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Endo Reports Third Quarter 2016 Financial Results

November 8, 2016

DUBLIN, Nov. 8, 2016 /PRNewswire/ --

  • Third quarter 2016 reported revenues of $884 million and diluted GAAP loss per share from continuing operations of $0.86
  • Third quarter 2016 adjusted diluted earnings per share (EPS) of $1.01
  • Company Reaffirms Full Year 2016 Revenues and Adjusted Diluted EPS Financial Guidance

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

  • Revenues of $884 million including the addition of sales from its 2015 acquisition of Par Pharmaceutical, a 19 percent increase compared to third quarter 2015 revenues of $746 million.
  • Reported net loss from continuing operations of $191 million compared to third quarter 2015 reported net loss from continuing operations of $804 million.
  • Reported diluted loss per share from continuing operations of $0.86 compared to third quarter 2015 reported diluted loss per share from continuing operations of $3.84.
  • Adjusted net income from continuing operations of $226 million, a 5 percent increase compared to third quarter 2015 adjusted net income from continuing operations of $214 million.1
  • Adjusted diluted EPS from continuing operations of $1.01 compared to third quarter 2015 adjusted diluted EPS from continuing operations of $1.02.1

"During the third quarter 2016, Endo further sharpened its focus on operational execution. We have continued to deliver results across all of our businesses that are on-track or ahead of Company expectations for the quarter. Today we are reaffirming our full year 2016 revenue and adjusted diluted EPS financial guidance," said Paul Campanelli, President and CEO of Endo. "This is an important time for Endo. The leadership team is working closely and collaboratively to build on our strengths and develop a go-forward strategy that best positions the Company to improve the lives of the patients and customers we serve."

FINANCIAL PERFORMANCE

           
               

(in thousands, except per share amounts)

           
               
 

Three Months Ended
September 30,

     

Nine Months Ended
September 30,

   
 

2016

 

2015

 

Change

 

2016

 

2015

 

Change

Total Revenues

$

884,335

   

$

745,727

   

19

%

 

$

2,768,761

   

$

2,195,021

   

26

%

Reported Income (Loss) from
Continuing Operations

$

(191,496)

   

$

(803,706)

   

(76)

%

 

$

109,553

   

$

(744,108)

   

NM

Reported Diluted Weighted Average
Shares

222,767

   

209,274

   

6

%

 

223,060

   

188,085

   

19

%

Reported Diluted Income (Loss) per
Share from Continuing Operations

$

(0.86)

   

$

(3.84)

   

(78)

%

 

$

0.49

   

$

(3.96)

   

NM

Adjusted Income from Continuing
Operations

$

225,519

   

$

214,110

1

 

5

%

 

$

658,591

   

$

625,805

1

 

5

%

Adjusted Diluted Weighted Average
Shares

223,139

   

210,787

   

6

%

 

223,060

   

192,144

   

16

%

Adjusted Diluted EPS from
Continuing Operations

$

1.01

   

$

1.02

1

 

(1)

%

 

$

2.95

   

$

3.26

1

 

(10)

%

                                           

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

 

CONSOLIDATED RESULTS

Total revenues increased by 19 percent to $884 million in third quarter 2016 compared to the same period in 2015, primarily attributable to revenues related to the September 2015 Par acquisition. GAAP net loss from continuing operations in third quarter 2016 decreased to $191 million compared to a GAAP net loss from continuing operations of $804 million during the same period in 2015, primarily attributable to the amount of goodwill and intangible asset impairment charges recorded during the third quarter 2015. GAAP net loss per share from continuing operations for the three months ended September 30, 2016 was $0.86, compared to a GAAP net loss from continuing operations of $3.84 in third quarter 2015.

Adjusted net income from continuing operations for third quarter 2016 increased by 5 percent to $226 million compared to third quarter 2015, driven primarily by the contribution of Par, offset partially by an increase in interest expense. Adjusted net income per share from continuing operations for the three months ended September 30, 2016 decreased 1 percent to $1.01 compared to third quarter 2015.

U.S. BRANDED PHARMACEUTICALS

During third quarter 2016, the U.S. Branded Pharmaceuticals business unit continued to focus on supporting demand growth for XIAFLEX® in both the Dupuytren's contracture and Peyronie's disease indications and the BELBUCA™ launch continues to progress.

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

  • Revenues of $280 million, an 8 percent decrease compared to third quarter 2015; this decrease was primarily attributable to a generic entrant for Voltaren® Gel in March 2016 and volume contraction across our established pain products.
  • Net sales of XIAFLEX® increased 19 percent compared to third quarter 2015; this increase reflects high single-digit demand growth for the product and expected inventory build in the quarter.

U.S. GENERIC PHARMACEUTICALS

During third quarter 2016, the U.S. Generic Pharmaceuticals business unit continued to execute on its sales and marketing, research and development (R&D), and manufacturing plans for the year.

