Akorn Reports Third Quarter 2013 Financial Results - Reports Record Revenue of $81.9 million and Adjusted EPS of $0.15 - Business Wire LAKE FOREST, Ill. -- November 5, 2013 Akorn, Inc. (NASDAQ: AKRX), a niche generic pharmaceutical company, today reported financial results for its third quarter ended September 30, 2013. Raj Rai, Chief Executive Officer, commented, “We are pleased with our third quarter results as we continue to demonstrate a strong double-digit growth rate in our top-line despite the delays in getting regulatory approvals from the U.S. Food and Drug Administration. In addition, we had a solid quarter of earnings and cash flow. We continue to build our pipeline with the increased investment in R&D and are excited about the acquisition of Hi-Tech which we expect to close in the first quarter of 2014. We expect to have a strong finish to the year 2013 as we expect to be at the upper end of our current revenue guidance.” Third Quarter 2013 Highlights *Achieved record consolidated revenue of $81.9 million, up 18% over the prior year quarter. *Generated record operating cash flow of $21.0 million and free cash flow of $18.2 million. *Announced acquisition of Hi-Tech Pharmacal Co., Inc., which is expected to close during the first quarter of 2014. *Began syndication process for $600 million term loan, the proceeds of which will finance the Hi-Tech acquisition. Financial Results for the Quarter Ended September 30, 2013 Consolidated revenue for the third quarter of 2013 was $81.9 million, up 18% over the prior year quarter’s consolidated revenue of $69.6 million. The increase in revenue was primarily the result of sales of new products launched late in 2012, along with increases in sales volume for existing products, partially offset by decreases in the average sales price for existing products and lower sales from our subsidiary in India, Akorn India Private Limited (AIPL). Consolidated gross margin for the third quarter of 2013 was 53.4% compared to 57.6% in the comparable prior year period. The decrease in gross margin was attributable to various new products launched late in 2012 that generate lower gross margins as a result of being either partnered or manufactured through third parties, as well as lower AIPL gross profit. Selling, general and administrative expenses were $13.6 million in the third quarter of 2013 compared to $12.3 million in the third quarter of 2012. The year-over-year increase was primarily due to higher legal expenses which included a $0.4 million legal settlement. Acquisition-related expenses for the Hi-Tech acquisition were $1.5 million in the third quarter of 2013 compared to $0.5 million in acquisition-related expenses in the third quarter of 2012. R&D expenses were $4.8 million in the third quarter of 2013, an increase of $2.0 million over the prior year quarter, due to the timing of development projects and milestone payments. Non-GAAP adjusted net income for the third quarter of 2013 was $16.7 million, or $0.15 per diluted share, compared to non-GAAP adjusted net income of $16.0 million, or $0.14 per diluted share, in the prior year quarter. 2013 Outlook The Company expects 2013 revenue at the upper end of the previously issued range of $305 million to $315 million and expects adjusted net income per diluted share in line with the previously issued range of $0.53 to $0.55. The 2013 outlook excludes the impact of any new product approvals after November 5, 2013. Akorn’s R&D Pipeline The Company has 57 ANDAs filed with the FDA with a combined annual addressable IMS market size of approximately $5.3 billion. The Company has completed development work on 18 additional products with a combined annual addressable IMS market size of approximately $2.3 billion and expects to file these products with the FDA in the near future. Third Quarter 2013 Conference Call The Company will host a conference call at 10:00 a.m. Eastern Time on Tuesday, November 5, 2013, to discuss third quarter 2013 results followed by a Q&A session. The domestic call-in number is 888-389-5988 and the international call-in number is 719-325-2454. The confirmation code for all callers is 7868985. The URL for the webcast is http://www.videonewswire.com/event.asp?id=96457. A live broadcast of the conference call will be available online at www.akorn.com under the Investor Relations tab. An online replay will follow immediately and be available for 30 days. About Akorn, Inc. Akorn, Inc. is a niche pharmaceutical company engaged in the development, manufacture and marketing of multisource and branded pharmaceuticals. Akorn has manufacturing facilities located in Decatur, Illinois, Somerset, New Jersey and Paonta Sahib, India where the Company manufactures ophthalmic and injectable