Lannett Announces Fiscal 2018 Fourth-Quarter And Full-Year Financial Results; Provides Guidance For Fiscal 2019

PHILADELPHIA, /PRNewswire/ -- Lannett Company, Inc. (NYSE: LCI) today reported financial results for its fiscal 2018 fourth quarter and full year ended June 30, 2018.

“For both the fiscal 2018 fourth quarter and full year, our revenue and adjusted net income solidly improved over last year, and our overall financial performance was within our full-year guidance,” said Tim Crew, chief executive officer of Lannett. “Operationally, in the second half of fiscal 2018, we completed several transactions acquiring more than 25 market-ready or near-market-ready product lines that have added to our pipeline and in-licensing several more. In addition, we implemented a restructuring plan at our Cody Laboratories subsidiary and began the consolidation of our product distribution function. Importantly, we improved the pace of new product launches and these products were well received by our customers.

“As we announced last week, the company was informed that its contract with Jerome Stevens Pharmaceuticals (JSP) will not be renewed upon its expiration on March 23, 2019. The company has been assured of a continuous supply of the products covered under the agreement through March of next year, and we expect these products to significantly contribute to our financial performance in fiscal 2019.

“Our overarching goal is to fortify our business as we build for the future, while also preparing for the impact of the eventual expiration of the JSP contract. The eight products we have launched since January 1^st of this year are expected to contribute more than $50 million to revenues in the current fiscal year. Given our large pool of approved but not yet launched products and filed drug product applications awaiting approval at the FDA, our goal is to continue this recent rate of launching products. Moreover, we will implement a number of new cost reduction initiatives, which we estimate will generate substantial cost savings in fiscal 2019.

“To summarize, our path forward is clear and includes launching products already under our control, increasing our product offering through strategic relationships and product development, and lowering our costs. We believe we are making progress on all of these fronts.”

For the fiscal 2018 fourth quarter, on a GAAP basis, net sales were $170.9 million compared with $139.1 million for the fourth quarter of fiscal 2017. Gross profit was $66.5 million, or 39% of total net sales, compared with $58.9 million, or 42% of total net sales. Research and development (R&D) expenses were $8.3 million compared with $11.4 million for the fiscal 2017 fourth quarter. Selling, general and administrative (SG&A) expenses increased to $20.6 million from $16.5 million. Restructuring expenses were $4.1 million compared with $1.8 million. During the fiscal 2018 fourth quarter, the company recorded $25.0 million of asset impairment charges, primarily related to restructuring of the company’s Cody Laboratories subsidiary. Operating income was $8.6 million compared with $28.8 million. Interest expense was $21.2 million compared with $20.7 million for the fourth quarter of fiscal 2017. The company recorded an income tax benefit of $0.9 million versus income tax expense of $3.1 million in the prior-year period. Net loss attributable to Lannett was $11.4 million, or $0.30 per share, versus net income attributable to Lannett of $5.7 million, or $0.15 per diluted share, for the fiscal 2017 fourth quarter.

For the fiscal 2018 fourth quarter reported on a Non-GAAP basis, adjusted net sales were $170.9 million compared with $139.1 million for the fourth quarter of fiscal 2017. Adjusted gross profit was $76.0 million, or 44% of adjusted net sales, compared with $68.0 million, or 49% of adjusted net sales, for the prior-year fourth quarter. Adjusted R&D expenses were $8.3 million compared with $11.4 million. Adjusted SG&A expenses were $17.4 million compared with $16.2 million. Adjusted operating income was $50.3 million compared with $40.4 million for the prior-year fourth quarter. Adjusted interest expense was $16.6 million compared with $16.0 million for the fourth quarter of fiscal 2017. Adjusted income tax expense was $9.6 million compared with $10.0 million in the prior-year period. Adjusted net income attributable to Lannett increased to $24.5 million, or $0.64 per diluted share, from $15.1 million, or $0.40 per diluted share, for the fiscal 2017 fourth quarter.