Third quarter and recent 2016 U.S. Generic Pharmaceuticals results include:

  • Revenues of $534 million, a 45 percent increase compared to third quarter 2015; this increase was primarily attributable to growth from the addition of sales by Par.
  • Generics Base business revenues declined approximately 20 percent sequentially compared to the second quarter 2016, due to deepening consortium pricing pressures and additional competitive entrants and product discontinuations as well as discrete factors, including destocking and shifts in purchase timing due to market conditions. The sequential decline would have been approximately 15 percent without these discrete factors and this deeper decline may continue into 2017.
  • On November 1, 2016, the Company launched the generic form of SEROQUEL XR®, for which it has first-to-file status and 180 days of marketing exclusivity.

INTERNATIONAL PHARMACEUTICALS

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

Third quarter 2016 International Pharmaceuticals results include:

  • Revenues of $71 million, a 3 percent decrease compared to third quarter 2015.
  • Paladin revenues of $28 million, a 10 percent increase compared to third quarter 2015, due primarily to solid performance across the base business, the Canadian launch of Nucynta® and the continuing management of the expected loss of exclusivity for two products.
  • Emerging market revenues from Litha and Somar of $38 million, a 4 percent decrease compared to third 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 reaffirming its full year revenue and adjusted diluted EPS financial guidance. 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 $0.98 and $1.28; 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 60 percent;
  • Adjusted operating expenses as a percentage of revenues to be approximately 22.5 percent;
  • Adjusted interest expense of approximately $450 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 September 30, 2016, the Company had $561.6 million in unrestricted cash; net debt of approximately $7.7 billion and a net debt to adjusted EBITDA ratio of 4.9.

Third quarter 2016 cash used in operating activities was $111.3 million, primarily attributable to the funding of mesh payments, offset partially by improved cash collections.

During third quarter 2016, the Company recorded impairment charges of $93.5 million primarily related to unfavorable formulary changes and market conditions impacting its Sumavel® DosePro® product.

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 1074797. Please dial in 10 minutes prior to the scheduled start time.

A replay of the call will be available from November 8, 2016 at 11:30 a.m. ET until 11:30 a.m. ET on November 22, 2016 by dialing U.S./Canada (855) 859-2056, International (404) 537-3406, and entering the passcode 1074797.

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 11:30 a.m. ET on November 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 nine months ended September 30, 2016 and 2015:

 

Endo International plc

Net Revenues (unaudited)

(in thousands)

               
 

Three Months Ended
September 30,

 

Percent Growth

 

Nine Months Ended
September 30,

 

Percent Growth

 

2016

 

2015

   

2016

 

2015

 

U.S. Branded Pharmaceuticals:

                     

Pain Management:

                     

LIDODERM®

$

19,704

   

$

29,689

   

(34)

%

 

$

66,455

   

$

85,035

   

(22)

%

OPANA® ER

36,834

   

42,206

   

(13)

%

 

120,058

   

132,162

   

(9)

%

PERCOCET®

33,881

   

31,898

   

6

%

 

103,182

   

100,641

   

3

%

Voltaren® Gel

18,993

   

48,515

   

(61)

%

 

82,030

   

144,992

   

(43)

%

 

$

109,412

   

$

152,308

   

(28)

%

 

$

371,725

   

$

462,830

   

(20)

%

Specialty Pharmaceuticals:

                     

SUPPRELIN® LA

$

19,392

   

$

19,095

   

2

%

 

$

57,855

   

$

53,173

   

9

%

XIAFLEX®

47,695

   

40,000

   

19

%

 

134,159

   

107,918

   

24

%

 

$

67,087

   

$

59,095

   

14

%

 

$

192,014

   

$

161,091

   

19

%

Branded Other Revenues (1)

103,344

   

93,375

   

11

%

 

313,259

   

281,277

   

11

%

Total U.S. Branded Pharmaceuticals (2)

$

279,843

   

$

304,778

   

(8)

%

 

$

876,998

   

$

905,198

   

(3)

%

U.S. Generic Pharmaceuticals:

                     

U.S. Generics Base

$

263,431

   

$

252,881

   

4

%

 

$

941,955

   

$

711,392

   

32

%

Sterile Injectables

136,966

   

7,081

   

1,834

%

 

386,900

   

7,081

   

5,364

%

New Launches and Alternative Dosages

133,294

   

107,971

   

23

%

 

353,584

   

344,748

   

3

%

Total U.S. Generic Pharmaceuticals

$

533,691

   

$

367,933

   

45

%

 

$

1,682,439

   

$

1,063,221

   

58

%

Total International Pharmaceuticals

$

70,801

   

$

73,016

   

(3)

%

 

$

209,324

   

$

226,602

   

(8)

%

Total Revenues

$

884,335

   

$

745,727

   

19

%

 

$

2,768,761

   

$

2,195,021

   

26

%

                                           
                                           
   

(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 product category and/or any product having revenues in excess of $25.0 million during the three months ended September 30, 2016 or September 30, 2015.

