- Q3 2016 Revenue Increase of 11% to $284 million -
- Q3 2016 GAAP EPS of $0.38; Adjusted Q3 2016 EPS of $0.56 -
- Updates 2016 Revenue, EPS and Adjusted EBITDA Guidance -
- Repurchased $25 Million of Shares -
- Conference Call and Webcast to Be Held November 3, 2016 at 10:00 a.m. EDT -
LAKE FOREST, Ill., Nov. 03, 2016 (GLOBE NEWSWIRE) -- Akorn, Inc. (Nasdaq:AKRX), a leading specialty generic pharmaceutical company, today announced its financial results for the third quarter of 2016.
Akorn reported net revenue of $284 million for the third quarter 2016, an 11% increase from the third quarter 2015.
GAAP net income for the third quarter 2016 was $48 million, or $0.38 per diluted share, compared to GAAP net income of $48 million, or $0.39 per diluted share, for the same quarter of 2015. Including a net adjustment of $22 million to net income for non-GAAP items, adjusted diluted earnings per share for the third quarter 2016 were $0.56, compared to $0.56 in the same quarter 2015, after a net adjustment of $22 million to net income for non-GAAP items.
Raj Rai, Akorn’s Chief Executive Officer, commented, "We are pleased with our third quarter results. We remain focused on investing in our company to support future growth endeavors through expansion of our research and development capabilities, modernization of our plants, expansion of our capacities and technology enhancements.”
Rai further added, “We expect to finish the year with strong results and momentum, despite the regulatory challenges and industry headwinds. We completed a $25 million share buyback in the third quarter, however, our focus for capital deployment is on business development opportunities to further enhance our long-term growth prospects.”
Earnings before interest, taxes, depreciation and amortization was $117 million for the third quarter 2016 compared to $108 million for the third quarter 2015. Adjusted EBITDA, which is another non-GAAP measure used by management to evaluate the continuing operations of the Akorn business, was $127 million for the third quarter 2016, compared to $125 million for the third quarter 2015. As of the quarter ended September 30, 2016, Akorn had GAAP debt of $832 million and trailing twelve months net debt to adjusted EBITDA ratio of approximately 1.3x.
2016 Guidance Update:
The Company expects that full year net revenue, GAAP diluted earnings per share, adjusted diluted earnings per share and adjusted EBITDA to increase as compared to the previously communicated range. Accordingly, the Company has revised guidance as denoted in the table below:
| in millions, excluding percentages and per share amounts | 2016 Original Guidance | 2016 Updated Guidance | ||||
| Net Revenue | $1,060 - $1,080 | $ | 1,125 | |||
| GAAP diluted earnings per share | $1.56 - $1.66 | $ | 1.65 | |||
| Adjusted diluted earnings per share (non-GAAP) | $2.10 - $2.20 | $ | 2.25 | |||
| Adjusted EBITDA (non-GAAP) | $485 - $505 | $ | 515 | |||
R&D Update:
At October 31, 2016, Akorn had 83 ANDAs pending at the FDA, representing approximately $9 billion in annual branded and generic market value according to IMS Health. Akorn has over 75 additional ANDAs in various stages of development, representing approximately $13 billion in annual branded and generic market value according to IMS Health.
