Market Newsdesk

Performance Food Group Company Reports Third-Quarter and First-Nine Months Fiscal 2021 Results

Delivers Strong Sales and Independent Case Volume Growth;

Generates $173.1 million of Cash Flow from Operating Activities in First-Nine Months

Third-Quarter Fiscal 2021 Highlights

• Net sales increased 2.9% to $7.2 billion
• Gross profit improved 3.1% to $832.7 million
• Net loss of $7.6 million
• Adjusted EBITDA decreased 7.6% to $121.2 million¹
• Diluted loss per share $0.06
• Adjusted Diluted Earnings Per Share (“EPS”) decreased 67.2% to $0.19¹

First-Nine Months Fiscal 2021 Highlights

• Net sales increased 9.2% to $21.1 billion
• Gross profit improved 10.3% to $2.5 billion
• Net income declined 74.9% to $9.3 million
• Adjusted EBITDA increased 3.2% to $414.4 million¹
• Cash flow from operating activities of $173.1 million
• Free cash flow of $54.2 million¹, an increase of approximately $137.7 million versus the prior year period
• Diluted EPS declined 79.4% to $0.07
• Adjusted Diluted EPS decreased 54.3% to $0.79¹

RICHMOND, Va.–(BUSINESS WIRE)–
Performance Food Group Company (“PFG” or the “Company”) (NYSE: PFGC) today announced its third-quarter and first-nine months fiscal 2021 business results.

“Our Company’s strong momentum and recovery has continued into calendar 2021,” said George Holm, PFG’s Chairman, President & Chief Executive Officer, “and I am extremely pleased with the progress we have made as many markets reopen for business. As we expected, the pace of rebuilding our workforce accelerated to support sales trend improvement. We believe that these expenses put us in a solid position to maintain our top-line performance through the rest of fiscal 2021 and into fiscal 2022. Despite a strong January and February in the year ago period, our businesses experienced independent cases growth of 6.3% in the quarter and a 2.9% increase in net sales compared to the prior year. Reflecting on everything that has occurred over the past 12 months, this is truly a wonderful accomplishment.”

1

This earnings release includes several metrics, including EBITDA, Adjusted EBITDA, Adjusted Diluted EPS and Free Cash Flow that are not calculated in accordance with Generally Accepted Accounting Principles in the U.S. (“GAAP”). Please see “Statement Regarding Non-GAAP Financial Measures” at the end of this release for the definitions of such non-GAAP financial measures and reconciliations of such non-GAAP financial measures to their respective most comparable financial measures calculated in accordance with GAAP.

Third-Quarter Fiscal 2021 Financial Summary

Total case volume decreased 4.2% for the third quarter of fiscal 2021 compared to the prior year period. Total case volume included a 6.3% increase in independent cases and growth in Performance Brands cases.

Net sales for the third quarter of fiscal 2021 grew 2.9% to $7.2 billion compared to the prior year period. The increase in net sales was primarily attributable to the effects of the novel coronavirus (“COVID-19”) pandemic, which had a more significant impact in the third quarter of the prior year. The increase in net sales also reflects an increase in selling price per case as a result of inflation and mix. Overall food cost inflation was approximately 3.5%.

Gross profit for the third quarter of fiscal 2021 grew 3.1% to $832.7 million compared to the prior year period. The gross profit increase was led by the improvement of the current economic environment surrounding the outbreak of COVID-19. For the third quarter of fiscal 2021, the Company recorded a total of $8.9 million of inventory write-offs, which is a $5.5 million decrease from the third quarter of fiscal 2020, primarily as a result of the lessening impact of COVID-19 on our operations. Gross margin as a percentage of net sales was 11.6% for the third quarter of fiscal 2021 compared to 11.5% for the prior year period.

Operating expenses declined 1.9% to $809.3 million in the third quarter of fiscal 2021 compared to the prior year period. The decline in operating expenses was primarily due to reductions in personnel expenses, fuel expense, insurance expense, travel expenses, professional fees, and contingent consideration accretion expense compared to the prior year period. Additionally, in the third quarter of fiscal 2021, the Company recorded a benefit of $6.0 million related to reserves for expected credit losses as compared to bad debt expense of $21.3 million for the third quarter of 2020. These decreases in operating expenses were partially offset by an increase in annual bonus expense. In the third quarter of fiscal 2021, the Company recorded expense of $29.6 million related to annual bonus expense as compared to a benefit of $32.4 million in the prior year period.

The third quarter of fiscal 2021 resulted in a net loss of $7.6 million compared to a net loss of $40.2 million in the prior year period. The improvement was primarily a result of the $40.8 million increase in operating profit discussed above, partially offset by a $1.9 million increase in interest expense and a $15.8 million decrease in income tax benefit. The effective tax rate for the third quarter of fiscal 2021 was approximately 37.1% compared to 33.6% in the third quarter of fiscal 2020. The effective tax rate for three months ended March 27, 2021 differed from the prior year period due to the increase of state taxes and non-deductible expenses as a percentage of book income.

EBITDA increased 43.0% to $105.8 million in the third quarter of fiscal 2021 compared to the prior year period. For the quarter, Adjusted EBITDA fell 7.6% to $121.2 million compared to the prior year period.

Diluted loss per share was $0.06 per share in the third quarter of fiscal 2021 compared to diluted loss per share of $0.35 per share in the prior year period. Adjusted Diluted EPS decreased 67.2% to $0.19 per share in the third quarter of fiscal 2021 compared to the prior year period.

First-Nine Months Fiscal 2021 Financial Summary

Total case volume increased 3.9% in the first nine months of fiscal 2021 compared to the prior year period. Total case volume included nine months of Reinhart Foodservice, L.L.C. (“Reinhart”) sales and a 19.4% increase in independent cases. Excluding the impact of the Reinhart acquisition, case volume declined 13.4% and independent case volume declined 1.5% in the first nine months of fiscal 2021 compared to the prior year period.

Net sales for the first nine months of fiscal 2021 was $21.1 billion, an increase of 9.2% versus the comparable prior year period. The increase in net sales was primarily attributable to the acquisition of Reinhart which includes an additional six months of sales for fiscal 2021, partially offset by the effects of the COVID-19 pandemic. The acquisition of Reinhart contributed $4.2 billion to net sales for the first nine months of fiscal 2021 compared to $1.4 billion of net sales for the prior year period.

Gross profit for the first nine months of fiscal 2021 increased 10.3% to $2.5 billion compared to the prior year period. The gross profit increase was led by the acquisition of Reinhart, which includes an increase in gross profit of $399.3 million for the first nine months for fiscal 2021, along with an increase in gross profit per case. For the first nine months of fiscal 2021, the Company recorded a total of $27.8 million of inventory write-offs, which is a $2.1 million increase from the first nine months of fiscal 2020 primarily as a result of the economic conditions related to COVID-19 on our operations. Gross margin as a percentage of net sales was 11.7% for the first nine months of fiscal 2020 compared to 11.5% for the prior year period.

Operating expenses increased 11.2% to $2.3 billion in the first nine months of fiscal 2021 compared to the prior year period. The increase was primarily due to the acquisition of Reinhart. Excluding the impact of Reinhart operating expenses, the Company decreased its operating expenses related to personnel expenses, fuel expense, insurance expense, travel expenses, professional fees, and contingent consideration accretion expense compared to the prior year period. Additionally, in the first nine months of fiscal 2021, the Company recorded a benefit of $9.4 million related to reserves for expected credit losses as compared to bad debt expense of $29.8 million for the first nine months of 2020. These decreases in operating expenses were partially offset by an increase in annual bonus expense. In the first nine months of fiscal 2021, the Company recorded expense of $78.0 million related to annual bonus expense as compared to expense of $6.1 million in the prior year period.

Net income decreased 74.9% to $9.3 million for the first nine months of fiscal 2021 compared to the prior year period. The decline in net income was primarily attributable to the $6.5 million decrease in operating profit discussed above, along with a $35.1 million increase in interest expense, partially offset by a $1.4 million decrease in income tax expense. The effective tax rate for the first nine months of fiscal 2021 was approximately 14.2% compared to 7.3% for the first nine months of fiscal 2020.

EBITDA increased 22.1% to $371.9 million in the first nine months of fiscal 2021 compared to the prior year period. For the first nine months of fiscal 2021 Adjusted EBITDA increased 3.2% to $414.4 million compared to the prior year period.

Diluted EPS decreased 79.4% to $0.07 per share in the first nine months of fiscal 2021 compared to the prior year period. Adjusted Diluted EPS decreased 54.3% to $0.79 per share in the first nine months of fiscal 2021 compared to the prior year period.

Cash Flow and Capital Spending

As of March 27, 2021, our cash balance totaled $112.6 million, including restricted cash of $11.1 million, as compared to a cash balance totaling $431.8 million, including restricted cash of $11.1 million, as of June 27, 2020. The $319.2 million decrease in cash is primarily due to payments under the Fourth Amended and Restated Credit Agreement dated December 31, 2019 (the “ABL Facility”) and the early pay off, in full, of the $110.0 million, 364-day maturity loan that was junior to the other obligations owed under the ABL Facility (“Additional Junior Term Loan”).

In the first nine months of fiscal 2021, PFG generated $173.1 million in cash flow from operating activities compared to $17.6 million of cash flow provided by operating activities in the prior year period. The increase in cash flow from operating activities was largely driven by improvements in working capital and income tax refunds of $117.8 million received during the first nine months of fiscal 2021, partially offset by the payment of $117.3 million of contingent consideration related to the acquisition of Eby-Brown Company LLC. For the first nine months of fiscal 2021, PFG invested $118.9 million in capital expenditures, an increase of $17.8 million versus the prior year period. In the first nine months of fiscal 2021, PFG delivered free cash flow of $54.2 million¹, an increase of approximately $137.7 million versus the negative free cash flow of $83.5 million during the prior year period. Excluding the $213.7 million impact of the outstanding checks in excess of deposits offset to cash, operating cash flow less capital expenditures, or free cash flow, would have been approximately $130.2 million for the first nine months of fiscal 2020.