 

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

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2016

 

2015

 

2016

 

2015

TOTAL REVENUES

$

884,335

   

$

745,727

   

$

2,768,761

   

$

2,195,021

 

COSTS AND EXPENSES:

             

Cost of revenues

557,472

   

442,459

   

1,878,395

   

1,265,583

 

Selling, general and administrative

186,735

   

163,221

   

558,160

   

529,290

 

Research and development

44,885

   

21,327

   

137,166

   

58,208

 

Litigation-related and other contingencies, net

18,256

   

   

28,715

   

19,875

 

Asset impairment charges

93,504

   

923,607

   

263,080

   

1,000,850

 

Acquisition-related and integration items

19,476

   

(27,688)

   

80,201

   

51,177

 

OPERATING LOSS FROM CONTINUING OPERATIONS

$

(35,993)

   

$

(777,199)

   

$

(176,956)

   

$

(729,962)

 

INTEREST EXPENSE, NET

112,184

   

96,446

   

340,896

   

250,196

 

LOSS ON EXTINGUISHMENT OF DEBT

   

40,909

   

   

41,889

 

OTHER (INCOME) EXPENSE, NET

(2,866)

   

50,091

   

402

   

62,589

 

LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX

$

(145,311)

   

$

(964,645)

   

$

(518,254)

   

$

(1,084,636)

 

INCOME TAX EXPENSE (BENEFIT)

46,185

   

(160,939)

   

(627,807)

   

(340,528)

 

(LOSS) INCOME FROM CONTINUING OPERATIONS

$

(191,496)

   

$

(803,706)

   

$

109,553

   

$

(744,108)

 

 DISCONTINUED OPERATIONS, NET OF TAX

(27,423)

   

(246,782)

   

(118,747)

   

(632,624)

 

CONSOLIDATED NET LOSS

$

(218,919)

   

$

(1,050,488)

   

$

(9,194)

   

$

(1,376,732)

 

Less: Net income (loss) attributable to noncontrolling interests

   

(46)

   

16

   

(153)

 

NET LOSS ATTRIBUTABLE TO ENDO
INTERNATIONAL PLC

$

(218,919)

   

$

(1,050,442)

   

$

(9,210)

   

$

(1,376,579)

 

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

             

Continuing operations

$

(0.86)

   

$

(3.84)

   

$

0.49

   

$

(3.96)

 

Discontinued operations

(0.12)

   

(1.18)

   

(0.53)

   

(3.36)

 

Basic

$

(0.98)

   

$

(5.02)

   

$

(0.04)

   

$

(7.32)

 

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

             

Continuing operations

$

(0.86)

   

$

(3.84)

   

$

0.49

   

$

(3.96)

 

Discontinued operations

(0.12)

   

(1.18)

   

(0.53)

   

(3.36)

 

Diluted

$

(0.98)

   

$

(5.02)

   

$

(0.04)

   

$

(7.32)

 

WEIGHTED AVERAGE SHARES:

             

Basic

222,767

   

209,274

   

222,579

   

188,085

 

Diluted

222,767

   

209,274

   

223,060

   

188,085

 

 

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

 

 

September 30,
 2016

 

December 31,
 2015

ASSETS

     

CURRENT ASSETS:

     

Cash and cash equivalents

$

561,577

   

$

272,348

 

Restricted cash and cash equivalents

275,745

   

585,379

 

Accounts receivable

669,815

   

1,014,808

 

Inventories, net

624,302

   

752,493

 

Assets held for sale

   

36,522

 

Other assets

115,997

   

790,987

 

Total current assets

$

2,247,436

   

$

3,452,537

 

TOTAL NON-CURRENT ASSETS

15,436,066

   

15,897,799

 

TOTAL ASSETS

$

17,683,502

   

$

19,350,336

 

LIABILITIES AND STOCKHOLDERS' EQUITY

     

CURRENT LIABILITIES:

     

Accounts payable and accrued expenses

$

2,532,293

   

$

3,116,841

 

Liabilities held for sale

   

20,215

 

Other current liabilities

130,009

   

337,256

 

Total current liabilities

$

2,662,302

   

$

3,474,312

 

LONG-TERM DEBT, LESS CURRENT PORTION, NET

8,170,618

   

8,251,657

 

OTHER LIABILITIES

799,721

   

1,656,391

 

STOCKHOLDERS' EQUITY:

     

Total Endo International plc shareholders' equity

$

6,050,861

   

$

5,968,030

 

Noncontrolling interests

   

(54)

 

Total shareholders' equity

$

6,050,861

   

$

5,967,976

 

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

17,683,502

   

$

19,350,336

 

 

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

 

 

Nine Months Ended September 30,

 

2016

 

2015

OPERATING ACTIVITIES:

     

Consolidated net loss

$

(9,194)

   

$

(1,376,732)

 

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

     

Depreciation and amortization

716,332

   

381,952

 

Asset impairment charges

284,409

   

1,244,672

 

Deferred income taxes

(613,318)

   

(335,171)

 

Other

200,051

   

118,684

 

Changes in assets and liabilities which used cash

(134,903)

   

(210,837)

 

Net cash provided by (used in) operating activities

$

443,377

   

$

(177,432)

 

INVESTING ACTIVITIES:

     

Purchases of property, plant and equipment, net

(85,509)

   

(50,944)

 

Acquisitions, net of cash acquired

(30,394)

   

(7,514,425)

 

