3.31.2018 Earnings Release 8-K Shell


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________
FORM 8-K
_______________________________

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): May 8, 2018

_______________________________
ENDO INTERNATIONAL PLC
(Exact Name of Registrant as Specified in Its Charter)
_______________________________
Ireland
001-36326
68-0683755
(State or other jurisdiction
of incorporation)
(Commission File Number)
(IRS Employer
Identification No.)

First Floor, Minerva House, Simmonscourt Road, Ballsbridge, Dublin 4, Ireland
Not Applicable
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code 011-353-1-268-2000
Not Applicable
Former name or former address, if changed since last report

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
o    Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o





Item 2.02.    Results of Operations and Financial Condition.
On May 8, 2018, Endo International plc (the “Company,” “Endo,” or “we”) issued an earnings release announcing its financial results for the three months ended March 31, 2018 (the “Earnings Release”). A copy of the Earnings Release is attached as Exhibit 99.1 hereto and is incorporated herein by reference.
The Company utilizes certain financial measures that are not prescribed by or prepared in accordance with accounting principles generally accepted in the U.S. ("GAAP"). The Company utilizes these financial measures, commonly referred to as “non-GAAP,” because (i) they are used by the Company, along with financial measures in accordance with GAAP, to evaluate the Company's operating performance; (ii) the Company believes that they will be used by certain investors to measure the Company’s operating results; (iii) the Compensation Committee of the Company's Board of Directors uses adjusted diluted EPS and Adjusted EBITDA, or measures derived from such, in assessing the performance and compensation of substantially all of the Company's employees, including executive officers and (iv) the Company’s leverage ratio, as defined by the Company’s credit agreement, is calculated based on non-GAAP financial measures. The Company believes that presenting these non-GAAP measures provides useful information about the Company's performance across reporting periods on a consistent basis by excluding certain items, which may be favorable or unfavorable, pursuant to the procedure as described in the succeeding paragraph.
The initial identification and review of the non-GAAP adjustments necessary to arrive at these non-GAAP financial measures are performed by a team of finance professionals that include the Chief Accounting Officer and segment finance leaders in accordance with the Company’s Adjusted Income Statement Policy, which is reviewed and approved by the Company’s Audit Committee. Company tax professionals, including the Vice President of Tax, review and determine the tax effect of adjusted pre-tax income at applicable tax rates and other tax adjustments as described below. Proposed adjustments, along with any items considered but excluded, are presented to the Chief Accounting Officer, Chief Executive Officer and/or the Chief Financial Officer for their consideration. In turn, the non-GAAP adjustments are presented to the Audit Committee on a quarterly basis as part of the Company’s standard procedures for preparation and review of the earnings release and other quarterly materials.
These non-GAAP measures should be considered supplemental to and not a substitute for financial information prepared in accordance with GAAP. The Company's definition of these non-GAAP measures may differ from similarly titled measures used by others. The definitions of the most commonly used non-GAAP financial measures are presented below:
Adjusted income from continuing operations
Adjusted income from continuing operations represents income (loss) from continuing operations, prepared in accordance with GAAP, adjusted for certain items. Adjustments to GAAP amounts may include, but are not limited to, certain upfront and milestone payments to partners; acquisition-related and integration items, including transaction costs, earn-out payments or adjustments, changes in the fair value of contingent consideration and bridge financing costs; cost reduction and integration-related initiatives such as separation benefits, retention payments, other exit costs and certain costs associated with integrating an acquired company’s operations; asset impairment charges; amortization of intangible assets; inventory step-up recorded as part of our acquisitions; certain non-cash interest expense; litigation-related and other contingent matters; gains or losses from early termination of debt; foreign currency gains or losses on intercompany financing arrangements; and certain other items; further adjusted for the tax effect of adjusted pre-tax income at applicable tax rates and other tax adjustments as described below.
Adjusted diluted earnings per share from continuing operations and adjusted diluted weighted average shares
Adjusted diluted earnings per share from continuing operations represent adjusted income from continuing operations divided by the number of adjusted diluted weighted average shares.
Both GAAP and non-GAAP diluted per share data is computed based on weighted average shares outstanding and, if there is net income from continuing operations (rather than net loss) during the period, the dilutive impact of share equivalents outstanding during the period. Diluted weighted average shares outstanding and adjusted diluted weighted average shares outstanding are calculated on the same basis except for the net income or loss figure used in determining whether to include such dilutive impact.
Adjusted gross margin
Adjusted gross margin represents total revenues less cost of revenues, prepared in accordance with GAAP, adjusted for the items enumerated above under the heading "Adjusted income from continuing operations," to the extent such items relate to cost of revenues. Such items may include, but are not limited to, amortization of intangible assets and inventory step-up recorded as part of our acquisitions, certain excess inventory reserves resulting from restructuring initiatives and separation benefits.





