenditures       from the range of $45 million to                                        from the range of $45 million to
                        $55 million                                                             $55 million
    -------------      -----------------------------------                                     -----------------------------------

Conference Call Information and Forward-Looking Statements
Later today, the company will host a conference call at 4:30 p.m. ET to review its results of operations for its fiscal 2018 third quarter ended March 31, 2018. The conference call will be available to interested parties by dialing 866-436-9172 from the U.S. or Canada, or 630-691-2760 from international locations, passcode 46898785. The call will be broadcast via the Internet at www.lannett.com. Listeners are encouraged to visit the website at least 10 minutes prior to the start of the scheduled presentation to register, download and install any necessary audio software. A playback of the call will be archived and accessible on the same website for at least three months.

Discussion during the conference call may include forward-looking statements regarding such topics as, but not limited to, the company's financial status and performance, regulatory and operational developments, and any comments the company may make about its future plans or prospects in response to questions from participants on the conference call.

Use of Non-GAAP Financial Measures
This news release contains references to Non-GAAP financial measures, which are financial measures that are not prepared in conformity with United States generally accepted accounting principles (U.S. GAAP). Management uses these measures internally for evaluating its operating performance. The Company's management believes that the presentation of Non-GAAP financial measures provides useful supplementary information regarding operational performance, because it enhances an investor's overall understanding of the financial results for the Company's core business. Additionally, it provides a basis for the comparison of the financial results for the Company's core business between current, past and future periods. Non-GAAP financial measures should be considered only as a supplement to, and not as a substitute for or as a superior measure to, financial measures prepared in accordance with U.S. GAAP.

Detailed reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures are included with this release.

Non-GAAP financial measures exclude, among others, the effects of (1) amortization of purchased intangibles and other purchase accounting entries, (2) acquisition and integration-related expenses, (3) non-cash interest expense, as well as (4) certain other items considered unusual or non-recurring in nature.

About Lannett Company, Inc.:
Lannett Company, founded in 1942, develops, manufactures, packages, markets and distributes generic pharmaceutical products for a wide range of medical indications - see financial schedule below for net sales by medical indication. For more information, visit the company's website at www.lannett.com.

This news release contains certain statements of a forward-looking nature relating to future events or future business performance. Any such statements, including, but not limited to, successfully launching and commercializing recently acquired and previously approved products, realizing enhanced efficiencies, successfully consummating transactions with new and existing alliance partners and successfully launching commercializing products included therein, and achieving the financial metrics stated in the company's guidance for fiscal 2018, whether expressed or implied, are subject to risks and uncertainties which can cause actual results to differ materially from those currently anticipated due to a number of factors which include, but are not limited to, the difficulty in predicting the timing or outcome of FDA or other regulatory approvals or actions, the ability to successfully commercialize products upon approval, including acquired products, and Lannett's estimated or anticipated future financial results, future inventory levels, future competition or pricing, future levels of operating expenses, product development efforts or performance, and other risk factors discussed in the company's Form 10-K and other documents filed with the Securities and Exchange Commission from time to time. These forward-looking statements represent the company's judgment as of the date of this news release. The company disclaims any intent or obligation to update these forward-looking statements.

    Contact:                   Robert Jaffe

                                Robert Jaffe Co.,
                                LLC

                               (424) 288-4098

 

FINANCIAL SCHEDULES FOLLOW

 

 
                                                 LANNETT COMPANY, INC.

                                              CONSOLIDATED BALANCE SHEETS

                                    (In thousands, except share and per share data)


                                                                      (Unaudited)

                                                                   March 31, 2018           June 30, 2017
                                                                   --------------           -------------

    ASSETS
    ------

    Current assets:

    Cash and cash equivalents                                            $114,016                 $117,737

    Investment securities                                                   9,089                   27,091

    Accounts receivable, net                                              238,767                  204,066

    Inventories                                                           133,290                  122,604

    Prepaid income taxes                                                   16,563                   16,703

    Other current assets                                                   10,045                    6,592
                                                                           ------                    -----

    Total current assets                                                  521,770                  494,793

    Property, plant and equipment,
     net                                                                  267,398                  243,148

    Intangible assets, net                                                420,582                  453,861

    Goodwill                                                              339,566   339,566

    Deferred tax assets                                                    18,713                   52,753