Proceeds from sale of business, net

4,108

   

1,588,779

 

Increase in restricted cash and cash equivalents, net

(588,455)

   

(533,441)

 

Decrease in restricted cash and cash equivalents

898,288

   

549,171

 

Other

(19,172)

   

364

 

Net cash provided by (used in) investing activities

$

178,866

   

$

(5,960,496)

 

FINANCING ACTIVITIES:

     

(Payments on) proceeds from borrowings, net

(305,634)

   

4,418,808

 

Issuance of ordinary shares

   

2,300,000

 

Other

(28,877)

   

(148,262)

 

Net cash (used in) provided by financing activities

$

(334,511)

   

$

6,570,546

 

Effect of foreign exchange rate

$

1,497

   

$

(5,260)

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

$

289,229

   

$

427,358

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

272,348

   

408,753

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

$

561,577

   

$

836,111

 

 

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 nine months ended September 30, 2016 and 2015 (in thousands):

 

 

Nine Months Ended September 30,

 

2016

 

2015

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

$

931,496

   

$

525,875

 

Redemption fees paid in connection with debt retirements

   

17,496

 

Unused commitment fees

   

78,352

 

Separation and restructuring payments

73,962

   

59,292

 

Transaction costs and certain integration charges paid in connection with acquisitions

54,262

   

151,687

 

U.S. Federal tax refunds received

(712,303)

   

(70,300)

 

Total

$

347,417

   

$

762,402

 

 

(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 nine months ended September 30, 2016 and 2015 by cash flow component:

 

 

 

Nine Months Ended September 30,

 

2016

 

2015

 

Impact on CFO (A)

 

Impact on CFI

 

Impact on CFO (A)

 

Impact on CFI

Cash contributions to Qualified Settlement Funds

$

   

$

(587,782)

   

$

   

$

(526,785)

 

Cash payments to claimants from Qualified Settlement Funds

(898,288)

   

898,288

   

(509,563)

   

509,563

 

Cash payments made directly to claimants

(5,561)

   

   

(16,312)

   

 

Total

$

(903,849)

   

$

310,506

   

$

(525,875)

   

$

(17,222)

 
   

(A)

These amounts are included in Changes in assets and liabilities which 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 nine months ended September 30, 2016 and 2015:

 

ENDO INTERNATIONAL PLC

Reconciliation of GAAP and Non-GAAP Financial Measures

(UNAUDITED)

(In thousands)

       
 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2016

 

2015

 

2016

 

2015

(Loss) Income from continuing operations (GAAP)

$

(191,496)

   

$

(803,706)

   

$

109,553

   

$

(744,108)

 

Non-GAAP adjustments:

             

Amortization of intangible assets

211,548

   

121,503

   

636,061

   

333,759

 

Inventory step-up and other cost savings

14,208

   

42,919

   

111,787

   

131,783

 

Upfront and milestone related payments

1,770

   

9,261

   

5,875

   

14,063

 

Inventory reserve (decrease) increase from restructuring

(9,041)

   

   

24,592

   

 

Royalty obligations

   

   

(7,750)

   

 

Separation benefits and other restructuring

18,823

   

22,669

   

45,820

   

70,256

 

Acceleration of Auxilium employee equity awards

   

   

   

37,603

 

Charges for litigation and other legal matters

18,256

   

   

28,715

   

19,875

 

Asset impairment charges

93,504

   

923,607

   

263,080

   

1,000,850

 

Acquisition-related and integration costs

7,907

   

52,585

   

55,422

   

134,778

 

Fair value of contingent consideration

11,569

   

(80,273)

   

24,779

   

(83,601)

 

Non-cash and penalty interest charges

   

1,924

   

4,092

   

6,302

 

Other

53

   

87,089

   

(5,437)

   

102,664

 

Tax adjustments

48,418

   

(163,468)

   

(637,998)

   

(398,419)

 

Adjusted income from continuing operations (non-GAAP)

$

225,519

   

$

214,110

   

$

658,591

   

$

625,805

 
                       
                       
         

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 September 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 expense

 

Effective tax rate

 

Loss from continuing operations

 

Discontinued operations, net of tax

 

Net loss attributable to Endo International plc (14)

 

Diluted loss per share (15)

Reported (GAAP)

$     884,335

 

$     557,472

 

$     326,863

 

37 %

 

$     362,856

 

41 %

 

$     (35,993)

 

(4)%

 

$     109,318

 

$   (145,311)

 

$       46,185

 

(32)%

 

$   (191,496)

 

$     (27,423)

 

$   (218,919)

 

$  (0.86)

Items impacting comparability:

                                                             

Amortization of intangible assets (1)

 

(211,548)

 

211,548

     

     

211,548

     

 

211,548

 

     

211,548

 

 

211,548

 

0.95

Inventory step-up and other costs savings (2)

 

(14,208)

 

14,208

     

     

14,208

     

 

14,208

 

     

14,208

 

 

14,208

 

0.06

Upfront and milestone-related payments (3)

 

(664)

 

664

     

(1,106)

     

1,770

     

 

1,770

 

     

1,770

 

 

1,770

 

