Endo Reports Second-Quarter 2019 Financial Results

August 5, 2019

- Operating Performance Led by Year-over-Year Double-Digit-Percentage Growth in Revenues of Sterile Injectables Segment and Specialty Products Portfolio of Branded Pharmaceuticals Segment -

- Endo Reaffirms Full-Year 2019 Financial Guidance -

DUBLIN, Aug. 5, 2019 /PRNewswire/ -- Endo International plc (NASDAQ: ENDP) today reported second-quarter 2019 financial results, including:

Revenues of $700 million, a decrease of 2 percent compared to second-quarter 2018 revenues of $715 million.
Branded Pharmaceuticals - Specialty Products revenues increased 17 percent to $124 million compared to second-quarter 2018 revenues of $106 million.
Sterile Injectables revenues increased 12 percent to $244 million compared to second-quarter 2018 revenues of $218 million.
Reported net loss from continuing operations of $98 million compared to second-quarter 2018 reported net loss from continuing operations of $52 million.
Reported diluted loss per share from continuing operations of $0.43 compared to second-quarter 2018 reported diluted loss per share from continuing operations of $0.23.
Adjusted income from continuing operations of $120 million compared to second-quarter 2018 adjusted income from continuing operations of $172 million.
Adjusted diluted earnings per share from continuing operations of $0.52 compared to second-quarter 2018 adjusted diluted earnings per share from continuing operations of $0.76.
Adjusted EBITDA of $307 million compared to second-quarter 2018 adjusted EBITDA of $351 million.

"I am pleased with our second-quarter 2019 operating performance, led by continued year-over-year double-digit percentage growth in revenues of our Sterile Injectables segment and in the Specialty Products portfolio of our Branded Pharmaceuticals segment. XIAFLEX^® grew 18 percent in the quarter, reflecting continued demand growth as a result of successful commercial execution and promotional investment," said Paul Campanelli, President and Chief Executive Officer of Endo. "We are on target to meet our previously provided full-year financial guidance and remain highly focused on the continued execution of our multiyear turnaround plan in a challenging external environment."

FINANCIAL PERFORMANCE

(in thousands, except per share amounts)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019		2018		Change		2019		2018		Change
Total Revenues, Net	$	699,727	$	714,696	(2)	%	$	1,420,138	$	1,415,223	—	%
Reported Loss from Continuing Operations	$	(98,052)	$	(52,479)	87	%	$	(110,664)	$	(550,217)	(80)	%
Reported Diluted Weighted Average Shares	226,221		223,834		1	%	225,408		223,677		1	%
Reported Diluted Loss per Share from Continuing Operations	$	(0.43)	$	(0.23)	87	%	$	(0.49)	$	(2.46)	(80)	%
Adjusted Income from Continuing Operations	$	120,405	$	172,195	(30)	%	$	242,488	$	322,978	(25)	%
Adjusted Diluted Weighted Average Shares¹	232,713		227,273		2	%	232,174		226,114		3	%
Adjusted Diluted Income per Share from Continuing Operations	$	0.52	$	0.76	(32)	%	$	1.04	$	1.43	(27)	%

__________
(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 ordinary 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 $700 million in second-quarter 2019 compared to $715 million during the same period in 2018. This decrease was primarily attributable to competitive pressures in the Generic Pharmaceuticals segment, the Established Products portfolio of the Branded Pharmaceuticals segment, and the International segment, partially offset by continued strong growth in the Sterile Injectables segment and the Specialty Products portfolio of the Branded Pharmaceuticals segment.

GAAP net loss from continuing operations in second-quarter 2019 was $98 million compared to GAAP net loss from continuing operations of $52 million during the same period in 2018. This result was primarily attributable to an increase in asset impairment charges and a decrease in gains on the sale of certain assets, partially offset by a decrease in research and development spending. GAAP diluted net loss per share from continuing operations in second-quarter 2019 was $0.43 compared to GAAP diluted net loss per share from continuing operations of $0.23 in second-quarter 2018.

