Akorn Reports 2014 First Quarter Results

LAKE FOREST, Ill.–(BUSINESS WIRE)–

Akorn, Inc. (AKRX), a niche generic pharmaceutical company,
today reported financial results for the first quarter ended March 31,
2014.

First Quarter 2014 Key Highlights and Accomplishments

  • Achieved record first quarter consolidated revenue of $90.6 million,
    an increase of 23% over last year’s first quarter.
  • Generated record operating cash flow of $23.4 million.
  • Completed the acquisition of Hi-Tech Pharmacal Co., Inc. (Hi-Tech) on
    April 17. The acquisition adds scale, breadth of products and dosage
    forms, and further diversification of the Company’s product portfolio.
  • Acquired the rights to two branded ophthalmic products, Betimol® and
    Zioptan®, in January and April respectively.

Raj Rai, Chief Executive Officer commented, “We are excited with the
great start that we’ve seen for 2014. Our team continues to execute on
multiple growth initiatives. In addition to completing the
transformative acquisition of Hi-Tech a few weeks ago, we also acquired
two more branded ophthalmic products, bringing to five the branded
ophthalmic products acquired over the last few months. The acquisition
of Hi-Tech further diversifies our niche branded and generic product
base and brings with it capabilities that will help us continue to grow
and diversify our pipeline and revenue base into the future.”

Financial Results for the Quarter Ended March 31, 2014

Consolidated revenue for the first quarter of 2014 was $90.6 million, an
increase of 23% over the first quarter 2013 consolidated revenue of
$73.9 million. The increase in consolidated revenue was largely driven
by the newly acquired branded ophthalmic products – Azasite®, Cosopt®,
CosoptPF®, and Betimol®. Consolidated gross margin for the first quarter
of 2014 was 54.8% compared to 53.0% in the comparable prior year period.
The increase in the Company’s consolidated gross margin was also due to
the newly acquired branded ophthalmic products which generate gross
margins higher than the Company’s historical average.

Net income for the first quarter of 2014 was $9.8 million, or $0.08 per
diluted share, compared to net income of $10.8 million, or $0.10 per
diluted share, in the prior year quarter. First quarter 2014 net income
included $6.4 million of acquisition-related expenses, the largest
component of which was fees incurred pre-close on the Hi-Tech term loan
commitments. Non-GAAP adjusted net income for the first quarter of 2014
was $18.4 million, or $0.16 per diluted share, compared to non-GAAP
adjusted net income of $14.4 million, or $0.13 per diluted share, in the
prior year quarter.

2014 Updated Outlook

The Company’s previous guidance assumed that Akorn would acquire Hi-Tech
effective April 1, 2014. However, the acquisition was not completed
until April 17, 2014. The updated outlook adjusts for the later Hi-Tech
acquisition date as well as the addition of the branded ophthalmic
product, Zioptan®, which the Company acquired in April. While Akorn and
Hi-Tech currently have over 73 ANDAs on file with the FDA, this guidance
does not include the impact of any future new product approvals given
the timing uncertainty of the regulatory approval process.

 

 

 

 

 

 

 

Total revenues

$540 – 560

million

 

Total gross margin percentage

52 – 54

%

 

SGA expenses (GAAP)

$101 – 106

million

 

SGA expenses (non-GAAP)

$80 – 83

million

 

RD expenses

$39 – 42

million

 

Intangible asset amortization expense

$33

million

 

Income tax rate

~ 37

%

 

GAAP net income

$51 – 53

million

 

GAAP net income per diluted share

$0.43 – 0.45

 

Adjusted net income

$94 – 97

million

 

Adjusted net income per diluted share

$0.79 – 0.82

 

Capital expenditures

$45 – 55

million

 

Fully diluted share count

118

million

 

2014 Outlook Assumptions

  • Assumes no generic is launched for Nembutal.
  • Cost synergies that result from the Hi-Tech acquisition are expected
    to be realized throughout the year and will accelerate as the year
    progresses. The Company anticipates ending the year at a $20 million
    annual run-rate for synergies.
  • The Company anticipates that it will incur approximately $20-22
    million in one-time acquisition-related expenses to close the Hi-Tech
    transaction and realize synergies. These expenses are reflected as
    add-backs to adjusted net income per diluted share in the GAAP to
    non-GAAP reconciliation later in this release.
  • Fully diluted share count is based on most recent share price.