Third-Quarter Fiscal 2021 Segment Results

Foodservice

Third-quarter net sales for Foodservice increased 4.8% to $5.2 billion compared to the prior year period. Net sales growth was driven by growth in cases sold as certain states began to ease COVID-19 restrictions, as well as an increase in selling price per case as a result of inflation. Securing new and expanded business with independent customers resulted in independent case growth of 6.3%. For the third quarter of fiscal 2021, independent sales as a percentage of total segment sales was 33.9%.

Third-quarter EBITDA for Foodservice increased 50.8% to $138.3 million compared to the prior year period. Gross profit increased 8.0% in the third quarter of fiscal 2021 compared to the prior year period as a result of an increase in the gross profit per case, as well as an increase in cases sold. Operating expenses excluding depreciation and amortization increased 0.5% compared to the prior year period as a result of an increase in the annual bonus expense. In the third quarter of fiscal 2021, Foodservice recorded expense of $15.2 million related to annual bonus expense compared to a benefit of $19.3 million for the prior year period. This increase was partially offset by decreases in personnel expense, fuel expense, and insurance expense. Additionally, in the third quarter of fiscal 2021, Foodservice recorded a benefit of $5.5 million related to reserves for expected credit losses compared to bad debt expense of $15.9 million for the third quarter of fiscal 2020.

Vistar

For the third quarter of fiscal 2021, net sales for Vistar decreased 1.8% to $2.0 billion compared to the prior year period. This decrease was driven primarily by the continued economic effects of the COVID-19 pandemic.

Third-quarter EBITDA for Vistar declined 58.7% to $16.8 million versus the prior year period. Gross profit decline of 13.9% for the third quarter of fiscal 2021 compared to the prior year period was fueled by the current economic environment due to COVID-19. Operating expense decreased 1.0% for the third quarter of fiscal 2021 primarily as a result of the decrease in sales volume, decreases in personnel and fuel expenses, and a reduction in contingent consideration accretion expenses as compared to the prior year period. In the third quarter of fiscal 2021, Vistar recorded a benefit of $0.5 million related to reserves for expected credit losses compared to bad debt expense of $5.4 million for the third quarter of fiscal 2020. These declines were partially offset by an increase in annual bonus expense. In the third quarter of fiscal 2021, Vistar recorded expense of $6.7 million related to annual bonus expense as compared to a benefit of $6.7 million in the prior year period.

Fiscal 2021 Outlook

For the fiscal fourth quarter of 2021, PFG expects net sales to be at least $8.2 billion and Adjusted EBITDA is expected to be at least $185 million. This outlook includes the impact of a 53^rd week, which occurs in the fiscal fourth quarter of 2021.

PFG’s Adjusted EBITDA outlook excludes the impact of certain income and expense items that management believes are not part of underlying operations. These items may include, but are not limited to, loss on early extinguishment of debt, restructuring charges, certain tax items, and charges associated with non-recurring professional and legal fees associated with acquisitions. PFG’s management cannot estimate on a forward-looking basis the impact of these income and expense items on its reported Net income, which could be significant, are difficult to predict and may be highly variable. As a result, PFG does not provide a reconciliation to the closest corresponding GAAP financial measure for its Adjusted EBITDA outlook. Please see the “Forward-Looking Statements” section of this release for a discussion of certain risks to PFG’s outlook.

Conference Call

As previously announced, a conference call with the investment community and news media will be webcast today, May 5, 2021, at 9:00 a.m. Eastern Time. Access to the webcast is available at www.pfgc.com.

About Performance Food Group Company

Built on the many proud histories of our family of companies, Performance Food Group is a customer-centric foodservice distribution leader headquartered in Richmond, Virginia. Grounded by roots that date back to a grocery peddler in 1885, PFG today has a nationwide network of over 100 distribution facilities, thousands of talented associates and valued suppliers across the country. With the goal of helping our customers thrive, we market and deliver quality food and related products to over 200,000 locations including independent and chain restaurants, schools, business and industry locations, healthcare facilities, vending distributors, office coffee service distributors, big box retailers, theaters and convenience stores. Building strong relationships is core to PFG’s success – from connecting associates with great career opportunities to connecting valued suppliers and quality products with PFG’s broad and diverse customer base. To learn more about PFG, visit pfgc.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include, but are not limited to, statements related to our expectations regarding the performance of our business, our financial results, our liquidity and capital resources,integration of our acquisition of Reinhart and other non-historical statements. You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “projects,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words.

Such forward-looking statements are subject to various risks and uncertainties. The following factors, in addition to those discussed under the section entitled Item 1A. Risk Factors in the PFG’s Annual Report on Form 10-K for the fiscal year ended June 27, 2020 filed with the Securities and Exchange Commission (the “SEC”) on August 18, 2020, as such factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov, could cause actual future results to differ materially from those expressed in any forward-looking statements:

• the material adverse impact the COVID-19 pandemic has had and is expected to continue to have on the global markets, the restaurant industry, and our business specifically;
• competition in our industry is intense, and we may not be able to compete successfully;
• we operate in a low margin industry, which could increase the volatility of our results of operations;
• we may not realize anticipated benefits from our operating cost reduction and productivity improvement efforts;
• our profitability is directly affected by cost inflation and deflation and other factors;
• we do not have long-term contracts with certain of our customers;
• group purchasing organizations may become more active in our industry and increase their efforts to add our customers as members of these organizations;
• changes in eating habits of consumers;
• extreme weather conditions;
• our reliance on third-party suppliers;
• labor relations and cost risks and availability of qualified labor;
• volatility of fuel and other transportation costs;
• inability to adjust cost structure where one or more of our competitors successfully implement lower costs;
• we may be unable to increase our sales in the highest margin portion of our business;
• changes in pricing practices of our suppliers;
• our growth strategy may not achieve the anticipated results;
• risks relating to acquisitions, including the risk that we are not able to realize benefits of acquisitions or successfully integrate the businesses we acquire;
• environmental, health, and safety costs;
• the risk that we fail to comply with requirements imposed by applicable law or government regulations;
• a portion of our sales volume is dependent upon the distribution of cigarettes and other tobacco products, sales of which are generally declining;
• if the products we distribute are alleged to cause injury or illness or fail to comply with governmental regulations, we may need to recall our products and may experience product liability claims;
• our reliance on technology and risks associated with disruption or delay in implementation of new technology;
• costs and risks associated with a potential cybersecurity incident or other technology disruption;
• product liability claims relating to the products we distribute and other litigation;
• adverse judgements or settlements;
• negative media exposure and other events that damage our reputation;
• decrease in earnings from amortization charges associated with acquisitions;
• impact of uncollectibility of accounts receivable;
• difficult economic conditions affecting consumer confidence;
• risks relating to federal, state, and local tax rules;
• the cost and adequacy of insurance coverage;
• risks relating to our outstanding indebtedness;
• our ability to raise additional capital;
• our ability to maintain an effective system of disclosure controls and internal control over financial reporting; and
• the possibility that the expected synergies and value creation from the acquisition of Reinhart will not be realized or will not be realized within the expected time period.

Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this release and in our filings with the SEC. Any forward-looking statement, including any contained herein, speaks only as of the time of this release or as of the date they were made and we do not undertake to update or revise them as more information becomes available or to disclose any facts, events, or circumstances after the date of this release or our statement, as applicable, that may affect the accuracy of any forward-looking statement, except as required by law.

 

PERFORMANCE FOOD GROUP COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In millions, except per share data)		Three Months Ended March 27, 2021				Three Months Ended March 28, 2020				Nine Months Ended March 27, 2021				Nine Months Ended March 28, 2020
Net sales		$	7,202.5			$	7,000.7			$	21,094.5			$	19,312.3
Cost of goods sold			6,369.8				6,193.2				18,635.2				17,082.2
Gross profit			832.7				807.5				2,459.3				2,230.1
Operating expenses			809.3				824.9				2,339.2				2,103.5
Operating profit (loss)			23.4				(17.4	)			120.1				126.6
Other expense, net:
Interest expense, net			37.1				35.2				114.0				78.9
Other, net			(1.6	)			7.9				(4.7	)			7.7
Other expense, net			35.5				43.1				109.3				86.6
(Loss) income before taxes			(12.1	)			(60.5	)			10.8				40.0
Income tax (benefit) expense			(4.5	)			(20.3	)			1.5				2.9
Net (loss) income		$	(7.6	)		$	(40.2	)		$	9.3			$	37.1
Weighted-average common shares outstanding:
Basic			132.3				115.9				132.0				108.1
Diluted			132.3				115.9				133.2				109.5
(Loss) earnings per common share:
Basic		$	(0.06	)		$	(0.35	)		$	0.07			$	0.34
Diluted		$	(0.06	)		$	(0.35	)		$	0.07			$	0.34

 