pharmaceuticals. Additional information is available on the Company’s website at www.akorn.com. Forward Looking Statements This press release includes statements that may constitute "forward-looking statements", including projections of certain measures of Akorn's results of operations, projections of sales, projections of certain charges and expenses, projections related to the number and potential market size of ANDAs and other statements regarding Akorn's goals, regulatory approvals and strategy. Akorn cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Because such statements inherently involve risks and uncertainties, actual future results may differ materially from those expressed or implied by such forward-looking statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning in connection with a discussion of future operating or financial performance. Factors that could cause or contribute to such differences include, but are not limited to: statements relating to future steps we may take, prospective products, future performance or results of current and anticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, and financial results. These cautionary statements should be considered in connection with any subsequent written or oral forward-looking statements that may be made by the Company or by persons acting on its behalf and in conjunction with its periodic SEC filings. You are advised, however, to consult any further disclosures we make on related subjects in our reports filed with the SEC. In particular, you should read the discussion in the section entitled "Cautionary Statement Regarding Forward-Looking Statements" in our most recent Annual Report on Form 10-K, as it may be updated in subsequent reports filed with the SEC. That discussion covers certain risks, uncertainties and possibly inaccurate assumptions that could cause our actual results to differ materially from expected and historical results. Other factors besides those listed there could also adversely affect our results. The addressable IMS market size figures presented in this press release outline the approximate aggregate size of the potential market and are not forecasts of our future sales. Non-GAAP Financial Measures In addition to reporting financial information required in accordance with U.S. generally accepted accounting principles (GAAP), Akorn is also reporting Adjusted EBITDA, Adjusted net income and Adjusted net income per diluted share, which are non-GAAP financial measures. Since Adjusted EBITDA, Adjusted net income and Adjusted net income per diluted share are non-GAAP financial measures, they should not be used in isolation or as a substitute for consolidated statements of operations and cash flow data prepared in accordance with GAAP. In addition, Akorn’s definitions of Adjusted EBITDA, Adjusted net income and Adjusted net income per diluted share may not be comparable to similarly titled non-GAAP financial measures reported by other companies. For a full reconciliation of Adjusted EBITDA and Adjusted net income to GAAP net income, please see the attachments to this earnings release. Adjusted EBITDA, as defined by the Company, is calculated as follows: Net income, plus: *Interest income (expense), net *Provision for income taxes *Depreciation and amortization *Non-cash expenses, such as share-based compensation expense, settlement of product liability warranty and deferred financing cost amortization *Other adjustments, such as legal settlements and various acquisition related expenses The Company believes that Adjusted EBITDA is a meaningful indicator, to both Company management and investors, of the past and expected ongoing operating performance of the Company. EBITDA is a commonly used and widely accepted measure of financial performance. Adjusted EBITDA is deemed by the Company to be a useful performance indicator because it includes an add back of non-cash and non-recurring operating expenses which have little to no bearing on cash flows and may be subject to uncontrollable factors not reflective of the Company’s true operational performance (i.e. fair value adjustments to the carrying value of stock warrants liability). Adjusted net income, as defined by the Company, is calculated as follows: Net income, plus: *The recorded provision for income taxes *Intangible asset amortization *Non-cash expenses, such as non-cash interest, share-based compensation expense, settlement of product liability warranty and deferred financing cost amortization *Other adjustments, such as legal settlements and various acquisition related expenses *Less an estimated cash tax provision, net of the benefit from utilizing NOL carry-forwards. Adjusted net income per diluted share is equal to Adjusted net income divided by