Lannett Announces Fiscal 2021 Third-Quarter Financial Results

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

March 31, 2021

June 30, 2020

ASSETS

Current assets:

Cash and cash equivalents

$                                  81,290

$                  144,329

Accounts receivable, net

114,691

125,688

Inventories

113,074

142,867

Income taxes receivable

40,043

14,419

Assets held for sale

2,678

2,678

Other current assets

18,135

13,227

Total current assets

369,911

443,208

Property, plant and equipment, net

168,844

179,518

Intangible assets, net

160,138

374,735

Operating lease right-of-use asset 

10,762

9,343

Deferred tax assets

138,019

117,890

Other assets

14,696

11,861

TOTAL ASSETS

$                               862,370

$               1,136,555

LIABILITIES

Current liabilities:

Accounts payable

$                                  32,605

$                    32,535

Accrued expenses

4,025

14,962

Accrued payroll and payroll-related expenses

9,758

16,304

Rebates payable

31,848

38,175

Royalties payable

14,541

20,863

Restructuring liability

42

27

Current operating lease liabilities

2,040

1,097

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

–

88,189

Other current liabilities

2,270

2,713

Total current liabilities

97,129

214,865

Long-term debt, net

610,698

592,940

Long-term operating lease liabilities

11,306

9,844

Other liabilities

19,187

16,010

TOTAL LIABILITIES

738,320

833,659

STOCKHOLDERS’ EQUITY

Common stock ($0.001 par value, 100,000,000 shares authorized; 40,872,485 and 39,963,127 shares issued;
39,539,798 and 38,798,787 shares outstanding at March 31, 2021 and June 30, 2020, respectively)

41

40

Additional paid-in capital

328,911

321,164

Accumulated deficit

(186,880)

(1,291)

Accumulated other comprehensive loss

(603)

(627)

Treasury stock (1,332,687 and 1,164,340 shares at March 31, 2021 and June 30, 2020, respectively)

(17,419)

(16,390)

Total stockholders’ equity

124,050

302,896

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY 

$                               862,370

$               1,136,555

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,

2020

2021

2020

Net sales

$             112,370

$         144,372

$             372,769

$         407,824

Cost of sales 

82,063

94,380

298,738

258,699

Amortization of intangibles

3,851

8,316

21,097

23,497

Gross profit

26,456

41,676

52,934

125,628

Operating expenses:

Research and development expenses

5,973

7,441

18,156

23,287

Selling, general and administrative expenses

17,636

22,147

46,502

60,876

Restructuring expenses

–

191

4,043

1,771

Asset impairment charges

–

13,989

198,000

15,607

Total operating expenses

23,609

43,768

266,701

101,541

Operating income (loss)

2,847

(2,092)

(213,767)

24,087

Other income (loss):

Loss on extinguishment of debt

–

–

–

(2,145)

Investment income

80

393

168

1,552

Interest expense

(12,631)

(16,177)

(40,613)

(52,163)

Other

18

(380)

23

(181)

Total other loss

(12,533)

(16,164)

(40,422)

(52,937)

Loss before income tax

(9,686)

(18,256)

(254,189)

(28,850)

Income tax benefit

(2,544)

(1,664)

(68,600)

(5,185)

Net loss

$                (7,142)

$         (16,592)

$           (185,589)

$          (23,665)

Loss per common share:

     Basic

$                  (0.18)

$             (0.43)

$                  (4.72)

$              (0.61)

     Diluted (1) 

$                  (0.18)

$             (0.43)

$                  (4.72)

$              (0.61)

Weighted average common shares outstanding:

     Basic

39,511,296

38,707,049

39,340,670

38,539,850

     Diluted (1) 

39,511,296

38,707,049

39,340,670

38,539,850

(1) Effective with the 4.5% Senior Convertible Note issued on September 27, 2019, the diluted earnings per share was calculated based on the “if-converted” method.

