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Amneal Reports Fourth Quarter And Full Year 2018 Financial Results

‒ Q4 2018 Net Revenue of $498 Million; GAAP Loss per share of $0.07; Combined Adjusted Diluted EPS(1) of $0.33

‒ Full Year 2018 Net Revenue of $1.66 Billion; GAAP Loss per share of $0.16; Combined Net Revenue(1)of $1.86 Billion(3); Combined Adjusted Diluted EPS(1) of $0.98

‒ Industry Leading Pipeline Execution in 2018; 62 ANDAs Approved and 42 New Products Launched ‒

‒ Targeting up to 50 New Generic Product Launches in 2019 ‒

‒ Provides 2019 Financial Outlook ‒

BRIDGEWATER, N.J., Feb. 28, 2019 /PRNewswire/ -- Amneal Pharmaceuticals, Inc. (AMRX) (the "Company") announced its results today for the fourth quarter and year ended December 31, 2018.

Summary of GAAP and Non-GAAP Combined and Adjusted Results

(Unaudited; In thousands, except per share amounts)



Three Months Ended


Variance


December 31,
2018


September 30,
2018


December 31,
2017


Sequential


Year/ Year

GAAP Results(2)










Net revenue

$

497,528



$

476,487



$

293,369



4.4

%


69.6

%

Net (loss) income

$

(20,330)



$

17,465



$

62,194



(216.4)

%


(132.7)

%

Diluted (loss) earnings per share (EPS)
attributable to Amneal Pharmaceuticals, Inc.

$

(0.07)



$

0.05



N/A



(240.0)

%


N/A












Non-GAAP Results(3)










Combined net revenue

$

497,528



$

476,487



$

487,383



4.4

%


2.1

%

Combined adjusted net income

$

99,976



$

82,101



$

76,446



21.8

%


30.8

%

Combined adjusted EBITDA

$

186,647



$

162,917



$

139,625



14.6

%


33.7

%

Combined adjusted diluted EPS

$

0.33



$

0.27



N/A



22.2

%


N/A


 

 


Years Ended


Variance


December 31,
2018


December 31,
2017


Year/Year

GAAP Results(2)






Net revenue

$

1,662,991



$

1,033,654



60.9

%

Net (loss) income

$

(201,303)



$

169,325



(218.9)

%

Diluted loss per share attributable to Amneal Pharmaceuticals, Inc.

$

(0.16)



N/A



N/A








Non-GAAP Results(3)






Combined net revenue

$

1,861,473



$

1,857,780



0.2

%

Combined adjusted net income

$

293,702



$

270,511



8.6

%

Combined adjusted EBITDA

$

584,280



$

503,678



16.0

%

Combined adjusted diluted EPS

$

0.98



N/A



N/A


 

(1) See "Non-GAAP Financial Measures" below.

(2) Current year financials reflect the results of Amneal Pharmaceuticals LLC consolidating the results of Impax Laboratories, LLC from the transaction closing date on May 4, 2018. Prior year GAAP results represent Amneal Pharmaceuticals LLC only.

(3) Assumes the combination between Amneal Pharmaceuticals LLC and Impax Laboratories, LLC occurred on the first day of the year presented.

 

Executive Commentary

"We ended a year of significant progress with improved financial results in the fourth quarter," said Rob Stewart, President and CEO of Amneal.  "Our fourth quarter performance is the direct result of our strategic investments, accelerated synergy capture and solid performance from our base business, which helped to offset recent competition on several of our largest products.  Both our Generics and Specialty segments grew net revenue sequentially and compared to last year's fourth quarter as we delivered improved consolidated net revenue of $498 million, combined adjusted EBITDA(4) of $187 million and combined adjusted diluted EPS(4) of $0.33."

"The full year 2018 was marked by several key strategic milestones, most notably the reshaping of our Company through the merger of Impax and Amneal.  By the end of 2018, we completed the merger integration and accelerated the capture of synergies, resulting in approximately $60 million of cost savings for the year.  We strategically deployed capital with the acquisition of Gemini Laboratories and through several partnerships including agreements with Jerome Stevens Pharmaceuticals, Inc. and Lannett for Levothyroxine.  Through our R&D investments, we achieved 62 ANDA approvals, 10 tentative approvals and we submitted 31 ANDAs with the FDA.  We launched 42 new generic products, which contributed $171 million in revenue in 2018."

"Operationally we are doing well as we achieved industry-leading pipeline execution in 2018 with a consistent pace of new approvals and launches.  However, the financial benefits of this execution have been slower to materialize than expected as market dynamics are constraining the uptake of certain products.  Our 2019 financial outlook reflects the current pricing and competitive challenges within the generic industry, which is impacting our previously expected growth rate.  We continue to expect to deliver at least $200 million in merger cost synergies by the end of 2020, as we focus on generating cash to invest in strategic opportunities to diversify the business and accelerate our growth."

Basis of Presentation

The Company's financial results are presented in accordance with U.S. GAAP, which include the results of operations of Impax Laboratories, LLC ("Impax") and Gemini Laboratories, LLC ("Gemini") subsequent to the transaction closing dates of May 4, 2018 and May 7, 2018, respectively.  As used in this press release the term "actual" refers to measures under the accounting principles generally accepted in the United States.  The Company has two reportable segments, Generics and Specialty, and does not allocate general corporate services to either segment.