Adjusted income from continuing operations in second-quarter 2019 was $120 million compared to $172 million in second-quarter 2018. This decrease was primarily attributable to lower adjusted gross margin in our Generic Pharmaceuticals segment due to a decline in revenue and an unfavorable change in product mix. Adjusted diluted income per share from continuing operations in second-quarter 2019 was $0.52 compared to $0.76 in second-quarter 2018.

BRANDED PHARMACEUTICALS

Second-quarter 2019 Branded Pharmaceuticals revenues were $209 million compared to $213 million in second-quarter 2018. This decrease was primarily attributable to ongoing generic competition in our Established Products portfolio, offset by continued strong growth of our Specialty Products portfolio.

Specialty Products revenues increased 17 percent to $124 million in second-quarter 2019 compared to second-quarter 2018, primarily driven by the continued strong performance of XIAFLEX^®. Sales of XIAFLEX^® increased 18 percent to $75 million compared to second-quarter 2018, primarily attributable to demand growth in both the Peyronie's Disease and Dupuytren's Contracture indications driven by continued commercial execution and investment in promotional activities.

With regards to Collagenase Clostridium Histolyticum (CCH) for the treatment of cellulite, Phase 3 data was presented in May at the American Society for Aesthetic Plastic Surgery Hot Topics session by clinical investigator Dr. Lawrence Bass. Additionally, Phase 2 and Phase 3 data was presented by multiple physicians, including clinical investigator Dr. Michael Gold, throughout the Vegas Cosmetic Surgery meeting held in June.

STERILE INJECTABLES

Second-quarter 2019 Sterile Injectables revenues were $244 million, an increase of 12 percent compared to second-quarter 2018. This increase reflects the third-quarter 2018 launch of ertapenem for injection, the authorized generic of INVANZ^®, as well as the continued strong growth of VASOSTRICT^® and ADRENALIN^®. As anticipated, second-quarter 2019 Sterile Injectables revenue declined versus first-quarter 2019 primarily as a result of the non-recurrence of the first-quarter stocking benefit and the expected destocking in the second quarter.

GENERIC PHARMACEUTICALS

Second-quarter 2019 Generic Pharmaceuticals revenues were $218 million compared to $241 million in second-quarter 2018. This performance was primarily attributable to increased competitive pressure on certain generic products. Partially offsetting the decrease was the impact of certain 2018 product launches including, among others, colchicine tablets, the authorized generic of Colcrys^®. During second-quarter 2019, the Generic Pharmaceuticals segment launched three products.

INTERNATIONAL PHARMACEUTICALS

Second-quarter 2019 International Pharmaceuticals revenues were $29 million, compared to $43 million in the same period in 2018.

2019 FINANCIAL GUIDANCE

For the twelve months ending December 31, 2019, at current exchange rates, Endo is reaffirming its previously provided guidance on revenue, adjusted diluted earnings per share from continuing operations and adjusted EBITDA from continuing operations. The Company estimates:

Total revenues to be between $2.76 billion and $2.96 billion;
Adjusted diluted earnings per share from continuing operations to be between $2.00 and $2.25; and
Adjusted EBITDA from continuing operations to be between $1.24 billion and $1.34 billion.

The Company's 2019 non-GAAP financial guidance is based on the following assumptions:

Adjusted gross margin of approximately 65.0% to 66.0%;
Adjusted operating expenses as a percentage of revenues of approximately 24.5% to 25.0%;
Adjusted interest expense of approximately $550 million to $560 million;
Adjusted effective tax rate of approximately 17.5% to 18.5%; and
Adjusted diluted weighted average shares outstanding of approximately 234 million.

BALANCE SHEET, LIQUIDITY AND OTHER UPDATES

In June 2019, the Company borrowed $300.0 million under its existing $1,000.0 million revolving credit facility. The Company expects to use the proceeds from this borrowing for purposes consistent with the Company's previously stated capital allocation priorities, including for general corporate purposes.

As of June 30, 2019, the Company had approximately $1.4 billion in unrestricted cash; debt of $8.4 billion; net debt of approximately $7.0 billion and a net debt to adjusted EBITDA ratio of 5.3.