For the fiscal 2018 full year, on a GAAP basis, net sales were $684.6 million compared with $637.3 million for fiscal 2017. During fiscal 2017, 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 of $633.3 million. Gross profit was $288.7 million, or 42% of total net sales, compared with $301.2 million, or 48% of total net sales, for fiscal 2017. R&D expenses were $29.2 million compared with $42.1 million. SG&A expenses were $82.2 million compared with $73.5 million. Restructuring expenses were $7.1 million compared with $7.2 million. In the current year, the company recorded a loss on sale of intangible asset of $15.5 million and asset impairment charges of $25.0 million. In the prior year, the company recorded acquisition and integration-related expenses of $4.0 million and asset impairment charges of $88.1 million. Operating income was $129.7 million compared with $86.4 million. Interest expense was $85.6 million compared with $89.4 million for fiscal 2017. The company recorded an income tax expense of $22.4 million compared with $1.1 million in the prior year. Net income attributable to Lannett was $28.7 million, or $0.75 per diluted share, versus net loss attributable to Lannett of $0.6 million, or $0.02 per share, for fiscal 2017.

For the fiscal 2018 full year reported on a Non-GAAP basis, adjusted net sales were $684.6 million compared with $637.3 million for fiscal 2017. Adjusted gross profit was $326.2 million, or 48% of adjusted net sales, compared with $343.7 million, or 54% of adjusted net sales, for the prior year. Adjusted R&D expenses were $29.2 million compared with $42.1 million. Adjusted SG&A expenses were $71.0 million compared with $71.3 million. Adjusted operating income was $226.0 million compared with $230.3 million for the prior year. Adjusted interest expense declined to $65.4 million from $68.7 million for fiscal 2017. Adjusted income tax expense was $45.8 million compared with $57.2 million in the prior-year period. Adjusted net income attributable to Lannett increased to $118.2 million, or $3.10 per diluted share, compared with $107.9 million, or $2.86 per diluted share, for fiscal 2017.

Guidance for Fiscal 2019
Based on its current outlook, the company provided financial guidance for the 2019 fiscal year, as follows:

 GAAP Adjusted ---- -------- Net sales $580 million to $610 million $580 million to $610 million ------ ---------------------------- ---------------------------- Gross margin % 38% to 39% 44% to 45% ------ --------- --------- R&D expense $28 million to $32 million $28 million to $32 million -------- -------------------------- -------------------------- SG&A expense $63 million to $66 million $63 million to $66 million -------- -------------------------- -------------------------- Integration and restructuring related expense $7 million to $8 million $ -- ------------- ------------------------ ---- Interest expense $81 million to $83 million $63 million to $65 million -------- -------------------------- -------------------------- Effective tax rate 22% to 23% 22% to 23% --------- --------- --------- Capital expenditures $30 million to $35 million $30 million to $35 million ------------ -------------------------- -------------------------- 

As previously announced, the company will perform an analysis to determine the potential for impairment of its goodwill and certain long-lived assets as a result of the nonrenewal of the JSP agreement in the first quarter of fiscal 2019. The company believes that the impairment assessment will likely result in a material impairment of its goodwill, which is not included in the company’s GAAP guidance above because at this time the company cannot estimate the amount or a reasonable range of amounts of such impairment. Any impairment would result in a noncash charge to GAAP earnings in the first quarter of fiscal 2019; any such charge will not affect the 2019 Non-GAAP guidance amounts.

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 fourth quarter and full year ended June 30, 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 47462189. 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, the impact of the non-renewal of the distribution agreement with Jerome Stevens Pharmaceuticals, 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 2019, 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.