First quarter 2014 Conference Call

The Company will host a conference call at 10:00 a.m. Eastern Time on
Tuesday, May 6, 2014, to discuss first quarter 2014 results followed by
a QA session. The domestic call-in number is 800-768-6570 and the
international call-in number is 785-830-1942. The confirmation code for
all callers is 5699967. The URL for the webcast is http://www.videonewswire.com/event.asp?id=98908.
A live broadcast of the conference call will also be available online at www.akorn.com
under the Investor Relations tab and available for replay for 30 days.

About Akorn, Inc.

Akorn, Inc. is a niche generic pharmaceutical company engaged in the
development, manufacture and marketing of multisource and branded
pharmaceuticals. Akorn has manufacturing facilities located in Decatur,
Illinois; Somerset, New Jersey; Amityville, New York and Paonta Sahib,
India where the Company manufactures ophthalmic, injectable and niche,
non-sterile pharmaceuticals. Additional information is available on the
Company’s website at www.akorn.com.

Forward Looking Statements

This press release includes statements that may constitute
“forward-looking statements”, including projections of certain measures
of Akorn’s results of operations, projections of sales, projections of
certain charges and expenses, projections related to the number and
potential market size of ANDAs, projections with respect to timing and
impact of pending acquisitions, and other statements regarding Akorn’s
goals, regulatory approvals and strategy. Akorn cautions that these
forward-looking statements are subject to risks and uncertainties that
may cause actual results to differ materially from those indicated in
the forward-looking statements. These statements are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. Because such statements inherently involve risks and
uncertainties, actual future results may differ materially from those
expressed or implied by such forward-looking statements. You can
identify these statements by the fact that they do not relate strictly
to historical or current facts. They use words such as “anticipate,”
“estimate,” “expect,” “project,” “intend,” “plan,” “believe,” and other
words and terms of similar meaning in connection with a discussion of
future operating or financial performance. Factors that could cause or
contribute to such differences include, but are not limited to:
statements relating to future steps we may take, prospective products,
prospective acquisitions, future performance or results of current and
anticipated products and acquired assets, sales efforts, expenses, the
outcome of contingencies such as legal proceedings, and financial
results. These cautionary statements should be considered in connection
with any subsequent written or oral forward-looking statements that may
be made by the Company or by persons acting on its behalf and in
conjunction with its periodic SEC filings. You are advised, however, to
consult any further disclosures we make on related subjects in our
reports filed with the SEC. In particular, you should read the
discussion in the section entitled “Cautionary Statement Regarding
Forward-Looking Statements” in our most recent Annual Report on Form
10-K, as it may be updated in subsequent reports filed with the SEC.
That discussion covers certain risks, uncertainties and possibly
inaccurate assumptions that could cause our actual results to differ
materially from expected and historical results. Other factors besides
those listed there could also adversely affect our results.

Non-GAAP Financial Measures

In addition to reporting financial information required in accordance
with U.S. generally accepted accounting principles (GAAP), Akorn is also
reporting Adjusted EBITDA, Adjusted net income and Adjusted net income
per diluted share, which are non-GAAP financial measures. Since Adjusted
EBITDA, Adjusted net income and Adjusted net income per diluted share
are non-GAAP financial measures, they should not be used in isolation or
as a substitute for consolidated statements of operations and cash flow
data prepared in accordance with GAAP. In addition, Akorn’s definitions
of Adjusted EBITDA, Adjusted net income and Adjusted net income per
diluted share may not be comparable to similarly titled non-GAAP
financial measures reported by other companies. For a full
reconciliation of Adjusted EBITDA and Adjusted net income to GAAP net
income, please see the attachments to this earnings release.