the actual or anticipated diluted share count for the applicable period. The Company believes that Adjusted net income and Adjusted net income per diluted shares are meaningful financial indicators, to both Company management and investors, in that they exclude non-cash income and expense items that have no impact on current or future cash flows, as well as other income and expense items that are not expected to recur and therefore are not reflective of continuing operating performance. Adjusted net income and Adjusted net income per diluted share provide the Company and investors with income figures that would be expected to be more aligned with cash flows than GAAP net income, which includes a number of non-cash income and expense items. While the Company uses Adjusted EBITDA, Adjusted net income and Adjusted net income per diluted share in managing and analyzing its business and financial condition and believes these non-GAAP financial measures to be useful to investors in evaluating the Company’s performance, each of these financial measures has certain shortcomings. Adjusted EBITDA does not take into account the impact of capital expenditures on either the liquidity or the financial performance of the Company and likewise omits share-based compensation expenses, which may vary over time and may represent a material portion of overall compensation expense. Adjusted net income does not take into account non-cash expenses that reflect the amortization of past expenditures, or include stock-based compensation, which is an important and material element of the Company’s compensation package for its directors, officers and other key employees. Due to the inherent limitations of each of these non-GAAP financial measures, the Company’s management utilizes comparable GAAP financial measures to evaluate the business in conjunction with Adjusted EBITDA, Adjusted net income and Adjusted net income per diluted share and encourages investors to do likewise. AKORN, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME IN THOUSANDS, EXCEPT PER SHARE DATA (UNAUDITED) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2013 2012 2013 2012 Revenues $ 81,892 $ 69,634 $ 232,758 $ 184,638 Cost of sales (excluding 38,195 29,541 107,824 77,917 amortization of intangibles) GROSS PROFIT 43,697 40,093 124,934 106,721 Selling, general and administrative 13,645 12,346 39,093 33,625 expenses Acquisition-related 1,459 511 1,978 9,155 costs Research and 4,837 2,874 15,857 9,824 development expenses Amortization of 1,568 1,759 4,978 5,076 intangibles TOTAL OPERATING 21,509 17,490 61,906 57,680 EXPENSES OPERATING INCOME 22,188 22,603 63,028 49,041 Amortization of deferred financing (211 ) (193 ) (622 ) (581 ) costs Non-cash interest (1,163 ) (1,228 ) (3,426 ) (3,615 ) expense Interest expense, net (991 ) (959 ) (2,960 ) (3,009 ) Other non-operating 159 - 201 - income, net INCOME BEFORE INCOME 19,982 20,223 56,221 41,836 TAXES Income tax provision 7,777 6,470 20,537 15,269 NET INCOME $ 12,205 $ 13,753 $ 35,684 $ 26,567 NET INCOME PER SHARE: BASIC $ 0.13 $ 0.14 $ 0.37 $ 0.28 DILUTED $ 0.11 $ 0.12 $ 0.32 $ 0.24 SHARES USED IN COMPUTING NET INCOME PER SHARE: BASIC 96,238 95,128 96,096 95,078 DILUTED 113,717 111,388 112,644 110,430 COMPREHENSIVE INCOME: Net income 12,205 13,753 35,684 26,567 Foreign currency translation (loss) (2,603 ) 3,268 (7,224 ) (3,692 ) gain Comprehensive income 9,602 17,021 $ 28,460 $ 22,875 AKORN, INC. CONDENSED CONSOLIDATED BALANCE SHEETS IN THOUSANDS, EXCEPT SHARE DATA SEPTEMBER 30, DECEMBER 31, 2013 2012 (Unaudited) (Audited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 75,598 $ 40,781 Trade accounts receivable, net 61,544 51,017 Inventories 56,722 52,495 Deferred taxes, current 6,946 9,190 Prepaid expenses and other current assets 4,447 5,224 TOTAL CURRENT ASSETS 205,257 158,707 PROPERTY, PLANT AND EQUIPMENT, NET 80,510 80,679 OTHER LONG-TERM ASSETS: Goodwill 29,565 32,159 Product licensing rights, net 60,062 63,654 Other intangibles, net 14,971 16,731 Deferred financing costs 5,014 3,078 Deferred taxes, non-current 1,194 930 Long-term investments 10,323 10,299 Other 2,791 3,328 TOTAL OTHER LONG-TERM ASSETS 123,920 130,179 TOTAL ASSETS $ 409,687 $ 369,565 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Trade accounts payable $ 22,143 $ 21,784 Accrued compensation 5,155 7,533 Accrued royalties 6,504 5,768 Accrued administration fees 1,996 2,204 Accrued income taxes payable 198 910 Accrued expenses and other liabilities 8,644 5,092 TOTAL CURRENT LIABILITIES 44,640 43,291 LONG-TERM LIABILITIES: Convertible notes due 2016 107,694 104,637 Purchase consideration payable 16,005 16,113 Deferred taxes, non-current 803 1,991 Product warranty liability - 1,299 Lease incentive obligations and