Akorn Provides Second Quarter 2020 Results

Friday, 07. August 2020 22:24

LAKE FOREST, Ill., Aug. 07, 2020 (GLOBE NEWSWIRE) -- Akorn, Inc. (The OTC Pink Market: AKRXQ), a leading specialty pharmaceutical company, today announced its financial results for the second quarter of 2020.

Second Quarter 2020 Results and Recent Developments

  • Net revenue was $120 million, down $58 million, 32% from the prior year quarter
  • Net loss was $69 million, compared to $112 million loss in the prior year quarter
  • Adjusted EBITDA was $(2) million, compared to $36 million in the prior year quarter
  • Filed for Chapter 11 bankruptcy protection on May 20, 2020, and executed a Restructuring Support Agreement with lenders serving as the “stalking horse” bidder in the Company's sale process

Summary Financial Results for the Quarter Ended June 30, 2020

Akorn's reported net revenue was $120.3 million for the three month period ended June 30, 2020, representing a decrease of $57.8 million, or 32.4%, as compared to net revenue of $178.1 million for the three month period ended June 30, 2019.  The decrease in net revenue resulted from a $54.9 million decline in organic revenue, and a $5.6 million, decline in revenue from discontinued products, partially offset by a $2.8 million increase in net revenue from new products.  The $54.9 million decline in organic revenue was due an unfavorable volume impact of approximately $52.3 million, or 30.7% and an unfavorable price variance of approximately $2.6 million, or 1.5%.  The $52.3 million volume decline was principally a result of lower demand due to the COVID-19 pandemic, which caused significant disruption to healthcare practices limiting patient access to treatments, particularly in the areas of ophthalmology and acute care.

Gross profit for the quarter ended June 30, 2020, was $31.1 million, or 25.8% of net revenue, compared to $68.0 million, or 38.2% of net revenue, in the corresponding prior year quarter.  The decrease in the gross profit percentage was principally due to the impacts of the COVID-19 pandemic, which included unfavorable volume and product mix, unfavorable manufacturing variances, along with increased employee retention costs.

GAAP net (loss) for the second quarter of 2020, was $(68.7) million, or $(0.51) per diluted share, compared to GAAP net (loss) of $(111.6) million, or $(0.89) per diluted share, for the same quarter of 2019.  After a net adjustment of $41 million to net income for non-GAAP items, adjusted diluted earnings per share for the second quarter of 2020 was $(0.21), compared to $0.09 in the same quarter of 2019, after a net adjustment of $123 million to net income for non-GAAP items.  See "Non-GAAP Financial Measures" below.

Earnings before interest, taxes, depreciation and amortization (EBITDA), which is a non-GAAP measure, was $(48.1) million for the second quarter of 2020, compared to $(75.4) million for the second quarter of 2019.  Adjusted EBITDA, which is also a non-GAAP measure used by management to evaluate the performance of the Akorn business, was $(1.9) million for the second quarter of 2020, compared to $36.1 million for the second quarter of 2019.  See "Non-GAAP Financial Measures" below.

Summary Financial Results for the Six Months Ended June 30, 2020

Akorn's reported net revenue was $325.0 million for the six month period ended June 30, 2020, representing a decrease of $18.9 million, or 5.5%, as compared to net revenue of $343.9 million for the six month period ended June 30, 2019.  The decrease in net revenue in the period was primarily due to a  $44.9 million decline in organic revenue, partially offset by an increase of $16.3 million from discontinued products, and an increase of $9.7 million from new product revenue.  The $44.9 million decrease in organic revenue was due to approximately $65.2 million, or 20.2%, of volume declines partially offset by $20.3 million, or 6.3%, of favorable price variance.  The $65.2 million volume decline was principally a result of lower demand due to the COVID-19 pandemic, which caused significant disruption to healthcare practices limiting patient access to treatments, particularly in the areas of ophthalmology and acute care.  The $16.3 million increase in discontinued products revenue was driven by approximately $35.9 million of net revenue generated during the three month period ended March 31, 2020, from a sale of remaining inventory of an unapproved product that has since been discontinued.

