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Endo Reports First-Quarter 2018 Financial Results

May 8, 2018
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DUBLIN, May 8, 2018 /CNW/ --

  • First-quarter 2018 revenues of $701 million
  • First-quarter 2018 Branded Specialty Products revenues increased 7 percent versus first-quarter 2017 to $112 million
  • First-quarter 2018 XIAFLEX® franchise revenues increased 15 percent versus first-quarter 2017 to $57 million
  • First-quarter 2018 Sterile Injectables revenues increased 25 percent versus first-quarter 2017 to $216 million
  • First-quarter 2018 reported (GAAP) net loss of $505 million driven by pre-tax, non-cash asset impairment charges of $448 million
  • First-quarter 2018 adjusted EBITDA of $334 million
  • Company affirms 2018 full-year revenues, adjusted EBITDA and adjusted EPS guidance

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

  • Revenues of $701 million, a 32 percent decrease compared to first-quarter 2017 revenues of $1,038 million.
  • Reported net loss from continuing operations of $498 million compared to first-quarter 2017 reported net loss from continuing operations of $165 million.
  • Reported diluted loss per share from continuing operations of $2.23 compared to first-quarter 2017 reported diluted loss per share from continuing operations of $0.74.
  • Adjusted income from continuing operations of $151 million compared to first-quarter 2017 adjusted income from continuing operations of $275 million.
  • Adjusted diluted EPS from continuing operations of $0.67 compared to first-quarter 2017 adjusted diluted EPS from continuing operations of $1.23.
  • Adjusted EBITDA of $334 million compared to first-quarter 2017 adjusted EBITDA of $478 million.

"Endo delivered strong first-quarter operating results in our core focus areas as revenue growth accelerated for both our XIAFLEX® franchise and Sterile Injectable business. We are currently on target to meet the full-year financial guidance we provided earlier this year," said Paul Campanelli, President and CEO of Endo. "Importantly, we continue to execute our multi-year turnaround plan and build our portfolio for the future by advancing our CCH cellulite treatment development program with the initiation of and recruitment for two pivotal Phase 3 trials. In addition, as we recently announced, we expect to significantly enhance our Sterile Injectables pipeline through the acquisition of Somerset Therapeutics."

FINANCIAL PERFORMANCE
 

(in thousands, except per share amounts)
 
 

Three Months Ended March 31,

    
 

2018

  

2017

  

Change

Total Revenues

$

700,527

    

$

1,037,600

    

(32)%

Reported Loss from Continuing Operations

$

(497,738)

    

$

(165,423)

    

NM

Reported Diluted Weighted Average Shares

223,521

    

223,014

    

—%

Reported Diluted Loss per Share from Continuing Operations

$

(2.23)

    

$

(0.74)

    

NM

Adjusted Income from Continuing Operations

$

150,783

    

$

275,245

    

(45)%

Adjusted Diluted Weighted Average Shares1

224,955

    

223,335

    

1%

Adjusted Diluted EPS from Continuing Operations

$

0.67

    

$

1.23

    

(46)%
                             

(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

As anticipated, total revenues decreased by 32 percent to $701 million in first-quarter 2018 compared to the same period in 2017. The decline was primarily due to the loss of marketing exclusivity in the first half of 2017 for the first-to-file U.S. Generic Pharmaceuticals products ezetimibe tablets, the generic version of ZETIA®, and quetiapine extended-release (ER) tablets, the generic version of SEROQUEL XR®, both of which launched in fourth-quarter 2016. Also contributing to the decline in total revenues were the annualization of the impact from 2017 competitive entries and product discontinuances in the U.S. Generic Pharmaceuticals segment, the divestitures of the Company's South African and Mexican businesses, Litha and Somar, and the voluntary withdrawal of OPANA® ER.

GAAP net loss from continuing operations in first-quarter 2018 was $498 million compared to GAAP net loss from continuing operations of $165 million during the same period in 2017. This increase was primarily due to an increase of $244 million in pre-tax, non-cash asset impairment charges in first-quarter 2018. GAAP diluted net loss per share from continuing operations for first-quarter 2018 was $2.23, compared to GAAP diluted net loss per share from continuing operations of $0.74 in first-quarter 2017.

