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Endo Reports Third-Quarter 2017 Financial Results

November 9, 2017

DUBLIN, Nov. 9, 2017 /PRNewswire/ --

  • Third-quarter 2017 revenues of $787 million and reported $0.45 diluted (GAAP) loss per share from continuing operations
  • Third-quarter 2017 adjusted diluted earnings per share (EPS) from continuing operations of $0.91
  • Third-quarter 2017 Sterile Injectables revenues increased 28 percent to $175 million
  • Third-quarter 2017 Branded Specialty Products revenues increased 11 percent to $114 million
  • Third-quarter 2017 reported (GAAP) consolidated net loss of $97 million
  • Third-quarter 2017 adjusted EBITDA of $375 million
  • Company reaffirms full year 2017 revenues, adjusted diluted EPS and adjusted EBITDA financial guidance provided in August 2017

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

  • Revenues of $787 million, an 11 percent decrease compared to third-quarter 2016 revenues of $884 million.
  • Reported net loss from continuing operations of $100 million compared to third-quarter 2016 reported net loss from continuing operations of $191 million.
  • Reported diluted loss per share from continuing operations of $0.45 compared to third-quarter 2016 reported diluted loss per share from continuing operations of $0.86.
  • Adjusted income from continuing operations of $204 million compared to third-quarter 2016 adjusted income from continuing operations of $226 million.
  • Adjusted diluted EPS from continuing operations of $0.91 compared to third-quarter 2016 adjusted diluted EPS from continuing operations of $1.01.
  • Adjusted EBITDA of $375 million compared to third-quarter 2016 adjusted EBITDA of $367 million.

"We continue to execute against our key priorities and deliver solid operating results," said Paul Campanelli, President and CEO of Endo. "Our core areas of focus, Sterile Injectables and Branded Specialty Products, are achieving impressive growth while we continue to drive margin expansion. We look forward to a strong finish to 2017 and we reaffirm the revenue and adjusted financial guidance we provided in August 2017."

 

FINANCIAL PERFORMANCE

 

(in thousands, except per share amounts)

               
 

Three Months Ended September 30,

     

Nine Months Ended September 30,

   
 

2017

 

2016

 

Change

 

2017

 

2016

 

Change

Total Revenues

$

786,887

   

$

884,335

   

(11)

%

 

$

2,700,218

   

$

2,768,761

   

(2)

%

Reported (Loss) Income from Continuing Operations

$

(99,687)

   

$

(191,496)

   

(48)

%

 

$

(961,130)

   

$

109,553

   

NM

 

Reported Diluted Weighted Average Shares

223,299

   

222,767

   

%

 

223,157

   

223,060

   

%

Reported Diluted (Loss) Income per Share from Continuing Operations

$

(0.45)

   

$

(0.86)

   

(48)

%

 

$

(4.31)

   

$

0.49

   

NM

 

Adjusted Income from Continuing Operations

$

204,052

   

$

225,519

   

(10)

%

 

$

686,498

   

$

658,591

   

4

%

Adjusted Diluted Weighted Average Shares1

224,216

   

223,139

   

%

 

223,779

   

223,060

   

%

Adjusted Diluted EPS from Continuing Operations

$

0.91

   

$

1.01

   

(10)

%

 

$

3.07

   

$

2.95

   

4

%

                                           

(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 11 percent to $787 million in third-quarter 2017 compared to the same period in 2016. The decline was primarily due to previously announced U.S. Generic Pharmaceuticals product discontinuances, pricing pressure from increased competition primarily impacting the U.S. Generics Base business, generic competition adversely impacting the Branded Established Products portfolio and the ceasing of shipments of OPANA® ER to customers by September 1, 2017.

GAAP net loss from continuing operations in third-quarter 2017 was $100 million compared to GAAP net loss from continuing operations of $191 million during the same period in 2016. This decrease included the impact of lower amortization of intangible assets in third-quarter 2017 and higher third-quarter 2016 tax expense primarily due to the amortization of a deferred charge. GAAP net loss per share from continuing operations for third-quarter 2017 was $0.45, compared to diluted GAAP loss per share from continuing operations of $0.86 in third-quarter 2016.

Adjusted income from continuing operations in third-quarter 2017 was $204 million compared to $226 million in third-quarter 2016. This decrease included the impact of an increase to interest expense, mainly due to the refinancing of the Company's secured debt in April 2017, and adjusted tax expense. Adjusted EPS from continuing operations in third-quarter 2017 was $0.91 compared to $1.01 in third-quarter 2016.