Fourth Quarter 2018 Performance

Net revenue in the fourth quarter of 2018 was $498 million, an increase of 69.6%, compared to the prior year period, primarily due to the combination with Impax and the acquisition of Gemini in May 2018, as well as new generic product launches.  Net loss was $20 million in the fourth quarter of 2018, compared to net income of $62 million in the fourth quarter of 2017, primarily due to charges related to the combination with Impax and the acquisition of Gemini, including approximately $23 million of incremental interest expense.  Diluted EPS in the fourth quarter of 2018 was a loss of $0.07. Diluted EPS in the fourth quarter of 2017 is not available as Amneal Pharmaceuticals LLC was a privately-held company for the period presented.

Combined net revenue(4) in the fourth quarter of 2018 was $498 million, an increase of 2.1%, compared to the prior year period, due to an increase in net revenue from both Generics and Specialty segments.  Combined adjusted net income(4) in the fourth quarter of 2018 was $100 million, an increase of 30.8%, compared to the prior year period.  Combined adjusted EBITDA(4) in the fourth quarter of 2018 was $187 million, an increase of 33.7%, compared to the prior year period.  The increase in both combined adjusted net income(4) and combined adjusted EBITDA(4) was primarily due to higher revenues and cost synergies from the combination with Impax.  Combined adjusted diluted EPS in the fourth quarter of 2018 was $0.33.

Full Year 2018 Performance

Net revenue for the full year 2018 was $1,663 million, an increase of 60.9%, compared to full year 2017, primarily due to the combination with Impax and the acquisition of Gemini in May 2018, as well as the contribution from 42 new generic product launches.  Net loss was $201 million for full year 2018, compared to net income of $169 million for full year 2017, primarily due to charges related to the combination with Impax and the acquisition of Gemini, including approximately $73 million of incremental interest expense.  Diluted EPS for full year 2018 was a loss of $0.16.  Diluted EPS for full year 2017 is not available as Amneal Pharmaceuticals LLC was a privately-held company for the period presented.

Combined net revenue(4) for full year 2018 was $1,861 million, a slight increase compared to full year 2017.  Combined adjusted net income(4) for full year 2018 was $294 million, an increase of 8.6%, compared to full year 2017.  Combined adjusted EBITDA(4) for full year 2018 was $584 million, an increase of 16.0%, compared to full year 2017.  The increase in both combined adjusted net income(4) and combined adjusted EBITDA(4) was primarily due to favorable product sales mix and cost synergies from the combination with Impax.  Combined adjusted diluted EPS for the full year 2018 was $0.98.

(4) See "Non-GAAP Financial Measures" below.

 

Amneal Pharmaceuticals, Inc.

Reconciliation of Generics Operating Income to Generics Combined Operating Income

(Unaudited; In thousands)


Generics

Three months ended December 31, 2018


Three months ended December 31, 2017



Add:

(Non-GAAP)



Add:

(Non-GAAP)


Actual

Impax/ 
Gemini

Combined


Actual

Impax/ 
Gemini

Combined

Net revenue - Generics

$

410,897


$


$

410,897



$

293,369


$

112,943


$

406,312


Cost of goods sold

263,002



263,002



141,953


150,762


292,715


Gross profit

147,895



147,895



151,416


(37,819)


113,597


Selling, general, and administrative

16,572



16,572



11,210


8,223


19,433


Research and development

53,650



53,650



43,494


12,612


56,106


In-process research and development
impairment charges

38,609



38,609




186,731


186,731


Restructuring and asset-related charges

12,031



12,031






Legal settlement gains

(19,300)



(19,300)



(7,845)



(7,845)


Intellectual property legal development
expenses

3,263



3,263



2,732



2,732


Change in fair value of contingent
consideration






(38,123)


(38,123)


Fixed asset impairment






5,577


5,577


Operating income (loss)

$

43,070


$


$

43,070



$

101,825


$

(212,839)


$

(111,014)










Gross margin

36.0

%


36.0

%


51.6

%

(33.5)

%

28.0

%

Adjusted gross profit (Non-GAAP)(5)

$

185,268


$


$

185,268



$

155,739


$

35,401


$

191,140


Adjusted gross margin (Non-GAAP)(6)

45.1

%


45.1

%


53.1

%

31.3

%

47.0

%

Adjusted operating income (Non-GAAP)

$

150,166


$


$

150,166



$

106,148


$

16,431


$

122,579


 

(5) Adjusted gross profit is calculated as combined net revenue less adjusted cost of goods sold.  See Non-GAAP reconciliations below for calculation of adjusted cost of goods sold.

(6) Adjusted gross margin is calculated as adjusted gross profit divided by combined net revenue.

Fourth Quarter 2018 Performance

Generics net revenue of $411 million increased 40.1% for the fourth quarter of 2018, compared to the prior year period.  The increase is primarily attributable to the combination with Impax as well as 42 new product launches in 2018, including Methylphenidate Hydrochloride extended release tablets, Phytonadione tablets, Levothyroxine tablets, Potassium Chloride oral solution, Erythromycin instant release tablets and Colesevelam Hydrochloride tablets.  Generics combined net revenue(4) in the fourth quarter of 2018 was $411 million, an increase of 1.1%, compared to the prior year period.  The increase is primarily due to new product launches as noted above, partially offset by lower sales across a number of existing products due to lower pricing and additional competition.