Status of Akorn Pending ANDA Filings, October 31, 2016:
| Filed Age | Tentative | < 24 Months | 24 - 36 Months | > 36 Months | Total | |||||||||||||||||
| values in millions | Count | Value * | Count | Value * | Count | Value * | Count | Value * | Count | Value * | ||||||||||||
| Ophthalmic | Brand | 5 | $ | 669 | 2 | $ | 141 | 3 | $ | 316 | 7 | $ | 3,513 | 17 | $ | 4,639 | ||||||
| Generic | — | — | 1 | 56 | 3 | 153 | 6 | 131 | 10 | 340 | ||||||||||||
| Injectable | Brand | 1 | 496 | 2 | 259 | 3 | 1,161 | 3 | 339 | 9 | 2,255 | |||||||||||
| Generic | 1 | 8 | 6 | 85 | 9 | 521 | 9 | 213 | 25 | 827 | ||||||||||||
| Topical | Brand | — | — | 1 | 8 | 1 | 12 | 1 | 33 | 3 | 53 | |||||||||||
| Generic | — | — | 2 | 44 | 6 | 332 | — | — | 8 | 376 | ||||||||||||
| Other | Brand | — | — | — | — | — | — | — | — | — | — | |||||||||||
| Generic | — | — | 4 | 111 | 2 | 76 | 5 | 70 | 11 | 257 | ||||||||||||
| Total | 7 | $ | 1,173 | 18 | $ | 704 | 27 | $ | 2,571 | 31 | $ | 4,299 | 83 | $ | 8,747 | |||||||
| * The IMS market size, shown in millions, is based on the IMS data for the trailing 12 months ended September 30, 2016 and excludes any trade and customary allowances and discounts. The IMS market size is not a forecast of our future sales. |
Cranbury, New Jersey R&D Facility:
Subsequent to the quarter ended September 30, 2016, the Company expanded its R&D footprint by opening a facility in the New Jersey pharmaceutical corridor which has the capacity to house up to 40 scientists devoted to product development and the filing of ANDA's to facilitate the Company's strategy to replenish and enhance its pipeline. Product development is expected to focus on alternate dosage form generics including topicals, nasals, and ophthalmics. Akorn is actively recruiting for a number of new R&D scientist and leadership positions that will be based at this new facility.
Stock Repurchase Program:
During the quarter ended September 30, 2016, the Company repurchased 0.9 million shares at an average price of $27.74. As of September 30, 2016, the Company had $175 million remaining on the repurchase authorization.
Conference Call and Webcast Details:
As previously announced, Akorn’s management will hold a conference call with interested investors and analysts at 10:00 a.m. EDT on November 3, 2016 to discuss these results and updates in more detail. The dial-in number to access the call is (844) 249-9382 in the U.S. and Canada and +1 (270) 823-1530 for international callers. The conference ID is 96008765. To access the live webcast, please go to Akorn’s Investor Relations web site at http://investors.akorn.com.
A webcast replay of the conference call will be available shortly following the conclusion of the call and will be available for 90 days. To access the webcast replay, please go to Akorn’s Investor Relations web site at http://investors.akorn.com.
About Akorn:
Akorn, Inc. is a specialty 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; 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 and guidance 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 income, (4) adjusted diluted earnings per share, (5) net debt, (6) net debt to adjusted EBITDA ratio, (7) adjusted tax and (8) adjusted tax rate. These non-GAAP measures adjust for certain specified items that are described in the release. The Company believes that each of these non-GAAP financial measures are 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 EBITDA, adjusted EBITDA, adjusted net income and adjusted diluted earnings per share in managing and analyzing its business and financial condition. The Company uses net debt and net debt to EBITDA ratio to analyze the financial capacity for further leverage and in analyzing the business and financial condition. Adjusted tax and adjusted tax rate are utilized as management believes it adds comparability through the elimination of discrete tax events which are unrelated to the continuing cash flows of the Company. 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 used to present financial guidance 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 income before net interest expense, income tax expense, depreciation, amortization and impairment of long-lived assets.
Adjusted EBITDA, as defined by the Company, is calculated as follows:
Net income, plus:
- Interest income (expense), net
- Provision for income taxes
- Depreciation, amortization and impairment of long-lived assets
- Amortization of acquisition related inventory step-up
- Non-cash expenses, such as share-based compensation expense, and amortization of deferred financing costs
- Other adjustments, such as legal settlements, restatement expenses and various acquisition and disposition related expenses
- Less gains from executive bonus clawback of 2014 bonuses
- Less gains (or plus losses) on foreign currency transactions
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 income, as defined by the Company, is calculated as follows:
Net income, plus:
- Intangible asset amortization and impairment
- Non-cash expenses, such as non-cash interest, share-based compensation expense, and amortization of financing costs
- Other adjustments, such as legal settlements, restatement expenses and various acquisition and disposition related expenses
- Amortization of acquisition-related inventory step-up
- Less gains (or plus losses) on foreign currency transactions
- Less gains related to acquisitions and divestitures
- Less gains from executive bonus clawback of 2014 bonuses
- Less tax benefits from the early adoption of ASU 2016-09
- Less an estimated tax 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 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 revolving debt balances (if applicable) 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.