PERFORMANCE FOOD GROUP COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
($ in millions)		As of March 27, 2021				As of June 27, 2020
ASSETS
Current assets:
Cash		$	101.5			$	420.7
Accounts receivable, less allowances of $67.2 and $86.7			1,391.1				1,258.6
Inventories, net			1,541.8				1,549.4
Income taxes receivable			41.7				156.5
Prepaid expenses and other current assets			103.0				68.7
Total current assets			3,179.1				3,453.9
Goodwill			1,354.5				1,353.0
Other intangible assets, net			833.6				918.6
Property, plant and equipment, net			1,553.6				1,479.0
Operating lease right-of-use assets			451.1				441.2
Restricted cash and other assets			77.9				74.0
Total assets		$	7,449.8			$	7,719.7
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable and outstanding checks in excess of deposits		$	1,623.2			$	1,718.4
Accrued expenses and other current liabilities			565.5				678.0
Long-term debt – current installments			–				107.6
Finance lease obligations-current installments			45.3				30.3
Operating lease obligations-current installments			78.0				84.4
Total current liabilities			2,312.0				2,618.7
Long-term debt			2,149.1				2,249.3
Deferred income tax liability, net			120.6				115.6
Finance lease obligations, excluding current installments			246.3				185.7
Operating lease obligations, excluding current installments			386.8				362.4
Other long-term liabilities			177.3				177.4
Total liabilities			5,392.1				5,709.1
Total shareholders’ equity			2,057.7				2,010.6
Total liabilities and shareholders’ equity		$	7,449.8			$	7,719.7

 

PERFORMANCE FOOD GROUP COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
($ in millions)		Nine Months Ended March 27, 2021				Nine Months Ended March 28, 2020
Cash flows from operating activities:
Net income		$	9.3			$	37.1
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and intangible asset amortization			247.1				185.8
Provision for losses on accounts receivables			(7.9	)			30.3
Non-cash activities			36.0				41.2
Changes in operating assets and liabilities, net:
Accounts receivable			(123.5	)			192.9
Inventories			11.1				(160.7	)
Income taxes receivable			114.8				(18.5	)
Prepaid expenses and other assets			(31.9	)			(8.7	)
Trade accounts payable and outstanding checks in excess of deposits			(95.6	)			(297.3	)
Accrued expenses and other liabilities			13.7				15.5
Net cash provided by operating activities			173.1				17.6
Cash flows from investing activities:
Purchases of property, plant and equipment			(118.9	)			(101.1	)
Net cash paid for acquisitions			(18.1	)			(1,989.0	)
Other			6.6				0.8
Net cash used in investing activities			(130.4	)			(2,089.3	)
Cash flows from financing activities:
Net (payments) borrowings under ABL Facility			(103.8	)			950.4
Borrowing of Notes due 2027			—				1,060.0
Payment of Additional Junior Term Loan			(110.0	)			—
Proceeds from issuance of common stock			—				490.6
Payments under finance lease obligations			(27.3	)			(16.9	)
Cash paid for acquisitions			(136.4	)			(7.2	)
Proceeds from exercise of stock options and employee stock purchase plan			20.5				4.7
Cash paid for shares withheld to cover taxes			(4.2	)			(7.9	)
Repurchase of common stock			—				(5.0	)
Other			(0.7	)			(39.2	)
Net cash (used in) provided by financing activities			(361.9	)			2,429.5
Net (decrease) increase in cash and restricted cash			(319.2	)			357.8
Cash and restricted cash, beginning of period			431.8				25.4
Cash and restricted cash, end of period		$	112.6			$	383.2

The following table provides a reconciliation of cash and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows:

(In millions)		As of March 27, 2021				As of June 27, 2020
Cash		$	101.5			$	420.7
Restricted cash(1)			11.1				11.1
Total cash and restricted cash		$	112.6			$	431.8

(1)

Restricted cash represents the amounts required by insurers to collateralize a part of the deductibles for the Company’s workers’ compensation and liability claims.

Supplemental disclosures of cash flow information:

($ in millions)		Nine Months Ended March 27, 2021				Nine Months Ended March 28, 2020
Cash paid (received) during the year for:
Interest		$	81.2			$	47.5
Income tax (refunds) payments, net			(117.8	)			28.5

Statement Regarding Non-GAAP Financial Measures

This earnings release and the accompanying financial statement tables include several financial measures that are not calculated in accordance with GAAP, including EBITDA, Adjusted EBITDA, Free Cash Flow and Adjusted Diluted EPS. Such measures are not recognized terms under GAAP, should not be considered in isolation or as a substitute for measures prepared in accordance with GAAP, and are not indicative of net income as determined under GAAP. EBITDA, Adjusted EBITDA, Free Cash Flow, Adjusted Diluted EPS and other non-GAAP financial measures have limitations that should be considered before using these measures to evaluate PFG’s liquidity or financial performance. EBITDA, Adjusted EBITDA, Free Cash Flow and Adjusted Diluted EPS, as presented, may not be comparable to similarly titled measures of other companies because of varying methods of calculation.

Management measures operating performance based on PFG’s EBITDA, defined as net income before interest expense, interest income, income taxes, and depreciation and amortization.

PFG believes that the presentation of EBITDA enhances an investor’s understanding of PFG’s performance. PFG believes this measure is a useful metric to assess PFG’s operating performance from period to period by excluding certain items that PFG believes are not representative of PFG’s core business. PFG also uses this measure to evaluate the performance of its segments and for business planning purposes.

In addition, management uses Adjusted EBITDA, defined as net income before interest expense, interest income, income and franchise taxes, and depreciation and amortization, further adjusted to exclude certain items we do not consider part of our core operating results. Such adjustments include certain unusual, non-cash, non-recurring, cost reduction and other adjustment items permitted in calculating covenant compliance under the PFG’s credit agreement and indenture (other than certain pro forma adjustments permitted under our credit agreement and indenture relating to the Adjusted EBITDA contribution of acquired entities or businesses prior to the acquisition date). Under PFG’s credit agreement and indenture, PFG’s ability to engage in certain activities such as incurring certain additional indebtedness, making certain investments, and making restricted payments is tied to ratios based on Adjusted EBITDA (as defined in the credit agreement and indenture).

Management also uses Free Cash Flow, which is defined as net cash provided by operating activities less capital expenditures (purchases of property, plant and equipment). PFG also believes that the presentation of Free Cash Flow enhances an investor’s understanding of PFG’s ability to make strategic investments and manage debt levels.

Management also uses Adjusted Diluted EPS, which is calculated by adjusting the most directly comparable GAAP financial measure by excluding the same items excluded in PFG’s calculation of Adjusted EBITDA, as well as amortization of intangible assets, to the extent that each such item was included in the applicable GAAP financial measure. For business combinations, the Company generally allocates a portion of the purchase price to intangible assets and such intangible assets contribute to revenue generation. The amount of the allocation is based on estimates and assumptions made by management and is subject to amortization over the useful lives of the intangible assets. The amount of the purchase price from an acquisition allocated to intangible assets and the term of its related amortization can vary significantly and are unique to each acquisition, and thus the Company does not believe it is reflective of ongoing operations. Intangible asset amortization excluded from Adjusted Diluted EPS represents the entire amount recorded within the Company’s GAAP financial statements and the revenue generated by the associated intangible assets has not been excluded from Adjusted Diluted EPS. Intangible asset amortization is excluded from Adjusted Diluted EPS because the amortization, unlike the related revenue, is not affected by operations of any particular period unless an intangible asset becomes impaired or the estimated useful life of an intangible asset is revised.

PFG believes that the presentation of Adjusted EBITDA, Free Cash Flow and Adjusted Diluted EPS is useful to investors because these metrics provide insight into underlying business trends and year-over-year results and are frequently used by securities analysts, investors and other interested parties in their evaluation of the operating performance of companies in PFG’s industry.

The following tables include a reconciliation of non-GAAP financial measures to the applicable most comparable GAAP financial measures.

 

PERFORMANCE FOOD GROUP COMPANY
Non-GAAP Reconciliation (Unaudited)
		Three Months Ended
($ in millions, except share and per share data)		March 27, 2021				March 28, 2020				Change				%
Net income (loss) (GAAP)		$	(7.6	)		$	(40.2	)		$	32.6				(81.1	)
Interest expense, net			37.1				35.2				1.9				5.4
Income tax benefit			(4.5	)			(20.3	)			15.8				(77.8	)
Depreciation			50.7				49.3				1.4				2.8
Amortization of intangible assets			30.1				50.0				(19.9	)			(39.8	)
EBITDA (Non-GAAP)			105.8				74.0				31.8				43.0
Non-cash items (A)			13.0				6.1				6.9				113.1
Acquisition, integration & reorganization charges (B)			3.6				36.9				(33.3	)			(90.2	)
Productivity initiatives and other adjustment items (C)			(1.2	)			14.1				(15.3	)			(108.5	)
Adjusted EBITDA (Non-GAAP)		$	121.2			$	131.1			$	(9.9	)			(7.6	)
Diluted loss per share (GAAP)		$	(0.06	)		$	(0.35	)		$	0.29				(82.9	)
Adjustment for dilutive shares			—				0.01				(0.01	)			(100.0	)
Impact of amortization of intangible assets			0.22				0.43				(0.21	)			(48.8	)
Impact of non-cash items			0.10				0.05				0.05				100.0
Impact of acquisition, integration & reorganization charges			0.03				0.31				(0.28	)			(90.3	)
Impact of productivity initiatives and other adjustment items			(0.01	)			0.12				(0.13	)			(108.3	)
Tax impact of above adjustments			(0.09	)			0.01				(0.10	)			(1,000.0	)
Adjusted Diluted Earnings per Share (Non-GAAP)		$	0.19			$	0.58			$	(0.39	)			(67.2	)

A.		Includes adjustments for non-cash charges arising from stock-based compensation and gain/loss on disposal of assets. Stock-based compensation cost was $7.0 million and $5.2 million for the third quarter of fiscal 2021 and the third quarter of fiscal 2020, respectively. In addition, this includes a decrease in the last-in-first-out (“LIFO”) reserve of $2.3 million for Foodservice and an increase of $3.7 million for Vistar for the third quarter of fiscal 2021 compared to decrease of $1.1 million for Foodservice and an increase of $0.5 million for Vistar for the third quarter of fiscal 2020.
B.		Includes professional fees and other costs related to acquisitions, costs of integrating certain of our facilities, and facility closing costs.
C.		Consists primarily of amounts related to fuel collar derivatives, certain financing transactions, lease amendments, legal settlements and franchise tax expense, and other adjustments permitted by our credit agreement and indentures. Fiscal 2020 also includes $5.8 million of development costs related to certain productivity initiatives the Company no longer pursued as a result of the Reinhart acquisition.