    Other assets                                                           29,462                   19,191

    TOTAL ASSETS                                                       $1,597,491               $1,603,312
                                                                       ==========               ==========



    LIABILITIES
    -----------

    Current liabilities:

    Accounts payable                                                      $67,501                  $44,720

    Accrued expenses                                                        5,832                   12,499

    Accrued payroll and payroll-
     related expenses                                                       9,318                    4,833

    Rebates payable                                                        41,267                   44,593

    Royalties payable                                                       9,540                    3,015

    Restructuring liability                                                 3,328                    5,431

    Settlement liability                                                        -                  17,000

    Short-term borrowings and
     current portion of long-term
     debt                                                                  66,845                   60,117
                                                                           ------                   ------

    Total current liabilities                                             203,631                  192,208

    Long-term debt, net                                                   784,689                  843,530

    Other liabilities                                                       2,199                    6,452

    TOTAL LIABILITIES                                                     990,519                1,042,190
                                                                          -------                ---------

    Commitments and contingencies


    STOCKHOLDERS' EQUITY
    --------------------

    Common stock ($0.001 par value,
     100,000,000 shares authorized;
     38,176,302 and 37,528,450
     shares issued; 37,305,266 and
     36,919,296 shares outstanding
     at March 31, 2018 and June 30,
     2017, respectively)                                                       38                       37

    Additional paid-in capital                                            303,376                  292,780

    Retained earnings                                                     317,823                  277,774

    Accumulated other comprehensive
     loss                                                                   (450)                   (222)

    Treasury stock (871,036 and
     609,154 shares at March 31,
     2018 and June 30, 2017,
     respectively)                                                       (13,815)                 (9,247)
                                                                          -------                   ------

    Total stockholders' equity                                            606,972                  561,122
                                                                          -------                  -------

    TOTAL LIABILITIES AND
     STOCKHOLDERS' EQUITY                                              $1,597,491               $1,603,312
                                                                       ==========               ==========

 

                                                 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,
                                                     ---------                            ---------

                                                         2018                        2017              2018         2017
                                                         ----                        ----              ----         ----


    Net sales                                        $174,386                    $165,720          $513,652     $498,223

    Settlement agreement                                    -                    (4,000)                -     (4,000)

    Total net sales                                  $174,386                    $161,720          $513,652     $494,223
                                                     --------                    --------          --------     --------

    Cost of sales                                      99,036                      81,553           267,503      227,527

    Amortization of intangibles                         8,293                       7,737            23,971       24,361

    Gross profit                                       67,057                      72,430           222,178      242,335
                                                       ------                      ------           -------      -------

    Operating expenses:

    Research and development
     expenses                                           2,730                       8,340            20,861       30,650

    Selling, general, and
     administrative expenses                           14,112                      17,629            61,643       56,958

    Acquisition and integration-
     related expenses                                       -                      1,256                83        3,674

    Restructuring expenses                              1,421                       1,568             2,983        5,332

    Loss on sale of intangible
     asset                                             15,514                           -           15,514            -

    Intangible asset impairment
     charges                                                -                          -                -      88,084
                                                          ---                        ---              ---      ------

    Total operating expenses                           33,777                      28,793           101,084      184,698
                                                       ------                      ------           -------      -------

    Operating income                                   33,280                      43,637           121,094       57,637
                                                       ------                      ------           -------       ------

    Other income (loss):

    Investment income                                     719                       1,037             4,208        3,085

    Interest expense                                 (22,842)                   (22,373)         (64,440)    (68,700)

    Other                                               (662)                       (35)            2,473        (298)
                                                         ----                         ---             -----         ----

    Total other loss                                 (22,785)                   (21,371)         (57,759)    (65,913)
                                                      -------                     -------           -------      -------

    Income (loss) before income
     tax                                               10,495                      22,266            63,335      (8,276)

    Income tax expense (benefit)                      (2,275)                      7,337            23,286      (2,003)
                                                       ------                       -----            ------       ------

    Net income (loss)                                  12,770                      14,929            40,049      (6,273)

    Less: Net income attributable
     to noncontrolling interest                             -                          -                -          34
                                                          ---                        ---              ---         ---

    Net income (loss) attributable
     to Lannett Company, Inc.                         $12,770                     $14,929           $40,049     $(6,307)
                                                      =======                     =======           =======      =======