 

U.S. GENERIC PHARMACEUTICALS

During third-quarter 2017, the U.S. Generic Pharmaceuticals segment launched vigabatrin for oral solution USP, the first generic version of Sabril®, and sodium phenylbutyrate tablets, the first generic equivalent of Buphenyl®. Year-to-date in 2017, Par has launched 14 new generic products and has made nine submissions to regulatory authorities.

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

  • Revenues of $497 million, a 7 percent decrease compared to third-quarter 2016, as the decline in the U.S. Generics Base business was partially offset by strong growth in Sterile Injectables.
  • Sterile Injectables revenue increased 28 percent compared to third-quarter 2016; this increase was driven primarily by ADRENALIN® and VASOSTRICT®.
  • The U.S. Generics Base business revenues decreased 27 percent compared to third-quarter 2016; this decrease primarily resulted from the impact on third-quarter 2017 related to 2016 and 2017 competitive events, previously announced product discontinuances and the continued impact on pricing due to consolidation among our trade accounts.
 

U.S. BRANDED PHARMACEUTICALS

During third-quarter 2017, Endo, in partnership with Tim Herron, a four-time PGA Tour winner, and Damon Adamany, MD, of the CORE Institute, launched Facts on Hand, an unbranded campaign to raise awareness of Dupuytren's Contracture, a progressive, potentially disfiguring hand condition. Endo also recently launched several direct-to-consumer initiatives intended to increase patient awareness of XIAFLEX® as a possible treatment option for Dupuytren's Contracture and Peyronie's Disease.

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

  • Revenues of $234 million, a 16 percent decrease compared to third-quarter 2016; this decrease was primarily attributable to generic competition adversely impacting the Company's established products portfolio, the divestitures of STENDRA® and BELBUCA® and the decline in revenues of OPANA® ER resulting from the cessation of product shipments by September 1, 2017.
  • Specialty Products revenues increased 11 percent in third-quarter 2017 versus the same period in 2016, driven by strong performance from XIAFLEX® and other products within our Specialty Products portfolio. Sales of XIAFLEX®, our flagship Branded product, increased 10 percent compared to third-quarter 2016; this increase was primarily attributable to volume growth.
 

INTERNATIONAL PHARMACEUTICALS

During third-quarter 2017, Endo announced it had entered into a definitive agreement to sell its Mexican subsidiary, Somar, to Advent International. The transaction closed on October 25, 2017.

Third-quarter 2017 International Pharmaceuticals revenues were $56 million, compared to $71 million in the same period in 2016. The decline is primarily attributable to the sale of the Company's South African business, Litha Healthcare Group, to Acino Pharma AG, which closed on July 3, 2017.

 

2017 FINANCIAL GUIDANCE

For the full twelve months ended December 31, 2017, at current exchange rates, Endo is reaffirming its full-year guidance on revenue, adjusted diluted EPS from continuing operations and adjusted EBITDA from continuing operations provided in August 2017. 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 $4.94 and $4.64;
  • 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 22.0%;
  • Adjusted interest expense of approximately $490 million to $500 million;
  • Adjusted effective tax rate of approximately 12.0% to 13.0%; 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 September 30, 2017, the Company had $738 million in unrestricted cash; debt of $8.3 billion; net debt of approximately $7.5 billion and a net debt to adjusted EBITDA ratio of 4.2.

Third-quarter 2017 cash provided by operating activities was $83 million, compared to $115 million of net cash used in operating activities in the comparable 2016 period. The 2016 period was impacted by higher funding of payments related to settled U.S. mesh product liability claims.

During third-quarter 2017, the Company recorded pre-tax, non-cash asset impairment charges of $95 million, $78 million of which related to in-process research and development intangible assets in its U.S. Generic Pharmaceuticals segment and certain finite-lived intangible assets in its U.S. Branded Pharmaceuticals segment.

 

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 92375212. Please dial in 10 minutes prior to the scheduled start time.

A replay of the call will be available from November 9, 2017 at 7:30 p.m. ET until 7:30 p.m. ET on November 12, 2017 by dialing U.S./Canada (855) 859-2056, International (404) 537-3406, and entering the passcode 92375212.