Adjusted income from continuing operations in first-quarter 2018 was $151 million compared to $275 million in first-quarter 2017. This decrease resulted primarily from lower revenues of ezetimibe tablets and quetiapine ER tablets, the divestitures of Litha and Somar, the voluntary withdrawal of OPANA® ER and an increase of $12 million in net interest expense. Adjusted diluted EPS from continuing operations in first-quarter 2018 was $0.67 compared to $1.23 in first-quarter 2017.

U.S. BRANDED - SPECIALTY & ESTABLISHED PHARMACEUTICALS

During the first-quarter, Endo advanced its cellulite treatment development program. In February, the Company initiated two Phase 3 clinical trials of collagenase clostridium histolyticum (or "CCH") for the treatment of cellulite. In April, CCH for the treatment of cellulite was presented during the Hot Topics Symposium, a highlight of The Aesthetics Meeting 2018, the annual meeting of the American Society for Aesthetic Plastic Surgery.

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

  • Revenues of $200 million, a 20 percent decrease compared to first-quarter 2017; this decrease was primarily attributable to the voluntary cessation of OPANA® ER shipments in the third-quarter of 2017.
  • Specialty Products revenues increased 7 percent in first-quarter 2018 compared to the same period in 2017, driven by strong performance from XIAFLEX® and other products within our Specialty Products portfolio. Sales of XIAFLEX® increased 15 percent compared to first-quarter 2017; this increase was primarily attributable to volume growth in both Dupuytren's Contracture and Peyronie's Disease.

U.S. BRANDED - STERILE INJECTABLES

In April, Endo announced that it entered into definitive agreements to acquire Somerset Therapeutics, LLC, a specialty pharmaceutical company that develops and markets sterile injectable and ophthalmic drugs for the U.S. marketplace, and the business of its affiliate Wintac Limited, which operates as Somerset Therapeutics' contract developer and manufacturer, for approximately $190 million. Somerset Therapeutics' portfolio includes 8 commercial products and a pipeline of more than 40 products, of which over 25 have been filed with the U.S. Food and Drug Administration.  In May, the Company launched glycopyrrolate injection, the generic version of ROBINUL®, as Somerset Therapeutics' exclusive distributor.

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

  • Revenues of $216 million, a 25 percent increase compared to first-quarter 2017; this increase was primarily attributable to strong growth of ADRENALIN® and VASOSTRICT®.

U.S. GENERIC PHARMACEUTICALS

During first-quarter 2018, the U.S. Generic Pharmaceuticals segment launched two products and submitted two regulatory filings. In April, the segment launched praziquantel tablets, the first-to-market generic version of BILTRICIDE®.

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

  • Revenues of $249 million, a 55 percent decrease compared to first-quarter 2017; this decline was primarily attributable to the loss of marketing exclusivity in the first half of 2017 for the first-to-file products ezetimibe tablets and quetiapine ER tablets. Also contributing to the decline was the annualization of the impact from 2017 competitive entries and previously announced product discontinuances.

INTERNATIONAL PHARMACEUTICALS

First-quarter 2018 International Pharmaceuticals revenues were $35 million, compared to $65 million in the same period in 2017. The decline is primarily attributable to the sales of Litha and Somar in the second-half of 2017.

2018 FINANCIAL GUIDANCE

For the full twelve months ending December 31, 2018, at current exchange rates, Endo affirms its previously provided guidance on revenue, adjusted diluted EPS from continuing operations and adjusted EBITDA from continuing operations. The Company estimates:

  • Total revenues to be between $2.6 billion and $2.8 billion;
  • Adjusted diluted EPS from continuing operations to be between $2.15 and $2.55; and
  • Adjusted EBITDA from continuing operations to be between $1.2 billion and $1.3 billion.

