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Endo Reports Second-Quarter 2017 Financial Results

August 8, 2017

DUBLIN, Aug. 8, 2017 /PRNewswire/ --  

  • Second-quarter 2017 revenues of $876 million and reported $3.12 diluted (GAAP) loss per share from continuing operations
  • Second-quarter 2017 Branded Specialty Products revenues increased 16 percent to $110 million
  • Second-quarter 2017 Sterile Injectables revenues increased 27 percent to $161 million
  • Second-quarter 2017 adjusted diluted earnings per share (EPS) from continuing operations increased 8 percent to $0.93
  • Second-quarter 2017 reported (GAAP) consolidated net loss of $1,397 million, including $775 million to increase the mesh product liability accrual primarily related to the resolution of virtually all known U.S. mesh product liability claims
  • Second-quarter 2017 adjusted income from continuing operations increased 8 percent to $207 million
  • Second-quarter 2017 adjusted EBITDA increased 11 percent to $388 million
  • Company updates 2017 financial guidance to reflect the previously announced Somar divestiture, OPANA® ER withdrawal and manufacturing network restructuring
  • Company reports $725 million of impairment charges relating primarily to market and competitive factors impacting certain products, its manufacturing network restructuring, Somar divestiture and the market withdrawal of OPANA® ER

Endo International plc (NASDAQ: ENDP) today reported second-quarter 2017 financial results, including:

  • Revenues of $876 million, a 5 percent decrease compared to second-quarter 2016 revenues of $921 million.
  • Reported net loss from continuing operations of $696 million compared to second-quarter 2016 reported net income from continuing operations of $390 million.
  • Reported diluted loss per share from continuing operations of $3.12 compared to second-quarter 2016 reported diluted earnings per share from continuing operations of $1.75.
  • Adjusted income from continuing operations of $207 million, an 8 percent increase compared to second-quarter 2016 adjusted income from continuing operations of $192 million.
  • Adjusted diluted EPS from continuing operations of $0.93, an 8 percent increase compared to second-quarter 2016 adjusted diluted EPS from continuing operations of $0.86.
  • Adjusted EBITDA of $388 million, an 11 percent increase compared to second-quarter 2016 adjusted EBITDA of $350 million.

"We are very pleased to report another solid quarter of operating performance, with impressive contributions from our core growth areas. Sterile Injectables and Branded Specialty Products continue to perform well, as each unit again achieved strong double-digit growth," said Paul Campanelli, President and CEO of Endo. This performance provides evidence of the progress we are making on the strategic priorities we outlined earlier this year.

"In addition to solid quarterly execution, we continue to make significant progress across an array of strategic initiatives, including settling mesh litigation, divesting Litha, signing a definitive agreement to divest Somar, and the restructuring of our manufacturing network. Through these actions, we continue to position Endo to compete and succeed in the future," Mr. Campanelli added.

FINANCIAL PERFORMANCE

                                         

(in thousands, except per share amounts)

                                       
 
 

Three Months Ended June 30,

     

Six Months Ended June 30,

   
 

2017

 

2016

 

Change

 

2017

 

2016

 

Change

Total Revenues

$

875,731

   

$

920,887

   

(5)

%

 

$

1,913,331

   

$

1,884,426

   

2

%

Reported (Loss) Income from Continuing Operations

$

(696,020)

   

$

389,812

   

NM

   

$

(861,443)

   

$

301,049

   

NM

 

Reported Diluted Weighted Average Shares

223,158

   

222,863

   

%

 

223,086

   

223,021

   

%

Reported Diluted (Loss) Income per Share from Continuing Operations

$

(3.12)

   

$

1.75

   

NM

   

$

(3.86)

   

$

1.35

   

NM

 

Adjusted Income from Continuing Operations

$

207,201

   

$

192,341

   

8

%

 

$

482,446

   

$

433,072

   

11

%

Adjusted Diluted Weighted Average Shares1

223,785

   

222,863

   

%

 

223,560

   

223,021

   

%

Adjusted Diluted EPS from Continuing Operations

$

0.93

   

$

0.86

   

8

%

 

$

2.16

   

$

1.94

   

11

%

   