A simultaneous webcast of the call can be accessed by visiting www.endo.com. In addition, a replay of the webcast will be available on the Company website for one year following the event. 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 nine months ended September 30, 2017 and 2016 (in thousands):

 

Three Months Ended September 30,

 

Percent Growth

 

Nine Months Ended September 30,

 

Percent Growth

 

2017

 

2016

   

2017

 

2016

 

U.S. Generic Pharmaceuticals:

                     

U.S. Generics Base

$

192,333

   

$

263,431

   

(27)

%

 

$

647,415

   

$

941,955

   

(31)

%

Sterile Injectables

174,982

   

136,966

   

28

%

 

486,928

   

386,900

   

26

%

New Launches and Alternative Dosages

129,339

   

133,294

   

(3)

%

 

647,606

   

353,584

   

83

%

Total U.S. Generic Pharmaceuticals

$

496,654

   

$

533,691

   

(7)

%

 

$

1,781,949

   

$

1,682,439

   

6

%

U.S. Branded Pharmaceuticals:

                     

Specialty Products:

                     

XIAFLEX®

$

52,511

   

$

47,695

   

10

%

 

$

152,113

   

$

134,159

   

13

%

SUPPRELIN® LA

20,638

   

19,392

   

6

%

 

63,468

   

57,855

   

10

%

Other Specialty (1)

40,634

   

35,298

   

15

%

 

113,407

   

100,240

   

13

%

Total Specialty Products

$

113,783

   

$

102,385

   

11

%

 

$

328,988

   

$

292,254

   

13

%

Established Products:

                     

OPANA® ER

$

14,756

   

$

36,834

   

(60)

%

 

$

82,056

   

$

120,058

   

(32)

%

PERCOCET®

31,349

   

33,881

   

(7)

%

 

93,183

   

103,182

   

(10)

%

VOLTAREN® Gel

19,102

   

18,993

   

1

%

 

53,646

   

82,030

   

(35)

%

LIDODERM®

12,851

   

19,704

   

(35)

%

 

37,705

   

66,455

   

(43)

%

Other Established (2)

41,962

   

68,046

   

(38)

%

 

133,572

   

213,019

   

(37)

%

Total Established Products

$

120,020

   

$

177,458

   

(32)

%

 

$

400,162

   

$

584,744

   

(32)

%

Total U.S. Branded Pharmaceuticals (3)

$

233,803

   

$

279,843

   

(16)

%

 

$

729,150

   

$

876,998

   

(17)

%

Total International Pharmaceuticals

$

56,430

   

$

70,801

   

(20)

%

 

$

189,119

   

$

209,324

   

(10)

%

Total Revenues

$

786,887

   

$

884,335

   

(11)

%

 

$

2,700,218

   

$

2,768,761

   

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

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2017

 

2016

 

2017

 

2016

TOTAL REVENUES

$

786,887

   

$

884,335

   

$

2,700,218

   

$

2,768,761

 

COSTS AND EXPENSES:

             

Cost of revenues

514,522

   

557,472

   

1,722,885

   

1,878,395

 

Selling, general and administrative

135,880

   

186,735

   

468,675

   

558,160

 

Research and development

39,644

   

44,885

   

123,522

   

137,166

 

Litigation-related and other contingencies, net

(12,352)

   

18,256

   

(14,016)

   

28,715

 

Asset impairment charges

94,924

   

93,504

   

1,023,930

   

263,080

 

Acquisition-related and integration items

16,641

   

19,476

   

31,711

   

80,201

 

OPERATING LOSS FROM CONTINUING OPERATIONS

$

(2,372)

   

$

(35,993)

   

$

(656,489)

   

$

(176,956)

 

INTEREST EXPENSE, NET

127,521

   

112,184

   

361,267

   

340,896

 

LOSS ON EXTINGUISHMENT OF DEBT

   

   

51,734

   

 

OTHER (INCOME) EXPENSE, NET

(2,097)

   

(2,866)

   

(10,843)

   

402

 

LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX

$

(127,796)

   

$

(145,311)

   

$

(1,058,647)

   

$

(518,254)

 

INCOME TAX (BENEFIT) EXPENSE

(28,109)

   

46,185

   

(97,517)

   

(627,807)

 

(LOSS) INCOME FROM CONTINUING OPERATIONS

$

(99,687)

   

$

(191,496)

   

$

(961,130)

   

$

109,553

 

DISCONTINUED OPERATIONS, NET OF TAX

3,017

   