Gross profit for the six month period ended June 30, 2020, was $125.6 million, or 38.6% of net revenue, compared to $121.5 million, or 35.3% of net revenue, in the corresponding prior year period.  The increase in the gross profit percentage was principally due to favorable price and product mix, which was driven by sales of an unapproved product that was discontinued in the first quarter of 2020, and decreased costs associated with FDA compliance related activities.  These factors were mostly offset by the impacts of the COVID-19 pandemic in the second quarter 2020, which included unfavorable volume and product mix, and unfavorable manufacturing variances.

GAAP net (loss) for the six month period ended June 30, 2020, was $(325.4) million, or $(2.49) per diluted share, compared to GAAP net (loss) of $(193.8) million, or $(1.54) per diluted share, for the same period of 2019.  After a net adjustment of $343.8 million to net income for non-GAAP items, adjusted diluted earnings per share for the six month period ended June 30, 2020 was $0.14, compared to $0.10 in the same period of 2019, after a net adjustment of $206.5 million to net income for non-GAAP items.  See "Non-GAAP Financial Measures" below.

Goodwill impairments during the six month period ended June 30, 2020 were $267.9 million, an increase of $251.9 million, over the corresponding prior year amount of $16.0 million.  The $251.9 million increase in impairments was from events that occurred that created significant uncertainty in our business and caused a significant decline in the Company’s enterprise value.

EBITDA, which is a non-GAAP measure, was $(290.1) million for the six month period ended June 30, 2020, compared to $(123.1) million for the same period of 2019.  Adjusted EBITDA, which is also a non-GAAP measure used by management to evaluate the performance of the Akorn business, was $57.3 million for the six month period ended June 30, 2020, compared to $59.5 million for the period of 2019.  See "Non-GAAP Financial Measures" below.

About Akorn:
Akorn, Inc. is a specialty 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; Hettlingen, Switzerland and Paonta Sahib, India that manufacture ophthalmic, injectable and specialty sterile and non-sterile pharmaceuticals.  Additional information is available on Akorn’s website at www.akorn.com.

Non-GAAP Financial Measures:

To supplement Akorn’s financial results presented in accordance with U.S. generally accepted accounting principles (“GAAP”), the Company uses certain non-GAAP (also referred to as “adjusted” or “non-GAAP adjusted”) financial measures in this press release and the accompanying tables, including (1) EBITDA, (2) adjusted EBITDA, (3) adjusted net (loss) income, (4) adjusted diluted earnings per share, (5) net debt, and (6) net debt to adjusted EBITDA ratio.  These non-GAAP measures adjust for certain specified items that are described in this release.  The Company believes that each of these non-GAAP financial measures is helpful in understanding its past financial performance and potential future results.  The non-GAAP financial measures are not meant to be considered in isolation or as a substitute for or superior to comparable GAAP measures.

Akorn’s management uses these measures in analyzing its business and financial condition.  Akorn’s management believes that the presentation of these and other non-GAAP financial measures provide investors greater transparency into Akorn’s ongoing results of operations allowing investors to better compare the Company’s results from period to period.

Investors should note that these non-GAAP financial measures are not prepared under any comprehensive set of accounting rules or principles and do not reflect all of the amounts associated with the Company’s results of operations as determined in accordance with GAAP.  Investors should also note that these non-GAAP financial measures have no standardized meaning prescribed by GAAP and; therefore, have limits in their usefulness to investors.  In addition, from time-to-time in the future there may be other items that the Company may exclude for purposes of its non-GAAP financial measures; likewise, the Company may in the future cease to exclude items that it has historically excluded for purposes of its non-GAAP financial measures.  Because of the non-standardized definitions, the non-GAAP financial measures as used by Akorn in this press release and the accompanying tables may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures used by the Company’s competitors and other companies.

Set forth below is the definition of each non-GAAP financial measure as used by the Company in this press release and a full reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measures.

EBITDA, as defined by the Company, represents net loss before net interest expense, (benefit) provision for income taxes and depreciation and amortization.

