Akorn Reports Second Quarter 2013 Financial Results

LAKE FOREST, Ill.–(BUSINESS WIRE)–

Akorn, Inc. (AKRX), a niche generic pharmaceutical company,
today reported financial results for its second quarter ended June 30,
2013.

Raj Rai, Chief Executive Officer, commented, “We are pleased with our
second quarter results. The results reflect the actions we took to
address the challenges that we were faced with around certain new
product launches. In addition, we are making good progress on our
strategic initiatives and expect another great year of performance and
are reaffirming our adjusted diluted EPS 2013 guidance of $0.53 to
$0.55.”

Second Quarter 2013 Highlights

  • Achieved record consolidated revenue of $77.0 million, up 22% over the
    prior year quarter.
  • Generated record operating cash flow of $14.5 million.
  • Completed development on 1 injectable and 3 ophthalmic ANDAs with a
    combined annual IMS market size of approximately $500 million.
  • Increased Nembutal sales sequentially by 14%.
  • Launched Clindamycin Phosphate Injection in 5% Dextrose premix in
    three strengths, with a combined IMS addressable market size of $65
    million.
  • Commercialized expanded capacity at Company’s Somerset, New Jersey
    ophthalmic manufacturing plant.

Financial Results for the Quarter Ended June 30, 2013

Consolidated revenue for the second quarter of 2013 was $77.0 million,
up 22% over the prior year quarter’s consolidated revenue of $63.3
million. The increase in revenue was primarily the result of sales of
new products launched late in 2012, along with increases in sales volume
for existing products, partially offset by decreases in average sales
price for existing products and lower sales from our subsidiary in
India, Akorn India Private Limited. Consolidated gross margin for the
second quarter of 2013 was 54.7% compared to 56.5% in the comparable
prior year period. Gross profit for the second quarter of 2013 included
a $1.3 million reduction to cost of sales related to the reversal of a
product warranty reserve. The decrease in gross margin was primarily the
result of various new products launched late in 2012 which generate
lower gross margins as a result of being either partnered or
manufactured through third parties.

Selling, general and administrative expenses were $13.1 million in the
second quarter of 2013 compared to $10.9 million in the second quarter
of 2012. The increase is largely a result of expanding the sales force
to support the Company’s growing product portfolio. RD expenses were
$5.1 million in the second quarter of 2013, an increase of $1.0 million
over the prior year quarter.

Non-GAAP adjusted net income for the second quarter of 2013 was $15.3
million, or $0.14 per diluted share, compared to non-GAAP adjusted net
income of $12.6 million, or $0.11 per diluted share, in the prior year
quarter. Adjusted net income for the second quarter of 2013 excludes the
$1.3 million product warranty reserve reversal.

2013 Outlook

The Company’s 2013 outlook remains unchanged and excludes the impact of
any new product approvals after August 6, 2013.

Total revenues

 

$305 – 315

 

million

 

Total gross margin percentage

53 – 54

%

 

SGA expenses

~ $50

million

 

RD expenses

$24 – 26

million

 

Intangible asset amortization expense

$7

million

 

Income tax rate

~ 36

%

 

GAAP net income

$47 – 50

million

 

GAAP net income per diluted share

$0.42 – 0.44

 

Adjusted net income

$60 – 62

million

 

Adjusted net income per diluted share

$0.53 – 0.55

 

Capital expenditures

~ $25

million

 

Akorn’s RD Pipeline

The Company has 57 ANDAs filed with the FDA with a combined annual
addressable IMS market size of approximately $5.4 billion. The Company
has completed development work on 16 additional products with a combined
annual addressable IMS market size of approximately $1.6 billion and
expects to file these products with the FDA in the near future.