PERFORMANCE FOOD GROUP COMPANY
Non-GAAP Reconciliation (Unaudited)
		Nine Months Ended
($ in millions, except share and per share data)		March 27, 2021				March 28, 2020				Change				%
Net income (GAAP)		$	9.3			$	37.1			$	(27.8	)			(74.9	)
Interest expense, net			114.0				78.9				35.1				44.5
Income tax expense			1.5				2.9				(1.4	)			(48.3	)
Depreciation			158.4				118.3				40.1				33.9
Amortization of intangible assets			88.7				67.5				21.2				31.4
EBITDA (Non-GAAP)			371.9				304.7				67.2				22.1
Impact of non-cash items (A)			31.1				18.8				12.3				65.4
Impact of acquisition, integration & reorganization charges (B)			13.0				60.7				(47.7	)			(78.6	)
Impact of productivity initiatives and other adjustment items (C)			(1.6	)			17.5				(19.1	)			(109.1	)
Adjusted EBITDA (Non-GAAP)		$	414.4			$	401.7			$	12.7				3.2
Diluted earnings per share (GAAP)		$	0.07			$	0.34			$	(0.27	)			(79.4	)
Impact of amortization of intangible assets			0.67				0.62				0.05				8.1
Impact of non-cash items			0.23				0.17				0.06				35.3
Impact of acquisition, integration & reorganization charges			0.10				0.55				(0.45	)			(81.8	)
Impact of productivity initiatives and other adjustment items			(0.01	)			0.16				(0.17	)			(106.3	)
Tax impact of above adjustments			(0.27	)			(0.11	)			(0.16	)			145.5
Adjusted Diluted Earnings per Share (Non-GAAP)		$	0.79			$	1.73			$	(0.94	)			(54.3	)

A.		Includes adjustments for non-cash charges arising from stock-based compensation and gain/loss on disposal of assets. Stock-based compensation cost was $19.3 million and $14.0 million for the first nine months of fiscal 2021 and the first nine months of fiscal 2020, respectively. In addition, this includes an increase in the LIFO reserve of $5.1 million for Foodservice and $4.2 million for Vistar for the first nine months of fiscal 2021 compared to increases of $0.9 million for Foodservice and $2.2 million for Vistar for the first nine months fiscal 2020.
B.		Includes professional fees and other costs related to acquisitions, costs of integrating certain of our facilities, and facility closing costs.
C.		Consists primarily of amounts related to fuel collar derivatives, certain financing transactions, lease amendments, legal settlements and franchise tax expense, and other adjustments permitted by our credit agreement and indentures. Fiscal 2020 also includes $5.8 million of development costs related to certain productivity initiatives the Company no longer pursued as a result of the Reinhart acquisition.

(In millions)		Nine Months Ended March 27, 2021				Nine Months Ended March 28, 2020
Net cash provided by operating activities (GAAP)		$	173.1			$	17.6
Purchases of property, plant and equipment			(118.9	)			(101.1	)
Free cash flow (Non-GAAP)		$	54.2			$	(83.5	)

Segment Results

The Company has two reportable segments: Foodservice and Vistar. Management evaluates the performance of these segments based on their respective sales growth and EBITDA. Corporate & All Other is comprised of corporate overhead and certain operations that are not considered separate reportable segments based on their size. This includes the operations of our internal logistics unit responsible for managing and allocating inbound logistics revenue and expense.

The following tables set forth net sales and EBITDA by segment for the periods indicated (dollars in millions):

Net Sales
		Three Months Ended
		March 27, 2021				March 28, 2020				Change				%
Foodservice		$	5,186.5			$	4,949.9			$	236.6				4.8
Vistar			2,012.3				2,049.2				(36.9	)			(1.8	)
Corporate & All Other			96.9				107.1				(10.2	)			(9.5	)
Intersegment Eliminations			(93.2	)			(105.5	)			12.3				11.7
Total net sales		$	7,202.5			$	7,000.7			$	201.8				2.9

		Nine Months Ended
		March 27, 2021				March 28, 2020				Change				%
Foodservice		$	15,110.3			$	12,728.2			$	2,382.1				18.7
Vistar			5,973.4				6,579.5				(606.1	)			(9.2	)
Corporate & All Other			293.2				265.7				27.5				10.4
Intersegment Eliminations			(282.4	)			(261.1	)			(21.3	)			(8.2	)
Total net sales		$	21,094.5			$	19,312.3			$	1,782.2				9.2

EBITDA
		Three Months Ended
		March 27, 2021				March 28, 2020				Change				%
Foodservice		$	138.3			$	91.7			$	46.6				50.8
Vistar			16.8				40.7				(23.9	)			(58.7	)
Corporate & All Other			(49.3	)			(58.4	)			9.1				15.6
Total EBITDA		$	105.8			$	74.0			$	31.8				43.0

		Nine Months Ended
		March 27, 2021				March 28, 2020				Change				%
Foodservice		$	449.8			$	309.3			$	140.5				45.4
Vistar			67.2				148.8				(81.6	)			(54.8	)
Corporate & All Other			(145.1	)			(153.4	)			8.3				5.4
Total EBITDA		$	371.9			$	304.7			$	67.2				22.1

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20210505005256/en/

Investors:

William S. Marshall

VP, Investor Relations

(804) 287-8108

[email protected]

Media:

Trisha Meade

Director, Communications & Engagement

(804) 285-5390

[email protected]

KEYWORDS: Virginia United States North America

INDUSTRY KEYWORDS: Supply Chain Management Retail Restaurant/Bar Transport Logistics/Supply Chain Management Food/Beverage

MEDIA:

Logo

Horizon Therapeutics plc Reports First-Quarter 2021 Financial Results; Updating Full-Year 2021 Net Sales Guidance and Full-Year Adjusted EBITDA Guidance to Incorporate Recently Acquired Viela Bio, Inc.

— First-Quarter 2021 Net Sales of $342.4 Million; First-Quarter 2021 GAAP Net Loss of $123.4 Million; Adjusted EBITDA of $45.8 Million —

— First-Quarter 2021 Orphan Segment Net Sales Increased 5 Percent to $257.5 Million; KRYSTEXXA^® (pegloticase injection) First-Quarter 2021 Net Sales Increased 14 Percent to $106.7 Million —

— Updating Full-Year 2021 Net Sales Guidance to $2.75 Billion to $2.85 Billion and Full-Year 2021 Adjusted EBITDA Guidance to $1.02 Billion to $1.06 Billion to Incorporate Viela, Acquired on March 15, 2021 —

— Resumed Supply of TEPEZZA^® (teprotumumab-trbw) in April Following U.S. FDA Approval of Increased Scale of Production Process for TEPEZZA —

— Completed Acquisition of Viela in March to Drive Long-Term Growth by Significantly Expanding Development Pipeline and Adding to Rare Disease Medicines Portfolio —

— Initiated Launch Preparations to Support Potential Approval for UPLIZNA^® (inebilizumab-cdon) in Europe as part of Global Expansion Strategy —

— Presented New UPLIZNA Data Demonstrating Long-Term Safety and Efficacy in Neuromyelitis Optica Spectrum Disorder (NMOSD) —

DUBLIN–(BUSINESS WIRE)–
Horizon Therapeutics plc (Nasdaq: HZNP) today announced first-quarter 2021 financial results. The Company updated its full-year 2021 net sales guidance and its adjusted EBITDA guidance to incorporate Viela Bio, Inc., which was acquired on March 15, 2021.

“We continued to advance our position as one of the fastest-growing biotechs, completing the milestone acquisition of Viela with its strong biologics pipeline, R&D capabilities and rare disease medicine, UPLIZNA,” said Tim Walbert, chairman, president and chief executive officer, Horizon. “We were very pleased with our performance in a quarter challenged by the supply disruption of TEPEZZA due to U.S. government-mandated COVID-19 vaccine orders. With the resumption of TEPEZZA supply, our expanded pipeline and our strong ability to execute, we are well positioned to continue to drive significant value for our patients, shareholders and all of our stakeholders.”

Financial Highlights

(in millions except for per share amounts and percentages)					Q1 21 (1)							Q1 20							% Change
Net sales					$	342.4						$	355.9						(4	)
Net loss						(123.4	)						(13.6	)					NM
Non-GAAP net income						7.4							83.2						(91	)
Adjusted EBITDA						45.8							107.2						(57	)
Loss per share – diluted						(0.55	)						(0.07	)					NM
Non-GAAP earnings per share – diluted						0.03							0.40						(93	)

(1)

First-quarter 2021 results were negatively impacted by a short-term TEPEZZA supply disruption due to U.S. government-mandated COVID-19 vaccine orders.

First-Quarter and Recent Company Highlights

• Completed Acquisition of Viela: On March 15, 2021, the Company completed the acquisition of Viela, representing a significant step forward in advancing the Company’s strategy to expand its pipeline to accelerate long-term sustainable growth. The acquisition advances the Company’s strategy in four ways: it adds a deep, mid-stage biologics pipeline with four candidates in nine development programs; it expands the capabilities of the Company’s R&D organization with Viela’s early-stage research and translational capabilities and deep scientific knowledge in autoimmune and severe inflammatory diseases; it supports the Company’s global expansion strategy; and it diversifies the Company’s on-market medicine portfolio with the addition of UPLIZNA, an infused biologic medicine indicated for the rare disease NMOSD.

