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Endo Reports Second Quarter 2016 Financial Results

August 8, 2016

DUBLIN , Aug. 8, 2016 /PRNewswire/ --

  • Second quarter 2016 reported revenues of $921 million and diluted GAAP earnings per share (EPS) from continuing operations of $1.75
  • Second quarter 2016 adjusted diluted EPS of $0.86
  • Company affirms full year 2016 revenue and adjusted diluted EPS financial guidance
  • Company expands management capabilities, appointing Joseph J. Ciaffoni to President, U.S. Branded Pharmaceuticals

Endo International plc (NASDAQ: ENDP) (TSX: ENL) today reported second quarter 2016 financial results, including:

  • Revenues of $921 million including the addition of sales from its 2015 acquisition of Par Pharmaceutical, a 25 percent increase compared to second quarter 2015 revenues of $735 million .
  • Reported net income from continuing operations of $390 million compared to second quarter 2015 reported net loss from continuing operations of $(91) million .
  • Reported diluted EPS from continuing operations of $1.75 compared to second quarter 2015 reported diluted loss per share from continuing operations of $(0.49) .
  • Adjusted net income from continuing operations of $192 million , a 6 percent decrease compared to second quarter 2015 adjusted net income from continuing operations of $204 million .1
  • Adjusted diluted EPS from continuing operations of $0.86 compared to second quarter 2015 adjusted diluted EPS from continuing operations of $1.08 .1

"During the second quarter 2016, Endo remained focused on operational execution. We have delivered results across all of our businesses that are on-track or ahead of Company expectations for the quarter and today we are affirming our full year 2016 revenue and adjusted diluted EPS financial guidance while increasing investment in Branded and Generics R&D as well as BELBUCA™ and XIAFLEX® promotion," said Rajiv De Silva, President and CEO of Endo. "We also continue to build our internal team and are pleased to announce the appointment of Joseph J. Ciaffoni to President, U.S. Branded Pharmaceuticals . We look forward to continuing to execute on our corporate objectives and delivering products that improve patients' lives while creating value for our shareholders."

 

 

FINANCIAL PERFORMANCE

 

(in thousands, except per share amounts)

 
 

Three Months Ended June 30,

     

Six Months Ended June 30,

   
 

2016

 

2015

 

Change

 

2016

 

2015

 

Change

Total Revenues

$

920,887

   

$

735,166

   

25

%

 

$

1,884,426

   

$

1,449,294

   

30

%

Reported Income (Loss) from Continuing Operations

$

389,812

   

$

(90,894)

   

NM

   

$

301,049

   

$

59,598

   

405

%

Reported Diluted Weighted Average Shares

222,863

   

185,328

   

20

%

 

223,021

   

182,822

   

22

%

Reported Diluted Income (Loss) per Share from Continuing Operations

$

1.75

   

$

(0.49)

   

NM

   

$

1.35

   

$

0.33

   

309

%

Adjusted Income from Continuing Operations

$

192,341

   

$

204,335

 

1

(6)

%

 

$

433,072

   

$

411,695

1

 

5

%

Adjusted Diluted Weighted Average Shares

222,863

   

188,819

   

18

%

 

223,021

   

182,822

   

22

%

Adjusted Diluted EPS from Continuing Operations

$

0.86

   

$

1.08

 

1

(20)

%

 

$

1.94

   

$

2.25

1

 

(14)

%

(1) Refer to footnote 12 and 14 in the Reconciliation of GAAP and Non-GAAP Financial Measures tables for three and six months ended June 30, 2015 , respectively, for further discussion.

CONSOLIDATED RESULTS

Total revenues increased by 25 percent to $921 million in second quarter 2016 compared to the same period in 2015, primarily attributable to revenues related to the September 2015 Par acquisition. GAAP net income from continuing operations in second quarter 2016 increased to $390 million compared to a GAAP net loss from continuing operations of $(91) million during the same period in 2015, primarily attributable to a legal entity reorganization that resulted in the recognition of discrete net tax benefits of $448 million during the second quarter 2016. GAAP net income per share from continuing operations for the three months ended June 30, 2016 was $1.75 , compared to a GAAP net loss from continuing operations of $(0.49) in second quarter 2015.

Adjusted net income from continuing operations for second quarter 2016 decreased by 6 percent to $192 million compared second quarter 2015, driven primarily by an increase in interest expense, partially offset by higher operating margin. Adjusted net income per share from continuing operations for the three months ended June 30, 2016 decreased 20 percent to $0.86 compared to second quarter 2015. This decrease was mainly due to a decrease in adjusted net income from continuing operations resulting from the items listed above in this paragraph and an increase in the number of diluted weighted average shares outstanding.

U.S. BRANDED PHARMACEUTICALS

During second quarter 2016, the U.S. Branded Pharmaceuticals business unit continued to focus on the launch of the first and only buprenorphine buccal film approved by the U.S. Food and Drug Administration ( FDA ), BELBUCA™, while also supporting demand growth for XIAFLEX® in both the Dupuytren's contracture and Peyronie's disease indications.

Second quarter 2016 U.S. Branded Pharmaceuticals results include:

  • Revenues of $288 million , a 9 percent decrease compared to second quarter 2015; this decrease was primarily attributable to a generic entrant for Voltaren® Gel in March 2016 .
  • Net sales of XIAFLEX® increased 6 percent compared to second quarter 2015; this increase reflects continued double-digit demand growth for the product, partially offset by customer de-stocking in the quarter.
  • Net sales of Voltaren® Gel decreased 46 percent compared to second quarter 2015; this decrease was attributable to a decrease in both volume and price as a result of the entrance of a generic competitor in March 2016 .