Adjusted EBITDA, as defined by the Company, is calculated as follows:

Net (loss), (minus) plus:            

Interest (expense), net
(Benefit) provision for income taxes
Depreciation and amortization
Non-cash expenses, such as impairment of goodwill, impairment of intangible assets, impairment of fixed assets and other, gain on disposal of fixed assets, share-based compensation expense, and amortization of deferred financing costs
Other adjustments, such as legal settlements and various merger and acquisition-related expenses, employee retention and other compensation, legal and financial advisory fees, data integrity investigations & assessment, India costs (excluding depreciation and interest), bankruptcy, FDA compliance related expenses, other settlements and fees and Fresenius transaction & Securities Class Action Litigation.

Adjusted EBITDA is deemed by the Company to be a useful performance indicator because it includes an add back of non-cash or non-recurring operating expenses that have no impact on continuing cash flows as well as other items that are not expected to recur and therefore are not reflective of continuing operating performance.

Adjusted net (loss) income, as defined by the Company, is calculated as follows:

Net (loss), (minus) plus:

Amortization expense
Non-cash expenses, such as impairment of goodwill, impairment of intangible assets, impairment of fixed assets and other, gain on disposal of fixed assets, share-based compensation expense, and amortization of deferred financing costs
Other adjustments, such as merger and acquisition-related expenses, employee retention and other compensation, legal and financial advisory fees, data integrity investigations & assessment, India costs (excluding depreciation and interest), bankruptcy, FDA compliance related expenses, other settlements and fees and Fresenius transaction & Securities Class Action Litigation
Less an estimated tax (benefit) provision, net of the benefit from utilizing net operating loss carry-forwards effected for the adjustments noted above.

Adjusted diluted earnings per share, as defined by the Company, is equal to adjusted net (loss) income divided by the actual or anticipated diluted share count for the applicable period.

The Company believes that adjusted net income and adjusted diluted earnings per 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.

Net debt, as defined by the Company, is gross debt including Akorn’s term loan and debtor-in-possession financing less cash and cash equivalents.

Net debt to adjusted EBITDA ratio, as defined by the Company, is net debt divided by the trailing twelve months adjusted EBITDA.

The shortcomings of non-GAAP financial measures as performance measures are that they provide a view of the Company’s results of operations without including all events during a period.  For example, 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 (loss) income does not take into account non-cash expenses that reflect the amortization of past expenditures, or include share-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 non-GAAP financial measures, investors should consider non-GAAP measures only as a supplement to, and not as a substitute for or as a superior measure to, measures of financial performance prepared in accordance with GAAP.  Investors and other readers are encouraged to review the related GAAP financial measures and the reconciliation of non-GAAP measures to their most directly comparable GAAP measures as presented in this press release.

Cautionary Note Regarding Forward-Looking Statements

This press release includes statements that may constitute “forward-looking statements,” including those regarding the effects of COVID-19, as well as the Company’s long-term business plan and outlook, financial performance, the voluntary cases under chapter 11 (“Chapter 11”) of title 11 of the United States Code (the “Bankruptcy Code”) of Akorn, Inc. and its U.S. direct and indirect subsidiaries, the Company’s ability to continue operating in the ordinary course while the Chapter 11 cases are pending, and the Company's ability to complete the sale of some or all of its assets pursuant to Section 363 of the Bankruptcy Code (the “Sale”). When used in this release, the words “will,” “expect,” “continue,” “believe,” “seek,” “anticipate,” “estimate,” “intend,” “could,” “would,” “strives” and similar expressions are generally intended to identify forward-looking statements. These statements are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). A number of important factors could cause actual results of the Company and its subsidiaries to differ materially from those indicated by such forward-looking statements. These factors include, but are not limited to: (i) the Company’s ability to consummate the Sale; (ii) potential adverse effects of the Chapter 11 cases on the Company’s liquidity and results of operations; (iii) the Company’s ability to obtain timely approval by the Court with respect to the motions filed in the Chapter 11 cases; (iv) objections that could protract the Chapter 11 Cases; (v) employee attrition and the Company’s ability to retain senior management and other key personnel due to the distractions and uncertainties; (vi) the Company’s ability to comply with the restrictions imposed by the terms and conditions of the DIP Facility and other financing arrangements; (vii) the Company’s ability to maintain relationships with suppliers, customers, employees and other third parties and regulatory authorities as a result of the Chapter 11 cases; (viii) the effects of the Chapter 11 cases on the Company and on the interests of various constituents, including holders of the Company’s common stock; (ix) the Court’s rulings on the outcome of the Chapter 11 cases generally; (x) the length of time that the Company will operate under Chapter 11 protection and the continued availability of operating capital during the pendency of the Chapter 11 cases; (xi) risks associated with third party motions in the Chapter 11 cases, which may interfere with the Company’s ability to consummate the Sale or an alternative transaction; (xii) increased administrative and legal costs related to the Chapter 11 process; potential delays in the Chapter 11 process due to the effects of the COVID-19 virus; (xiii) other litigation and inherent risks involved in a bankruptcy process; and (xiv) such other risks and uncertainties outlined in the risk factors detailed in Part I, Item 1A, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (as filed with the SEC on February 26, 2020), Part II, Item 1A, “Risk Factors,” of the Company’s Quarterly Reports on Form 10-Q for the fiscal quarter ended March 31, 2020 (as filed with the SEC on May 11, 2020) and June 30, 2020 (as filed with the SEC on August 7, 2020) and other risk factors identified from time to time in the Company’s filings with the SEC. Readers should carefully review these risk factors, and should not place undue reliance on the Company’s forward-looking statements. These forward-looking statements are based on information, plans and estimates at the date of this release. The Company undertakes no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