Second-quarter 2019 cash provided by operating activities was $177 million, compared to $170 million of net cash provided by operating activities during second-quarter 2018.

CONFERENCE CALL INFORMATION

Endo will conduct a conference call with financial analysts to discuss this press release tomorrow 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 4344119. Please dial in 10 minutes prior to the scheduled start time.

A replay of the call will be available from August 6, 2019 at 10:30 a.m. ET until 10:30 a.m. ET on August 13, 2019 by dialing U.S./Canada (855) 859-2056, International (404) 537-3406, and entering the passcode 4344119.

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.

FINANCIAL SCHEDULES

The following table presents Endo's unaudited Total revenues, net for the three and six months ended June 30, 2019 and 2018 (dollars in thousands):

	Three Months Ended June 30,				Percent Growth		Six Months Ended June 30,				Percent Growth
	2019		2018		Percent Growth		2019		2018		Percent Growth
Branded Pharmaceuticals:
Specialty Products:
XIAFLEX®	$	74,855	$	63,500	18	%	$	143,362	$	120,641	19	%
SUPPRELIN® LA	23,714		19,963		19	%	45,770		40,540		13	%
Other Specialty (1)	25,524		22,585		13	%	49,927		41,612		20	%
Total Specialty Products	$	124,093	$	106,048	17	%	$	239,059	$	202,793	18	%
Established Products:
PERCOCET®	$	28,878	$	30,833	(6)	%	$	59,638	$	62,809	(5)	%
TESTOPEL®	11,780		13,844		(15)	%	27,594		29,014		(5)	%
Other Established (2)	44,262		61,912		(29)	%	86,247		118,256		(27)	%
Total Established Products	$	84,920	$	106,589	(20)	%	$	173,479	$	210,079	(17)	%
Total Branded Pharmaceuticals (3)	$	209,013	$	212,637	(2)	%	$	412,538	$	412,872	—	%
Sterile Injectables:
VASOSTRICT®	$	116,026	$	106,329	9	%	$	255,163	$	220,054	16	%
ADRENALIN®	45,835		36,658		25	%	93,157		66,398		40	%
Ertapenem for injection	25,547		—		NM		57,766		—		NM
Other Sterile Injectables (4)	56,872		74,856		(24)	%	108,242		147,245		(26)	%
Total Sterile Injectables (3)	$	244,280	$	217,843	12	%	$	514,328	$	433,697	19	%
Total Generic Pharmaceuticals	$	217,784	$	241,236	(10)	%	$	436,310	$	490,476	(11)	%
Total International Pharmaceuticals	$	28,650	$	42,980	(33)	%	$	56,962	$	78,178	(27)	%
Total revenues, net	$	699,727	$	714,696	(2)	%	$	1,420,138	$	1,415,223	—	%

__________
(1)	Products included within Other Specialty are NASCOBAL^®Nasal Spray and AVEED^®. Beginning with our first-quarter 2019 reporting, TESTOPEL^®, which was previously included in Other Specialty, has been reclassified and is now included in the Established Products portfolio for all periods presented.
(2)	Products included within Other Established include, but are not limited to, LIDODERM^®, VOLTAREN^® Gel, EDEX^®, FORTESTA^® Gel, and TESTIM^®, including the authorized generics of TESTIM^® and FORTESTA^® Gel.
(3)	Individual products presented above represent the top two performing products in each product category for either the three or six months ended June 30, 2019 and/or any product having revenues in excess of $25 million during any quarterly period in 2019 or 2018.
(4)	Products included within Other Sterile Injectables include, but are not limited to, APLISOL^® and ephedrine sulfate injection.

