Akorn (AKRX) Q1 2019 Earnings Call Transcript

Akorn (AKRX)
Q1 2019 Earnings Call
May. 07, 2019, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Akorn first-quarter 2019 earnings call. [Operator instructions] As a reminder, today's conference is being recorded. I would now like to turn the conference over to Jennifer Bowles, Akorn's senior vice president and corporate strategy and investor relations. Please go ahead.

Jennifer Bowles -- Senior Vice President and Corporate Strategy and Investor Relations

Thank you. Good morning, and welcome to Akorn's first-quarter 2019 conference call. I'm joined today by Douglas Boothe, Akorn's president and chief executive officer; and Duane Portwood, Akorn's chief financial officer. The first-quarter press release is available on the Investor Relations portion of Akorn's website.

On today's call, Doug will provide an update on the business and the progress the company has made in the first quarter. And then Duane will review the company's first-quarter 2019 financial results, provide an overview of the recently executed Standstill Agreement and then outline the guidance that we are providing today for the full-year 2019. We will then open the call to your questions. As a reminder, the conference call and webcast are being recorded and will be available on Akorn's Investor Relations website shortly following the conclusion of today's call.

Before we begin, I would like to remind everyone that any statements made on this conference call that express belief, expectation, anticipation or intent, as well as those that are not historical fact are considered forward-looking statements and are protected by the safe harbor provisions of the Private Securities Litigation Reform Act. Now I'll turn the call over to Douglas Boothe, Akorn's president and chief executive officer. Doug?

Doug Boothe -- President and Chief Executive Officer

Thank you, Jennifer, and good morning, everyone. I'm pleased to be with you today to provide an update on the business, to review the progress we have made during the first quarter and discuss how we intend to build upon that momentum going forward. I'll start by highlighting some of the key areas of focus during the quarter that helped strengthen our foundation and improve our financial results. As we said on our last call, the near-term priorities for Akorn in 2019 are set around executing our operations, quality systems and compliance enhancement initiatives.

The sequential improvements we saw in the quarter across our financial and operating results were stronger than we had initially anticipated, serving as evidence that this focus is already delivering value. During my first four months, I emphasized a companywide focus on compliance, transparency and accountability. We made structural and organizational changes, which included strengthening our leadership team and expanding our organizational capabilities. We recently appointed Erislandy Dandy Dorado as our new Global EVP of quality, as well as made other senior hires across operations, procurement, commercial and IT.

Additionally, we initiated a companywide action plan to improve the timing, effectiveness and accountability of our operations. These actions all aim to give us freedom to operate and provide momentum and organizational confidence for sustained and improved performance throughout 2019 and beyond. During the first quarter, we were meticulously focused on measuring, sharing and improving upon our operational and quality metrics such as safety, batches right the first time, timely resolution of investigations and CAPAs, cycle time and cost per unit. The emphasis on these metrics has helped drive sequential improvement in business performance and customer service levels.

For example, customer back orders have been significantly reduced, and as a result, failure to supply penalties have also decreased sequentially. With improved product availability and service levels, we expect these penalties to diminish in subsequent quarters, contributing to improved financial results. While there are still improvements to be made, we are pleased with the progress to date, and believe that the emphasis on these operational metrics will continue to drive and sustain our business performance, improve our cost structure and accelerate our response time with customers. We also continue to make sustained progress on our FDA action items related to inspections of our facilities in Decatur and Somerset.

We expect to have the majority of these activities completed by mid-year. While we still have work to do to complete the activities, with a QSCAP in place and companywide support, we have a strong governance model to ensure sustainable compliance. Transitioning to newest contributors to our business performance. We're excited by the recent launches of two new products, Ropivacaine Hydrochloride Injection, USP two milligrams -- MGs per milligram and TheraTears, Steroid antimicrobial, the first FDA accepted antimicrobial eyelid cleanser.