(27,423)

   

(705,886)

   

(118,747)

 

CONSOLIDATED NET LOSS

$

(96,670)

   

$

(218,919)

   

$

(1,667,016)

   

$

(9,194)

 

Less: Net income attributable to noncontrolling interests

   

   

   

16

 

NET LOSS ATTRIBUTABLE TO ENDO INTERNATIONAL PLC

$

(96,670)

   

$

(218,919)

   

$

(1,667,016)

   

$

(9,210)

 

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

             

Continuing operations

$

(0.45)

   

$

(0.86)

   

$

(4.31)

   

$

0.49

 

Discontinued operations

0.02

   

(0.12)

   

(3.16)

   

(0.53)

 

Basic

$

(0.43)

   

$

(0.98)

   

$

(7.47)

   

$

(0.04)

 

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

             

Continuing operations

$

(0.45)

   

$

(0.86)

   

$

(4.31)

   

$

0.49

 

Discontinued operations

0.02

   

(0.12)

   

(3.16)

   

(0.53)

 

Diluted

$

(0.43)

   

$

(0.98)

   

$

(7.47)

   

$

(0.04)

 

WEIGHTED AVERAGE SHARES:

             

Basic

223,299

   

222,767

   

223,157

   

222,579

 

Diluted

223,299

   

222,767

   

223,157

   

223,060

 
 

 

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

 

September 30,

2017

 

December 31,

2016

ASSETS

     

CURRENT ASSETS:

     

Cash and cash equivalents

$

738,393

   

$

517,250

 

Restricted cash and cash equivalents

361,137

   

282,074

 

Accounts receivable

531,488

   

992,153

 

Inventories, net

443,270

   

555,671

 

Assets held for sale

65,565

   

116,985

 

Other current assets

56,626

   

125,326

 

Total current assets

$

2,196,479

   

$

2,589,459

 

TOTAL NON-CURRENT ASSETS

9,698,992

   

11,685,650

 

TOTAL ASSETS

$

11,895,471

   

$

14,275,109

 

LIABILITIES AND SHAREHOLDERS' EQUITY

     

CURRENT LIABILITIES:

     

Accounts payable and accrued expenses, including legal settlement accruals

$

1,986,405

   

$

2,470,016

 

Liabilities held for sale

13,456

   

24,338

 

Other current liabilities

42,260

   

140,391

 

Total current liabilities

$

2,042,121

   

$

2,634,745

 

LONG-TERM DEBT, LESS CURRENT PORTION, NET

8,246,605

   

8,141,378

 

OTHER LIABILITIES

841,761

   

797,397

 

TOTAL SHAREHOLDERS' EQUITY

764,984

   

2,701,589

 

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

11,895,471

   

$

14,275,109

 
 

 

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

 

Nine Months Ended September 30,

 

2017

 

2016

OPERATING ACTIVITIES:

     

Consolidated net loss

$

(1,667,016)

   

$

(9,194)

 

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

     

Depreciation and amortization

742,936

   

716,332

 

Asset impairment charges

1,023,930

   

284,409

 

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

324,212

   

(548,170)

 

Net cash provided by operating activities

$

424,062

   

$

443,377

 

INVESTING ACTIVITIES:

     

Purchases of property, plant and equipment

$

(94,102)

   

$

(88,087)

 

Acquisitions, net of cash acquired

   

(30,394)

 

Proceeds from sale of business and other assets, net

96,066

   

6,686

 

Increase in restricted cash and cash equivalents (1)

(624,145)

   

(588,455)

 

Decrease in restricted cash and cash equivalents (1)

545,379

   

898,288

 

Other

7,000

   

(19,172)

 

Net cash (used in) provided by investing activities

$

(69,802)

   

$

178,866

 

FINANCING ACTIVITIES:

     

Payments on borrowings, net

$

(12,325)

   

$

(305,634)

 

Other

(123,028)

   

(28,877)

 

Net cash used in financing activities

$

(135,353)

   

$

(334,511)

 

Effect of foreign exchange rate

$

3,686

   

$

1,497

 

Movement in cash held for sale

(1,450)

   

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

$

221,143

   

$

289,229

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

517,250

   

272,348

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

$

738,393

   

$

561,577

 
               

(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 nine months ended September 30, 2017 and 2016 by cash flow component:

 

 

Nine Months Ended September 30,

 

2017

 

2016

 

