9.30.2018 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): November 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 November 8, 2018, Endo International plc (the “Company,” “Endo,” or “we”) issued an earnings release announcing its financial results for the three and nine months ended September 30, 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 Senior 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; litigation-related and other contingent matters; gains or losses from early termination of debt; gains or losses from the sales of businesses and other assets; 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; gains or losses from the sales of businesses and other assets; 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: November 8, 2018


Ex 99.1 - 9.30.2018-Earnings Release


Exhibit 99.1
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12537962&doc=3
ENDO REPORTS THIRD-QUARTER 2018 FINANCIAL RESULTS

Third-quarter 2018 revenues of $745 million compared to third-quarter 2017 revenues of $787 million
Third-quarter 2018 XIAFLEX® franchise revenues increased 22 percent versus third-quarter 2017 to $64 million
Third-quarter 2018 Sterile Injectables revenues increased 17 percent versus third-quarter 2017 to $237 million
Company raises 2018 financial guidance
DUBLIN, November 8, 2018 -- Endo International plc (NASDAQ: ENDP) today reported third-quarter 2018 financial results, including:
Revenues of $745 million, a decrease of 5 percent compared to third-quarter 2017 revenues of $787 million; revenues increased 4 percent compared to second-quarter 2018.
Reported net loss from continuing operations of $146 million compared to third-quarter 2017 reported net loss from continuing operations of $100 million.
Reported diluted loss per share from continuing operations of $0.65 compared to third-quarter 2017 reported diluted loss per share from continuing operations of $0.45.
Adjusted income from continuing operations of $165 million compared to third-quarter 2017 adjusted income from continuing operations of $204 million.
Adjusted diluted EPS from continuing operations of $0.71 compared to third-quarter 2017 adjusted diluted EPS from continuing operations of $0.91.
Adjusted EBITDA of $328 million compared to third-quarter 2017 adjusted EBITDA of $375 million.
"We had strong operational performance in the quarter, delivering double-digit growth in our U.S. Branded Sterile Injectables business and in the Specialty Products portfolio of our U.S. Branded - Specialty & Established Pharmaceuticals business,” said Paul Campanelli, President and Chief Executive Officer of Endo. “We are focused on enhancing our capabilities in these businesses through the Somerset/Wintac acquisition, which we anticipate will close during the first quarter of 2019, and on our planned expansion into the medical aesthetics market. On that front, I am extremely pleased with the previously reported positive results from the Phase 3 CCH for cellulite clinical trials and I look forward to taking the next steps to bring this treatment to patients."

1


FINANCIAL PERFORMANCE
(in thousands, except per share amounts)
 
Three Months Ended September 30,
 
 
 
Nine Months Ended September 30,
 
 
 
2018
 
2017
 
Change
 
2018
 
2017
 
Change
Total Revenues
$
745,466

 
$
786,887

 
(5
)%
 
$
2,160,689

 
$
2,700,218

 
(20
)%
Reported Loss from Continuing Operations
$
(146,071
)
 
$
(99,687
)
 
47
 %
 
$
(696,288
)
 
$
(961,130
)
 
(28
)%
Reported Diluted Weighted Average Shares
224,132

 
223,299

 
 %
 
223,829

 
223,157

 
 %
Reported Diluted Loss per Share from Continuing Operations
$
(0.65
)
 
$
(0.45
)
 
44
 %
 
$
(3.11
)
 
$
(4.31
)
 