Generics gross margin for the fourth quarter of 2018 was 36.0%, compared to 51.6% for the fourth quarter of 2017.  The decrease was primarily as a result of higher cost of sales due to incremental amortization and inventory acquisition accounting adjustments, manufacturing plant closure charges and product sales mix primarily due to additional competition on several key products.  Generics combined adjusted gross margin(4) for the fourth quarter of 2018 was 45.1%, compared to 47.0% for the fourth quarter of 2017, primarily due to product sales mix.

Generics operating income for the fourth quarter of 2018 was $43 million, compared to $102 million for the fourth quarter of 2017, primarily due to higher amortization charges, acquisition and site closure expenses, in-process research and development impairment charges and restructuring and asset-related charges, principally a result of the combination with Impax.  Generics combined adjusted operating income(4) for the fourth quarter of 2018 was $150 million, an increase of 22.5%, compared to $123 million in the prior year period, primarily due to lower selling, general and administrative expenses, lower research and development expenses and an increase in legal settlement gains.

(4) See "Non-GAAP Financial Measures" below

 

Amneal Pharmaceuticals, Inc.

Reconciliation of Generics Operating Income to Generics Combined Operating Income

(Unaudited; In thousands)


Generics

Year ended December 31, 2018


Year ended December 31, 2017



Add:

(Non-GAAP)



Add:

(Non-GAAP)


Actual

Impax/ 
Gemini

Combined


Actual

Impax/ 
Gemini

Combined

Net revenue - Generics

$

1,439,031


$

102,237


$

1,541,268



$

1,033,654


$

549,077


$

1,582,731


Cost of goods sold

842,996


122,761


965,757



507,476


551,776


1,059,252


Gross profit

596,035


(20,524)


575,511



526,178


(2,699)


523,479


Selling, general, and administrative

68,426


11,896


80,322



56,050


28,294


84,344


Research and development

183,412


13,623


197,035



171,420


63,245


234,665


In-process research and development
impairment charges

39,259



39,259




192,809


192,809


Acquisition, integration and transaction
related expenses

114,622



114,622






Restructuring and asset-related charges

33,943



33,943






Legal settlement gains

(22,300)



(22,300)



(29,312)



(29,312)


Intellectual property legal development
expenses

15,772



15,772



20,518


715


21,233


Litigation, settlements and related
charges


84,597


84,597






Change in fair value of contingent
consideration






(31,048)


(31,048)


Fixed asset impairment






8,380


8,380


Operating income

$

162,901


$

(130,640)


$

32,261



$

307,502


$

(265,094)


$

42,408










Gross margin

41.4

%

(20.1)

%

37.3

%


50.9

%

(0.5)

%

33.1

%

Adjusted gross profit (Non-GAAP)(5)

$

712,954


$

3,246


$

716,200



$

561,518


$

208,960


$

770,478


Adjusted gross margin (Non-GAAP)(6)

49.5

%

3.2

%

46.5

%


54.3

%

38.1

%

48.7

%

Adjusted operating income (Non-GAAP)

$

489,520


$

(22,273)


$

467,247



$

342,842


$

123,241


$

466,083


 

(5) Adjusted gross profit is calculated as combined net revenue less adjusted cost of goods sold.  See Non-GAAP reconciliations below for calculation of adjusted cost of goods sold.

(6) Adjusted gross margin is calculated as adjusted gross profit divided by combined net revenue.

Full Year 2018 Performance

Generics net revenue of $1,439 million increased 39.2% for the full year 2018, compared to full year 2017.  The increase is primarily attributable to the combination with Impax as well as the contribution from 42 new product launches in 2018, including Methylphenidate Hydrochloride extended release tablets, Phytonadione tablets, Levothyroxine tablets, Potassium Chloride oral solution, Erythromycin instant release tablets and Colesevelam Hydrochloride tablets.  Generics combined net revenue(4) for full year 2018 was $1,541 million, a decrease of 2.6%, compared to full year 2017.  The decrease was primarily driven by lower sales of Epinephrine Auto-Injector due to an ongoing supply disruption, and lower sales of existing base business products, including Budesonide Inhalation Suspension, Lidocaine, Diclofenac Sodium Gel 3% and Loratadine/PSE as a result of lower pricing and additional competition.

Generics gross margin for full year 2018 was 41.4%, compared to 50.9% for full year 2017.  The decrease was primarily as a result of higher cost of sales due to incremental amortization, inventory acquisition accounting adjustments, inventory-related charges, manufacturing plant closure charges, impairment of product intangible assets and lower margin products in the Impax portfolio.  Generics combined adjusted gross margin(4) for full year 2018 was 46.5%, compared to 48.7% for full year 2017, primarily due to product sales mix.

Generics operating income for full year 2018 was $163 million, compared to $308 million for full year 2017, primarily due to acquisition, integration and transaction-related expenses, principally a result of the combination with Impax, as noted above.  Generics combined adjusted operating income(4) for full year 2018 was $467 million, an increase of 0.2%, compared to $466 million for full year 2017.

(4) See "Non-GAAP Financial Measures" below

 

Amneal Pharmaceuticals, Inc.