Adjusted EBITDA, as defined by the Company, is calculated as
follows:

Net income, plus:

  • Interest income (expense), net
  • Provision for income taxes
  • Depreciation and amortization
  • Non-cash expenses, such as share-based compensation expense, and
    amortization of financing costs
  • Other adjustments, such as legal settlements and various acquisition
    related expenses
  • Less settlement of product warranty liability
  • Less gains (or plus losses) on foreign currency transactions
  • Less gains related to bargain purchase transaction
  • Less elimination of unfavorable contract accruals

The Company believes that Adjusted EBITDA is a meaningful indicator, to
both Company management and investors, of the past and expected ongoing
operating performance of the Company. EBITDA is a commonly used and
widely accepted measure of financial performance. Adjusted EBITDA is
deemed by the Company to be a useful performance indicator because it
includes an add back of non-cash and non-recurring operating expenses
which have little to no bearing on cash flows and may be subject to
uncontrollable factors not reflective of the Company’s true operational
performance (i.e. fair value adjustments to the carrying value of stock
warrants liability).

Adjusted net income, as defined by the Company, is calculated as
follows:

Net income, plus:

  • The recorded provision for income taxes
  • Intangible asset amortization
  • Non-cash expenses, such as non-cash interest, share-based compensation
    expense, and amortization of financing costs
  • Other adjustments, such as legal settlements and various acquisition
    related expenses
  • Less an estimated cash tax provision, net of the benefit from
    utilizing NOL carry-forwards
  • Less settlement of product warranty liability
  • Less gains (or plus losses) on foreign currency transactions
  • Less gains related to bargain purchase transaction
  • Less elimination of unfavorable contract accruals

Adjusted net income per diluted share is equal to Adjusted net
income divided by the actual or anticipated diluted share count for the
applicable period.

The Company believes that Adjusted net income and Adjusted net income
per diluted shares are meaningful financial indicators, to both Company
management and investors, in that they exclude non-cash income and
expense items that have no impact on current or future cash flows, as
well as other income and expense items that are not expected to recur
and therefore are not reflective of continuing operating performance.
Adjusted net income and Adjusted net income per diluted share provide
the Company and investors with income figures that would be expected to
be more aligned with cash flows than GAAP net income, which includes a
number of non-cash income and expense items.

While the Company uses Adjusted EBITDA, Adjusted net income and Adjusted
net income per diluted share in managing and analyzing its business and
financial condition and believes these non-GAAP financial measures to be
useful to investors in evaluating the Company’s performance, each of
these financial measures has certain shortcomings. Adjusted EBITDA does
not take into account the impact of capital expenditures on either the
liquidity or the financial performance of the Company and likewise omits
share-based compensation expenses, which may vary over time and may
represent a material portion of overall compensation expense. Adjusted
net income does not take into account non-cash expenses that reflect the
amortization of past expenditures, or include stock-based compensation,
which is an important and material element of the Company’s compensation
package for its directors, officers and other key employees. Due to the
inherent limitations of each of these non-GAAP financial measures, the
Company’s management utilizes comparable GAAP financial measures to
evaluate the business in conjunction with Adjusted EBITDA, Adjusted net
income and Adjusted net income per diluted share and encourages
investors to do likewise.

 

AKORN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

IN THOUSANDS, EXCEPT PER SHARE DATA

(UNAUDITED)

 

 

 

THREE MONTHS ENDED

March 31,

 

2014

 

 

 

2013

 

 

Revenues

$

90,622

$

73,854

Cost of sales (excluding amortization of intangibles)

 

40,966

 

 

34,709

 

GROSS PROFIT

49,656

39,145

 

Selling, general and administrative expenses

16,587

12,335

Acquisition-related costs

454

519

Research and development expenses

4,418

5,969

Amortization of intangibles

 

4,757

 

 

1,733

 

TOTAL OPERATING EXPENSES

 

26,216

 

 

20,556

 

 

OPERATING INCOME

23,440

18,589

 

Amortization of financing costs

(6,154

)

(204

)

Non-cash interest expense

(1,249

)

(1,226

)

Equity in earnings of unconsolidated joint venture

76

Interest expense, net

(912

)

(978

)

Other non-operating income, net

 

567

 

 

 

INCOME BEFORE INCOME TAXES

15,692

16,257

Income tax provision

 

5,864

 

 

5,415

 

NET INCOME

$

9,828

 

$

10,842

 

 

NET INCOME PER SHARE:

BASIC

$

0.10

 

$

0.11

 