0.01

Inventory reserve decrease from restructuring (4)

 

9,041

 

(9,041)

     

     

(9,041)

     

 

(9,041)

 

     

(9,041)

 

 

(9,041)

 

(0.04)

Separation benefits and other restructuring (5)

 

(12,989)

 

12,989

     

(5,834)

     

18,823

     

 

18,823

 

     

18,823

 

 

18,823

 

0.08

Charges for litigation and other legal matters (6)

 

 

     

(18,256)

     

18,256

     

 

18,256

 

     

18,256

 

 

18,256

 

0.08

Asset impairment charges (7)

 

 

     

(93,504)

     

93,504

     

 

93,504

 

     

93,504

 

 

93,504

 

0.42

Acquisition-related and integration costs (8)

 

 

     

(7,907)

     

7,907

     

 

7,907

 

     

7,907

 

 

7,907

 

0.04

Fair value of contingent consideration (9)

 

 

     

(11,569)

     

11,569

     

 

11,569

 

     

11,569

 

 

11,569

 

0.05

Other (11)

 

 

     

     

     

(53)

 

53

 

     

53

 

 

53

 

Tax adjustments (12)

 

 

     

     

     

 

 

(48,418)

     

48,418

 

 

48,418

 

0.22

Exclude discontinued operations, net of tax (13)

 

 

     

     

     

 

 

     

 

27,423

 

27,423

 

After considering items (non-GAAP)

$     884,335

 

$     327,104

 

$     557,231

 

63 %

 

$     224,680

 

25 %

 

$     332,551

 

38 %

 

$     109,265

 

$     223,286

 

$       (2,233)

 

(1)%

 

$     225,519

 

$              —

 

$     225,519

 

$   1.01

                                                               
                                                               
 

Three Months Ended September 30, 2015

 

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

 

Loss from continuing operations

 

Discontinued operations, net of tax

 

Net loss attributable to Endo International plc (14)

 

Diluted loss per share (15)

Reported (GAAP)

$     745,727

 

$     442,459

 

$     303,268

 

41 %

 

$  1,080,467

 

145 %

 

$   (777,199)

 

(104)%

 

$     187,446

 

$   (964,645)

 

$   (160,939)

 

17 %

 

$   (803,706)

 

$   (246,782)

 

$(1,050,442)

 

$  (3.84)

Items impacting comparability:

                                                             

Amortization of intangible assets (1)

 

(121,503)

 

121,503

     

     

121,503

     

 

121,503

 

     

121,503

 

 

121,503

 

0.57

Inventory step-up and other costs savings (2)

 

(42,919)

 

42,919

     

     

42,919

     

 

42,919

 

     

42,919

 

 

42,919

 

0.21

Upfront and milestone-related payments (3)

 

(4,639)

 

4,639

     

(4,622)

     

9,261

     

 

9,261

 

     

9,261

 

 

9,261

 

0.04

Separation benefits and other restructuring (5)

 

(906)

 

906

     

(21,763)

     

22,669

     

 

22,669

 

     

22,669

 

 

22,669

 

0.11

Asset impairment charges (7)

 

 

     

(923,607)

     

923,607

     

 

923,607

 

     

923,607

 

 

923,607

 

4.41

Acquisition-related and integration costs (8)

 

 

     

(52,585)

     

52,585

     

 

52,585

 

     

52,585

 

 

52,585

 

0.25

Fair value of contingent consideration (9)

 

 

     

80,273

     

(80,273)

     

 

(80,273)

 

     

(80,273)

 

 

(80,273)

 

(0.38)

Non-cash and penalty interest charges (10)

 

 

     

     

     

(1,924)

 

1,924

 

     

1,924

 

 

1,924

 

0.01

Other (11)

 

 

     

     

     

(87,089)

 

87,089

 

     

87,089

 

 

87,089

 

0.42

Tax adjustments (12)

 

 

     

     

     

 

 

163,468

     

(163,468)

 

 

(163,468)

 

(0.78)

Exclude discontinued operations, net of tax (13)

 

 

     

     

     

 

 

     

 

247,362

 

247,362

 

After considering items (non-GAAP)

$     745,727

 

$     272,492

 

$     473,235

 

63 %

 

$     158,163

 

21 %

 

$     315,072

 

42 %

 

$       98,433

 

$     216,639

 

$         2,529

 

1 %

 

$     214,110

 

$            580

 

$     214,736

 

$   1.02

                                                               

 

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 September 30,

 

2016

 

2015

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

$

198,117

   

$

113,669

 

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

13,431

   

7,834

 

Total

$

211,548

   

$

121,503

 

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

 

Three Months Ended September 30,

 

2016

 

2015

Fair value step-up of inventory sold

$

11,129

   

$

38,461

 

Excess manufacturing costs that will be eliminated pursuant to integration plans

3,079

   

4,458

 

Total

$

14,208

   

$

42,919

 

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

 

Three Months Ended September 30,

 

2016

 

2015

 

 Cost of revenues

 

 Operating expenses

 

 Cost of revenues

 

 Operating expenses

Sales-based milestones

$

664

   

$

   

$

4,639

   

$

 

Development-based milestones

   

1,106

   

   

4,622

 

Total

664

   

1,106

   

4,639

   

4,622

 

(4)     To exclude decreases of excess inventory reserves of $(9.0) million recorded during the three months ended September 30, 2016, primarily related to the 2016 U.S. Generic Pharmaceuticals restructuring initiative. This adjustment resulted from the sell-through of certain inventory previously reserved.