    Earnings (loss) per common
     share attributable to Lannett
     Company, Inc.:

         Basic                                          $0.34                       $0.41             $1.08      $(0.17)

         Diluted                                        $0.33                       $0.40             $1.05      $(0.17)


    Weighted average common shares
     outstanding:

         Basic                                     37,136,945                  36,849,208        37,064,781   36,785,829

         Diluted                                   38,287,005                  37,752,304        38,112,193   36,785,829

 

                                                                                                                                                                                                              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             Amortization                   Gross          Gross                    R&D             SG&A           Acquisition and                           Restructuring                           Loss on sale of                     Operating                   Other                   Income                 Income tax                  Net income                        Net income                             Net income                       Diluted
                                                 sales             of intangibles                 Profit                  Margin %      expense          expense           integration-                              expenses                             intangible asset                       income                    income                  before                   expense                                                   attributable to                       attributable to                     earnings
                                                                                                                                                                              related                                                                                                                                       (loss)                  income                  (benefit)                                                  noncontrolling                            Lannett                        per share
                                                                                                                                                                              expenses                                                                                                                                                               tax                                                                                  interest                            Company, Inc.                        (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                   $                 -                             $12,770              $0.33

                                 Adjustments:
                                 ------------

         Depreciation of
      Fixed Assets step-
                  up (a)                       -          (1,335)                             -            1,335                                    -                -                                 -                                      -                                          -                    1,335                       -                    1,335                            -                        1,335                                     -                               1,335

         Amortization of
         intangibles (b)                       -                -                       (8,293)            8,293                                    -                -                                 -                                      -                                          -                    8,293                       -                    8,293                            -                        8,293                                     -                               8,293

           Restructuring
            expenses (c)                       -                -                             -                -                                   -                -                                 -                                (1,421)                                          -                    1,421                       -                    1,421                            -                        1,421                                     -                               1,421

         Loss on sale of
        intangible asset
                     (d)                       -                -                             -                -                                   -                -                                 -                                      -                                   (15,514)                   15,514                                           15,514                            -                       15,514                                     -                              15,514

       Non-cash interest
                     (e)                       -                -                             -                -                                   -                -                                 -                                      -                                          -                        -                  6,642                     6,642                            -                        6,642                                     -                               6,642

     Tax adjustments (f)                       -                -                             -                -                                   -                -                                 -                                      -                                          -                        -                      -                        -                      15,508                      (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                   $                 -                             $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)


                                                                                                                                                                            Three months ended March 31, 2017
                                                                                                                                                                            ---------------------------------

                         Total net            Cost of           Amortization                 Gross          Gross                 R&D             SG&A                     Acquisition and                         Restructuring                  Operating                 Other                  Income               Income tax                 Net income                       Net income                         Net income                       Diluted
                           sales               sales           of intangibles               Profit                Margin %     expense         expense                      integration-                            expenses                      income                   income                 before                expense                                                 attributable to                     attributable to                   earnings
                                                                                                                                                                             related                                                                                      (loss)                 income                                                                         noncontrolling                         Lannett                       per share
                                                                                                                                                                             expenses                                                                                                              tax                                                                             interest                         Company, Inc.                       (h)
                                                                                                                                                          ---                                                                                                                       ---                                                                          ---                 --------                              ---                            ---




           GAAP Reported             $161,720          $81,553                       $7,737         $72,430                45%          $8,340             $17,629                                   $1,256                                $1,568                 $43,637              $(21,371)                $22,266                     $7,337                      $14,929                     $             -                            $14,929             $0.40

                              Adjustments:
                              ------------

              Settlement
           agreement (a)                4,000                -                           -          4,000                                  -                  -                                       -                                    -                  4,000                      -                  4,000                          -                       4,000                                   -                              4,000

         Depreciation of
      Fixed Assets step-
                  up (b)                    -         (1,335)                           -          1,335                                  -                  -                                       -                                    -                  1,335                      -                  1,335                          -                       1,335                                   -                              1,335

         Amortization of
         intangibles (c)                    -               -                     (7,737)          7,737                                  -              (365)                                       -                                    -                  8,102                      -                  8,102                          -                       8,102                                   -                              8,102