Impact on CFO

 (a)

 

Impact on CFI

 

Impact on CFO

 (a)

 

Impact on CFI

Cash contributions to Qualified Settlement Funds

$

   

$

(623,128)

   

$

   

$

(587,782)

 

Cash payments to claimants from Qualified Settlement Funds

(545,379)

   

545,379

   

(898,288)

   

898,288

 

Cash payments made directly to claimants

(3,625)

   

   

(5,561)

   

 

Total

$

(549,004)

   

$

(77,749)

   

$

(903,849)

   

$

310,506

 
                               

(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 attributable to Endo International plc (GAAP) to Adjusted EBITDA (non-GAAP) for the three and nine months ended September 30, 2017 and 2016 (in thousands):

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2017

 

2016

 

2017

 

2016

Net loss attributable to Endo International plc (GAAP)

$

(96,670)

   

$

(218,919)

   

$

(1,667,016)

   

$

(9,210)

 

Income tax (benefit) expense

(28,109)

   

46,185

   

(97,517)

   

(627,807)

 

Interest expense, net

127,521

   

112,184

   

361,267

   

340,896

 

Depreciation and amortization (18)

183,475

   

230,520

   

680,385

   

695,432

 

EBITDA (non-GAAP)

$

186,217

   

$

169,970

   

$

(722,881)

   

$

399,311

 
               

Inventory step-up and other cost savings (2)

$

66

   

$

14,208

   

$

281

   

$

111,787

 

Upfront and milestone-related payments (3)

775

   

1,770

   

6,952

   

5,875

 

Inventory reserve (decrease) increase from restructuring (4)

   

(9,041)

   

7,899

   

24,592

 

Royalty obligations (5)

   

   

   

(7,750)

 

Separation benefits and other restructuring (6)

80,693

   

18,823

   

120,078

   

45,820

 

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

(12,352)

   

18,256

   

(14,016)

   

28,715

 

Asset impairment charges (8)

94,924

   

93,504

   

1,023,930

   

263,080

 

Acquisition-related and integration costs (9)

1,201

   

7,907

   

8,137

   

55,422

 

Fair value of contingent consideration (10)

15,440

   

11,569

   

23,574

   

24,779

 

Loss on extinguishment of debt (11)

   

   

51,734

   

 

Share-based compensation

13,247

   

14,953

   

40,252

   

43,473

 

Other (income) expense, net (19)

(2,097)

   

(2,866)

   

(10,843)

   

402

 

Other adjustments

(58)

   

614

   

(75)

   

(781)

 

Discontinued operations, net of tax (15)

(3,017)

   

27,423

   

705,886

   

118,747

 

Net income attributable to noncontrolling interests (16)

   

   

   

16

 

Adjusted EBITDA (non-GAAP)

$

375,039

   

$

367,090

   

$

1,240,908

   

$

1,113,488

 
 

 

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 nine months ended September 30, 2017 and 2016 (in thousands):

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2017

 

2016

 

2017

 

2016

(Loss) income from continuing operations (GAAP)

$

(99,687)

   

$

(191,496)

   

$

(961,130)

   

$

109,553

 

Non-GAAP adjustments:

             

Amortization of intangible assets (1)

161,413

   

211,548

   

615,490

   

636,061

 

Inventory step-up and other cost savings (2)

66

   

14,208

   

281

   

111,787

 

Upfront and milestone-related payments (3)

775

   

1,770

   

6,952

   

5,875

 

Inventory reserve (decrease) increase from restructuring (4)

   

(9,041)

   

7,899

   

24,592

 

Royalty obligations (5)

   

   

   

(7,750)

 

Separation benefits and other restructuring (6)

80,693

   

18,823

   

120,078

   

45,820

 

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

(12,352)

   

18,256

   

(14,016)

   

28,715

 

Asset impairment charges (8)

94,924

   

93,504

   

1,023,930

   

263,080

 

Acquisition-related and integration costs (9)

1,201

   

7,907

   

8,137

   

55,422

 

Fair value of contingent consideration (10)

15,440

   

11,569

   

23,574

   

24,779

 

Loss on extinguishment of debt (11)

   

   

51,734

   

 

Non-cash and penalty interest charges (12)

   

   

   

4,092

 

Other (13)

3,035

   

53

   

(1,133)

   

(5,437)

 

Tax adjustments (14)

(41,456)

   

48,418

   