U.S. GENERIC PHARMACEUTICALS

During second quarter 2016, the U.S. Generic Pharmaceuticals business unit substantially completed the Par integration, implemented the initial phase of the supply chain restructuring and product rationalization activities announced in May 2016 , and continued to execute on its sales and marketing, research and development (R&D), and manufacturing plans for the year.

Second quarter 2016 U.S. Generic Pharmaceuticals results include:

  • Revenues of $565 million , a 67 percent increase compared to second quarter 2015; this increase was primarily attributable to growth from the addition of sales by Par.
  • Secured a patent (expiration January 2035 ) for Vasostrict®, the only vasopressin injection currently approved by the FDA .
  • As expected and previously communicated by the Company, the Generics Base business revenues declined approximately 5 percent sequentially compared to the first quarter 2016, due to consortium pricing pressures and additional competitive entrants.

INTERNATIONAL PHARMACEUTICALS

During second quarter 2016, the International Pharmaceuticals business unit focused on expanding margins for its emerging markets businesses, while in-licensing new products and managing the expected loss of exclusivity for certain products at Paladin.

Second quarter 2016 International Pharmaceuticals results include:

  • Revenues of $67 million , a 17 percent decrease compared to second quarter 2015.
  • Paladin revenues of $26 million , a 14 percent decrease compared to second quarter 2015, due primarily to the previously expected loss of exclusivity for two products. During second quarter 2016, Paladin filed a submission for BELBUCA™ with Health Canada , acquired the Canadian rights to XIAFLEX® and launched Metadol D 1L.
  • Emerging market revenues from Litha and Somar of $37 million , a 23 percent decrease compared to second quarter 2015, driven primarily by a decrease in Litha revenues as it manages its recent divestiture of non-core assets and integrates its new portfolio of products and pipeline programs acquired from Aspen .

2016 Financial Guidance

For the full twelve months ended December 31, 2016, at current exchange rates, Endo is affirming its full year revenue and adjusted diluted EPS financial guidance issued in May 2016 . The Company estimates:

  • Total revenues to be between $3.87 billion and $4.03 billion ;
  • Diluted GAAP EPS from continuing operations is now expected to be between $1.86 and $2.16 ; and
  • Adjusted diluted EPS from continuing operations to be between $4.50 and $4.80 .

The Company's 2016 financial guidance is based on the following assumptions:

  • Adjusted gross margin of approximately 59 percent to 60 percent;
  • Adjusted operating expenses as a percentage of revenues to be approximately 21.5 percent to 22 percent;
  • Adjusted interest expense of approximately $455 million ;
  • Adjusted effective tax rate of approximately zero to 2 percent; and
  • Adjusted diluted EPS from continuing operations assumes full year adjusted diluted shares outstanding of approximately 223 million shares.

Balance Sheet, Liquidity and Other Updates

As of June 30, 2016, the Company had $667.8 million in unrestricted cash; net debt of approximately $7.6 billion and a net debt to pro forma adjusted EBITDA ratio of 4.6.

Second quarter 2016 reported cash provided by operating activities was $604.5 million , primarily attributable to the Company's receipt of a $707 million federal income tax refund during the quarter, partially offset by the timing of mesh-related payments, payments related to restructuring and other working capital increases.

During second quarter 2016, the Company recorded pre-tax, non-cash impairment charges of $40.0 million related to certain market and regulatory conditions impacting the commercial potential of certain definite-lived intangible assets in the Company's U.S. Generic Pharmaceuticals segment.

As part of the continued integration of the legacy Qualitest and Par businesses, Endo initiated a legal entity reorganization that moved the Generics business to a new U.S. holding company structure that is separate from the legacy Branded business structure. The reorganization provides operating flexibility and benefits and reduces the potential impact related to any future limits that could apply to the use of tax attributes by utilizing most of the Company's attributes to offset the gain that was created in the intercompany sale. This reorganization resulted in stepped-up tax basis of the U.S. Generics business assets to their fair value.

The reorganization also gave rise to a discrete net GAAP tax benefit of $448 million in the second quarter 2016 arising from outside basis differences. This benefit has been excluded from our adjusted effective tax rate, in accordance with our policy.

On an adjusted basis, the elimination of tax benefits from acquired attributes is offset by an improved mix of jurisdictional adjusted pre-tax income resulting primarily from the reorganization.

As a result of the SEC's recently issued Compliance and Disclosure Interpretations on Non-GAAP measures issued in May 2016 , Endo is no longer excluding the non-cash deferred tax expense associated with acquired attributes in our adjusted effective tax rate.  This change has no impact on Endo's historic or forward looking GAAP tax or cash tax profile. Additionally, as Endo has utilized almost all of its acquired attributes through the legal entity reorganization, Endo's change in policy is also not expected to have a material impact on our 2016 and forward looking adjusted tax rate.

Management Team Updates

In a separate press release issued today, Endo announced the appointment of Joseph J. Ciaffoni to the position of President, U.S. Branded Pharmaceuticals , effective August 15, 2016 . Mr. Ciaffoni most recently served as Senior Vice President, Global Specialty Medicines at Biogen and brings to Endo extensive experience building commercial businesses, leading multi-function organizations and achieving successful results across the primary care, specialty and rare disease markets.

Conference Call Information

Endo will conduct a conference call with financial analysts to discuss this press release today at 4:30 p.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 45050862. Please dial in 10 minutes prior to the scheduled start time.