Adjusted operating expenses
Adjusted operating expenses represent operating expenses, prepared in accordance with GAAP, adjusted for the items enumerated above under the heading "Adjusted income from continuing operations," to the extent such items relate to operating expenses. Such items may include, but are not limited to, certain upfront and milestone payments to partners; acquisition-related and integration items, including transaction costs, earn-out payments or adjustments, changes in the fair value of contingent consideration and bridge financing costs; cost reduction and integration-related initiatives such as separation benefits, retention payments, other exit costs and certain costs associated with integrating an acquired company’s operations; asset impairment charges; amortization of intangible assets; litigation-related and other contingent matters; and certain other items.
Adjusted interest expense
Adjusted interest expense represents interest expense, net, prepared in accordance with GAAP, adjusted for certain non-cash interest expense and penalty interest.
Adjusted income taxes
Adjusted income taxes are calculated by tax effecting adjusted pre-tax income and permanent book-tax differences at the applicable effective tax rate that will be determined by reference to statutory tax rates in the relevant jurisdictions in which the Company operates. Adjusted income taxes include current and deferred income tax expense commensurate with the non-GAAP measure of profitability. Adjustments are then made for certain items relating to prior years and for tax planning actions that are expected to be distortive to the underlying effective tax rate and trend in the effective tax rate. The most directly comparable GAAP financial measure for Adjusted income taxes is income tax expense (benefit), prepared in accordance with GAAP. The adjusted effective tax rate represents the rate generated when dividing adjusted income tax expense or benefit by the amount of adjusted pre-tax income.
EBITDA and Adjusted EBITDA
EBITDA represents net income (loss) before interest expense, net; income tax; depreciation; and amortization, each prepared in accordance with GAAP. Adjusted EBITDA further adjusts EBITDA by excluding other (income) expense, net; share-based compensation; certain upfront and milestone payments to partners; acquisition-related and integration items, including transaction costs, earn-out payments or adjustments, changes in the fair value of contingent consideration and bridge financing costs; cost reduction and integration-related initiatives such as separation benefits, retention payments, excess inventory reserves, other exit costs and certain costs associated with integrating an acquired company’s operations; asset impairment charges; inventory step-up recorded as part of our acquisitions; litigation-related and other contingent matters; gains or losses from early termination of debt; discontinued operations, net of tax; and certain other items.
Net Debt and Net Debt Leverage Ratio
Net debt is calculated as the aggregate carrying amount of debt outstanding less unrestricted cash and cash equivalents.
The net debt leverage ratio is calculated as net debt divided by adjusted EBITDA for the trailing twelve-month period.
Because adjusted financial measures exclude the effect of items that will increase or decrease the Company's reported results of operations, the Company strongly encourages investors to review the Company's consolidated financial statements and publicly filed reports in their entirety. Investors are also encouraged to review the reconciliation of the non-GAAP financial measures used in the Earnings Release to their most directly comparable GAAP financial measures as included in the Earnings Release and within the quarterly earnings presentation available in the Investor Relations section of the Registrant’s website at http://www.endo.com. However, the Company does not provide reconciliations of projected non-GAAP financial measures to GAAP financial measures, nor does it provide comparable projected GAAP financial measures for such projected non-GAAP financial measures. The Company is unable to provide such reconciliations without unreasonable efforts due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliations, including adjustments that could be made for asset impairments, contingent consideration adjustments, legal settlements, loss on extinguishment of debt, adjustments to inventory and other charges reflected in the reconciliation of historic numbers, the amount of which could be significant.
The information in this Item 2.02 and in Exhibit 99.1 attached hereto shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. The information contained in this Item 2.02 and in Exhibit 99.1 attached hereto shall not be incorporated into any registration statement or other document filed by the Registrant with the U.S. Securities and Exchange Commission under the Securities Act of 1933, whether made before or after the date hereof, regardless of any general incorporation language in such filing, except as shall be expressly set forth by specific reference in such filing.





Item 9.01.    Financial Statements and Exhibits.
(d)
Exhibits.
Number
Description
99.1





SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

 
 
ENDO INTERNATIONAL PLC
 
 
By:
/s/ Matthew J. Maletta
Name:
Matthew J. Maletta
Title:
Executive Vice President,
 
Chief Legal Officer
Dated: May 8, 2018


Ex 99.1 - 3.31.2018-Earnings Release


Exhibit 99.1
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12236551&doc=3
ENDO REPORTS FIRST-QUARTER 2018 FINANCIAL RESULTS

First-quarter 2018 revenues of $701 million
First-quarter 2018 Branded Specialty Products revenues increased 7 percent versus first-quarter 2017 to $112 million
First-quarter 2018 XIAFLEX® franchise revenues increased 15 percent versus first-quarter 2017 to $57 million
First-quarter 2018 Sterile Injectables revenues increased 25 percent versus first-quarter 2017 to $216 million
First-quarter 2018 reported (GAAP) net loss of $505 million driven by pre-tax, non-cash asset impairment charges of $448 million
First-quarter 2018 adjusted EBITDA of $334 million
Company affirms 2018 full-year revenues, adjusted EBITDA and adjusted EPS guidance
DUBLIN, May 8, 2018 -- Endo International plc (NASDAQ: ENDP) today reported first-quarter 2018 financial results, including:
Revenues of $701 million, a 32 percent decrease compared to first-quarter 2017 revenues of $1,038 million.
Reported net loss from continuing operations of $498 million compared to first-quarter 2017 reported net loss from continuing operations of $165 million.
Reported diluted loss per share from continuing operations of $2.23 compared to first-quarter 2017 reported diluted loss per share from continuing operations of $0.74.
Adjusted income from continuing operations of $151 million compared to first-quarter 2017 adjusted income from continuing operations of $275 million.
Adjusted diluted EPS from continuing operations of $0.67 compared to first-quarter 2017 adjusted diluted EPS from continuing operations of $1.23.
Adjusted EBITDA of $334 million compared to first-quarter 2017 adjusted EBITDA of $478 million.
"Endo delivered strong first-quarter operating results in our core focus areas as revenue growth accelerated for both our XIAFLEX® franchise and Sterile Injectable business. We are currently on target to meet the full-year financial guidance we provided earlier this year," said Paul Campanelli, President and CEO of Endo. “Importantly, we continue to execute our multi-year turnaround plan and build our portfolio for the future by advancing our CCH cellulite treatment development program with the initiation

1



of and recruitment for two pivotal Phase 3 trials. In addition, as we recently announced, we expect to significantly enhance our Sterile Injectables pipeline through the acquisition of Somerset Therapeutics."
FINANCIAL PERFORMANCE
(in thousands, except per share amounts)
 
Three Months Ended March 31,
 
 
 
2018
 
2017
 
Change
Total Revenues
$
700,527

 
$
1,037,600

 
(32
)%
Reported Loss from Continuing Operations
$
(497,738
)
 
$
(165,423
)
 
NM

Reported Diluted Weighted Average Shares
223,521

 
223,014

 
 %
Reported Diluted Loss per Share from Continuing Operations
$
(2.23
)
 
