UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________
FORM 8-K
_______________________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): November 8, 2018
_______________________________
ENDO INTERNATIONAL PLC
(Exact Name of Registrant as Specified in Its Charter)
_______________________________
Ireland | 001-36326 | 68-0683755 |
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
First Floor, Minerva House, Simmonscourt Road, Ballsbridge, Dublin 4, Ireland | Not Applicable |
(Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code 011-353-1-268-2000
Not Applicable
Former name or former address, if changed since last report
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
o Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Item 2.02. Results of Operations and Financial Condition.
On November 8, 2018, Endo International plc (the “Company,” “Endo,” or “we”) issued an earnings release announcing its financial results for the three and nine months ended September 30, 2018 (the “Earnings Release”). A copy of the Earnings Release is attached as Exhibit 99.1 hereto and is incorporated herein by reference.
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"). The Company utilizes these financial measures, commonly referred to as “non-GAAP,” because (i) they are used by the Company, along with financial measures in accordance with GAAP, to evaluate the Company's operating performance; (ii) the Company believes that they will be used by certain investors to measure the Company’s operating results; (iii) the Compensation Committee of the Company's Board of Directors uses adjusted diluted EPS and Adjusted EBITDA, or measures derived from such, in assessing the performance and compensation of substantially all of the Company's employees, including executive officers and (iv) the Company’s leverage ratio, as defined by the Company’s credit agreement, is calculated based on non-GAAP financial measures. The Company believes that presenting these non-GAAP measures provides useful information about the Company's performance across reporting periods on a consistent basis by excluding certain items, which may be favorable or unfavorable, pursuant to the procedure as described in the succeeding paragraph.
The initial identification and review of the non-GAAP adjustments necessary to arrive at these non-GAAP financial measures are performed by a team of finance professionals that include the Chief Accounting Officer and segment finance leaders in accordance with the Company’s Adjusted Income Statement Policy, which is reviewed and approved by the Company’s Audit Committee. Company tax professionals, including the Senior Vice President of Tax, review and determine the tax effect of adjusted pre-tax income at applicable tax rates and other tax adjustments as described below. Proposed adjustments, along with any items considered but excluded, are presented to the Chief Accounting Officer, Chief Executive Officer and/or the Chief Financial Officer for their consideration. In turn, the non-GAAP adjustments are presented to the Audit Committee on a quarterly basis as part of the Company’s standard procedures for preparation and review of the earnings release and other quarterly materials.
These non-GAAP measures should be considered supplemental to and not a substitute for financial information prepared in accordance with GAAP. The Company's definition of these non-GAAP measures may differ from similarly titled measures used by others. The definitions of the most commonly used non-GAAP financial measures are presented below:
Adjusted income from continuing operations
Adjusted income from continuing operations represents income (loss) from continuing operations, prepared in accordance with GAAP, adjusted for certain items. Adjustments to GAAP amounts may include, but are not limited to, certain upfront and milestone payments to partners; acquisition-related and integration items, including transaction costs, earn-out payments or adjustments, changes in the fair value of contingent consideration and bridge financing costs; cost reduction and integration-related initiatives such as separation benefits, retention payments, other exit costs and certain costs associated with integrating an acquired company’s operations; asset impairment charges; amortization of intangible assets; inventory step-up recorded as part of our acquisitions; litigation-related and other contingent matters; gains or losses from early termination of debt; gains or losses from the sales of businesses and other assets; foreign currency gains or losses on intercompany financing arrangements; and certain other items; further adjusted for the tax effect of adjusted pre-tax income at applicable tax rates and other tax adjustments as described below.
Adjusted diluted earnings per share from continuing operations and adjusted diluted weighted average shares
Adjusted diluted earnings per share from continuing operations represent adjusted income from continuing operations divided by the number of adjusted diluted weighted average shares.
Both GAAP and non-GAAP diluted per share data is computed based on weighted average shares outstanding and, if there is net income from continuing operations (rather than net loss) during the period, the dilutive impact of share equivalents outstanding during the period. Diluted weighted average shares outstanding and adjusted diluted weighted average shares outstanding are calculated on the same basis except for the net income or loss figure used in determining whether to include such dilutive impact.
Adjusted gross margin
Adjusted gross margin represents total revenues less cost of revenues, prepared in accordance with GAAP, adjusted for the items enumerated above under the heading "Adjusted income from continuing operations," to the extent such items relate to cost of revenues. Such items may include, but are not limited to, amortization of intangible assets and inventory step-up recorded as part of our acquisitions, certain excess inventory reserves resulting from restructuring initiatives and separation benefits.