• Resumed TEPEZZA Supply: In March 2021, the U.S. Food and Drug Administration approved a prior approval supplement giving the Company authorization to manufacture an increased scale of TEPEZZA drug product, resulting in a greater number of vials per manufacturing slot at its third-party manufacturer, Catalent. The Company resumed supplying the market in April following a supply disruption that began in December 2020 due to U.S. government-mandated COVID-19 vaccine orders. The Company continues to make progress on adding a second drug product manufacturer by the end of 2021.

• Advancing the Company’s Global Expansion with European UPLIZNA Launch Preparations: Today, the Company announced additional plans for its global expansion, preparing to build out its European infrastructure to support the potential approval by the first quarter of 2022 of UPLIZNA for NMOSD, which has been granted orphan designation by the European Commission. The Company is adding key infrastructure to support the potential launch of UPLIZNA in Europe in the near term as well as to support the potential launch of additional medicines over the long term. The Company anticipates building a global presence over time in several other markets outside of Europe, including Japan, one of the markets the Company is pursuing for TEPEZZA, where the Company is engaging with the Pharmaceutical and Medical Devices Agency and the Japanese medical community.

• UPLIZNA Approved in Japan for NMOSD: In March 2021, the Company’s strategic partner Mitsubishi Tanabe Pharma Corporation received manufacturing and marketing approval of UPLIZNA for the prevention of relapses of NMOSD from the Japanese Ministry of Health, Labour and Welfare.

• Presented New UPLIZNA Data at Medical Meetings: New UPLIZNA data were presented at the American Academy of Neurology’s 73rd Annual Meeting in April, including end-of-study data from the open-label extension period (OLP) of the pivotal N-MOmentum trial in patients with NMOSD. The data showed UPLIZNA was generally well-tolerated for at least four years, and that long-term UPLIZNA treatment provided a sustained reduction in NMOSD attack risk from baseline, regardless of when treatment was initiated. Data from the OLP were also recently presented at the American Committee for Treatment and Research in Multiple Sclerosis (ACTRIMS) 2021 Forum, including a poster featuring data demonstrating the safety and efficacy of UPLIZNA in those with previous rituximab exposure. Additionally, a new analysis of the N-MOmentum trial demonstrating that the medicine consistently reduced the risk of worsening disability in people living with NMOSD was published in the May issue of Neurology Neuroimmunology & Neuroinflammation.

• Initiated Enrollment in KRYSTEXXA Monthly Dosing Trial: In March 2021, the first patient was enrolled in an open-label trial to evaluate a monthly dosing regimen of KRYSTEXXA with methotrexate to treat people with uncontrolled gout. The goal of the trial is to explore whether a monthly dosing regimen can provide similar outcomes as the current dosing schedule, which is every other week.

• Completed Enrollment in KRYSTEXXA PROTECT Trial: In January 2021, the Company completed enrollment in its PROTECT open-label trial. The trial, which is evaluating KRYSTEXXA to improve the management of uncontrolled gout for adults with a kidney transplant, enrolled a total of 20 patients. Results are expected in the fourth quarter of 2021.

• Progressed the TEPEZZA Subcutaneous Administration Clinical Program: The Company completed dosing in late March for its first trial exploring a subcutaneous (SC) formulation of TEPEZZA. The trial is a small, single-dose Phase 1 pharmacokinetic trial which includes evaluating the use of the Halozyme ENHANZE^® drug-delivery technology for a SC formulation, which could potentially shorten drug administration time, reducing healthcare practitioner time and offering additional flexibility and convenience for patients.

• Received Multiple Best Workplace Awards: The Company continued to be recognized as a best workplace. In March 2021, the Company ranked No. 1 on the “Fortune Best Workplaces in Biopharma 2021” list and was named to the “Best Workplaces in Ireland 2021” list. In April 2020, the Company was named one of Fortune’s “100 Best Companies to Work For^®” in the United States and placed on Crain’s Chicago Business’ 2021 “Best Places to Work in Chicago” list for the sixth consecutive year.

Key Clinical Development Programs

• TEPEZZA: an insulin-like growth factor type 1 receptor (IGF-1R) antagonist monoclonal antibody.
  • Chronic Thyroid Eye Disease (TED) Trial: Phase 4 randomized, placebo-controlled trial evaluating TEPEZZA in chronic TED expected to initiate in mid-2021.
  • Subcutaneous Administration: Phase 1 pharmacokinetic trial exploring SC administration of TEPEZZA.
  • Diffuse Cutaneous Systemic Sclerosis (dcSSc) Exploratory Trial: Phase 1 exploratory trial in dcSSc expected to initiate in mid-2021.

• KRYSTEXXA: a recombinant uricase enzyme that converts urate into a water-soluble liquid, allantoin, that can be easily excreted from the body.
  • MIRROR Randomized Controlled Trial: Phase 4 randomized, placebo-controlled trial evaluating KRYSTEXXA with methotrexate to increase the complete response rate in patients with uncontrolled gout.
  • PROTECT Trial: Phase 4 open-label trial evaluating KRYSTEXXA to improve management of uncontrolled gout in kidney transplant patients.
  • Shorter Infusion Duration Trial: Phase 4 open-label trial evaluating the impact of administering KRYSTEXXA with methotrexate over a shorter infusion duration in patients with uncontrolled gout.
  • Monthly Dosing Trial: Phase 4 open-label trial evaluating monthly dosing of KRYSTEXXA with methotrexate in patients with uncontrolled gout.
  • Retreatment Trial: Phase 4 open-label trial evaluating KRYSTEXXA with methotrexate in patients who have previously failed KRYSTEXXA monotherapy; expected to initiate in the second quarter of 2021.

• UPLIZNA: an anti-CD19 humanized monoclonal antibody that depletes B cells and the pathogenic cells that produce autoantibodies.
  • Myasthenia Gravis Trial: Phase 3 randomized, placebo-controlled trial evaluating UPLIZNA in patients with myasthenia gravis, a chronic, rare, autoimmune neuromuscular disease that affects voluntary muscles, especially those that control the eyes, mouth, throat and limbs.
  • IgG4-Related Disease Trial: Phase 3 randomized, placebo-controlled trial evaluating UPLIZNA in patients with IgG4-related disease, which is a group of disorders marked by tumor-like swelling and fibrosis of affected organs, such as the pancreas, salivary glands and kidneys.
  • Kidney Transplant Desensitization Trial: Phase 2 open-label trial evaluating UPLIZNA, HZN-4920, or both in highly-sensitized patients waiting for a kidney transplant, which is paused due to COVID-19.

• HZN-825: an oral lysophosphatidic acid receptor 1 (LPAR1) antagonist that prevents gene activation.
  • dcSSc Trial: Pivotal Phase 2b trial in dcSSc expected to initiate in the second quarter of 2021.
  • Interstitial Lung Disease Trial: Pivotal Phase 2b trial in idiopathic pulmonary fibrosis, the most common form of interstitial lung disease, expected to initiate in mid-2021.

• HZN-4920: a CD40 ligand antagonist that blocks T cell interaction with the CD40-expressing B cells, disrupting the overactivation of the CD40 ligand co-stimulatory pathway. Several autoimmune diseases are associated with the overactivation this pathway.
  • Sjögren’s Syndrome Trial: Phase 2b randomized, placebo-controlled trial evaluating HZN-4920 in patients with Sjögren’s syndrome, a chronic, systemic autoimmune condition that impacts exocrine glands, including the salivary and tear glands.
  • Rheumatoid Arthritis Trial: Phase 2 randomized, placebo-controlled trial evaluating HZN-4920 in patients with rheumatoid arthritis.
  • Kidney Transplant Rejection Trial: Phase 2 open-label trial evaluating HZN-4920 in kidney transplant rejection patients.

• HZN-7734: an anti-ILT7 human monoclonal antibody that depletes certain dendritic cells. Depleting these cells may interrupt the cycle of inflammation that causes tissue damage in diseases such as lupus, dermatomyositis and a variety of other autoimmune conditions.
  • Systemic Lupus Erythematosus (SLE) Trial: Phase 2 trial in SLE, a disease in which the body’s immune system attacks its own tissues and organs, expected to initiate in mid-2021.
  • COVID-19-Related Acute Lung Injury Trial: Phase 1 trial in COVID-19-related acute lung injury.

• HZN-1116 Autoimmune Disease Trial: Phase 1 trial in autoimmune diseases expected to initiate in mid-2021.

First-Quarter Financial Results

Note: For additional detail and reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures, please refer to the tables at the end of this release.

• Net Sales: First-quarter 2021 net sales were $342.4 million. First-quarter 2020 net sales were $355.9 million.

• Gross Profit: Under U.S. GAAP, the first-quarter 2021 gross profit ratio was 70.7 percent compared to 72.6 percent in the first quarter of 2020. The non-GAAP gross profit ratio in the first quarter of 2021 was 90.9 percent compared to 90.0 percent in the first quarter of 2020.

• Operating Expenses: Research and development (R&D) expenses were 16.8 percent of net sales and selling, general and administrative (SG&A) expenses were 97.0 percent of net sales. Non-GAAP R&D expenses were 14.3 percent of net sales, and non-GAAP SG&A expenses were 63.8 percent of net sales.

• Income Tax Expense: On a GAAP basis in the first quarter of 2021, income tax benefit was $47.8 million. First-quarter non-GAAP income tax expense was $25.8 million.

• Net (Loss) Income: On a GAAP basis, first-quarter 2021 net loss was $123.4 million. First-quarter 2021 non-GAAP net income was $7.4 million.

• Adjusted EBITDA: First-quarter 2021 adjusted EBITDA was $45.8 million.