$
(0.74
)
 
NM

Adjusted Income from Continuing Operations
$
150,783

 
$
275,245

 
(45
)%
Adjusted Diluted Weighted Average Shares1
224,955

 
223,335

 
1
 %
Adjusted Diluted EPS from Continuing Operations
$
0.67

 
$
1.23

 
(46
)%
__________
(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
As anticipated, total revenues decreased by 32 percent to $701 million in first-quarter 2018 compared to the same period in 2017. The decline was primarily due to the loss of marketing exclusivity in the first half of 2017 for the first-to-file U.S. Generic Pharmaceuticals products ezetimibe tablets, the generic version of ZETIA®, and quetiapine extended-release (ER) tablets, the generic version of SEROQUEL XR®, both of which launched in fourth-quarter 2016. Also contributing to the decline in total revenues were the annualization of the impact from 2017 competitive entries and product discontinuances in the U.S. Generic Pharmaceuticals segment, the divestitures of the Company's South African and Mexican businesses, Litha and Somar, and the voluntary withdrawal of OPANA® ER.
GAAP net loss from continuing operations in first-quarter 2018 was $498 million compared to GAAP net loss from continuing operations of $165 million during the same period in 2017. This increase was primarily due to an increase of $244 million in pre-tax, non-cash asset impairment charges in first-quarter 2018. GAAP diluted net loss per share from continuing operations for first-quarter 2018 was $2.23, compared to GAAP diluted net loss per share from continuing operations of $0.74 in first-quarter 2017.
Adjusted income from continuing operations in first-quarter 2018 was $151 million compared to $275 million in first-quarter 2017. This decrease resulted primarily from lower revenues of ezetimibe tablets and quetiapine ER tablets, the divestitures of Litha and Somar, the voluntary withdrawal of OPANA® ER and an increase of $12 million in net interest expense. Adjusted diluted EPS from continuing operations in first-quarter 2018 was $0.67 compared to $1.23 in first-quarter 2017.

2


U.S. BRANDED - SPECIALTY & ESTABLISHED PHARMACEUTICALS
During the first-quarter, Endo advanced its cellulite treatment development program. In February, the Company initiated two Phase 3 clinical trials of collagenase clostridium histolyticum (or “CCH”) for the treatment of cellulite. In April, CCH for the treatment of cellulite was presented during the Hot Topics Symposium, a highlight of The Aesthetics Meeting 2018, the annual meeting of the American Society for Aesthetic Plastic Surgery.
First-quarter 2018 U.S. Branded - Specialty & Established Pharmaceuticals results include:
Revenues of $200 million, a 20 percent decrease compared to first-quarter 2017; this decrease was primarily attributable to the voluntary cessation of OPANA® ER shipments in the third-quarter of 2017.
Specialty Products revenues increased 7 percent in first-quarter 2018 compared to the same period in 2017, driven by strong performance from XIAFLEX® and other products within our Specialty Products portfolio. Sales of XIAFLEX® increased 15 percent compared to first-quarter 2017; this increase was primarily attributable to volume growth in both Dupuytren’s Contracture and Peyronie’s Disease.
U.S. BRANDED - STERILE INJECTABLES
In April, Endo announced that it entered into definitive agreements to acquire Somerset Therapeutics, LLC, a specialty pharmaceutical company that develops and markets sterile injectable and ophthalmic drugs for the U.S. marketplace, and the business of its affiliate Wintac Limited, which operates as Somerset Therapeutics' contract developer and manufacturer, for approximately $190 million. Somerset Therapeutics' portfolio includes 8 commercial products and a pipeline of more than 40 products, of which over 25 have been filed with the U.S. Food and Drug Administration. In May, the Company launched glycopyrrolate injection, the generic version of ROBINUL®, as Somerset Therapeutics' exclusive distributor.
First-quarter 2018 U.S. Branded - Sterile Injectables results include:
Revenues of $216 million, a 25 percent increase compared to first-quarter 2017; this increase was primarily attributable to strong growth of ADRENALIN® and VASOSTRICT®.
U.S. GENERIC PHARMACEUTICALS
During first-quarter 2018, the U.S. Generic Pharmaceuticals segment launched two products and submitted two regulatory filings. In April, the segment launched praziquantel tablets, the first-to-market generic version of BILTRICIDE®.

3


First-quarter 2018 U.S. Generic Pharmaceuticals results include:
Revenues of $249 million, a 55 percent decrease compared to first-quarter 2017; this decline was primarily attributable to the loss of marketing exclusivity in the first half of 2017 for the first-to-file products ezetimibe tablets and quetiapine ER tablets. Also contributing to the decline was the annualization of the impact from 2017 competitive entries and previously announced product discontinuances.
INTERNATIONAL PHARMACEUTICALS
First-quarter 2018 International Pharmaceuticals revenues were $35 million, compared to $65 million in the same period in 2017. The decline is primarily attributable to the sales of Litha and Somar in the second-half of 2017.
2018 FINANCIAL GUIDANCE
For the full twelve months ending December 31, 2018, at current exchange rates, Endo affirms its previously provided guidance on revenue, adjusted diluted EPS from continuing operations and adjusted EBITDA from continuing operations. The Company estimates:
Total revenues to be between $2.6 billion and $2.8 billion;
Adjusted diluted EPS from continuing operations to be between $2.15 and $2.55; and
Adjusted EBITDA from continuing operations to be between $1.2 billion and $1.3 billion.
The Company’s 2018 non-GAAP financial guidance is based on the following assumptions:
Adjusted gross margin of approximately 67.0% to 68.0%;
Adjusted operating expenses as a percentage of revenues of approximately 25.5% to 26.5%;
Adjusted interest expense of approximately $530 million to $540 million;
Adjusted effective tax rate of approximately 11.0% to 12.0%; and
Adjusted diluted weighted average shares outstanding of approximately 226 million.
BALANCE SHEET, LIQUIDITY AND OTHER UPDATES
As of March 31, 2018, the Company had $980 million in unrestricted cash; debt of $8.3 billion; net debt of approximately $7.3 billion and a net debt to adjusted EBITDA ratio of 5.1.
First-quarter 2018 cash provided by operating activities was $49 million, compared to $168 million of net cash provided by operating activities in the comparable 2017 period. The 2017 period included the impact of cash receipts for ezetimibe tablets and quetiapine ER tablets, which did not reoccur during the 2018 period, and higher payments related to U.S. mesh product liability claims.