(28
)%
Adjusted Income from Continuing Operations
$
164,845

 
$
204,052

 
(19
)%
 
$
487,823

 
$
686,498

 
(29
)%
Adjusted Diluted Weighted Average Shares1
232,358

 
224,216

 
4
 %
 
228,195

 
223,779

 
2
 %
Adjusted Diluted EPS from Continuing Operations
$
0.71

 
$
0.91

 
(22
)%
 
$
2.14

 
$
3.07

 
(30
)%
__________
(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 were $745 million in third-quarter 2018 compared to $787 million in the same period in 2017. This performance was primarily attributable to competitive pressures and product discontinuations in the U.S. Generic Pharmaceutical segment, the divestiture of the Company's Mexican business, Somar, and the voluntary market withdrawal of OPANA® ER. These factors were partially offset by the launch of ertapenem for injection, the authorized generic of INVANZ®, and continued strong growth in the U.S. Branded - Sterile Injectables segment.
GAAP net loss from continuing operations in third-quarter 2018 was $146 million compared to GAAP net loss from continuing operations of $100 million during the same period in 2017. This result was primarily attributable to the gross margin impact of the quarter's revenue reduction and increased asset impairment charges. GAAP diluted net loss per share from continuing operations for third-quarter 2018 was $0.65 compared to GAAP diluted net loss per share from continuing operations of $0.45 in third-quarter 2017.
Adjusted income from continuing operations in third-quarter 2018 was $165 million compared to $204 million in third-quarter 2017. This performance was primarily attributable to the divestiture of Somar and the voluntary market withdrawal of OPANA® ER. Adjusted diluted EPS from continuing operations in third-quarter 2018 was $0.71 compared to $0.91 in third-quarter 2017.

2


U.S. BRANDED - SPECIALTY & ESTABLISHED PHARMACEUTICALS
In November 2018, the Company reported positive results from two Phase 3 clinical trials of collagenase clostridium histolyticum (or "CCH") for the treatment of cellulite in the buttocks. Trial subjects receiving CCH showed highly statistically significant levels of improvement in the appearance of cellulite with treatment, as measured by the trial's primary endpoint.
Third-quarter 2018 U.S. Branded - Specialty & Established Pharmaceuticals results include:
Revenues of $220 million compared to $234 million in third-quarter 2017; this performance was primarily attributable to the voluntary cessation of OPANA® ER shipments in third-quarter 2017. Excluding the impact of OPANA® ER, revenues were consistent with third-quarter 2017.
Specialty Products revenues increased 13 percent in third-quarter 2018 compared to third-quarter 2017, primarily driven by the continued strong performance from XIAFLEX®. Sales of XIAFLEX® increased 22 percent compared to third-quarter 2017; this increase was primarily attributable to volume growth in both Peyronie’s Disease and Dupuytren’s Contracture indications.
U.S. BRANDED - STERILE INJECTABLES
During third-quarter 2018, the U.S. Branded Sterile Injectables segment launched ertapenem for injection, the authorized generic of INVANZ®.
Third-quarter 2018 U.S. Branded - Sterile Injectables results include:
Revenues of $237 million, an increase of 17 percent compared to third-quarter 2017. This increase was primarily attributable to the launch of ertapenem for injection and the continued strong growth of ADRENALIN® and VASOSTRICT®.
U.S. GENERIC PHARMACEUTICALS
During third-quarter 2018, the U.S. Generic Pharmaceuticals segment launched 3 products, including colchicine tablets, the authorized generic of COLCRYS®, which was the result of a first-to-file paragraph four settlement agreement.
Third-quarter 2018 U.S. Generic Pharmaceuticals results include:
Revenues of $258 million compared to $295 million in third-quarter 2017; this performance was primarily attributable to competitive pressures in the generic business and previously announced product discontinuations, partially offset by the launch of colchicine tablets.

3


INTERNATIONAL PHARMACEUTICALS
Third-quarter 2018 International Pharmaceuticals revenues were $30 million, compared to $56 million in the same period in 2017. This performance is primarily attributable to the Somar divestiture in the fourth-quarter of 2017.
2018 FINANCIAL GUIDANCE
For the full twelve months ending December 31, 2018, at current exchange rates, Endo is raising its financial guidance. The Company now estimates:
Total revenues to be between $2.87 billion and $2.92 billion;
Adjusted diluted EPS from continuing operations to be between $2.65 and $2.75; and
Adjusted EBITDA from continuing operations to be between $1.32 billion and $1.34 billion.
The Company’s 2018 non-GAAP financial guidance is based on the following assumptions:
Adjusted gross margin of approximately 68.5%;
Adjusted operating expenses as a percentage of revenues of approximately 27.0%;
Adjusted interest expense of approximately $525 million;
Adjusted effective tax rate of approximately 8.5% to 9.5%; and
Adjusted diluted weighted average shares outstanding of approximately 230 million.
BALANCE SHEET, LIQUIDITY AND OTHER UPDATES
As of September 30, 2018, the Company had $1.1 billion in unrestricted cash; debt of $8.3 billion; net debt of approximately $7.1 billion and a net debt to adjusted EBITDA ratio of 5.3.
Third-quarter 2018 cash used in operating activities was $22 million, compared to $83 million of net cash provided by operating activities in the comparable 2017 period.
CONFERENCE CALL INFORMATION
Endo will conduct a conference call with financial analysts to discuss this press release today at 8:00 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 6154109. Please dial in 10 minutes prior to the scheduled start time.
A replay of the call will be available from November 8, 2018 at 11:00 a.m. ET until 11:00 a.m. ET on November 11, 2018 by dialing U.S./Canada (855) 859-2056, International (404) 537-3406, and entering the passcode 6154109.