• (Loss) Earnings per Share: On a GAAP basis, diluted loss per share in the first quarter of 2021 and 2020 were $0.55 and $0.07, respectively. Non-GAAP diluted earnings per share in the first quarter of 2021 and 2020 were $0.03 and $0.40, respectively. Weighted average shares outstanding used for calculating GAAP and non-GAAP diluted earnings per share in the first quarter of 2021 were 223.9 million and 234.1 million, respectively.

First-Quarter Segment Results

Management uses net sales and segment operating income to evaluate the performance of the Company’s two segments, the orphan segment and the inflammation segment. While segment operating income contains certain adjustments to the directly comparable GAAP figures in the Company’s consolidated financial results, it is considered to be prepared in accordance with GAAP for purposes of presenting the Company’s segment operating results.

Orphan Segment

(in millions except for percentages)					Q1 21						Q1 20						% Change
KRYSTEXXA®						106.7						93.3					14
RAVICTI®(1)						72.8						61.2					19
PROCYSBI®						43.4						38.3					13
ACTIMMUNE®						28.8						26.5					8
TEPEZZA®						2.1						23.5					(91	)
UPLIZNA®(2)						1.8						–					NM
BUPHENYL®(1)						1.7						2.3					(28	)
QUINSAIRTM						0.2						0.3					(25	)
Orphan Net Sales					$	257.5					$	245.4					5
Orphan Segment Operating Income					$	1.1					$	54.4					(98	)

(1)		On Oct. 27, 2020, the Company sold its rights to develop and commercialize RAVICTI and BUPHENYL in Japan to Medical Need Europe AB, part of the Immedica Group. The Company has retained the rights to RAVICTI and BUPHENYL in North America.
(2)		First-quarter 2021 TEPEZZA net sales relate to an adjustment of 2020 gross-to-net reserves recorded in the first quarter of 2021.
(3)		UPLIZNA was acquired on March 15, 2021.

• First-quarter 2021 net sales of the orphan segment, the Company’s strategic growth segment, were $257.5 million, an increase of 5 percent over the prior year’s quarter, driven by strong performance of KRYSTEXXA, RAVICTI, PROCYSBI and ACTIMMUNE. First-quarter 2021 net sales include a partial quarter of UPLIZNA net sales. First-quarter 2021 TEPEZZA net sales were negatively impacted by a short-term supply disruption due to U.S. government-mandated COVID-19 vaccine orders.

   

Inflammation Segment

(in millions except for percentages)					Q1 21						Q1 20						% Change
PENNSAID 2%®						45.8						41.6					10
DUEXIS®						19.5						31.3					(38	)
RAYOS®						15.3						18.2					(16	)
VIMOVO®(1)						4.3						19.4					(78	)
Inflammation Net Sales					$	84.9					$	110.5					(23	)
Inflammation Segment Operating Income					$	42.7					$	51.9					(18	)

(1)

On Feb. 27, 2020, Dr. Reddy’s Laboratory initiated an at-risk launch of generic VIMOVO in the United States.

• First-quarter 2021 net sales of the inflammation segment were $84.9 million, and segment operating income was $42.7 million.

Cash Flow Statement and Balance Sheet Highlights

• On a GAAP basis in the first quarter of 2021, cash used in operating activities was $3.7 million. Non-GAAP operating cash flow was $63.5 million.

• As of March 31, 2021, the Company had cash and cash equivalents of $811.6 million.

• As of March 31, 2021, the total principal amount of debt outstanding was $2.618 billion. As of March 31, 2021, the gross-debt-to-last-12-months adjusted EBITDA leverage ratio was 2.8 times.

2021 Guidance

The Company now expects full‐year 2021 net sales to range between $2.75 billion and $2.85 billion, updated from the previous range of $2.70 billion and $2.80 billion. Full-year 2021 adjusted EBITDA is now expected to range between $1.02 billion and $1.06 billion, updated from the previous guidance of $1.14 billion and $1.18 billion. The updated guidance ranges incorporate Viela, which was acquired on March 15, 2021. The Company continues to expect TEPEZZA full-year 2021 net sales of greater than $1.275 billion and KRYSTEXXA full-year 2021 net sales of greater than $500 million.

Webcast

At 8 a.m. EST / 1 p.m. IST today, the Company will host a live webcast to review its financial and operating results and provide a general business update. The live webcast and a replay may be accessed at http://ir.horizontherapeutics.com. Please connect to the Company’s website at least 15 minutes prior to the live webcast to ensure adequate time for any software download that may be needed to access the webcast. A replay of the webcast will be available approximately two hours after the live webcast.

About Horizon

Horizon is focused on the discovery, development and commercialization of medicines that address critical needs for people impacted by rare, autoimmune and severe inflammatory diseases. Our pipeline is purposeful: we apply scientific expertise and courage to bring clinically meaningful therapies to patients. We believe science and compassion must work together to transform lives. For more information on how we go to incredible lengths to impact lives, please visit www.horizontherapeutics.com and follow us on Twitter, LinkedIn, Instagram and Facebook.

Note Regarding Use of Non-GAAP Financial Measures

EBITDA, or earnings before interest, taxes, depreciation and amortization, and adjusted EBITDA are used and provided by Horizon as non-GAAP financial measures. Horizon provides certain other financial measures such as non-GAAP net income, non-GAAP diluted earnings per share, non-GAAP gross profit and gross profit ratio, non-GAAP operating expenses, non-GAAP operating income, non-GAAP tax expense and tax rate and non-GAAP operating cash flow, each of which include adjustments to GAAP figures. These non-GAAP measures are intended to provide additional information on Horizon’s performance, operations, expenses, profitability and cash flows. Adjustments to Horizon’s GAAP figures as well as EBITDA exclude acquisition and/or divestiture-related expenses, gain or loss from divestiture, gain or loss from sale of assets, upfront, progress and milestone payments related to license and collaboration agreements, litigation settlements, loss on debt extinguishment, costs of debt refinancing, drug manufacturing harmonization costs, restructuring and realignment costs, the income tax effect on pre-tax non-GAAP adjustments and other non-GAAP income tax adjustments, as well as non-cash items such as share-based compensation, depreciation and amortization, non-cash interest expense, long-lived asset impairment charges and other non-cash adjustments. Certain other special items or substantive events may also be included in the non-GAAP adjustments periodically when their magnitude is significant within the periods incurred. Horizon maintains an established non-GAAP cost policy that guides the determination of what costs will be excluded in non-GAAP measures. Horizon believes that these non-GAAP financial measures, when considered together with the GAAP figures, can enhance an overall understanding of Horizon’s financial and operating performance. The non-GAAP financial measures are included with the intent of providing investors with a more complete understanding of the Company’s historical and expected 2021 financial results and trends and to facilitate comparisons between periods and with respect to projected information. In addition, these non-GAAP financial measures are among the indicators Horizon’s management uses for planning and forecasting purposes and measuring the Company’s performance. For example, adjusted EBITDA is used by Horizon as one measure of management performance under certain incentive compensation arrangements. These non-GAAP financial measures should be considered in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. The non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, non-GAAP financial measures used by other companies. Horizon has not provided a reconciliation of its full-year 2021 adjusted EBITDA outlook to an expected net income (loss) outlook because certain items such as acquisition/divestiture-related expenses and share-based compensation that are a component of net income (loss) cannot be reasonably projected due to the significant impact of changes in Horizon’s stock price, the variability associated with the size or timing of acquisitions/divestitures and other factors. These components of net income (loss) could significantly impact Horizon’s actual net income (loss).

Forward-Looking Statements

This press release contains forward-looking statements, including, but not limited to, statements related to Horizon’s full-year 2021 net sales and adjusted EBITDA guidance; expected financial performance and operating results in future periods, including potential growth in net sales of certain of Horizon’s medicines; the potential benefits and other impacts of the Viela Bio acquisition; development and commercialization plans; expected timing of clinical trials, studies and regulatory submissions; potential market opportunity for and benefits of Horizon’s medicines and medicine candidates; and business and other statements that are not historical facts. These forward-looking statements are based on Horizon’s current expectations and inherently involve significant risks and uncertainties. Actual results and the timing of events could differ materially from those anticipated in such forward-looking statements as a result of these risks and uncertainties, which include, without limitation, risks that Horizon’s actual future financial and operating results may differ from its expectations or goals; Horizon’s ability to grow net sales from existing medicines; impacts of the COVID-19 pandemic and actions taken to slow its spread, including impacts on supplies and net sales of Horizon’s medicines and potential delays in clinical trials; the fact that Horizon’s full-year 2021 net sales, adjusted EBITDA and TEPEZZA net sales guidance and the expected timing of certain TEPEZZA clinical trials assume that future committed manufacturing slots for TEPEZZA are not cancelled and are run successfully, which could be impacted by additional government-mandated COVID-19 vaccine production orders and other risks associated with the manufacture of biologic medicines; risks associated with acquisitions, such as the risk that the businesses will not be integrated successfully, that such integration may be more difficult, time-consuming or costly than expected or that the expected benefits of the transaction will not occur; the availability of coverage and adequate reimbursement and pricing from government and third-party payers; risks relating to Horizon’s ability to successfully implement its business strategies, including its global expansion strategy; risks inherent in developing novel medicine candidates and existing medicines for new indications; risks associated with regulatory approvals; risks in the ability to recruit, train and retain qualified personnel; competition, including potential generic competition; the ability to protect intellectual property and defend patents; regulatory obligations and oversight, including any changes in the legal and regulatory environment in which Horizon operates and those risks detailed from time-to-time under the caption “Risk Factors” and elsewhere in Horizon’s filings and reports with the SEC. Horizon undertakes no duty or obligation to update any forward-looking statements contained in this press release as a result of new information.