In addition, as may be used in this press release, adjusted tax and adjusted tax rate exclude the impact of all the above adjustments on tax.
The shortcomings of non-GAAP financial measures as guidance or 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 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, 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.
Forward Looking Statements
This press release includes statements that may constitute "forward looking statements" including our 2016 financial guidance; statements about the capacity and use of our new facility; statements about our portfolio of ANDAs both pending at the FDA and in other, earlier stages of development and other statements regarding Akorn's launches, regulatory approvals, goals and strategy. When used in this document, the words “anticipate,” "plan," "will," "continue," “believe,” “estimate” and “expect” and similar expressions are generally intended to identify 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. Factors that could cause or contribute to such differences include, but are not limited to: the difficulty of predicting the impact of the restatement on our future financial results; the difficulty of predicting the timing or outcome of product development efforts, including FDA and other regulatory agency approvals and actions, if any; the impact of competitive products and pricing; the susceptibility of our generic and off patent pharmaceutical products to competition, substitution policies and reimbursement policies of the government; the timing and success of product launches; difficulties or delays in manufacturing; the availability and pricing of third party sourced products and materials; successful compliance with FDA and other governmental regulations; the continuing consolidation of our customer base, which could adversely affect sales of our products; our dependence on a small number of distributors, the loss of any of which could have a material adverse effect; changes in the laws and regulations and such other risks and uncertainties outlined in the "Risk Factors" section of Akorn's Form 10-K filed with the SEC on May 10, 2016, Akorn's Form 10-Q filed with the SEC on August 4, 2016, and any subsequent filings with the SEC. Except as expressly required by law, Akorn disclaims any intent or obligation to update any forward-looking statements herein.
The addressable IMS market value figures presented in this press release outline the approximate aggregate size of the potential market, as estimated by IMS Health, and are not forecasts of our future sales.
Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited), shown in thousands (except per share amounts):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2016 | 2015 | 2016 | 2015 | ||||||||||||
| Revenues, net | $ | 284,095 | $ | 256,801 | $ | 833,176 | $ | 705,099 | |||||||
| Cost of sales (exclusive of amortization of intangibles, included within operating expenses below) | 113,868 | 93,789 | 328,159 | 283,517 | |||||||||||
| GROSS PROFIT | 170,227 | 163,012 | 505,017 | 421,582 | |||||||||||
| Selling, general and administrative expenses | 47,074 | 45,031 | 150,131 | 110,225 | |||||||||||
| Acquisition-related costs | 23 | 230 | 356 | 1,712 | |||||||||||
| Research and development expenses | 10,618 | 10,439 | 28,965 | 30,303 | |||||||||||
| Amortization of intangible assets | 16,474 | 16,545 | 49,422 | 49,206 | |||||||||||
| Impairment of intangible assets | 9,210 | — | 9,368 | — | |||||||||||
| TOTAL OPERATING EXPENSES | 83,399 | 72,245 | 238,242 | 191,446 | |||||||||||