other long-term 1,699 1,153 liabilities TOTAL LONG-TERM LIABILITIES 126,201 125,193 TOTAL LIABILITIES 170,841 168,484 SHAREHOLDERS' EQUITY: Common stock, no par value -- 150,000,000 shares authorized, 96,335,050 and 95,844,012 235,340 226,035 shares issued and outstanding September 30, 2013 and December 31, 2012, respectively Warrants to acquire common stock 17,946 17,946 Accumulated deficit (1,312 ) (36,996 ) Accumulated other comprehensive loss (13,128 ) (5,904 ) TOTAL SHAREHOLDERS' EQUITY 238,846 201,081 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 409,687 $ 369,565 AKORN, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS IN THOUSANDS (UNAUDITED) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2013 2012 2013 2012 OPERATING ACTIVITIES Consolidated net income $ 12,205 $ 13,753 $ 35,684 $ 26,567 Adjustments to reconcile consolidated net income to net cash provided by operating activities: Depreciation and 3,274 2,921 9,925 8,240 amortization Write-off and amortization of deferred 211 193 622 581 financing fees Amortization of unfavorable contract (157 ) - (475 ) - liability Non-cash stock 1,430 1,868 5,674 5,049 compensation expense Non-cash interest 1,163 1,228 3,426 3,615 expense Deferred tax assets, net 628 (3,061 ) 1,829 200 Excess tax benefit from (447 ) (812 ) (1,192 ) (2,407 ) stock compensation Non-cash settlement of product warranty - - (1,299 ) - liability Equity in earnings of unconsolidated joint - - (76 ) - venture Changes in operating assets and liabilities: Trade accounts (3,950 ) (7,228 ) (10,858 ) (17,208 ) receivable Inventories (147 ) (3,519 ) (4,575 ) (13,080 ) Prepaid expenses and 329 19 867 (1,052 ) other assets Trade accounts payable 1,595 1,281 1,444 (733 ) Accrued expenses and 4,878 8,383 1,414 11,540 other liabilities NET CASH PROVIDED BY 21,012 15,026 42,410 21,312 OPERATING ACTIVITIES INVESTING ACTIVITIES Payments for business - - (513 ) (55,224 ) and product acquisitions Purchases of property, (2,777 ) (2,503 ) (7,936 ) (14,756 ) plant and equipment NET CASH USED IN (2,777 ) (2,503 ) (8,449 ) (69,980 ) INVESTING ACTIVITIES FINANCING ACTIVITIES Debt financing costs (2,557 ) - (2,557 ) - Excess tax benefit from 447 812 1,192 2,407 stock compensation Proceeds under stock option and stock 1,174 449 2,439 972 purchase plans NET CASH (USED IN) PROVIDED BY FINANCING (936 ) 1,261 1,074 3,379 ACTIVITIES Effect of changes in exchange rates on cash & (113 ) 208 (218 ) (271 ) cash equivalents INCREASE (DECREASE) IN CASH AND CASH 17,186 13,992 34,817 (45,560 ) EQUIVALENTS Cash and cash equivalents at beginning 58,412 24,410 40,781 83,962 of period CASH AND CASH EQUIVALENTS AT END OF $ 75,598 $ 38,402 $ 75,598 $ 38,402 PERIOD AKORN, INC. RECONCILIATION OF NET INCOME TO NON-GAAP ADJUSTED EBITDA IN THOUSANDS (UNAUDITED) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2013 2012 2013 2012 NET INCOME $ 12,205 $ 13,753 $ 35,684 $ 26,567 ADJUSTMENTS TO ARRIVE AT EBITDA: Depreciation expense 1,706 1,156 4,947 3,158 Amortization expense 1,568 1,759 4,978 5,076 Interest expense, net 991 959 2,960 3,009 Non-cash interest expense 1,163 1,228 3,426 3,615 Income tax provision 7,777 6,470 20,537 15,269 EBITDA $ 25,410 $ 25,325 $ 72,532 $ 56,694 NON-CASH AND OTHER NON-RECURRING INCOME AND EXPENSES: Acquisition-related expenses 1,459 511 2,299 8,835 Non-cash stock compensation 1,430 1,868 5,674 5,049 expense Non-cash settlement of product - - (1,299 ) - warranty liability Write-off and amortization of 211 193 622 581 deferred financing costs Litigation settlement 385 - 385 - ADJUSTED EBITDA $ 28,895 $ 27,897 $ 80,213 $ 71,159 AKORN, INC. RECONCILIATION OF NET INCOME TO NON-GAAP ADJUSTED NET INCOME IN THOUSANDS, EXCEPT PER SHARE DATA (UNAUDITED) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2013 2012 2013 2012 NET INCOME $ 12,205 $ 13,753 $ 35,684 $ 26,567 INCOME TAX PROVISION 7,777 6,470 20,537 15,269 INCOME BEFORE INCOME TAXES 19,982 20,223 56,221 41,836 ADJUSTMENTS TO ARRIVE AT ADJUSTED NET INCOME: Acquisition-related expenses 1,459 511 2,299 8,835 Non-cash stock compensation 1,430 1,868 5,674 5,049 expense Non-cash interest expense 1,163 1,228 3,426 3,615 Amortization expense 1,568 1,759 4,978 5,076 Non-cash settlement of product - - (1,299 ) - warranty liability Write-off and amortization of 211 193 622 581 deferred financing costs Litigation settlement 385 - 385 - ADJUSTED INCOME BEFORE INCOME 26,198 25,782 72,306 64,992 TAXES ADJUSTED INCOME TAX PROVISION 9,542 9,823 25,884 21,953 ADJUSTED NET INCOME 16,656 15,959 46,422 43,039 ADJUSTED NET INCOME PER DILUTED $ 0.15 $ 0.14 $ 0.41 $ 0.39 SHARE Contact: Akorn, Inc. Tim Dick, Chief Financial Officer, 847-279-6150
Akorn Reports Third Quarter 2013 Financial Results
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