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

 

Three Months Ended September 30,

 

2016

 

2015

 

 Cost of revenues

 

 Operating expenses

 

 Cost of revenues

 

 Operating expenses

Separation benefits

$

5,564

   

$

9,234

   

$

906

   

$

21,169

 

Accelerated depreciation

7,425

   

(4,968)

   

   

175

 

Other

   

1,568

   

   

419

 

Total

$

12,989

   

$

5,834

   

$

906

   

$

21,763

 

(6)   To exclude litigation settlement charges.

(7)   To exclude asset impairment charges. During the three months ended September 30, 2016 and 2015, we recorded impairment charges of $93.5 million resulting from a charge of $72.8 million in our U.S. Branded Pharmaceuticals segment relating to our Sumavel® DosePro® product, which resulted from unfavorable formulary changes and a downturn in its performance, and a $16.2 million charge on a definite-lived intangible asset in our International Pharmaceuticals segment relating to a third quarter 2016 decision not to pursue commercialization of a product in certain international markets. During the three months ended September 30, 2015, we recorded impairment charges of $923.6 million resulting from a charge of $680.0 million, representing the difference between the estimated implied fair value of the former UEO reporting unit's goodwill and its respective net book value, and charges of approximately $242.9 million on certain intangible assets primarily from our U.S. Branded Pharmaceuticals and U.S. Generic Pharmaceuticals segments.

(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 September 30,

 

2016

 

2015

Integration costs (primarily third-party consulting fees)

$

7,125

   

$

6,697

 

Transaction costs

   

40,877

 

Transition services

1,259

   

3,391

 

Other

(477)

   

1,620

 

Total

$

7,907

   

$

52,585

 

(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 $1,924.

(11) Adjustments to other included the following:

 

Three Months Ended September 30,

 

2016

 

2015

 

 Operating expenses

 

Other non-
operating
expenses

 

 Operating expenses

 

Other non-operating expenses

Costs associated with unused financing commitments

$

   

$

   

$

   

$

64,281

 

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

   

(114)

   

   

(5,693)

 

Loss on extinguishment of debt

   

   

   

40,909

 

Other miscellaneous

   

167

   

   

(12,408)

 

Total

$

   

$

53

   

$

   

$

87,089

 

(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.

During the third quarter of 2016, Endo completed a legal entity reorganization of the Generics business. The restructuring resulted in the recording of a deferred tax charge of $395.1 million in accordance with applicable accounting guidance. Within the third quarter, Endo recorded a net discrete tax expense of $42.6 million primarily related to the amortization of the aforementioned deferred charge, which was partially offset by a favorable return to provision adjustment resulting from filing U.S. federal income tax returns. In accordance with our adjusted policy, all but a tax benefit of $4.4 million of the net discrete tax expense has been removed from our adjusted tax expense due to the distortive nature of the deferred charge amortization. The remaining tax benefit of $4.4 million is associated with the filing of the U.S. federal income tax returns.

Refer to footnote 14 in the Reconciliation of GAAP and Non-GAAP Financial Measures tables for nine months ended September 30, 2016 and 2015 for further discussion of the legal entity reorganization discussed above and our change in policy resulting from the SEC's updated guidance on Non-GAAP measures issued in May 2016.

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

(14) This amount includes non-controlling interest $(46) for the three months ended September 30, 2015.

(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 September 30, 2016 is 222,767 and 223,139 for the GAAP and non-GAAP EPS calculations, respectively. The applicable weighted average share number for the three months ended September 30, 2015 is 209,274 for the GAAP EPS calculation and 210,787 for the non-GAAP EPS calculations, respectively.

 

ENDO INTERNATIONAL PLC

Reconciliation of GAAP and Non-GAAP Financial Measures

(UNAUDITED)

(In thousands, except per share data)

 
 

Nine Months Ended September 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 loss attributable to Endo International plc (16)

 

Diluted earnings per share (17)

Reported (GAAP)

$2,768,761

 

$1,878,395

 

$   890,366

 

32 %

 

$1,067,322

 

39 %

 

$ (176,956)

 

(6)%

 

$   341,298

 

$   (518,254)

 

$ (627,807)

 

121 %

 

$   109,553

 

$ (118,747)

 

$       (9,210)

 

$  0.49

Items impacting comparability:

                                                             

Amortization of intangible assets (1)

 

(636,061)

 

636,061

     

     

636,061

     

 

636,061

 

     

636,061

 

 

636,061

 

2.84

Inventory step-up and other costs savings (2)

 

(110,437)

 

110,437

     

(1,350)

     

111,787

     

 

111,787

 

     

111,787

 

 

111,787

 

0.50

Upfront and milestone-related payments (3)