(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 decreased by 5 percent to $876 million in second-quarter 2017 compared to the same period in 2016 primarily due to generic competition adversely impacting the Branded Established Products portfolio. GAAP net loss from continuing operations in second-quarter 2017 was $696 million compared to GAAP net income from continuing operations of $390 million during the same period in 2016. This decrease was primarily attributable to charges associated with the Company's manufacturing network restructuring; after-tax impairment charges associated with market and competitive factors impacting certain products' revenues, the pending Somar divestiture and the market removal of OPANA® ER; and second-quarter 2016 recognition of certain net tax benefits. GAAP net loss per share from continuing operations for the second-quarter 2017 was $3.12, compared to diluted GAAP EPS from continuing operations of $1.75 in second-quarter 2016.

Adjusted income from continuing operations in second-quarter 2017 increased by 8 percent to $207 million compared to second-quarter 2016. This increase was driven primarily by improved adjusted gross margin, which resulted, in part, from strong revenue growth in Sterile Injectables and Branded Specialty Products, as well as lower operating expenses. Adjusted EPS from continuing operations in second-quarter 2017 increased 8 percent to $0.93 compared to second-quarter 2016.

U.S. GENERIC PHARMACEUTICALS

During second-quarter 2017, the U.S. Generic Pharmaceuticals segment launched neostigmine methylsulfate injection following approval of its Abbreviated New Drug Application (ANDA) by the U.S. Food and Drug Administration (FDA). The Company also received FDA approval of its ANDA for vigabatrin for oral solution and expects to launch the product in the third-quarter of 2017.

Second-quarter 2017 U.S. Generic Pharmaceuticals results include:

  • Revenues of $563 million, virtually unchanged from second-quarter 2016, as decline in the Generics Base business was substantially offset by strong growth in Sterile Injectables and New Launches and Alternative Dosages.
  • Sterile Injectables increased 27 percent compared to second-quarter 2016; this increase was driven primarily by VASOSTRICT® and ADRENALIN®.
  • The Generics Base business decreased 34 percent compared to second-quarter 2016; this decrease primarily resulted from the impact on second-quarter 2017 related to 2016 competitive events and previously announced product discontinuances.

U.S. BRANDED PHARMACEUTICALS

During second-quarter 2017, the FDA requested that Endo voluntarily withdraw OPANA® ER from the market. After careful consideration and consultation with the FDA, the Company announced it would voluntarily remove the product from the market. In an effort to minimize treatment disruption for patients and allow patients sufficient time to seek guidance from their healthcare professionals, the Company has agreed with the FDA to cease shipments to customers by September 1, 2017.

Second-quarter 2017 U.S. Branded Pharmaceuticals results include:

  • Revenues of $245 million, a 15 percent decrease compared to second-quarter 2016; this decrease was primarily attributable to generic competition adversely impacting the Company's established products portfolio, including VOLTAREN® Gel, LIDODERM® and OPANA® ER , along with the divestiture of STENDRA®.
  • Specialty Products increased 16 percent in second-quarter 2017 versus the same period in 2016, driven by strong performance from XIAFLEX®, SUPPRELIN® LA and AVEED®. Sales of XIAFLEX®, our flagship Branded product, increased 18 percent compared to second-quarter 2016; this increase was primarily attributable to strong volume growth.

INTERNATIONAL PHARMACEUTICALS

Endo's previously announced sale of its South African business, Litha Healthcare Group, to Acino Pharma AG closed on July 3, 2017. Also in July, the Company announced it had entered into a definitive agreement to sell its Mexican subsidiary, Somar, to Advent International. The transaction is expected to close in the beginning of the fourth quarter of 2017, subject to customary conditions, including the expiration or termination of any waiting periods under applicable laws.

Second-quarter 2017 International Pharmaceuticals revenues were $67 million, virtually unchanged from the same period in 2016.

2017 FINANCIAL GUIDANCE

For the full twelve months ended December 31, 2017, at current exchange rates, Endo is providing updated guidance on revenue, GAAP and adjusted diluted income (loss) per share from continuing operations and adjusted EBITDA from continuing operations, along with certain assumptions used in determining these measures, to reflect the planned divestiture of Somar, the market removal of OPANA® ER and the recently announced manufacturing network restructuring. The Company estimates:

  • Total revenues to be between $3.38 billion to $3.53 billion;
  • Reported diluted GAAP loss per share from continuing operations to be between $4.76 and $4.46;
  • Adjusted diluted EPS from continuing operations to be between $3.35 to $3.65; and
  • Adjusted EBITDA from continuing operations to be between $1.48 billion to $1.56 billion.