More recently, we had two products approved in April, Loteprednol Ophthalmic Suspension and Fluticasone OTC nasal spray. Loteprednol is an exciting approval for us as it is the first generic approval for this product and highlights Akorn's ability to execute on development and manufacturing of complex ophthalmic suspensions. Fluticasone Nasal Spray is also an important approval for the company as we look toward opportunities to expand further into the OTC market. As we work to successfully commercialize our pipeline, we will continue to pursue exciting and valuable new product opportunities like these across the spectrum of our generics, specialty brands, OTC and animal health portfolios.

We believe our team is focused on taking the right steps to immediately drive enhanced performance and execution as we work to implement a long-term business plan that will leverage of strength. As part of the strategy, there are three platforms for growth that I would like to highlight. First, we are focused on improving our R&D efficiency and continuing to expand our business through our new product pipeline. We will be targeting higher value, more complex products in areas such as ophthalmics, specialty injectables and veterinary medicines.

As you saw in our press release and the corresponding table, as part of this effort, we have reduced the total reported number of pending ANDA filings in our portfolio. While the total number of pending ANDAs has decreased, the potential addressable market for our current ANDA portfolio is only modestly reduced and still significant at just under $6 billion [Inaudible] market value. This reduction is part of a disciplined approach toward developing and launching products, which make the most financial sense for Akorn. Second, we strive to improve our operations and simplify our global manufacturing network.

As we previously announced, we have decided to explore strategic alternatives to exit our operations in India, which will enable us to concentrate resources on activities with greater potential to strengthen our business in the near term. And finally, we are targeting business development efforts across the segments where we hold a competitive advantage. Some areas of focus include our branded business, specifically ophthalmics and then our OTC portfolio, building out our market-leading TheraTears platform. We're also looking at ways we can increase our specialty generics footprint, specifically in niche areas like ophthalmics and injectables.

We fully understand there is much work left to do as we look to rebuild trust and credibility with all of our stakeholders. However, we are pleased with our progress to date and are confident in the fundamentals of the business. And as part of our confidence in our ability to execute on our strategic growth objectives and to demonstrate our viability as an independent company, we're providing guidance for the remainder of the fiscal-year 2019, which we believe is a strong step in the right direction as we get back to running our company with the freedom to operate and a focus on creating value for our shareholders. I will now hand the call over to Duane for a review of our financial results, an overview of our guidance and some comments on the recent Standstill Agreement.

Duane?

Duane Portwood -- Chief Financial Officer

Thank you, Doug, and good morning, everyone. I hope you've had a chance to read the press release we issued earlier today, outlining Akorn's first-quarter 2019 preliminary unaudited financial results. When discussing our first-quarter results this morning, I will be referring to a number of non-GAAP figures. Please refer to today's press release for our GAAP to non-GAAP reconciliations and a listing of items included in our adjustments.

Starting with our first-quarter results. Our financial results and year-over-year comparisons continue to be impacted by a combination of factors, including industry headwinds, increased competition for key drugs, as well as the more unique impact of the cost of cGMP enhancements and legal and advisory fees. However, as Doug noted, we're pleased with the sequential improvements we have seen in the first quarter compared to the fourth quarter of 2018, which we believe reflect the progress and early traction we are seeing across some of our operational enhancement initiatives. Net revenue for the quarter ended March 31, 2019, was $166 million, a decrease of 10% or $18 million from the prior-year quarter.

The $18 million decrease was driven by two main factors. First, revenue was negatively impacted by continued competitive pressures on ephedrine, Nembutal and COSOPT PF. And second, we experienced supply shortfalls due to continued production ramp-up at our Somerset and Decatur manufacturing facilities. Sequentially, net revenues increased by 8% or $12 million from the fourth quarter of 2018 as we began to realize the benefit of improved product availability from that time period.

Gross margin for the first quarter was 32%, compared to 45% for the prior-year quarter. This decrease in gross margin was primarily driven by the cost of FDA compliance-related activities, which was $11 million in the quarter, as well as unfavorable product mix shifts. On a sequential basis, gross margin improved to 32% in the current quarter from 17% in the fourth quarter of 2018, mainly due to more favorable manufacturing variances as Somerset and Decatur ramp-up along with lower inventory write-offs. SG&A expense was $72 million for the first quarter of 2019, compared to $63 million in the prior-year quarter.