Reconciliation of Specialty Operating Income to Specialty Combined Operating Income

(Unaudited; In thousands)


Specialty

Three months ended December 31, 2018


Three months ended December 31, 2017



Add:

(Non-GAAP)



Add:

(Non-GAAP)


Actual

Impax/
Gemini

Combined


Actual

Impax/
Gemini

Combined

Net revenue - Specialty:








Rytary®

$

42,680


$


$

42,680



$


$

28,290


$

28,290


Zomig®

18,308



18,308




15,034


15,034


All other specialty products

25,643



25,643




37,747


37,747


Total net revenue - Specialty

86,631



86,631




81,071


81,071


Cost of goods sold

41,118



41,118




23,405


23,405


Gross profit

45,513



45,513




57,666


57,666


Selling, general, and administrative

16,200



16,200




22,156


22,156


Research and development

3,647



3,647




3,077


3,077


Intellectual property legal development
expenses

(26)



(26)






Restructuring and asset-related charges

1,682



1,682






Litigation, settlements and related
charges






1,111


1,111


Fixed asset impairment






74,128


74,128


Operating income (loss)

$

24,010


$


$

24,010



$


$

(42,806)


$

(42,806)










Gross margin

52.5

%


52.5

%



71.1

%

71.1

%

Adjusted gross profit (Non-GAAP)(5)

$

70,058


$


$

70,058



$


$

63,368


$

63,368


Adjusted gross margin (Non-GAAP)(6)

80.9

%


80.9

%



78.2

%

78.2

%

Adjusted operating income (Non-
GAAP)

$

50,600


$


$

50,600



$


$

38,995


$

38,995


 

(5) Adjusted gross profit is calculated as combined net revenue less adjusted cost of goods sold.  See Non-GAAP reconciliations below for calculation of adjusted cost of goods sold.

(6) Adjusted gross margin is calculated as adjusted gross profit divided by combined net revenue.

Fourth Quarter 2018 Performance

The Specialty segment is comprised of the Impax Specialty business acquired on May 4, 2018 and the Gemini Laboratories, LLC business acquired on May 7, 2018. Prior to these two transactions, Amneal did not have a Specialty segment.

Specialty combined net revenue(4) in the fourth quarter of 2018 was $87 million, an increase of 6.9%, compared to the prior year period, driven primarily by higher revenue from Rytary®, Zomig® and Unithroid®, partially offset by significantly lower sales of Albenza® as a result of the loss of exclusivity in September of 2018.

Specialty combined gross margin(4) for the fourth quarter of 2018 was 52.5%, compared to 71.1% for the prior year period, driven primarily by higher amortization expense.  Specialty combined adjusted gross margin(4) was 80.9% for the fourth quarter of 2018, compared to 78.2% in the prior year period, primarily due to product sales mix.

Specialty combined operating income(4) for the fourth quarter of 2018 was $24 million, an increase of $67 million, compared to a combined operating loss of $43 million for the fourth quarter of 2017, primarily due to fixed asset impairment charges in the fourth quarter of 2017, for which there were no comparable charges in the current year period, and increased revenue, as noted above.  Specialty combined adjusted operating income(4) for the fourth quarter of 2018 was $51 million, an increase of $12 million, compared to $39 million for the prior year period, primarily due to increased revenue and lower selling, general and administrative expenses.

(4) See "Non-GAAP Financial Measures" below

 

Amneal Pharmaceuticals, Inc.

Reconciliation of Specialty Operating Income to Specialty Combined Operating Income

(Unaudited; In thousands)


Specialty

Year ended December 31, 2018


Year ended December 31, 2017



Add:

(Non-GAAP)



Add:

(Non-GAAP)


Actual

Impax/
Gemini

Combined


Actual

Impax/
Gemini

Combined

Net revenue - Specialty:








Rytary®

$

95,541


$

35,086


$

130,627



$


$

91,637


$

91,637


Zomig®

43,111


14,411


57,522




51,115


51,115


All other specialty products sales

85,308


46,748


132,056




132,297


132,297


Total net revenue - Specialty

223,960


96,245


320,205




275,049


275,049


Cost of goods sold

103,592


26,731


130,323




98,650


98,650


Gross profit

120,368


69,514


189,882




176,399


176,399


Selling, general, and administrative

49,465


27,942


77,407




80,185


80,185


Research and development

10,778


3,664


14,442




17,662


17,662


Intellectual property legal development
expenses

489


23


512




3,167


3,167


Restructuring and asset-related charges

4,076



4,076






Litigation, settlements and related
charges


940


940




1,111


1,111


Fixed asset impairment






74,128


74,128


Operating income

$

55,560


$

36,945


$

92,505



$


$

146


$

146










Gross margin

53.7

%

72.2

%

59.3

%



64.1

%

64.1

%

Adjusted gross profit (Non-GAAP)(5)

$

178,022


$

75,626


$

253,648



$


$

200,937


$

200,937


Adjusted gross margin (Non-GAAP)(6)

79.5

%

78.6

%

79.2

%



73.1

%

73.1

%

Adjusted operating income (Non-GAAP)

$

118,127


$

43,997


$

162,124



$


$

101,698


$

101,698


 

(5) Adjusted gross profit is calculated as combined net revenue less adjusted cost of goods sold.  See Non-GAAP reconciliations below for calculation of adjusted cost of goods sold.

(6) Adjusted gross margin is calculated as adjusted gross profit divided by combined net revenue.

 

Full Year 2018 Performance

The Specialty segment is comprised of the Impax Specialty business acquired on May 4, 2018 and the Gemini Laboratories, LLC business acquired on May 7, 2018. Prior to these two transactions, Amneal did not have a Specialty segment.

Specialty combined net revenue(4) for full year 2018 was $320 million, an increase of 16.4%, compared to full year 2017, driven primarily by higher revenue from Rytary, Zomig and Unithroid.