4


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.


VOLTAREN is a registered trademark of Novartis Corporation
COLCRYS is a registered trademark of Takeda Pharmaceuticals U.S.A., Inc. 
INVANZ is a registered trademark of Merck Sharp & Dohme Corp.


5


FINANCIAL SCHEDULES
The following table presents Endo's unaudited Total Revenues for the three and nine months ended September 30, 2018 and 2017 (dollars in thousands):
 
Three Months Ended September 30,
 
Percent Growth
 
Nine Months Ended September 30,
 
Percent Growth
 
2018
 
2017
 
 
2018
 
2017
 
U.S. Branded - Specialty & Established Pharmaceuticals:
 
 
 
 
 
 
 
 
 
 
 
Specialty Products:


 


 


 
 
 
 
 
 
XIAFLEX®
$
64,214

 
$
52,511

 
22
 %
 
$
184,855

 
$
152,113

 
22
 %
SUPPRELIN® LA
20,408

 
20,638

 
(1
)%
 
60,948

 
63,468

 
(4
)%
Other Specialty (1)
43,576

 
40,634

 
7
 %
 
114,202

 
113,407

 
1
 %
Total Specialty Products
$
128,198

 
$
113,783

 
13
 %
 
$
360,005

 
$
328,988

 
9
 %
Established Products:


 


 


 
 
 
 
 
 
PERCOCET®
$
30,730

 
$
31,349

 
(2
)%
 
$
93,539

 
$
93,183

 
 %
VOLTAREN® Gel
15,057

 
19,102

 
(21
)%
 
44,185

 
53,646

 
(18
)%
OPANA® ER

 
14,756

 
(100
)%
 

 
82,056

 
(100
)%
Other Established (2)
46,115

 
54,813

 
(16
)%
 
135,243

 
171,277

 
(21
)%
Total Established Products
$
91,902

 
$
120,020

 
(23
)%
 
$
272,967

 
$
400,162

 
(32
)%
Total U.S. Branded - Specialty & Established Pharmaceuticals (3)
$
220,100

 
$
233,803

 
(6
)%
 
$
632,972

 
$
729,150

 
(13
)%
U.S. Branded - Sterile Injectables:
 
 
 
 
 
 
 
 
 
 
 
VASOSTRICT®
$
112,333

 
$
105,741

 
6
 %
 
$
332,387

 
$
300,649

 
11
 %
ADRENALIN®
35,460

 
25,335

 
40
 %
 
101,858

 
50,464

 
NM

Ertapenem for injection
25,798

 

 
NM

 
25,798

 

 
NM

Other Sterile Injectables (4)
63,559

 
70,829

 
(10
)%
 
210,804

 
203,252

 
4
 %
Total U.S. Branded - Sterile Injectables (3)
$
237,150

 
$
201,905

 
17
 %
 
$
670,847

 
$
554,365

 
21
 %
Total U.S. Generic Pharmaceuticals
$
257,969

 
$
294,749

 
(12
)%
 
$
748,445

 
$
1,227,584

 
(39
)%
Total International Pharmaceuticals
$
30,247

 
$
56,430

 
(46
)%
 
$
108,425

 
$
189,119

 
(43
)%
Total Revenues
$
745,466

 
$
786,887

 
(5
)%
 
$
2,160,689

 
$
2,700,218

 
(20
)%
__________
(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®, EDEX®, 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® and ephedrine sulfate injection.