| OPERATING INCOME | 86,828 | 90,767 | 266,775 | 230,136 | |||||||||||
| Amortization of deferred financing costs | (1,304 | ) | (1,086 | ) | (9,487 | ) | (3,108 | ) | |||||||
| Interest expense, net | (10,344 | ) | (12,652 | ) | (32,630 | ) | (39,367 | ) | |||||||
| Bargain purchase gain | — | — | — | 849 | |||||||||||
| Other non-operating income (expense), net | 34 | (3,014 | ) | (2,597 | ) | (5,809 | ) | ||||||||
| INCOME BEFORE INCOME TAXES | 75,214 | 74,015 | 222,061 | 182,701 | |||||||||||
| Income tax provision | 27,305 | 26,048 | 70,273 | 64,688 | |||||||||||
| CONSOLIDATED NET INCOME | $ | 47,909 | $ | 47,967 | $ | 151,788 | $ | 118,013 | |||||||
| CONSOLIDATED NET INCOME PER SHARE | |||||||||||||||
| CONSOLIDATED NET INCOME PER SHARE, BASIC | $ | 0.38 | $ | 0.40 | $ | 1.24 | $ | 1.02 | |||||||
| CONSOLIDATED NET INCOME PER SHARE, DILUTED | $ | 0.38 | $ | 0.39 | $ | 1.21 | $ | 0.96 | |||||||
| SHARES USED IN COMPUTING NET INCOME PER SHARE | |||||||||||||||
| BASIC | 125,855 | 119,260 | 122,232 | 116,162 | |||||||||||
| DILUTED | 126,334 | 125,891 | 126,065 | 125,738 | |||||||||||
| COMPREHENSIVE INCOME | |||||||||||||||
| Consolidated net income | $ | 47,909 | $ | 47,967 | $ | 151,788 | $ | 118,013 | |||||||
| Unrealized holding gain (loss) on available-for-sale securities, net of tax of $125 and $163 for the three month periods ended September 30, 2016 and 2015, and ($450) and ($51) for the nine month periods ended September 30, 2016 and 2015, respectively. | (212 | ) | (277 | ) | 763 | (87 | ) | ||||||||
| Foreign currency translation gain (loss), net of tax of ($591) and $1,714 for the three month periods ended September 30, 2016 and 2015 and ($194) and $731 for the nine month periods ended September 30, 2016 and 2015, respectively. | 1,276 | (3,332 | ) | 837 | (1,419 | ) | |||||||||
| Pension liability adjustment gain (loss), net of tax of $0 for the three month period ended September 30, 2016 and $694 for the nine month period ended September 30, 2016, respectively. | 161 | — | (2,566 | ) | — | ||||||||||
| COMPREHENSIVE INCOME | $ | 49,134 | $ | 44,358 | $ | 150,822 | $ | 116,507 | |||||||
Condensed Consolidated Balance Sheets, shown in thousands (except share amounts):
| September 30, 2016 (Unaudited) | December 31, 2015 | ||||||
| ASSETS | |||||||
| CURRENT ASSETS | |||||||
| Cash and cash equivalents | $ | 174,050 | $ | 346,266 | |||
| Trade accounts receivable, net | 262,999 | 150,621 | |||||
| Inventories, net | 179,679 | 185,316 | |||||
| Available-for-sale securities, current | 1,143 | 5,941 | |||||
| Prepaid expenses and other current assets | 26,326 | 19,988 | |||||
| TOTAL CURRENT ASSETS | 644,197 | 708,132 | |||||
| PROPERTY, PLANT AND EQUIPMENT, NET | 216,041 | 179,614 | |||||
| OTHER LONG-TERM ASSETS | |||||||
| Goodwill | 284,584 | 284,710 | |||||
| Product licensing rights, net | 601,237 | 653,628 | |||||
| Other intangibles, net | 208,834 | 211,361 | |||||
| Deferred tax assets | 5,038 | 4,207 | |||||
| Long-term investments | 114 | 129 | |||||
| Other non-current assets | 866 | 764 | |||||
| TOTAL OTHER LONG-TERM ASSETS | 1,100,673 | 1,154,799 | |||||
| TOTAL ASSETS | $ | 1,960,911 | $ | 2,042,545 | |||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
| CURRENT LIABILITIES | |||||||
| Trade accounts payable | $ | 55,172 | $ | 46,019 | |||
| Purchase consideration payable | 4,987 | 4,967 | |||||
| Income taxes payable | 4,762 | 23,670 | |||||
| Accrued royalties | 12,724 | 19,378 | |||||
| Accrued compensation | 18,552 | 15,866 | |||||