Specialty combined gross margin(4) for full year 2018 was 59.3%, compared to 64.1% for full year 2017, driven primarily by higher amortization expense. Specialty combined adjusted gross margin(4) was 79.2% for full year of 2018, compared to 73.1% for full year 2017, primarily due to product sales mix.

Specialty combined operating income(4) for full year 2018 was $93 million compared to $146 thousand of operating income for full year 2017, primarily due to fixed asset impairment charges in 2017, for which there were no comparable charges in 2018.  Specialty combined adjusted operating income(4) for full year 2018 was $162 million, an increase of $60 million, compared to $102 million for full year 2017, primarily due to increased revenue and lower selling, general and administrative expenses.

(4) See "Non-GAAP Financial Measures" below.

2019 Financial Outlook

Amneal's full year 2019 estimates are based on management's current expectations, including with respect to prescription trends, pricing levels, inventory levels, and the anticipated timing of future product launches and events. The Company cannot provide a reconciliation between non-GAAP projections and the most directly comparable GAAP measures without unreasonable efforts because it is unable to predict with reasonable certainty the ultimate outcome of certain significant items required for the reconciliation. The items include, but are not limited to, acquisition-related expenses, restructuring expenses, asset impairments and certain and other gains and losses. These items are uncertain, depend on various factors, and could have a material impact on U.S. GAAP reported results for 2019.

2019 Key Outlook Assumptions


Full Year 2019 Financial Outlook

Adjusted gross margin

47% - 50%

Adjusted R&D as a % of net revenue

9% - 10%

Adjusted SG&A as a % of net revenue

11% - 12%

Adjusted EBITDA

$600 million - $650 million

Adjusted diluted EPS

$0.94 - $1.04

Adjusted effective tax rate

19% - 21%

Capital expenditures

Approximately $100 million

Weighted diluted shares outstanding

Approximately 300 million

 

Conference Call Information

Amneal will hold a conference call on February 28, 2019 at 8:30 a.m. Eastern Time to discuss its results. The call and presentation can also be accessed via a live Webcast through the Investor Relations section of Amneal's Web site at

https://investors.amneal.com/investor-relations, or directly at https://event.on24.com/wcc/r/1898588/19E7D09970ECDA91F9B21D94F3CEC0AB. The number to call from within the United States is (866) 652-5200 and (412) 317-6060 internationally. A replay of the conference call will be available shortly after the call for a period of seven days. To access the replay, dial (877) 344-7529 (in the U.S.) and (412) 317-0088 (international callers). The access code for the replay is 10128077.

About Amneal

Amneal Pharmaceuticals, Inc. (AMRX), headquartered in Bridgewater, NJ, is an integrated pharmaceutical company focused on developing, manufacturing and distributing generic, brand and biosimilar products. The Company has approximately 6,000 employees in its operations in North America, Asia, and Europe, working together to bring high-quality medicines to patients primarily within the United States.

Amneal is one of the largest and fastest growing generic pharmaceutical manufacturers in the United States, with an expanding portfolio of generic products to include complex dosage forms in a broad range of therapeutic areas. The Company also markets a portfolio of branded pharmaceutical products through its Specialty division focused principally on central nervous system disorders and parasitic infections. For more information, visit www.amneal.com.

Non-GAAP Financial Measures

This release includes certain non-GAAP financial measures, including adjusted EBITDA, adjusted net income, adjusted net income per diluted share, adjusted gross profit,  adjusted gross margin and adjusted operating income, are intended as supplemental measures of the Company's performance that are not required by or presented in accordance with GAAP.  In addition, this release includes these non-GAAP measures and our reported results on a non-GAAP combined basis to include the results of Impax and Gemini as if the transaction closing dates had occurred on the first day of all periods presented herein.  Management uses these non-GAAP historical and combined measures internally to evaluate and manage the Company's operations and to better understand its business because they facilitate a comparative assessment of the Company's operating performance relative to its performance based on results under GAAP.  These non-GAAP measures also isolate the effects of some items that vary from period to period without any correlation to core operating performance and eliminate certain charges that management believes do not reflect the Company's operations and underlying operational performance. The compensation committee of the Company's board of directors also uses certain of these measures to evaluate management's performance and set its compensation.  The Company believes that these non-GAAP measures also provide useful information to investors regarding certain financial and business trends relating to the Company's financial condition and operating results, and doing so on a combined basis facilitates an evaluation of the financial performance of the Company and its operations on a consistent basis. Providing this information therefore allows investors to make independent assessments of the Company's financial performance, results of operation and trends while viewing the information through the eyes of management.

All combined business results presented in this release are not prepared in accordance with Article 11 of Regulation S-X.  Adjusted gross profit is calculated as total revenues less adjusted cost of goods sold. Adjusted gross margin is calculated as adjusted gross profit divided by total revenues. The calculation of Non-GAAP adjusted diluted earnings per share assumes the conversion of all outstanding shares of Class B Common Stock to shares of Class A Common Stock.

These non-GAAP measures are subject to limitations. The non-GAAP measures presented in this release may not be comparable to similarly titled measures used by other companies because other companies may not calculate one or more in the same manner. Additionally, the non-GAAP performance measures exclude significant expenses and income that are required by GAAP to be recorded in the Company's financial statements; do not reflect changes in, or cash requirements for, working capital needs; and do not reflect interest expense, or the requirements necessary to service interest or principal payments on debt. Further, the combined results may not represent what our combined results of operations and financial position would have been had the transactions occurred on the dates indicated, nor are they intended to project our combined results of operations or financial position for any future period. To compensate for these limitations, management presents and considers these non-GAAP measures in conjunction with the Company's GAAP results; no non-GAAP measure should be considered in isolation from or as alternatives to net income, diluted earnings per share or any other measure determined in accordance with GAAP. Readers should review the reconciliations of below, and should not rely on any single financial measure to evaluate the Company's business.