Horizon Therapeutics plc
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except share and per share data)
		Three Months Ended March 31,
		2021							2020
Net sales		$	342,406						$	355,909
Cost of goods sold			100,368							97,416
Gross profit			242,038							258,493
OPERATING EXPENSES:
Research and development			57,693							27,209
Selling, general and administrative			331,992							247,775
Impairment of long-lived assets			12,371							–
Total operating expenses			402,056							274,984
Operating loss			(160,018	)						(16,491	)
OTHER EXPENSE, NET:
Interest expense, net			(13,460	)						(17,344	)
Foreign exchange (loss) gain			(848	)						776
Other income, net			3,224							442
Total other expense, net			(11,084	)						(16,126	)
Loss before benefit for income taxes			(171,102	)						(32,617	)
Benefit for income taxes			(47,751	)						(19,026	)
Net loss		$	(123,351	)					$	(13,591	)
Net loss per ordinary share – basic and diluted		$	(0.55	)					$	(0.07	)
Weighted average ordinary shares outstanding – basic and diluted			223,920,768							190,072,112

Horizon Therapeutics plc
Condensed Consolidated Balance Sheets
(in thousands, except share data)
		As of
		March 31, 2021							December 31, 2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	811,609						$	2,079,906
Restricted cash			3,839							3,573
Accounts receivable, net			443,172							659,701
Inventories, net			238,306							75,283
Prepaid expenses and other current assets			334,442							251,945
Total current assets			1,831,368							3,070,408
Property and equipment, net			201,857							189,037
Developed technology and other intangible assets, net			3,210,221							1,782,962
In-process research and development			880,000							–
Goodwill			1,076,388							413,669
Deferred tax assets, net			589,618							560,841
Other assets			57,158							55,699
Total assets		$	7,846,610						$	6,072,616
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	42,986						$	37,710
Accrued expenses			389,626							485,567
Accrued trade discounts and rebates			325,232							352,463
Long-term debt—current portion			16,000							–
Total current liabilities			773,844							875,740
LONG-TERM LIABILITIES:
Long-term debt, net			2,562,517							1,003,379
Deferred tax liabilities, net			524,407							66,474
Other long-term liabilities			131,072							101,672
Total long-term liabilities			3,217,996							1,171,525
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Ordinary shares, $0.0001 nominal value; 600,000,000 shares authorized at March 31, 2021 and December 31, 2020; 225,027,621 and 221,721,674 shares issued at March 31, 2021 and December 31, 2020, respectively; and 224,643,255 and 221,337,308 shares outstanding at March 31, 2021 and December 31, 2020, respectively			22							22
Treasury stock, 384,366 ordinary shares at December 31, 2020 and December 31, 2019			(4,585	)						(4,585	)
Additional paid-in capital			4,199,823							4,245,945
Accumulated other comprehensive loss			(1,253	)						(145	)
Accumulated deficit			(339,237	)						(215,886	)
Total shareholders’ equity			3,854,770							4,025,351
Total liabilities and shareholders’ equity		$	7,846,610						$	6,072,616

Horizon Therapeutics plc
Condensed Consolidated Statements of Cash Flows
(in thousands)
		Three Months Ended March 31,
		2021						2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(123,351	)				$	(13,591	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization expense			70,820						65,741
Equity-settled share-based compensation			61,166						56,421
Impairment of long-lived assets			12,371						–
Amortization of debt discount and deferred financing costs			773						5,569
Deferred income taxes			(28,771	)					(2,082	)
Foreign exchange and other adjustments			(5,440	)					(190	)
Changes in operating assets and liabilities:
Accounts receivable			224,575						(16,869	)
Inventories			(13,660	)					(14,444	)
Prepaid expenses and other current assets			(65,575	)					(24,953	)
Accounts payable			993						28,551
Accrued trade discounts and rebates			(28,736	)					(129,940	)
Accrued expenses			(111,963	)					(28,087	)
Other non-current assets and liabilities			3,070						11,281
Net cash used in operating activities			(3,728	)					(62,593	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment			(18,333	)					(119,004	)
Payments for long-term investments, net			(3,808	)					–
Payments for acquisition, net of cash acquired			(2,707,358	)					(105,200	)
Change in escrow deposit for property purchase			–						6,000
Payments for acquisition, net of cash acquired			(2,729,499	)					(218,204	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from term loans			1,577,612						–
Proceeds from the issuance of ordinary shares in connection with stock option exercises			19,843						7,050
Payment of employee withholding taxes relating to share-based awards			(128,261	)					(46,664	)
Net cash provided by (used in) financing activities			1,469,194						(39,614	)
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash			(3,998	)					(1,366	)
Net decrease in cash, cash equivalents and restricted cash			(1,268,031	)					(321,777	)
Cash, cash equivalents and restricted cash, beginning of the period(1)			2,083,479						1,080,039
Cash, cash equivalents and restricted cash, end of the period(1)		$	815,448					$	758,262

(1)

Amounts include restricted cash balance in accordance with ASU No. 2016-18. Cash and cash equivalents excluding restricted cash are shown on the balance sheet.

Horizon Therapeutics plc
GAAP to Non-GAAP Reconciliations
Net Income and Earnings Per Share (Unaudited)
(in thousands, except share and per share data)
		Three Months Ended March 31,
		2021							2020
GAAP net loss		$	(123,351	)					$	(13,591	)
Non-GAAP adjustments:
Acquisition/divestiture-related costs			49,108							(6	)
Restructuring and realignment costs			6,093							–
Amortization and step-up:
Intangible amortization expense			66,369							58,575
Inventory step-up expense			911							–
Amortization of debt discount and deferred financing costs			773							5,569
Impairment of long-lived assets			12,371							–
Share-based compensation			61,166							56,421
Depreciation			4,451							7,165
Upfront, progress and milestone payments related to license and collaboration agreements			3,000							–
Fees related to refinancing activities			–							54
Drug substance harmonization costs			–							290
Total of pre-tax non-GAAP adjustments			204,242							128,068
Income tax effect of pre-tax non-GAAP adjustments			(73,504	)						(31,262	)
Total of non-GAAP adjustments			130,738							96,806
Non-GAAP Net income		$	7,387						$	83,215
Non-GAAP Earnings Per Share:
Weighted average ordinary shares – Basic			223,920,768							190,072,112
Non-GAAP Earnings Per Share – Basic:
GAAP loss per share – Basic		$	(0.55	)					$	(0.07	)
Non-GAAP adjustments			0.58							0.51
Non-GAAP earnings per share – Basic		$	0.03						$	0.44
Non-GAAP Net income		$	7,387						$	83,215
Effect of assumed exchange of Exchangeable Senior Notes, net of tax			–							1,875
Numerator – non-GAAP Net income		$	7,387						$	85,090
Weighted average ordinary shares – Diluted
Weighted average ordinary shares – Basic			223,920,768							190,072,112
Ordinary share equivalents			10,190,012							22,984,847
Denominator – weighted average ordinary shares – Diluted			234,110,780							213,056,959
Non-GAAP Earnings Per Share – Diluted
GAAP loss per share – Diluted		$	(0.55	)					$	(0.07	)
Non-GAAP adjustments			0.58							0.51
Diluted earnings per share effect of ordinary share equivalents			–							(0.04	)
Non-GAAP earnings per share – Diluted		$	0.03						$	0.40

Horizon Therapeutics plc
GAAP to Non-GAAP Reconciliations
EBITDA (Unaudited)
(in thousands)
		Three Months Ended March 31,
		2021						2020
GAAP net loss		$	(123,351	)				$	(13,591	)
Depreciation			4,451						7,165
Amortization and step-up:
Intangible amortization expense			66,369						58,575
Inventory step-up expense			911						–
Interest expense, net (including amortization of debt discount and deferred financing costs)			13,460						17,344
Benefit for income taxes			(47,751	)					(19,026	)
EBITDA		$	(85,911	)				$	50,467
Other non-GAAP adjustments:
Acquisition/divestiture-related costs			49,108						(6	)
Restructuring and realignment costs			6,093						–
Impairment of long-lived assets			12,371						–
Share-based compensation			61,166						56,421
Upfront, progress and milestone payments related to license and collaboration agreements			3,000						–
Fees related to refinancing activities			–						54
Drug substance harmonization costs			–						290
Total of other non-GAAP adjustments			131,738						56,759
Adjusted EBITDA		$	45,827					$	107,226

Horizon Therapeutics plc
GAAP to Non-GAAP Reconciliations
Operating Income (Unaudited)
(in thousands)
		Three Months Ended March 31,
		2021						2020
GAAP operating loss		$	(160,018	)				$	(16,491	)
Non-GAAP adjustments:
Acquisition/divestiture-related costs			49,391						284
Restructuring and realignment costs			6,093						–
Amortization and step-up:
Intangible amortization expense			66,369						58,575
Inventory step-up expense			911						–
Impairment of long-lived assets			12,371						–
Share-based compensation			61,166						56,421
Depreciation			4,451						7,165
Upfront, progress and milestone payments related to license and collaboration agreements			3,000						–
Fees related to refinancing activities			–						54
Drug substance harmonization costs			–						290
Total of non-GAAP adjustments			203,752						122,789
Non-GAAP operating income		$	43,734					$	106,298
Orphan segment operating income			1,054						54,356
Inflammation segment operating income			42,680						51,942
Total segment operating income		$	43,734					$	106,298
Foreign exchange (loss)/gain			(848	)					776
Other income, net			2,941						152
Adjusted EBITDA		$	45,827					$	107,226