| Current maturities of long-term debt (net of current deferred financing costs) | — | 52,779 | |||||
| Accrued administrative fees | 31,418 | 37,094 | |||||
| Accrued expenses and other liabilities | 27,879 | 31,603 | |||||
| TOTAL CURRENT LIABILITIES | 155,494 | 231,376 | |||||
| LONG-TERM LIABILITIES: | |||||||
| Long-term debt (net of non-current deferred financing costs) | 808,675 | 994,033 | |||||
| Deferred tax liability | 176,814 | 188,808 | |||||
| Other long-term liabilities | 9,932 | 6,763 | |||||
| TOTAL LONG-TERM LIABILITIES | 995,421 | 1,189,604 | |||||
| TOTAL LIABILITIES | 1,150,915 | 1,420,980 | |||||
| SHAREHOLDERS’ EQUITY | |||||||
| Common stock, no par value – 150,000,000 shares authorized; 125,234,041 and 119,427,471 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively | 521,268 | 458,659 | |||||
| Retained earnings | 306,836 | 180,048 | |||||
| Accumulated other comprehensive loss | (18,108 | ) | (17,142 | ) | |||
| TOTAL SHAREHOLDERS’ EQUITY | 809,996 | 621,565 | |||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 1,960,911 | $ | 2,042,545 | |||
Condensed Consolidated Statements of Cash Flows (Unaudited), shown in thousands:
| Nine Months Ended September 30, | |||||||
| 2016 | 2015 | ||||||
| OPERATING ACTIVITIES: | |||||||
| Consolidated net income | $ | 151,788 | $ | 118,013 | |||
| Adjustments to reconcile consolidated net income to net cash provided by operating activities: | |||||||
| Depreciation and amortization | 65,985 | 63,835 | |||||
| Amortization of debt financing costs | 9,456 | 3,576 | |||||
| Impairment of intangible assets | 9,368 | 2,627 | |||||
| Amortization of favorable contracts | — | 53 | |||||
| Amortization of inventory step-up | — | 4,682 | |||||
| Non-cash stock compensation expense | 11,282 | 9,270 | |||||
| Non-cash interest expense | 770 | 2,342 | |||||
| Deferred income taxes, net | (13,346 | ) | (27,579 | ) | |||
| Excess tax benefit from stock compensation | — | (47,997 | ) | ||||
| Non-cash gain on bargain purchase | — | (849 | ) | ||||
| Loss on extinguishment of debt | — | 1,211 | |||||
| Loss on sale of available-for-sale securities | 45 | 238 | |||||
| Other | (765 | ) | — | ||||
| Changes in operating assets and liabilities, net of acquisition: | |||||||
| Trade accounts receivable | (112,252 | ) | 52,056 | ||||
| Inventories, net | 5,744 | (41,177 | ) | ||||
| Prepaid expenses and other current assets | (6,349 | ) | 15,442 | ||||
| Trade accounts payable | 5,698 | 9,357 | |||||
| Accrued expenses and other liabilities | (31,803 | ) | 86,999 | ||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES | $ | 95,621 | $ | 252,099 | |||
| INVESTING ACTIVITIES: | |||||||
| Payments for acquisitions and equity investments, net of cash acquired | — | (26,908 | ) | ||||
| Proceeds from disposal of assets | 5,966 | 2,459 | |||||
| Payments for other intangible assets | (3,875 | ) | (3,135 | ) | |||
| Purchases of property, plant and equipment | (48,884 | ) | (21,628 | ) | |||
| NET CASH USED IN INVESTING ACTIVITIES | $ | (46,793 | ) | $ | (49,212 | ) | |
| FINANCING ACTIVITIES: | |||||||
| Net proceeds under stock option and stock purchase plans | 8,891 | 11,917 | |||||
| Debt financing costs | (5,128 | ) | (4,457 | ) | |||
| Payment of contingent acquisition liabilities | — | (6,492 | ) | ||||
| Debt payments | (200,000 | ) | (7,838 | ) | |||
| Common stock repurchases | (25,000 | ) | — | ||||
| Excess tax benefit from stock compensation | — | 47,997 | |||||
| NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES | $ | (221,237 | ) | $ | 41,127 | ||