FINANCIAL SCHEDULES FOLLOW

 LANNETT COMPANY, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) ASSETS ------ Current assets: June 30, 2018 June 30, 2017 ------------- ------------- Cash and cash equivalents $98,586 $117,737 Investment securities - 27,091 Accounts receivable, net 252,651 204,066 Inventories 141,635 122,604 Prepaid income taxes 15,159 16,703 Assets held for sale 13,976 - Other current assets 4,863 6,592 ----- ----- Total current assets 526,870 494,793 Property, plant and equipment, net 233,247 243,148 Intangible assets, net 424,425 453,861 Goodwill 339,566 339,566 Deferred tax assets 22,063 52,753 Other assets 29,133 19,191 TOTAL ASSETS $1,575,304 $1,603,312 ========== ========== LIABILITIES ----------- Current liabilities: Accounts payable $56,767 $44,720 Accrued expenses 7,425 12,499 Accrued payroll and payroll- related expenses 7,819 4,833 Rebates payable 49,400 44,593 Royalties payable 5,955 3,015 Restructuring liability 6,706 5,431 Settlement liability - 17,000 Short-term borrowings and current portion of long-term debt 66,845 60,117 ------ ------ Total current liabilities 200,917 192,208 Long-term debt, net 772,425 843,530 Other liabilities 3,047 6,452 TOTAL LIABILITIES 976,389 1,042,190 ------- --------- Commitments and contingencies STOCKHOLDERS’ EQUITY -------------------- Common stock ($0.001 par value, 100,000,000 shares authorized; 38,256,839 and 37,528,450 shares issued; 37,380,517 and 36,919,296 shares outstanding at June 30, 2018 and June 30, 2017, respectively) 38 37 Additional paid-in capital 306,817 292,780 Retained earnings 306,464 277,774 Accumulated other comprehensive loss (515) (222) Treasury stock(876,322 and 609,154 shares at June 30, 2018 and June 30, 2017, respectively) (13,889) (9,247) ------- ------ Total Lannett Company, Inc. stockholders’ equity 598,915 561,122 Noncontrolling interest - - Total stockholders’ equity 598,915 561,122 ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $1,575,304 $1,603,312 ========== ========== 

 LANNETT COMPANY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data) (UNAUDITED) Three months ended Twelve months ended June 30, June 30, -------- -------- 2018 2017 2018 2017 ---- ---- ---- ---- Net sales $170,911 $139,118 $684,563 $637,341 Settlement agreement - - - (4,000) Total net sales $170,911 $139,118 $684,563 $633,341 -------- -------- -------- -------- Cost of sales 96,226 72,503 363,729 300,030 Amortization of intangibles 8,157 7,737 32,128 32,098 Gross profit 66,528 58,878 288,706 301,213 ------ ------ ------- ------- Operating expenses: Research and development expenses 8,335 11,423 29,196 42,073 Selling, general, and administrative expenses 20,553 16,519 82,196 73,477 Acquisition and integration-related expenses - 291 83 3,965 Restructuring expenses 4,078 1,836 7,061 7,168 Loss on sale of intangible asset - - 15,514 - Asset impairment charges 24,960 - 24,960 88,084 ------ --- ------ ------ Total operating expenses 57,926 30,069 159,010 214,767 ------ ------ ------- ------- Operating income 8,602 28,809 129,696 86,446 ----- ------ ------- ------ Other income (loss): Investment income 545 683 4,753 3,768 Interest expense (21,194) (20,720) (85,634) (89,420) Other (195) 54 2,278 (244) ---- --- ----- ---- Total other loss (20,844) (19,983) (78,603) (85,896) ------- ------- ------- ------- Income (loss) before income tax (12,242) 8,826 51,093 550 Income tax expense (benefit) (883) 3,100 22,403 1,097 ---- ----- ------ ----- Net income (loss) (11,359) 5,726 28,690 (547) Less: Net income attributable to noncontrolling interest - - - 34 --- --- --- --- Net income (loss) attributable to Lannett Company, Inc. $(11,359) $5,726 $28,690 $(581) ======== ====== ======= ===== Earnings (loss) per common share attributable to Lannett Company, Inc.: Basic $(0.30) $0.16 $0.77 $(0.02) Diluted $(0.30) $0.15 $0.75 $(0.02) Weighted average common shares outstanding: Basic 37,315,567 36,892,902 37,127,306 36,812,524 Diluted 37,315,567 37,779,354 38,162,514 36,812,524 

