Endo Reports Third-Quarter 2018 Financial Results

Endo Reports Third-Quarter 2018 Financial Results

PR Newswire

DUBLIN, Nov. 8, 2018

DUBLIN, Nov. 8, 2018 /PRNewswire/ -- 

Endo International plc (NASDAQ: ENDP) today reported third-quarter 2018 financial results, including:

"We had strong operational performance in the quarter, delivering double-digit growth in our U.S. Branded Sterile Injectables business and in the Specialty Products portfolio of our U.S. Branded - Specialty & Established Pharmaceuticals business," said Paul Campanelli, President and Chief Executive Officer of Endo. "We are focused on enhancing our capabilities in these businesses through the Somerset/Wintac acquisition, which we anticipate will close during the first quarter of 2019, and on our planned expansion into the medical aesthetics market. On that front, I am extremely pleased with the previously reported positive results from the Phase 3 CCH for cellulite clinical trials and I look forward to taking the next steps to bring this treatment to patients."

FINANCIAL PERFORMANCE


(in thousands, except per share amounts)



Three Months Ended September 30,




Nine Months Ended September 30,




2018


2017


Change


2018


2017


Change

Total Revenues

$

745,466



$

786,887



(5)

%


$

2,160,689



$

2,700,218



(20)

%

Reported Loss from Continuing Operations

$

(146,071)



$

(99,687)



47

%


$

(696,288)



$

(961,130)



(28)

%

Reported Diluted Weighted Average Shares

224,132



223,299



%


223,829



223,157



%

Reported Diluted Loss per Share from Continuing Operations

$

(0.65)



$

(0.45)



44

%


$

(3.11)



$

(4.31)



(28)

%

Adjusted Income from Continuing Operations

$

164,845



$

204,052



(19)

%


$

487,823



$

686,498



(29)

%

Adjusted Diluted Weighted Average Shares1

232,358



224,216



4

%


228,195



223,779



2

%

Adjusted Diluted EPS from Continuing Operations

$

0.71



$

0.91



(22)

%


$

2.14



$

3.07



(30)

%

__________

(1)

Diluted per share data is computed based on weighted average shares outstanding and, if there is income from continuing operations during the period, the dilutive impact of share equivalents outstanding during the period. In the case of Adjusted Diluted Weighted Average Shares, Adjusted Income from Continuing Operations is used in determining whether to include such dilutive impact.


CONSOLIDATED RESULTS

Total revenues were $745 million in third-quarter 2018 compared to $787 million in the same period in 2017. This performance was primarily attributable to competitive pressures and product discontinuations in the U.S. Generic Pharmaceutical segment, the divestiture of the Company's Mexican business, Somar, and the voluntary market withdrawal of OPANA® ER. These factors were partially offset by the launch of ertapenem for injection, the authorized generic of INVANZ®, and continued strong growth in the U.S. Branded - Sterile Injectables segment.

GAAP net loss from continuing operations in third-quarter 2018 was $146 million compared to GAAP net loss from continuing operations of $100 million during the same period in 2017. This result was primarily attributable to the gross margin impact of the quarter's revenue reduction and increased asset impairment charges. GAAP diluted net loss per share from continuing operations for third-quarter 2018 was $0.65 compared to GAAP diluted net loss per share from continuing operations of $0.45 in third-quarter 2017.

Adjusted income from continuing operations in third-quarter 2018 was $165 million compared to $204 million in third-quarter 2017. This performance was primarily attributable to the divestiture of Somar and the voluntary market withdrawal of OPANA® ER. Adjusted diluted EPS from continuing operations in third-quarter 2018 was $0.71 compared to $0.91 in third-quarter 2017.

U.S. BRANDED - SPECIALTY & ESTABLISHED PHARMACEUTICALS

In November 2018, the Company reported positive results from two Phase 3 clinical trials of collagenase clostridium histolyticum (or "CCH") for the treatment of cellulite in the buttocks. Trial subjects receiving CCH showed highly statistically significant levels of improvement in the appearance of cellulite with treatment, as measured by the trial's primary endpoint.

Third-quarter 2018 U.S. Branded - Specialty & Established Pharmaceuticals results include:

U.S. BRANDED - STERILE INJECTABLES

During third-quarter 2018, the U.S. Branded Sterile Injectables segment launched ertapenem for injection, the authorized generic of INVANZ®.

Third-quarter 2018 U.S. Branded - Sterile Injectables results include:

U.S. GENERIC PHARMACEUTICALS

During third-quarter 2018, the U.S. Generic Pharmaceuticals segment launched 3 products, including colchicine tablets, the authorized generic of COLCRYS®, which was the result of a first-to-file paragraph four settlement agreement.

Third-quarter 2018 U.S. Generic Pharmaceuticals results include:

INTERNATIONAL PHARMACEUTICALS

Third-quarter 2018 International Pharmaceuticals revenues were $30 million, compared to $56 million in the same period in 2017. This performance is primarily attributable to the Somar divestiture in the fourth-quarter of 2017.