AKORN, INC.
(Debtor-in-possession)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)
(In Thousands, Except Per Share Data)
(Unaudited) 

 Three Months Ended
June 30,
 Six Months Ended
June 30,
 2020 2019 2020 2019
Revenues, net$120,310   $178,057   $325,003   $343,928  
Cost of sales (exclusive of amortization of intangibles, included within operating expenses below)89,258   110,073   199,407   222,431  
GROSS PROFIT31,052   67,984   125,596   121,497  
        
Selling, general and administrative expenses70,921   61,042   135,977   133,540  
Research and development expenses9,457   9,495   19,268   18,209  
Amortization of intangibles6,152   9,950   12,294   21,015  
Impairment of goodwill      267,923   15,955  
Impairment of intangible assets400   394   400   10,748  
Litigation rulings, settlements and contingencies   74,469   (7,470)  74,879  
TOTAL OPERATING EXPENSES86,930   155,350   428,392   274,346  
OPERATING (LOSS)(55,878)  (87,366)  (302,796)  (152,849) 
Amortization of deferred financing costs   (5,655)  (8,629)  (6,959) 
Interest expense, net(32,674)  (17,341)  (57,038)  (31,668) 
Reorganization items, net(5,809)     (5,809)    
Other non-operating (expense) income, net(65)  245   (326)  598  
(LOSS) BEFORE INCOME TAXES(94,426)  (110,117)  (374,598)  (190,878) 
Income tax (benefit)/provision(25,764)  1,482   (49,209)  2,902  
        
NET (LOSS)$(68,662)  $(111,599)  $(325,389)  $(193,780) 
Net (Loss) per Common Share, basic and diluted$(0.51)  $(0.89)  $(2.49)  $(1.54) 
        
SHARES USED IN COMPUTING NET (LOSS) PER COMMON SHARE:       
WEIGHTED AVERAGE BASIC AND DILUTED133,423   126,043   130,535   125,806  
        
COMPREHENSIVE (LOSS):       
Net (loss)$(68,662)  $(111,599)  $(325,389)  $(193,780) 
Unrealized holding gain/(loss) on available-for-sale securities, net of tax of $(1) and $1 for the three month periods ended June 30, 2020 and 2019, and $(1) and $1 for the six month periods ended June 30, 2020 and 2019, respectively.4   (3)  3   (3) 
Foreign currency translation gain646   1,380   122   956  
Pension liability adjustment gain, net of tax of $(29) and $(48) for the three month periods ended June 30, 2020 and 2019, and $(58) and $(19) for the six month periods ended June 30, 2020 and 2019, respectively.115   190   229   74  
COMPREHENSIVE (LOSS)$(67,897)  $(110,032)  $(325,035)  $(192,753) 


AKORN, INC.