For the first quarter of 2019, we incurred $10 million in expense related to the impairment of certain fixed assets in India, and higher professional service expenses, primarily related to refinancing advisory fees. These increases were offset by lower TheraTears' marketing spend. R&D expense for the first quarter of 2019 was $9 million, compared to $13 million in the first quarter of 2018, reflecting lower spend on labor and projects, some of which is due to timing. GAAP net loss for the first-quarter 2019 was $82.2 million or negative $0.65 per diluted share, compared to a GAAP net loss of $28.7 million or negative $0.23 per diluted share for the same quarter of 2018.

Including a net adjustment for $70 million to net loss for non-GAAP items, adjusted diluted earnings per share for the first quarter were negative $0.10, compared to a positive $0.05 in the same quarter of 2018, after net adjustment of $35 million to net income for non-GAAP items. Earnings before interest, taxes, depreciation and amortization, or EBITDA, was negative $48 million for the first quarter of 2019, compared to a negative $6 million for the prior-year quarter. Our adjusted EBITDA for the first quarter of 2019 was $10 million, compared to $25 million in the prior-year quarter. Sequentially, first-quarter adjusted EBITDA of $10 million was the $30 million improvement from a negative $20 million we reported for the fourth quarter of 2018 as a result of higher revenue, more favorable manufacturing variances and lower TheraTears advertising.

Adjusted EBITDA for the quarter included adjustments for the following: approximately $26 million of goodwill and intangible asset impairments; $11 million of amortization; $10 million of the aforementioned fixed asset impairments; $6 million of refinancing advisory fees; and $4 million for the data integrity investigations and assessment. Please refer to the reconciliation tables in the press release for non-GAAP measures. Turning to the balance sheet. Cash declined $41 million during the quarter, due mostly to FDA compliance-related expenses, professional fees and increased working capital.

As of March 31, our cash balance was $184 million. For the first quarter of 2019, cash flow from operations was a use of $30 million, compared to a use of $32 million from the prior-year quarter. The primary drivers of this flat performance were lower operating results versus the prior year, but offset by improved working capital performance relative to the prior year. With a long-term debt balance of $832 million on a trailing 12-month basis, our net debt to adjusted EBITDA ratio was approximately 18.8 times at March 31, 2019.

As we disclosed in late January, we have engaged advisors to assist with the development of our long-term business plan and engagement with key stakeholders. The Fresenius litigation and recent operating results have caused our term debt to trade significantly lower than par, and as a result, we and our advisors have engaged with our lenders and their advisors to provide transparency about our current operating environments, our future outlook and to optimize the company's refinancing alternatives. To that end, we have been working constructively with our creditors and are pleased to have reached an agreement that is expected to provide Akorn time to continue to make progress on operational initiatives and deliver improved results, while also providing the lending institutions with additional transparency, reduced risk and enhanced protection. Additionally, the Standstill does provide the lenders with increased economics and requires us to refinance or amend the loan agreement by mid-December 2019, and we will begin refinancing activities immediately.

For further information, we refer you to the current report on Form 8-K filed earlier today, which details the economic and noneconomic terms of such agreement, including the covenants and other protections that are provided to our lending institutions. At this time, we're still evaluating the implications of the Standstill Agreement on our going concern assessment and the related financial statement disclosures that will be disclosed in our first-quarter Form 10-Q, which will be filed by the end of this week. Turning to our outlook for the year. While there are still improvements to be made and headwinds to be addressed, we are pleased with our recent progress and are confident in the fundamentals of our business.

As a result, we're providing guidance for the full-year 2019. Again, please refer to the reconciliation tables in the press release for non-GAAP measures. Net revenue for the year is expected to be in the range of $690 million to $710 million, a net loss in the range of $150 million to $135 million. Adjusted EBITDA expected to be in the range of $71 million to $86 million, and please note that the adjusted EBITDA guidance includes approximately $30 million of FDA compliance-related expenses and approximately $8 million of Akorn India operating expenses.