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

  • Adjusted gross margin of approximately 67.0% to 68.0%;
  • Adjusted operating expenses as a percentage of revenues of approximately 25.5% to 26.5%;
  • Adjusted interest expense of approximately $530 million to $540 million;
  • Adjusted effective tax rate of approximately 11.0% to 12.0%; and
  • Adjusted diluted weighted average shares outstanding of approximately 226 million.

BALANCE SHEET, LIQUIDITY AND OTHER UPDATES

As of March 31, 2018, the Company had $980 million in unrestricted cash; debt of $8.3 billion; net debt of approximately $7.3 billion and a net debt to adjusted EBITDA ratio of 5.1.

First-quarter 2018 cash provided by operating activities was $49 million, compared to $168 million of net cash provided by operating activities in the comparable 2017 period. The 2017 period included the impact of cash receipts for ezetimibe tablets and quetiapine ER tablets, which did not reoccur during the 2018 period, and higher payments related to U.S. mesh product liability claims.

During first-quarter 2018, the Company recorded pre-tax, non-cash asset impairment charges of $448 million, $391 million of which related to goodwill and $54 million of which related to other intangible assets.

CONFERENCE CALL INFORMATION

Endo will conduct a conference call with financial analysts to discuss this press release today at 7:30 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 4839597. Please dial in 10 minutes prior to the scheduled start time.

A replay of the call will be available from May 8, 2018 at 10:30 a.m. ET until 10:30 a.m. ET on May 11, 2018 by dialing U.S./Canada (855) 859-2056, International (404) 537-3406, and entering the passcode 4839597.

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.

 

FINANCIAL SCHEDULES
 

The following table presents Endo's unaudited Total Revenues for the three months ended March 31, 2018 and 2017 (dollars in thousands):
 
 

Three Months Ended March 31,

  

Percent Growth
 

2018

  

2017

  

U.S. Branded - Specialty & Established Pharmaceuticals:

          

     Specialty Products:

          

          XIAFLEX®

$

57,141

    

$

49,525

    

15

%

          SUPPRELIN® LA

20,577

    

19,181

    

7

%

          Other Specialty (1)

34,197

    

36,028

    

(5)

%

     Total Specialty Products

$

111,915

    

$

104,734

    

7

%

     Established Products:

          

          PERCOCET®

$

31,976

    

$

30,945

    

3

%

          VOLTAREN® Gel

11,317

    

14,274

    

(21)

%

          OPANA® ER

—

    

35,718

    

(100)

%

          Other Established (2)

45,027

    

64,488

    

(30)

%

     Total Established Products

$

88,320

    

$

145,425

    

(39)

%

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

$

200,235

    

$

250,159

    

(20)

%

     U.S. Branded - Sterile Injectables:

          

          VASOSTRICT®

$

113,725

    

$

99,158

    

15

%

          ADRENALIN®

29,740

    

6,097

    

NM

  

          Other Sterile Injectables (4)

72,389

    

66,913

    

8

%

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

$

215,854

    

$

172,168

    

25

%

Total U.S. Generic Pharmaceuticals

$

249,240

    

$

549,815

    

(55)

%

Total International Pharmaceuticals

$

35,198

    

$

65,458

    

(46)

%

Total Revenues

$

700,527

    

$

1,037,600

    

(32)

%
                                 

(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®, 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®, ephedrine sulfate injection and neostigmine methylsulfate injection.

 

 

 

The following table presents unaudited Condensed Consolidated Statement of Operations data for the three months ended March 31, 2018 and 2017 (in thousands, except per share data):
 
 

Three Months Ended March 31,
 

2018

  

2017

TOTAL REVENUES

$

700,527

    

$

1,037,600

  

COSTS AND EXPENSES:

      

Cost of revenues

403,598

    

668,962

  

Selling, general and administrative

166,667

    

177,240

  

Research and development

38,646

    

43,009

  

Litigation-related and other contingencies, net

(2,500)

    

936

  

Asset impairment charges

448,416

    

203,962

  

Acquisition-related and integration items

6,835

    

10,880

  

OPERATING LOSS FROM CONTINUING OPERATIONS

$

(361,135)