6


The following table presents unaudited Condensed Consolidated Statement of Operations data for the three and nine months ended September 30, 2018 and 2017 (in thousands, except per share data):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
TOTAL REVENUES
$
745,466

 
$
786,887

 
$
2,160,689

 
$
2,700,218

COSTS AND EXPENSES:
 
 
 
 
 
 
 
Cost of revenues
412,965

 
514,522

 
1,198,468

 
1,722,885

Selling, general and administrative
163,791

 
135,880

 
478,615

 
468,675

Research and development
39,683

 
39,644

 
160,431

 
123,522

Litigation-related and other contingencies, net
(1,750
)
 
(12,352
)
 
15,370

 
(14,016
)
Asset impairment charges
142,217

 
94,924

 
613,400

 
1,023,930

Acquisition-related and integration items
1,288

 
16,641

 
13,284

 
31,711

OPERATING LOSS FROM CONTINUING OPERATIONS
$
(12,728
)
 
$
(2,372
)
 
$
(318,879
)
 
$
(656,489
)
INTEREST EXPENSE, NET
131,847

 
127,521

 
385,896

 
361,267

LOSS ON EXTINGUISHMENT OF DEBT

 

 

 
51,734

OTHER INCOME, NET
(1,507
)
 
(2,097
)
 
(33,216
)
 
(10,843
)
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX
$
(143,068
)
 
$
(127,796
)
 
$
(671,559
)
 
$
(1,058,647
)
INCOME TAX EXPENSE (BENEFIT)
3,003

 
(28,109
)
 
24,729

 
(97,517
)
LOSS FROM CONTINUING OPERATIONS
$
(146,071
)
 
$
(99,687
)
 
$
(696,288
)
 
$
(961,130
)
DISCONTINUED OPERATIONS, NET OF TAX
(27,134
)
 
3,017

 
(43,273
)
 
(705,886
)
NET LOSS
$
(173,205
)
 
$
(96,670
)
 
$
(739,561
)
 
$
(1,667,016
)
NET (LOSS) INCOME PER SHARE—BASIC:
 
 
 
 
 
 
 
Continuing operations
$
(0.65
)
 
$
(0.45
)
 
$
(3.11
)
 
$
(4.31
)
Discontinued operations
(0.12
)
 
0.02

 
(0.19
)
 
(3.16
)
Basic
$
(0.77
)
 
$
(0.43
)
 
$
(3.30
)
 
$
(7.47
)
NET (LOSS) INCOME PER SHARE—DILUTED:
 
 
 
 
 
 
 
Continuing operations
$
(0.65
)
 
$
(0.45
)
 
$
(3.11
)
 
$
(4.31
)
Discontinued operations
(0.12
)
 
0.02

 
(0.19
)
 
(3.16
)
Diluted
$
(0.77
)
 
$
(0.43
)
 
$
(3.30
)
 
$
(7.47
)
WEIGHTED AVERAGE SHARES:
 
 
 
 
 
 
 
Basic
224,132

 
223,299

 
223,829

 
223,157

Diluted
224,132

 
223,299

 
223,829

 
223,157


7


The following table presents unaudited Condensed Consolidated Balance Sheet data at September 30, 2018 and December 31, 2017 (in thousands):
 
September 30, 2018
 
December 31, 2017
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
1,118,885

 
$
986,605

Restricted cash and cash equivalents
289,667

 
320,453

Accounts receivable
467,156

 
517,436

Inventories, net
332,787

 
391,437

Other current assets
67,104

 
55,146

Total current assets
$
2,275,599

 
$
2,271,077

TOTAL NON-CURRENT ASSETS
8,246,063

 
9,364,503

TOTAL ASSETS
$
10,521,662

 
$
11,635,580

LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable and accrued expenses, including legal settlement accruals
$
1,985,637

 
$
2,184,618

Other current liabilities
35,831

 
36,291

Total current liabilities
$
2,021,468

 
$
2,220,909

LONG-TERM DEBT, LESS CURRENT PORTION, NET
8,228,612

 
8,242,032

OTHER LIABILITIES
491,041

 
687,759

SHAREHOLDERS' (DEFICIT) EQUITY
(219,459
)
 
484,880

TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
$
10,521,662

 
$
11,635,580


8


The following table presents unaudited Condensed Consolidated Statement of Cash Flow data for the nine months ended September 30, 2018 and 2017 (in thousands):
 
Nine Months Ended September 30,
 
2018

2017
OPERATING ACTIVITIES:
 
 
 
Net loss
$
(739,561
)
 
$
(1,667,016
)
Adjustments to reconcile Net loss to Net cash provided by operating activities:
 
 
 
Depreciation and amortization
556,503

 
742,936

Asset impairment charges
613,400

 
1,023,930

Other, including cash payments to claimants from Qualified Settlement Funds
(233,350
)
 
322,312

Net cash provided by operating activities
$
196,992

 
$
422,162

INVESTING ACTIVITIES:
 
 
 
Purchases of property, plant and equipment, excluding capitalized interest
$
(56,544
)
 