| Effect of exchange rate changes on cash and cash equivalents | 193 | (228 | ) | ||||
| (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | $ | (172,216 | ) | $ | 243,786 | ||
| Cash and cash equivalents at beginning of period | 346,266 | 70,679 | |||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 174,050 | $ | 314,465 | |||
| SUPPLEMENTAL DISCLOSURES: | |||||||
| Amount paid for interest | $ | 33,022 | $ | 38,614 | |||
| Amount paid (refunded) for income taxes, net | $ | 103,103 | $ | (4,064 | ) | ||
| Non-cash conversion of convertible notes to common shares | $ | 43,214 | $ | 43,309 | |||
Reconciliation of GAAP Net Income to Non-GAAP Adjusted EBITDA (Unaudited), shown in thousands:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| NET INCOME | $ | 47,909 | $ | 47,967 | 151,788 | 118,013 | ||||||||||
| ADJUSTMENTS TO ARRIVE AT EBITDA: | ||||||||||||||||
| Depreciation expense | 5,553 | 5,145 | 16,549 | 14,448 | ||||||||||||
| Amortization expense | 16,474 | 16,545 | 49,422 | 49,206 | ||||||||||||
| Impairment expense | 9,210 | — | 9,368 | — | ||||||||||||
| Interest expense, net | 10,337 | 12,201 | 31,615 | 36,876 | ||||||||||||
| Non-cash interest expense | 7 | 451 | 1,015 | 2,491 | ||||||||||||
| Income tax provision | 27,305 | 26,048 | 70,273 | 64,688 | ||||||||||||
| EBITDA | $ | 116,795 | $ | 108,357 | $ | 330,030 | $ | 285,722 | ||||||||
| NON-CASH AND OTHER NON-RECURRING INCOME AND EXPENSES | ||||||||||||||||
| Acquisition-related expenses | 23 | 230 | 356 | 1,712 | ||||||||||||
| Non-cash stock compensation expense | 4,836 | 3,341 | 11,282 | 9,472 | ||||||||||||
| Bargain purchase gain | — | — | — | (849 | ) | |||||||||||
| Loss (Gain) from asset sales | (7 | ) | 11 | 38 | 372 | |||||||||||
| Amortization of inventory step-up | — | — | — | 4,682 | ||||||||||||
| Debt financing costs | 1,304 | 1,086 | 9,487 | 3,108 | ||||||||||||
| Restatement Expense | 5,216 | 9,571 | 30,752 | 14,872 | ||||||||||||
| Loss on impairment | — | — | 60 | 2,627 | ||||||||||||
| Executive bonus clawback | — | — | (1,087 | ) | — | |||||||||||
| Insurance settlement receipt | (800 | ) | — | (800 | ) | — | ||||||||||
| Litigation settlement | 52 | 2,750 | 3,530 | 4,050 | ||||||||||||
| ADJUSTED EBITDA | $ | 127,419 | $ | 125,346 | $ | 383,648 | $ | 325,768 | ||||||||
Reconciliation of GAAP Net Income to non-GAAP Adjusted Net Income (Unaudited), shown in thousands (except per share amounts):
| Three Months Ended | Nine Months Ended | ||||||||||||||
| September 30, | September 30, | ||||||||||||||
| 2016 | 2015 | 2016 | 2015 | ||||||||||||
| NET INCOME | $ | 47,909 | $ | 47,967 | $ | 151,788 | $ | 118,013 | |||||||
| INCOME TAX PROVISION | 27,305 | 26,048 | 70,273 | 64,688 | |||||||||||
| INCOME BEFORE INCOME TAXES | $ | 75,214 | $ | 74,015 | $ | 222,061 | $ | 182,701 | |||||||
| ADJUSTMENTS TO ARRIVE AT ADJUSTED NET INCOME: | |||||||||||||||
| Acquisition-related expenses (1) | 23 | 230 | 356 | 1,712 | |||||||||||
| Restatement expenses (2) | 5,216 | 9,571 | 30,752 | 14,872 | |||||||||||
| Non-cash stock compensation expense (2, 3, 4) | 4,836 | 3,341 | 11,282 | 9,472 | |||||||||||
| Non-cash interest expense (5) | 7 | 451 | 1,015 | 2,491 | |||||||||||
| Amortization expense (6) | 16,474 | 16,545 | 49,422 | 49,206 | |||||||||||
| Loss from asset sales (5) | (7 | ) | 11 | 38 | 372 | ||||||||||
| Bargain purchase gain (5) | — | — | — | (849 | ) | ||||||||||
| Intangible impairment (7) | 9,210 | — | 9,368 | — | |||||||||||
| Amortization of inventory step-up (4) | — | — | — | 4,682 | |||||||||||
| Debt financing costs (5) | 1,304 | 1,086 | 9,487 | 3,108 | |||||||||||