A reconciliation of each non-GAAP measure to the most directly comparable GAAP measure is set forth below.

Safe Harbor Statement

Certain statements contained herein, regarding matters that are not historical facts, may be forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995). Such forward-looking statements include statements regarding management's intentions, plans, beliefs, expectations or forecasts for the future, including, among other things, future operating results and financial performance, product development and launches, integration strategies and resulting cost reduction, market position and business strategy. Words such as "may," "will," "could," "expect," "plan," "anticipate," "intend," "believe," "estimate," "assume," "continue," and similar words are intended to identify estimates and forward-looking statements.

The reader is cautioned not to rely on these forward-looking statements.  These forward-looking statements are based on current expectations of future events.  If the underlying assumptions prove inaccurate or known or unknown risks or uncertainties materialize, actual results could vary materially from the expectations and projections of Amneal Pharmaceuticals, Inc. (the "Company").  Such risks and uncertainties include, but are not limited to: the impact of global economic conditions; our ability to integrate the operations of Amneal Pharmaceuticals LLC and Impax Laboratories, LLC pursuant to the business combination completed on May 4, 2018, and our ability to realize the anticipated synergies and other benefits of the combination; our ability to successfully develop and commercialize new products; our ability to obtain exclusive marketing rights for our products and to introduce products on a timely basis; the competition we face in the pharmaceutical industry from brand and generic drug product companies, and the impact of that competition on our ability to set prices; our ability to manage our growth; our dependence on the sales of a limited number of products for a substantial portion of our total revenues; the risk of product liability and other claims against us by consumers and other third parties; risks related to changes in the regulatory environment, including United States federal and state laws related to healthcare fraud abuse and health information privacy and security and changes in such laws; changes to FDA product approval requirements; risks related to federal regulation of arrangements between manufacturers of branded and generic products; the impact of healthcare reform and changes in coverage and reimbursement levels by governmental authorities and other third-party payers; the continuing trend of consolidation of certain customer groups; our reliance on certain licenses to proprietary technologies from time to time; our dependence on third party suppliers and distributors for raw materials for our products and certain finished goods; our dependence on third party agreements for a portion of our product offerings; our ability to make acquisitions of or investments in complementary businesses and products on advantageous terms; legal, regulatory and legislative efforts by our brand competitors to deter competition from our generic alternatives; the significant amount of resources we expend on research and development; our substantial amount of indebtedness and our ability to generate sufficient cash to service our indebtedness in the future, and the impact of interest rate fluctuations on such indebtedness; the high concentration of ownership of our Class A Common Stock and the fact that we are controlled by a group of stockholders.  A further list and descriptions of these risks, uncertainties and other factors can be found in the Company's most recently filed Quarterly Report on Form 10-Q and in the Company's subsequent filings with the Securities and Exchange Commission, including its Annual Report on 10-K for the fiscal year ended December 31, 2018 expected to be filed on or about March 1, 2019. Copies of these filings are available online at www.sec.gov, www.amneal.com or on request from the Company.

Forward-looking statements included herein speak only as of the date hereof and we undertake no obligation to revise or update such statements to reflect the occurrence of events or circumstances after the date hereof.

Trademarks referenced herein are the property of their respective owner.

 

Amneal Pharmaceuticals, Inc.

Consolidated Statements of Operations

(In thousands, except per share amounts)



(unaudited)






Three months ended


Years ended


December 31,
2018


December 31,
2017


December 31,
2018


December 31,
2017

Net revenue

$

497,528



$

293,369



$

1,662,991



$

1,033,654


Cost of goods sold

304,120



141,953



946,588



507,476


Gross profit

193,408



151,416



716,403



526,178


Selling, general and administrative

71,236



26,966



230,435



109,046


Research and development

57,297



43,494



194,190



171,420


In-process research and development impairment charges

38,609





39,259




Acquisition, transaction-related and integration expenses

4,945



7,050



221,818



9,403


Restructuring and asset-related charges

14,104





56,413




Legal settlement gains

(19,300)



(7,845)



(22,300)



(29,312)


Intellectual property legal development expenses

3,237



2,732



16,261



20,518


Operating income (loss)

23,280



79,019



(19,673)



245,103


Other (expense) income:








   Interest expense, net

(42,880)



(19,956)



(143,571)



(71,061)


   Foreign exchange gain (loss)

2,817



3,341



(19,701)



29,092


   Loss on extinguishment of debt



(1)



(19,667)



(2,532)


   Loss on sale of international operations

(146)



(352)



(2,958)



(29,232)


   Other income (expense)

2,123



24



2,848



(47)


Total other expense, net

(38,086)



(16,944)



(183,049)



(73,780)


(Loss) income before income taxes

(14,806)



62,075



(202,722)



171,323


Provision for (benefit from) income taxes

5,524



(119)



(1,419)



1,998


Net (loss) income

(20,330)



62,194



(201,303)



169,325


Less: Net (income) loss attributable to Amneal Pharmaceuticals
LLC pre-Combination



(61,569)



148,806



(167,648)


Less: Net loss (income) attributable to non-controlling interests

11,562



(625)



32,753



(1,677)


Net loss attributable to Amneal Pharmaceuticals, Inc. before
accretion of redeemable non-controlling interest

(8,768)





(19,744)




Accretion of redeemable non-controlling interest





(1,176)




Net loss attributable to Amneal Pharmaceuticals, Inc.