(195,298)

   

(637,998)

 

Adjusted income from continuing operations (non-GAAP)

$

204,052

   

$

225,519

   

$

686,498

   

$

658,591

 
 

 

Reconciliation of Other Adjusted Income Statement Data (non-GAAP)

The following tables provide detailed reconciliations of various other income statement data between the GAAP and non-GAAP amounts for the three and nine months ended September 30, 2017 and 2016 (in thousands, except per share data):

 

 

Three Months Ended September 30, 2017

 

Total revenues

 

Cost of revenues

 

Gross

margin

 

Gross margin %

 

Total operating expenses

 

Operating

expense to

revenue %

 

Operating (loss) income from continuing operations

 

Operating margin %

 

Other non-operating expense, net

 

(Loss)

income from continuing operations before income tax

 

Income tax (benefit) expense

 

Effective tax rate

 

(Loss) income from continuing operations

 

Discontinued operations, net of tax

 

Net (loss) income attributable

to Endo International plc

 

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

Reported (GAAP)

$    786,887

 

$    514,522

 

$    272,365

 

35 %

 

$    274,737

 

35 %

 

$      (2,372)

 

—%

 

$ 125,424

 

$    (127,796)

 

$   (28,109)

 

22 %

 

$   (99,687)

 

$        3,017

 

$      (96,670)

 

$         (0.45)

Items impacting comparability:

                                                             

  Amortization of intangible assets (1)

 

(161,413)

 

161,413

     

     

161,413

     

 

161,413

 

     

161,413

 

 

161,413

 

0.73

  Inventory step-up and other cost savings (2)

 

(66)

 

66

     

     

66

     

 

66

 

     

66

 

 

66

 

  Upfront and milestone-related payments (3)

 

(688)

 

688

     

(87)

     

775

     

 

775

 

     

775

 

 

775

 

  Separation benefits and other restructuring (6)

 

(78,680)

 

78,680

     

(2,013)

     

80,693

     

 

80,693

 

     

80,693

 

 

80,693

 

0.36

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

 

 

     

12,352

     

(12,352)

     

 

(12,352)

 

     

(12,352)

 

 

(12,352)

 

(0.06)

  Asset impairment charges (8)

 

 

     

(94,924)

     

94,924

     

 

94,924

 

     

94,924

 

 

94,924

 

0.43

  Acquisition-related and integration costs (9)

 

 

     

(1,201)

     

1,201

     

 

1,201

 

     

1,201

 

 

1,201

 

0.01

  Fair value of contingent consideration (10)

 

 

     

(15,440)

     

15,440

     

 

15,440

 

     

15,440

 

 

15,440

 

0.07

  Other (13)

 

 

     

     

     

(3,035)

 

3,035

 

     

3,035

 

 

3,035

 

0.01

  Tax adjustments (14)

 

 

     

     

     

 

 

41,456

     

(41,456)

 

 

(41,456)

 

(0.19)

  Exclude discontinued operations, net of tax (15)

 

 

     

     

     

 

 

     

 

(3,017)

 

(3,017)

 

After considering items (non-GAAP)

$    786,887

 

$    273,675

 

$    513,212

 

65 %

 

$    173,424

 

22 %

 

$    339,788

 

43 %

 

$ 122,389

 

$     217,399

 

$    13,347

 

6 %

 

$  204,052

 

$             —

 

$     204,052

 

$           0.91

                                                               
                                                               
 

Three Months Ended September 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 expense (benefit)

 

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)

$    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 cost 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 (6)

 

(12,989)

 

12,989

     

(5,834)

     

18,823

     

 

18,823

 

     

18,823

 

 

18,823

 

0.08

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

 

 

     

(18,256)

     

18,256

     

 

18,256

 

     

18,256

 

 

18,256

 

0.08

  Asset impairment charges (8)

 

 

     

(93,504)

     

93,504

     

 

93,504

 

     

93,504

 

 

93,504

 

0.42

  Acquisition-related and integration costs (9)

 

 

     

(7,907)

     

7,907

     

 

7,907

 

     

7,907

 

 

7,907

 

0.04

  Fair value of contingent consideration (10)

 

 

     

(11,569)

     

11,569

     

 

11,569

 

     

11,569

 

 

11,569

 

0.05

  Other (13)

 

 

     

     

     

(53)

 

53

 

     

53

 

 

53

 

  Tax adjustments (14)