A replay of the call will be available from August 8, 2016 at 7:30 p.m. ET until 7:30 p.m. ET on August 22, 2016 by dialing (855) 859-2056 (U.S./ Canada ) or (404) 537-3406 (International) and entering the passcode 45050862.

A simultaneous webcast of the call can be accessed by visiting www.endo.com. In addition, a replay of the webcast will be available until 7:30 p.m. ET on August 22, 2016 . The replay can be accessed by clicking on "Upcoming Events" in the Investor Relations section of the Endo website.

The following table presents Endo's unaudited Net Revenues for the three and six months ended June 30, 2016 and 2015:

 

Endo International plc

Net Revenues (unaudited)

(in thousands)

 
 

Three Months Ended June 30,

 

Percent
Growth

 

Six Months Ended June 30,

 

Percent
Growth

 

2016

 

2015

   

2016

 

2015

 

U.S. Branded Pharmaceuticals:

                     

Pain Management:

                     

LIDODERM®

$

27,039

   

$

30,186

   

(10)%

   

$

46,751

   

$

55,346

   

(16)%

 

OPANA® ER

38,554

   

43,097

   

(11)%

   

83,224

   

89,956

   

(7)%

 

PERCOCET®

35,708

   

32,444

   

10

%

 

69,301

   

68,743

   

1

%

Voltaren® Gel

27,290

   

51,006

   

(46)%

   

63,037

   

96,477

   

(35)%

 
 

$

128,591

   

$

156,733

   

(18)%

   

$

262,313

   

$

310,522

   

(16)%

 

Specialty Pharmaceuticals:

                     

SUPPRELIN® LA

$

21,211

   

$

17,796

   

19

%

 

$

38,463

   

$

34,078

   

13

%

XIAFLEX®

42,419

   

39,952

   

6

%

 

86,464

   

67,918

   

27

%

 

$

63,630

   

$

57,748

   

10

%

 

$

124,927

   

$

101,996

   

22

%

Branded Other Revenues (1)

96,121

   

101,432

   

(5)%

   

209,915

   

187,902

   

12

%

Total U.S. Branded Pharmaceuticals (2)

$

288,342

   

$

315,913

   

(9)%

   

$

597,155

   

$

600,420

   

(1)%

 

U.S. Generic Pharmaceuticals:

                     

U.S. Generics Base

$

331,095

   

$

214,241

   

55

%

 

$

678,524

   

$

458,511

   

48

%

Sterile Injectables

126,245

   

   

NM

 

249,934

   

   

NM

New Launches and Alternative Dosages

108,018

   

124,085

   

(13)%

   

220,290

   

236,777

   

(7)%

 

Total U.S. Generic Pharmaceuticals

$

565,358

   

$

338,326

   

67

%

 

$

1,148,748

   

$

695,288

   

65

%

Total International Pharmaceuticals

$

67,187

   

$

80,927

   

(17)%

   

$

138,523

   

$

153,586

   

(10)%

 

Total Revenues

$

920,887

   

$

735,166

   

25

%

 

$

1,884,426

   

$

1,449,294

   

30

%

       
       

(1)

Products included within Branded Other Revenues in the table above include, but are not limited to, TESTOPEL®, Testim®, Fortesta® Gel, including authorized generic, BELBUCATM, Sumavel® DosePro® and Nascobal® Nasal Spray. 

(2)

Individual products presented above represent the top two performing products in each segment plus any product having revenues in excess of $25.0 million during the three months ended June 30, 2016.

 

 

The following table presents unaudited consolidated Statement of Operations data for the three and six months ended June 30, 2016 and 2015 (in thousands, except per share data):

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2016

 

2015

 

2016

 

2015

 TOTAL REVENUES

$

920,887

   

$

735,166

   

$

1,884,426

   

$

1,449,294

 

 COSTS AND EXPENSES:

             

Cost of revenues

632,218

   

438,858

   

1,320,923

   

823,124

 

Selling, general and administrative

193,070

   

154,491

   

371,425

   

366,069

 

Research and development

50,589

   

18,984

   

92,281

   

36,881

 

Litigation-related and other contingencies, net

5,259

   

6,875

   

10,459

   

19,875

 

Asset impairment charges

39,951

   

70,243

   

169,576

   

77,243

 

Acquisition-related and integration items

48,171

   

44,225

   

60,725

   

78,865

 

 OPERATING (LOSS) INCOME FROM CONTINUING OPERATIONS

$

(48,371)

   

$

1,490

   

$

(140,963)

   

$

47,237

 

 INTEREST EXPENSE, NET

111,919

   

80,611

   

228,712

   

153,750

 

 LOSS ON EXTINGUISHMENT OF DEBT

   

   

   

980

 

 OTHER EXPENSE, NET

5,175

   

24,493

   

3,268

   

12,498

 

 LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX

$

(165,465)

   

$

(103,614)

   

$

(372,943)

   

$

(119,991)

 

 INCOME TAX BENEFIT

(555,277)

   

(12,720)

   

(673,992)

   

(179,589)

 

 INCOME (LOSS) FROM CONTINUING OPERATIONS

$

389,812

   

$

(90,894)

   

$

301,049

   

$

59,598

 

 DISCONTINUED OPERATIONS, NET OF TAX

(46,216)

   

(159,632)

   

(91,324)

   

(385,842)

 

 CONSOLIDATED NET INCOME (LOSS)

$

343,596

   

$

(250,526)

   

$

209,725

   

$

(326,244)

 

 Less: Net income (loss) attributable to noncontrolling interests

18

   

(107)

   

16

   

(107)

 