2018 FINANCIAL GUIDANCE

For the full twelve months ending December 31, 2018, at current exchange rates, Endo is raising its financial guidance. The Company now estimates:

The Company's 2018 non-GAAP financial guidance is based on the following assumptions:

BALANCE SHEET, LIQUIDITY AND OTHER UPDATES

As of September 30, 2018, the Company had $1.1 billion in unrestricted cash; debt of $8.3 billion; net debt of approximately $7.1 billion and a net debt to adjusted EBITDA ratio of 5.3.

Third-quarter 2018 cash used in operating activities was $22 million, compared to $83 million of net cash provided by operating activities in the comparable 2017 period.

CONFERENCE CALL INFORMATION

Endo will conduct a conference call with financial analysts to discuss this press release today at 8:00 a.m. ET. The dial-in number to access the call is U.S./Canada (866) 497-0462, International (678) 509-7598, and the passcode is 6154109. Please dial in 10 minutes prior to the scheduled start time.

A replay of the call will be available from November 8, 2018 at 11:00 a.m. ET until 11:00 a.m. ET on November 11, 2018 by dialing U.S./Canada (855) 859-2056, International (404) 537-3406, and entering the passcode 6154109.

A simultaneous webcast of the call can be accessed by visiting http://investor.endo.com/events-and-presentations. In addition, a replay of the webcast will be available on the Company website for one year following the event.

VOLTAREN is a registered trademark of Novartis Corporation
COLCRYS is a registered trademark of Takeda Pharmaceuticals U.S.A., Inc.
INVANZ is a registered trademark of Merck Sharp & Dohme Corp.

 

FINANCIAL SCHEDULES


The following table presents Endo's unaudited Total Revenues for the three and nine months ended September 30, 2018 and 2017 (dollars in thousands):



Three Months Ended September 30,


Percent
Growth


Nine Months Ended September 30,


Percent
Growth


2018


2017



2018


2017


U.S. Branded - Specialty &
Established Pharmaceuticals:












Specialty Products:












XIAFLEX®

$

64,214



$

52,511



22

%


$

184,855



$

152,113



22

%

SUPPRELIN® LA

20,408



20,638



(1)

%


60,948



63,468



(4)

%

Other Specialty (1)

43,576



40,634



7

%


114,202



113,407



1

%

Total Specialty Products

$

128,198



$

113,783



13

%


$

360,005



$

328,988



9

%

Established Products:












PERCOCET®

$

30,730



$

31,349



(2)

%


$

93,539



$

93,183



%

VOLTAREN® Gel

15,057



19,102



(21)

%


44,185



53,646



(18)

%

OPANA® ER



14,756



(100)

%




82,056



(100)

%

Other Established (2)

46,115



54,813



(16)

%


135,243



171,277



(21)

%

Total Established Products

$

91,902



$

120,020



(23)

%


$

272,967



$

400,162



(32)

%

Total U.S. Branded - Specialty &
Established Pharmaceuticals (3)

$

220,100



$

233,803



(6)

%


$

632,972



$

729,150



(13)

%

U.S. Branded - Sterile Injectables:












VASOSTRICT®

$

112,333



$

105,741



6

%


$

332,387



$

300,649



11

%

ADRENALIN®

35,460



25,335



40

%


101,858



50,464



NM

Ertapenem for injection

25,798





NM


25,798





NM

Other Sterile Injectables (4)

63,559



70,829



(10)

%


210,804



203,252



4

%

Total U.S. Branded - Sterile Injectables (3)

$

237,150



$

201,905



17

%


$

670,847



$

554,365



21

%

Total U.S. Generic Pharmaceuticals

$

257,969



$

294,749



(12)

%


$

748,445



$

1,227,584



(39)

%

Total International Pharmaceuticals

$

30,247



$

56,430



(46)

%


$

108,425



$

189,119



(43)

%

Total Revenues

$

745,466



$

786,887



(5)

%


$

2,160,689



$

2,700,218



(20)

%

__________

(1)

Products included within Other Specialty include TESTOPEL®, NASCOBAL® Nasal Spray and AVEED®.

(2)

Products included within Other Established include, but are not limited to, LIDODERM®, EDEX®, TESTIM® and FORTESTA® Gel, including the authorized generics.

(3)

Individual products presented above represent the top two performing products in each product category and/or any product having revenues in excess of $25 million during any quarterly period in 2018 or 2017.

(4)

Products included within Other Sterile Injectables include, but are not limited to, APLISOL® and ephedrine sulfate injection.


