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Akorn Reports Preliminary 2014 Third Quarter Results

LAKE FOREST, Ill., Nov. 6, 2014 (GLOBE NEWSWIRE) -- Akorn, Inc. (Nasdaq:AKRX), a niche pharmaceutical company, today reported preliminary financial results for the fiscal third quarter ended September 30, 2014.

Consolidated revenues for the third quarter were $132.7 million and included $39.9 million of costs associated with price increases. Excluding these costs, third quarter adjusted net income per diluted share was $0.27. The Company's prior full year guidance for revenue and adjusted net income per diluted share included an estimated $25 million in costs associated with price increases.

Third Quarter 2014 Key Highlights and Accomplishments

  • Received FDA approval on four new products with a combined IMS market size of $228 million. Product approvals included: Zoledronic Acid Injection 5mg/100 mL; Adenosine Injection USP, 3mg/mL 20mL and 30mL; Tobramycin Injection USP, 40mg/mL 2mL and 30mL; and Gatifloxacin Ophthalmic Solution, 0.5%.
  • Completed the acquisition of VPI Holdings Corp., the parent company of VersaPharm Incorporated, in early August.
  • In early October, completed the acquisition of Xopenex® inhalation solution from Sunovion Pharmaceuticals, which is expected to add $18 million to $20 million in annual revenue and $0.07 to $0.08 adjusted net income per diluted share in 2015.
  • In early October, completed the acquisition of five FDA (CVM) approved veterinary injectable brands: AnaSed®, Tolazine®, Yobine®, Butorphic® and VetaKet®, and a pipeline of four injectable drugs from LLOYD, Inc.
  • Adjusts fourth quarter 2014 outlook to reflect the full impact of improved pricing. Fourth quarter revenue, excluding the impact of costs associated with price increases are projected between $215 and $225 million. Adjusted net income per diluted share is projected between $0.44 and $0.46.

Raj Rai, Chief Executive Officer commented, "Our strong business momentum continued this quarter, with double digit organic growth and strong performance from the acquisitions that were completed over the last 12 months. Our strategic initiatives to diversify our portfolio of products have allowed us to reinvent the business, which has opened numerous new market opportunities and has positioned Akorn as a much broader provider of specialty generics. Our current portfolio of marketed and pipeline products operate in strong markets with favorable competitive dynamics, which will provide us with sustainable growth opportunities as we move forward. We expect to close 2014 with record sales and earnings, which will set us firmly on the path to achieve over $1 billion in annual sales in the future."

Financial Results for the Quarter Ended September 30, 2014

Consolidated revenue for the third quarter of 2014 was $132.7 million, an increase of 62% over the third quarter 2013 consolidated revenue of $81.9 million. Third quarter 2014 consolidated revenue was reduced by $39.9 million in costs associated with third quarter price increases. The year-over-year increase, excluding the impact of these costs, was largely driven by the Hi-Tech and VersaPharm acquisitions, the addition of several branded ophthalmic products which were acquired in late 2013 and early 2014, as well as strength in Akorn's established base business.

Consolidated gross margin for the third quarter of 2014 was 39% compared with 53% in the third quarter of 2013. In addition to the costs associated with price increases, third quarter 2014 consolidated gross margin included $6.3 million in amortization of the step-up of Hi-Tech and VersaPharm acquired inventories. Excluding the impact of these items, third quarter 2014 gross margin was 57%.

GAAP net loss for the third quarter of 2014 was ($11.7) million, or a loss of ($0.11) per share compared to GAAP net income of $12.2 million, or $0.11 per diluted share in the comparable prior year quarter. Excluding the impact of costs associated with price increases and other non-GAAP adjustments, adjusted net income for the third quarter of 2014 was $32.6 million, or $0.27 per diluted share compared to adjusted net income of $16.7 million, or $0.15 per diluted share in the comparable prior year quarter. Third quarter 2014 adjustments to net income included a number of items described in the GAAP to non-GAAP reconciliation later in this release.

2014 Updated Outlook

The 2014 outlook table below includes the following:

  • The prior outlook which was given with the reporting of second quarter 2014 financial results
  • The prior outlook revised to exclude the impact of costs associated with price increases
  • Updated 2014 outlook which excludes the impact of costs associated with price increases

All guidance figures shown are non-GAAP consistent with the Company's definition of non-GAAP adjustments which are described later in this release.