 NET INCOME (LOSS) ATTRIBUTABLE TO ENDO INTERNATIONAL PLC

$

343,578

   

$

(250,419)

   

$

209,709

   

$

(326,137)

 

 NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO ENDO INTERNATIONAL PLC ORDINARY SHAREHOLDERS—BASIC:

             

Continuing operations

$

1.75

   

$

(0.49)

   

$

1.35

   

$

0.34

 

Discontinued operations

(0.21)

   

(0.86)

   

(0.41)

   

(2.18)

 

Basic

$

1.54

   

$

(1.35)

   

$

0.94

   

$

(1.84)

 

 NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO ENDO INTERNATIONAL PLC ORDINARY SHAREHOLDERS—DILUTED:

             

Continuing operations

$

1.75

   

$

(0.49)

   

$

1.35

   

$

0.33

 

Discontinued operations

(0.21)

   

(0.86)

   

(0.41)

   

(2.11)

 

Diluted

$

1.54

   

$

(1.35)

   

$

0.94

   

$

(1.78)

 

 WEIGHTED AVERAGE SHARES:

             

Basic

222,667

   

185,328

   

222,485

   

177,490

 

Diluted

222,863

   

185,328

   

223,021

   

182,822

 

 

The following table presents unaudited condensed consolidated Balance Sheet data at June 30, 2016 and December 31, 2015 (in thousands):

 

 

June 30,
 2016

 

December 31,
 2015

ASSETS

     

CURRENT ASSETS:

     

Cash and cash equivalents

$

667,822

   

$

272,348

 

Restricted cash and cash equivalents

388,560

   

585,379

 

Accounts receivable

875,058

   

1,014,808

 

Inventories, net

626,320

   

752,493

 

Assets held for sale

   

36,522

 

Other assets

92,656

   

790,987

 

Total current assets

$

2,650,416

   

$

3,452,537

 

TOTAL NON-CURRENT ASSETS

15,285,119

   

15,897,799

 

TOTAL ASSETS

$

17,935,535

   

$

19,350,336

 

LIABILITIES AND STOCKHOLDERS' EQUITY

     

CURRENT LIABILITIES:

     

Accounts payable and accrued expenses

$

2,814,237

   

$

3,116,841

 

Liabilities held for sale

   

20,215

 

Other current liabilities

124,603

   

337,256

 

Total current liabilities

$

2,938,840

   

$

3,474,312

 

LONG-TERM DEBT, LESS CURRENT PORTION, NET

8,199,888

   

8,251,657

 

OTHER LIABILITIES

535,269

   

1,656,391

 

STOCKHOLDERS' EQUITY:

     

Total Endo International plc shareholders' equity

$

6,261,538

   

$

5,968,030

 

Noncontrolling interests

   

(54)

 

Total shareholders' equity

$

6,261,538

   

$

5,967,976

 

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

17,935,535

   

$

19,350,336

 

 

The following table presents unaudited condensed consolidated Statement of Cash Flow data for the six months ended June 30, 2016 and 2015 (in thousands):

 

Six Months Ended June 30,

 

2016

 

2015

OPERATING ACTIVITIES:

     

Consolidated net income (loss)

$

209,725

   

$

(326,244)

 

Adjustments to reconcile consolidated net income (loss) to Net cash provided by (used in) operating activities

     

Depreciation and amortization

476,911

   

249,181

 

Asset impairment charges

190,904

   

318,865

 

Deferred income taxes

(670,615)

   

(244,152)

 

Other

153,899

   

118,247

 

Changes in assets and liabilities which provided (used) cash

193,876

   

(193,383)

 

Net cash provided by (used in) operating activities

$

554,700

   

$

(77,486)

 

INVESTING ACTIVITIES:

     

Purchases of property, plant and equipment, net

(51,182)

   

(38,621)

 

Acquisitions, net of cash acquired

   

(915,945)

 

Proceeds from sale of business, net

4,108

   

4,712

 

Increase in restricted cash and cash equivalents, net

(327,359)

   

(381,223)

 

Decrease in restricted cash and cash equivalents

524,438

   

424,695

 

Other

(13,000)

   

41

 

Net cash provided by (used in) investing activities

$

137,005

   

$

(906,341)

 

FINANCING ACTIVITIES:

     

(Payments on) proceeds from borrowings, net

(276,740)

   

922,821

 

Issuance of ordinary shares

2,729

   

2,302,281

 

Other

(23,679)

   

(108,694)

 

Net cash (used in) provided by financing activities

$

(297,690)

   

$

3,116,408

 

Effect of foreign exchange rate

$

1,459

   

$

(11,599)

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

$

395,474

   

$

2,120,982

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

272,348

   

408,753

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

$

667,822

   

$

2,529,735

 

 

The following schedule presents the significant pre-tax cash outlays and cash receipts impacting our Net cash provided by (used in) operating activities for the six months ended June 30, 2016 and 2015 (in thousands):

 

Six Months Ended June 30,

 

2016

 

2015

Payments for mesh-related product liability and other litigation matters (1)

$

557,523

   

$

395,916

 

Unused commitment fees

   

14,071

 

Separation and restructuring payments

55,793

   

31,550

 

Transaction costs and certain integration charges paid in connection with acquisitions

49,033

   

78,089

 

U.S. Federal tax refunds received

(707,303)

   

(70,300)

 

Total

$

(44,954)

   

$

449,326

 

 

(1)  Cash payments into QSFs result in a cash outflow for investing activities (CFI). Cash releases from QSFs result in a cash inflow for investing activities and a corresponding outflow for cash provided by (used in) operating activities (CFO). The following table reflects the mesh-related payment activities for the six months ended June 30, 2016 and 2015 by cash flow component:

 

 

Six Months Ended June 30,

 

2016

 

2015

 

Impact on CFO (1)

 

Impact on CFI

 

Impact on CFO (1)

 

Impact on CFI

Cash contributions to Qualified Settlement Funds

$

   

$

(326,795)

   

$

   

$

(377,074)

 

Cash payments to claimants from Qualified Settlement Funds

(524,438)

   

524,438

   

(385,087)

   

385,087

 

Cash payments made directly to claimants

(5,438)

   

   

(10,829)

   

 

Total

$

(529,876)

   

$

197,643

   

$

(395,916)

   

$

8,013

 

(1)     These amounts are included in Changes in assets and liabilities which provided (used) cash in the table above.

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 Securities and Exchange Commission , which includes an explanation of the Company's reasons for using non-GAAP measures.

The table below provides reconciliations of our consolidated income (loss) from continuing operations (GAAP) to our adjusted income from continuing operations (non-GAAP) for the three and six months ended June 30, 2016 and 2015:

 

 

 

ENDO INTERNATIONAL PLC

Reconciliation of GAAP and Non-GAAP Financial Measures

(UNAUDITED)

(In thousands)

 
 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2016

 

2015

 

2016

 

2015

Income (loss) from continuing operations (GAAP)

$

389,812

   

$

(90,894)

   

$

301,049

   

$

59,598

 

Non-GAAP adjustments:

             

Amortization of intangible assets

212,844

   

116,987

   

424,513

   

212,256

 

Inventory step-up and other cost savings

29,103

   

48,948

   

97,579

   

88,864

 

Upfront and milestone related payments

2,688

   

2,135

   

4,105

   

4,802

 

Inventory reserve increase from restructuring

6,706

   

   

33,633

   

 

Royalty obligations

   

   

(7,750)

   

 

Separation benefits and other restructuring

15,468

   

5,780

   

18,647

   

47,587

 

Acceleration of Auxilium employee equity awards

   

   

   

37,603

 

Charges for litigation and other legal matters

5,259

   

6,875

   

10,459

   

19,875

 

Asset impairment charges

39,951

   

70,243

   

169,576

   

77,243

 

Acquisition-related and integration costs

24,287

   

46,745

   

47,515

   

82,193

 

Fair value of contingent consideration

23,884

   

(2,520)

   

13,210

   

(3,328)

 

Non-cash and penalty interest charges

   

2,999

   

4,092

   

4,378

 

Other

1,541

   

24,729

   

2,860

   

15,575

 

Tax adjustments

(559,202)

   

(27,692)

   

(686,416)

   

(234,951)

 

Adjusted income from continuing operations (non-GAAP)

192,341

   

204,335

   

433,072

   

411,695

 
       
       

Refer to the following tables for additional information regarding non-GAAP financial measures.

 

 

 

 

ENDO INTERNATIONAL PLC 
Reconciliation of GAAP and Non-GAAP Financial Measures
(UNAUDITED)
(In thousands, except per share data)

 

 

 

 

Three Months Ended June 30, 2016

   

 

Total revenues

   

 

Cost of revenues

   

 

Gross margin

 

 

Gross margin %

     

 

Total operating expenses

   

 

Operating expense to revenue %

     

 

Operating loss from continuing operations

   

 

Operating margin %

     

 

Other non-operating expense, net

     

 

Loss from continuing operations before income tax

     

 

Income tax benefit

   

Effective tax rate

     

 

Income from continuing operations

     

 

Discontinued operations, net of tax

     

 

Net income attributable to Endo International plc (14)

     

 

Diluted earnings per share (15)

 

 Reported (GAAP)

$

920,887

   

$

632,218

   

$

288,669

   

31

%

 

$

337,040

   

37

%

 

$

(48,371)

   

(5)%

   

$

117,094

   

$

(165,465)

   

$

(555,277)

   

336

%

 

$

389,812

   

$

(46,216)

   

$

343,578

   

$

1.75

 

 Items impacting comparability:

                                                             

 Amortization of intangible assets (1)

   

(212,844)

   

212,844

       

       

212,844

       

   

212,844

   

       

212,844

   

   

212,844

   

0.95

 

 Inventory step-up and other costs savings (2)

   

(29,103)

   

29,103

       

       

29,103

       

   

29,103

   

       

29,103

   

   

29,103

   

0.13

 

 Upfront and milestone-related payments (3)

   

(642)

   

642

       

(2,046)

       

2,688

       

   

2,688

   

       

2,688

   

   

2,688

   

0.01

 

 Inventory reserve increase from restructuring (4)

   

(6,706)

   

6,706

       

       

6,706

       

   

6,706

   

       

6,706

   

   

6,706

   

0.03

 

 Separation benefits and other restructuring (5)

   

(6,405)

   

6,405

       

(9,063)

       

15,468

       

   

15,468

   

       

15,468

   

   

15,468

   

0.07

 

 Charges for litigation and other legal matters (6)

   

   

       

(5,259)

       

5,259

       

   

5,259

   

       

5,259

   

   

5,259

   

0.02

 

 Asset impairment charges (7)

   

   

       

(39,951)

       

39,951

       

   

39,951

   

       

39,951

   

   

39,951

   

0.18

 

 Acquisition-related and integration costs (8)

   

   

       

(24,287)

       

24,287

       

   

24,287

   

       

24,287

   

   

24,287

   

0.11

 

 Fair value of contingent consideration (9)