(Debtor-in-possession)
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)

 June 30, 2020
  (Unaudited)
 December 31,
2019
ASSETS   
CURRENT ASSETS   
Cash and cash equivalents$83,130   $144,804  
Trade accounts receivable, net131,332   134,173  
Inventories, net185,181   170,047  
Income taxes receivable50,204   1,211  
Prepaid expenses and other current assets31,693   29,812  
TOTAL CURRENT ASSETS481,540   480,047  
PROPERTY, PLANT AND EQUIPMENT, NET281,682   295,533  
OTHER LONG-TERM ASSETS   
Goodwill   267,923  
Intangible assets, net203,107   215,801  
Right-of-use assets, net - Operating leases21,404   22,445  
Other non-current assets14,031   6,890  
TOTAL OTHER LONG-TERM ASSETS238,542   513,059  
TOTAL ASSETS$1,001,764   $1,288,639  
LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY   
CURRENT LIABILITIES   
Trade accounts payable$31,786   $44,958  
Accrued royalties1,968   5,956  
Accrued compensation20,438   13,005  
Debtor-in-possession financing30,000     
Current portion of long-term debt (net of deferred financing costs)855,246   843,328  
Accrued administrative fees23,612   31,725  
Current portion of accrued legal fees and contingencies4,364   23,673  
Current portion of lease liability - Operating leases132   2,290  
Accrued expenses and other liabilities22,466   20,652  
TOTAL CURRENT LIABILITIES990,012   985,587  
LIABILITIES SUBJECT TO COMPROMISE76,516     
LONG-TERM LIABILITIES   
Deferred tax liability   225  
Uncertain tax liabilities2,741   2,633  
Long-term lease liability - Operating leases269   22,021  
Long-term portion of accrued legal fees and contingencies   33,000  
Pension obligations and other liabilities10,925   10,881  
TOTAL LONG-TERM LIABILITIES13,935   68,760  
TOTAL LIABILITIES1,080,463   1,054,347  
SHAREHOLDERS’ (DEFICIT) EQUITY   
Preferred stock, $1 par value - 5,000,000 shares authorized; no shares issued or outstanding at June 30, 2020 and December 31, 2019.     
Common stock, no par value – 150,000,000 shares authorized; 133,407,696 and 126,145,832 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively.607,565   595,521  
(Accumulated deficit)(659,327)  (333,938) 
Accumulated other comprehensive (loss)(26,937)  (27,291) 
TOTAL SHAREHOLDERS’ (DEFICIT) EQUITY(78,699)  234,292  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$1,001,764   $1,288,639  
    


AKORN, INC.

(Debtor-in-possession)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)

 Six Months Ended
June 30,
 2020 2019
OPERATING ACTIVITIES:   
Net (loss)$(325,389)  $(193,780) 
Adjustments to reconcile consolidated net (loss)  to net cash (used in) operating activities:   
Depreciation and amortization27,493   36,123  
Amortization of debt financing costs8,629   6,959  
Debt financing costs (debtor-in-possession)1,950     
Impairment of intangible assets400   10,748  
Goodwill impairment267,923   15,955  
Fixed asset impairment and other13,638   10,227  
Non-cash stock compensation expense7,778   10,308  
Non-cash interest expense3,289   913  
Deferred income taxes, net(225)  366  
Other(83)  (29) 
Changes in operating assets and liabilities:   
Other non-current assets(7,347)  440  
Trade accounts receivable2,929   (19,496) 
Inventories, net(14,882)  11,186  
Prepaid expenses and other current assets(1,893)  4,985  
Income taxes receivable(48,993)  992  
Trade accounts payable(1,749)  2,078  
Accrued legal fees and contingencies(10,734)  68,662  
Uncertain tax liabilities108   2,526  
Accrued expenses and other liabilities6,099   1,526  
NET CASH (USED IN) OPERATING ACTIVITIES$(71,059)  $(29,311) 
INVESTING ACTIVITIES:   
Proceeds from disposal of assets386     
Payments for intangible assets   (87) 
Purchases of property, plant and equipment(18,944)  (16,863) 
NET CASH (USED IN) INVESTING ACTIVITIES$(18,558)  $(16,950) 
FINANCING ACTIVITIES:   
Stock compensation plan withholdings for employee taxes(98)  (269) 
Proceeds from borrowing (debtor-in-possession)30,000     
Debt financing costs (debtor-in-possession)(1,950)    
Lease payments(10)  (338) 
NET CASH PROVIDED BY / (USED IN) FINANCING ACTIVITIES$27,942   $(607) 
Effect of exchange rate changes on cash and cash equivalents(66)  141  
(DECREASE) IN CASH AND CASH EQUIVALENTS$(61,741)  $(46,727) 
Cash, cash equivalents, and restricted cash at beginning of period145,607   225,794  
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD$83,866   $179,067  
SUPPLEMENTAL DISCLOSURES:   
Amount paid for interest$56,216   $34,179  
Amount (received) for income taxes, net$(65)  $(14,859) 
Additional capital expenditures included in accounts payable$2,698   $3,277  
Common shares issued to settle shareholder litigation$4,364   $  
Standstill Agreement related non-cash interest$3,289   $  