Second Quarter 2013 Conference Call

The Company will host a conference call at 10:00 a.m. Eastern Time on
Tuesday, August 6, 2013, to discuss second quarter 2013 results followed
by a QA session. The domestic call-in number is 888-438-5524 and the
international call-in number is 719-785-1765. The confirmation code for
all callers is 6338126. The URL for the webcast is http://www.videonewswire.com/event.asp?id=94640.
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 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 and Paonta Sahib, India where the Company
manufactures ophthalmic and injectable 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 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,
future performance or results of current and anticipated products, 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. The
addressable IMS market size figures presented in this press release
outline the approximate aggregate size of the potential market and are
not forecasts of our future sales.

Non-GAAP Financial Measures

In addition to reporting all financial information required in
accordance with 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 not 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, changes
    in the fair value of warrants, and deferred financing cost amortization
  • Other adjustments, such as equity in earnings of unconsolidated joint
    venture related to the sale of the joint venture’s assets,
    amortization of the fair value adjustment to inventory acquired
    through business acquisitions, and various acquisition related expenses

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, changes in the fair value of warrants, and deferred financing
    cost amortization
  • Other adjustments, such as equity in earnings of unconsolidated joint
    venture related to the sale of the joint venture’s assets,
    amortization of the fair value adjustment to inventory acquired
    through business acquisitions, and various acquisition related expenses
  • Less an estimated cash tax provision, net of the benefit from
    utilizing NOL carry-forwards.

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
host 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 GAAP 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

SIX MONTHS ENDED

JUNE 30,

JUNE 30,

2013

2012

2013

2012

 

Revenues

$

77,012

$

63,287

$

150,866

$

115,004

Cost of sales (excluding amortization of intangibles)

 

34,920

 

 

27,560

 

 

69,629

 

 

48,376

 

GROSS PROFIT

42,092

35,727

81,237

66,628

 

Selling, general and administrative expenses

13,113

10,940

25,448

21,279

Acquisition-related costs

184

519

8,644

Research and development expenses

5,051

4,073

11,020

6,950

Amortization of intangibles

 

1,677

 

 

1,754

 

 

3,410

 

 

3,317

 

TOTAL OPERATING EXPENSES

 

19,841

 

 

16,951

 

 

40,397

 

 

40,190

 

 

OPERATING INCOME

22,251

18,776

40,840

26,438

 

Amortization of deferred financing costs

(207

)

(195

)

(411

)

(388

)

Non-cash interest expense

(1,037

)

(1,204

)

(2,263

)

(2,387

)

Interest expense, net

(991

)

(1,006

)

(1,969

)

(2,050

)

Other non-operating expenses

 

(34

)

 

 

 

42

 

 

 

INCOME BEFORE INCOME TAXES

19,982

16,371

36,239

21,613

Income tax provision

 

7,345

 

 

6,665

 

 

12,760

 

 

8,799

 

NET INCOME

$

12,637

 

$

9,706

 

$

23,479

 

$

12,814

 

 

NET INCOME PER SHARE:

BASIC

$

0.13

 

$

0.10

 

$

0.24

 

$

0.13

 

DILUTED

$

0.11

 

$

0.09

 

$

0.21

 

$

0.12

 

 

SHARES USED IN COMPUTING NET INCOME PER SHARE:

BASIC

 

96,122

 

 

95,096

 

 

96,025

 

 

95,054

 

DILUTED

 

112,328

 

 

110,513

 

 

112,010

 

 

109,879

 

 

COMPREHENSIVE INCOME:

Net income

12,637

9,706

23,479

12,814

Foreign currency translation loss

 

(4,979

)

 

(4,757

)

 

(4,621

)

 

(6,960

)

Comprehensive income

 

7,658

 

 

4,949

 

$

18,858

 

$

5,854

 

 

AKORN, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

IN THOUSANDS, EXCEPT SHARE DATA

 

 

 

JUNE 30,

 

DECEMBER 31,

2013

2012

(Unaudited)

(Audited)

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

58,412

$

40,781

Trade accounts receivable, net

57,707

51,017

Inventories

56,703

52,495

Deferred taxes, current

7,385

9,190

Prepaid expenses and other current assets

 