 

 

The following table presents unaudited Condensed Consolidated Statement of Operations data for the three and nine months ended September 30, 2018 and 2017 (in thousands, except per share data):



Three Months Ended September 30,


Nine Months Ended September 30,


2018


2017


2018


2017

TOTAL REVENUES

$

745,466



$

786,887



$

2,160,689



$

2,700,218


COSTS AND EXPENSES:








Cost of revenues

412,965



514,522



1,198,468



1,722,885


Selling, general and administrative

163,791



135,880



478,615



468,675


Research and development

39,683



39,644



160,431



123,522


Litigation-related and other contingencies, net

(1,750)



(12,352)



15,370



(14,016)


Asset impairment charges

142,217



94,924



613,400



1,023,930


Acquisition-related and integration items

1,288



16,641



13,284



31,711


OPERATING LOSS FROM CONTINUING OPERATIONS

$

(12,728)



$

(2,372)



$

(318,879)



$

(656,489)


INTEREST EXPENSE, NET

131,847



127,521



385,896



361,267


LOSS ON EXTINGUISHMENT OF DEBT







51,734


OTHER INCOME, NET

(1,507)



(2,097)



(33,216)



(10,843)


LOSS FROM CONTINUING OPERATIONS BEFORE
INCOME TAX

$

(143,068)



$

(127,796)



$

(671,559)



$

(1,058,647)


INCOME TAX EXPENSE (BENEFIT)

3,003



(28,109)



24,729



(97,517)


LOSS FROM CONTINUING OPERATIONS

$

(146,071)



$

(99,687)



$

(696,288)



$

(961,130)


DISCONTINUED OPERATIONS, NET OF TAX

(27,134)



3,017



(43,273)



(705,886)


NET LOSS

$

(173,205)



$

(96,670)



$

(739,561)



$

(1,667,016)


NET (LOSS) INCOME PER SHARE—BASIC:








Continuing operations

$

(0.65)



$

(0.45)



$

(3.11)



$

(4.31)


Discontinued operations

(0.12)



0.02



(0.19)



(3.16)


Basic

$

(0.77)



$

(0.43)



$

(3.30)



$

(7.47)


NET (LOSS) INCOME PER SHARE—DILUTED:








Continuing operations

$

(0.65)



$

(0.45)



$

(3.11)



$

(4.31)


Discontinued operations

(0.12)



0.02



(0.19)



(3.16)


Diluted

$

(0.77)



$

(0.43)



$

(3.30)



$

(7.47)


WEIGHTED AVERAGE SHARES:








Basic

224,132



223,299



223,829



223,157


Diluted

224,132



223,299



223,829



223,157



 

 

The following table presents unaudited Condensed Consolidated Balance Sheet data at September 30, 2018 and December 31, 2017 (in thousands):



September 30,
2018


December 31,
2017

ASSETS




CURRENT ASSETS:




Cash and cash equivalents

$

1,118,885



$

986,605


Restricted cash and cash equivalents

289,667



320,453


Accounts receivable

467,156



517,436


Inventories, net

332,787



391,437


Other current assets

67,104



55,146


Total current assets

$

2,275,599



$

2,271,077


TOTAL NON-CURRENT ASSETS

8,246,063



9,364,503


TOTAL ASSETS

$

10,521,662



$

11,635,580


LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY




CURRENT LIABILITIES:




Accounts payable and accrued expenses, including legal settlement accruals

$

1,985,637



$

2,184,618


Other current liabilities

35,831



36,291


Total current liabilities

$

2,021,468



$

2,220,909


LONG-TERM DEBT, LESS CURRENT PORTION, NET

8,228,612



8,242,032


OTHER LIABILITIES

491,041



687,759


SHAREHOLDERS' (DEFICIT) EQUITY

(219,459)



484,880


TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY

$

10,521,662



$

11,635,580



 

 

The following table presents unaudited Condensed Consolidated Statement of Cash Flow data for the nine months ended September 30, 2018 and 2017 (in thousands):



Nine Months Ended September 30,


2018


2017

OPERATING ACTIVITIES:




Net loss

$

(739,561)



$

(1,667,016)


Adjustments to reconcile Net loss to Net cash provided by operating activities:




Depreciation and amortization

556,503



742,936


Asset impairment charges

613,400



1,023,930


Other, including cash payments to claimants from Qualified Settlement Funds

(233,350)



322,312


Net cash provided by operating activities

$

196,992



$

422,162


INVESTING ACTIVITIES:




Purchases of property, plant and equipment, excluding capitalized interest

$

(56,544)



$

(94,102)


Proceeds from sale of business and other assets, net

43,753



96,066


Other

(891)



7,000


Net cash (used in) provided by investing activities

$

(13,682)



$

8,964


FINANCING ACTIVITIES:




Payments on borrowings, net

$

(29,535)



$

(12,325)


Other

(33,273)



(123,028)


Net cash used in financing activities

$

(62,808)



$

(135,353)


Effect of foreign exchange rate

(608)



3,983


Movement in cash held for sale



(1,450)


NET INCREASE IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND
RESTRICTED CASH EQUIVALENTS

$

119,894



$

298,306


CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH
EQUIVALENTS, BEGINNING OF PERIOD

1,311,014



805,180


CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH
EQUIVALENTS, END OF PERIOD

$

1,430,908



$

1,103,486



 

SUPPLEMENTAL FINANCIAL INFORMATION

To supplement the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses certain non-GAAP financial measures. For additional information on the Company's use of such non-GAAP financial measures, refer to Endo's Current Report on Form 8-K furnished today to the U.S. Securities and Exchange Commission, which includes an explanation of the Company's reasons for using non-GAAP measures.