Reconciliation of GAAP Net (Loss) to Non-GAAP EBITDA and Adjusted EBITDA

(Debtor-in-possession)
(In Thousands)
(Unaudited)

 Three Months Ended Six Months Ended
  June 30, June 30,
  2020 2019 2020 2019
NET (LOSS)$(68,662)  $(111,599)  $(325,389)  $(193,780) 
         
ADJUSTMENTS TO ARRIVE AT EBITDA:       
 Interest expense, net32,674   17,341   57,038   31,668  
 Depreciation expense7,462   7,419   15,189   15,057  
 Amortization expense6,157   9,955   12,304   21,066  
 Income tax (benefit)/provision(25,764)  1,482   (49,209)  2,902  
EBITDA(48,133)  (75,402)  (290,067)  (123,087) 
         
NON-CASH AND OTHER NON-RECURRING INCOME AND EXPENSES       
 Impairment of goodwill      267,923   15,955  
 Employee retention and other compensation(A)8,926   2,545   19,475   5,438  
 Legal and financial advisory fees8,896   4,290   18,552   10,038  
 Impairment of fixed assets and other13,638   138   13,638   10,227  
 Amortization of deferred financing costs   5,654   8,629   6,959  
 Non-cash stock compensation expense4,347   5,588   7,778   10,308  
 FDA compliance related expenses(A)1,645   11,851   6,314   22,841  
 Reorganization items, net5,809      5,809     
 Fresenius transaction & Securities Class Action Litigation1,263   1,739   2,539   3,445  
 India costs (excluding depreciation and interest)(A)1,210   1,447   2,257   3,714  
 Other settlements and fees14      1,156     
 Impairment of intangible assets400   393   400   10,748  
 Data integrity investigations & assessment4   3,380   357   8,020  
 Merger and acquisition-related expenses47   9   79   6  
 (Gain) on disposal of fixed assets   2   (82)  (30) 
 Litigation rulings, settlements and contingencies   74,469   (7,470)  74,879  
ADJUSTED EBITDA$(1,934)  $36,103   $57,287   $59,461  

(A)  Certain 2019 information has been recast to conform with 2020 presentation.  See the related tables below.


Reconciliation of GAAP Net (Loss) to non-GAAP Adjusted Net (Loss) Income and Adjusted Diluted Earnings Per Share

(Debtor-in-possession)
(In Thousands, Except Per Share Data)
(Unaudited) 

 Three Months Ended Six Months Ended
 June 30, June 30,
 2020 2019 2020 2019
Net (Loss)$(68,662)  $(111,599)  $(325,389)  $(193,780) 
        
Income tax (benefit)/provision(25,764)  1,482   (49,209)  2,902  
        
(LOSS) BEFORE INCOME TAXES$(94,426)  $(110,117)  $(374,598)  $(190,878) 
        