         Acquisition and
            integration-
        related expenses
                     (d)                    -               -                           -              -                                 -                  -                                 (1,256)                                    -                  1,256                      -                  1,256                          -                       1,256                                   -                              1,256

           Restructuring
            expenses (e)                    -               -                           -              -                                 -                  -                                       -                              (1,568)                  1,568                      -                  1,568                          -                       1,568                                   -                              1,568

       Non-cash interest
                     (f)                    -               -                           -              -                                 -                  -                                       -                                    -                      -                 5,688                   5,688                          -                       5,688                                   -                              5,688

     Tax adjustments (g)                    -               -                           -              -                                 -                  -                                       -                                    -                      -                     -                      -                     7,679                      (7,679)                                  -                            (7,679)


       Non-GAAP Adjusted             $165,720          $80,218          $                 -        $85,502                52%          $8,340             $17,264                      $                 -                      $             -                $59,898              $(15,683)                $44,215                    $15,016                      $29,199                    $              -                            $29,199             $0.77
                                     ========          =======          ===================        =======                ===           ======             =======                      ===================                      ===============                =======               ========                 =======                    =======                      =======                    ================                            =======             =====

    (a) Relates to an adjustment to a settlement agreement with a former customer

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

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

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

    (e) To exclude expenses associated with the 2016 Restructuring Plan

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

    (g) The tax effect of the pre-tax adjustments included at applicable tax rates

    (h) The weighted average share number for the three months ended March 31, 2017 is 37,752,304 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               Cost of           Amortization                 Gross           Gross                 R&D              SG&A              Acquisition and                        Restructuring                         Loss on sale of                    Operating                   Other                     Income                   Income tax                   Net income                        Net income                          Net income                        Diluted
                         sales               sales           of intangibles               Profit                 Margin %     expense          expense               integration-                            expenses                          intangible asset                      income                    income                    before                    expense                                                    attributable to                      attributable to                    earnings
                                                                                                                                                                      related                                                                                                                                 (loss)                    income                                                                                noncontrolling                          Lannett                        per share
                                                                                                                                                                      expenses                                                                                                                                                            tax                                                                                    interest                          Company, Inc.                        (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                     $             -                              $40,049             $1.05

                            Adjustments:
                            ------------

         Depreciation of
      Fixed Assets step-
                  up (a)                  -         (4,005)                           -           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                                   -                               24,553

         Acquisition and
            integration-
        related expenses
                     (c)                  -               -                           -               -                                  -                   -                            (83)                                   -                                        -                       83                         -                         83                            -                            83                                   -                                   83

           Restructuring
            expenses (d)                  -               -                           -               -                                  -                   -                               -                             (2,983)                                        -                    2,983                         -                      2,983                            -                         2,983                                   -                                2,983

         Loss on sale of
        intangible asset
                     (e)                  -               -                           -               -                                  -                   -                               -                                   -                                 (15,514)                   15,514                                               15,514                            -                        15,514                                   -                               15,514

       Non-cash interest
                     (f)                  -               -                           -               -                                  -                   -                               -                                   -                                        -                        -                   15,656                      15,656                            -                        15,656                                   -                               15,656

              Litigation
         settlement gain
                     (g)                  -               -                           -               -                                  -                   -                               -                                   -                                        -                        -                  (3,500)                    (3,500)                           -                       (3,500)                                  -                              (3,500)

               Other (h)                  -               -                           -               -                                  -             (7,405)                               -                                   -                                        -                    7,405                         -                      7,405                            -                         7,405                                   -                                7,405

     Tax adjustments (i)                  -               -                           -               -                                  -                   -                               -                                   -                                        -                        -                        -                          -                      12,978                       (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                    $              -                              $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 REPORTED TO NON-GAAP ADJUSTED INFORMATION (UNAUDITED)

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


                                                                                                                                                                                                        Nine months ended March 31, 2017
                                                                                                                                                                                                        --------------------------------

                         Total net                Cost of           Amortization               Gross Profit           Gross                 R&D              SG&A               Acquisition and                          Restructuring                          Intangible                     Operating                   Other                       Income                       Income                  Net income                       Net income              Net income (loss)                      Diluted
                           sales                   sales           of intangibles                                           Margin %     expense          expense                integration-                              expenses                              asset                         income                     income                  (loss) before                     tax                      (loss)                      attributable to             attributable to                       earnings
                                                                                                                                                                              related expenses                                                                impairment                                                 (loss)                    income tax                    expense                                                 noncontrolling                 Lannett                          (loss) per
                                                                                                                                                                                                                                                               charges                                                                                                          (benefit)                                                   interest                 Company, Inc.                       share (k)
                                                                                                                                                                                                                                             ---                                                                                                                  ---                                                      ---                --------                    --------                         ---------