 

(1,973)

 

1,973

     

(3,902)

     

5,875

     

 

5,875

 

     

5,875

 

 

5,875

 

0.03

Inventory reserve increase from restructuring (4)

 

(24,592)

 

24,592

     

     

24,592

     

 

24,592

 

     

24,592

 

 

24,592

 

0.11

Royalty obligations (5)

 

7,750

 

(7,750)

     

     

(7,750)

     

 

(7,750)

 

     

(7,750)

 

 

(7,750)

 

(0.03)

Separation benefits and other restructuring (6)

 

(19,394)

 

19,394

     

(26,426)

     

45,820

     

 

45,820

 

     

45,820

 

 

45,820

 

0.21

Charges for litigation and other legal matters (8)

 

 

     

(28,715)

     

28,715

     

 

28,715

 

     

28,715

 

 

28,715

 

0.13

Asset impairment charges (9)

 

 

     

(263,080)

     

263,080

     

 

263,080

 

     

263,080

 

 

263,080

 

1.18

Acquisition-related and integration costs (10)

 

 

     

(55,422)

     

55,422

     

 

55,422

 

     

55,422

 

 

55,422

 

0.25

Fair value of contingent consideration (11)

 

 

     

(24,779)

     

24,779

     

 

24,779

 

     

24,779

 

 

24,779

 

0.11

Non-cash and penalty interest charges (12)

 

 

     

     

     

(4,092)

 

4,092

 

     

4,092

 

 

4,092

 

0.02

Other (13)

 

 

     

     

     

5,437

 

(5,437)

 

     

(5,437)

 

 

(5,437)

 

(0.02)

Tax adjustments (14)

 

 

     

     

     

 

 

637,998

     

(637,998)

 

 

(637,998)

 

(2.87)

Exclude discontinued operations, net of tax (15)

 

 

     

     

     

 

 

     

 

118,747

 

118,747

 

After considering items (non-GAAP)

$2,768,761

 

$1,093,688

 

$1,675,073

 

60 %

 

$   663,648

 

24 %

 

$1,011,425

 

37 %

 

$   342,643

 

$    668,782

 

$     10,191

 

2 %

 

$   658,591

 

$            —

 

$    658,575

 

$  2.95

                                                               
                                                               
 

Nine Months Ended September 30, 2015

 

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

 

Loss from continuing operations

 

Discontinued operations, net of tax

 

Net loss attributable to Endo International plc (16)

 

Diluted loss per share (17)

Reported (GAAP)

$2,195,021

 

$1,265,583

 

$   929,438

 

42 %

 

$1,659,400

 

76 %

 

$ (729,962)

 

(33)%

 

$   354,674

 

$(1,084,636)

 

$ (340,528)

 

31 %

 

$ (744,108)

 

$ (632,624)

 

$(1,376,579)

 

$(3.96)

Items impacting comparability:

                                                             

Amortization of intangible assets (1)

 

(333,759)

 

333,759

     

     

333,759

     

 

333,759

 

     

333,759

 

 

333,759

 

1.76

Inventory step-up and other costs savings (2)

 

(131,783)

 

131,783

     

     

131,783

     

 

131,783

 

     

131,783

 

 

131,783

 

0.69

Upfront and milestone-related payments (3)

 

(5,866)

 

5,866

     

(8,197)

     

14,063

     

 

14,063

 

     

14,063

 

 

14,063

 

0.07

Separation benefits and other restructuring (6)

 

(906)

 

906

     

(69,350)

     

70,256

     

 

70,256

 

     

70,256

 

 

70,256

 

0.36

Acceleration of Auxilium employee equity awards (7)

 

 

     

(37,603)

     

37,603

     

 

37,603

 

     

37,603

 

 

37,603

 

0.20

Charges for litigation and other legal matters (8)

 

 

     

(19,875)

     

19,875

     

 

19,875

 

     

19,875

 

 

19,875

 

0.11

Asset impairment charges (9)

 

 

     

(1,000,850)

     

1,000,850

     

 

1,000,850

 

     

1,000,850

 

 

1,000,850

 

5.31

Acquisition-related and integration costs (10)

 

 

     

(134,778)

     

134,778

     

 

134,778

 

     

134,778

 

 

134,778

 

0.71

Fair value of contingent consideration (11)

 

 

     

83,601

     

(83,601)

     

 

(83,601)

 

     

(83,601)

 

 

(83,601)

 

(0.44)

Non-cash and penalty interest charges (12)

 

 

     

     

     

(6,302)

 

6,302

 

     

6,302

 

 

6,302

 

0.02

Other (13)

 

 

     

(800)

     

800

     

(101,864)

 

102,664

 

     

102,664

 

 

102,664

 

0.55

Tax adjustments (14)

 

 

     

     

     

 

 

398,419

     

(398,419)

 

 

(398,419)

 

(2.12)

Exclude discontinued operations, net of tax (15)

 

 

     

     

     

 

 

     

 

675,998

 

675,998

 

After considering items (non-GAAP)

$2,195,021

 

$   793,269

 

$1,401,752

 

64 %

 

$   471,548

 