 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 June 30, 2018 -------------------------------- Net sales Cost Amortization Gross Gross R&D SG&A Acquisition and Restructuring Asset impairment Operating Other Income (loss) Income Net income Net income Net income (loss) Diluted of sales of intangibles Profit Margin % expense expense integration- expenses charges income income before income tax expense (loss) attributable to attributable to earnings related (loss) tax (benefit) noncontrolling Lannett Company, Inc. (loss) per expenses interest share (h) --- --- --- --------- GAAP Reported $170,911 $96,226 $8,157 $66,528 39% $8,335 $20,553 $ - $4,078 $24,960 $8,602 $(20,844) $(12,242) $(883) $(11,359) $ - $(11,359) $(0.30) Adjustments: ------------ Depreciation of Fixed Assets step- up (a) - (1,335) - 1,335 - - - - - 1,335 - 1,335 - 1,335 - 1,335 Amortization of intangibles (b) - - (8,157) 8,157 - - - - - 8,157 - 8,157 - 8,157 - 8,157 Restructuring expenses (c) - - - - - - - (4,078) - 4,078 - 4,078 - 4,078 - 4,078 Asset impairment charges (d) - - - - - - - - (24,960) 24,960 24,960 - 24,960 - 24,960 Non-cash interest (e) - - - - - - - - - - 4,557 4,557 - 4,557 - 4,557 Other (f) - - - - - (3,188) - - - 3,188 - 3,188 - 3,188 - 3,188 Tax adjustments (g) - - - - - - - - - - - - 10,443 (10,443) - (10,443) Non-GAAP Adjusted $170,911 $94,891 $ - $76,020 44% $8,335 $17,365 $ - $ - $ - $50,320 $(16,287) $34,033 $9,560 $24,473 $ - $24,473 $0.64 ======== ======= ==================== ======= === ====== ======= ==================== ================ ======================= ======= ======== ======= ====== ======= ================= ======= ===== 

 (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 Cody Restructuring Plan and, to a lesser extent, the 2016 Restructuring Plan (d) To exclude asset impairment charges primarily related to the Cody Restructuring Plan, and to a lesser extent, the consolidation of manufacturing activities with respect to plant-related assets located at the Company’s Townsend Road facility (e) To exclude non-cash interest expense associated with debt issuance costs (f) To primarily exclude separation benefits associated with the former Senior Vice President of Sales as well as other employees (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 June 30, 2018 is 37,315,567 and 38,285,208 for the GAAP and non-GAAP earnings (loss) per share calculations, respectively 

 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 June 30, 2017 -------------------------------- Total net Cost of Amortization Gross Gross R&D SG&A Acquisition and Restructuring Operating Other Income Income tax Net Net income Net income Diluted sales sales of intangibles Profit Margin % expense expense integration- expenses income income before expense income attributable to earnings related (loss) income tax noncontrolling attributable to per share expenses interest Lannett (g) Company, Inc. --- --- GAAP Reported $139,118 $72,503 $7,737 $58,878 42% $11,423 $16,519 $291 $1,836 $28,809 $(19,983) $8,826 $3,100 $5,726 $ - $5,726 $0.15 Adjustments: ------------ Depreciation of Fixed Assets step- up (a) - (1,335) - 1,335 - - - - 1,335 - 1,335 - 1,335 - 1,335 Amortization of intangibles (b) - - (7,737) 7,737 - (365) - - 8,102 - 8,102 - 8,102 - 8,102 Acquisition and integration- related expenses (c) - - - - - - (291) - 291 - 291 - 291 - 291 Restructuring expenses (d) - - - - - - - (1,836) 1,836 - 1,836 - 1,836 - 1,836 Non-cash interest (e) - - - - - - - - - 4,743 4,743 - 4,743 - 4,743 Tax adjustments (f) - - - - - - - - - - - 6,899 (6,899) - (6,899) Non-GAAP Adjusted $139,118 $71,168 $ - $67,950 49% $11,423 $16,154 $ - $ - $40,373 $(15,240) $25,133 $9,999 $15,134 $ - $15,134 $0.40 ======== ======= =================== ======= === ======= ======= =================== =============== ======= ======== ======= ====== ======= ================ ======= ===== 

 (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 non-cash interest expense primarily associated with debt issuance costs (f) The tax effect of the pre-tax adjustments included at applicable tax rates (g) The weighted average share number for the three months ended June 30, 2017 is 37,779,354 for both the GAAP and the non- GAAP earnings per share calculations 