Horizon Therapeutics plc
GAAP to Non-GAAP Reconciliations
Gross Profit and Operating Cash Flow (Unaudited)
(in thousands, except percentages)
		Three Months Ended March 31,
		2021						2020
Non-GAAP Gross Profit:
GAAP gross profit		$	242,038					$	258,493
Non-GAAP gross profit adjustments:
Acquisition/divestiture-related costs			205						–
Intangible amortization expense			66,169						58,374
Inventory step-up expense			911						–
Share-based compensation			1,936						2,689
Depreciation			115						328
Drug substance harmonization costs			–						290
Total of Non-GAAP adjustments			69,336						61,681
Non-GAAP gross profit		$	311,374					$	320,174
GAAP gross profit %			70.7	%					72.6	%
Non-GAAP gross profit %			90.9	%					90.0	%
GAAP cash used in operating activities		$	(3,728	)				$	(62,593	)
Cash payments for acquisition/divestiture-related costs			64,192						(17	)
Cash payments for restructuring and realignment costs			–						95
Cash payments for upfront, progress and milestone payments related to license and collaboration agreement			3,000						–
Cash payments relating to refinancing activities			–						73
Non-GAAP operating cash flow		$	63,464					$	(62,442	)

Horizon Therapeutics plc
GAAP to Non-GAAP Reconciliations
EBITDA (Unaudited) – 2020
(in thousands)
		Twelve Months Ended December 31,
		2020
GAAP net income		$	389,796
Depreciation			24,303
Amortization and step-up:
Intangible amortization expense			255,148
Inventory step-up expense			–
Interest expense, net (including amortization of debt discount and deferred financing costs)			59,616
Expense for income taxes			11,849
EBITDA		$	740,712
Other non-GAAP adjustments:
Acquisition/divestiture-related costs			49,196
Restructuring and realignment costs			(141	)
Impairment of long-lived assets			1,713
Gain on sale of assets			(4,883	)
Share-based compensation			146,627
Upfront, progress and milestone payments related to license and collaboration agreements			33,000
Fees related to refinancing activities			54
Loss on debt extinguishment			31,856
Drug substance harmonization costs			542
Total of other non-GAAP adjustments			257,964
Adjusted EBITDA		$	998,676

Horizon Therapeutics plc
GAAP to Non-GAAP Tax Rate Reconciliation (Unaudited)
(in millions, except percentages and per share amounts)
			Q1 2021
			Pre-tax Net (Loss) Income						Income Tax (Benefit) Expense						Tax Rate				Net Income (Loss)						Diluted Earnings (Loss) Per Share
As reported – GAAP			$	(171.1	)				$	(47.8	)				27.9%				$	(123.4	)				$	(0.55	)
Non-GAAP adjustments				204.2						73.5										130.7
Non-GAAP			$	33.1					$	25.8					77.7%				$	7.4					$	0.03
			Q1 2020
			Pre-tax Net (Loss) Income						Income Tax (Benefit) Expense						Tax Rate				Net Income (Loss)						Diluted Earnings (Loss) Per Share
As reported – GAAP			$	(32.6	)				$	(19.0	)				58.3%				$	(13.6	)				$	(0.07	)
Non-GAAP adjustments				128.1						31.3										96.8
Non-GAAP			$	95.5					$	12.2					12.8%				$	83.2					$	0.40

Horizon Therapeutics plc

Certain Income Statement Line Items – Non-GAAP Adjusted

For the Three Months Ended March 31, 2021 and March 31, 2020 (Unaudited)

(in thousands)

			Horizon Therapeutics plc
			Certain Income Statement Line Items – Non-GAAP Adjusted
			For the Three Months Ended March 31, 2021
			(Unaudited)
																																													Income Tax
										Research &							Selling, General							Impairment of							Interest							Other							Benefit
			COGS							Development							& Administrative							Long-Lived Assets							Expense							Expense							(Expense)
GAAP as reported			$	(100,368	)					$	(57,693	)					$	(331,992	)					$	(12,371	)					$	(13,460	)					$	3,224						$	47,751
Non-GAAP Adjustments (in thousands):
Acquisition/divestiture-related costs(1)				205							3							49,183							–							–							(283	)						–
Restructuring and realignment costs(2)				–							–							6,093							–							–							–							–
Amortization and step-up:
Intangible amortization expense(3)				66,169							–							200							–							–							–							–
Inventory step-up expense(4)				911							–							–							–							–							–							–
Amortization of debt discount and deferred financing costs(5)				–							–							–							–							773							–							–
Impairment of long lived assets(6)				–							–							–							12,371							–							–							–
Share-based compensation(7)				1,936							5,616							53,614							–							–							–							–
Depreciation(8)				115							49							4,287							–							–							–							–
Upfront, progress and milestone payments related to license and collaboration agreements(9)				–							3,000							–							–							–							–							–
Income tax effect on pre-tax non-GAAP adjustments(10)				–							–							–							–							–							–							(73,504	)
Total of non-GAAP adjustments				69,336							8,668							113,377							12,371							773							(283	)						(73,504	)
Non-GAAP			$	(31,032	)					$	(49,025	)					$	(218,615	)					$	–						$	(12,687	)					$	2,941						$	(25,753	)
			Horizon Therapeutics plc
			Certain Income Statement Line Items – Non-GAAP Adjusted
			For the Three Months Ended March 31, 2020
			(Unaudited)
																																						Income Tax
										Research &							Selling, General							Interest							Other							Benefit
			COGS							Development							& Administrative							Expense							Income, net							(Expense)
GAAP as reported			$	(97,416	)					$	(27,209	)					$	(247,775	)					$	(17,344	)					$	442						$	19,026
Non-GAAP Adjustments (in thousands):
Acquisition/divestiture-related costs(1)				–							–							284							–							(290	)						–
Amortization and step-up:
Intangible amortization expense(3)				58,374							–							201							–							–							–
Amortization of debt discount and deferred financing costs(5)				–							–							–							5,569							–							–
Share-based compensation(7)				2,689							6,376							47,356							–							–							–
Depreciation(8)				328							25							6,812							–							–							–
Fees related to refinancing activities (11)				–							–							54							–							–							–
Drug substance harmonization costs(12)				290							–							–							–							–							–
Income tax effect on pre-tax non-GAAP adjustments(10)				–							–							–							–							–							(31,262	)
Total of non-GAAP adjustments				61,681							6,401							54,707							5,569							(290	)						(31,262	)
Non-GAAP			$	(35,735	)					$	(20,808	)					$	(193,068	)					$	(11,775	)					$	152						$	(12,236	)

NOTES FOR CERTAIN INCOME STATEMENT LINE ITEMS – NON-GAAP

1. Represents transaction and integration costs, including advisory, legal, consulting and certain employee-related costs, incurred in connection with our acquisitions and divestitures. Costs recovered from subleases of acquired facilities and reimbursed expenses incurred under transition arrangements for divestitures are also reflected in this line item.
2. Represents the recording of a liability for maintenance charges as a result of vacating the leased Lake Forest office.
3. Intangible amortization expenses are associated with our intellectual property rights, developed technology and customer relationships related to TEPEZZA, KRYSTEXXA, RAVICTI, PROCYSBI, ACTIMMUNE, BUPHENYL, UPLIZNA, PENNSAID 2% and RAYOS.
4. During the three months ended March 31, 2021, we recognized in cost of goods sold $0.9 million for inventory step-up expense related to UPLIZNA inventory revalued in connection with the Viela acquisition. Because inventory step-up expense is related to an acquisition, will not continue indefinitely and has a significant effect on our gross profit, gross margin percentage and net loss for all affected periods, the Company excludes inventory step-up expense from its non-GAAP financial measures.
5. Represents amortization of debt discount and deferred financing costs associated with our debt.
6. During the three months ended March 31, 2021, we recorded a right-of-use asset impairment charge of $12.4 million as a result of vacating the leased Lake Forest office.
7. Represents share-based compensation expense associated with our stock option, restricted stock unit and performance stock unit grants to our employees and non-employee directors, and our employee share purchase plan.
8. Represents depreciation expense related to our property, equipment, software and leasehold improvements.
9. During the three months ended March 31, 2021, we recognized a $3.0 million progress payment in relation to the collaboration agreement with HemoShear.
10. Income tax adjustments on pre-tax non-GAAP adjustments represent the estimated income tax impact of each pre-tax non-GAAP adjustment based on the statutory income tax rate of the applicable jurisdictions for each non-GAAP adjustment.
11. Represents arrangement and other fees relating to our refinancing activities.
12. During the year ended December 31, 2016, we entered into a definitive agreement to acquire certain rights to interferon gamma-1b, marketed as IMUKIN in an estimated thirty countries primarily in Europe and the Middle East, or the IMUKIN purchase agreement. We already owned the rights to interferon gamma-1b marketed as ACTIMMUNE in the United States, Canada and Japan. In connection with the IMUKIN purchase agreement, we also committed to pay our contract manufacturer certain amounts related to the harmonization of the manufacturing processes for ACTIMMUNE and IMUKIN drug substance, or the harmonization program. At the time we entered into the IMUKIN purchase agreement and the harmonization program commitment was made, we had anticipated achieving certain benefits should the Phase 3 clinical trial evaluating ACTIMMUNE for the treatment of Friedreich’s ataxia, be successful. If the study had been successful and if U.S. marketing approval had subsequently been obtained, we had forecasted significant increases in demand for the medicine and the harmonization program would have resulted in significant benefits for us. Following our discontinuation of the Friedreich’s ataxia program, we determined that certain assets, including an upfront payment related to the IMUKIN purchase agreement, were impaired, and the costs under the harmonization program would no longer have benefit to us and should be expensed as incurred.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20210505005534/en/

Investors:

Tina Ventura

Senior Vice President,

Investor Relations

[email protected]

Ruth Venning

Executive Director,

Investor Relations

[email protected]

U.S. Media:

Geoff Curtis

Executive Vice President,

Corporate Affairs & Chief Communications Officer

[email protected]

Ireland Media:

Ray Gordon

Gordon MRM

[email protected]

KEYWORDS: Europe Ireland United States North America Illinois

INDUSTRY KEYWORDS: Health Infectious Diseases Research Pharmaceutical Science Biotechnology

MEDIA:

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