$
(94,102
)
Proceeds from sale of business and other assets, net
43,753

 
96,066

Other
(891
)
 
7,000

Net cash (used in) provided by investing activities
$
(13,682
)
 
$
8,964

FINANCING ACTIVITIES:
 
 
 
Payments on borrowings, net
$
(29,535
)
 
$
(12,325
)
Other
(33,273
)
 
(123,028
)
Net cash used in financing activities
$
(62,808
)
 
$
(135,353
)
Effect of foreign exchange rate
(608
)
 
3,983

Movement in cash held for sale

 
(1,450
)
NET INCREASE IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS
$
119,894

 
$
298,306

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
$
1,430,908

 
$
1,103,486


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 and nine months ended September 30, 2018 and 2017 (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018

2017
 
2018
 
2017
Net loss (GAAP)
$
(173,205
)
 
$
(96,670
)
 
$
(739,561
)
 
$
(1,667,016
)
Income tax expense (benefit)
3,003

 
(28,109
)
 
24,729

 
(97,517
)
Interest expense, net
131,847

 
127,521

 
385,896

 
361,267

Depreciation and amortization (15)
176,856

 
183,475

 
521,325

 
680,385

EBITDA (non-GAAP)
$
138,501

 
$
186,217

 
$
192,389

 
$
(722,881
)
 


 


 
 
 
 
Inventory step-up and other cost savings (2)
$
71

 
$
66

 
$
261

 
$
281

Upfront and milestone-related payments (3)
4,731

 
775

 
43,027

 
6,952

Inventory reserve increase from restructuring (4)
207

 

 
2,797

 
7,899

Separation benefits and other restructuring (5)
3,794

 
80,693

 
79,344

 
120,078

Certain litigation-related and other contingencies, net (6)
(1,750
)
 
(12,352
)
 
15,370

 
(14,016
)
Asset impairment charges (7)
142,217

 
94,924

 
613,400

 
1,023,930

Acquisition-related and integration costs (8)
519

 
1,201

 
1,553

 
8,137

Fair value of contingent consideration (9)
769

 
15,440

 
11,731

 
23,574

Loss on extinguishment of debt (10)

 

 

 
51,734

Share-based compensation
13,736

 
13,247

 
43,722

 
40,252

Other income, net (16)
(1,507
)
 
(2,097
)
 
(33,216
)
 
(10,843
)
Other adjustments
(67
)
 
(58
)
 
(775
)
 
(75
)
Discontinued operations, net of tax (13)
27,134

 
(3,017
)
 
43,273

 
705,886

Adjusted EBITDA (non-GAAP)
$
328,355

 
$
375,039

 
$
1,012,876

 
$
1,240,908


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 and nine months ended September 30, 2018 and 2017 (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Loss from continuing operations (GAAP)
$
(146,071
)
 
$
(99,687
)
 
$
(696,288
)
 
$
(961,130
)
Non-GAAP adjustments:


 


 


 


Amortization of intangible assets (1)
161,275

 
161,413

 
471,662

 
615,490

Inventory step-up and other cost savings (2)
71

 
66

 
261

 
281

Upfront and milestone-related payments (3)
4,731

 
775

 
43,027

 
6,952

Inventory reserve increase from restructuring (4)
207

 

 
2,797

 
7,899

Separation benefits and other restructuring (5)
3,794

 
80,693

 
79,344

 
120,078

Certain litigation-related and other contingencies, net (6)
(1,750
)
 
(12,352
)
 
15,370

 
(14,016
)
Asset impairment charges (7)
142,217

 
94,924

 
613,400

 
1,023,930

Acquisition-related and integration costs (8)
519

 
1,201

 
1,553

 
8,137

Fair value of contingent consideration (9)
769

 
15,440

 
11,731

 
23,574

Loss on extinguishment of debt (10)

 

 

 
51,734

Other (11)
1,353

 
3,035

 
(29,908
)
 
(1,133
)
Tax adjustments (12)
(2,270
)
 
(41,456
)
 
(25,126
)
 
(195,298
)
Adjusted income from continuing operations (non-GAAP)
$
164,845

 
$
204,052

 
$
487,823

 
$
686,498


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 and nine months ended September 30, 2018 and 2017 (in thousands, except per share data):
Three Months Ended September 30, 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 (14)
Reported (GAAP)
$
745,466

