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Akorn Reports Third Quarter 2013 Financial Results



  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
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