 LANNETT COMPANY, INC. RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION (In thousands, except percentages, share and per share data) Twelve months ended June 30, 2018 --------------------------------- Net sales Cost of Amortization Gross Gross R&D SG&A Acquisition and Restructuring Loss on sale of Asset impairment Operating Other Income Income tax Net income Net income Net income Diluted sales of intangibles Profit Margin % expense expense integration- expenses intangible asset charges income income before expense attributable to attributable to earnings related (loss) income tax noncontrolling Lannett per share expenses interest Company, Inc. (k) --- --- -------- --- --- GAAP Reported $684,563 $363,729 $32,128 $288,706 42% $29,196 $82,196 $83 $7,061 $15,514 $24,960 $129,696 $(78,603) $51,093 $22,403 $28,690 $ - $28,690 $0.75 Adjustments: ------------ Depreciation of Fixed Assets step- up (a) - (5,340) - 5,340 - - - - - - 5,340 - 5,340 - 5,340 - 5,340 Amortization of intangibles (b) - - (32,128) 32,128 - (582) - - - - 32,710 - 32,710 - 32,710 - 32,710 Acquisition and integration- related expenses (c) - - - - - - (83) - - - 83 - 83 - 83 - 83 Restructuring expenses (d) - - - - - - - (7,061) - - 7,061 - 7,061 - 7,061 - 7,061 Loss on sale of intangible asset (e) - - - - - - - - (15,514) - 15,514 - 15,514 - 15,514 - 15,514 Asset impairment charges (f) - - - - - - - - - (24,960) 24,960 - 24,960 - 24,960 - 24,960 Non-cash interest (g) - - - - - - - - - - - 20,213 20,213 - 20,213 - 20,213 Litigation settlement gain (h) - - - - - - - - - - - (3,500) (3,500) - (3,500) - (3,500) Other (i) - - - - - (10,593) - - - - 10,593 - 10,593 - 10,593 - 10,593 Tax adjustments (j) - - - - - - - - - - - - - 23,421 (23,421) - (23,421) Non-GAAP Adjusted $684,563 $358,389 $ - $326,174 48% $29,196 $71,021 $ - $ - $ - $ - $225,957 $(61,890) $164,067 $45,824 $118,243 $ - $118,243 $3.10 ======== ======== =================== ======== === ======= ======= =================== =============== ======================= ===================== ======== ======== ======== ======= ======== ================ ======== ===== 

 (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 and Cody Restructuring Plan (e) To exclude a loss realized on a sale of an intangible asset (f) To exclude asset impairment charges primarily related to the Cody Restructuring Plan, and to a lesser extent, the consolidation of manufacturing activities with respect to plant-related assets located at the Company’s Townsend Road facility (g) To exclude non- cash interest expense primarily associated with debt issuance costs (h) To exclude a settlement gain associated with patent litigation (i) To primarily exclude separation benefits associated with the former Chief Executive Officer and former Senior Vice President of Sales as well as a reversal of indemnified unrecognized tax benefits due to expirations in the statute of limitations, related to the KUPI acquisition (j) 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 (k) The weighted average share number for the twelve months ended June 30, 2018 is 38,162,514 for both the GAAP and the non- GAAP earnings per share calculations 

 LANNETT COMPANY, INC. RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION (In thousands, except percentages, share and per share data) Twelve months ended June 30, 2017 --------------------------------- Total net Cost of Amortization Gross Profit Gross R&D SG&A Acquisition and Restructuring Asset Operating Other Income Income Net income Net income Net income (loss) Diluted sales sales of intangibles Margin % expense expense integration- expenses impairment income income before tax (loss) attributable to attributable to earnings related expenses charges (loss) income tax expense noncontrolling Lannett (loss) interest Company, Inc. per share (k) --- -------- ------------ -------------- GAAP Reported $633,341 $300,030 $32,098 $301,213 48% $42,073 $73,477 $3,965 $7,168 $88,084 $86,446 $(85,896) $550 $1,097 $(547) $34 $(581) $(0.02) Adjustments: ------------ Settlement agreement (a) 4,000 - - 4,000 - - - - - 4,000 - 4,000 - 4,000 - 4,000 Depreciation of Fixed Assets step- up (b) - (4,410) - 4,410 - - - - - 4,410 - 4,410 - 4,410 - 4,410 Amortization of Inventory step-up (c) - (1,938) - 1,938 - - - - - 1,938 - 1,938 - 1,938 - 1,938 Amortization of intangibles (d) - - (32,098) 32,098 - (1,460) - - - 33,558 - 33,558 - 33,558 - 33,558 Acquisition and integration- related expenses (e) - - - - - - (3,965) - - 3,965 - 3,965 - 3,965 - 3,965 Restructuring expenses (f) - - - - - - - (7,168) - 7,168 - 7,168 - 7,168 - 7,168 Asset impairment charges (g) - - - - - - - - (88,084) 88,084 - 88,084 - 88,084 - 88,084 Non-cash interest (h) - - - - - - - - - - 20,704 20,704 - 20,704 - 20,704 Other (i) - - - - - (715) - - - 715 - 715 - 715 - 715 Tax adjustments (j) - - - - - - - - - - - - 56,094 (56,094) - (56,094) Non-GAAP Adjusted $637,341 $293,682 $ - $343,659 54% $42,073 $71,302 $ - $ - $ - $230,284 $(65,192) $165,092 $57,191 $107,901 $34 $107,867 $2.86 ======== ======== =================== ======== === ======= ======= ===================== =============== ============== ======== ======== ======== ======= ======== === ======== ===== 