The tables below provide reconciliations of certain of our non-GAAP financial measures to their most directly comparable GAAP amounts. Refer to the "Notes to the Reconciliations of GAAP and Non-GAAP Financial Measures" section below for additional details regarding the adjustments to the non-GAAP financial measures detailed throughout this Supplemental Financial Information section.

Reconciliation of EBITDA and Adjusted EBITDA (non-GAAP)


The following table provides a reconciliation of Net loss (GAAP) to Adjusted EBITDA (non-GAAP) for the three and nine months ended September 30, 2018 and 2017 (in thousands):



Three Months Ended September 30,


Nine Months Ended September 30,


2018


2017


2018


2017

Net loss (GAAP)

$

(173,205)



$

(96,670)



$

(739,561)



$

(1,667,016)


Income tax expense (benefit)

3,003



(28,109)



24,729



(97,517)


Interest expense, net

131,847



127,521



385,896



361,267


Depreciation and amortization (15)

176,856



183,475



521,325



680,385


EBITDA (non-GAAP)

$

138,501



$

186,217



$

192,389



$

(722,881)










Inventory step-up and other cost savings (2)

$

71



$

66



$

261



$

281


Upfront and milestone-related payments (3)

4,731



775



43,027



6,952


Inventory reserve increase from restructuring (4)

207





2,797



7,899


Separation benefits and other restructuring (5)

3,794



80,693



79,344



120,078


Certain litigation-related and other contingencies, net (6)

(1,750)



(12,352)



15,370



(14,016)


Asset impairment charges (7)

142,217



94,924



613,400



1,023,930


Acquisition-related and integration costs (8)

519



1,201



1,553



8,137


Fair value of contingent consideration (9)

769



15,440



11,731



23,574


Loss on extinguishment of debt (10)







51,734


Share-based compensation

13,736



13,247



43,722



40,252


Other income, net (16)

(1,507)



(2,097)



(33,216)



(10,843)


Other adjustments

(67)



(58)



(775)



(75)


Discontinued operations, net of tax (13)

27,134



(3,017)



43,273



705,886


Adjusted EBITDA (non-GAAP)

$

328,355



$

375,039



$

1,012,876



$

1,240,908



 

 

Reconciliation of Adjusted Income from Continuing Operations (non-GAAP)


The following table provides a reconciliation of our Loss from continuing operations (GAAP) to our Adjusted income from continuing operations (non-GAAP) for the three and nine months ended September 30, 2018 and 2017 (in thousands):



Three Months Ended September 30,


Nine Months Ended September 30,


2018


2017


2018


2017

Loss from continuing operations (GAAP)

$

(146,071)



$

(99,687)



$

(696,288)



$

(961,130)


Non-GAAP adjustments:








Amortization of intangible assets (1)

161,275



161,413



471,662



615,490


Inventory step-up and other cost savings (2)

71



66



261



281


Upfront and milestone-related payments (3)

4,731



775



43,027



6,952


Inventory reserve increase from restructuring (4)

207





2,797



7,899


Separation benefits and other restructuring (5)

3,794



80,693



79,344



120,078


Certain litigation-related and other contingencies, net (6)

(1,750)



(12,352)



15,370



(14,016)


Asset impairment charges (7)

142,217



94,924



613,400



1,023,930


Acquisition-related and integration costs (8)

519



1,201



1,553



8,137


Fair value of contingent consideration (9)

769



15,440



11,731



23,574


Loss on extinguishment of debt (10)







51,734


Other (11)

1,353



3,035



(29,908)



(1,133)


Tax adjustments (12)

(2,270)



(41,456)



(25,126)



(195,298)


Adjusted income from continuing operations (non-GAAP)

$

164,845



$

204,052



$

487,823



$

686,498



 

 

Reconciliation of Other Adjusted Income Statement Data (non-GAAP)


The following tables provide detailed reconciliations of various other income statement data between the GAAP and non-GAAP amounts for the three and nine months ended September 30, 2018 and 2017 (in thousands, except per share data):




Three Months Ended September 30, 2018



Total revenues


Cost of revenues


Gross margin


Gross margin %


Total operating expenses


Operating expense to revenue %


Operating (loss) income from continuing operations


Operating margin %


Other non-operating expense, net


(Loss) income from continuing operations before income tax


Income tax expense


Effective tax rate


(Loss) income from continuing operations


Discontinued operations, net of tax


Net (loss) income


Diluted (loss) income per share from continuing operations (14)

Reported (GAAP)


$    745,466


$    412,965


$    332,501


44.6 %


$    345,229


46.3 %


$    (12,728)


(1.7)%


$ 130,340


$    (143,068)


$    3,003


(2.1)%


$ (146,071)


$    (27,134)


$    (173,205)


$        (0.65)

Items impacting
comparability:

































Amortization of
intangible assets (1)



(161,275)


161,275







161,275





161,275





161,275



161,275


0.71

Inventory step-up and
other cost savings (2)



(71)


71







71





71





71



71


Upfront and

milestone-related
payments (3)



(745)


745




(3,986)




4,731





4,731





4,731



4,731


0.02

Inventory reserve
increase from
restructuring (4)



