Akorn Reports Preliminary Second Quarter 2012 Financial Results

Akorn, Inc. (NASDAQ: AKRX), a niche generic pharmaceutical company, today reported preliminary financial results for the second quarter of 2012, subject to further review by the Company and its auditors. Final financial results will be filed by the Company in its second quarter 2012 Form 10-Q.

Second Quarter Highlights

  • Twelfth consecutive quarter of growth in core revenue and adjusted EBITDA. Akorn’s core business consists of the ophthalmic, hospital drugs & injectables and contract services segments.
  • Revenue growth of 97% over the comparable prior year quarter, or 37% excluding the impact of acquisitions.
  • Filed three new internally developed ANDAs and completed the development on an additional twelve ANDAs with a combined annual market size of $1.6 billion.
  • Launched vancomycin hydrochloride capsules, the generic version of ViroPharma’s Vancocin©.
  • Relaunch of two drug shortage injectables: Fentanyl Citrate Injection and Midazolam Hydrochloride Injection.

Raj Rai, Chief Executive Officer commented, “We delivered another solid quarter as a result of the continued strong demand for our core products, the recently acquired Akorn India business as well as the launch of oral vancomycin. We expect a strong second half of the year due to new contract awards while we continue to make strategic investments in sales and R&D in order to position ourselves for continued long-term growth.”

Consolidated revenue for the second quarter of 2012 was $63.3 million, up 97% over the comparable prior year quarter consolidated revenue of $32.1 million, and up 37% excluding the impact of acquisitions. Organic growth came from market share gains in established products, the launch of oral vancomycin, injectable drug shortages and the relaunch of certain injectable and ophthalmic products, partially offset by decreases in our US contract services revenue. Additional year-over-year growth came from the acquisitions of AVR, Lundbeck products and certain assets of Kilitch Drugs (India) Limited.

Consolidated gross margin for the second quarter of 2012 was 56.5% compared to 55.6% in the comparable prior year period. Gross margin for the second quarter of 2012, excluding the impact of Akorn India, was 60.1%. Sustained improvements in gross margin are the result of favorable product mix, the acquisition of higher margin products from Lundbeck, and higher utilization of plant capacities.

Net income for the second quarter of 2012 was $10.6 million, or $0.10 per diluted share compared to net income of $17.9 million, or $0.17 per diluted share in the comparable prior year quarter. Net income for the second quarter of 2011 included a $0.13 per diluted share gain on the sale of the Akorn-Strides LLC joint venture’s product portfolio to Pfizer.

Non-GAAP adjusted net income for the second quarter of 2012 was $13.3 million, or $0.12 per diluted share compared to non-GAAP adjusted net income of $9.2 million, or $0.09 per diluted share in the comparable prior year quarter. The year-over-year comparison was also impacted by the Federal income tax provision and interest expense related to the Company’s convertible debt. The Company did not record a Federal income tax provision in the second quarter of 2011 and issued convertible debt in June of 2011.

Second quarter 2012 non-GAAP Adjusted EBITDA was $23.3 million, up 120% compared with $10.6 million in the comparable prior year quarter. Non-GAAP financial measures are defined further below under “Non-GAAP Financial Measures.”

First Quarter 2012 Restatement

On August 7, 2012, Akorn, Inc., issued a press release announcing that, on August 3, 2012, the Audit Committee of Akorn’s Board of Directors (“Audit Committee”), upon the recommendation of management, concluded that the previously issued financial statements contained in Akorn, Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2012 should not be relied upon because of errors in those financial statements and that those financial statements would be restated to make the necessary accounting adjustments.

The previously disclosed $66.7 million purchase price for the acquisition of certain assets of Kilitch Drugs (India) Limited was originally recorded in the first quarter of 2012. During the second quarter of 2012, the Company determined that its preliminary accounting for the acquisition of certain assets of Kilitch Drugs (India) Limited needed to be corrected, as certain items that had been previously capitalized as purchase price needed to be expensed as either compensation earned from the achievement of acquisition related milestones or other acquisition costs. As a result of the restatement Akorn will re-characterize approximately $8.3 million of originally recorded purchase price as additional expense for the quarter ended March 31, 2012.

In addition, the Company’s consolidated statements of cash flows for the three months ended March 31, 2012 and 2011 have been adjusted to correct a classification error.  The error resulted in an understatement of net cash provided by operating activities of $1.4 million, with a corresponding understatement of net cash used in investing activities for the three months ended March 31, 2012 and an overstatement of net cash provided by operating activities of $0.5 million, with a corresponding overstatement of net cash used in investing activities for the three month period ended March 31, 2011.