Adjusted operating expenses
Adjusted operating expenses represent operating expenses, prepared in accordance with GAAP, adjusted for the items enumerated above under the heading "Adjusted income from continuing operations," to the extent such items relate to operating expenses. Such items may include, but are not limited to, certain upfront and milestone payments to partners; acquisition-related and integration items, including transaction costs, earn-out payments or adjustments, changes in the fair value of contingent consideration and bridge financing costs; cost reduction and integration-related initiatives such as separation benefits, retention payments, other exit costs and certain costs associated with integrating an acquired company’s operations; asset impairment charges; amortization of intangible assets; litigation-related and other contingent matters; and certain other items.
Adjusted interest expense
Adjusted interest expense represents interest expense, net, prepared in accordance with GAAP, adjusted for certain non-cash interest expense and penalty interest.
Adjusted income taxes
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. Adjustments are then made for certain items relating to prior years and for tax planning actions that are expected to be distortive to the underlying effective tax rate and trend in the effective tax rate. The most directly comparable GAAP financial measure for Adjusted income taxes is income tax expense (benefit), prepared in accordance with GAAP. The adjusted effective tax rate represents the rate generated when dividing adjusted income tax expense or benefit by the amount of adjusted pre-tax income.
EBITDA and Adjusted EBITDA
EBITDA represents net income (loss) before interest expense, net; income tax; depreciation; and amortization, each prepared in accordance with GAAP. Adjusted EBITDA further adjusts EBITDA by excluding other (income) expense, net; share-based compensation; certain upfront and milestone payments to partners; acquisition-related and integration items, including transaction costs, earn-out payments or adjustments, changes in the fair value of contingent consideration and bridge financing costs; cost reduction and integration-related initiatives such as separation benefits, retention payments, excess inventory reserves, other exit costs and certain costs associated with integrating an acquired company’s operations; asset impairment charges; inventory step-up recorded as part of our acquisitions; litigation-related and other contingent matters; gains or losses from early termination of debt; gains or losses from the sales of businesses and other assets; discontinued operations, net of tax; and certain other items.
Net Debt and Net Debt Leverage Ratio
Net debt is calculated as the aggregate carrying amount of debt outstanding less unrestricted cash and cash equivalents.
The net debt leverage ratio is calculated as net debt divided by adjusted EBITDA for the trailing twelve-month period.
Because adjusted financial measures exclude the effect of items that will increase or decrease the Company's reported results of operations, the Company strongly encourages investors to review the Company's consolidated financial statements and publicly filed reports in their entirety. Investors are also encouraged to review the reconciliation of the non-GAAP financial measures used in the Earnings Release to their most directly comparable GAAP financial measures as included in the Earnings Release and within the quarterly earnings presentation available in the Investor Relations section of the Registrant’s website at http://www.endo.com. 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.
The information in this Item 2.02 and in Exhibit 99.1 attached hereto shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. The information contained in this Item 2.02 and in Exhibit 99.1 attached hereto shall not be incorporated into any registration statement or other document filed by the Registrant with the U.S. Securities and Exchange Commission under the Securities Act of 1933, whether made before or after the date hereof, regardless of any general incorporation language in such filing, except as shall be expressly set forth by specific reference in such filing.
Item 9.01. Financial Statements and Exhibits.
(d) | Exhibits. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
ENDO INTERNATIONAL PLC | |
By: | /s/ Matthew J. Maletta |
Name: | Matthew J. Maletta |
Title: | Executive Vice President, |
Chief Legal Officer | |
Dated: November 8, 2018
Exhibit 99.1
ENDO REPORTS THIRD-QUARTER 2018 FINANCIAL RESULTS
• | 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 |
DUBLIN, November 8, 2018 -- 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."
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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.
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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. |
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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.
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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.
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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. |
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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 | |||||||||||
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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 | |||
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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 | |||
9
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 | |||||||
10
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 | |||||||
11
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 | |||||||||||||||||||||||||||
12
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 | |||||||||||||||||||||||||||
13
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. |
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(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. |
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(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. |
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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 | ||
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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.
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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,
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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.
SOURCE Endo International plc
Media: Heather Zoumas-Lubeski, (484) 216-6829; Investors: Laure Park, (845)-364-4833
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