(207)


207







207





207





207



207


Separation benefits
and other
restructuring (5)



(3,626)


3,626




(168)




3,794





3,794





3,794



3,794


0.02

Certain litigation-
related and other
contingencies, net (6)







1,750




(1,750)





(1,750)





(1,750)



(1,750)


(0.01)

Asset impairment
charges (7)







(142,217)




142,217





142,217





142,217



142,217


0.62

Acquisition-related
and integration costs (8)







(519)




519





519





519



519


Fair value of
contingent
consideration (9)







(769)




769





769





769



769


Other (11)













(1,353)


1,353





1,353



1,353


0.01

Tax adjustments (12)















2,270




(2,270)



(2,270)


(0.01)

Exclude discontinued
operations, net of tax (13)



















27,134


27,134


After considering items
(non-GAAP)


$    745,466


$    247,041


$    498,425


66.9 %


$    199,320


26.7 %


$    299,105


40.1 %


$ 128,987


$     170,118


$    5,273


3.1 %


$  164,845


$             —


$     164,845


$          0.71




































Three Months Ended September 30, 2017



Total revenues


Cost of revenues


Gross margin


Gross margin %


Total operating expenses


Operating expense to revenue %


Operating (loss) income from continuing operations


Operating margin %


Other non-operating expense, net


(Loss) income from continuing operations before income tax


Income tax (benefit) expense


Effective tax rate


(Loss) income from continuing operations


Discontinued operations, net of tax


Net (loss) income


Diluted (loss) income per share from continuing operations (14)

Reported (GAAP)


$    786,887


$    514,522


$    272,365


34.6 %


$    274,737


34.9 %


$      (2,372)


(0.3)%


$ 125,424


$    (127,796)


$ (28,109)


22.0 %


$   (99,687)


$        3,017


$      (96,670)


$        (0.45)

Items impacting
comparability:

































Amortization of
intangible assets (1)



(161,413)


161,413







161,413





161,413





161,413



161,413


0.73

Inventory step-up and
other cost savings (2)



(66)


66







66





66





66



66


Upfront and
milestone-related
payments (3)



(688)


688




(87)




775





775





775



775


Separation benefits
and other
restructuring (5)



(78,680)


78,680




(2,013)




80,693





80,693





80,693



80,693


0.36

Certain litigation-
related and other
contingencies, net (6)







12,352




(12,352)





(12,352)





(12,352)



(12,352)


(0.06)

Asset impairment
charges (7)







(94,924)




94,924





94,924





94,924



94,924


0.43

Acquisition-related
and integration
costs (8)







(1,201)




1,201





1,201





1,201



1,201


0.01

Fair value of
contingent
consideration (9)







(15,440)




15,440





15,440





15,440



15,440


0.07

Other (11)













(3,035)


3,035





3,035



3,035


0.01

Tax adjustments (12)















41,456




(41,456)



(41,456)


(0.19)

Exclude discontinued
operations, net of tax (13)



















(3,017)


(3,017)


After considering items
(non-GAAP)


$    786,887


$    273,675


$    513,212


65.2 %


$    173,424


22.0 %


$    339,788


43.2 %


$ 122,389


$     217,399


$  13,347


6.1 %


$  204,052


$             —


$     204,052


$          0.91




































Nine Months Ended September 30, 2018



Total revenues


Cost of revenues


Gross margin


Gross margin %


Total operating expenses


Operating expense to revenue %


Operating (loss) income from continuing operations


Operating margin %


Other non-operating expense, net


(Loss) income from continuing operations before income tax


Income tax expense


Effective tax rate


(Loss) income from continuing operations


Discontinued operations, net of tax


Net (loss) income


Diluted (loss) income per share from continuing operations (14)

Reported (GAAP)


$ 2,160,689


$ 1,198,468


$    962,221


44.5 %


$ 1,281,100


59.3 %


$  (318,879)


(14.8)%


$ 352,680


$    (671,559)


$  24,729


(3.7)%


$ (696,288)


$    (43,273)


$    (739,561)


$        (3.11)

Items impacting
comparability:

































Amortization of
intangible assets (1)



(471,662)


471,662







471,662





471,662





471,662



471,662


2.10

Inventory step-up and
other cost savings (2)



(261)


261







261





261





261



261


Upfront and
milestone-related
payments (3)



(2,095)


2,095




(40,932)




43,027





43,027





43,027



43,027


0.19

Inventory reserve
increase from
restructuring (4)



(2,797)


2,797







2,797





2,797





2,797



2,797


0.01

Separation benefits
and other
restructuring (5)



(57,457)


57,457




(21,887)




79,344





79,344





79,344



79,344


0.34

Certain litigation-
related and other
contingencies, net (6)







(15,370)




15,370





15,370





15,370



15,370


0.07

Asset impairment
charges (7)







(613,400)




613,400





613,400





613,400



613,400


2.73

Acquisition-related
and integration costs (8)







(1,553)




1,553





1,553





1,553



1,553


0.01

Fair value of
contingent
consideration (9)







(11,731)




