Akorn CEO Discusses Q2 2012 Results - Earnings Call Transcript

Akorn, Inc. (AKRX)

Q2 2012 Earnings Call

August 7, 2012, 10:00 a.m. ET

Executives

Raj Rai – CEO

Timothy Dick – CFO

Bruce Kutinsky – COO

Dinesh Dua – CEO, Managing Director Akorn India Pvt. Ltd.

Jeff Whitnell – CFO, SVP, Treasurer and Secretary

Analysts

Steven Crowley – Craig Hallum Capital Group

David Amsellem – Piper Jaffray

Elliot Wilbur – Needham and Company

Michael Higgins – Benson Paxton Securities

Paul Nouri – Noble Equity Fund

David Steinberg – Deutsche Bank

Presentation

Operator

Good morning and thank you for joining Akorn Incorporated 2012 second quarter conference call. If you have not yet had a chance to read the earnings release, you may access it through the investor relations section at Akorn’s website. Raj Rai, Chief Executive Officer, Tim Dick, Chief Financial Officer and Bruce Kutinsky, the newly-appointed Chief Operating Officer, will host this morning’s call. The call is expected to last 30 minutes and may be accessed through our website at Akorn.com. A replay of the conference call will be available shortly after the filing of the transcript of this call with the U.S. Securities and Exchange Commission, under rule 14-A through 12 of the Securities and Exchange Act of 1934, as amended. Interested parties can access the replay by dialing 888-203-1112 in the United States, or 719-457-0820 internationally, and entering the access code 4125361.

Before we get started, I’d like to remind everyone that any statements made on the conference call today or on our press release that express a belief, expectation, anticipation or intent, as well as those that are historical fact, are considered forward-looking statements and are protected under the Safe Harbor of the Private Securities Litigation Reform Act. These forward-looking statements are based on information available to Akorn today, and we assume no obligation to update these statements as circumstances change. These forward-looking statements may involve a number of risks and uncertainties, which may cause the company’s results to differ materially from such statements. Forward-looking statements are qualified by the inherent risks and uncertainties surrounding future expectations, generally, and may materially differ from the actual future experience. Risks and uncertainties could affect forward-looking statement, including the failure to gain new product approvals and lines of new products. Such risks are described from time to time in Akorn’s reports filed with the SEC, including Akorn’s annual report on form 10-K for the year ended December 31 st, 2011, and the subsequent quarterly reports on form 10-Q. Also, the company urges caution in considering any trends or guidance that may be discussed on the conference call. In addition, as required by regulation, reconciliation of non-GAAP financial measures mentioned on our call today, to the most comparable GAAP financial measures, can be found in our press release. Thank you, and now I’d like to turn the call over to Raj Rai.

Raj Rai

Thank you. Good morning, everyone, and thank you for joining our second quarter conference call. Before we discuss the operational and financial highlights for the quarter, we would first like to discuss an important matter.

After an extensive and further review of our first quarter financials, we determined that the purchase accounting relating to the acquisition of Certain Assets of Kilitch Drugs, that were acquired earlier this year, was incorrect, and required another set of review. We plan to reflect the corrected accounting in the amended 10-Q for the first quarter shortly. As a result, we are reporting preliminary results for the second quarter, and have preliminarily restated the earlier results with the estimated impact of the corrected purchase accounting. The final numbers will be reflected in the 10-Q to be filed later. We sincerely apologize for the error. However, the good news is that it does not affect our ongoing sales and ongoing operating results. I will let Tim discuss this in detail, and we’ll come back on the call to discuss the second quarter highlights. Tim?

Timothy Dick

Thank you, Raj. We released today a separate press release and 8-K announcing that on August 3 rd, 2012 the audit committee of Akorn’s board of directors, on the recommendation of management, concluded that the previously-issued financial statements contained in Akorn Inc.’s quarterly report on form 10-Q for the fiscal quarter ended March 31, 2012, should not be relied upon because of errors in those financial statements, and those financial statements would be restated to make the necessary accounting adjustments.

The previously disclosed 66.7 million purchase price for the acquisition of Kilitch Drug India Ltd. was originally recorded in the first quarter of 2012. Here in the second quarter of 2012, the company determined that its preliminary accounting for the acquisition of Kilitch Drugs India Limited, needed to be corrected, as certain items that had been previously capitalized as purchase price, needed to be either – needed to be expensed as either compensation earned from the achievement of acquisition related milestones, or other acquisition cost.

As a result of the restatement, Akorn will re-characterize approximately 8.3 million of originally recorded purchase price as additional expense for the quarter ended March 31, 2012.

In addition to the company’s consolidated statement of cash flow for the three months ended March 31, 2012, and March 31, 2011 have been adjusted to correct a classification error. The error resulted in an understatement of net cash provided by operating activities of 1.4 million, with a corresponding understatement of net cash used in investing activities for the three months ended March 31, 2012, and an overstatement of net cash provided by operating activities of $500,000 for the corresponding overstatement of net cash used in investing activities for the three month period ended March 31, 2011.

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