In addition, as we guided on the last call, we expect capital expenditures to be approximately $40 million for the year and expenses for data integrity and the aforementioned FDA compliance-related activities to be approximately $40 million for the full year. Our full-year 2019 outlook for the business anticipates building upon the momentum generated in the first quarter with sequential improvements across revenue, margins and profitability over the course of the year with about half of the full-year adjusted EBITDA delivered in the fourth quarter. As we move past the noise and nonrecurring headwinds that have impacted our recent results, we expect our earnings power to normalize and we see a path to at least doubling our adjusted EBITDA in 2020. Longer term, we expect continued growth in margin improvement to be achieved through a combination of new product launches, improved operational performance and annualized cost reduction of $50 million to $75 million.

We look forward to updating you on our progress in the coming quarters. And with that, I'll turn the call back over to Doug.

Doug Boothe -- President and Chief Executive Officer

Thanks, Duane. Overall, I'm pleased with our progress to date. We believe that 2019 is the year that we are back to running our company with the freedom to operate in the best interest of Akorn and all of our stakeholders. I'm impressed by the energy I've seen put into the improvement efforts in these early days, and we will continue to see improvements throughout the year if we stay our course and focus on compliance, transparency and accountability.

While there is still work to be done, I'm optimistic about the opportunities ahead for Akorn, and I'm confident that there is significant potential for improvement. We would now like to open the call for questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from the line of Randall Stanicky of RBC Capital Markets.

Ashley Ryu -- RBC Capital Markets -- Analyst

Hi. Good morning. This is Ashley Ryu on for Randall. Could you talk a little a bit more about the moving pieces in your guidance, i.e., how much of the kind of guided EBITDA improvement for this year is from improving gross margins versus operating expense cuts? And just to clarify, should we expect sequential growth in revenue and gross margin through the balance of the year?

Duane Portwood -- Chief Financial Officer

Yeah. So I'm not going to give like complete transparency into all the moving pieces, but some easy things to see. As I mentioned, we expect to have about $30 million of FDA-related compliance enhancements. And so that we had $11 million in the first quarter.

We expect that to decrease as the quarters go on. So that will help from a margin-rate perspective. And then the other item that is out is our spending on TheraTears. So that's spelled out in the reconciliation.

So those two alone help us dramatically.

Ashley Ryu -- RBC Capital Markets -- Analyst

OK. And moving to your pipeline. Could you just talk a little bit more about kind of the potential limited competition approvals that you're expecting for the year. I guess, also remaining ANDAs, like what does the guidance expect around approvals and new launch contribution for this year? And is that kind of contingent on like further approvals? Or is it from products that have already been approved?

Doug Boothe -- President and Chief Executive Officer

This is Doug. So we don't provide specific guidance on product launches. But as I said on the last call, we expected two limited competitions in generics, one of which was approved, which was Loteprednol, which we intend to bring to market before the end of the second quarter here, probably on a limited business initially. But that is factored into our guidance for the second half of the year -- for the balance of the year.

The other product we mentioned is on difluprednate, which again we are a first filer on. That product is approaching our CAD date, but that's something that's not specific in our financial guidance, but something we see as an opportunity for the balance of 2019. We also have a couple of other products which are already approved, which are coming to market in the second and third quarters also factored into our guidance.

Duane Portwood -- Chief Financial Officer

And then to be clear, we don't have unapproved products in our guidance, only approved products are in the guidance that we gave for the $690 million to $710 million.

Doug Boothe -- President and Chief Executive Officer

Correct.

Ashley Ryu -- RBC Capital Markets -- Analyst

Great. Thanks so much.

Operator

Our next question comes from the line of Matt Hewitt from Craig-Hallum Capital.

Matt Hewitt -- Craig-Hallum Capital Group -- Analyst

Good morning. Thank you for taking the questions.

Doug Boothe -- President and Chief Executive Officer

Good morning.

Duane Portwood -- Chief Financial Officer

Hi, Matt.

Matt Hewitt -- Craig-Hallum Capital Group -- Analyst

Maybe just a little bit of help or additional color on where you're at from the remediation standpoint with the facilities? How much of the work that you have left is just normal like the serialization or some of the, I guess, the newer requirements from the FDA versus how much of it is project expansions or facility expansions? Where do you stand between those two segments?