4,836

 

 

5,224

 

TOTAL CURRENT ASSETS

185,043

158,707

PROPERTY, PLANT AND EQUIPMENT, NET

81,033

80,679

OTHER LONG-TERM ASSETS:

Goodwill

30,487

32,159

Product licensing rights, net

61,220

63,654

Other intangibles, net

15,547

16,731

Deferred financing costs

2,667

3,078

Deferred taxes, non-current

1,013

930

Long-term investments

10,311

10,299

Other

 

2,927

 

 

3,328

 

TOTAL OTHER LONG-TERM ASSETS

 

124,172

 

 

130,179

 

TOTAL ASSETS

$

390,248

 

$

369,565

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:

Trade accounts payable

$

21,393

$

21,784

Accrued compensation

4,473

7,533

Accrued royalties

5,561

5,768

Accrued administration fees

2,307

2,204

Accrued income taxes payable

594

910

Accrued expenses and other liabilities

 

4,823

 

 

5,092

 

TOTAL CURRENT LIABILITIES

39,151

43,291

LONG-TERM LIABILITIES:

Convertible notes due 2016

106,656

104,637

Purchase consideration payable

16,038

16,113

Deferred taxes, non-current

825

1,991

Product warranty liability

1,299

Lease incentive obligations and other long-term liabilities

 

1,386

 

 

1,153

 

TOTAL LONG-TERM LIABILITIES

 

124,905

 

 

125,193

 

TOTAL LIABILITIES

 

164,056

 

 

168,484

 

SHAREHOLDERS’ EQUITY:

Common stock, no par value — 150,000,000 shares authorized,
96,191,057 and 95,844,012 shares issued and outstanding June 30,
2013 and December 31, 2012, respectively

232,288

226,035

Warrants to acquire common stock

17,946

17,946

Accumulated deficit

(13,517

)

(36,996

)

Accumulated other comprehensive loss

 

(10,525

)

 

(5,904

)

TOTAL SHAREHOLDERS’ EQUITY

 

226,192

 

 

201,081

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$

390,248

 

$

369,565

 

 

AKORN, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

IN THOUSANDS (UNAUDITED)

 

 

 

 

 

THREE MONTHS ENDED

SIX MONTHS ENDED

JUNE 30,

JUNE 30,

2013

2012

2013

2012

OPERATING ACTIVITIES

Consolidated net income

$

12,637

$

9,706

$

23,479

$

12,814

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

Depreciation and amortization

3,362

2,808

6,651

5,319

Write-off and amortization of deferred financing fees

207

195

411

388

Amortization of unfavorable contract liability

(159

)

(318

)

Non-cash stock compensation expense

2,541

1,758

4,244

3,181

Non-cash interest expense

1,037

1,204

2,263

2,387

Deferred tax assets, net

403

1,484

1,201

3,261

Excess tax benefit from stock compensation

(507

)

(745

)

(1,595

)

Non-cash settlement of product warranty liability

(1,299

)

(1,299

)

Equity in earnings of unconsolidated joint venture

(76

)

Changes in operating assets and liabilities:

 

Trade accounts receivable

1,050

(6,066

)

(6,908

)

(9,980

)

Inventories

(2,987

)

(5,406

)

(4,428

)

(9,561

)

Prepaid expenses and other assets

(464

)

(796

)

538

(1,071

)

Trade accounts payable

1,710

362

(151

)

(2,014

)

Accrued expenses and other liabilities

 

(3,055

)

 

(2,012

)

 

(3,464

)

 

3,157

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

14,476

3,237

21,398

6,286

 

INVESTING ACTIVITIES

Payments for acquisitions

(244

)

(513

)

(55,224

)

Purchases of property, plant and equipment

 

(2,470

)

 

(6,867

)

 

(5,159

)

 

(12,253

)

NET CASH USED IN INVESTING ACTIVITIES

(2,714

)