2012 Outlook

The Company’s 2012 outlook has been updated to include the impact of vancomycin hydrochloride capsules, but excludes any new approvals after August 7, 2012.

Total revenues $248 – 258 million
Total gross margin percentage 58 – 59 %

SG&A expenses

$49 – 51

million

(excluding Kilitch acquisition-related expenses)

R&D expenses $15 – 18 million
Tax rate 37.4%
Adjusted net income $55 – 57 million
Adjusted net income per diluted share $0.50 – 0.52
Adjusted EBITDA $97 – 100 million
Capital expenditures $20 - 25 million

Akorn’s R&D Pipeline

The Company has 41 ANDAs filed with the FDA with a combined annual market size of approximately $4.4 billion. The Company has completed development work on 13 additional products with a combined annual market size of approximately $1.2 billion and expects to file these products with the FDA shortly.

Second Quarter 2012 Conference Call

The Company will host a conference call at 10:00 a.m. Eastern Time on Tuesday, August 7, 2012, to discuss second quarter 2012 results followed by a Q&A session. The domestic call-in number is 888-267-6301 and the international call-in number is 719-457-2615. The confirmation code for all callers is 4125361. The URL for the webcast is http://www.videonewswire.com/event.asp?id=88178. A live broadcast of the conference call will also be available online at www.akorn.com under the Investor Relations tab and available for replay 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 Statement

This press release includes statements that may constitute "forward-looking statements," including projections of certain measures of Akorn's results of operations, projections of certain charges and expenses, 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.

Non-GAAP Financial Measures

In addition to reporting all financial information required in accordance with 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 not 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.

Core business revenue, as defined by the Company, is equal to total GAAP revenues, less revenue attributed to the Biologics & vaccines segment, which the Company exited during the quarter ended March 31, 2010. The Company believes that core business revenue is a meaningful indicator in that it helps investors to evaluate the Company’s revenue trends from its current reportable segments, excluding the impact of the Company’s exit from the biologics & vaccines segment, which it did not consider to be part of its core business.

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, changes in the fair value of warrants, and deferred financing cost amortization
  • Other adjustments, such as equity in earnings of unconsolidated joint venture related to the sale of the joint venture's assets, amortization of the fair value adjustment to inventory acquired through business acquisitions, and Kilitch Drugs (India) Limited acquisition related expense

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:

Income before income taxes, plus:

  • Intangible asset amortization
  • Non-cash expenses, such as non-cash interest, share-based compensation expense, changes in the fair value of warrants, and deferred financing cost amortization
  • Other adjustments, such as equity in earnings of unconsolidated joint venture related to the sale of the joint venture's assets, amortization of the fair value adjustment to inventory acquired through business acquisitions, and Kilitch Drugs (India) Limited acquisition related expense
  • 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 host of non-cash income and expense items.

While the Company uses Core business revenue, 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. Core business revenue does not provide a full picture of the Company’s historical revenues. Adjusted EBITDA does not take into account the impact of capital expenditures on either the liquidity or the GAAP 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 and encourages investors to do likewise.

AKORN, INC.
PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
IN THOUSANDS, EXCEPT PER SHARE DATA
(UNAUDITED)
THREE MONTHS ENDEDSIX MONTHS ENDED
JUNE 30,JUNE 30,
2012201120122011
(Preliminary)(Preliminary)
(Restated)
Revenues $ 63,287 $ 32,148 $ 115,004 $ 57,592
Cost of sales 27,560 14,265 48,376 25,456
GROSS PROFIT 35,727 17,883 66,628 32,136
Selling, general and administrative expenses 10,940 8,024 21,279 14,315
Acquisition-related costs 184 107 8,644 218
Research and development expenses 4,073 2,767 6,950 4,654
Amortization of intangibles 1,754 309 3,317 565
TOTAL OPERATING EXPENSES 16,951 11,207 40,190 19,752
OPERATING INCOME 18,776 6,676 26,438 12,384
Amortization of deferred financing costs (195) (1,403) (388) (1,596)
Non-cash interest expense (1,204) (286) (2,387) (286)
Interest (expense) income, net (1,006) (324) (2,050) (313)
Equity in earnings of unconsolidated joint venture - 13,706 - 14,530
INCOME BEFORE INCOME TAXES 16,371 18,369 21,613 24,719
Income tax provision 5,803 423 9,817 963
NET INCOME $ 10,568 $ 17,946 $ 11,796 $ 23,756
NET INCOME PER SHARE:
BASIC $ 0.11 $ 0.19 $ 0.12 $ 0.25
DILUTED $ 0.10 $ 0.17 $ 0.11 $ 0.23