$

(8,768)



$



$

(20,920)



$










Net loss per share attributable to Amneal Pharmaceuticals,
Inc.'s common stockholders:








     Class A and Class B-1 basic and diluted

$

(0.07)





$

(0.16)












Weighted-average common shares outstanding:








     Class A and Class B-1 basic and diluted

127,343





127,252




 

 

Amneal Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(In thousands)



December 31, 2018


December 31, 2017

Assets




Current assets:








Cash and cash equivalents

$

213,394


$

74,166

Restricted cash

5,385


3,756

Trade accounts receivable, net

481,495


351,367

Inventories

457,219


284,038

Prepaid expenses and other current assets

128,321


42,396

Related party receivables

830


16,210

Total current assets

1,286,644


771,933

Property, plant and equipment, net

544,146


486,758

Goodwill

426,226


26,444

Intangible assets, net

1,654,969


44,599

Deferred tax asset, net

373,159


898

Other assets

67,592


11,257

Total assets

$

4,352,736


$

1,341,889





Liabilities and Stockholders' Equity / Members' Deficit




Current liabilities:




Accounts payable and accrued expenses

$

514,440


$

194,779

Current portion of long-term debt, net

21,449


89,171

Current portion of financing obligations - related party

266


311

Related party payables

17,695


12,622

Total current liabilities

553,850


296,883

Long-term debt, net

2,630,598


1,355,274

Financing obligation - related party

39,083


39,987

Deferred income taxes

1,178


2,491

Liabilities under tax receivable agreement

192,884


Other long-term liabilities

38,780


7,793

Related party payable- long term


15,043

Total long-term liabilities

2,902,523


1,420,588

Total stockholders' equity / members' deficit

896,363


(375,582)

Total liabilities and stockholders' / members' deficit

$

4,352,736


$

1,341,889


 

 

Amneal Pharmaceuticals, Inc.

Consolidated Statements of Cash Flows

(In thousands)



Years Ended December 31,


2018


2017

Cash flows from operating activities:








Net (loss) income

$

(201,303)


$

169,325

Adjustments to reconcile net (loss) income to net cash provided by operating activities:




Depreciation and amortization

137,403


45,936

Unrealized foreign currency loss (gain)

18,582


(30,823)

Amortization of debt issuance costs

5,859


4,585

Loss on extinguishment of debt

19,667


2,532

Loss on sale of certain international businesses

2,958


29,232

Intangible asset impairment charges

47,928


Non-cash restructuring and asset-related charges

11,295


Deferred tax (benefit) provision

(9,439)


742

Stock-based compensation and PPU expense

167,597


Inventory provision

44,539


3,771

Other operating charges and credits, net

(1,866)


9,935

Changes in assets and liabilities:




Trade accounts receivable, net

89,084


35,255

Inventories

(42,875)


(31,826)

Prepaid expenses, other current assets and other assets

19,198


(25,305)

Related party receivables

10,928


(5,485)

Accounts payable, accrued expenses and other liabilities

(55,212)


18,105

Related party payables

(14,113)


8,208

Net cash provided by operating activities

250,230


234,187

Cash flows from investing activities:




Purchases of property, plant and equipment

(83,088)


(94,771)

Acquisition of product rights and licenses

(14,000)


(19,500)

Acquisitions, net of cash acquired

(324,634)


Proceeds from sale of property, plant and equipment

25,344


Proceeds from sale of certain international businesses, net of cash sold


15,717

Net cash used in investing activities

(396,378)


(98,554)

Cash flows from financing activities:




Payments of deferred financing costs and debt extinguishment costs

(54,955)


(5,026)

Proceeds from issuance of debt

1,325,383


250,000

Payments of principal on debt and capital leases

(617,051)


(13,625)

Net (payments) borrowings on revolving credit line

(75,000)


50,000

Payments of principal on financing obligation - related party

(243)


(274)

Proceeds from exercise of stock options

3,797


Equity contributions

27,742


40

Capital contribution from (dividend to) non-controlling interest

360


(865)

Acquisition of redeemable non-controlling interest

(11,775)


Tax distribution to non-controlling interest

(35,543)


Distributions to members

(182,998)


(375,265)

Repayment of related party note

(92,042)


Net cash provided by (used in) financing activities

287,675


(95,015)

Effect of foreign exchange rate on cash

(670)


(242)

Net increase in cash, cash equivalents, and restricted cash

140,857


40,376

Cash, cash equivalents, and restricted cash - beginning of period

77,922


37,546

Cash, cash equivalents, and restricted cash - end of period

$

218,779


$

77,922

 

 

Amneal Pharmaceuticals, Inc.