The Company's 2017 non-GAAP financial guidance is based on the following assumptions:

  • Adjusted gross margin of approximately 62.5% to 63.5%;
  • Adjusted operating expenses as a percentage of revenues of approximately 22.5%;
  • Adjusted interest expense of approximately $490 million to $500 million;
  • Adjusted effective tax rate of approximately 14.0%; and
  • Adjusted diluted EPS from continuing operations assumes full-year adjusted diluted shares outstanding of approximately 224 million shares.

BALANCE SHEET, LIQUIDITY AND OTHER UPDATES

As of June 30, 2017, the Company had $617 million in unrestricted cash; debt of $8.3 billion; net debt of approximately $7.7 billion and a net debt to adjusted EBITDA ratio of 4.3.

Second-quarter 2017 cash provided by operating activities was $173 million, compared to $604 million of net cash provided by operating activities in the comparable 2016 period. The 2016 period benefited from the receipt of a significant federal income tax refund that did not reoccur to the same extent in the 2017 period. Mesh-related payments also decreased in second-quarter 2017 compared to the 2016 period based on timing.

The Company recently announced that it has reached agreements to resolve virtually all known U.S. mesh product liability claims. Endo agreed to make installment payments beginning in the fourth-quarter of 2017 and continuing through the fourth-quarter of 2019. The Company increased its mesh product liability accrual by $775 million which is expected to cover approximately 22,000 U.S. mesh claims, as well as all known international mesh product liability claims and other mesh-related matters.

During second-quarter 2017, the Company recorded total combined pre-tax, non-cash asset impairment charges of $725 million, which primarily consisted of intangible asset impairment charges of $477 million and goodwill impairment charges of $206 million, including the following items:

  • $501 million of non-restructuring goodwill and intangible asset impairments related to its U.S. Generic and Branded Pharmaceuticals segments, which included the market withdrawal of OPANA® ER and $115 million of goodwill and other intangible assets related to the Company's planned Somar sale.
  • As part of its recently announced manufacturing network restructuring initiative, the Company will be ceasing operations and closing its manufacturing and distribution facilities in Huntsville, Alabama. The Company recorded an impairment charge of $90 million related to intangible assets and property, plant and equipment associated with the planned closure.

As previously announced, the Company expects to pay approximately $60 million in cash related to the manufacturing network restructuring over the next 12 to 18 months. As a result of these restructuring actions, Endo expects to redeploy as an investment into its core growth areas approximately $55 million to $65 million in annual net run rate pre-tax cost savings that it expects to realize by the fourth quarter of 2018.

CONFERENCE CALL INFORMATION

Endo will conduct a conference call with financial analysts to discuss this press release today at 8:30 a.m. ET. The dial-in number to access the call is U.S./Canada (866) 497-0462, International (678) 509-7598, and the passcode is 45397076. Please dial in 10 minutes prior to the scheduled start time.

A replay of the call will be available from August 8, 2017 at 11:30 a.m. ET until 11:59 p.m. ET on August 22, 2017 by dialing U.S./Canada (855) 859-2056, International (404) 537-3406, and entering the passcode 45397076.

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 11:59 p.m. ET on August 22, 2017. The replay can be accessed by clicking on the Investor Relations section of the Endo website.

FINANCIAL SCHEDULES

The following table presents Endo's unaudited Total Revenues for the three and six months ended June 30, 2017 and 2016 (in thousands):

 

Three Months Ended June 30,

 

Percent Growth

 

Six Months Ended June 30,

 

Percent Growth

 

2017

 

2016

   

2017

 

2016

 

U.S. Generic Pharmaceuticals:

                     

U.S. Generics Base

$

218,935

   

$

331,095

   

(34)

%

 

$

455,082

   

$

678,524

   

(33)

%

Sterile Injectables

160,597

   

126,245

   

27

%

 

311,946

   

249,934

   