           GAAP Reported                 $494,223         $227,527                     $24,361               $242,335                49%          $30,650             $56,958                               $3,674                               $5,332                                $88,084                   $57,637                $(65,913)                      $(8,276)                    $(2,003)                     $(6,273)                        $34                              $(6,307)            $(0.17)

                                  Adjustments:
                                  ------------

              Settlement
           agreement (a)                    4,000                -                          -                 4,000                                   -                  -                                   -                                   -                                     -                    4,000                        -                         4,000                            -                        4,000                           -                                4,000

         Depreciation of
      Fixed Assets step-
                  up (b)                        -         (3,075)                          -                 3,075                                   -                  -                                   -                                   -                                     -                    3,075                        -                         3,075                            -                        3,075                           -                                3,075

         Amortization of
       Inventory step-up
                     (c)                        -         (1,938)                          -                 1,938                                   -                  -                                   -                                   -                                     -                    1,938                        -                         1,938                            -                        1,938                           -                                1,938

         Amortization of
         intangibles (d)                        -               -                   (24,361)                24,361                                   -            (1,095)                                   -                                   -                                     -                   25,456                        -                        25,456                            -                       25,456                           -                               25,456

         Acquisition and
            integration-
        related expenses
                     (e)                        -               -                          -                     -                                  -                  -                             (3,674)                                   -                                     -                    3,674                        -                         3,674                            -                        3,674                           -                                3,674

           Restructuring
            expenses (f)                        -               -                          -                     -                                  -                  -                                   -                             (5,332)                                     -                    5,332                        -                         5,332                            -                        5,332                           -                                5,332

       Intangible assets
      impairment charges
                     (g)                        -               -                          -                     -                                  -                  -                                   -                                   -                              (88,084)                   88,084                        -                        88,084                            -                       88,084                           -                               88,084

       Non-cash interest
                     (h)                        -               -                          -                     -                                  -                  -                                   -                                   -                                     -                        -                  15,961                         15,961                            -                       15,961                           -                               15,961

               Other (i)                        -               -                          -                     -                                  -              (715)                                   -                                   -                                     -                      715                        -                           715                            -                          715                           -                                  715

     Tax adjustments (j)                        -               -                          -                     -                                  -                  -                                   -                                   -                                     -                        -                       -                             -                      49,195                      (49,195)                          -                             (49,195)


       Non-GAAP Adjusted                 $498,223         $222,514         $                 -              $275,709                55%          $30,650             $55,148                $                   -                     $             -                     $               -                 $189,911                $(49,952)                      $139,959                      $47,192                       $92,767                         $34                               $92,733               $2.46
                                         ========         ========         ===================              ========                ===           =======             =======                =====================                     ===============                     =================                 ========                 ========                       ========                      =======                       =======                         ===                               =======               =====

                    Relates to an
                      adjustment to a
                      settlement
                      agreement with
                      a former
             (a)      customer

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

                    Relates to
                      amortization of
                      a fair value
                      step-up in
             (c)      inventory r

                     elated to the
                     acquisition of
                     KUPI

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

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

                    To exclude
                      expenses
                      associated with
                      the 2016
                      Restructuring
             (f)      Plan

                    To exclude
                      impairment
                      charges related
                      to certain
                      intangible
                      assets acquired
                      as part of the
                      KUPI
             (g)      acquisition

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

                    Primarily
                      relates to
                      separation
                      expenses
                      associated with
                      a former
             (i)      employee

                    The tax effect
                      of the pre-tax
                      adjustments
                      included at
                      applicable tax
             (j)      rates

                    The weighted
                      average share
                      numbers for the
                      nine months
                      ended March 31,
                      2017 are
                      36,785,829 and
                      37,669,173 for
                      the GAAP and
                      non-GAAP
                      earnings (loss)
                      per share
                      calculations,
             (k)      respectively

 

 

                                                                 LANNETT COMPANY, INC.