    

$

(67,389)

  

INTEREST EXPENSE, NET

123,990

    

111,999

  

OTHER INCOME, NET

(2,878)

    

(2,037)

  

LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX

$

(482,247)

    

$

(177,351)

  

INCOME TAX EXPENSE (BENEFIT)

15,491

    

(11,928)

  

LOSS FROM CONTINUING OPERATIONS

$

(497,738)

    

$

(165,423)

  

DISCONTINUED OPERATIONS, NET OF TAX

(7,751)

    

(8,405)

  

NET LOSS

$

(505,489)

    

$

(173,828)

  

NET LOSS PER SHARE—BASIC:

      

Continuing operations

$

(2.23)

    

$

(0.74)

  

Discontinued operations

(0.03)

    

(0.04)

  

Basic

$

(2.26)

    

$

(0.78)

  

NET LOSS PER SHARE—DILUTED:

      

Continuing operations

$

(2.23)

    

$

(0.74)

  

Discontinued operations

(0.03)

    

(0.04)

  

Diluted

$

(2.26)

    

$

(0.78)

  

WEIGHTED AVERAGE SHARES:

      

Basic

223,521

    

223,014

  

Diluted

223,521

    

223,014

  
 

 

 

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

March 31, 2018

  

December 31, 2017

ASSETS

      

CURRENT ASSETS:

      

Cash and cash equivalents

$

980,412

    

$

986,605

  

Restricted cash and cash equivalents

335,858

    

320,453

  

Accounts receivable

460,019

    

517,436

  

Inventories, net

376,650

    

391,437

  

Other current assets

55,515

    

55,146

  

     Total current assets

$

2,208,454

    

$

2,271,077

  

TOTAL NON-CURRENT ASSETS

8,725,291

    

9,364,503

  

TOTAL ASSETS

$

10,933,745

    

$

11,635,580

  

LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY

      

CURRENT LIABILITIES:

      

Accounts payable and accrued expenses, including legal settlement accruals

$

2,052,014

    

$

2,184,618

  

Other current liabilities

35,585

    

36,291

  

     Total current liabilities

$

2,087,599

    

$

2,220,909

  

LONG-TERM DEBT, LESS CURRENT PORTION, NET

8,237,487

    

8,242,032

  

OTHER LIABILITIES

615,752

    

687,759

  

SHAREHOLDERS' (DEFICIT) EQUITY

(7,093)

    

484,880

  

TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY

$

10,933,745

    

$

11,635,580

  
 

 

 

The following table presents unaudited Condensed Consolidated Statement of Cash Flow data for the three months ended March 31, 2018 and 2017 (in thousands):
 
 

Three Months Ended March 31,
 

2018

  

2017

OPERATING ACTIVITIES:

      

Net loss

$

(505,489)

    

$

(173,828)

  

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

      

     Depreciation and amortization

191,590

    

286,855

  

     Asset impairment charges

448,416

    

203,962

  

     Other, including cash payments to claimants from Qualified Settlement Funds

(85,671)

    

(149,226)

  

     Net cash provided by operating activities

$

48,846

    

$

167,763

  

INVESTING ACTIVITIES:

      

     Purchases of property, plant and equipment, excluding capitalized interest

$

(24,874)

    

$

(27,202)

  

     Proceeds from sale of business and other assets, net

13,350

    

16,217

  

     Other

(4,073)

    

—

  

     Net cash used in investing activities

$

(15,597)

    

$

(10,985)

  

FINANCING ACTIVITIES:

      

     Payments on borrowings, net

$

(9,821)

    

$

(28,894)

  

     Other

(13,589)

    

(24,300)

  

     Net cash used in financing activities

$

(23,410)

    

$

(53,194)

  

Effect of foreign exchange rate

(627)

    

1,483

  

Movement in cash held for sale

—

    

(8,553)

  

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

$

9,212

    

$

96,514

  

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

$

1,320,226

    

$

901,694

  
 

 

 

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 months ended March 31, 2018 and 2017 (in thousands):
 