Prior Prior Outlook Updated
Outlook Revised b Outlook c
Total revenues (Non-GAAP) $580 - 600 $605 - 625 $630 - 640 million
Total gross margin percentage (Non-GAAP) 56 - 57 a 60 - 61 58 %
SG&A expenses (Non-GAAP) $80 - 83 a $74 - 77 $85 - 88 million
R&D expenses $39 - 41 $39 - 41 $32 - 34 million
Income tax rate (Non-GAAP) 37.2 37.2 37.7 %
Adjusted net income (Non-GAAP) $118 - 125 $134 - 140 $136 - 138 million
Adjusted net income per diluted share $1.00 - 1.05 $1.13 - 1.18 $1.13 - 1.15
Adjusted EBITDA (Non-GAAP) $230 - 240 $255 - 265 $265 - 270 million
Capital expenditures $35 - 40 $35 - 40 $30 - 35 million
Fully diluted share count 118 118 120 million
a - Prior Outlook was provided on a GAAP-basis.
b - Prior Outlook revised to exclude $25 million in estimated cost of price increases
c - Updated Outlook which excludes the impact of costs associated with price increases

2014 Updated Outlook Assumptions

  • Revenue excludes the impact of costs associated with price increases.
  • No additional product approvals for the remainder of the year are included.
  • Assumes no competing generic is launched for Nembutal.
  • The Company anticipates ending the year at a $20 million annual run-rate for synergies.
  • Fully diluted share count is based on most recent share price.

Akorn's R&D Pipeline

The Company has 90 ANDAs filed with the FDA with a combined annual addressable IMS market size of approximately $8.6 billion. The Company has completed development work on six additional products with a combined annual addressable IMS market size of approximately $0.2 billion and expects to file these products with the FDA shortly.

During the third quarter, the Company responded to six Complete Response Letters (CRLs) and received 11 new CRLs from the FDA. Of the 90 ANDA filings pending, five are tentatively approved and 34 have received CRLs, 20 of which are pending the Company's response.

Third quarter 2014 Conference Call

Akorn, Inc. will host a conference call at 10:00 a.m. Eastern Time on Thursday, November 6, 2014, to discuss third quarter 2014 results followed by a Q&A session. The domestic call-in number is 877-415-4117 and the international call-in number is 678-224-7719. The confirmation code for all callers is 24405342. The URL for the webcast is http://www.media-server.com/m/p/hp5vjo2i. 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 90 days.

About Akorn, Inc.

Akorn, Inc. is a niche generic 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; Amityville, New York and Paonta Sahib, India where the Company manufactures ophthalmic, injectable and niche, non-sterile 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, projections with respect to timing and impact of pending acquisitions, 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, prospective acquisitions, future performance or results of current and anticipated products and acquired assets, 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 financial information required in accordance with U.S. generally accepted accounting principles (GAAP), Akorn is also reporting Adjusted EBITDA, Adjusted net income, which incorporates, Adjusted revenues, Adjusted cost of sales and gross margin, Adjusted SG&A, Adjusted acquisition-related costs, Adjusted amortization, Adjusted debt financing costs, Adjusted non-cash interest expense, Adjusted other non-operating income, net and Adjusted income tax provision, 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
  • Amortization of acquisition related inventory step-up
  • Non-cash expenses, such as share-based compensation expense, and amortization of financing costs
  • Other adjustments, such as costs associated with price increases, legal settlements and various acquisition and disposition related expenses
  • Less settlement of product warranty liability
  • Less gains (or plus losses) on foreign currency transactions
  • Less gains related to acquisitions and divestitures

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
  • Amortization of acquisition related inventory step-up
  • Non-cash expenses, such as non-cash interest, share-based compensation expense, and amortization of financing costs
  • Other adjustments, such as costs associated with price increases, legal settlements and various acquisition and disposition related expenses
  • Less an estimated cash tax provision, net of the benefit from utilizing NOL carry-forwards
  • Less settlement of product warranty liability
  • Less gains (or plus losses) on foreign currency transactions
  • Less gains related to acquisitions and divestitures