 
$
412,965

 
$
332,501

 
44.6
%
 
$
345,229

 
46.3
%
 
$
(12,728
)
 
(1.7
)%
 
$
130,340

 
$
(143,068
)
 
$
3,003

 
(2.1
)%
 
$
(146,071
)
 
$
(27,134
)
 
$
(173,205
)
 
$
(0.65
)
Items impacting comparability:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of intangible assets (1)

 
(161,275
)
 
161,275

 
 
 

 
 
 
161,275

 
 
 

 
161,275

 

 
 
 
161,275

 

 
161,275

 
0.71

Inventory step-up and other cost savings (2)

 
(71
)
 
71

 
 
 

 
 
 
71

 
 
 

 
71

 

 
 
 
71

 

 
71

 

Upfront and milestone-related payments (3)

 
(745
)
 
745

 
 
 
(3,986
)
 
 
 
4,731

 
 
 

 
4,731

 

 
 
 
4,731

 

 
4,731

 
0.02

Inventory reserve increase from restructuring (4)

 
(207
)
 
207

 
 
 

 
 
 
207

 
 
 

 
207

 

 
 
 
207

 

 
207

 

Separation benefits and other restructuring (5)

 
(3,626
)
 
3,626

 
 
 
(168
)
 
 
 
3,794

 
 
 

 
3,794

 

 
 
 
3,794

 

 
3,794

 
0.02

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

 

 

 
 
 
1,750

 
 
 
(1,750
)
 
 
 

 
(1,750
)
 

 
 
 
(1,750
)
 

 
(1,750
)
 
(0.01
)
Asset impairment charges (7)

 

 

 
 
 
(142,217
)
 
 
 
142,217

 
 
 

 
142,217

 

 
 
 
142,217

 

 
142,217

 
0.62

Acquisition-related and integration costs (8)

 

 

 
 
 
(519
)
 
 
 
519

 
 
 

 
519

 

 
 
 
519

 

 
519

 

Fair value of contingent consideration (9)

 

 

 
 
 
(769
)
 
 
 
769

 
 
 

 
769

 

 
 
 
769

 

 
769

 

Other (11)

 

 

 
 
 

 
 
 

 
 
 
(1,353
)
 
1,353

 

 
 
 
1,353

 

 
1,353

 
0.01

Tax adjustments (12)

 

 

 
 
 

 
 
 

 
 
 

 

 
2,270

 
 
 
(2,270
)
 

 
(2,270
)
 
(0.01
)
Exclude discontinued operations, net of tax (13)

 

 

 
 
 

 
 
 

 
 
 

 

 

 
 
 

 
27,134

 
27,134

 

After considering items (non-GAAP)
$
745,466

 
$
247,041

 
$
498,425

 
66.9
%
 
$
199,320

 
26.7
%
 
$
299,105

 
40.1
 %
 
$
128,987

 
$
170,118

 
$
5,273

 
3.1
 %
 
$
164,845

 
$

 
$
164,845

 
$
0.71

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
 
Diluted (loss) income per share from continuing operations (14)
Reported (GAAP)
$
786,887

 
$
514,522

 
$
272,365

 
34.6
%
 
$
274,737

 
34.9
%
 
$
(2,372
)
 
(0.3
)%
 
$
125,424

 
$
(127,796
)
 
$
(28,109
)
 
22.0
%
 
$
(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 (5)

 
(78,680
)
 
78,680

 
 
 
(2,013
)
 
 
 
80,693

 
 
 

 
80,693

 

 
 
 
80,693

 

 
80,693

 
0.36

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

 

 

 
 
 
12,352

 
 
 
(12,352
)
 
 
 

 
(12,352
)
 

 
 
 
(12,352
)
 

 
(12,352
)
 
(0.06
)
Asset impairment charges (7)

 

 

 
 
 
(94,924
)
 
 
 
94,924

 
 
 

 
94,924

 

 
 
 
94,924

 

 
94,924

 
0.43

Acquisition-related and integration costs (8)

 

 

 
 
 
(1,201
)
 
 
 
1,201

 
 
 

 
1,201

 

 
 
 
1,201

 

 
1,201

 
0.01

Fair value of contingent consideration (9)

 

 

 
 
 
(15,440
)
 
 
 
15,440

 
 
 

 
15,440

 

 
 
 
15,440

 

 
15,440

 
0.07

Other (11)

 

 

 
 
 

 
 
 

 
 
 
(3,035
)
 
3,035

 

