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Endo Reports Third-Quarter 2018 Financial Results

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November 8, 2018 7:01 AM EST

DUBLIN, Nov. 8, 2018 /PRNewswire/ -- 

  • Third-quarter 2018 revenues of $745 million compared to third-quarter 2017 revenues of $787 million
  • Third-quarter 2018 XIAFLEX® franchise revenues increased 22 percent versus third-quarter 2017 to $64 million
  • Third-quarter 2018 Sterile Injectables revenues increased 17 percent versus third-quarter 2017 to $237 million
  • Company raises 2018 financial guidance

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

  • Revenues of $745 million, a decrease of 5 percent compared to third-quarter 2017 revenues of $787 million; revenues increased 4 percent compared to second-quarter 2018.
  • Reported net loss from continuing operations of $146 million compared to third-quarter 2017 reported net loss from continuing operations of $100 million.
  • Reported diluted loss per share from continuing operations of $0.65 compared to third-quarter 2017 reported diluted loss per share from continuing operations of $0.45.
  • Adjusted income from continuing operations of $165 million compared to third-quarter 2017 adjusted income from continuing operations of $204 million.
  • Adjusted diluted EPS from continuing operations of $0.71 compared to third-quarter 2017 adjusted diluted EPS from continuing operations of $0.91.
  • Adjusted EBITDA of $328 million compared to third-quarter 2017 adjusted EBITDA of $375 million.

"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:

  • Revenues of $220 million compared to $234 million in third-quarter 2017; this performance was primarily attributable to the voluntary cessation of OPANA® ER shipments in third-quarter 2017. Excluding the impact of OPANA® ER, revenues were consistent with third-quarter 2017.
  • Specialty Products revenues increased 13 percent in third-quarter 2018 compared to third-quarter 2017, primarily driven by the continued strong performance from XIAFLEX®. Sales of XIAFLEX® increased 22 percent compared to third-quarter 2017; this increase was primarily attributable to volume growth in both Peyronie's Disease and Dupuytren's Contracture indications.

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:

  • Revenues of $237 million, an increase of 17 percent compared to third-quarter 2017. This increase was primarily attributable to the launch of ertapenem for injection and the continued strong growth of ADRENALIN® and VASOSTRICT®.

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:

  • Revenues of $258 million compared to $295 million in third-quarter 2017; this performance was primarily attributable to competitive pressures in the generic business and previously announced product discontinuations, partially offset by the launch of colchicine tablets.

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:

  • Total revenues to be between $2.87 billion and $2.92 billion;
  • Adjusted diluted EPS from continuing operations to be between $2.65 and $2.75; and
  • Adjusted EBITDA from continuing operations to be between $1.32 billion and $1.34 billion.

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

  • Adjusted gross margin of approximately 68.5%;
  • Adjusted operating expenses as a percentage of revenues of approximately 27.0%;
  • Adjusted interest expense of approximately $525 million;
  • Adjusted effective tax rate of approximately 8.5% to 9.5%; and
  • Adjusted diluted weighted average shares outstanding of approximately 230 million.

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 CorporationCOLCRYS 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

Operatingexpenses

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

Operatingexpenses

Other non-operating expenses

Operatingexpenses

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

Operatingexpenses

Other non-operating expenses

Operatingexpenses

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.

Cision View original content:http://www.prnewswire.com/news-releases/endo-reports-third-quarter-2018-financial-results-300746306.html

SOURCE Endo International plc


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