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 share 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)
PRELIMINARY PRELIMINARY
THREE MONTHS ENDED NINE MONTHS ENDED
September 30, September 30,
2014 2013 2014 2013
Revenues $ 132,732 $ 81,892 $ 374,103 $ 232,758
Cost of sales (excluding amortization of intangibles) 80,998 38,195 196,042 107,824
GROSS PROFIT 51,734 43,697 178,061 124,934
Selling, general and administrative expenses 27,779 13,645 66,341 39,093
Acquisition-related costs 8,062 1,459 29,289 1,978
Research and development expenses 7,918 4,837 21,389 15,857
Amortization of intangibles 14,017 1,568 27,381 4,978
TOTAL OPERATING EXPENSES 57,776 21,509 144,400 61,906
OPERATING INCOME (LOSS) (6,042) 22,188 33,661 63,028
Debt financing costs (2,509) (211) (11,099) (622)
Non-cash interest expense (1,299) (1,163) (3,954) (3,427)
Interest expense, net (10,507) (991) (17,930) (2,960)
Gain from product divestiture 839 -- 9,807 --
Other non-operating income, net 979 159 980 202
INCOME (LOSS) BEFORE INCOME TAXES (18,539) 19,982 11,465 56,221
Income tax (benefit) provision (6,889) 7,777 4,278 20,537
NET INCOME (LOSS) FROM CONTINUING OPERATIONS $ (11,650) $ 12,205 $ 7,187 $ 35,684
NET LOSS FROM DISCONTINUED OPERATIONS $ -- $ -- $ (503) $ --
NET (LOSS) INCOME $ (11,650) $ 12,205 $ 6,684 $ 35,684
NET INCOME (LOSS) PER SHARE:
BASIC FROM CONTINUING OPERATIONS $ (0.11) $ 0.13 $ 0.07 $ 0.37
DILUTED FROM CONTINUING OPERATIONS $ (0.11) $ 0.11 $ 0.06 $ 0.32
BASIC $ (0.11) $ 0.13 $ 0.07 $ 0.37
DILUTED $ (0.11) $ 0.11 $ 0.06 $ 0.32
SHARES USED IN COMPUTING NET INCOME
PER SHARE:
BASIC 105,438 96,238 101,784 96,096
DILUTED 120,044 113,717 118,535 112,644
COMPREHENSIVE INCOME (LOSS):
Net income (loss) (11,650) 12,205 6,684 35,684
Unrealized holding of security sale, net of tax 1,070 -- 1,070 --
Foreign currency translation gain (loss) (1,466) (2,603) 86 (7,224)
Comprehensive income (loss) (12,046) 9,602 $ 7,840 $ 28,460
AKORN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
IN THOUSANDS, EXCEPT SHARE DATA
(UNAUDITED)
PRELIMINARY
SEPTEMBER 30, DECEMBER 31,
2014 2013
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 131,466 $ 34,178
Trade accounts receivable, net 138,256 64,998
Inventories 132,830 55,982
Deferred taxes, current 40,708 7,945
Available for sale security, current 10,804 --
Prepaid expenses and other current assets 31,517 5,753
TOTAL CURRENT ASSETS 485,581 168,856
PROPERTY, PLANT AND EQUIPMENT, NET 139,372 82,108
OTHER LONG-TERM ASSETS:
Goodwill 290,648 29,831
Product licensing rights, net 670,757 115,900
Other intangibles, net 254,685 14,605
Deferred financing costs 22,942 5,676
Deferred taxes, non-current 3,307 1,643
Long-term investments 208 10,006
Other 2,377 3,180
TOTAL OTHER LONG-TERM ASSETS 1,244,924 180,841
TOTAL ASSETS $ 1,869,877 $ 431,805
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 36,714 $ 22,999
Purchase consideration payable 20,728 14,728
Income taxes payable -- 1,459
Accrued royalties 14,533 6,004
Accrued compensation 12,625 7,692
Current maturities of long-term debt 10,494 --
Accrued expenses and other liabilities 31,765 8,363
TOTAL CURRENT LIABILITIES 126,859 61,245
LONG-TERM LIABILITIES:
Debt, Long-term 1,146,585 108,750
Deferred tax liability 274,165 --
Lease incentive obligations and other long-term liabilities 1,946 1,630
TOTAL LONG-TERM LIABILITIES 1,422,696 110,380
TOTAL LIABILITIES 1,549,555 171,625
SHAREHOLDERS' EQUITY:
Common stock, no par value --- 150,000,000 shares authorized,107,330,516 and 96,569,186 shares issued and outstanding September 30, 2014 and December 31, 2013, respectively 309,482 239,235