25

%

New Launches and Alternative Dosages

183,780

   

108,018

   

70

%

 

518,267

   

220,290

   

135

%

Total U.S. Generic Pharmaceuticals

$

563,312

   

$

565,358

   

%

 

$

1,285,295

   

$

1,148,748

   

12

%

U.S. Branded Pharmaceuticals:

                     

Specialty Products:

                     

XIAFLEX®

$

50,077

   

$

42,419

   

18

%

 

$

99,602

   

$

86,464

   

15

%

SUPPRELIN® LA

23,649

   

21,211

   

11

%

 

42,830

   

38,463

   

11

%

Other Specialty (1)

36,745

   

31,973

   

15

%

 

72,773

   

64,942

   

12

%

Total Specialty Products

$

110,471

   

$

95,603

   

16

%

 

$

215,205

   

$

189,869

   

13

%

Established Products:

                     

OPANA® ER

$

31,582

   

$

38,554

   

(18)

%

 

$

67,300

   

$

83,224

   

(19)

%

PERCOCET®

30,889

   

35,708

   

(13)

%

 

61,834

   

69,301

   

(11)

%

VOLTAREN® Gel

20,270

   

27,290

   

(26)

%

 

34,544

   

63,037

   

(45)

%

LIDODERM®

11,678

   

27,039

   

(57)

%

 

24,854

   

46,751

   

(47)

%

Other Established (2)

40,298

   

64,148

   

(37)

%

 

91,610

   

144,973

   

(37)

%

Total Established Products

$

134,717

   

$

192,739

   

(30)

%

 

$

280,142

   

$

407,286

   

(31)

%

Total U.S. Branded Pharmaceuticals (3)

$

245,188

   

$

288,342

   

(15)

%

 

$

495,347

   

$

597,155

   

(17)

%

Total International Pharmaceuticals

$

67,231

   

$

67,187

   

%

 

$

132,689

   

$

138,523

   

(4)

%

Total Revenues

$

875,731

   

$

920,887

   

(5)

%

 

$

1,913,331

   

$

1,884,426

   

2

%

 

__________

(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, TESTIM® and FORTESTA® Gel, including the authorized generic.

(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 2017 or 2016. LIDODERM® is separately presented as its revenues exceeded $25 million in certain quarterly periods in 2016.

 

 

The following table presents unaudited Condensed Consolidated Statement of Operations data for the three and six months ended June 30, 2017 and 2016 (in thousands, except per share data):

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2017

 

2016

 

2017

 

2016

TOTAL REVENUES

$

875,731

   

$

920,887

   

$

1,913,331

   

$

1,884,426

 

COSTS AND EXPENSES:

             

Cost of revenues

539,401

   

632,218

   

1,208,363

   

1,320,923

 

Selling, general and administrative

155,555

   

193,070

   

332,795

   

371,425

 

Research and development

40,869

   

50,589

   

83,878

   

92,281

 

Litigation-related and other contingencies, net

(2,600)

   

5,259

   

(1,664)

   

10,459

 

Asset impairment charges

725,044

   

39,951

   

929,006

   

169,576

 

Acquisition-related and integration items

4,190

   

48,171

   

15,070

   

60,725

 

OPERATING LOSS FROM CONTINUING OPERATIONS

$

(586,728)

   

$

(48,371)

   

$

(654,117)

   

$

(140,963)

 

INTEREST EXPENSE, NET

121,747

   

111,919

   

233,746

   

228,712

 

LOSS ON EXTINGUISHMENT OF DEBT

51,734

   

   

51,734

   

 

OTHER (INCOME) EXPENSE, NET

(6,709)

   

5,175

   

(8,746)

   

3,268

 

LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX

$

(753,500)

   

$

(165,465)

   

$

(930,851)

   

$

(372,943)

 

INCOME TAX BENEFIT

(57,480)

   

(555,277)

   

(69,408)

   

(673,992)

 

(LOSS) INCOME FROM CONTINUING OPERATIONS

$

(696,020)

   

$

389,812

   

$

(861,443)

   

$

301,049

 

DISCONTINUED OPERATIONS, NET OF TAX

(700,498)

   

(46,216)

   

(708,903)

   

(91,324)

 