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, 2021

Net sales

Cost of sales

Amortization of intangibles

Gross Margin %

R&D expenses

SG&A expenses

Operating income 

Other loss

Income (loss) before income tax

Income tax benefit

Net income (loss)

Diluted earnings (loss) per share (g)

GAAP Reported

$    112,370

$       82,063

$             3,851

$   26,456

$        5,973

$      17,636

$           2,847

$     (12,533)

$         (2,544)

$         (7,142)

$                    (0.18)

Adjustments:

Amortization of intangibles (a)

–

–

(3,851)

3,851

–

–

3,851

–

3,851

–

3,851

Cody API business (b)

–

(91)

–

91

–

(18)

109

–

109

–

109

Depreciation on capitalized software costs (c)

–

–

–

–

–

(1,051)

1,051

–

1,051

–

1,051

Non-cash interest (d)

–

–

–

–

–

–

–

2,823

2,823

–

2,823

Other (e)

–

–

–

–

–

(2,191)

2,191

–

2,191

–

2,191

Tax adjustments (f)

–

–

–

–

–

–

–

–

–

1,923

(1,923)

Non-GAAP Adjusted

$       112,370

$         81,972

$                    –

$     30,398

$          5,973

$        14,376

$          10,049

$         (9,710)

$                  339

$             (621)

$               960

(a)

To exclude amortization of purchased intangible assets primarily related to the acquisition of KUPI 

(b)

To exclude the operating results of the ceased Cody API business

(c)

To exclude depreciation on previously capitalized software integration costs associated with the KUPI acquisition

(d)

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

(e)

To primarily exclude the reimbursement of legal costs associated with a distribution agreement 

(f)

To exclude the tax effect of the pre-tax adjustments included above at applicable tax rates

(g)

The weighted average share number for the three months ended March 31, 2021 is 39,511,296 for GAAP and 41,051,998 for the non-GAAP earnings (loss) per share calculations

LANNETT COMPANY, INC.

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

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

Three months ended March 31, 2020

Net sales

Cost of sales

Amortization of intangibles

Gross Profit

Gross Margin %

R&D expense

SG&A expense

Restructuring expenses

Operating income (loss)

Other loss

Income (loss) before income tax

Income tax expense (benefit)

Net income (loss)

Diluted earnings (loss) per share (j)

GAAP Reported

$      144,372

$        94,380

$               8,316

$   41,676

29%

$       7,441

$    22,147

$               191

13,989

$          (2,092)

$      (16,164)

$        (18,256)

$         (1,664)

$    (16,592)

$                   (0.43)

Adjustments:

Amortization of intangibles (a)

–

–

(8,316)

8,316

–

–

–

–

8,316

–

8,316

–

8,316

Cody API business (b)

–

(983)

–

983

(47)

(58)

–

–

1,088

–

1,088

–

1,088

Depreciation on capitalized software costs (c)

–

–

–

–

–

(1,058)

–

–

1,058

–

1,058

–

1,058

Decommissioning of Philadelphia sites (d)

–

(192)

–

192

–

–

–

–

192

–

192

–

192

Branded prescription drug fee (e)

–

–

–

–

–

(2,957)

–

–

2,957

–

2,957

–

2,957

Restructuring expenses (f)

–

–

–

–

–

–

(191)

–

191

–

191

–

191

Asset impairment charge (g)

–

–

–

–

–

–

–

(13,989)

13,989

–

13,989

–

13,989

Non-cash interest (h)

–

–

–

–

–

–

–

–

–

3,430

3,430

–

3,430

Other (i)

–

(1,168)

–

1,168

(29)

(354)

–

–

1,551

357

1,908

–

1,908

Tax adjustments (j)

–

–

–

–

–

–

–

–

–

–

–

4,832

(4,832)

Non-GAAP Adjusted

$        144,372

$          92,037

$                       –

$     52,335

36%

$        7,365

$      17,720

$                   –

$                       –

$           27,250

$        (12,377)

$            14,873

$             3,168

$       11,705

$                      0.27

(a)

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

(b)

To exclude the operating results of the ceased Cody API business

(c)

To exclude depreciation on previously capitalized software integration costs associated with the KUPI acquisition

(d)