11,731





11,731





11,731



11,731


0.05

Other (11)







630




(630)




29,278


(29,908)





(29,908)



(29,908)


(0.13)

Tax adjustments (12)















25,126




(25,126)



(25,126)


(0.12)

Exclude discontinued
operations, net of tax (13)



















43,273


43,273


After considering items
(non-GAAP)


$ 2,160,689


$    664,196


$ 1,496,493


69.3 %


$    576,857


26.7 %


$    919,636


42.6 %


$ 381,958


$     537,678


$  49,855


9.3 %


$  487,823


$             —


$     487,823


$          2.14




































Nine Months Ended September 30, 2017



Total revenues


Cost of revenues


Gross margin


Gross margin %


Total operating expenses


Operating expense to revenue %


Operating (loss) income from continuing operations


Operating margin %


Other non-operating expense, net


(Loss) income from continuing operations before income tax


Income tax (benefit) expense


Effective tax rate


(Loss) income from continuing operations


Discontinued operations, net of tax


Net (loss) income


Diluted (loss) income per share from continuing operations (14)

Reported (GAAP)


$ 2,700,218


$ 1,722,885


$    977,333


36.2 %


$ 1,633,822


60.5 %


$  (656,489)


(24.3)%


$ 402,158


$ (1,058,647)


$ (97,517)


9.2 %


$ (961,130)


$  (705,886)


$ (1,667,016)


$        (4.31)

Items impacting
comparability:

































Amortization of
intangible assets (1)



(615,490)


615,490







615,490





615,490





615,490



615,490


2.75

Inventory step-up and
other cost savings (2)



(281)


281







281





281





281



281


Upfront and
milestone-related
payments (3)



(2,039)


2,039




(4,913)




6,952





6,952





6,952



6,952


0.03

Inventory reserve
increase from
restructuring (4)



(7,899)


7,899







7,899





7,899





7,899



7,899


0.04

Separation benefits
and other
restructuring (5)



(85,367)


85,367




(34,711)




120,078





120,078





120,078



120,078


0.54

Certain litigation-
related and other
contingencies, net (6)







14,016




(14,016)





(14,016)





(14,016)



(14,016)


(0.06)

Asset impairment
charges (7)







(1,023,930)




1,023,930





1,023,930





1,023,930



1,023,930


4.59

Acquisition-related
and integration costs (8)







(8,137)




8,137





8,137





8,137



8,137


0.04

Fair value of
contingent
consideration (9)







(23,574)




23,574





23,574





23,574



23,574


0.11

Loss on
extinguishment
of debt (10)













(51,734)


51,734





51,734



51,734


0.23

Other (11)













1,133


(1,133)





(1,133)



(1,133)


(0.01)

Tax adjustments (12)















195,298




(195,298)



(195,298)


(0.88)

Exclude discontinued
operations, net of tax (13)



















705,886


705,886


After considering items
(non-GAAP)


$ 2,700,218


$ 1,011,809


$ 1,688,409


62.5 %


$    552,573


20.5 %


$ 1,135,836


42.1 %


$ 351,557


$     784,279


$  97,781


12.5 %


$  686,498


$             —


$     686,498


$          3.07

 

 

Notes to the Reconciliations of GAAP and Non-GAAP Financial Measures


Notes to certain line items included in the reconciliations of the GAAP financial measures to the Non-GAAP financial measures for the three and nine months ended September 30, 2018 and 2017 are as follows:


(1)

Adjustments for amortization of commercial intangible assets included the following (in thousands):





Three Months Ended September 30,


Nine Months Ended September 30,



2018


2017


2018


2017


Amortization of intangible assets excluding fair value
step-up from contingent consideration

$

149,249



$

151,250



$

446,015



$

585,025



Amortization of intangible assets related to fair value
step-up from contingent consideration

12,026



10,163



25,647



30,465



  Total

$

161,275



$

161,413



$

471,662



$

615,490




(2)

To exclude adjustments for inventory step-up.



(3)

Adjustments for upfront and milestone-related payments to partners included the following (in thousands):





Three Months Ended September 30,



2018


2017



Cost of revenues


Operating
expenses


Cost of revenues


Operating
expenses


Sales-based

$

745



$



$

688



$



Development-based



3,986





87



  Total

$

745



$

3,986



$

688



$

87







Nine Months Ended September 30,



2018


2017



Cost of revenues


Operating
expenses


Cost of revenues


Operating
expenses


Sales-based

$

2,095



$



$

2,039



$



Development-based



40,932





4,913



  Total

$

2,095



$

40,932



$

2,039



$

4,913




(4)

To exclude charges reflecting adjustments to excess inventory reserves related to our various restructuring initiatives.