DILUTED

$

0.08

 

$

0.10

 

 

SHARES USED IN COMPUTING NET INCOME

PER SHARE:

BASIC

 

96,633

 

 

95,926

 

DILUTED

 

116,884

 

 

111,551

 

 

COMPREHENSIVE INCOME:

Net income

9,828

10,842

Foreign currency translation gain (loss)

 

1,705

 

 

358

 

Comprehensive income

 

11,533

 

 

11,200

 

AKORN, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

IN THOUSANDS, EXCEPT SHARE DATA

(UNAUDITED)

 

 

MARCH 31,

 

DECEMBER 31,

 

2014

 

 

2013

 

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

45,606

$

34,178

Trade accounts receivable, net

65,500

64,998

Inventories

62,013

55,982

Deferred taxes, current

8,038

7,945

Prepaid expenses and other current assets

 

4,559

 

 

5,753

 

TOTAL CURRENT ASSETS

185,716

168,856

PROPERTY, PLANT AND EQUIPMENT, NET

87,675

82,108

OTHER LONG-TERM ASSETS:

Goodwill

30,437

29,831

Product licensing rights, net

122,933

115,900

Other intangibles, net

14,283

14,605

Deferred financing costs

3,570

5,676

Deferred taxes, non-current

3,330

1,643

Long-term investments

10,012

10,006

Other

 

3,556

 

 

3,180

 

TOTAL OTHER LONG-TERM ASSETS

 

188,121

 

 

180,841

 

TOTAL ASSETS

$

461,512

 

$

431,805

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:

Trade accounts payable

$

30,632

$

22,999

Purchase consideration payable

18,898

14,728

Income taxes payable

6,559

1,459

Accrued royalties

6,480

6,004

Accrued compensation

4,453

7,692

Accrued expenses and other liabilities

 

9,039

 

 

8,363

 

TOTAL CURRENT LIABILITIES

76,061

61,245

LONG-TERM LIABILITIES:

Convertible notes due 2016

109,825

108,750

Lease incentive obligations and other long-term liabilities

 

1,577

 

 

1,630

 

TOTAL LONG-TERM LIABILITIES

 

111,402

 

 

110,380

 

TOTAL LIABILITIES

 

187,463

 

 

171,625

 

SHAREHOLDERS’ EQUITY:

Common stock, no par value — 150,000,000 shares authorized,
96,697,545 and 96,569,186 shares issued and outstanding March 31,
2014 and December 31, 2013, respectively

241,571

239,235

Warrants to acquire common stock

17,946

17,946

Retained earnings

25,194

15,366

Accumulated other comprehensive loss

 

(10,662

)

 

(12,367

)

TOTAL SHAREHOLDERS’ EQUITY

 

274,049

 

 

260,180

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$

461,512

 

$

431,805

 

AKORN, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

IN THOUSANDS (UNAUDITED)

 

 

THREE MONTHS ENDED

MARCH 31,

 

2014

 

 

 

2013

 

OPERATING ACTIVITIES

Consolidated net income

$

9,828

$

10,842

Adjustments to reconcile consolidated net income to net cash
provided by operating activities:

Depreciation and amortization

6,675

3,289

Amortization of financing costs

2,129

204

Amortization of favorable contract asset

18

(159

)

Non-cash stock compensation expense

1,282

1,703

Non-cash interest expense

1,249

1,226

Deferred tax assets, net

(1,689

)

798

Excess tax benefit from stock compensation

(33

)

(238

)

Equity in earnings of unconsolidated joint venture

(76

)

Changes in operating assets and liabilities:

Trade accounts receivable

(450

)

(7,958

)

Inventories

(5,987

)

(1,441

)

Prepaid expenses and other assets

1,026

1,002

Trade accounts payable

6,100

(1,861

)

Accrued expenses and other liabilities

 

3,228

 

 

(409

)

NET CASH PROVIDED BY OPERATING ACTIVITIES

23,376

6,922

 

INVESTING ACTIVITIES

Payments for acquisitions and equity investments

(7,500

)

(269

)

Purchases of property, plant and equipment

 

(5,198

)

 

(2,689

)

NET CASH USED IN INVESTING ACTIVITIES

(12,698

)

(2,958

)

 

FINANCING ACTIVITIES

Debt financing costs

(408

)

Excess tax benefit from stock compensation

33

238

Proceeds under stock option and stock purchase plans

 

1,022

 

 

868

 

NET CASH PROVIDED BY FINANCING ACTIVITIES

647

1,106

 

Effect of changes in exchange rates on cash cash equivalents

 

103

 

 

12

 

INCREASE IN CASH AND CASH EQUIVALENTS

11,428

5,082

Cash and cash equivalents at beginning of period

 

34,178

 

 

40,781

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$

45,606

 

$

45,863

 

AKORN, INC.