4


During first-quarter 2018, the Company recorded pre-tax, non-cash asset impairment charges of $448 million, $391 million of which related to goodwill and $54 million of which related to other intangible assets.
CONFERENCE CALL INFORMATION
Endo will conduct a conference call with financial analysts to discuss this press release today at 7:30 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 4839597. Please dial in 10 minutes prior to the scheduled start time.
A replay of the call will be available from May 8, 2018 at 10:30 a.m. ET until 10:30 a.m. ET on May 11, 2018 by dialing U.S./Canada (855) 859-2056, International (404) 537-3406, and entering the passcode 4839597.
A simultaneous webcast of the call can be accessed by visiting http://investor.endo.com/events-and-presentations. In addition, a replay of the webcast will be available on the Company website for one year following the event.

5


FINANCIAL SCHEDULES
The following table presents Endo's unaudited Total Revenues for the three months ended March 31, 2018 and 2017 (dollars in thousands):
 
Three Months Ended March 31,
 
Percent Growth
 
2018
 
2017
 
U.S. Branded - Specialty & Established Pharmaceuticals:
 
 
 
 
 
Specialty Products:
 
 
 
 
 
XIAFLEX®
$
57,141

 
$
49,525

 
15
 %
SUPPRELIN® LA
20,577

 
19,181

 
7
 %
Other Specialty (1)
34,197

 
36,028

 
(5
)%
Total Specialty Products
$
111,915

 
$
104,734

 
7
 %
Established Products:
 
 
 
 
 
PERCOCET®
$
31,976

 
$
30,945

 
3
 %
VOLTAREN® Gel
11,317

 
14,274

 
(21
)%
OPANA® ER

 
35,718

 
(100
)%
Other Established (2)
45,027

 
64,488

 
(30
)%
Total Established Products
$
88,320

 
$
145,425

 
(39
)%
Total U.S. Branded - Specialty & Established Pharmaceuticals (3)
$
200,235

 
$
250,159

 
(20
)%
U.S. Branded - Sterile Injectables:
 
 
 
 
 
VASOSTRICT®
$
113,725

 
$
99,158

 
15
 %
ADRENALIN®
29,740

 
6,097

 
NM

Other Sterile Injectables (4)
72,389

 
66,913

 
8
 %
Total U.S. Branded - Sterile Injectables (3)
$
215,854

 
$
172,168

 
25
 %
Total U.S. Generic Pharmaceuticals
$
249,240

 
$
549,815

 
(55
)%
Total International Pharmaceuticals
$
35,198

 
$
65,458

 
(46
)%
Total Revenues
$
700,527

 
$
1,037,600

 
(32
)%
__________
(1)
Products included within Other Specialty include TESTOPEL®, NASCOBAL® Nasal Spray and AVEED®.
(2)
Products included within Other Established include, but are not limited to, LIDODERM®, TESTIM® and FORTESTA® Gel, including the authorized generics.
(3)
Individual products presented above represent the top two performing products in each product category and/or any product having revenues in excess of $25 million during any quarterly period in 2018 or 2017.
(4)
Products included within Other Sterile Injectables include, but are not limited to, APLISOL®, ephedrine sulfate injection and neostigmine methylsulfate injection.

6


The following table presents unaudited Condensed Consolidated Statement of Operations data for the three months ended March 31, 2018 and 2017 (in thousands, except per share data):
 
Three Months Ended March 31,
 
2018
 
2017
TOTAL REVENUES
$
700,527

 
$
1,037,600

COSTS AND EXPENSES:
 
 
 
Cost of revenues
403,598

 
668,962

Selling, general and administrative
166,667

 
177,240

Research and development
38,646

 
43,009

Litigation-related and other contingencies, net
(2,500
)
 
936

Asset impairment charges
448,416

 
203,962

Acquisition-related and integration items
6,835

 
10,880

OPERATING LOSS FROM CONTINUING OPERATIONS
$
(361,135
)
 
$
(67,389
)
INTEREST EXPENSE, NET
123,990

 
111,999

OTHER INCOME, NET
(2,878
)
 
(2,037
)
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX
$
(482,247
)
 
$
(177,351
)
INCOME TAX EXPENSE (BENEFIT)
15,491

 
(11,928
)
LOSS FROM CONTINUING OPERATIONS
$
(497,738
)
 
$
(165,423
)
DISCONTINUED OPERATIONS, NET OF TAX
(7,751
)
 
(8,405
)
NET LOSS
$
(505,489
)
 
$
(173,828
)
NET LOSS PER SHARE—BASIC:
 
 
 
Continuing operations
$
(2.23
)
 
$
(0.74
)
Discontinued operations
(0.03
)
 
(0.04
)
Basic
$
(2.26
)
 
$
(0.78
)
NET LOSS PER SHARE—DILUTED:
 
 
 
Continuing operations
$
(2.23
)
 
$
(0.74
)
Discontinued operations
(0.03
)
 
(0.04
)
Diluted
$
(2.26
)
 
$
(0.78
)
WEIGHTED AVERAGE SHARES:
 
 
 
Basic
223,521

 
223,014

Diluted
223,521

 
223,014


7


The following table presents unaudited Condensed Consolidated Balance Sheet data at March 31, 2018 and December 31, 2017 (in thousands):
 