 (a) Relates to an adjustment to the Fiscal 2016 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 a fair value step-up in inventory related to the acquisition of KUPI (d) Relates to amortization of purchased intangible assets primarily related to the acquisitions of KUPI and Silarx Pharmaceuticals, Inc. (e) Relates to acquisition and integration- related expenses primarily related to the acquisition of KUPI (f) To exclude expenses associated with the 2016 Restructuring Plan (g) To exclude impairment charges related to certain intangible assets acquired as part of the KUPI acquisition (h) To exclude non-cash interest expense primarily associated with debt issuance costs (i) Primarily relates to separation expenses associated with a former employee (j) The tax effect of the pre-tax adjustments included at applicable tax rates (k) The weighted average share numbers for the twelve months ended June 30, 2017 are 36,812,524 and 37,695,061 for the GAAP and non-GAAP earnings (loss) per share calculations, respectively 

 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 $580 - $610 - $580 - $610 Gross margin percentage 38.0% - 39.0% 6% (a) 44.0% to 45.0% R&D expense $28 - $32 - $28 - $32 SG&A expense $63 - $66 - $63 - $66 Integration and Restructuring-related expense $7 - $8 ($7 - $8) (b) - Interest expense $81 - $83 ($18) (c) $63 - $65 Effective tax rate 22% to 23% - 22% to 23% Capital expenditures $30 - $35 - $30 - $35 

 (a) The adjustment primarily reflects amortization of purchased intangible assets related to the acquisition of Kremers Urban Pharmaceuticals, Inc. (“KUPI”) (b) The adjustment reflects expenses related to the Cody Restructuring Plan and 2016 Restructuring Plan as well as depreciation of previously capitalized costs related to the integration of KUPI into the combined Company’s ERP system (c) The adjustment primarily reflects non- cash interest expense associated with debt issuance costs Note: As previously disclosed in the Company’s Form 8- K filed on August 23, 2018, the Company will perform an analysis to determine the potential for impairment of its goodwill and certain long-lived assets as a result of the nonrenewal of the JSP agreement in the first quarter of Fiscal 2019. The Company believes that the impairment assessment will likely result in a material impairment of its goodwill, which is not included in the Company’s GAAP guidance above because at this time the Company cannot estimate the amount or a reasonable range of amounts of such impairment. 

 LANNETT COMPANY, INC. NET SALES BY MEDICAL INDICATION Three months ended Twelve months ended (in thousands) June 30, June 30, -------- -------- Medical Indication 2018 2017 2018 2017 ------------------ ---- ---- ---- ---- Antibiotic $3,807 $3,701 $14,509 $16,748 Anti-Psychosis 12,430 11,506 59,557 58,625 Cardiovascular 24,056 11,143 64,011 50,628 Central Nervous System 7,652 7,423 31,789 39,451 Gallstone 4,605 11,135 20,280 48,600 Gastrointestinal 14,123 15,418 60,294 71,887 Glaucoma 833 2,800 6,540 18,763 Migraine 10,627 6,948 54,015 29,014 Muscle Relaxant 3,187 3,427 13,496 13,636 Pain Management 4,553 6,003 23,036 26,135 Respiratory 1,690 1,090 7,891 10,516 Thyroid Deficiency 59,945 43,738 245,929 174,005 Urinary 2,790 2,281 8,661 14,695 Other 16,549 10,328 54,720 47,196 Contract manufacturing revenue 4,064 2,177 19,835 17,442 ----- ----- ------ ------ Net Sales 170,911 139,118 684,563 637,341 ------- ------- ------- ------- Settlement agreement - - - (4,000) Total Net Sales $170,911 $139,118 $684,563 $633,341 ======== ======== ======== ======== 

 Contact: Robert Jaffe Robert Jaffe Co., LLC (424) 288-4098 

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SOURCE Lannett Company, Inc.