Lannett Announces Fiscal 2021 Second-Quarter Financial Results In Line Or Above Expectations

**A reconciliation of Adjusted amounts to most directly comparable GAAP amounts can be found in the attached financial tables.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

December 31, 2020

June 30, 2020

ASSETS

Current assets:

Cash and cash equivalents

$                       34,224

$         144,329

Accounts receivable, net

160,131

125,688

Inventories

122,204

142,867

Income taxes receivable

64,570

14,419

Assets held for sale

2,678

2,678

Other current assets

23,993

13,227

Total current assets

407,800

443,208

Property, plant and equipment, net

173,157

179,518

Intangible assets, net

163,488

374,735

Operating lease right-of-use asset 

8,650

9,343

Deferred tax assets

132,409

117,890

Other assets

14,767

11,861

TOTAL ASSETS

$                    900,271

$      1,136,555

LIABILITIES

Current liabilities:

Accounts payable

$                       42,670

$           32,535

Accrued expenses

4,092

14,962

Accrued payroll and payroll-related expenses

8,946

16,304

Rebates payable

43,791

38,175

Royalties payable

20,782

20,863

Restructuring liability

161

27

Current operating lease liabilities

2,115

1,097

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

39,345

88,189

Other current liabilities

1,770

2,713

Total current liabilities

163,672

214,865

Long-term debt, net

578,483

592,940

Long-term operating lease liabilities

9,233

9,844

Other liabilities

19,625

16,010

TOTAL LIABILITIES

771,013

833,659

STOCKHOLDERS' EQUITY

Common stock($0.001 par value, 100,000,000 shares authorized; 40,832,843 and 39,963,127 shares issued;

 39,504,777 and 38,798,787 shares outstanding at December 31, 2020 and June 30, 2020, respectively)

41

40

Additional paid-in capital

326,939

321,164

Accumulated deficit

(179,738)

(1,291)

Accumulated other comprehensive loss

(595)

(627)

Treasury stock(1,328,066 and 1,164,340 shares at December 31, 2020 and June 30, 2020, respectively)

(17,389)

(16,390)

Total stockholders' equity

129,258

302,896

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 

$                    900,271

$      1,136,555

LANNETT COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share data)

Three months ended 

Six months ended 

December 31,

December 31,

2019

2020

2019

Net sales

$       133,920

$          136,110

$       260,399

$          263,452

Cost of sales 

124,488

86,663

216,675

164,319

Amortization of intangibles

8,657

8,153

17,246

15,181

Gross profit

775

41,294

26,478

83,952

Operating expenses:

Research and development expenses

5,644

6,906

12,183

15,846

Selling, general and administrative expenses

13,730

17,421

28,866

38,729

Restructuring expenses

-

192

4,043

1,580

Asset impairment charges

198,000

-

198,000

1,618

Total operating expenses

217,374

24,519

243,092

57,773

Operating income (loss)

(216,599)

16,775

(216,614)

26,179

Other income (loss):

Loss on extinguishment of debt

-

-

-

(2,145)

Investment income

43

430

88

1,159

Interest expense

(13,496)

(16,694)

(27,982)

(35,986)

Other

28

(735)

5

199

Total other loss

(13,425)

(16,999)

(27,889)

(36,773)

Loss before income tax

(230,024)

(224)

(244,503)

(10,594)

Income tax benefit

(58,076)

(5,308)

(66,056)

(3,521)

Net income (loss) 

$      (171,948)

$              5,084

$      (178,447)

$            (7,073)

Earnings (loss) per common share:

     Basic

$             (4.36)

$                0.13

$             (4.55)

$              (0.18)

     Diluted (1) 

$             (4.36)

$                0.13

$             (4.55)

$              (0.18)

Weighted average common shares outstanding:

     Basic

39,443,441

38,605,052

39,257,211

38,457,159

     Diluted (1) 

39,443,441

40,557,503

39,257,211

38,457,159

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

LANNETT COMPANY, INC.