The following table presents unaudited Condensed Consolidated Statement of Operations data for the three and six months ended June 30, 2019 and 2018 (in thousands, except per share data):

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
TOTAL REVENUES, NET	$	699,727	$	714,696	$	1,420,138	$	1,415,223
COSTS AND EXPENSES:
Cost of revenues	388,208		381,905		780,117		785,503
Selling, general and administrative	152,297		148,157		303,420		314,824
Research and development	26,348		82,102		59,834		120,748
Litigation-related and other contingencies, net	10,315		19,620		10,321		17,120
Asset impairment charges	88,438		22,767		253,886		471,183
Acquisition-related and integration items	(5,507)		5,161		(43,008)		11,996
Interest expense, net	134,809		130,059		267,484		254,049
Gain on extinguishment of debt	—		—		(119,828)		—
Other (income) expense, net	(597)		(28,831)		4,205		(31,709)
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX	$	(94,584)	$	(46,244)	$	(96,293)	$	(528,491)
INCOME TAX EXPENSE	3,468		6,235		14,371		21,726
LOSS FROM CONTINUING OPERATIONS	$	(98,052)	$	(52,479)	$	(110,664)	$	(550,217)
DISCONTINUED OPERATIONS, NET OF TAX	(7,953)		(8,388)		(13,914)		(16,139)
NET LOSS	$	(106,005)	$	(60,867)	$	(124,578)	$	(566,356)
NET LOSS PER SHARE—BASIC:
Continuing operations	$	(0.43)	$	(0.23)	$	(0.49)	$	(2.46)
Discontinued operations	(0.04)		(0.04)		(0.06)		(0.07)
Basic	$	(0.47)	$	(0.27)	$	(0.55)	$	(2.53)
NET LOSS PER SHARE—DILUTED:
Continuing operations	$	(0.43)	$	(0.23)	$	(0.49)	$	(2.46)
Discontinued operations	(0.04)		(0.04)		(0.06)		(0.07)
Diluted	$	(0.47)	$	(0.27)	$	(0.55)	$	(2.53)
WEIGHTED AVERAGE SHARES:
Basic	226,221		223,834		225,408		223,677
Diluted	226,221		223,834		225,408		223,677

The following table presents unaudited Condensed Consolidated Balance Sheet data at June 30, 2019 and December 31, 2018 (in thousands):

	June 30, 2019		December 31, 2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1,446,949	$	1,149,113
Restricted cash and cash equivalents	307,587		305,368
Accounts receivable	442,078		470,570
Inventories, net	335,890		322,179
Other current assets	222,548		95,920
Total current assets	$	2,755,052	$	2,343,150
TOTAL NON-CURRENT ASSETS	7,319,237		7,789,243
TOTAL ASSETS	$	10,074,289	$	10,132,393
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses, including legal settlement accruals	$	1,786,054	$	1,914,285
Other current liabilities	49,766		35,811
Total current liabilities	$	1,835,820	$	1,950,096
LONG-TERM DEBT, LESS CURRENT PORTION, NET	8,369,972		8,224,269
OTHER LIABILITIES	458,969		456,311
SHAREHOLDERS' DEFICIT	(590,472)		(498,283)
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT	$	10,074,289	$	10,132,393

The following table presents unaudited Condensed Consolidated Statement of Cash Flow data for the six months ended June 30, 2019 and 2018 (in thousands):

	Six Months Ended June 30,
	2019		2018
OPERATING ACTIVITIES:
Net loss	$	(124,578)	$	(566,356)
Adjustments to reconcile Net loss to Net cash provided by operating activities:
Depreciation and amortization	320,788		379,646
Asset impairment charges	253,886		471,183
Other, including cash payments to claimants from Qualified Settlement Funds	(363,494)		(65,341)
Net cash provided by operating activities	$	86,602	$	219,132
INVESTING ACTIVITIES:
Purchases of property, plant and equipment, excluding capitalized interest	$	(23,632)	$	(41,960)
Proceeds from sale of business and other assets, net	2,594		37,971
Other	(1,278)		(4,999)
Net cash used in investing activities	$	(22,316)	$	(8,988)
FINANCING ACTIVITIES:
Proceeds from (payments on) borrowings, net	$	257,605	$	(19,650)
Other	(22,676)		(21,143)
Net cash provided by (used in) financing activities	$	234,929	$	(40,793)
Effect of foreign exchange rate	841		(1,010)
NET INCREASE IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS	$	300,056	$	168,341
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS, BEGINNING OF PERIOD	1,476,837		1,311,014
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS, END OF PERIOD	$	1,776,893	$	1,479,355