Reconciliation of Non-GAAP Combined Results of Operations

(Unaudited:In thousands)



Three months ended December 31, 2018


Three months ended December 31, 2017



Add:

(Non-GAAP)



Add:

(Non-GAAP)


Actual

Impax/
Gemini

Combined


Actual

Impax/
Gemini

Combined

Net revenue:








Generics

$

410,897


$


$

410,897



$

293,369


$

112,943


$

406,312


Specialty

86,631



86,631




81,071


81,071


Total net revenue

497,528



497,528



293,369


194,014


487,383


Cost of goods sold

304,120



304,120



141,953


174,167


316,120


Gross profit

193,408



193,408



151,416


19,847


171,263


Selling, general and administrative

71,236



71,236



26,966


59,441


86,407


Research and development

57,297



57,297



43,494


15,689


59,183


In-process research and development
impairment charges

38,609



38,609




186,731


186,731


Acquisition, transaction-related and
integration expenses

4,945



4,945



7,050


8,061


15,111


Restructuring and asset-related charges

14,104



14,104






Legal settlement gains

(19,300)



(19,300)



(7,845)



(7,845)


Intellectual property legal development
expenses

3,237



3,237



2,732



2,732


Litigation, settlements and related charges






1,223


1,223


Impairment loss on tangible assets






79,705


79,705


Gain on sale of assets






(656)


(656)


Change in fair value of contingent
consideration






(38,123)


(38,123)


Operating income (loss)

23,280



23,280



79,019


(292,224)


(213,205)


Other (expense) income:








Interest expense, net

(42,880)



(42,880)



(19,956)


(13,672)


(33,628)


Foreign exchange gain

2,817



2,817



3,341



3,341


Loss on extinguishment of debt





(1)



(1)


Loss on sale of international
operations

(146)



(146)



(352)



(352)


Other income (expense)

2,123



2,123



24


(292)


(268)


Total other (expense) income, net

(38,086)



(38,086)



(16,944)


(13,964)


(30,908)


(Loss) income before income taxes

(14,806)



(14,806)



62,075


(306,188)


(244,113)


Provision for (benefit from) income
taxes

5,524



5,524



(119)


(9,010)


(9,129)


Net (loss) income

$

(20,330)


$


$

(20,330)



$

62,194


$

(297,178)


$

(234,984)


Less: Net income attributable to
Amneal Pharmaceuticals LLC pre-
Combination





(61,569)




Less: Net loss (income) attributable to
non-controlling interests

11,562





(625)




Net loss attributable to Amneal
Pharmaceuticals, Inc.

$

(8,768)





$




 

 

Amneal Pharmaceuticals, Inc.

Reconciliation of Non-GAAP Combined Results of Operations

 (Unaudited; In thousands)



Year ended December 31, 2018


Year ended December 31, 2017



Add:

(Non-GAAP)



Add:

(Non-GAAP)


Actual

Impax/
Gemini

 

Combined


Actual

Impax/
Gemini

 

Combined

Net revenue:








Generics

$

1,439,031


$

102,237


$

1,541,268



$

1,033,654


$

549,077


$

1,582,731


Specialty

223,960


96,245


320,205




275,049


275,049


Total net revenue

1,662,991


198,482


1,861,473



1,033,654


824,126


1,857,780


Cost of goods sold

946,588


149,492


1,096,080



507,476


650,426


1,157,902


Gross profit

716,403


48,990


765,393



526,178


173,700


699,878


Selling, general and administrative

230,435


80,242


310,677



109,046


217,410


326,456


Research and development

194,190


17,287


211,477



171,420


80,907


252,327


In-process research and development
impairment charges

39,259



39,259




192,809


192,809


Acquisition, transaction-related and
integration expenses

221,818


4,381


226,199



9,403


11,097


20,500


Restructuring and asset-related charges

56,413



56,413






Legal settlement gains

(22,300)



(22,300)



(29,312)



(29,312)


Intellectual property legal development
expenses

16,261


23


16,284



20,518


3,882


24,400


Litigation, settlements and related
charges


85,537


85,537




1,223


1,223


Impairment loss on tangible assets






82,508


82,508


Gain on sale of assets






(17,236)


(17,236)


Change in fair value of contingent
consideration






(31,048)


(31,048)


Operating (loss) income

(19,673)


(138,480)


(158,153)



245,103


(367,852)


(122,749)


Other (expense) income:








   Interest expense, net

(143,571)


(18,231)


(161,802)



(71,061)


(53,412)


(124,473)


   Foreign exchange (loss) gain

(19,701)


921


(18,780)



29,092



29,092


   Loss on extinguishment of debt

(19,667)



(19,667)



(2,532)


(1,215)


(3,747)


  Loss on sale of international
  operations

(2,958)



(2,958)



(29,232)



(29,232)


   Other income (expense)

2,848


(638)


2,210



(47)


(10,878)


(10,925)


Total other (expense) income, net

(183,049)


(17,948)


(200,997)



(73,780)


(65,505)


(139,285)


(Loss) income before income taxes

(202,722)


(156,428)


(359,150)



171,323


(433,357)


(262,034)


(Benefit from) provision for income
taxes

(1,419)


(6,273)


(7,692)



1,998


18,326


20,324


Net (loss) income

$

(201,303)


$

(150,155)


$

(351,458)



$

169,325


$

(451,683)


$

(282,358)


Less: Net loss (income) attributable to
Amneal Pharmaceuticals LLC pre-
Combination

148,806





(167,648)




Less: Net loss (income) attributable to
non-controlling interests

32,753





(1,677)




Accretion of redeemable non-
controlling interest

(1,176)








Net loss attributable to Amneal
Pharmaceuticals, Inc.

$

(20,920)





$




 

 

...

Amneal Pharmaceuticals, Inc.

Reconciliation of Non-GAAP Combined Results of Operations

 (Unaudited; In thousands)