ADJUSTMENTS TO ARRIVE AT ADJUSTED NET INCOME:       
Impairment of goodwill (5)      267,923   15,955  
Impairment of fixed assets (7)13,638   138   13,638   10,227  
Amortization expense (4)6,157   9,955   12,304   21,066  
Amortization of deferred financing costs (6)   5,654   8,629   6,959  
Non-cash stock compensation expense (1, 2, 3)4,347   5,588   7,778   10,308  
Impairment of intangible assets (5)400   393   400   10,748  
(Gain) on disposal of fixed assets (1)   2   (82)  (30) 
Employee retention and other compensation(A) (1, 2, 3)8,926   2,545   19,475   5,438  
Legal and financial advisory fees (1)8,896   4,290   18,552   10,038  
FDA compliance related expenses(A) (2,3)1,645   11,851   6,314   22,841  
 Reorganization items, net (1)5,809      5,809     
Fresenius transaction & Securities Class Action Litigation (1)1,263   1,739   2,539   3,445  
India costs (excluding depreciation and interest)(A) (1,3)1,210   1,447   2,257   3,714  
Other settlements and fees (1,3)14      1,156     
Data integrity investigations & assessment (1)4   3,380   357   8,020  
Merger & acquisition-related expenses (1)47   9   79   6  
Litigation rulings, settlements and contingencies (8)   74,469   (7,470)  74,879  
ADJUSTED (LOSS) INCOME BEFORE INCOME TAX$(42,070)  $11,343   $(14,940)  $12,736  
        
ADJUSTMENTS TO INCOME (BENEFIT)(14,398)     (33,323)    
TOTAL ADJUSTED INCOME TAX (BENEFIT)$(14,398)  $   $(33,323)  $  
        
ADJUSTED NET (LOSS) INCOME$(27,672)  $11,343   $18,383   $12,736  
        
ADJUSTED DILUTED EARNINGS PER SHARE$(0.21)  $0.09   $0.14   $0.10  
        
(A)  Certain 2019 information has been recast to conform with 2020 presentation.       
        
(1) - Excluded from SG&A expenses       
(2) - Excluded from R&D expenses       
(3) - Excluded from Cost of sales       
(4) - Excluded from Amortization of intangibles       
(5) - Excluded from Impairment of goodwill, intangible assets       
(6) - Excluded from Amortization of deferred financing costs       
(7) - Excluded from Impairment of fixed assets       
(8) - Excluded from Litigation rulings, settlements and contingencies       


AKORN, INC.

Reconciliation of GAAP Debt to Non-GAAP Net Debt and Net Debt to Adjusted EBITDA Ratio
(In Thousands, Except Net Debt to Adjusted EBITDA Ratio)

 June 30, 2020
GAAP Debt$855,246 
Debtor-in-possession financing30,000 
Total term loans outstanding$885,246 
Cash and cash equivalents83,130 
  Net debt$802,116 
  
Adjusted EBITDA, trailing twelve months ended$121,514 
  
Net debt to adjusted EBITDA ratio6.6 


Reconciliation 2019 of GAAP Net (Loss) Income to Non-GAAP EBITDA and Recast Adjusted EBITDA
(In Thousands)
(Unaudited)

 Three Months Ended Year Ended
  March 31, 2019 June 30, 2019 September 30, 2019 December 31, 2019 2019
NET (LOSS)$(82,181)  $(111,599)  $47,670   $(80,660)  $(226,770) 
           
ADJUSTMENTS TO ARRIVE AT EBITDA:         
 Interest expense, net14,327   17,341   18,982   18,703   69,353  
 Depreciation expense7,639   7,419   7,734   7,683   30,475  
 Amortization expense11,111   9,954   9,380   9,380   39,825  
 Income tax (benefit)/provision1,420   1,482   (66,257)  2,347   (61,008) 
EBITDA(47,684)  (75,403)  17,509   (42,547)  (148,125) 
           
NON-CASH AND OTHER NON-RECURRING INCOME AND EXPENSES         
 Impairment of goodwill15,955            15,955  
 Amortization of deferred financing costs1,304   5,654   8,581   16,014   31,554  
 Non-cash stock compensation expense4,720   5,589   5,726   5,246   21,281  
 Impairment of fixed assets and other10,089   138   158   29,509   39,894  
 Impairment of intangible assets10,354   393      18,750   29,498  
 (Gain) on disposal of fixed assets(32)  2      (2)  (32) 
 Employee retention and other compensation2,893   2,545   3,411   2,665   11,515  
 Legal and financial advisory fees5,748   4,290   1,511   4,877   16,425  
 FDA compliance related expenses10,991   11,851   4,566   7,738   35,145  
 Fresenius transaction & Securities Class Action Litigation1,706   1,740   2,689   1,817   7,952  
 India costs (excluding depreciation and interest)2,267   1,446   1,431   1,264   6,408  
 Data integrity investigations & assessment4,640   3,380   2,660   1,327   12,006  
 Merger and acquisition-related expenses(3)  9   21   6   33  
 Litigation rulings, settlements and contingencies410   74,469   (11,625)  (19,075)  44,179  
ADJUSTED EBITDA$23,358   $36,103   $36,638   $27,589   $123,688  
           