 
 
 
3,035

 

 
3,035

 
0.01

Tax adjustments (12)

 

 

 
 
 

 
 
 

 
 
 

 

 
41,456

 
 
 
(41,456
)
 

 
(41,456
)
 
(0.19
)
Exclude discontinued operations, net of tax (13)

 

 

 
 
 

 
 
 

 
 
 

 

 

 
 
 

 
(3,017
)
 
(3,017
)
 

After considering items (non-GAAP)
$
786,887

 
$
273,675

 
$
513,212

 
65.2
%
 
$
173,424

 
22.0
%
 
$
339,788

 
43.2
 %
 
$
122,389

 
$
217,399

 
$
13,347

 
6.1
%
 
$
204,052

 
$

 
$
204,052

 
$
0.91


12


Nine Months Ended September 30, 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 (14)
Reported (GAAP)
$
2,160,689

 
$
1,198,468

 
$
962,221

 
44.5
%
 
$
1,281,100

 
59.3
%
 
$
(318,879
)
 
(14.8
)%
 
$
352,680

 
$
(671,559
)
 
$
24,729

 
(3.7
)%
 
$
(696,288
)
 
$
(43,273
)
 
$
(739,561
)
 
$
(3.11
)
Items impacting comparability:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of intangible assets (1)

 
(471,662
)
 
471,662

 
 
 

 
 
 
471,662

 
 
 

 
471,662

 

 
 
 
471,662

 

 
471,662

 
2.10

Inventory step-up and other cost savings (2)

 
(261
)
 
261

 
 
 

 
 
 
261

 
 
 

 
261

 

 
 
 
261

 

 
261

 

Upfront and milestone-related payments (3)

 
(2,095
)
 
2,095

 
 
 
(40,932
)
 
 
 
43,027

 
 
 

 
43,027

 

 
 
 
43,027

 

 
43,027

 
0.19

Inventory reserve increase from restructuring (4)

 
(2,797
)
 
2,797

 
 
 

 
 
 
2,797

 
 
 

 
2,797

 

 
 
 
2,797

 

 
2,797

 
0.01

Separation benefits and other restructuring (5)

 
(57,457
)
 
57,457

 
 
 
(21,887
)
 
 
 
79,344

 
 
 

 
79,344

 

 
 
 
79,344

 

 
79,344

 
0.34

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

 

 

 
 
 
(15,370
)
 
 
 
15,370

 
 
 

 
15,370

 

 
 
 
15,370

 

 
15,370

 
0.07

Asset impairment charges (7)

 

 

 
 
 
(613,400
)
 
 
 
613,400

 
 
 

 
613,400

 

 
 
 
613,400

 

 
613,400

 
2.73

Acquisition-related and integration costs (8)

 

 

 
 
 
(1,553
)
 
 
 
1,553

 
 
 

 
1,553

 

 
 
 
1,553

 

 
1,553

 
0.01

Fair value of contingent consideration (9)

 

 

 
 
 
(11,731
)
 
 
 
11,731

 
 
 

 
11,731

 

 
 
 
11,731

 

 
11,731

 
0.05

Other (11)

 

 

 
 
 
630

 
 
 
(630
)
 
 
 
29,278

 
(29,908
)
 

 
 
 
(29,908
)
 

 
(29,908
)
 
(0.13
)
Tax adjustments (12)

 

 

 
 
 

 
 
 

 
 
 

 

 
25,126

 
 
 
(25,126
)
 

 
(25,126
)
 
(0.12
)
Exclude discontinued operations, net of tax (13)

 

 

 
 
 

 
 
 

 
 
 

 

 

 
 
 

 
43,273

 
43,273

 

After considering items (non-GAAP)
$
2,160,689

 
$
664,196

 
$
1,496,493

 
69.3
%
 
$
576,857

 
26.7
%
 
$
919,636

 
42.6
 %
 
$
381,958

 
$
537,678

 
$
49,855

 
9.3
 %
 
$
487,823

 
$

 
$
487,823

 
$
2.14

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
 
Diluted (loss) income per share from continuing operations (14)
Reported (GAAP)
$
2,700,218

 
$
1,722,885

 
$
977,333

 
36.2
%
 
$
1,633,822

 
60.5
%
 
$
(656,489
)
 
(24.3
)%
 
$
402,158

 
$
(1,058,647
)
 
$
(97,517
)
 
9.2
%
 
$
(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
)