March 31, 2018
 
December 31, 2017
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
980,412

 
$
986,605

Restricted cash and cash equivalents
335,858

 
320,453

Accounts receivable
460,019

 
517,436

Inventories, net
376,650

 
391,437

Other current assets
55,515

 
55,146

Total current assets
$
2,208,454

 
$
2,271,077

TOTAL NON-CURRENT ASSETS
8,725,291

 
9,364,503

TOTAL ASSETS
$
10,933,745

 
$
11,635,580

LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable and accrued expenses, including legal settlement accruals
$
2,052,014

 
$
2,184,618

Other current liabilities
35,585

 
36,291

Total current liabilities
$
2,087,599

 
$
2,220,909

LONG-TERM DEBT, LESS CURRENT PORTION, NET
8,237,487

 
8,242,032

OTHER LIABILITIES
615,752

 
687,759

SHAREHOLDERS' (DEFICIT) EQUITY
(7,093
)
 
484,880

TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
$
10,933,745

 
$
11,635,580


8


The following table presents unaudited Condensed Consolidated Statement of Cash Flow data for the three months ended March 31, 2018 and 2017 (in thousands):
 
Three Months Ended March 31,
 
2018

2017
OPERATING ACTIVITIES:
 
 
 
Net loss
$
(505,489
)
 
$
(173,828
)
Adjustments to reconcile Net loss to Net cash provided by operating activities:
 
 
 
Depreciation and amortization
191,590

 
286,855

Asset impairment charges
448,416

 
203,962

Other, including cash payments to claimants from Qualified Settlement Funds
(85,671
)
 
(149,226
)
Net cash provided by operating activities
$
48,846

 
$
167,763

INVESTING ACTIVITIES:
 
 
 
Purchases of property, plant and equipment, excluding capitalized interest
$
(24,874
)
 
$
(27,202
)
Proceeds from sale of business and other assets, net
13,350

 
16,217

Other
(4,073
)
 

Net cash used in investing activities
$
(15,597
)
 
$
(10,985
)
FINANCING ACTIVITIES:
 
 
 
Payments on borrowings, net
$
(9,821
)
 
$
(28,894
)
Other
(13,589
)
 
(24,300
)
Net cash used in financing activities
$
(23,410
)
 
$
(53,194
)
Effect of foreign exchange rate
(627
)
 
1,483

Movement in cash held for sale

 
(8,553
)
NET INCREASE IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS
$
9,212

 
$
96,514

CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS, BEGINNING OF PERIOD
1,311,014

 
805,180

CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS, END OF PERIOD
$
1,320,226

 
$
901,694


9


SUPPLEMENTAL FINANCIAL INFORMATION
To supplement the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses certain non-GAAP financial measures. For additional information on the Company's use of such non-GAAP financial measures, refer to Endo’s Current Report on Form 8-K furnished today to the U.S. Securities and Exchange Commission, which includes an explanation of the Company's reasons for using non-GAAP measures.
The tables below provide reconciliations of certain of our non-GAAP financial measures to their most directly comparable GAAP amounts. Refer to the "Notes to the Reconciliations of GAAP and Non-GAAP Financial Measures" section below for additional details regarding the adjustments to the non-GAAP financial measures detailed throughout this Supplemental Financial Information section.
Reconciliation of EBITDA and Adjusted EBITDA (non-GAAP)
The following table provides a reconciliation of Net loss (GAAP) to Adjusted EBITDA (non-GAAP) for the three months ended March 31, 2018 and 2017 (in thousands):
 
Three Months Ended March 31,
 
2018
 
2017
Net loss (GAAP)
$
(505,489
)
 
$
(173,828
)
Income tax expense (benefit)
15,491

 
(11,928
)
Interest expense, net
123,990

 
111,999

Depreciation and amortization (14)
174,458

 
284,109

EBITDA (non-GAAP)
$
(191,550
)
 
$
210,352

 
 
 
 
Inventory step-up and other cost savings (2)
$
66

 
$
115

Upfront and milestone-related payments (3)
1,332

 
3,095

Inventory reserve increase from restructuring (4)
2,388

 

Separation benefits and other restructuring (5)
46,599

 
22,670

Certain litigation-related and other contingencies, net (6)
(2,500
)
 
936

Asset impairment charges (7)
448,416

 
203,962

Acquisition-related and integration costs (8)

 
4,696

Fair value of contingent consideration (9)
6,835

 
6,184

Share-based compensation
17,890

 
19,493

Other income, net (15)
(2,878
)
 
(2,037
)
Other adjustments
(698
)
 
97

Discontinued operations, net of tax (12)
7,751

 
8,405

Adjusted EBITDA (non-GAAP)
$
333,651

 
$
477,968


10


Reconciliation of Adjusted Income from Continuing Operations (non-GAAP)
The following table provides a reconciliation of our Loss from continuing operations (GAAP) to our Adjusted income from continuing operations (non-GAAP) for the three months ended March 31, 2018 and 2017 (in thousands):
 
Three Months Ended March 31,
 
2018
 
2017
Loss from continuing operations (GAAP)
$
(497,738
)
 
$
(165,423
)
Non-GAAP adjustments:


 


Amortization of intangible assets (1)
157,172

 
263,134

Inventory step-up and other cost savings (2)
66

 
115

Upfront and milestone-related payments (3)
1,332

 
3,095

Inventory reserve increase from restructuring (4)
2,388

 

Separation benefits and other restructuring (5)
46,599

 
22,670

Certain litigation-related and other contingencies, net (6)
(2,500
)
 
936

Asset impairment charges (7)
448,416

 
203,962

Acquisition-related and integration costs (8)

 
4,696

Fair value of contingent consideration (9)
6,835

 
6,184

Other (10)
(3,254
)
 
(935
)
Tax adjustments (11)
(8,533
)
 
(63,189
)
Adjusted income from continuing operations (non-GAAP)
$
150,783

 
$
275,245


11


Reconciliation of Other Adjusted Income Statement Data (non-GAAP)
The following tables provide detailed reconciliations of various other income statement data between the GAAP and non-GAAP amounts for the three months ended March 31, 2018 and 2017 (in thousands, except per share data):
Three Months Ended March 31, 2018
 