 

Three Months Ended March 31,
 

2018

  

2017

Net loss (GAAP)

$

(505,489)

    

$

(173,828)

  

Income tax expense (benefit)

15,491

    

(11,928)

  

Interest expense, net

123,990

    

111,999

  

Depreciation and amortization (14)

174,458

    

284,109

  

EBITDA (non-GAAP)

$

(191,550)

    

$

210,352

  
       

Inventory step-up and other cost savings (2)

$

66

    

$

115

  

Upfront and milestone-related payments (3)

1,332

    

3,095

  

Inventory reserve increase from restructuring (4)

2,388

    

—

  

Separation benefits and other restructuring (5)

46,599

    

22,670

  

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

(2,500)

    

936

  

Asset impairment charges (7)

448,416

    

203,962

  

Acquisition-related and integration costs (8)

—

    

4,696

  

Fair value of contingent consideration (9)

6,835

    

6,184

  

Share-based compensation

17,890

    

19,493

  

Other income, net (15)

(2,878)

    

(2,037)

  

Other adjustments

(698)

    

97

  

Discontinued operations, net of tax (12)

7,751

    

8,405

  

Adjusted EBITDA (non-GAAP)

$

333,651

    

$

477,968

  
 

 

 

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 months ended March 31, 2018 and 2017 (in thousands):
 
 

Three Months Ended March 31,
 

2018

  

2017

Loss from continuing operations (GAAP)

$

(497,738)

    

$

(165,423)

  

Non-GAAP adjustments:

      

     Amortization of intangible assets (1)

157,172

    

263,134

  

     Inventory step-up and other cost savings (2)

66

    

115

  

     Upfront and milestone-related payments (3)

1,332

    

3,095

  

     Inventory reserve increase from restructuring (4)

2,388

    

—

  

     Separation benefits and other restructuring (5)

46,599

    

22,670

  

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

(2,500)

    

936

  

     Asset impairment charges (7)

448,416

    

203,962

  

     Acquisition-related and integration costs (8)

—

    

4,696

  

     Fair value of contingent consideration (9)

6,835

    

6,184

  

     Other (10)

(3,254)

    

(935)

  

     Tax adjustments (11)

(8,533)

    

(63,189)

  

Adjusted income from continuing operations (non-GAAP)

$

150,783

    

$

275,245

  
 

 

 

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 months ended March 31, 2018 and 2017 (in thousands, except per share data):
 
 

Three Months Ended March 31, 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 (13)

Reported (GAAP)

$    700,527

  

$ 403,598

  

$ 296,929

  

42 %

  

$ 658,064

  

94 %

  

$  (361,135)

  

(52)%

  

$ 121,112

  

$       (482,247)

  

$  15,491

  

(3)%

  

$ (497,738)

  

$      (7,751)

  

$ (505,489)

  

$            (2.23)

Items impacting comparability:

                                                              

Amortization of
intangible assets (1)

—

  

(157,172)

  

157,172

      

—

      

157,172

      

—

  

157,172

  

—

      

157,172

  

—

  

157,172

  

0.70

Inventory step-up and
other cost savings (2)

—

  

(66)

  

66

      

—

      

66

      

—

  

66

  

—

      

66

  

—

  

66

  

—

Upfront and
milestone-related
payments (3)

—

  

(656)

  

656

      

(676)

      

1,332

      

—

  

1,332

  

—

      

1,332

  

—

  

1,332

  

0.01

Inventory reserve
increase from
restructuring (4)

—

  

(2,388)

  

2,388

      

—

      

2,388

      

—

  

2,388

  

—

      

2,388

  

—

  

2,388

  

0.01

Separation benefits
and other
restructuring (5)

—

  

(27,218)

  

27,218

      

(19,381)

      

46,599

      

—

  

46,599

  

—

      

46,599

  

—

  

46,599

  

0.21

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

—

  

—

  

—

      

2,500

      

(2,500)

      

—

  

(2,500)

  

—

      

(2,500)

  

—

  

(2,500)

  

(0.01)