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 six months ended June 30, 2019 and 2018 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Net loss (GAAP)	$	(106,005)	$	(60,867)	$	(124,578)	$	(566,356)
Income tax expense	3,468		6,235		14,371		21,726
Interest expense, net	134,809		130,059		267,484		254,049
Depreciation and amortization (15)	158,055		170,011		320,788		344,469
EBITDA (non-GAAP)	$	190,327	$	245,438	$	478,065	$	53,888

Inventory step-up and other cost savings (2)	$	—	$	124	$	—	$	190
Upfront and milestone-related payments (3)	1,444		36,964		2,383		38,296
Inventory reserve increase from restructuring (4)	—		202		—		2,590
Separation benefits and other restructuring (5)	2,124		28,951		4,149		75,550
Certain litigation-related and other contingencies, net (6)	10,315		19,620		10,321		17,120
Asset impairment charges (7)	88,438		22,767		253,886		471,183
Acquisition-related and integration costs (8)	—		1,034		—		1,034
Fair value of contingent consideration (9)	(5,507)		4,127		(43,008)		10,962
Gain on extinguishment of debt (10)	—		—		(119,828)		—
Share-based compensation	12,600		12,096		37,333		29,986
Other (income) expense, net (16)	(597)		(28,831)		4,205		(31,709)
Other adjustments	3		(10)		87		(708)
Discontinued operations, net of tax (13)	7,953		8,388		13,914		16,139
Adjusted EBITDA (non-GAAP)	$	307,100	$	350,870	$	641,507	$	684,521

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 six months ended June 30, 2019 and 2018 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Loss from continuing operations (GAAP)	$	(98,052)	$	(52,479)	$	(110,664)	$	(550,217)
Non-GAAP adjustments:
Amortization of intangible assets (1)	140,418		153,215		286,017		310,387
Inventory step-up and other cost savings (2)	—		124		—		190
Upfront and milestone-related payments (3)	1,444		36,964		2,383		38,296
Inventory reserve increase from restructuring (4)	—		202		—		2,590
Separation benefits and other restructuring (5)	2,124		28,951		4,149		75,550
Certain litigation-related and other contingencies, net (6)	10,315		19,620		10,321		17,120
Asset impairment charges (7)	88,438		22,767		253,886		471,183
Acquisition-related and integration costs (8)	—		1,034		—		1,034
Fair value of contingent consideration (9)	(5,507)		4,127		(43,008)		10,962
Gain on extinguishment of debt (10)	—		—		(119,828)		—
Other (11)	86		(28,007)		1,620		(31,261)
Tax adjustments (12)	(18,861)		(14,323)		(42,388)		(22,856)
Adjusted income from continuing operations (non-GAAP)	$	120,405	$	172,195	$	242,488	$	322,978

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

The following tables provide detailed reconciliations of various other income statement data between the GAAP and non-GAAP amounts for the three and six months ended June 30, 2019 and 2018 (in thousands, except per share data):

Three Months Ended June 30, 2019
	Total revenues, net	Cost of revenues	Gross margin	Gross margin %	Total operating expenses	Operating expense to revenue %	Operating 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)	$ 699,727	$ 388,208	$ 311,519	44.5 %	$ 271,891	38.9 %	$ 39,628	5.7 %	$ 134,212	$ (94,584)	$ 3,468	(3.7)%	$ (98,052)	$ (7,953)	$ (106,005)	$ (0.43)
Items impacting comparability:
Amortization of intangible assets (1)	—	(140,418)	140,418		—		140,418		—	140,418	—		140,418	—	140,418
Upfront and milestone-related payments (3)	—	(739)	739		(705)		1,444		—	1,444	—		1,444	—	1,444
Separation benefits and other restructuring (5)	—	—	—		(2,124)		2,124		—	2,124	—		2,124	—	2,124
Certain litigation- related and other contingencies, net (6)	—	—	—		(10,315)		10,315		—	10,315	—		10,315	—	10,315
Asset impairment charges (7)	—	—	—		(88,438)		88,438		—	88,438	—		88,438	—	88,438
Fair value of contingent consideration (9)	—	—	—		5,507		(5,507)		—	(5,507)	—		(5,507)	—	(5,507)
Other (11)	—	—	—		175		(175)		(261)	86	—		86	—	86
Tax adjustments (12)	—	—	—		—		—		—	—	18,861		(18,861)	—	(18,861)
Exclude discontinued operations, net of tax (13)	—	—	—		—		—		—	—	—		—	7,953	7,953
After considering items (non-GAAP)	$ 699,727	$ 247,051	$ 452,676	64.7 %	$ 175,991	25.2 %	$ 276,685	39.5 %	$ 133,951	$ 142,734	$ 22,329	15.6 %	$ 120,405	$ —	$ 120,405	$ 0.52