 

 

     

     

     

 

 

(48,418)

     

48,418

 

 

48,418

 

0.22

  Exclude discontinued operations, net of tax (15)

 

 

     

     

     

 

 

     

 

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

                                                               
                                                               
 

Nine Months Ended September 30, 2017

 

Total revenues

 

Cost of revenues

 

Gross

margin

 

Gross margin %

 

Total operating expenses

 

Operating expense to revenue %

 

Operating (loss) income from continuing operations

 

Operating margin %

 

Other non-operating expense, net

 

(Loss)

income from continuing operations before income tax

 

Income tax (benefit) expense

 

Effective tax rate

 

(Loss) income from continuing operations

 

Discontinued operations, net of tax

 

Net (loss) income attributable to Endo International plc

 

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

Reported (GAAP)

$ 2,700,218

 

$ 1,722,885

 

$    977,333

 

36 %

 

$ 1,633,822

 

61 %

 

$  (656,489)

 

(24)%

 

$ 402,158

 

$ (1,058,647)

 

$   (97,517)

 

9 %

 

$ (961,130)

 

$  (705,886)

 

$ (1,667,016)

 

$         (4.31)

Items impacting comparability:

                                                             

  Amortization of intangible assets (1)

 

(615,490)

 

615,490

     

     

615,490

     

 

615,490

 

     

615,490

 

 

615,490

 

2.75

  Inventory step-up and other cost savings (2)

 

(281)

 

281

     

     

281

     

 

281

 

     

281

 

 

281

 

  Upfront and milestone-related payments (3)

 

(2,039)

 

2,039

     

(4,913)

     

6,952

     

 

6,952

 

     

6,952

 

 

6,952

 

0.03

  Inventory reserve increase from restructuring (4)

 

(7,899)

 

7,899

     

     

7,899

     

 

7,899

 

     

7,899

 

 

7,899

 

0.04

  Separation benefits and other restructuring (6)

 

(85,367)

 

85,367

     

(34,711)

     

120,078

     

 

120,078

 

     

120,078

 

 

120,078

 

0.54

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

 

 

     

14,016

     

(14,016)

     

 

(14,016)

 

     

(14,016)

 

 

(14,016)

 

(0.06)

  Asset impairment charges (8)

 

 

     

(1,023,930)

     

1,023,930

     

 

1,023,930

 

     

1,023,930

 

 

1,023,930

 

4.59

  Acquisition-related and integration costs (9)

 

 

     

(8,137)

     

8,137

     

 

8,137

 

     

8,137

 

 

8,137

 

0.04

  Fair value of contingent consideration (10)

 

 

     

(23,574)

     

23,574

     

 

23,574

 

     

23,574

 

 

23,574

 

0.11

 Loss on extinguishment of debt (11)

 

 

     

     

     

(51,734)

 

51,734

 

     

51,734

 

 

51,734

 

0.23

Other (13)

 

 

     

     

     

1,133

 

(1,133)

 

     

(1,133)

 

 

(1,133)

 

(0.01)

  Tax adjustments (14)

 

 

     

     

     

 

 

195,298

     

(195,298)

 

 

(195,298)

 

(0.88)

  Exclude discontinued operations, net of tax (15)

 

 

     

     

     

 

 

     

 

705,886

 

705,886

 

After considering items (non-GAAP)

$ 2,700,218

 

$ 1,011,809

 

$ 1,688,409

 

63 %

 

$    552,573

 

20 %

 

$ 1,135,836

 

42 %

 

$ 351,557

 

$     784,279

 

$    97,781

 

12 %

 

$  686,498

 

$             —

 

$     686,498

 

$           3.07

                                                               
                                                               
 

Nine Months Ended September 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

 

Income from continuing operations

 

Discontinued operations, net of tax

 

Net (loss) income attributable to Endo International plc (16)

 

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

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

 

 

     

(28,715)

     

28,715

     

 

28,715

 

     

28,715

 

 

28,715

 

0.13

  Asset impairment charges (8)

 

 

     

(263,080)

     

263,080

     

 

263,080

 

     

263,080

 

 

263,080

 

1.18

  Acquisition-related and integration costs (9)

 

 

     

(55,422)

     

55,422

     

 

55,422

 

     

55,422

 

 

55,422

 

0.25

  Fair value of contingent consideration (10)

 

 

     

(24,779)

     

24,779

     

 

24,779