CONSOLIDATED NET (LOSS) INCOME

$

(1,396,518)

   

$

343,596

   

$

(1,570,346)

   

$

209,725

 

Less: Net income attributable to noncontrolling interests

   

18

   

   

16

 

NET (LOSS) INCOME ATTRIBUTABLE TO ENDO INTERNATIONAL PLC

$

(1,396,518)

   

$

343,578

   

$

(1,570,346)

   

$

209,709

 

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

             

Continuing operations

$

(3.12)

   

$

1.75

   

$

(3.86)

   

$

1.35

 

Discontinued operations

(3.14)

   

(0.21)

   

(3.18)

   

(0.41)

 

Basic

$

(6.26)

   

$

1.54

   

$

(7.04)

   

$

0.94

 

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

             

Continuing operations

$

(3.12)

   

$

1.75

   

$

(3.86)

   

$

1.35

 

Discontinued operations

(3.14)

   

(0.21)

   

(3.18)

   

(0.41)

 

Diluted

$

(6.26)

   

$

1.54

   

$

(7.04)

   

$

0.94

 

WEIGHTED AVERAGE SHARES:

             

Basic

223,158

   

222,667

   

223,086

   

222,485

 

Diluted

223,158

   

222,863

   

223,086

   

223,021

 

 

The following table presents unaudited Condensed Consolidated Balance Sheet data at June 30, 2017 and December 31, 2016 (in thousands):

 

June 30, 2017

 

December 31, 2016

ASSETS

     

CURRENT ASSETS:

     

Cash and cash equivalents

$

616,534

   

$

517,250

 

Restricted cash and cash equivalents

364,796

   

282,074

 

Accounts receivable

580,123

   

992,153

 

Inventories, net

489,752

   

555,671

 

Assets held for sale

166,190

   

116,985

 

Other current assets

57,620

   

125,326

 

Total current assets

$

2,275,015

   

$

2,589,459

 

TOTAL NON-CURRENT ASSETS

10,003,075

   

11,685,650

 

TOTAL ASSETS

$

12,278,090

   

$

14,275,109

 

LIABILITIES AND SHAREHOLDERS' EQUITY

     

CURRENT LIABILITIES:

     

Accounts payable and accrued expenses, including legal settlement accruals

$

2,143,167

   

$

2,470,016

 

Liabilities held for sale

44,367

   

24,338

 

Other current liabilities

39,413

   

140,391

 

Total current liabilities

$

2,226,947

   

$

2,634,745

 

LONG-TERM DEBT, LESS CURRENT PORTION, NET

8,251,289

   

8,141,378

 

OTHER LIABILITIES

990,748

   

797,397

 

TOTAL SHAREHOLDERS' EQUITY

809,106

   

2,701,589

 

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

12,278,090

   

$

14,275,109

 

 

The following table presents unaudited Condensed Consolidated Statement of Cash Flow data for the six months ended June 30, 2017 and 2016 (in thousands):

 

Six Months Ended June 30,

 

2017

 

2016

OPERATING ACTIVITIES:

     

Consolidated net (loss) income

$

(1,570,346)

   

$

209,725

 

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

     

  Depreciation and amortization

499,656

   

476,911

 

  Asset impairment charges

929,006

   

190,904

 

  Other, including cash payments to claimants from Qualified Settlement Funds (1)

482,670

   

(318,929)

 

 Net cash provided by operating activities

$

340,986

   

$

558,611

 

INVESTING ACTIVITIES:

     

Purchases of property, plant and equipment

$

(59,729)

   

$

(53,705)

 

Proceeds from sale of business and other assets, net

18,531

   

6,631

 

Increase in restricted cash and cash equivalents (1)

(522,772)

   

(327,359)

 

Decrease in restricted cash and cash equivalents (1)

440,190

   

524,438

 

Other

   

(13,000)

 

 Net cash (used in) provided by investing activities

$

(123,780)

   

$

137,005

 

FINANCING ACTIVITIES:

     

(Payments on) proceeds from borrowings, net

$

(2,550)

   

$

(276,740)

 

Other

(97,033)

   

(24,861)

 

 Net cash used in financing activities

$

(99,583)

   

$

(301,601)

 

Effect of foreign exchange rate

$

2,786

   