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

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

Three months ended December 31, 2020

Net sales

Cost of sales

Amortization
of intangibles

Gross
Profit

Gross
Margin
%

R&D
expenses

SG&A
expenses

Asset impairment
charges

Operating
income
(loss)

Other loss

Income
(loss)
before
income tax

Income
tax benefit

Net income
(loss)

Diluted
earnings
(loss) per
share (j)

GAAP Reported

$    133,920

$        124,488

$             8,657

$           775

1%

$          5,644

$           13,730

$                  198,000

$    (216,599)

$     (13,425)

$     (230,024)

$   (58,076)

$    (171,948)

$               (4.36)

Adjustments:

Amortization of intangibles (a)

-

-

(8,657)

8,657

-

-

-

8,657

-

8,657

-

8,657

Cody API business (b)

-

(84)

-

84

(3)

(28)

-

115

-

115

-

115

Depreciation on capitalized software costs (c)

-

-

-

-

-

(1,051)

-

1,051

-

1,051

-

1,051

Asset impairment charges (d)

-

-

-

-

-

-

(198,000)

198,000

-

198,000

-

198,000

Write-downs for excess and obsolete inventory (e)

-

(16,623)

-

16,623

-

-

-

16,623

-

16,623

-

16,623

 Distribution agreement renewal costs (f)

-

(4,966)

-

4,966

-

-

-

4,966

-

4,966

-

4,966

Non-cash interest (g)

-

-

-

-

-

-

-

-

2,973

2,973

-

2,973

Other (h)

-

-

-

-

-

(553)

-

553

-

553

-

553

Tax adjustments (i)

-

-

-

-

-

-

-

-

-

-

57,784

(57,784)

Non-GAAP Adjusted

$      133,920

$          102,815

$                    -

$       31,105

23%

$           5,641

$             12,098

$                              -

$          13,366

$       (10,452)

$             2,914

$          (292)

$            3,206

$                  0.08

(a)

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

(b)

To exclude the operating results of the ceased Cody API business

(c)

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

(d)

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

(e)

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

(f)

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

(g)

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

(h)

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

(i)

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

(j)

The weighted average share number for the three months ended December 31, 2020 is 39,443,441 for GAAP and 41,074,706 for the non-GAAP earnings (loss) per share calculations

LANNETT COMPANY, INC.

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

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

Three months ended December 31, 2019

Net sales

Cost of sales

Amortization
of intangibles

Gross
Profit

Gross
Margin
%

R&D
expense

SG&A
expense

Restructuring
expenses

Operating
income

Other income
(loss)

Income (loss)
before
income tax

Income tax
expense
(benefit)

Net
income

Diluted
earnings
per share (i)

GAAP Reported

$           136,110

$             86,663

$               8,153

$      41,294

30%

$        6,906

$         17,421

$               192

$     16,775

$           (16,999)

$                 (224)

$              (5,308)

$        5,084

Adjustments:

Amortization of intangibles (a)

-

-

(8,153)

8,153

-

-

-

8,153

-

8,153

-

8,153

Cody API business (b)

-

(206)

-

206

(85)

(161)

-

452

-

452

-

452

Depreciation on capitalized software costs (c)

-

-

-

-

-

(1,058)

-

1,058

-

1,058

-

1,058

Decommissioning of Philadelphia sites (d)

-

(303)

-

303

-

-

-

303

-

303

-

303

Restructuring expenses (e)

-

-

-

-

-

-

(192)

192

-

192

-

192

Non-cash interest (f)

-

-

-

-

-

-

-

-

3,563

3,563

-

3,563

Other (g)

-

(209)

-

209

-

(135)

-

344

630

974

-

974

Tax adjustments (h)

-

-

-

-

-

-

-

-

-

-

8,111

(8,111)

Non-GAAP Adjusted

$             136,110

$               85,945

$                       -

$        50,165

37%

$         6,821

$           16,067

$                   -

$       27,277

$             (12,806)

$               14,471

$                 2,803

$       11,668

$                0.27

(a)

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

(b)

To exclude the operating results of the ceased Cody API business

(c)

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

(d)

To exclude the costs related to the decommissioning and shutdown of the Philadelphia manufacturing and distribution sites

(e)

To exclude expenses associated with the Cody API Restructuring Plan

(f)

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

(g)

To primarily exclude a settlement related to a shareholder derivative lawsuit against certain current and former officers and directors of the Company

(h)

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

(i)

The weighted average share number for the three months ended December 31, 2019 is 40,557,503 for GAAP and 46,198,445 for the non-GAAP earnings per share calculations. Effective with the 4.5% Senior Convertible Note issued on September 27, 2019, the diluted earnings per share was calculated based on the "if-converted" method.

LANNETT COMPANY, INC.