Doug Boothe -- President and Chief Executive Officer

I think we're very, very far down the road. On this specific items, we've already addressed them like serialization and such which isn't an FDA requirement, but that was implemented prior to the November date. We certainly have expanded our labs to both of our facilities. Part of the work that's still under way is qualifying some of that equipment and completing some of the remediation activities on products.

That's part of the reason why the Somerset volumes have been ramping back up. Decatur essentially has worked through all those things. We're validating or completing the validation and just working through the product transitions, while we're actively communicating with the agency our progress to date, we've been doing monthly updates in an alternating schedule for the two facilities. And of course, we are working forward to the agency coming back in some future date to do another full GMP inspection.

Matt Hewitt -- Craig-Hallum Capital Group -- Analyst

That's great news. Thank you. And then regarding the gross margins obviously phenomenal -- big pop anyway from Q4. I think you mentioned it, but correct me if I'm wrong that you expect sequential improvement over the course of this year?

Doug Boothe -- President and Chief Executive Officer

Yeah, Matt. So kind of related to your question earlier, the FDA-related compliance enhancements that we're doing are really related to the warning letter that we have from Decatur and the 483 and the commitments that we've made to the FDA to make those better. So we've been working on that -- obviously, a significant amount of work occurred in 2018. That work occurs in 2019.

And based on what we know now, similar to what we said in Q1, that those costs that are in gross margin will be about $30 million for the year. And again, we had $11 million in the first quarter. So as those activities come to a close, that will be less pressure on gross margin as we go throughout the year. So that in and of itself should help gross margin.

And then as we've talked about before, we're seeing some -- it's one quarter and we're very pleased with the results in Q1. But we do believe that there is room for improvement just from an operational perspective as those -- particularly as Somerset ramps up and Decatur stabilizes a little bit more. So that by itself, forgetting FDA cost, if you will, will help margins as we go forward.

Matt Hewitt -- Craig-Hallum Capital Group -- Analyst

OK. Great. And maybe one last one and then I'll hop back in the queue. Regarding the failure to supply, you noted some progress from Q4 to Q1.

And it sounds like there's going be a little bit more here in Q2. Do you think that those are done by Q3? Or maybe there's a little bit more of a tail, but it's done by the end of the year?

Doug Boothe -- President and Chief Executive Officer

Well, again, hopefully we believe it will be very de minimis. It may never go away clearly, but certainly our from a supply/demand balance is to never be in a failure to supply situation. And to your point, it is a lagging kind of result activity because it goes back from the penalties from past quarters. But certainly with improved product availability and a focus in our commercial group so we're getting products on contract that we're in a very strong supply position, we expect it to be significantly reduced.

The number last year was over $20 million for the year. And again, in the first quarter we were about five or so. So it's definitely come down from fourth quarter. Remember again, not to be speaking about much more in subsequent quarters.

And that failure to supply comes at 100% margin.

Operator

And our next question comes from the line of David Amsellem from Piper Jaffray.

David Amsellem -- Piper Jaffray -- Analyst

Thanks. Just a few. So first I may have missed this but I wanted to make sure that I had the details. On the annualized cost reductions of $50 million to $75 million.

Can you just walk through where the bulk of the savings are going to be coming from? And then secondly, on the commercial portfolio, can you talk about Voltaren and your launch there and how we should think about the market dynamics there and potential contribution? And then lastly, regarding the OTC business, so it sounds like you're committed to it and looking to expand the footprint, but what are your thoughts about potentially monetizing that, I would surmise that this would be quite a bit of strategic interest in that business. What are your thoughts about that? Thanks.

Doug Boothe -- President and Chief Executive Officer

OK. So about six questions there, David.

David Amsellem -- Piper Jaffray -- Analyst

No, multiple parts. Three multiple parts.

Doug Boothe -- President and Chief Executive Officer

All right. Well on Voltaren, certainly that's an item we're looking to go-to-market with. We're preparing commercialization activities on that one, so we will have more to come on that one. Certainly it's a favorable competitive situation on that.