Asset impairment
charges (7)

—

  

—

  

—

      

(448,416)

      

448,416

      

—

  

448,416

  

—

      

448,416

  

—

  

448,416

  

2.00

Fair value of
contingent
consideration (9)

—

  

—

  

—

      

(6,835)

      

6,835

      

—

  

6,835

  

—

      

6,835

  

—

  

6,835

  

0.03

Other (10)

—

  

—

  

—

      

630

      

(630)

      

2,624

  

(3,254)

  

—

      

(3,254)

  

—

  

(3,254)

  

(0.01)

Tax adjustments (11)

—

  

—

  

—

      

—

      

—

      

—

  

—

  

8,533

      

(8,533)

  

—

  

(8,533)

  

(0.04)

Exclude discontinued
operations, net of tax (12)

—

  

—

  

—

      

—

      

—

      

—

  

—

  

—

      

—

  

7,751

  

7,751

  

—

After considering items
(non-GAAP)

$    700,527

  

$ 216,098

  

$ 484,429

  

69 %

  

$ 185,886

  

27 %

  

$   298,543

  

43 %

  

$ 123,736

  

$         174,807

  

$  24,024

  

14 %

  

$  150,783

  

$             —

  

$  150,783

  

$              0.67
                                                               
 

Three Months Ended March 31, 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 (13)

Reported (GAAP)

$ 1,037,600

  

$ 668,962

  

$ 368,638

  

36 %

  

$ 436,027

  

42 %

  

$    (67,389)

  

(6)%

  

$ 109,962

  

$       (177,351)

  

$ (11,928)

  

7 %

  

$ (165,423)

  

$      (8,405)

  

$ (173,828)

  

$            (0.74)

Items impacting comparability:

                                                              

Amortization of
intangible assets (1)

—

  

(263,134)

  

263,134

      

—

      

263,134

      

—

  

263,134

  

—

      

263,134

  

—

  

263,134

  

1.18

Inventory step-up and
other cost savings (2)

—

  

(115)

  

115

      

—

      

115

      

—

  

115

  

—

      

115

  

—

  

115

  

—

Upfront and
milestone-related
payments (3)

—

  

(669)

  

669

      

(2,426)

      

3,095

      

—

  

3,095

  

—

      

3,095

  

—

  

3,095

  

0.01

Separation benefits
and other
restructuring (5)

—

  

(1,661)

  

1,661

      

(21,009)

      

22,670

      

—

  

22,670

  

—

      

22,670

  

—

  

22,670

  

0.10

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

—

  

—

  

—

      

(936)

      

936

      

—

  

936

  

—

      

936

  

—

  

936

  

—

Asset impairment
charges (7)

—

  

—

  

—

      

(203,962)

      

203,962

      

—

  

203,962

  

—

      

203,962

  

—

  

203,962

  

0.91

Acquisition-related
and integration costs (8)

—

  

—

  

—

      

(4,696)

      

4,696

      

—

  

4,696

  

—

      

4,696

  

—

  

4,696

  

0.02

Fair value of
contingent
consideration (9)

—

  

—

  

—

      

(6,184)

      

6,184

      

—

  

6,184

  

—

      

6,184

  

—

  

6,184

  

0.03

Other (10)

—

  

—

  

—

      

—

      

—

      

935

  

(935)

  

—

      

(935)

  

—

  

(935)

  

—

Tax adjustments (11)

—

  

—

  

—

      

—

      

—

      

—

  

—

  

63,189

      

(63,189)

  

—

  

(63,189)

  

(0.28)

Exclude discontinued
operations, net of tax (12)

—

  

—

  

—

      

—

      

—

      

—

  

—

  

—

      

—

  

8,405

  

8,405

  

—

After considering items (non-GAAP)

$ 1,037,600

  

$ 403,383

  

$ 634,217

  

61 %

  

$ 196,814

  

19 %

  

$   437,403

  

42 %

  

$ 110,897

  

$         326,506

  

$  51,261

  

16 %

  

$  275,245

  

$             —

  

$  275,245

  