SHARES USED IN COMPUTING NET INCOME PER SHARE:

BASIC 95,096 94,579 95,054 94,389
DILUTED 110,513 105,233 109,879 104,653
COMPREHENSIVE INCOME:
Net income 10,568 17,946 11,796 23,756
Foreign currency translation loss (4,757) - (6,960) -
Comprehensive income 5,811 17,946 4,836 23,756

AKORN, INC.
PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEETS
IN THOUSANDS, EXCEPT SHARE DATA

JUNE 30,

DECEMBER 31,
20122011
(Preliminary) (Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 24,410 $ 83,962
Trade accounts receivable, net 37,066 25,307
Inventories 46,575 35,456
Deferred taxes, current 4,469 8,153
Prepaid expenses and other current assets 3,968 3,071
TOTAL CURRENT ASSETS 116,488 155,949
PROPERTY, PLANT AND EQUIPMENT, NET 76,310 44,389
OTHER LONG-TERM ASSETS:
Goodwill 31,077 11,863
Product licensing rights, net 65,498 67,822
Other intangibles, net 17,458 13,016
Deferred financing costs 3,476 3,864
Long-term investments 10,269 10,137
Other 138 105
TOTAL OTHER LONG-TERM ASSETS 127,916 106,807
TOTAL ASSETS $ 320,714 $ 307,145
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 15,931 $ 17,874
Accrued compensation 3,461 5,094
Accrued acquisition related compensation 3,961 -
Accrued expenses and other liabilities 7,003 5,321
TOTAL CURRENT LIABILITIES 30,356 28,289
LONG-TERM LIABILITIES:
Convertible notes due 2016 102,688 100,808
Purchase consideration payable 14,648 13,841
Deferred taxes, non-current 2,428 3,742
Product warranty liability 1,299 1,299
Lease incentive obligations and Other long-term liabilities 953 958
TOTAL LONG-TERM LIABILITIES 122,016 120,648
TOTAL LIABILITIES 152,372 148,937
SHAREHOLDERS' EQUITY:

Common stock, no par value -- 150,000,000 shares authorized, 95,095,860 and 94,936,282 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively

217,934 212,636
Warrants to acquire common stock 17,946 17,946
Accumulated deficit (60,578 ) (72,374 )
Accumulated other comprehensive loss (6,960 ) -
TOTAL SHAREHOLDERS' EQUITY 168,342 158,208
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 320,714 $ 307,145

AKORN, INC.
PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS (UNAUDITED)
THREE MONTHS ENDEDSIX MONTHS ENDED
JUNE 30,JUNE 30,
2012201120122011
(Preliminary)(Restated)(Preliminary)(Restated)
(Restated)
OPERATING ACTIVITIES
Net income $ 10,568 $ 17,946 $ 11,796 $ 23,756

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 2,808 1,183 5,319 2,309
Write-off and amortization of deferred financing fees 195 1,403 388 1,596
Non-cash stock compensation expense 1,758 1,763 3,181 2,494
Non-cash interest expense 1,204 - 2,387 -
Deferred tax assets, net 1,484 - 3,261 -
Excess tax benefit from stock compensation - - (1,595 )
Amortization of debt discount - 286 - 286
Equity in earnings of unconsolidated joint venture - (13,706 ) - (14,530 )
Changes in operating assets and liabilities:
Trade accounts receivable (6,066 ) (1,885 ) (9,980 ) (5,068 )
Inventories (5,406 ) (2,608 ) (9,561 ) (3,521 )
Prepaid expenses and other current assets (796 ) (1,113 ) (1,071 ) (1,120 )
Trade accounts payable 362 1,127 (2,014 ) 2,215
Accrued expenses and other liabilities (2,874 ) 1,107 5,182 (1,087 )
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,237 5,503 7,293 7,330
INVESTING ACTIVITIES
Payments for acquisitions and equity investments - (26,011 ) (56,231 ) (26,011 )
Purchases of property, plant and equipment (6,867 ) (3,596 ) (12,253 ) (5,232 )
Distribution from unconsolidated joint venture - 1,339 - 3,131
Purchase of product licensing rights - (4,000 ) - (4,000 )
NET CASH USED IN INVESTING ACTIVITIES (6,867 ) (32,268 ) (68,484 ) (32,112 )
FINANCING ACTIVITIES
Proceeds from issuance of convertible notes - 120,000 - 120,000
Debt financing costs - (4,587 ) - (4,587 )
Net proceeds from common stock offering and warrant exercises - - - 1,727
Excess tax benefit from stock compensation - - 1,595 -
Proceeds under stock option and stock purchase plans - 123 523 502
NET CASH PROVIDED BY FINANCING ACTIVITIES - 115,536 2,118 117,642
Effect of changes in exchange rates on cash & cash equivalents (298 ) - (479 ) -