(5)

Adjustments for separation benefits and other restructuring included the following (in thousands):








Three Months Ended September 30,



2018


2017



Cost of revenues


Operating
expenses


Cost of revenues


Operating
expenses


Separation benefits

$

1,711



$

379



$

19,535



$

284



Accelerated depreciation and product discontinuation
charges





59,805





Other

1,915



(211)



(660)



1,729



  Total

$

3,626



$

168



$

78,680



$

2,013







Nine Months Ended September 30,



2018


2017



Cost of revenues


Operating
expenses


Cost of revenues


Operating
expenses


Separation benefits

$

15,479



$

17,215



$

21,805



$

19,539



Accelerated depreciation and product discontinuation
charges

35,177





59,805



398



Other

6,801



4,672



3,757



14,774



  Total

$

57,457



$

21,887



$

85,367



$

34,711




(6)

To exclude litigation-related settlement charges, reimbursements and certain settlements proceeds related to suits filed by our subsidiaries.



(7)

Adjustments for asset impairment charges included the following (in thousands):








Three Months Ended September 30,


Nine Months Ended September 30,



2018


2017


2018


2017


Goodwill impairment charges

$



$



$

391,000



$

288,745



Other intangible asset impairment charges

140,609



78,300



217,576



674,177



Property, plant and equipment impairment charges

1,608



16,624



4,824



61,008



  Total asset impairment charges

$

142,217



$

94,924



$

613,400



$

1,023,930




(8)

Adjustments for acquisition and integration items primarily relate to various acquisitions. Amounts included the following (in thousands):








Three Months Ended September 30,


Nine Months Ended September 30,



2018


2017


2018


2017


Integration costs (primarily third-party consulting fees)

$



$



$



$

4,476



Acquisition costs

519





1,553





Other



1,201





3,661



  Total

$

519



$

1,201



$

1,553



$

8,137




(9)

To exclude the impact of changes in the fair value of contingent consideration resulting from changes in market conditions impacting the commercial potential of the underlying products.



(10)

To exclude the loss on the extinguishment of debt associated with our April 2017 refinancing.



(11)

Other adjustments included the following (in thousands):






Three Months Ended September 30,



2018


2017



Operating
expenses


Other non-
operating
expenses


Operating
expenses


Other non-
operating
expenses


Foreign currency impact related to the re-measurement
of intercompany debt instruments

$



$

1,528



$



$

3,005



(Gain) loss on sale of business and other assets



(177)







Other miscellaneous



2





30



  Total

$



$

1,353



$



$

3,035







Nine Months Ended September 30,



2018


2017



Operating
expenses


Other non-
operating
expenses


Operating
expenses


Other non-
operating
expenses


Foreign currency impact related to the re-measurement
of intercompany debt instruments

$



$

(1,560)



$



$

(2,922)



(Gain) loss on sale of business and other assets



(24,014)







Other miscellaneous

(630)



(3,704)





1,789



  Total

$

(630)



$

(29,278)



$



$

(1,133)




(12)

Adjusted income taxes are calculated by tax effecting adjusted pre-tax income and permanent book-tax differences at the applicable effective tax rate that will be determined by reference to statutory tax rates in the relevant jurisdictions in which the Company operates. Adjusted income taxes include current and deferred income tax expense commensurate with the non-GAAP measure of profitability.



(13)

To exclude the results of the businesses reported as discontinued operations, net of tax in the Condensed Consolidated Statement of Operations.



(14)

Calculated as Net (loss) income from continuing operations divided by the applicable weighted average share number. The applicable weighted average share numbers are as follows (in thousands):








Three Months Ended September 30,


Nine Months Ended September 30,



2018


2017


2018


2017


GAAP EPS


224,132



223,299



223,829


223,157


Non-GAAP EPS


232,358



224,216



228,195


223,779



(15)

Depreciation and amortization per the Adjusted EBITDA reconciliations do not include certain depreciation amounts reflected in other lines of the reconciliations, including Acquisition-related and integration costs and Separation benefits and other restructuring.



(16)

To exclude Other income, net per the Consolidated Statement of Operations.




 

 

Reconciliation of Net Debt Leverage Ratio (non-GAAP)


The following table provides a reconciliation of our Net loss (GAAP) to our Adjusted EBITDA (non-GAAP) for the twelve months ended September 30, 2018 (in thousands) and the calculation of our Net Debt Leverage Ratio (non-GAAP):



Twelve Months
Ended
September 30,
2018


Net loss (GAAP)

$

(1,107,978)


Income tax benefit

(128,047)


Interest expense, net

512,857


Depreciation and amortization (15)

698,646


  EBITDA (non-GAAP)

$

(24,522)




Inventory step-up and other cost savings

$

370


Upfront and milestone-related payments

45,558


Inventory reserve increase from restructuring

8,576


Separation benefits and other restructuring

158,036


Certain litigation-related and other contingencies, net

215,376


Asset impairment charges

743,846


Acquisition-related and integration costs

1,553


Fair value of contingent consideration

38,106


Loss on extinguishment of debt


Share-based compensation

53,619


Other income, net

(39,396)


Other adjustments

(926)


Discontinued operations, net of tax

140,109


  Adjusted EBITDA (non-GAAP)

$

1,340,305




Calculation of Net Debt:


Debt

$

8,262,762


Cash (excluding Restricted Cash)

1,118,885


  Net Debt (non-GAAP)

$

7,143,877




Calculation of Net Debt Leverage:



Net Debt Leverage Ratio (non-GAAP)

5.3



 

Non-GAAP Financial Measures

The Company utilizes certain financial measures that are not prescribed by or prepared in accordance with accounting principles generally accepted in the U.S. (GAAP). These Non-GAAP financial measures are not, and should not be viewed as, substitutes for GAAP net income and its components and diluted earnings per share amounts. Despite the importance of these measures to management in goal setting and performance measurement, we stress that these are Non-GAAP financial measures that have no standardized meaning prescribed by GAAP and, therefore, have limits in their usefulness to investors. Because of the non-standardized definitions, Non-GAAP adjusted EBITDA and Non-GAAP adjusted net income from continuing operations and its components (unlike GAAP net income from continuing operations and its components) may not be comparable to the calculation of similar measures of other companies. These Non-GAAP financial measures are presented solely to permit investors to more fully understand how management assesses performance.

Investors are encouraged to review the reconciliations of the non-GAAP financial measures used in this press release to their most directly comparable GAAP financial measures. However, the Company does not provide reconciliations of projected non-GAAP financial measures to GAAP financial measures, nor does it provide comparable projected GAAP financial measures for such projected non-GAAP financial measures. The Company is unable to provide such reconciliations without unreasonable efforts due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliations, including adjustments that could be made for asset impairments, contingent consideration adjustments, legal settlements, loss on extinguishment of debt, adjustments to inventory and other charges reflected in the reconciliation of historic numbers, the amount of which could be significant.

See Endo's Current Report on Form 8-K furnished today to the U.S. Securities and Exchange Commission for an explanation of Endo's non-GAAP financial measures.

About Endo International plc

Endo International plc (NASDAQ: ENDP) is a highly focused generics and specialty branded pharmaceutical company delivering quality medicines to patients in need through excellence in development, manufacturing and commercialization. Endo has global headquarters in Dublin, Ireland, and U.S. headquarters in Malvern, PA. Learn more at www.endo.com.

Cautionary Note Regarding Forward-Looking Statements

This press release contains forward-looking statements, including but not limited to the statements by Mr. Campanelli, as well as other statements regarding product development, market potential, corporate strategy, optimization efforts and restructurings, timing, closing and expected benefits and value from any acquisition, expected growth and regulatory approvals, together with Endo's earnings per share from continuing operations amounts, product net sales, revenue forecasts and any other statements that refer to Endo's expected, estimated or anticipated future results. Because forecasts are inherently estimates that cannot be made with precision, Endo's performance at times differs materially from its estimates and targets, and Endo often does not know what the actual results will be until after the end of the applicable reporting period. Therefore, Endo will not report or comment on its progress during a current quarter except through public announcement. Any statement made by others with respect to progress during a current quarter cannot be attributed to Endo.

All forward-looking statements in this press release reflect Endo's current analysis of existing trends and information and represent Endo's judgment only as of the date of this press release. Actual results may differ materially from current expectations based on a number of factors affecting Endo's businesses, including, among other things, the following: changing competitive, market and regulatory conditions; changes in legislation; Endo's ability to obtain and maintain adequate protection for its intellectual property rights; the timing and uncertainty of the results of both the research and development and regulatory processes, including regulatory decisions, product recalls, withdrawals and other unusual items; domestic and foreign health care and cost containment reforms, including government pricing, tax and reimbursement policies; technological advances and patents obtained by competitors; the performance, including the approval, introduction, and consumer and physician acceptance of new products and the continuing acceptance of currently marketed products; the effectiveness of advertising and other promotional campaigns; the timely and successful implementation of strategic initiatives; the timing or results of any pending or future litigation, investigations or claims or actual or contingent liabilities, settlement discussions, negotiations or other adverse proceedings; unfavorable publicity regarding the misuse of opioids; timing and uncertainty of any acquisition, including the possibility that various closing conditions may not be satisfied or waived, uncertainty surrounding the successful integration of any acquired business and failure to achieve the expected financial and commercial results from such acquisition; the uncertainty associated with the identification of and successful consummation and execution of external corporate development initiatives and strategic partnering transactions; and Endo's ability to obtain and successfully maintain a sufficient supply of products to meet market demand in a timely manner. In addition, U.S. and international economic conditions, including higher unemployment, political instability, financial hardship, consumer confidence and debt levels, taxation, changes in interest and currency exchange rates, international relations, capital and credit availability, the status of financial markets and institutions, fluctuations or devaluations in the value of sovereign government debt, as well as the general impact of continued economic volatility, can materially affect Endo's results. Therefore, the reader is cautioned not to rely on these forward-looking statements. Endo expressly disclaims any intent or obligation to update these forward-looking statements except as required to do so by law.

Additional information concerning the above-referenced risk factors and other risk factors can be found in press releases issued by Endo, as well as Endo's public periodic filings with the U.S. Securities and Exchange Commission and with securities regulators in Canada, including the discussion under the heading "Risk Factors" in Endo's most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q. Copies of Endo's press releases and additional information about Endo are available at www.endo.com or you can contact the Endo Investor Relations Department by calling 484-216-0000.

 

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