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

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

Net sales

Cost of sales

Amortization
of intangibles

Gross
Profit

Gross
Margin
%

R&D
expenses

SG&A
expenses

Restructuring
expenses

Asset
impairment
charges

Operating
income
(loss)

Other loss

Income
(loss) before
income tax

Income tax
expense
(benefit)

Net
income
(loss)

Diluted
earnings
(loss) per
share (k)

GAAP Reported

$       260,399

$        216,675

$           17,246

$    26,478

10%

$       12,183

$          28,866

$               4,043

$        198,000

$     (216,614)

$        (27,889)

$       (244,503)

$       (66,056)

$   (178,447)

$          (4.55)

Adjustments:

Amortization of intangibles (a)

-

-

(17,246)

17,246

-

-

-

-

17,246

-

17,246

-

17,246

Cody API business (b)

-

(158)

-

158

(5)

(455)

-

-

618

-

618

-

618

Depreciation on capitalized software costs (c)

-

-

-

-

-

(2,102)

-

-

2,102

-

2,102

-

2,102

Restructuring expenses (d)

-

-

-

-

-

-

(4,043)

-

4,043

-

4,043

-

4,043

Asset impairment charges (e)

-

-

-

-

-

-

-

(198,000)

198,000

-

198,000

-

198,000

Write-downs for excess and obsolete inventory (f)

-

(16,623)

-

16,623

-

-

-

-

16,623

-

16,623

-

16,623

 Distribution agreement renewal costs (g)

-

(4,966)

-

4,966

-

-

-

-

4,966

-

4,966

-

4,966

Non-cash interest (h)

-

-

-

-

-

-

-

-

-

6,250

6,250

-

6,250

Other (i)

-

-

-

-

-

(1,504)

-

-

1,504

-

1,504

-

1,504

Tax adjustments (j)

-

-

-

-

-

-

-

-

-

-

-

67,453

(67,453)

Non-GAAP Adjusted

$         260,399

$          194,928

$                    -

$      65,471

25%

$         12,178

$            24,805

$                      -

$                    -

$           28,488

$          (21,639)

$               6,849

$             1,397

$           5,452

$             0.13

(a)

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

(b)

To exclude the operating results of the ceased Cody API business

(c)

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

(d)

To exclude expenses associated with the 2020 Restructuring Plan

(e)

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

(f)

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

(g)

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

(h)

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

(i)

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

(j)

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

(k)

The weighted average share number for the six months ended December 31, 2020 is 39,257,211 for GAAP and 40,915,504 for the non-GAAP earnings (loss) per share calculations

LANNETT COMPANY, INC.

RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION

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

Six months ended December 31, 2019

Net sales

Cost of sales

Amortization
of intangibles

Gross
Profit

Gross
Margin
%

R&D expense

SG&A
expense

Restructuring
expenses

Asset
impairment
charges

Operating
income

Other
income
(loss)

Income
(loss) before
income tax

Income tax
expense
(benefit)

Net income
(loss)

Diluted
earnings (loss)
per share (k)

GAAP Reported

$        263,452

$        164,319

$          15,181

$       83,952

32%

$          15,846

$          38,729

$            1,580

$            1,618

$          26,179

$        (36,773)

$        (10,594)

$           (3,521)

$           (7,073)

$                     (0.18)

Adjustments:

Amortization of intangibles (a)

-

-

(15,181)

15,181

-

-

-

-

15,181

-

15,181

-

15,181

Cody API business (b)

-

(1,928)

-

1,928

(505)

(375)

-

-

2,808

-

2,808

-

2,808

Depreciation on capitalized software costs (c)

-

-

-

-

-

(2,117)

-

-

2,117

-

2,117

-

2,117

Decommissioning of Philadelphia sites (d)

-

(1,292)

-

1,292

-

-

-

-

1,292

-

1,292

-

1,292

Restructuring expenses (e)

-

-

-

-

-

-

(1,580)

-

1,580

-

1,580

-

1,580

Asset impairment charges (f)

-

-

-

-

-

-

-

(1,618)

1,618

-

1,618

-

1,618

Non-cash interest (g)

-

-

-

-

-

-

-

-

-

7,571

7,571

-

7,571

Loss on extinguishment of debt (h)

-

-

-

-

-

-

-

-

-

2,145

2,145

-

2,145

Other (i)

-

(417)

-

417

-

(2,224)

-

-

2,641

(336)

2,305

-

2,305

Tax adjustments (j)

-

-

-

-

-

-

-

-

-

-

-

9,110

(9,110)

Non-GAAP Adjusted

$          263,452

$          160,682

$                    -

$       102,770

39%

$            15,341

$            34,013

$                    -

$                    -

$            53,416

$          (27,393)

$            26,023

$              5,589

$            20,434

$                        0.49

(a)

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

(b)

To exclude the operating results of the ceased Cody API business 

(c)

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

(d)

To exclude the costs related to the decommissioning and shutdown of the Philadelphia manufacturing and distribution sites 

(e)

To exclude expenses associated with the Cody API Restructuring Plan 

(f)

To exclude impairment charges primarily associated with an operating lease right-of-use asset 

(g)

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

(h)

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

(i)

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

(j)

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

(k)

The weighted average share number for the six months ended December 31, 2019 is 38,457,159 for GAAP and 43,723,412 for the non-GAAP earnings (loss) per share calculations. Effective with the 4.5% Senior Convertible Note issued on September 27, 2019, the diluted earnings per share was calculated based on the "if-converted" method.