$

1,459

 

Movement in cash held for sale

(21,125)

   

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

$

99,284

   

$

395,474

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

517,250

   

272,348

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

$

616,534

   

$

667,822

 
   

(1)

Included within the above Condensed Consolidated Statements of Cash Flows is the impact of payments into and out of QSFs for mesh-related product liability. 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 operating activities (CFO). The following table reflects the mesh-related payment activities for the six months ended June 30, 2017 and 2016 by cash flow component:

 

   

Six Months Ended June 30,

   

2017

 

2016

   

Impact on CFO (a)

 

Impact on CFI

 

Impact on CFO (a)

 

Impact on CFI

 

Cash contributions to Qualified Settlement Funds

$

   

$

(522,770)

   

$

   

$

(326,795)

 
 

Cash payments to claimants from Qualified Settlement Funds

(440,190)

   

440,190

   

(524,438)

   

524,438

 
 

Cash payments made directly to claimants

(3,794)

   

   

(5,438)

   

 
 

Total

$

(443,984)

   

$

(82,580)

   

$

(529,876)

   

$

197,643

 
     
 

(a)

These amounts are included in "Other, including cash payments to claimants from Qualified Settlement Funds (1)" in the Condensed Consolidated Statements of Cash Flows 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 tables below provide reconciliations of certain of our non-GAAP financial measures, both historical and forward-looking, 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) income attributable to Endo International plc (GAAP) to Adjusted EBITDA (non-GAAP) for the three and six months ended June 30, 2017 and 2016 (in thousands):

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2017

 

2016

 

2017

 

2016

Net (loss) income attributable to Endo International plc (GAAP)

$

(1,396,518)

   

$

343,578

   

$

(1,570,346)

   

$

209,709

 

Income tax benefit

(57,480)

   

(555,277)

   

(69,408)

   

(673,992)

 

Interest expense, net

121,747

   

111,919

   

233,746

   

228,712

 

Depreciation and amortization (18)

212,801

   

231,478

   

496,910

   

464,912

 

EBITDA (non-GAAP)

$

(1,119,450)

   

$

131,698

   

$

(909,098)

   

$

229,341

 
               

Inventory step-up and other cost savings (2)

$

100

   

$

29,103

   

$

215

   

$

97,579

 

Upfront and milestone-related payments (3)

3,082

   

2,688

   

6,177

   

4,105

 

Inventory reserve increase from restructuring (4)

7,899

   

6,706

   

7,899

   

33,633

 

Royalty obligations (5)

   

   

   

(7,750)

 

Separation benefits and other restructuring (6)

16,715

   

15,468

   

39,385

   

26,997

 

Certain litigation-related and other contingencies, net (7)

(2,600)

   

5,259

   

(1,664)

   

10,459

 

Asset impairment charges (8)

725,044

   

39,951

   

929,006

   

169,576

 

Acquisition-related and integration costs (9)

2,240

   

24,287

   

6,936

   

47,515

 

Fair value of contingent consideration (10)

1,950

   

23,884

   

8,134

   

13,210

 

Loss on extinguishment of debt (11)

51,734

   

   

51,734

   

 

Share-based compensation

7,512

   

14,203

   

27,005

   

28,520

 

Other (income) expense, net (19)

(6,709)

   

5,175

   

(8,746)

   

3,268

 

Other adjustments

(114)

   

5,783

   

(17)

   

(1,395)

 

Discontinued operations, net of tax (15)

700,498

   

46,216

   

708,903

   

91,324

 

Net income attributable to noncontrolling interests (16)

   

18

   

   

16

 

Adjusted EBITDA (non-GAAP)

$

387,901

   

$

350,439

   

$

865,869

   

$

746,398

 
 

 

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

The following table provides a reconciliation of our (Loss) income from continuing operations (GAAP) to our Adjusted income from continuing operations (non-GAAP) for the three and six months ended June 30, 2017 and 2016 (in thousands):

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2017

 

2016

 

2017

 

2016

(Loss) income from continuing operations (GAAP)

$

(696,020)

   

$

389,812

   

$

(861,443)

   

$

301,049

 

Non-GAAP adjustments:

             

  Amortization of intangible assets (1)

190,943

   

212,844

   