To exclude the costs related to the decommissioning and shutdown of the Philadelphia manufacturing and distribution sites, including costs to transfer products to other locations

(e)

To exclude the federally mandated branded prescription drug fee related to Levothyroxine, a product the Company no longer sells

(f)

To exclude expenses associated with the Cody API Restructuring Plan

(g)

To exclude an impairment charge associated with an agreement to distribute Methylphenidate AB

(h)

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

(i)

To exclude costs primarily related to the write-down of property, plant and equipment as well as COVID-19 special recognition payments

(j)

To exclude the tax effect of the pre-tax adjustments included above at applicable tax rates

(k)

The weighted average share number for the three months ended March 31, 2020 is 38,707,049 for GAAP and 46,132,471 for the non-GAAP earnings (loss) per share calculations. Effective with the 4.5% Senior Convertible Note issued on September 27, 2019, the diluted earnings per share was calculated based on the “if-converted” method.

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, 2021

Net sales

Cost of sales

Amortization of intangibles

Gross Profit

Gross Margin %

R&D expenses

SG&A expenses

Restructuring expenses

Asset impairment charges

Operating income (loss)

Other loss

Income (loss) before income tax

Income tax expense (benefit)

Net income (loss)

Diluted earnings (loss) per share (k)

GAAP Reported

$     372,769

$     298,738

$          21,097

$   52,934

14%

$    18,156

$    46,502

$            4,043

$      198,000

$     (213,767)

$     (40,422)

$      (254,189)

$       (68,600)

$   (185,589)

$                  (4.72)

Adjustments:

Amortization of intangibles (a)

–

–

(21,097)

21,097

–

–

–

–

21,097

–

21,097

–

21,097

Cody API business (b)

–

(249)

–

249

(5)

(473)

–

–

727

–

727

–

727

Depreciation on capitalized software costs (c)

–

–

–

–

–

(3,153)

–

–

3,153

–

3,153

–

3,153

Restructuring expenses (d)

–

–

–

–

–

–

(4,043)

–

4,043

–

4,043

–

4,043

Asset impairment charges (e)

–

–

–

–

–

–

–

(198,000)

198,000

–

198,000

–

198,000

Write-downs for excess and obsolete inventory (f)

–

(16,623)

–

16,623

–

–

–

–

16,623

–

16,623

–

16,623

 Distribution agreement renewal costs (g)

–

(4,966)

–

4,966

–

–

–

–

4,966

–

4,966

–

4,966

Non-cash interest (h)

–

–

–

–

–

–

–

–

–

9,073

9,073

–

9,073

Other (i)

–

–

–

–

–

(3,695)

–

–

3,695

–

3,695

–

3,695

Tax adjustments (j)

–

–

–

–

–

–

–

–

–

–

–

69,376

(69,376)

Non-GAAP Adjusted

$       372,769

$       276,900

$                    –

$     95,869

26%

$      18,151

$      39,181

$                   –

$                  –

$           38,537

$       (31,349)

$              7,188

$                776

$           6,412

$                     0.16

(a)

To exclude amortization of purchased intangible assets primarily related to the acquisition of KUPI 

(b)

To exclude the operating results of the ceased Cody API business

(c)

To exclude depreciation on previously capitalized software integration costs associated with the KUPI acquisition

(d)

To exclude expenses associated with the 2020 Restructuring Plan

(e)

To exclude asset impairment charges primarily related to the KUPI product rights intangible assets

(f)

To exclude write-downs for excess and obsolete inventory related to the discontinuance of certain product lines 

(g)

To exclude the consideration recorded to renew the Company’s distribution agreement with Recro Gainesville LLC 

(h)

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

(i)

To primarily exclude the reimbursement of legal costs associated with a distribution agreement 

(j)

To exclude the tax effect of the pre-tax adjustments included above at applicable tax rates

(k)

The weighted average share number for the nine months ended March 31, 2021 is 39,340,670 for GAAP and 40,933,946 for the non-GAAP earnings (loss) per share calculations

LANNETT COMPANY, INC.

RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION

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

Nine months ended March 31, 2020

Net sales

Cost of sales

Amortization of intangibles

Gross Profit

Gross Margin %

R&D expense

SG&A expense

Restructuring expenses

Asset impairment charges

Operating income

Other loss

Income (loss) before income tax

Income tax expense (benefit)

Net income (loss)

Diluted earnings (loss) per share (l)

GAAP Reported

$      407,824

$      258,699

$          23,497

$     125,628

31%

$      23,287

$      60,876

$           1,771

$       15,607

$       24,087

$     (52,937)

$          (28,850)

$        (5,185)

$     (23,665)

$                    (0.61)

Adjustments:

Amortization of intangibles (a)

–

–

(23,497)

23,497

–

–

–

–

23,497

–

23,497

–

23,497

Cody API business (b)

–

(2,911)

–

2,911

(552)

(433)

–

–

3,896

–

3,896

–

3,896

Depreciation on capitalized software costs (c)

–

–

–

–

–

(3,175)

–

–

3,175

–

3,175

–

3,175

Decommissioning of Philadelphia sites (d)

–

(1,484)

–

1,484

–

–

–

–

1,484

–

1,484

–

1,484

Branded prescription drug fee (e)

–

–

–

–

–

(2,957)

–

–

2,957

–

2,957

–

2,957

Restructuring expenses (f)

–

–

–

–

–

–

(1,771)

–

1,771

–

1,771

–

1,771

Asset impairment charges (g)

–

–

–

–

–

–

–

(15,607)

15,607

–

15,607

–

15,607

Non-cash interest (h)

–

–

–

–

–

–

–

–

–

11,001

11,001

–

11,001

Loss on extinguishment of debt (i)

–

–

–

–

–

–

–

–

–

2,145

2,145

–

2,145

Other (j)

–

(1,585)

–

1,585

(29)

(2,578)

–

–

4,192

21

4,213

–

4,213

Tax adjustments (k)

–

–

–

–

–

–

–

–

–

–

–

13,942

(13,942)

Non-GAAP Adjusted

$        407,824

$        252,719

$                    –

$       155,105

38%

$        22,706

$        51,733

$                  –

$                 –

$         80,666

$       (39,770)

$             40,896

$            8,757

$         32,139

$                       0.76

(a)

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

(b)

To exclude the operating results of the ceased Cody API business

(c)

To exclude depreciation on previously capitalized software integration costs associated with the KUPI acquisition

(d)

To exclude the costs related to the decommissioning and shutdown of the Philadelphia manufacturing and distribution sites, including costs to transfer products to other locations

(e)

To exclude the federally mandated branded prescription drug fee related to Levothyroxine, a product the Company no longer sells

(f)

To exclude expenses associated with the Cody API Restructuring Plan

(g)

To exclude impairment charges primarily associated with an agreement to distribute Methylphenidate AB

(h)

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

(i)

To exclude the loss on extinguishment of debt primarily related to the partial repayment of the outstanding Term Loan A balance

(j)

To primarily exclude accrued separation costs related to the Company’s former Chief Financial Officer, COVID-19 special recognition payments, as well as legal settlements, partially offset by gains on sales of assets previously held for sale

(k)

To exclude the tax effect of the pre-tax adjustments included above at applicable tax rates

(l)

The weighted average share number for the nine months ended March 31, 2020 is 38,539,850 for GAAP and 44,248,722 for the non-GAAP earnings (loss) per share calculations. Effective with the 4.5% Senior Convertible Note issued on September 27, 2019, the diluted earnings per share was calculated based on the “if-converted” method.

LANNETT COMPANY, INC.

RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA (UNAUDITED)

($ in thousands)

Three months ended 

March 31, 2021

Net loss

$                                  (7,142)

Interest expense

12,631

Depreciation and amortization

9,628

Income tax benefit

(2,544)

EBITDA

12,573

Share-based compensation

1,863

Inventory write-down

399

Investment income

(80)

Other non-operating loss

(18)

Other(a)

2,300

Adjusted EBITDA (Non-GAAP)

$                                 17,037

(a)

To primarily exclude the reimbursement of legal costs associated with a distribution agreement, as well as the operating results of the ceased Cody API business

LANNETT COMPANY, INC.