21 %

 

$   930,204

 

42 %

 

$   246,508

 

$    683,696

 

$     57,891

 

8 %

 

$   625,805

 

$     43,374

 

$    669,332

 

$  3.26

 

 

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:

 

Nine Months Ended September 30,

 

2016

 

2015

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

$

606,090

   

$

314,179

 

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

29,971

   

19,580

 

Total

$

636,061

   

$

333,759

 

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

 

Nine Months Ended September 30,

 

2016

 

2015

 

Cost of revenues

 

 Operating expenses

 

Cost of revenues

 

 Operating expenses

Fair value step-up of inventory sold

$

99,099

   

$

957

   

$

122,714

   

$

 

Excess manufacturing costs that will be
eliminated pursuant to integration plans

11,338

   

393

   

9,069

   

 

Total

$

110,437

   

$

1,350

   

$

131,783

   

$

 

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

 

Nine Months Ended September 30,

 

2016

 

2015

 

 Cost of revenues

 

 Operating expenses

 

 Cost of revenues

 

 Operating expenses

Sales-based milestones

$

1,973

   

$

   

$

5,866

   

$

 

Development-based milestones

   

3,902

   

   

8,197

 

Total

1,973

   

3,902

   

5,866

   

8,197

 

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

(5)   To adjust for the reversal of the remaining Voltaren® Gel minimum royalty obligations as a result of a generic entrant.

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

 

Nine Months Ended September 30,

 

2016

 

2015

 

 Cost of revenues

 

 Operating expenses

 

 Cost of revenues

 

 Operating expenses

Separation benefits

$

11,969

   

$

18,008

   

$

906

   

$

58,348

 

Accelerated depreciation and product
discontinuation charges

7,425

   

2,803

   

   

8,320

 

Other

   

5,615

   

   

2,682

 

Total

$

19,394

   

$

26,426

   

$

906

   

$

69,350

 

(7)   To exclude the acceleration of Auxilium employee equity awards at closing of acquisition.

(8)   To exclude litigation settlement charges.

(9)   To exclude asset impairment charges. During the nine months ended September 30, 2016 we recorded pre-tax, non-cash impairment charges of $263.1 million as a result of a charge of $72.8 million in our U.S. Branded Pharmaceuticals segment relating to our Sumavel® DosePro® product, which resulted from unfavorable formulary changes and a downturn in its performance, a $16.2 million charge on a definite-lived intangible asset in our International Pharmaceuticals segment relating to a third quarter 2016 decision not to pursue commercialization of a product in certain international markets, a $69.0 million charge due to certain market conditions impacting the commercial potential of certain intangible assets in our U.S. Generic Pharmaceuticals segment, a $100.3 million charge related to the 2016 U.S. Generic Pharmaceuticals restructuring initiative, which resulted from the discontinuation of certain commercial products and the abandonment of certain IPR&D projects. During the nine months ended September 20, 2015, we recorded pre-tax, non-cash impairment charges of $1.0 billion as a result of a third quarter 2015 provisional impairment charge of $680.0 million, representing the difference between the estimated implied fair value of the former UEO reporting unit's goodwill and its respective net book value, $313.1 million on certain intangible assets primarily from our U.S. Branded Pharmaceuticals and U.S. Generic Pharmaceuticals segments, and $7.0 million on certain leasehold improvements associated with Auxilium's former headquarters.

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

 

Nine Months Ended September 30,

 

2016

 

2015

Integration costs (primarily third-party consulting fees)

$

38,311

   

$

23,356

 

Transaction costs

   

90,583

 

Transition services

9,729

   

12,911

 

Other

7,382

   

7,928

 

Total

$

55,422

   

$

134,778

 

(11) 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.

(12) Adjustments to interest charges included the following:

 

Nine Months Ended September 30,

 

2016

 

2015

Penalty interest charges

$

4,092

   

$

4,670

 

Non-cash interest expense related to our 1.75% Convertible Senior Subordinated Notes

   

1,632

 

Total

$

4,092

   

$

6,302

 

(13) Adjustments to other included the following:

 

Nine Months Ended September 30,

 

2016

 

2015

 

 Operating expenses

 

Other non-operating expenses

 

 Operating expenses

 

Other non-operating expenses

Costs associated with unused financing commitments

$

   

$

   

$

800

   

$

78,352

 

Other than temporary impairment of equity investment

   

       

18,869

 

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

   

1,558

   

   

(23,991)

 

Loss on extinguishment of debt

   

       

41,889

 

Other miscellaneous expense (income)

   

(6,995)

   

   

(13,255)

 

Total

$

   

$

(5,437)

   

$

800

   

$

101,864

 

 

(14) During the third quarter of 2016, Endo completed 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 $635 million 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 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 substantially 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

 

Nine
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

   

3.26

   

1.36

   

4.66

   

1.08

 

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

(0.11)

   

(0.09)

   

(0.16)

   

(0.36)

   

(0.18)

   

(0.56)

   

(0.16)

 

Adjusted Diluted EPS from Continuing Operations - As Revised

1.06

   

0.99

   

0.86

   

2.90