   

   

       

(23,884)

       

23,884

       

   

23,884

   

       

23,884

   

   

23,884

   

0.11

 

 Non-cash and penalty interest charges (10)

   

   

       

       

       

   

   

       

   

   

   

 

 Other (11)

   

   

       

       

       

(1,541)

   

1,541

   

       

1,541

   

   

1,541

   

0.01

 

Tax adjustments (12)

   

   

       

       

       

   

   

559,202

       

(559,202)

   

   

(559,202)

   

(2.51)

 

 Exclude discontinued operations, net of tax (13)

   

   

       

       

       

   

   

       

   

46,216

   

46,216

   

 

 After considering items (non-GAAP)

$

920,887

   

$

376,518

   

$

544,369

   

59

%

 

$

232,550

   

25

%

 

$

311,819

   

34

%

 

$

115,553

   

$

196,266

   

$

3,925

   

2

%

 

$

192,341

   

$

   

$

192,323

   

$

0.86

 

 

 

 

 

 
 

Three Months Ended June 30, 2015

 
 

 

Total revenues

   

 

Cost of revenues

   

 

Gross margin

   

Gross margin %

 

 

Total operating expenses

   

Operating expense to revenue %

 

 

Operating income from continuing operations

   

Operating margin %

 

 

Other non-operating expense, net

   

 

Loss from continuing operations before income tax

   

 

Income tax benefit

   

Effective tax rate

 

 

Loss from continuing operations

   

 

Discontinued operations, net of tax

   

 

Net loss attributable to Endo International plc (14)

   

 

Diluted earnings per share (15)

 

 Reported (GAAP)

$

735,166

   

$

438,858

   

$

296,308

   

40

%

 

$

294,818

   

40

%

 

$

1,490

   

%

 

$

105,104

   

$

(103,614)

   

$

(12,720)

   

12

%

 

$

(90,894)

   

$

(159,632)

   

$

(250,419)

   

$

(0.49)

 

 Items impacting comparability:

                                                             

 Amortization of intangible assets (1)

   

(116,987)

   

116,987

       

       

116,987

       

   

116,987

   

       

116,987

   

   

116,987

   

0.61

 

 Inventory step-up and other costs savings (2)

   

(48,948)

   

48,948

       

       

48,948

       

   

48,948

   

       

48,948

   

   

48,948

   

0.26

 

 Upfront and milestone-related payments (3)

   

(623)

   

623

       

(1,512)

       

2,135

       

   

2,135

   

       

2,135

   

   

2,135

   

0.01

 

 Inventory reserve increase from restructuring (4)

   

   

       

       

       

   

   

       

   

   

   

 

 Separation benefits and other restructuring (5)

   

   

       

(5,780)

       

5,780

       

   

5,780

   

       

5,780

   

   

5,780

   

0.03

 

 Charges for litigation and other legal matters (6)

   

   

       

(6,875)

       

6,875

       

   

6,875

   

       

6,875

   

   

6,875

   

0.04

 

 Asset impairment charges (7)

   

   

       

(70,243)

       

70,243

       

   

70,243

   

       

70,243

   

   

70,243

   

0.38

 

 Acquisition-related and integration costs (8)

   

   

       

(46,745)

       

46,745

       

   

46,745

   

       

46,745

   

   

46,745

   

0.25

 

 Fair value of contingent consideration (9)

   

   

       

2,520

       

(2,520)

       

   

(2,520)

   

       

(2,520)

   

   

(2,520)

   

(0.01)

 

 Non-cash and penalty interest charges (10)

   

   

       

       

       

(2,999)

   

2,999

   

       

2,999

   

   

2,999

   

0.02

 

 Other (11)

   

   

       

(800)

       

800

       

(23,929)

   

24,729

   

       

24,729

   

   

24,729

   

0.13

 

Tax adjustments (12)

   

   

       

       

       

   

   

27,692

       

(27,692)

   

   

(27,692)

   

(0.15)

 

 Exclude discontinued operations, net of tax (13)

   

   

       

       

       

   

   

       

   

181,771

   

181,771

   

 

 After considering items (non-GAAP)

$

735,166

   

$

272,300

   

$

462,866

   

63

%

 

$

165,383

   

22

%

 

$

297,483

   

40

%

 

$

78,176

   

$

219,307

   

$

14,972

   

7

%

 

$

204,335

   

$

22,139

   

$

226,581

   

$

1.08

 

 

Notes to the reconciliation of certain line items included in the GAAP Statements of Operations to the Non-GAAP line items are as follows:

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

 

Three Months Ended June 30,

 

2016

 

2015

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

$

204,593

   

$

109,393

 

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

8,251

   

7,594

 

Total

$

212,844

   

$

116,987

 

(2)     Adjustments for inventory step-up and other cost savings included the following:

 

Three Months Ended June 30,

 

2016

 

2015

Fair value step-up of inventory sold

$

26,600

   

$

46,699

 

Excess manufacturing costs that will be eliminated pursuant to integration plans

2,503

   

2,249

 

Total

$

29,103

   

$

48,948

 

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

 

Three Months Ended June 30,

 

2016

 

2015

 

 Cost of revenues

 

 Operating expenses

 

 Cost of revenues

 

 Operating expenses

Sales-based milestones

$

642

   

$

   

$

623

   

$

 

Development-based milestones

   

2,046

   

   

1,512

 

Total

642

   

2,046

   

623

   

1,512

 

(4)     To exclude charges due to increased inventory reserves related to the 2016 U.S. Generic Pharmaceuticals restructuring initiative.