Three Months Ended June 30, 2018
	Total revenues, net	Cost of revenues	Gross margin	Gross margin %	Total operating expenses	Operating expense to revenue %	Operating 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)	$ 714,696	$ 381,905	$ 332,791	46.6 %	$ 277,807	38.9 %	$ 54,984	7.7 %	$ 101,228	$ (46,244)	$ 6,235	(13.5)%	$ (52,479)	$ (8,388)	$ (60,867)	$ (0.23)
Items impacting comparability:
Amortization of intangible assets (1)	—	(153,215)	153,215		—		153,215		—	153,215	—		153,215	—	153,215
Inventory step-up and other cost savings (2)	—	(124)	124		—		124		—	124	—		124	—	124
Upfront and milestone-related payments (3)	—	(694)	694		(36,270)		36,964		—	36,964	—		36,964	—	36,964
Inventory reserve increase from restructuring (4)	—	(202)	202		—		202		—	202	—		202	—	202
Separation benefits and other restructuring (5)	—	(26,613)	26,613		(2,338)		28,951		—	28,951	—		28,951	—	28,951
Certain litigation- related and other contingencies, net (6)	—	—	—		(19,620)		19,620		—	19,620	—		19,620	—	19,620
Asset impairment charges (7)	—	—	—		(22,767)		22,767		—	22,767	—		22,767	—	22,767
Acquisition-related and integration costs (8)	—	—	—		(1,034)		1,034		—	1,034	—		1,034	—	1,034
Fair value of contingent consideration (9)	—	—	—		(4,127)		4,127		—	4,127	—		4,127	—	4,127
Other (11)	—	—	—		—		—		28,007	(28,007)	—		(28,007)	—	(28,007)
Tax adjustments (12)	—	—	—		—		—		—	—	14,323		(14,323)	—	(14,323)
Exclude discontinued operations, net of tax (13)	—	—	—		—		—		—	—	—		—	8,388	8,388
After considering items (non-GAAP)	$ 714,696	$ 201,057	$ 513,639	71.9 %	$ 191,651	26.8 %	$ 321,988	45.1 %	$ 129,235	$ 192,753	$ 20,558	10.7 %	$ 172,195	$ —	$ 172,195	$ 0.76

Six Months Ended June 30, 2019
	Total revenues, net	Cost of revenues	Gross margin	Gross margin %	Total operating expenses	Operating expense to revenue %	Operating 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)	$ 1,420,138	$ 780,117	$ 640,021	45.1 %	$ 584,453	41.2 %	$ 55,568	3.9 %	$ 151,861	$ (96,293)	$ 14,371	(14.9)%	$ (110,664)	$ (13,914)	$ (124,578)	$ (0.49)
Items impacting comparability:
Amortization of intangible assets (1)	—	(286,017)	286,017		—		286,017		—	286,017	—		286,017	—	286,017
Upfront and milestone-related payments (3)	—	(1,400)	1,400		(983)		2,383		—	2,383	—		2,383	—	2,383
Separation benefits and other restructuring (5)	—	—	—		(4,149)		4,149		—	4,149	—		4,149	—	4,149
Certain litigation- related and other contingencies, net (6)	—	—	—		(10,321)		10,321		—	10,321	—		10,321	—	10,321
Asset impairment charges (7)	—	—	—		(253,886)		253,886		—	253,886	—		253,886	—	253,886
Fair value of contingent consideration (9)	—	—	—		43,008		(43,008)		—	(43,008)	—		(43,008)	—	(43,008)
Gain on extinguishment of debt (10)	—	—	—		—		—		119,828	(119,828)	—		(119,828)	—	(119,828)
Other (11)	—	—	—		175		(175)		(1,795)	1,620	—		1,620	—	1,620
Tax adjustments (12)	—	—	—		—		—		—	—	42,388		(42,388)	—	(42,388)
Exclude discontinued operations, net of tax (13)	—	—	—		—		—		—	—	—		—	13,914	13,914
After considering items (non-GAAP)	$ 1,420,138	$ 492,700	$ 927,438	65.3 %	$ 358,297	25.2 %	$ 569,141	40.1 %	$ 269,894	$ 299,247	$ 56,759	19.0 %	$ 242,488	$ —	$ 242,488	$ 1.04