RECONCILIATION OF NET INCOME TO NON-GAAP ADJUSTED EBITDA

IN THOUSANDS (UNAUDITED)

 

 

 

THREE MONTHS ENDED

March 31,

2014

 

2013

 

NET INCOME

$

9,828

$

10,842

 

ADJUSTMENTS TO ARRIVE AT EBITDA:

Depreciation expense

1,918

1,556

Amortization expense

4,757

1,733

Interest expense, net

912

978

Non-cash interest expense

1,249

1,226

Income tax provision

 

5,864

 

 

5,415

EBITDA

$

24,528

$

21,750

 

NON-CASH AND OTHER NON-RECURRING INCOME

AND EXPENSES:

Acquisition-related expenses

454

840

Non-cash stock compensation expense

1,282

1,703

Gain from foreign currency forward contracts

(579

)

Amortization of financing costs

 

6,154

 

 

204

ADJUSTED EBITDA

$

31,839

 

$

24,497

 

 

AKORN, INC.

RECONCILIATION OF NET INCOME TO NON-GAAP ADJUSTED NET INCOME

IN THOUSANDS, EXCEPT PER SHARE DATA (UNAUDITED)

 

THREE MONTHS ENDED

March 31,

2014

2013

 

NET INCOME

$

9,828

$

10,842

 

INCOME TAX PROVISION

 

5,864

 

 

5,415

 

INCOME BEFORE INCOME TAXES

15,692

16,257

 

ADJUSTMENTS TO ARRIVE AT ADJUSTED NET INCOME:

Acquisition-related expenses

454

840

Non-cash stock compensation expense

1,282

1,703

Non-cash interest expense

1,249

1,226

Amortization expense

4,757

1,733

Gain from foreign currency forward contracts

(579

)

Amortization of financing costs

 

6,154

 

 

204

 

ADJUSTED INCOME BEFORE INCOME TAXES

29,009

21,963

 

ADJUSTED INCOME TAX PROVISION

 

10,623

 

 

7,526

 

ADJUSTED NET INCOME

 

18,386

 

 

14,437

 

ADJUSTED NET INCOME PER DILUTED SHARE

$

0.16

 

$

0.13

AKORN, INC.

2014 FINANCIAL GUIDANCE

 

 

RECONCILIATION OF GAAP NET INCOME TO
NON-GAAP ADJUSTED NET INCOME:

 

GAAP NET INCOME

 

$51 – 53

 

million

 

Add:

Intangible asset amortization expense

$33

million

Share-based compensation expense

$6

million

Non-cash interest expense

$5

million

Amortization of financing costs

$2

million

Acquisition-related expenses

$22 – 24

million

 

Subtract:

Tax effect of adjustments

($25 – 26)

million

 

ADJUSTED NET INCOME

$94 – 97

million

 

ADJUSTED NET INCOME PER DILUTED SHARE

$0.79 – 0.82

million

 

SHARES USED IN COMPUTING ADJUSTED NET INCOME PER DILUTED SHARE

118

million

 

 

RECONCILIATION OF GAAP NET INCOME TO
NON-GAAP ADJUSTED EBITDA:

 

GAAP NET INCOME

$51 – 53

million

 

Add:

Depreciation and amortization expense

$45

million

Interest expense, net (cash non-cash)

$27

million

Income tax provision

$30 – 31

million

EBITDA

$153 – 156

million

 

Add:

Share-based compensation expense

$6

million

Amortization of financing costs

$2

million

Acquisition-related expenses

$22 – 24

million

ADJUSTED EBITDA

$183 – 188

million