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

 

Three Months Ended June 30,

 

2016

 

2015

 

 Cost of revenues

 

 Operating expenses

 

 Cost of revenues

 

 Operating expenses

Separation benefits

$

6,405

   

$

2,014

   

$

   

$

4,818

 

Accelerated depreciation

   

3,402

   

   

(192)

 

Other

   

3,647

   

   

1,154

 

Total

$

6,405

   

$

9,063

   

$

   

$

5,780

 

(6)   To exclude litigation settlement charges.

(7)   To exclude asset impairment charges. During the three months ended June 30, 2016 and 2015, we recorded pre-tax, non-cash impairment charges of $40.0 million and $70.2 million , respectively, resulting from certain market conditions impacting the commercial potential of certain intangible assets in our U.S. Generic Pharmaceuticals segment.

(8)   Adjustments for acquisition and integration items primarily relate to various acquisitions, including Par Pharmaceuticals and Auxilium Pharmaceuticals , and included the following:

 

Three Months Ended June 30,

 

2016

 

2015

Integration costs (primarily third-party consulting fees)

$

18,731

   

$

7,856

 

Transaction costs

   

28,159

 

Transition services

3,621

   

5,475

 

Other

1,935

   

5,255

 

Total

$

24,287

   

$

46,745

 

 

(9)   To exclude the impact of the change in fair value of contingent consideration resulting from certain market conditions impacting the commercial potential of the underlying products.

(10) To exclude penalty interest charges of $2,746 and additional non-cash interest expense related to our 1.75% Convertible Senior Subordinated Notes of $253 for the three months ended June 30, 2015 .

(11) Adjustments to other included the following:

 

Three Months Ended June 30,

 

2016

 

2015

 

 Operating expenses

 

Other non-
operating expenses

 

 Operating expenses

 

Other non-
operating expenses

Costs associated with unused financing commitments

$

   

$

   

$

800

   

$

2,261

 

Other than temporary equity investment

   

   

   

18,869

 

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

   

417

   

   

2,792

 

Other miscellaneous

   

1,124

   

   

7

 

Total

$

   

$

1,541

   

$

800

   

$

23,929

 

 

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

As part of the continued integration of our Qualitest and Par businesses, Endo initiated a legal entity reorganization that moved the Generics business to a new U.S. holding company structure that is separate from the legacy Branded business structure. The reorganization also provides operating flexibility and benefits and reduces the potential impact related to any future limits that could apply to the use of tax attributes by utilizing most of the Company's attributes to offset the gain in the intercompany sale that stepped-up the tax basis of the U.S. Generics business assets. The utilization of acquired attributes in the reorganization would have had an unfavorable impact of $157 million on our full-year 2016 adjusted tax expense under Endo's non-GAAP policy prior to the adoption of the SEC's updated guidance on Non-GAAP measures (see below). The elimination of this acquired attribute benefit was largely offset by an improved mix of jurisdictional adjusted pre-tax income resulting primarily from the reorganization. The reorganization also gave rise to a discrete GAAP tax benefit of $448 million , net of a valuation allowance, in the second quarter 2016 arising from outside basis differences. This benefit has been excluded from our adjusted effective tax rate in accordance with our policy.

Separately, as a result of the SEC's recently updated guidance on Non-GAAP measures issued in May 2016 , Endo is no longer excluding the non-cash deferred tax expense associated with acquired attributes in our adjusted income tax expense. This change has no impact on Endo's historic or forward looking GAAP tax or cash tax profile. Additionally, as we have utilized almost all of our acquired attributes through the recent legal entity reorganization, our change in policy is not expected to have a material impact on our 2016 and forward looking adjusted tax rate. The following table presents the impact of our change in policy on Adjusted Diluted EPS from Continuing Operations for each relevant period of 2015 and 2016:

 

Three
Months 
Ended 
March 31,
2015

 

Three
Months 
Ended 
June 30,
2015

 

Three
Months 
Ended 
September 
30, 2015

 

Three
Months 
Ended 
December 
31, 2015

 

Twelve
Months
Ended 
December 
31, 2015

 

Three
Months 
Ended 
March 31,
2016

Adjusted Diluted EPS from Continuing Operations
- As Previously Reported

$

1.17

   

$

1.08

   

$

1.02

   

$

1.36

   

$

4.66

   

$

1.08

 

Amount attributable to the change in approach to Non-GAAP income taxes

(0.11)

   

(0.09)

   

(0.16)

   

(0.18)

   

(0.56)

   

(0.16)

 

Adjusted Diluted EPS from Continuing Operations - As Revised

$

1.06

   

$

0.99

   

$

0.86

   

$

1.18

   

$

4.10

   

$

0.92

 

(13) To exclude the results of the Astora business reported as discontinued operations, net of tax.

(14) This amount includes non-controlling interest of $18 and $(107) for the three months ended June 30, 2016 and 2015, respectively.

(15) Calculated as income (loss) from continuing operations divided by the applicable weighted average share number. The applicable weighted average share number for the three months ended June 30, 2016 is 222,863 for both the GAAP and non-GAAP EPS calculations. The applicable weighted average share number for the three months ended June 30, 2015 is 185,328 for the GAAP EPS calculation and 188,819 for the non-GAAP EPS calculations.