Total revenues
 
Cost of revenues
 
Gross margin
 
Gross margin %
 
Total operating expenses
 
Operating expense to revenue %
 
Operating (loss) income from continuing operations
 
Operating margin %
 
Other non-operating expense, net
 
(Loss) income from continuing operations before income tax
 
Income tax expense
 
Effective tax rate
 
(Loss) income from continuing operations
 
Discontinued operations, net of tax
 
Net (loss) income
 
Diluted (loss) income per share from continuing operations (13)
Reported (GAAP)
$
700,527

 
$
403,598

 
$
296,929

 
42
%
 
$
658,064

 
94
%
 
$
(361,135
)
 
(52
)%
 
$
121,112

 
$
(482,247
)
 
$
15,491

 
(3
)%
 
$
(497,738
)
 
$
(7,751
)
 
$
(505,489
)
 
$
(2.23
)
Items impacting comparability:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of intangible assets (1)

 
(157,172
)
 
157,172

 
 
 

 
 
 
157,172

 
 
 

 
157,172

 

 
 
 
157,172

 

 
157,172

 
0.70

Inventory step-up and other cost savings (2)

 
(66
)
 
66

 
 
 

 
 
 
66

 
 
 

 
66

 

 
 
 
66

 

 
66

 

Upfront and milestone-related payments (3)

 
(656
)
 
656

 
 
 
(676
)
 
 
 
1,332

 
 
 

 
1,332

 

 
 
 
1,332

 

 
1,332

 
0.01

Inventory reserve increase from restructuring (4)

 
(2,388
)
 
2,388

 
 
 

 
 
 
2,388

 
 
 

 
2,388

 

 
 
 
2,388

 

 
2,388

 
0.01

Separation benefits and other restructuring (5)

 
(27,218
)
 
27,218

 
 
 
(19,381
)
 
 
 
46,599

 
 
 

 
46,599

 

 
 
 
46,599

 

 
46,599

 
0.21

Certain litigation-related and other contingencies, net (6)

 

 

 
 
 
2,500

 
 
 
(2,500
)
 
 
 

 
(2,500
)
 

 
 
 
(2,500
)
 

 
(2,500
)
 
(0.01
)
Asset impairment charges (7)

 

 

 
 
 
(448,416
)
 
 
 
448,416

 
 
 

 
448,416

 

 
 
 
448,416

 

 
448,416

 
2.00

Fair value of contingent consideration (9)

 

 

 
 
 
(6,835
)
 
 
 
6,835

 
 
 

 
6,835

 

 
 
 
6,835

 

 
6,835

 
0.03

Other (10)

 

 

 
 
 
630

 
 
 
(630
)
 
 
 
2,624

 
(3,254
)
 

 
 
 
(3,254
)
 

 
(3,254
)
 
(0.01
)
Tax adjustments (11)

 

 

 
 
 

 
 
 

 
 
 

 

 
8,533

 
 
 
(8,533
)
 

 
(8,533
)
 
(0.04
)
Exclude discontinued operations, net of tax (12)

 

 

 
 
 

 
 
 

 
 
 

 

 

 
 
 

 
7,751

 
7,751

 

After considering items (non-GAAP)
$
700,527

 
$
216,098

 
$
484,429

 
69
%
 
$
185,886

 
27
%
 
$
298,543

 
43
 %
 
$
123,736

 
$
174,807

 
$
24,024

 
14
 %
 
$
150,783

 
$

 
$
150,783

 
$
0.67

Three Months Ended March 31, 2017
 
Total revenues
 
Cost of revenues
 
Gross margin
 
Gross margin %
 
Total operating expenses
 
Operating expense to revenue %
 
Operating (loss) income from continuing operations
 
Operating margin %
 
Other non-operating expense, net
 
(Loss) income from continuing operations before income tax
 
Income tax (benefit) expense
 
Effective tax rate
 
(Loss) income from continuing operations
 
Discontinued operations, net of tax
 
Net (loss) income
 
Diluted (loss) income per share from continuing operations (13)
Reported (GAAP)
$
1,037,600

 
$
668,962

 
$
368,638

 
36
%
 
$
436,027

 
42
%
 
$
(67,389
)
 
(6
)%
 
$
109,962

 
$
(177,351
)
 
$
(11,928
)
 
7
%
 
$
(165,423
)
 
$
(8,405
)
 
$
(173,828
)
 
$
(0.74
)
Items impacting comparability:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of intangible assets (1)

 
(263,134
)
 
263,134

 
 
 

 
 
 
263,134

 
 
 

 
263,134

 

 
 
 
263,134

 

 
263,134

 
1.18

Inventory step-up and other cost savings (2)

 
(115
)
 
115

 
 
 

 
 
 
115

 
 
 

 
115

 

 
 
 
115

 

 
115

 

Upfront and milestone-related payments (3)

 
(669
)
 
669

 
 
 
(2,426
)
 
 
 
3,095

 
 
 

 
3,095

 

 
 
 
3,095

 

 
3,095

 
0.01

Separation benefits and other restructuring (5)

 
(1,661
)
 
1,661

 
 
 
(21,009
)
 
 
 
22,670

 
 
 

 
22,670

 

 
 
 
22,670

 

 
22,670

 
0.10

Certain litigation-related and other contingencies, net (6)

 

 

 
 
 
(936
)
 
 
 
936

 
 
 

 
936

 

 
 
 
936

 

 
936

 

Asset impairment charges (7)

 

 

 
 
 
(203,962
)
 
 
 
203,962

 
 
 

 
203,962

 

 
 
 
203,962

 

 
203,962

 
0.91

Acquisition-related and integration costs (8)

 

 

 
 
 
(4,696
)
 
 
 
4,696

 
 
 

 
4,696

 

 
 
 
4,696

 

 
4,696

 
0.02

Fair value of contingent consideration (9)