(6,867

)

(5,672

)

(67,477

)

 

FINANCING ACTIVITIES

Net proceeds from common stock offering and warrant exercises

Excess tax benefit from stock compensation

507

745

1,595

Proceeds under stock option and stock purchase plans

 

397

 

 

 

 

1,265

 

 

523

 

NET CASH PROVIDED BY FINANCING ACTIVITIES

904

2,010

2,118

 

Effect of changes in exchange rates on cash cash equivalents

 

(117

)

 

(298

)

 

(105

)

 

(479

)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

12,549

(3,928

)

17,631

(59,552

)

Cash and cash equivalents at beginning of period

 

45,863

 

 

28,338

 

 

40,781

 

 

83,962

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$

58,412

 

$

24,410

 

$

58,412

 

$

24,410

 

 

AKORN, INC.

RECONCILIATION OF NET INCOME TO NON-GAAP ADJUSTED EBITDA

IN THOUSANDS (UNAUDITED)

 

 

 

 

THREE MONTHS ENDED

SIX MONTHS ENDED

JUNE 30,

JUNE 30,

2013

2012

2013

2012

 

NET INCOME

$

12,637

$

9,706

$

23,479

$

12,814

 

ADJUSTMENTS TO ARRIVE AT EBITDA:

Depreciation expense

1,685

1,054

3,241

2,002

Amortization expense

1,677

1,754

3,410

3,317

Interest expense, net

991

1,006

1,969

2,050

Non-cash interest expense

1,037

1,204

2,263

2,387

Income tax provision

 

7,345

 

 

6,665

 

12,760

 

 

8,799

EBITDA

$

25,372

$

21,389

$

47,122

$

31,369

 

NON-CASH AND OTHER NON-RECURRING INCOME AND EXPENSES:

Acquisition-related expenses

840

8,324

Non-cash stock compensation expense

2,541

1,758

4,244

3,181

Non-cash settlement of product warranty liability

(1,299

)

(1,299

)

Write-off and amortization of deferred financing costs

 

207

 

 

195

 

411

 

 

388

ADJUSTED EBITDA

$

26,821

 

$

23,342

$

51,318

 

$

43,262

 

AKORN, INC.

RECONCILIATION OF NET INCOME TO NON-GAAP ADJUSTED NET INCOME

IN THOUSANDS, EXCEPT PER SHARE DATA (UNAUDITED)

 

 

 

 

THREE MONTHS ENDED

SIX MONTHS ENDED

JUNE 30,

JUNE 30,

2013

2012

2013

2012

 

NET INCOME

$

12,637

$

9,706

$

23,479

$

12,814

 

INCOME TAX PROVISION

 

7,345

 

 

6,665

 

12,760

 

 

8,799

 

INCOME BEFORE INCOME TAXES

19,982

16,371

36,239

21,613

 

ADJUSTMENTS TO ARRIVE AT ADJUSTED NET INCOME:

Acquisition-related expenses

840

8,324

Non-cash stock compensation expense

2,541

1,758

4,244

3,181

Non-cash interest expense

1,037

1,204

2,263

2,387

Amortization expense

1,677

1,754

3,410

3,317

Non-cash settlement of product warranty liability

(1,299

)

(1,299

)

Write-off and amortization of deferred financing costs

 

207

 

 

195

 

411

 

 

388

 

ADJUSTED INCOME BEFORE INCOME TAXES

24,145

21,282

46,108

39,210

 

ADJUSTED INCOME TAX PROVISION

 

8,845

 

 

8,661

 

16,342

 

 

15,958

 

ADJUSTED NET INCOME

 

15,300

 

 

12,621

 

29,766

 

 

23,252

 

ADJUSTED NET INCOME PER DILUTED SHARE

$

0.14

 

$

0.11

$

0.27

 

$

0.21

Akorn, Inc.
Tim Dick, 847-279-6150
Chief Financial Officer