 

 

 

 

ENDO INTERNATIONAL PLC

Reconciliation of GAAP and Non-GAAP Financial Measures

(UNAUDITED)

(In thousands, except per share data)

  

 

 

 

Six Months Ended June 30, 2016

   

 

Total revenues

     

 

Cost of revenues

     

 

Gross margin

   

 

Gross margin %

     

 

Total operating expenses

   

 

Operating expense to revenue %

     

 

Operating loss from continuing operations

   

 

Operating margin %

     

 

Other non-operating expense, net

     

 

Loss from continuing operations before income tax

     

 

Income tax benefit

   

 

Effective tax rate

     

 

Income from continuing operations

     

 

Discontinued operations, net of tax

     

 

Net income attributable to Endo International plc (16)

     

 

Diluted earnings per share (17)

 

 Reported (GAAP)

$

1,884,426

   

$

1,320,923

   

$

563,503

   

30

%

 

$

704,466

   

37

%

 

$

(140,963)

   

(7)%

   

$

231,980

   

$

(372,943)

   

$

(673,992)

   

181

%

 

$

301,049

   

$

(91,324)

   

$

209,709

   

$

1.35

 

 Items impacting comparability:

                                                             

 Amortization of intangible assets (1)

   

(424,513)

   

424,513

       

       

424,513

       

   

424,513

   

       

424,513

   

   

424,513

   

1.90

 

 Inventory step-up and other costs savings (2)

   

(96,229)

   

96,229

       

(1,350)

       

97,579

       

   

97,579

   

       

97,579

   

   

97,579

   

0.44

 

 Upfront and milestone-related payments (3)

   

(1,309)

   

1,309

       

(2,796)

       

4,105

       

   

4,105

   

       

4,105

   

   

4,105

   

0.02

 

 Inventory reserve increase from restructuring (4)

   

(33,633)

   

33,633

       

       

33,633

       

   

33,633

   

       

33,633

   

   

33,633

   

0.15

 

 Royalty obligations (5)

   

7,750

   

(7,750)

       

       

(7,750)

       

   

(7,750)

   

       

(7,750)

   

   

(7,750)

   

(0.03)

 

 Separation benefits and other restructuring (6)

   

(6,405)

   

6,405

       

(12,242)

       

18,647

       

   

18,647

   

       

18,647

   

   

18,647

   

0.08

 

Acceleration of Auxilium employee equity awards (7)

   

   

       

       

       

   

   

       

   

   

   

 

 Charges for litigation and other legal matters (8)

   

   

       

(10,459)

       

10,459

       

   

10,459

   

       

10,459

   

   

10,459

   

0.05

 

 Asset impairment charges (9)

   

   

       

(169,576)

       

169,576

       

   

169,576

   

       

169,576

   

   

169,576

   

0.76

 

 Acquisition-related and integration costs (10)

   

   

       

(47,515)

       

47,515

       

   

47,515

   

       

47,515

   

   

47,515

   

0.21

 

 Fair value of contingent consideration (11)

   

   

       

(13,210)

       

13,210

       

   

13,210

   

       

13,210

   

   

13,210

   

0.06

 

 Non-cash and penalty interest charges (12)

   

   

       

       

       

(4,092)

   

4,092

   

       

4,092

   

   

4,092

   

0.02

 

 Other (13)

   

   

       

       

       

(2,860)

   

2,860

   

       

2,860

   

   

2,860

   

0.01

 

Tax adjustments (14)

   

   

       

       

       

   

   

686,416

       

(686,416)

   

   

(686,416)

   

(3.08)

 

 Exclude discontinued operations, net of tax (15)

   

   

       

       

       

   

   

       

   

91,324

   

91,324

   

 

 After considering items (non-GAAP)

$

1,884,426

   

$

766,584

   

$

1,117,842

   

59

%

 

$

447,318

   

24

%

 

$

670,524

   

36

%

 

$

225,028

   

$

445,496

   

$

12,424

   

3

%

 

$

433,072

   

$

   

$

433,056

   

$

1.94

 

 

 

 

Six Months Ended June 30, 2015

 
   

Total revenues

 

 

Cost of revenues

   

Gross margin

   

Gross margin %

   

Total operating expenses

   

Operating expense to revenue %

   

Operating income from continuing operations

   

Operating margin %

     

Other non-operating expense, net

     

Loss from continuing operations before income tax

     

Income tax benefit

   

Effective tax rate

 

 

Income from continuing operations

   

 

Discontinued operations, net of tax

   

 

Net loss attributable to Endo International plc (16)

   

 

Diluted earnings per share (17)

 

 Reported (GAAP)

$

1,449,294

   

$

823,124

   

$

626,170

   

43

%

 

$

578,933

   

40

%

 

$

47,237

   

3

%

 

$

167,228

   

$

(119,991)

   

$

(179,589)

   

150

%

 

$

59,598

   

$

(385,842)

   

$

(326,137)

   

$

0.33

 

 Items impacting comparability:

                                                             

 Amortization of intangible assets (1)

   

(212,256)

   

212,256

       

       

212,256

       

   

212,256

   

       

212,256

   

   

212,256

   

1.15

 

 Inventory step-up and other costs savings (2)

   

(88,864)

   

88,864

       

       

88,864

       

   

88,864

   

       

88,864

   

   

88,864

   

0.49

 

 Upfront and milestone-related payments (3)

   

(1,227)

   

1,227

       

(3,575)

       

4,802

       

   

4,802

   

       

4,802

   

   

4,802

   

0.03

 

 Inventory reserve increase from restructuring (4)

   

   

       

       

       

   

   

       

   

   

   

 

 Royalty obligations (5)

   

   

       

       

       

   

   

       

   

   

   

 

 Separation benefits and other restructuring (6)

   

   

       

(47,587)

       

47,587

       

   

47,587

   

       

47,587

   

   

47,587