LANNETT COMPANY, INC.

RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA (UNAUDITED)

($ in thousands)

Three months ended 

December 31, 2020

Net loss

$                          (171,948)

Interest expense

13,496

Depreciation and amortization

14,375

Income tax benefit

(58,076)

EBITDA

Share-based compensation

1,991

Inventory write-down (a)

20,609

Asset impairment charges (b) 

198,000

Investment income

(43)

Other non-operating loss

(28)

Distribution agreement renewal costs (c)

4,966

Other(d)

668

Adjusted EBITDA (Non-GAAP)

$                              24,010

(a)

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

(b)

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

(c)

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

(d)

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

LANNETT COMPANY, INC.

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

($ in millions)

Fiscal Year 2021 Guidance

Non-GAAP

GAAP

Adjustments

Adjusted

Net sales

 $480 - $500 

-

 $480 - $500 

Gross margin percentage

approx. 14% to 16%

10%

 (a) 

approx. 24% to 26%

R&D expense

 $26 - $28 

-

 $26 - $28 

SG&A expense

 $58 - $60 

($6)

 (b) 

 $52 - $54 

Restructuring expense

$4

($4)

 (c) 

-

Asset impairment charges

$198

($198)

 (d) 

-

Interest and other

 $53 - $54 

($12)

 (e) 

 $41 - $42 

Effective tax rate

 approx. 27% to 28% 

 (f) 

approx. 26% to 27%

Adjusted EBITDA

 N/A 

 N/A 

 $75 - $85 

Capital expenditures

 $10 - $15 

-

 $10 - $15 

(a)

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

(b)

The adjustment primarily excludes depreciation on previously capitalized software integration costs associated with the KUPI acquisition

(c)

To exclude expenses associated with the 2020 Restructuring Plan

(d)

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

(e)

The adjustment primarily reflects non-cash interest expense associated with debt issuance costs

(f)

The adjustment reflects the impact of tax credits and deductions relate to expected annual pre-tax income (loss) as well as the impact of the CARES Act, which allows the Company to carryback the expected taxable loss into a prior fiscal year, where the statutory tax rate was 35%

LANNETT COMPANY, INC.

RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA (UNAUDITED)

($ in millions)

Fiscal Year 2021 Guidance

Low

High

Net loss

$     (197.6)

$     (189.1)

Interest expense

53.0

54.0

Depreciation and amortization

55.0

55.0

Income taxes

(73.4)

(73.9)

EBITDA

(163.0)

(154.0)

Share-based compensation

9.0

9.0

Inventory write-down

27.0

28.0

Asset impairment charges

198.0

198.0

Restructuring expenses

4.0

4.0

Adjusted EBITDA (Non-GAAP)

$         75.0

$         85.0

LANNETT COMPANY, INC.

NET SALES BY MEDICAL INDICATION

Three months ended

Six months ended

($ in thousands)

December 31,

December 31,

Medical Indication

2020

2019

2020

2019

Analgesic

$    3,572

$    2,111

$    6,692

$    3,995

Anti-Psychosis

13,317

22,697

26,345

50,730

Cardiovascular

16,336

23,972

36,050

45,579

Central Nervous System

24,614

19,331

47,139

38,588

Endocrinology

9,496

-

12,729

-

Gastrointestinal

18,575

18,313

35,675

35,275

Infectious Disease

23,044

18,078

44,976

29,973

Migraine

6,083

10,878

15,773

20,021

Respiratory/Allergy/Cough/Cold

2,267

3,075

3,693

5,781

Urinary

1,361

1,233

2,819

1,668

Other

8,410

9,934

16,044

19,796

Contract Manufacturing revenue

6,845

6,488

12,464

12,046

   Net Sales

$ 133,920

$ 136,110

$ 260,399

$ 263,452

Contact:

Robert Jaffe

Robert Jaffe Co., LLC

(424) 288-4098