Warrants to acquire common stock -- 17,946
Retained earnings 22,051 15,366
Accumulated other comprehensive loss (11,211) (12,367)
TOTAL SHAREHOLDERS' EQUITY 320,322 260,180
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,869,877 $ 431,805
AKORN, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
IN THOUSANDS (UNAUDITED)
PRELIMINARY PRELIMINARY
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2014 2013 2014 2013
OPERATING ACTIVITIES
Consolidated net income $ (11,650) $ 12,205 $ 6,684 $ 35,684
Loss from discontinued operations $ -- $ -- $ 503 $ --
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Depreciation and amortization 18,908 3,274 37,773 9,925
Debt financing costs 2,510 211 11,099 622
Amortization of favorable (unfavorable) contract asset (liability) 18 (157) 53 (475)
Amortization of inventory step-up 6,285 -- 9,844 --
Non-cash stock compensation expense 1,663 1,430 4,994 5,674
Non-cash interest expense 1,299 1,163 3,954 3,426
Gain from product divestiture (839) -- (9,807) --
Deferred tax assets, net 17,400 628 7,441 1,829
Excess tax benefit from stock compensation (31,437) (447) (32,268) (1,192)
Non-cash settlement of product warranty liability -- -- -- (1,299)
Equity in earnings of unconsolidated joint venture -- -- -- (76)
Changes in operating assets and liabilities:
Trade accounts receivable 10,754 (3,950) (17,237) (10,858)
Inventories (9,964) (147) (14,177) (4,575)
Prepaid expenses and other assets (13,977) 329 (9,648) 867
Trade accounts payable (2,625) 1,595 2,340 1,444
Accrued expenses and other liabilities 3,922 4,878 12,721 1,414
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES (7,733) 21,012 14,269 42,410
INVESTING ACTIVITIES
Payments for acquisitions and equity investments (350,456) -- (929,771) (513)
Proceeds from disposal of assets 1,000 -- 58,750 --
Payments for other intangible assets (2,199) -- (8,499) --
Purchases of property, plant and equipment (7,464) (2,777) (19,393) (7,936)
NET CASH USED IN INVESTING ACTIVITIES (359,119) (2,777) (898,913) (8,449)
FINANCING ACTIVITIES
Proceeds from issuance of debt 445,000 -- 1,045,000 --
Debt repayment (81,813) -- (81,813) --
Debt financing costs (8,808) (2,557) (28,462) (2,557)
Excess tax benefit from stock compensation 31,437 447 32,268 1,192
Net proceeds from common stock offering and warrant exercises -- -- 8,171 --
Proceeds under stock option and stock purchase plans 4,796 1,174 6,867 2,439
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 390,613 (936) 982,032 1,074
Effect of changes in exchange rates on cash & cash equivalents (201) (113) (99) (218)
INCREASE IN CASH AND CASH EQUIVALENTS 23,559 17,186 97,288 34,817
Cash and cash equivalents at beginning of period 107,907 58,412 34,178 40,781
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 131,466 $ 75,598 $ 131,466 $ 75,598
AKORN, INC.
RECONCILIATION OF NET INCOME TO NON-GAAP ADJUSTED EBITDA
IN THOUSANDS (UNAUDITED)
PRELIMINARY PRELIMINARY
THREE MONTHS ENDED NINE MONTHS ENDED
September 30, September 30,
2014 2013 2014 2013
NET INCOME (LOSS) FROM CONTINUING OPERATIONS $ (11,650) $ 12,205 $ 7,187 $ 35,684
ADJUSTMENTS TO ARRIVE AT EBITDA:
Depreciation expense 4,891 1,706 10,392 4,947
Amortization expense 14,017 1,568 27,381 4,978
Interest expense, net 10,507 992 17,930 2,961
Non-cash interest expense 1,299 1,163 3,954 3,426
Income tax provision (6,889) 7,777 4,278 20,537
EBITDA $ 12,175 $ 25,411 $ 71,122 $ 72,533