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

                                                                    ($ in millions)


                                            Fiscal Year 2018 Guidance
                                            -------------------------

                                                                                                                            Non-GAAP

                                                GAAP                                           Adjustments                  Adjusted
                                                ----                                           -----------                  --------


    Net sales                                           $685 - $695                                               -                   $685 - $695

    Gross margin percentage                             approx. 42%                                             6%   (a)             approx. 48%

    R&D expense                                           $30 - $32                                               -                     $30 - $32

    SG&A expense                                          $79 - $81                                            ($8)   (b)               $71 - $73

    Integration and Restructuring expense                   $4 - $5                             ($4 - $5)             (c)                       -

    Loss on Sale of Intangible Asset                            $16                                            ($16)   (d)                       -
                                                                ---                                             ----

    Interest expense and other                            $79 - $80                                           ($17)   (e)               $62 - $63

    Effective tax rate                                  approx. 35%                                           (7%)   (f)             approx. 28%

    Capital expenditures                     approx. $50                                                          -        approx. $50

 

    (a)              The adjustment
                     primarily
                     reflects
                     amortization of
                     purchased
                     intangible
                     assets and
                     depreciation of
                     a fair value
                     step-up in
                     property, plant
                     and equipment
                     related to the
                     acquisition of
                     Kremers Urban
                     Pharmaceuticals,
                     Inc. ("KUPI")

    (b)              The adjustment
                     reflects
                     severance
                     benefits to the
                     former chief
                     executive
                     officer, a
                     reversal of
                     indemnified
                     unrecognized
                     tax benefits as
                     well as
                     amortization of
                     purchased
                     intangible
                     assets related
                     to the
                     acquisition of
                     KUPI

    (c)              The adjustment
                     primarily
                     reflects
                     expenses
                     related to the
                     2016
                     Restructuring
                     Plan

    (d)              The adjustment
                     reflects a loss
                     on sale of an
                     intangible
                     asset acquired
                     as part of the
                     acquisition of
                     KUPI

    (e)              The adjustment
                     primarily
                     reflects non-
                     cash interest
                     expense
                     associated with
                     debt issuance
                     costs as well
                     as a litigation
                     settlement gain

    (f)              The adjustment
                     primarily
                     reflects the
                     impact of the
                     revaluation of
                     net long term
                     deferred tax
                     assets related
                     to the Tax Cut
                     and Jobs Act
                     legislation
                     ("2017 Tax
                     Reform")

 

                              LANNETT COMPANY, INC.

                         NET SALES BY MEDICAL INDICATION


                                                   Three months ended      Nine months ended

     (in thousands)                                     March 31,              March 31,
                                                        ---------              ---------

     Medical Indication                                               2018                    2017     2018       2017
     ------------------                                               ----                    ----     ----       ----

     Antibiotic                                                     $3,801                  $4,474  $10,701    $13,047

     Anti-Psychosis                                                  9,336                  14,433   47,127     47,119

     Cardiovascular                                                 18,514                  14,815   39,955     39,484

     Central Nervous System                                          8,395                  11,124   24,137     32,028

     Gallstone                                                       3,828                  11,157   15,674     37,465

     Gastrointestinal                                               16,562                  19,441   46,171     56,470

     Glaucoma                                                          875                   4,868    5,706     15,962

     Migraine                                                       12,888                   7,043   43,387     22,066

     Muscle Relaxant                                                 3,299                   3,673   10,309     10,208

     Pain Management                                                 6,594                   6,085   18,483     20,132

     Respiratory                                                     2,324                   4,256    6,200      9,426

     Thyroid Deficiency                                             69,975                  44,999  185,983    130,267

     Urinary                                                            33                   2,619    5,870     12,413

     Other                                                          12,376                  14,555   38,178     36,870

     Contract Manufacturing revenue                                  5,586                   2,178   15,771     15,266
                                                                     -----                   -----   ------     ------

        Net Sales                                                  174,386                 165,720  513,652    498,223
                                                                   -------                 -------  -------    -------

     Settlement agreement                                                -                (4,000)       -   (4,000)

        Total Net Sales                                           $174,386                $161,720 $513,652   $494,223
                                                                  ========                ======== ========   ========

 

 

 

 

 

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SOURCE Lannett Company, Inc.

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