454,077

   

424,513

 

  Inventory step-up and other cost savings (2)

100

   

29,103

   

215

   

97,579

 

  Upfront and milestone-related payments (3)

3,082

   

2,688

   

6,177

   

4,105

 

  Inventory reserve increase from restructuring (4)

7,899

   

6,706

   

7,899

   

33,633

 

  Royalty obligations (5)

   

   

   

(7,750)

 

  Separation benefits and other restructuring (6)

16,715

   

15,468

   

39,385

   

26,997

 

  Certain litigation-related and other contingencies, net (7)

(2,600)

   

5,259

   

(1,664)

   

10,459

 

  Asset impairment charges (8)

725,044

   

39,951

   

929,006

   

169,576

 

  Acquisition-related and integration costs (9)

2,240

   

24,287

   

6,936

   

47,515

 

  Fair value of contingent consideration (10)

1,950

   

23,884

   

8,134

   

13,210

 

  Loss on extinguishment of debt (11)

51,734

   

   

51,734

   

 

  Non-cash and penalty interest charges (12)

   

   

   

4,092

 

  Other (13)

(3,233)

   

1,541

   

(4,168)

   

(5,490)

 

  Tax adjustments (14)

(90,653)

   

(559,202)

   

(153,842)

   

(686,416)

 

Adjusted income from continuing operations (non-GAAP)

$

207,201

   

$

192,341

   

$

482,446

   

$

433,072

 
 

 

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 six months ended June 30, 2017 and 2016 (in thousands, except per share data):

 

Three Months Ended June 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 attributable to Endo International plc

 

Diluted (loss) income per share from continuing operations (17)

Reported (GAAP)

$    875,731

 

$    539,401

 

$    336,330

 

38 %

 

$    923,058

 

105 %

 

$ (586,728)

 

(67)%

 

$ 166,772

 

$   (753,500)

 

$   (57,480)

 

8 %

 

$ (696,020)

 

$  (700,498)

 

$ (1,396,518)

 

$           (3.12)

Items impacting comparability:

                                                             

Amortization of intangible assets (1)

 

(190,943)

 

190,943

     

     

190,943

     

 

190,943

 

     

190,943

 

 

190,943

 

0.86

Inventory step-up and other cost savings (2)

 

(100)

 

100

     

     

100

     

 

100

 

     

100

 

 

100

 

Upfront and milestone-related payments (3)

 

(682)

 

682

     

(2,400)

     

3,082

     

 

3,082

 

     

3,082

 

 

3,082

 

0.01

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 (6)

 

(5,026)

 

5,026

     

(11,689)

     

16,715

     

 

16,715

 

     

16,715

 

 

16,715

 

0.07

Certain litigation-related and other contingencies, net (7)

 

 

     

2,600

     

(2,600)

     

 

(2,600)

 

     

(2,600)

 

 

(2,600)

 

(0.01)

Asset impairment charges (8)

 

 

     

(725,044)

     

725,044

     

 

725,044

 

     

725,044

 

 

725,044

 

3.25

Acquisition-related and integration costs (9)

 

 

     

(2,240)

     

2,240

     

 

2,240

 

     

2,240

 

 

2,240

 

0.01

Fair value of contingent consideration (10)

 

 

     

(1,950)

     

1,950

     

 

1,950

 

     

1,950

 

 

1,950

 

0.01

Loss on extinguishment of debt (11)

 

 

     

     

     

(51,734)

 

51,734

 

     

51,734

 

 

51,734

 

0.23

Other (13)

 

 

     

     

     

3,233

 

(3,233)

 

     

(3,233)

 

 

(3,233)

 

(0.01)

Tax adjustments (14)

 

 

     

     

     

 

 

90,653

     

(90,653)

 

 

(90,653)

 

(0.41)

Exclude discontinued operations, net of tax (15)

 

 

     

     

     

 

 

     

 

700,498

 

700,498

 

After considering items (non-GAAP)

$    875,731

 

$    334,751

 

$    540,980

 

62 %

 

$    182,335

 

21 %

 

$  358,645

 

41 %

 

$ 118,271

 

$     240,374

 

$    33,173

 

14 %

 

$  207,201

 

$             —

 

$     207,201

 