Six Months Ended June 30, 2018
	Total revenues, net	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)	$ 1,415,223	$ 785,503	$ 629,720	44.5 %	$ 935,871	66.1 %	$ (306,151)	(21.6)%	$ 222,340	$ (528,491)	$ 21,726	(4.1)%	$ (550,217)	$ (16,139)	$ (566,356)	$ (2.46)
Items impacting comparability:
Amortization of intangible assets (1)	—	(310,387)	310,387		—		310,387		—	310,387	—		310,387	—	310,387
Inventory step-up and other cost savings (2)	—	(190)	190		—		190		—	190	—		190	—	190
Upfront and milestone-related payments (3)	—	(1,350)	1,350		(36,946)		38,296		—	38,296	—		38,296	—	38,296
Inventory reserve increase from restructuring (4)	—	(2,590)	2,590		—		2,590		—	2,590	—		2,590	—	2,590
Separation benefits and other restructuring (5)	—	(53,831)	53,831		(21,719)		75,550		—	75,550	—		75,550	—	75,550
Certain litigation- related and other contingencies, net (6)	—	—	—		(17,120)		17,120		—	17,120	—		17,120	—	17,120
Asset impairment charges (7)	—	—	—		(471,183)		471,183		—	471,183	—		471,183	—	471,183
Acquisition-related and integration costs (8)	—	—	—		(1,034)		1,034		—	1,034	—		1,034	—	1,034
Fair value of contingent consideration (9)	—	—	—		(10,962)		10,962		—	10,962	—		10,962	—	10,962
Other (11)	—	—	—		630		(630)		30,631	(31,261)	—		(31,261)	—	(31,261)
Tax adjustments (12)	—	—	—		—		—		—	—	22,856		(22,856)	—	(22,856)
Exclude discontinued operations, net of tax (13)	—	—	—		—		—		—	—	—		—	16,139	16,139
After considering items (non-GAAP)	$ 1,415,223	$ 417,155	$ 998,068	70.5 %	$ 377,537	26.7 %	$ 620,531	43.8 %	$ 252,971	$ 367,560	$ 44,582	12.1 %	$ 322,978	$ —	$ 322,978	$ 1.43

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 and six months ended June 30, 2019 and 2018 are as follows:

(1)	Adjustments for amortization of commercial intangible assets included the following (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Amortization of intangible assets excluding fair value step-up from contingent consideration	$	134,473	$	146,906	$	271,338	$	296,766
Amortization of intangible assets related to fair value step-up from contingent consideration	5,945		6,309		14,679		13,621
Total	$	140,418	$	153,215	$	286,017	$	310,387


(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 June 30,
	2019				2018
	Cost of revenues		Operating expenses		Cost of revenues		Operating expenses
Sales-based	$	739	$	—	$	694	$	—
Development-based	—		705		—		36,270
Total	$	739	$	705	$	694	$	36,270

	Six Months Ended June 30,
	2019				2018
	Cost of revenues		Operating expenses		Cost of revenues		Operating expenses
Sales-based	$	1,400	$	—	$	1,350

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Endo Reports Second-Quarter 2019 Financial Results