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

(3,928 ) 88,771 (59,552 ) 92,860
Cash and cash equivalents at beginning of period 28,338 45,712 83,962 41,623
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 24,410 $ 134,483 $ 24,410 $ 134,483

AKORN, INC.
PRELIMINARY RECONCILIATION OF NET INCOME TO NON-GAAP ADJUSTED EBITDA
IN THOUSANDS (UNAUDITED)
THREE MONTHS ENDEDSIX MONTHS ENDED
JUNE 30,JUNE 30,
2012201120122011
(Preliminary)(Preliminary)
(Restated)
NET INCOME $ 10,568 $ 17,946 $ 11,796 $ 23,756
ADJUSTMENTS TO ARRIVE AT EBITDA:
Depreciation expense 1,054 874 2,002 1,744
Amortization expense 1,754 309 3,317 565
Interest expense, net 1,006 324 2,050 313
Non-cash interest expense 1,204 286 2,387 286
Income tax provision 5,803 423 9,817 963
EBITDA $ 21,389 $ 20,162 $ 31,369 $ 27,627

NON-CASH AND OTHER NON-RECURRING INCOME AND EXPENSES:

Kilith acquisition related expense - - 8,324
Non-cash stock compensation expense 1,758 1,763 3,181 2,494
Write-off and amortization of deferred financing costs 195 1,403 388 1,596

Equity in earnings of unconsolidated joint venture that is related to the sale of the joint venture's assets

- (13,380 ) - (13,380 )

Amortization of the fair value adjustment to AVR's acquired inventory

- 677 - 677
ADJUSTED EBITDA $ 23,342 $ 10,625 $ 43,262 $ 19,014

AKORN, INC.
PRELIMINARY RECONCILIATION OF NET INCOME TO NON-GAAP ADJUSTED NET INCOME
IN THOUSANDS, EXCEPT PER SHARE DATA (UNAUDITED)
THREE MONTHS ENDEDSIX MONTHS ENDED
JUNE 30,JUNE 30,
2012201120122011
(Preliminary)(Preliminary)
(Restated)
INCOME BEFORE INCOME TAXES $ 16,371 $ 18,369 $ 21,613 $ 24,719
ADJUSTMENTS TO ARRIVE AT ADJUSTED NET INCOME:
Kilitch acquisition related expense - - 8,324 -
Non-cash stock compensation expense 1,758 1,763 3,181 2,494
Non-cash interest expense 1,204 286 2,387 286
Amortization expense 1,754 309 3,317 565
Write-off and amortization of deferred financing costs 195 1,403 388 1,596

Equity in earnings of unconsolidated joint venture that is related to the sale of the joint venture's assets

- (13,380 ) - (13,380 )

Amortization of the fair value adjustment to AVR's acquired inventory

- 677 - 677
ADJUSTED INCOME BEFORE INCOME TAXES 21,282 9,427 39,210 16,957
ADJUSTED INCOME TAX PROVISION 7,998 217 11,994 661
ADJUSTED NET INCOME $ 13,284 $ 9,210 $ 27,216 $ 16,296
ADJUSTED NET INCOME PER DILUTED SHARE $ 0.12 $ 0.09 $ 0.25 $ 0.16

Contacts:

Akorn, Inc.
Tim Dick, 847-279-6150
Chief Financial Officer
Related Stocks:
Stock Market XML and JSON Data API provided by FinancialContent Services, Inc.
Nasdaq quotes delayed at least 15 minutes, all others at least 20 minutes.
Markets are closed on certain holidays. Stock Market Holiday List
By accessing this page, you agree to the following
Privacy Policy and Terms and Conditions.
Press Release Service provided by PRConnect.
Stock quotes supplied by Six Financial
Postage Rates Bots go here