| Loss on impairment (3) | — | — | 60 | 2,627 | |||||||||||
| Executive Bonus Clawback (8) | — | — | (1,087 | ) | — | ||||||||||
| Insurance settlement receipt (2) | (800 | ) | — | (800 | ) | — | |||||||||
| Litigation settlement (5) | 52 | 2,750 | 3,530 | 4,050 | |||||||||||
| ADJUSTED INCOME BEFORE INCOME TAX | $ | 111,529 | $ | 108,000 | $ | 335,484 | $ | 274,444 | |||||||
| Option exercise tax impact (9) | 356 | — | 11,829 | — | |||||||||||
| ADJUSTED INCOME TAX PROVISION | 40,910 | 37,906 | 112,442 | 96,234 | |||||||||||
| TOTAL ADJUSTED INCOME TAX PROVISION | $ | 41,266 | $ | 37,906 | $ | 124,271 | $ | 96,234 | |||||||
| ADJUSTED NET INCOME | $ | 70,263 | $ | 70,094 | $ | 211,213 | $ | 178,210 | |||||||
| ADJUSTED DILUTED EARNINGS PER SHARE | $ | 0.56 | $ | 0.56 | $ | 1.68 | $ | 1.42 | |||||||
| (1) - Excluded from acquisition-related expenses | |||||||||||||||
| (2) - Excluded from S,G & A expenses | |||||||||||||||
| (3) - Excluded from R&D expenses | |||||||||||||||
| (4) - Excluded from cost of goods sold | |||||||||||||||
| (5) - Excluded from non-operating expenses | |||||||||||||||
| (6) - Excluded from amortization of intangibles | |||||||||||||||
| (7) - Excluded from impairment of intangibles | |||||||||||||||
| (8) - Excluded from other non-operating expenses, net | |||||||||||||||
| (9) - Included in income tax expense | |||||||||||||||
Reconciliation of GAAP Debt to Non-GAAP Net Debt and Net Debt to adjusted EBITDA ratio (Unaudited), shown in thousands (except Net debt to adjusted EBITDA ratio):
| September 30, 2016 | |||
| Incremental term loan outstanding | $ | 354,270 | |
| Existing term loan outstanding | 477,667 | ||
| Total debt outstanding | $ | 831,937 | |
| Cash and cash equivalents | 174,050 | ||
| Net debt | $ | 657,887 | |
| Adjusted EBITDA, trailing twelve months ended | $ | 518,224 | |
| Net debt to adjusted EBITDA ratio | 1.3 | ||
Reconciliation of GAAP Net Income Guidance to non-GAAP Adjusted Net Income Guidance, shown in millions (except per share amounts):
| Preliminary Guidance (Unaudited) | |||
| GAAP Net Income, year ended December 31, 2016 | $ | 208 | |
| GAAP Net Income per diluted share, year ended December 31, 2016 | $ | 1.65 | |
| Add, year ended December 31, 2016: | |||
| Intangible asset amortization expense | $ | 66 | |
| Share-based compensation expense | $ | 15 | |
| Interest on convertible debt | $ | 1 | |
| Amortization of deferred financing costs | $ | 11 | |
| Restatement expenses | $ | 36 | |
| Intangible impairment | $ | 9 | |
| Other non-GAAP items, net | $ | 2 | |
| Subtract, year ended December 31, 2016: | |||
| Tax effect of adjustments | ($ | 64 | ) |
| Adjusted net income, year ended December 31, 2016 | $ | 284 | |
| Adjusted net income per diluted share, year ended December 31, 2016 | $ | 2.25 | |
| Shares used in computing net income per share, year ended December 31, 2016 | 126 | ||
Reconciliation of GAAP Net Income Guidance to non-GAAP Adjusted EBITDA Guidance, shown in millions:
| Preliminary Guidance (Unaudited) | |||
| GAAP Net Income, year ended December 31, 2016 | $ | 208 | |
| Add, year ended December 31, 2016: | |||
| Depreciation and amortization expense | $ | 87 | |
| Interest expense, net (cash and non-cash) | $ | 44 | |
| Income tax provision | $ | 103 | |
| Share-based compensation expense | $ | 15 | |
| Amortization of deferred financing costs | $ | 11 | |
| Restatement expenses, intangible impairment and other non-GAAP items, net | $ | 47 | |
| Adjusted EBITDA, year ended December 31, 2016 | $ | 515 | |