Note:  FDA compliance related expenses and India costs (excluding depreciation and interest) are now included as adjustments to EBITDA to conform to current year presentation.  In addition, expense related to the 2019 Cash LTIP program is included as adjustments to EBITDA to conform to current year presentation and is included within Employee retention and other compensation.


Reconciliation of 2019 GAAP Net (Loss) Income to non-GAAP Recast Adjusted Net Income and Recast Adjusted Diluted Earnings Per Share

(In Thousands, Except Per Share Data)
(Unaudited) 

 Three Months Ended Year Ended
 March 31, 2019 June 30, 2019 September 30, 2019 December 31, 2019 2019
Net (Loss)$(82,181)  $(111,599)  $47,670   $(80,660)  $(226,770) 
          
Income tax (benefit)/provision1,420   1,482   (66,257)  2,347   (61,008) 
          
(LOSS) BEFORE INCOME TAXES$(80,761)  $(110,117)  $(18,587)  $(78,313)  $(287,778) 
          
ADJUSTMENTS TO ARRIVE AT ADJUSTED NET INCOME:         
Impairment of goodwill (5)15,955            15,955  
Amortization of deferred financing costs (6)1,304   5,654   8,581   16,014   31,554  
Amortization expense (4)11,111   9,954   9,380   9,380   39,825  
Non-cash stock compensation expense (1, 2, 3)4,720   5,589   5,726   5,246   21,281  
Impairment of fixed assets (7)10,089   138   158   29,509   39,894  
Impairment of intangible assets (5)10,354   393      18,750   29,498  
(Gain) on disposal of fixed assets (1)(32)  2      (2)  (32) 
Employee retention and other compensation (1, 2, 3)2,893   2,545   3,411   2,665   11,515  
Legal and financial advisory fees (1)5,748   4,290   1,511   4,877   16,425  
FDA compliance related expenses (2,3)10,991   11,851   4,566   7,738   35,145  
Fresenius transaction & Securities Class Action Litigation (1)1,706   1,740   2,689   1,817   7,952  
India costs (excluding depreciation and interest) (1,3)2,267   1,446   1,431   1,264   6,408  
Data integrity investigations & assessment (1)4,640   3,380   2,660   1,327   12,006  
Merger & acquisition-related expenses (1)(3)  9   21   6   33  
Litigation rulings and settlements (8)410   74,469   (11,625)  (19,075)  44,179  
ADJUSTED INCOME BEFORE INCOME TAX$1,392   $11,343   $9,922   $1,203   $23,860  
          
ADJUSTED NET INCOME$1,392   $11,343   $9,922   $1,203   $23,860  
          
ADJUSTED DILUTED EARNINGS PER SHARE$0.01   $0.09   $0.08   $0.01   $0.19  
          
Note:  FDA compliance related expenses and India costs (excluding depreciation and interest) are now included as adjustments to EBITDA to conform to current year presentation.  In addition, expense related to the 2019 Cash LTIP program is included as adjustments to EBITDA to conform to current year presentation and is included within Employee retention and other compensation.
          
(1) - Excluded from SG&A expenses         
(2) - Excluded from R&D expenses         
(3) - Excluded from Cost of sales         
(4) - Excluded from Amortization of intangibles         
(5) - Excluded from Impairment of goodwill, intangible assets         
(6) - Excluded from Amortization of deferred financing costs         
(7) - Excluded from Impairment of fixed assets         
(8) - Excluded from Litigation rulings, settlements and contingencies         


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Investor.relations@akorn.com

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