 

 

 
 
 
(6,184
)
 
 
 
6,184

 
 
 

 
6,184

 

 
 
 
6,184

 

 
6,184

 
0.03

Other (10)

 

 

 
 
 

 
 
 

 
 
 
935

 
(935
)
 

 
 
 
(935
)
 

 
(935
)
 

Tax adjustments (11)

 

 

 
 
 

 
 
 

 
 
 

 

 
63,189

 
 
 
(63,189
)
 

 
(63,189
)
 
(0.28
)
Exclude discontinued operations, net of tax (12)

 

 

 
 
 

 
 
 

 
 
 

 

 

 
 
 

 
8,405

 
8,405

 

After considering items (non-GAAP)
$
1,037,600

 
$
403,383

 
$
634,217

 
61
%
 
$
196,814

 
19
%
 
$
437,403

 
42
 %
 
$
110,897

 
$
326,506

 
$
51,261

 
16
%
 
$
275,245

 
$

 
$
275,245

 
$
1.23


12


Notes to the Reconciliations of GAAP and Non-GAAP Financial Measures
Notes to certain line items included in the reconciliations of the GAAP financial measures to the Non-GAAP financial measures for the three months ended March 31, 2018 and 2017 are as follows:
(1)
Adjustments for amortization of commercial intangible assets included the following (in thousands):
 
Three Months Ended March 31,
 
2018
 
2017
Amortization of intangible assets excluding fair value step-up from contingent consideration
$
149,860

 
$
252,889

Amortization of intangible assets related to fair value step-up from contingent consideration
7,312

 
10,245

Total
$
157,172

 
$
263,134

(2)
To exclude adjustments for inventory step-up.
(3)
Adjustments for upfront and milestone-related payments to partners included the following (in thousands):
 
Three Months Ended March 31,
 
2018
 
2017
 
Cost of revenues
 
Operating expenses
 
Cost of revenues
 
Operating expenses
Sales-based milestones
$
656

 
$

 
$
669

 
$

Development-based milestones

 
676

 

 
2,426

Total
$
656

 
$
676

 
$
669

 
$
2,426

(4)
To exclude charges reflecting adjustments to excess inventory reserves related to the 2017 U.S. Generic Pharmaceuticals Restructuring Initiative and January 2018 Restructuring Initiative during the three months ended March 31, 2018.
(5)
Adjustments for separation benefits and other restructuring included the following (in thousands):
 
Three Months Ended March 31,
 
2018
 
2017
 
Cost of revenues
 
Operating expenses
 
Cost of revenues
 
Operating expenses
Separation benefits
$
9,785

 
$
15,396

 
$
1,661

 
$
19,127

Accelerated depreciation and product discontinuation charges
17,132

 

 

 
398

Other
301

 
3,985

 

 
1,484

Total
$
27,218

 
$
19,381

 
$
1,661

 
$
21,009

(6)
To exclude litigation-related settlement charges, reimbursements and certain settlements proceeds related to suits filed by our subsidiaries.
(7)
Adjustments for asset impairment charges included the following (in thousands):
 
Three Months Ended March 31,
 
2018
 
2017
Goodwill impairment charges
$
391,000

 
$
82,602

Other intangible asset impairment charges
54,200

 
118,906

Property, plant and equipment impairment charges
3,216

 
2,454

Total asset impairment charges
$
448,416

 
$
203,962

(8)
Adjustments for acquisition and integration items primarily relate to various acquisitions. Amounts included the following (in thousands):
 
Three Months Ended March 31,
 
2018

2017
Integration costs (primarily third-party consulting fees)
$

 
$
2,243

Other

 
2,453

Total
$

 
$
4,696

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

13


(10)
Adjustments to other included the following (in thousands):
 
Three Months Ended March 31,
 
2018
 
2017
 
Operating expenses
 
Other non-operating expenses
 
Operating expenses
 
Other non-operating expenses
Foreign currency impact related to the re-measurement of intercompany debt instruments
$

 
$
(2,514
)
 
$

 
$
(2,694
)
Other miscellaneous
(630
)
 
(110
)
 

 
1,759

Total
$
(630
)
 
$
(2,624
)
 
$

 
$
(935
)
(11)
Adjusted income taxes are calculated by tax effecting adjusted pre-tax income and permanent book-tax differences at the applicable effective tax rate that will be determined by reference to statutory tax rates in the relevant jurisdictions in which the Company operates. Adjusted income taxes include current and deferred income tax expense commensurate with the non-GAAP measure of profitability.
(12)
To exclude the results of the businesses reported as discontinued operations, net of tax in the Condensed Consolidated Statement of Operations.
(13)
Calculated as Net (loss) income from continuing operations divided by the applicable weighted average share number. The applicable weighted average share numbers are as follows (in thousands):
 
Three Months Ended March 31,
 
2018
 
2017
GAAP EPS
223,521

 
223,014

Non-GAAP EPS
224,955

 
223,335

(14)
Depreciation and amortization per the Adjusted EBITDA reconciliations do not include certain depreciation amounts reflected in other lines of the reconciliations, including Acquisition-related and integration costs and Separation benefits and other restructuring.
(15)
To exclude Other income, net per the Consolidated Statement of Operations.