Regarding OTC, again, we like our assets there, specifically around TheraTears and we've invested in the category. Any transaction that we potentially look to get out of a portion of business would have to delever us. And right now given our current multiple, that's going to be a really big check for someone to write. Doesn't mean we're not -- we wouldn't listen but it's really not I'd say in our core strategic objectives and we see, again, through our planning activities that we can support and grow that portion of franchise well within the parameters of our capabilities.

Again, it provides a nice contribution and continuity to offset some of the vagaries of the generics space that we've all seen over the years. On a cost savings front, again between $50 million to $75 million for us. It's kind of split three ways. We have operational impairments.

Certainly, as Duane mentioned, we have been running some of our facilities at less than full capacity. As we expand our portfolio and bring those products back to market, that will help drive the facilities more efficiently. From an SG&A perspective, of course, we've already looked at some of the savings initiatives we've got. We already booked some of the commercial marketing activities we did on TheraTears.

That's a portion of the mix. And then, of course, we've got procurement savings both direct purchasing, as well as indirect as part of that mix. And we've also taken out on a run-rate business the India contribution to expenses, which is about $8 million on a go-forward basis. So -- and this is intended to be implemented, we've already started about a third of that actually this year.

And of course, we intend to deliver this in about next two or three years as part of our planning cycle through -- out through year four.

David Amsellem -- Piper Jaffray -- Analyst

Great. Thanks.

Operator

And our next question comes from the line of Greg Fraser of SunTrust.

Greg Fraser -- SunTrust Robinson Humphrey -- Analyst

Good morning. It's Greg Fraser on for Gregg Gilbert. Thanks for taking the questions.

Doug Boothe -- President and Chief Executive Officer

Good morning.

Greg Fraser -- SunTrust Robinson Humphrey -- Analyst

Morning. On the revenue outlook, can you comment on how much growth you factored in for volume versus price?

Duane Portwood -- Chief Financial Officer

Well, it's a mix of both. Volume, actually volume from, as we think about Q1 to -- from Q4, that was much more of a volume story than it was a price story. But we do expect volume to continue to be a positive driving factor throughout the year as we ramp up production and increase our product availability. And price -- there'll be some -- we expect some positive impact there as well.

Greg Fraser -- SunTrust Robinson Humphrey -- Analyst

OK. And then on the rationalized pipeline, is Restasis still an active filing? If you could give us an update on that program that would be helpful?

Doug Boothe -- President and Chief Executive Officer

Certainly. Yeah, Restasis is definitely one of our key items in there, and we're working very, very hard with our partner to get materials back into the agency to respond to our opened efficiencies. That's, again, as I said last call, we see that as a 2019 revenue contributor, but it is still a key focus of activity for our R&D and our tech services and our partners. If we get it sooner, we will certainly let you know.

Greg Fraser -- SunTrust Robinson Humphrey -- Analyst

Got it. Thank you.

Operator

And our next question comes from the line of David Steinberg of Jefferies.

David Steinberg -- Jefferies -- Analyst

Thanks. On your pipeline, could you comment on roughly -- would you be willing to comment on how many ANDAs you think you might file this year and how that might compare to what you did last year? And then what's become your biggest product now, I believe generic Accutane, unlike a lot of your other products has faced no additional entrants over the last couple of years -- it has been fairly tranquil on that front and so your revenues have done well. I know it's difficult to -- there are a lot of difficulties with it. There's a REMS program and other barriers to entry, but would you expect any additional competition, say in the next six to 24 months for that product?

Doug Boothe -- President and Chief Executive Officer

Yeah. So again, on Myorisan, by the way, which is our name for our product there. Some of the competitive situation has been dynamic. We have had players come in and come out, and right now we've got one that has been having some challenges in supply -- part of the reason why our first quarter was stronger on that product.

But, again, we expect it to come back. They are a proven competitor. Tranquil in the generics space is a oxymoron. So certainly we are actively tracking the market.