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

($ in millions)

Fiscal Year 2021 Guidance

Non-GAAP

GAAP

Adjustments

Adjusted

Net sales

 $480 – $500 

–

 $480 – $500 

Gross margin percentage

approx. 14% to 16%

10%

 (a) 

approx. 24% to 26%

R&D expense

 $26 – $28 

–

 $26 – $28 

SG&A expense

 $62 – $64 

($10)

 (b) 

 $52 – $54 

Restructuring expense

$4

($4)

 (c) 

–

Asset impairment charges

$198

($198)

 (d) 

–

Interest and other

 approx. $71 

($27)

 (e) 

 approx. $44  

Effective tax rate

 approx. 27% to 28% 

–

 N/A 

Income tax expense (benefit)

 N/A 

–

 $1 – $(1) 

 (f) 

Adjusted EBITDA

 N/A 

 N/A 

 $75 – $85 

Capital expenditures

 $10 – $15 

–

 $10 – $15 

(a) The adjustment primarily reflects amortization of purchased intangible assets related to the acquisition of Kremers Urban Pharmaceuticals, Inc. (“KUPI”), write-downs for excess and obsolete inventory related to the discontinuance of certain product lines, and consideration recorded to renew the Company’s distribution agreement with Recro Gainesville LLC 

(b) The adjustment primarily excludes depreciation on previously capitalized software integration costs associated with the KUPI acquisition and the reimbursement of legal costs associated with a distribution agreement

(c) To exclude expenses associated with the 2020 Restructuring Plan

(d) To exclude asset impairment charges primarily related to the KUPI product rights intangible assets

(e) The adjustment primarily reflects non-cash interest expense associated with debt issuance costs and the anticipated loss on extinguishment of debt related to the refinancing of the Term Loan B in April 2021.

(f) The non-GAAP adjusted effective income tax rate was replaced with the dollar amount of income tax expense (benefit) to provide additional clarity around the anticipated expense (benefit) for Fiscal 2021. The non-GAAP adjusted income tax expense (benefit) reflects the impact of tax credits and deductions related to expected annual pre-tax income (loss) as well as the impact of the CARES Act, which allows the Company to carryback the expected taxable loss into a prior fiscal year, where the statutory tax rate was 35%.

LANNETT COMPANY, INC.

RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA (UNAUDITED)

($ in millions)

Fiscal Year 2021 Guidance

Low

High

Net loss

$               (214.7)

$               (205.2)

Interest expense

71.0

71.0

Depreciation and amortization

55.0

55.0

Income taxes

(79.3)

(79.8)

EBITDA

(159.0)

Share-based compensation

9.0

9.0

Inventory write-down

27.0

28.0

Asset impairment charges

198.0

198.0

Restructuring expenses

4.0

4.0

Distribution agreement renewal costs

5.0

5.0

Adjusted EBITDA (Non-GAAP)

$                   75.0

$                   85.0

LANNETT COMPANY, INC.

NET SALES BY MEDICAL INDICATION

Three months ended

Nine months ended

($ in thousands)

March 31,

March 31,

Medical Indication

2021

2020

2021

2020

Analgesic

$             3,836

$             2,811

$            10,528

$             6,806

Anti-Psychosis

11,678

27,858

38,023

78,588

Cardiovascular

16,573

21,746

52,623

67,325

Central Nervous System

24,509

18,566

71,648

57,154

Endocrinology

6,822

–

19,551

–

Gastrointestinal

16,817

20,745

52,492

56,020

Infectious Disease

10,610

21,749

55,586

51,722

Migraine

5,169

12,886

20,942

32,907

Respiratory/Allergy/Cough/Cold

2,548

2,966

6,241

8,747

Urinary

1,566

1,149

4,385

2,817

Other

8,617

8,051

24,661

27,847

Contract Manufacturing revenue

3,625

5,845

16,089

17,891

   Net Sales

$          144,372

$          372,769

$          407,824