$              1.23

 

 

 

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 months ended March 31, 2018 and 2017 are as follows:
   

(1)

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

   
   

Three Months Ended March 31,
   

2018

  

2017
 

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

$

149,860

    

$

252,889

  
 

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

7,312

    

10,245

  
 

Total

$

157,172

    

$

263,134

  
   

(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 March 31,
   

2018

  

2017
   

Cost of revenues

  

Operating expenses

  

Cost of revenues

  

Operating expenses
 

Sales-based milestones

$

656

    

$

—

    

$

669

    

$

—

  
 

Development-based milestones

—

    

676

    

—

    

2,426

  
 

Total

$

656

    

$

676

    

$

669

    

$

2,426

  
   

(4)

To exclude charges reflecting adjustments to excess inventory reserves related to the 2017 U.S. Generic Pharmaceuticals Restructuring Initiative and January 2018 Restructuring Initiative during the three months ended March 31, 2018.
   

(5)

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

Three Months Ended March 31,
   

2018

  

2017
   

Cost of revenues

  

Operating expenses

  

Cost of revenues

  

Operating expenses
 

Separation benefits

$

9,785

    

$

15,396

    

$

1,661

    

$

19,127

  
 

Accelerated depreciation and product discontinuation charges

17,132

    

—

    

—

    

398

  
 

Other

301

    

3,985

    

—

    

1,484

  
 

Total

$

27,218

    

$

19,381

    

$

1,661

    

$

21,009

  
   

(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 March 31,
   

2018

  

2017
 

Goodwill impairment charges

$

391,000

    

$

82,602

  
 

Other intangible asset impairment charges

54,200

    

118,906

  
 

Property, plant and equipment impairment charges

3,216

    

2,454

  
 

Total asset impairment charges

$

448,416

    

$

203,962

  
   

(8)

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

Three Months Ended March 31,
   

2018

  

2017
 

Integration costs (primarily third-party consulting fees)

$

—

    

$

2,243

  
 

Other

—

    

2,453

  
 

Total

$

—

    

$

4,696

  
   

(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)

Adjustments to other included the following (in thousands):
 
   

Three Months Ended March 31,
   

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

$

—

    

$

(2,514)

    

$

—

    

$

(2,694)

  
 

Other miscellaneous

(630)

    

(110)

    

—

    

1,759

  
 

Total

$

(630)

    

$

(2,624)

    

$

—

    

$

(935)

  
   

(11)

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.
   

(12)

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

(13)

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 March 31,
   

2018

  

2017
 

GAAP EPS

  

223,521

      

223,014

  
 

Non-GAAP EPS

  

224,955

      

223,335

  
   

(14)

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.
   

(15)

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 March 31, 2018 (in thousands) and the calculation of our Net Debt Leverage Ratio (non-GAAP):
 
 

Twelve Months
Ended March
31, 2018

Net loss (GAAP)

$

(2,367,094)

Income tax benefit

(222,874)

Interest expense, net

500,219

Depreciation and amortization (14)

748,055

EBITDA (non-GAAP)

$

(1,341,694)
   

Inventory step-up and other cost savings

$

341

Upfront and milestone-related payments

7,720

Inventory reserve increase from restructuring

16,066

Separation benefits and other restructuring

222,699

Certain litigation-related and other contingencies, net

182,554

Asset impairment charges

1,398,830

Acquisition-related and integration costs

3,441

Fair value of contingent consideration

50,600

Loss on extinguishment of debt

51,734

Share-based compensation

48,546

Other income, net

(17,864)

Other adjustments

(1,021)

Discontinued operations, net of tax

802,068

Adjusted EBITDA (non-GAAP)

$

1,424,020
   

Calculation of Net Debt:

  

Debt

$

8,271,692

Cash (excluding Restricted Cash)

980,412

Net Debt (non-GAAP)

$

7,291,280
   

Calculation of Net Debt Leverage:

  

Net Debt Leverage Ratio (non-GAAP)

5.1
 

 

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; 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; 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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SOURCE Endo International plc