Of course, we hear much from our customers about what may or may not be transpiring. So we, of course, want to be in a position to support the market appropriately. [Inaudible] the other question [Inaudible].

Duane Portwood -- Chief Financial Officer

Well, I think just some more color on Myorisan, David. It is our largest product, actually it was a little over 10% of our first-quarter revenue. Remember that not only they're the REMS programs so there is market cost associated with it. It's a partner product.

And so the gross margin on it is lower than, I would say, average. And then we pay royalties as well and then we have the REMS programs. So even though it's our No. 1 sales product, it's pretty far down the list in terms of what it contributes to our adjusted EBITDA.

Doug Boothe -- President and Chief Executive Officer

It's still an important product for the portfolio for the family. Regarding the pipeline, regarding R&D, certainly, we didn't have a stellar year last year in terms of ANDA filings. We intend to build upon that. A lot of the R&D efforts as you're well aware, were diverted, have been diverted in the past due to data integrity activity.

So we're back to -- the majority of the team's back to working on formulations we have course, given the time frame for exhibit batches to stability to filings, we have some targets before the year end, but certainly right now we need yielding our portfolio as we then rebuild both internally and with our partner products.

David Steinberg -- Jefferies -- Analyst

OK. And then as far as human resources go, I can imagine over the last two years you've likely lost some employees you didn't mind losing, but probably lost some that you wish you hadn't lost, given the protracted merger discussions, etc. How are things going in terms of filling key posts? Do you feel like you're right size now for the opportunity or are there some particular areas where you really need to hire some people to get where you want to be?

Doug Boothe -- President and Chief Executive Officer

Again, I like the team we have on the field right now. So yeah, there were -- during the periods of uncertainty, there were folks who exited the company, but that being said, the leadership, as well as both at headquarters and at our facilities are very, very dedicated to the business. I think also as I mentioned the enthusiasm and the spirit to turn this around and be part of the change activities is very infectious, and one that as I've been out doing town hall meeting and been following up I'm getting greater and better, more specific questions from all of our associates. And we've been very, very active in communicating both the business challenges, the business realities, but more importantly, the opportunities for associates here at Akorn.

Again, as our mix continues to expand, as we continue to bring new products to market, we're always looking at skill sets that improve our ability to be successful longer term at the company.

Duane Portwood -- Chief Financial Officer

And David, you're right, the HR aspect of this has been challenging to say the least. I would say we've -- we've tried to attack it. So when the merger finally came to a halt, we actually issued special retention payments to a number of folks and actually that number's called out in our GAAP to non-GAAP reconciliation. And then we had to kind of augment various -- lots of different areas in our company -- augment openings with temps or contract labor.

And as we're now stand-alone and moving forward and operating like we want to operate, we are in the process and a long way down the road of converting many, if not all of those, to permanent employees as -- which also has a cost-saving effect relative to 2018.

Doug Boothe -- President and Chief Executive Officer

But we do rigorously review all open positions, and certainly there's no one gets hired in this company that hasn't been effectively vetted by the sites, as well as potentially vetted by Duane and myself from a hiring position.

David Steinberg -- Jefferies -- Analyst

OK. Thank you.

Operator

And I'm showing no further questions in the queue at this time. I'd like to turn the call back to Doug Boothe, President and CEO, for closing remarks.

Doug Boothe -- President and Chief Executive Officer

OK. Again, well, thank you. We appreciate your participation and your questions related to our first-quarter results. We look forward to sharing more information with you as we continue to make progress on our activities here at Akorn.

Have a great day.

Operator

[Operator signoff]

Duration: 37 minutes

Call participants:

Jennifer Bowles -- Senior Vice President and Corporate Strategy and Investor Relations

Doug Boothe -- President and Chief Executive Officer

Duane Portwood -- Chief Financial Officer

Ashley Ryu -- RBC Capital Markets -- Analyst

Matt Hewitt -- Craig-Hallum Capital Group -- Analyst

David Amsellem -- Piper Jaffray -- Analyst

Greg Fraser -- SunTrust Robinson Humphrey -- Analyst

David Steinberg -- Jefferies -- Analyst

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