14


Reconciliation of Net Debt Leverage Ratio (non-GAAP)
The following table provides a reconciliation of our Net loss (GAAP) to our Adjusted EBITDA (non-GAAP) for the twelve months ended March 31, 2018 (in thousands) and the calculation of our Net Debt Leverage Ratio (non-GAAP):
 
Twelve Months Ended March 31, 2018
Net loss (GAAP)
$
(2,367,094
)
Income tax benefit
(222,874
)
Interest expense, net
500,219

Depreciation and amortization (14)
748,055

EBITDA (non-GAAP)
$
(1,341,694
)
 
 
Inventory step-up and other cost savings
$
341

Upfront and milestone-related payments
7,720

Inventory reserve increase from restructuring
16,066

Separation benefits and other restructuring
222,699

Certain litigation-related and other contingencies, net
182,554

Asset impairment charges
1,398,830

Acquisition-related and integration costs
3,441

Fair value of contingent consideration
50,600

Loss on extinguishment of debt
51,734

Share-based compensation
48,546

Other income, net
(17,864
)
Other adjustments
(1,021
)
Discontinued operations, net of tax
802,068

Adjusted EBITDA (non-GAAP)
$
1,424,020

 
 
Calculation of Net Debt:
 
Debt
$
8,271,692

Cash (excluding Restricted Cash)
980,412

Net Debt (non-GAAP)
$
7,291,280

 
 
Calculation of Net Debt Leverage:
 
Net Debt Leverage Ratio (non-GAAP)
5.1


15


Non-GAAP Financial Measures
The Company utilizes certain financial measures that are not prescribed by or prepared in accordance with accounting principles generally accepted in the U.S. (GAAP). These Non-GAAP financial measures are not, and should not be viewed as, substitutes for GAAP net income and its components and diluted earnings per share amounts. Despite the importance of these measures to management in goal setting and performance measurement, we stress that these are Non-GAAP financial measures that have no standardized meaning prescribed by GAAP and, therefore, have limits in their usefulness to investors. Because of the non-standardized definitions, Non-GAAP adjusted EBITDA and Non-GAAP adjusted net income from continuing operations and its components (unlike GAAP net income from continuing operations and its components) may not be comparable to the calculation of similar measures of other companies. These Non-GAAP financial measures are presented solely to permit investors to more fully understand how management assesses performance.
Investors are encouraged to review the reconciliations of the non-GAAP financial measures used in this press release to their most directly comparable GAAP financial measures. However, the Company does not provide reconciliations of projected non-GAAP financial measures to GAAP financial measures, nor does it provide comparable projected GAAP financial measures for such projected non-GAAP financial measures. The Company is unable to provide such reconciliations without unreasonable efforts due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliations, including adjustments that could be made for asset impairments, contingent consideration adjustments, legal settlements, loss on extinguishment of debt, adjustments to inventory and other charges reflected in the reconciliation of historic numbers, the amount of which could be significant.
See Endo's Current Report on Form 8-K furnished today to the U.S. Securities and Exchange Commission for an explanation of Endo's non-GAAP financial measures.
About Endo International plc
Endo International plc (NASDAQ: ENDP) is a highly focused generics and specialty branded pharmaceutical company delivering quality medicines to patients in need through excellence in development, manufacturing and commercialization. Endo has global headquarters in Dublin, Ireland, and U.S. headquarters in Malvern, PA. Learn more at www.endo.com.


16


Cautionary Note Regarding Forward-Looking Statements
This press release contains forward-looking statements, including but not limited to the statements by Mr. Campanelli, as well as other statements regarding product development, market potential, corporate strategy, optimization efforts and restructurings, timing, closing and expected benefits and value from any acquisition, expected growth and regulatory approvals, together with Endo’s earnings per share from continuing operations amounts, product net sales, revenue forecasts and any other statements that refer to Endo’s expected, estimated or anticipated future results. Because forecasts are inherently estimates that cannot be made with precision, Endo’s performance at times differs materially from its estimates and targets, and Endo often does not know what the actual results will be until after the end of the applicable reporting period. Therefore, Endo will not report or comment on its progress during a current quarter except through public announcement. Any statement made by others with respect to progress during a current quarter cannot be attributed to Endo.
All forward-looking statements in this press release reflect Endo’s current analysis of existing trends and information and represent Endo’s judgment only as of the date of this press release. Actual results may differ materially from current expectations based on a number of factors affecting Endo’s businesses, including, among other things, the following: changing competitive, market and regulatory conditions; Endo’s ability to obtain and maintain adequate protection for its intellectual property rights; the timing and uncertainty of the results of both the research and development and regulatory processes, including regulatory decisions, product recalls, withdrawals and other unusual items; domestic and foreign health care and cost containment reforms, including government pricing, tax and reimbursement policies; technological advances and patents obtained by competitors; the performance, including the approval, introduction, and consumer and physician acceptance of new products and the continuing acceptance of currently marketed products; the effectiveness of advertising and other promotional campaigns; the timely and successful implementation of strategic initiatives; the timing or results of any pending or future litigation, investigations or claims or actual or contingent liabilities, settlement discussions, negotiations or other adverse proceedings; timing and uncertainty of any acquisition, including the possibility that various closing conditions may not be satisfied or waived, uncertainty surrounding the successful integration of any acquired business and failure to achieve the expected financial and commercial results from such acquisition; the uncertainty associated with the identification of and successful consummation and execution of external corporate development initiatives and strategic partnering transactions; and Endo’s ability to obtain and successfully maintain a sufficient supply of products to meet market demand in a timely manner. In addition, U.S. and international economic conditions, including higher unemployment, political instability, financial hardship, consumer confidence and debt levels, taxation,

17


changes in interest and currency exchange rates, international relations, capital and credit availability, the status of financial markets and institutions, fluctuations or devaluations in the value of sovereign government debt, as well as the general impact of continued economic volatility, can materially affect Endo’s results. Therefore, the reader is cautioned not to rely on these forward-looking statements. Endo expressly disclaims any intent or obligation to update these forward-looking statements except as required to do so by law.
Additional information concerning the above-referenced risk factors and other risk factors can be found in press releases issued by Endo, as well as Endo’s public periodic filings with the U.S. Securities and Exchange Commission and with securities regulators in Canada, including the discussion under the heading "Risk Factors" in Endo’s most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q. Copies of Endo’s press releases and additional information about Endo are available at www.endo.com or you can contact the Endo Investor Relations Department by calling 484-216-0000.
SOURCE Endo International plc
Media: Heather Zoumas-Lubeski, (484) 216-6829; Investors: Nina Goworek, (484) 216-6657
#####

18