$            0.93

                                                               
 

Three Months Ended June 30, 2016

 

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 attributable to Endo International plc (16)

 

Diluted (loss) income per share from continuing operations (17)

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 cost 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 (6)

 

(6,405)

 

6,405

     

(9,063)

     

15,468

     

 

15,468

 

     

15,468

 

 

15,468

 

0.07

Certain litigation-related and other contingencies, net (7)

 

 

     

(5,259)

     

5,259

     

 

5,259

 

     

5,259

 

 

5,259

 

0.02

Asset impairment charges (8)

 

 

     

(39,951)

     

39,951

     

 

39,951

 

     

39,951

 

 

39,951

 

0.18

Acquisition-related and integration costs (9)

 

 

     

(24,287)

     

24,287

     

 

24,287

 

     

24,287

 

 

24,287

 

0.11

Fair value of contingent consideration (10)

 

 

     

(23,884)

     

23,884

     

 

23,884

 

     

23,884

 

 

23,884

 

0.11

Other (13)

 

 

     

     

     

(1,541)

 

1,541

 

     

1,541

 

 

1,541

 

0.01

Tax adjustments (14)

 

 

     

     

     

 

 

559,202

     

(559,202)

 

 

(559,202)

 

(2.51)

Exclude discontinued operations, net of tax (15)

 

 

     

     

     

 

 

     

 

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

                                                               
 

Six Months Ended June 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 attributable to Endo International plc

 

Diluted (loss) income per share from continuing operations (17)

Reported (GAAP)

$ 1,913,331

 

$ 1,208,363

 

$    704,968

 

37 %

 

$ 1,359,085

 

71 %

 

$ (654,117)

 

(34)%

 

$ 276,734

 

$   (930,851)

 

$   (69,408)

 

7 %

 

$ (861,443)

 

$  (708,903)

 

$ (1,570,346)

 

$           (3.86)

Items impacting comparability:

                                                             

Amortization of intangible assets (1)

 

(454,077)

 

454,077

     

     

454,077

     

 

454,077

 

     

454,077

 

 

454,077

 

2.03

Inventory step-up and other cost savings (2)

 

(215)

 

215

     

     

215

     

 

215

 

     

215

 

 

215

 

Upfront and milestone-related payments (3)

 

(1,351)

 

1,351

     

(4,826)

     

6,177

     

 

6,177

 

     

6,177

 

 

6,177

 

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 (6)

 

(6,687)

 

6,687

     

(32,698)

     

39,385

     

 

39,385

 

     

39,385

 

 

39,385

 

0.18

Certain litigation-related and other contingencies, net (7)

 

 

     

1,664

     

(1,664)

     

 

(1,664)

 

     

(1,664)

 

 

(1,664)

 

(0.01)

Asset impairment charges (8)

 

 

     

(929,006)

     

929,006

     

 

929,006

 

     

929,006

 

 

929,006

 

4.16

Acquisition-related and integration costs (9)

 

 

     

(6,936)

     

6,936

     

 

6,936

 

     

6,936

 

 

6,936

 

0.03

Fair value of contingent consideration (10)

 

 

     

(8,134)

     

8,134

     

 

8,134

 

     

8,134

 

 

8,134

 

0.04

Loss on extinguishment of debt (11)

 

 

     

     

     

(51,734)

 

51,734

 

     

51,734

 

 

51,734

 

0.23

Other (13)

 

 

     

     

     

4,168

 

(4,168)

 

     

(4,168)

 

 

(4,168)

 

(0.02)

Tax adjustments (14)

 

 

     

     

     

 

 

153,842

     

(153,842)

 

 

(153,842)

 

(0.69)

Exclude discontinued operations, net of tax (15)

 

 

     

     

     

 

 

     

 

708,903

 

708,903

 

After considering items (non-GAAP)

$ 1,913,331

 

$    738,134

 

$ 1,175,197

 

61 %

 

$    379,149

 

20 %

 

$  796,048

 

42 %

 

$ 229,168

 

$     566,880

 

$    84,434

 

15 %

 

$  482,446

 

$             —

 

$     482,446

 

$            2.16

                                                               
 

Six Months Ended June 30, 2016

 

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 attributable to Endo International plc (16)

 

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