NON-CASH AND OTHER NON-RECURRING INCOME AND EXPENSES:
Acquisition-related expenses 8,062 1,459 29,289 2,299
Non-cash stock compensation expense 1,663 1,430 4,994 5,674
Non-cash settlement of product warranty liability -- -- -- (1,299)
Gain from foreign currency forward contracts 15 -- (689) --
Gain from product divestiture (839) -- (9,807) --
Amortization of inventory gross-up 6,285 -- 9,844 --
Debt financing costs 2,509 211 11,099 622
Other costs associated with acquisitions -- -- 1,400 --
Revenue adjustments related to pricing changes 39,860 -- 39,860 --
Accelerated depreciation on plant assets 949 -- 949 --
Litigation settlement -- 385 (291) 385
ADJUSTED EBITDA $ 70,679 $ 28,896 $ 157,770 $ 80,214
RECONCILIATION OF NON-GAAP MEASURES
IN THOUSANDS, EXCEPT PER SHARE DATA
(UNAUDITED)
Three Months Ended
September 30, 2014 (Preliminary) September 30, 2013 (Preliminary)
Non-GAAP Non-GAAP
GAAP Adjustments As Adjusted GAAP Adjustments As Adjusted
Revenues $ 132,732 $ 39,860 a $ 172,592 $ 81,892 $ -- $ 81,892
Cost of sales (excluding amortization of intangibles) 80,998 (7,234) b 73,764 38,195 -- 38,195
GROSS PROFIT 51,734 47,094 98,828 43,697 -- 43,697
Selling, general and administrative expenses 27,779 (1,663) c 26,116 13,645 (1,430) c 12,215
Acquisition-related costs 8,062 (8,062) d -- 1,459 (1,459) d --
Research and development expenses 7,918 -- 7,918 4,837 -- 4,837
Amortization 14,017 (14,017) e -- 1,568 (1,568) e --
TOTAL OPERATING EXPENSES 57,776 (23,742) 34,034 21,509 (4,457) 17,052
OPERATING INCOME (6,042) 70,836 64,794 22,188 (4,457) 26,645
Amortization of financing costs (2,509) 2,509 f -- (211) 211 f --
Non-cash interest expense (1,299) 1,299 g -- (1,163) 1,163 g --
Interest expense, net (10,507) -- (10,507) (991) -- (991)
Gain (loss) from product acquisitions and divestitures 839 (839) h -- -- -- --
Other non-operating income, net 979 15 i 994 159 385 j 544
INCOME (LOSS) BEFORE TAXES FROM CONTINUING OPERATIONS (18,539) 73,820 55,281 19,982 6,216 26,198
Income tax (benefit) provision (6,889) 29,606 k 22,717 7,777 1,765 k 9,542
NET INCOME (LOSS) FROM CONTINUING OPERATIONS $ (11,650) $ 44,214 $ 32,564 $ 12,205 $ 4,451 $ 16,656
DILUTED (BASIC) NET INCOME (LOSS) PER SHARE $ (0.11) $ 0.37 $ 0.27 $ 0.11 $ 0.04 $ 0.15
FROM CONTINUING OPERATIONS
DILUTED/BASIC SHARES OUTSTANDING 105,438 120,044 120,044 113,717 113,717 113,717
Gross Margin 39.0% 57.3% 53.4% 53.4%
Operating Margin -4.6% 37.5% 27.1% 32.5%
a - Costs associated with price increases
b - Amortization of inventory step-up and accelerated depreciation on plant assets
c - Stock compensation expense
d - Acquisition-related costs
e - Amortization expense
f - Amortization of financing costs
g - Non-cash interest expense on convertible debt outstanding
h - Includes gain (loss) from product acquisitions and divestitures
i - Includes foreign currency adjustments
j - Litigation settlement
k - Total tax effect from non-GAAP pre-tax adjustments
RECONCILIATION OF NON-GAAP MEASURES
IN THOUSANDS, EXCEPT PER SHARE DATA
(UNAUDITED)
Nine Months Ended
September 30, 2014 (Preliminary) September 30, 2013 (Preliminary)
Non-GAAP Non-GAAP
GAAP Adjustments As Adjusted GAAP Adjustments As Adjusted
Revenues $ 374,103 $ 39,860 a $ 413,963 $ 232,758 $ -- $ 232,758
Cost of sales (excluding amortization of intangibles) 196,042 (10,793) b 185,249 107,824 -- 107,824
GROSS PROFIT 178,061 50,653 228,714 124,934 -- 124,934
Selling, general and administrative expenses 66,341 (4,994) c 61,347 39,093 (5,674) c 33,419
Acquisition-related costs 29,289 (29,289) d -- 1,978 (1,978) d --
Research and development expenses 21,389 -- 21,389 15,857 -- 15,857
Amortization 27,381 (27,381) e -- 4,978 (4,978) e --
TOTAL OPERATING EXPENSES 144,400 (61,664) 82,736 61,906 (12,630) 49,276
OPERATING INCOME 33,661 112,317 145,978 63,028 12,630 75,658
Amortization of financing costs (11,099) 11,099 f -- (622) 622 f --
Non-cash interest expense (3,954) 3,954 g -- (3,427) 3,427 g --
Interest expense, net (17,930) -- (17,930) (2,960) -- (2,960)
Gain (loss) from product acquisitions and divestitures 9,807 (9,807) h --
Other non-operating income, net 980 420 i 1,400 202 (594) j (392)
INCOME BEFORE TAXES FROM CONTINUING OPERATIONS 11,465 117,983 129,448 56,221 16,085 72,306
Income tax provision 4,278 44,887 k 49,164 20,537 5,347 k 25,884
NET INCOME FROM CONTINUING OPERATIONS $ 7,187 $ 73,096 $ 80,284 $ 35,684 $ 10,738 $ 46,422
DILUTED NET INCOME PER SHARE $ 0.06 $ 0.62 $ 0.68 $ 0.32 $ 0.09 $ 0.41
FROM CONTINUING OPERATIONS
DILUTED SHARES OUTSTANDING 118,535 118,535 118,535 112,644 112,644 112,644
Gross Margin 47.6% 55.2% 53.7% 53.7%
Operating Margin 9.0% 35.3% 27.1% 32.5%
a - Costs associated with price increases
b - Amortization of inventory step-up and accelerated depreciation on plant assets
c - Stock compensation expense
d - Acquisition-related costs
e - Acquisition-related amortization
f - Amortization of debt financing costs
g - Non-cash interest expense on convertible debt outstanding
h - Includes gain (loss) from product acquisitions and divestitures
i - Includes other costs associated with acquisitions, litigation settlements and foreign currency adjustments
j - Includes non-cash settlement of product warranty liability and litigation settlements
k - Total tax effect from non-GAAP pre-tax adjustments
AKORN, Inc.
2014 FINANCIAL GUIDANCE
RECONCILIATION OF GAAP NET INCOME TO NON-GAAP ADJUSTED NET INCOME
Prior Prior Outlook Updated
Outlook a Revised b Outlook c
GAAP NET INCOME $63 - 69 $63 - 69 $38 - 41 million
Add:
Intangible asset amortization expense $32 $32 $45 million
Share-based compensation Expense $6 $6 $6 million
Non-cash interest expense $5 $5 $5 million
Amortization of deferred financing costs $10 $10 $18 million
Acquisition-related expenses & other adjustments $33 - 34 $59 $82 million
Subtract:
Tax effect of adjustments ($33 - 33) ($42 - 42) ($59) million
ADJUSTED NET INCOME $118 - 125 $134 - 140 $136 - 138 million
ADJUSTED NET INCOME PER DILUTED SHARE $1.00 - 1.05 $1.13 - 1.18 $1.13 - 1.15
SHARES USED IN COMPUTING NET INCOME PER SHARE 118 118 120 million
RECONCILIATION OF GAAP NET INCOME TO NON-GAAP ADJUSTED EBITDA
GAAP NET INCOME $63 - 69 $63 - 69 $38 - 41 million
Add:
Depreciation & amortization expense $45 $45 $60 million
Interest expense, net (cash & non-cash) $36 $36 $36 million
Income tax provision $37 - 41 $37 - 41 $26 - 29 million
EBITDA $181 - 190 $181 - 190 $161 - 166 million
Add:
Share-based compensation expense $6 $6 $6 million
Amortization of deferred financing costs $10 $10 $18 million
Acquisition-related expenses & other adjustments $32 - 33 $58 $80 million
ADJUSTED EBITDA $230 - 240 $255 - 265 $265 - 270 million
a - Prior Outlook was provided on a GAAP-basis.
b - Prior Outlook revised to exclude $25 million in estimated cost of price increases
c - Updated Outlook which excludes the impact of costs associated with price increases

CONTACT: Investor Relations: Alpha IR Group Chris Hodges (312) 445-2870 At the Company: Akorn, Inc. Tim Dick, Chief Financial Officer (847) 279-6150

Source:Akorn, Inc.