Endo Reports Third-Quarter 2017 Financial Results

Revenues of $787M, an 11 percent decrease compared to third-quarter 2016 revenues of $884M.

 
[09-November-2017]
 
 

DUBLIN, Nov. 9, 2017 /PRNewswire/ --

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

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

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

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

 

    FINANCIAL PERFORMANCE


    (in thousands, except per share amounts)


                                             Three Months Ended September 30,                                                     Nine Months Ended September 30,

                                            2017                               2016                   Change                             2017                      2016                    Change
                                            ----                               ----                   ------                             ----                      ----                    ------

    Total Revenues                                  $786,887                                           $884,335                             (11)%                                          $2,700,218                                          $2,768,761                             (2)%

    Reported (Loss)
     Income from
     Continuing
     Operations                                    $(99,687)                                        $(191,496)                            (48)%                                          $(961,130)                                           $109,553                               NM

    Reported
     Diluted
     Weighted
     Average Shares                      223,299                              222,767                                      -   %                       223,157                                 223,060                                     -   %

    Reported
     Diluted (Loss)
     Income per
     Share from
     Continuing
     Operations                                      $(0.45)                                           $(0.86)                            (48)%                                             $(4.31)                                              $0.49                               NM

    Adjusted Income
     from
     Continuing
     Operations                                     $204,052                                           $225,519                             (10)%                                            $686,498                                            $658,591                               4%

    Adjusted
     Diluted
     Weighted
     Average
     Shares(1)                           224,216                              223,139                                      -   %                       223,779                                 223,060                                     -   %

    Adjusted
     Diluted EPS
     from
     Continuing
     Operations                                        $0.91                                              $1.01                             (10)%                                               $3.07                                               $2.95                               4%


    (1)     Diluted per share data is computed based on weighted average shares outstanding and, if there is income from continuing operations during the period, the dilutive impact of share equivalents outstanding during the period. In the case of Adjusted Diluted Weighted Average Shares, Adjusted
     Income from Continuing Operations is used in determining whether to include such dilutive impact.

 

 

CONSOLIDATED RESULTS

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

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

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

 

U.S. GENERIC PHARMACEUTICALS

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

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

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

U.S. BRANDED PHARMACEUTICALS

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

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

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

INTERNATIONAL PHARMACEUTICALS

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

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

 

2017 FINANCIAL GUIDANCE

For the full twelve months ended December 31, 2017, at current exchange rates, Endo is reaffirming its full-year guidance on revenue, adjusted diluted EPS from continuing operations and adjusted EBITDA from continuing operations provided in August 2017. The Company estimates:

  • Total revenues to be between $3.38 billion to $3.53 billion;
  • Reported diluted GAAP loss per share from continuing operations to be between $4.94 and $4.64;
  • Adjusted diluted EPS from continuing operations to be between $3.35 to $3.65; and
  • Adjusted EBITDA from continuing operations to be between $1.48 billion to $1.56 billion.

The Company's 2017 non-GAAP financial guidance is based on the following assumptions:

  • Adjusted gross margin of approximately 62.5% to 63.5%;
  • Adjusted operating expenses as a percentage of revenues of approximately 22.0%;
  • Adjusted interest expense of approximately $490 million to $500 million;
  • Adjusted effective tax rate of approximately 12.0% to 13.0%; and
  • Adjusted diluted EPS from continuing operations assumes full-year adjusted diluted shares outstanding of approximately 224 million shares.
 

BALANCE SHEET, LIQUIDITY AND OTHER UPDATES

As of September 30, 2017, the Company had $738 million in unrestricted cash; debt of $8.3 billion; net debt of approximately $7.5 billion and a net debt to adjusted EBITDA ratio of 4.2.

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

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

 

CONFERENCE CALL INFORMATION

Endo will conduct a conference call with financial analysts to discuss this press release today at 4:30 p.m. ET. The dial-in number to access the call is U.S./Canada (866) 497-0462, International (678) 509-7598, and the passcode is 92375212. Please dial in 10 minutes prior to the scheduled start time.

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

A simultaneous webcast of the call can be accessed by visiting www.endo.com. In addition, a replay of the webcast will be available on the Company website for one year following the event. The replay can be accessed by clicking on the Investor Relations section of the Endo website.

 

FINANCIAL SCHEDULES

The following table presents Endo's unaudited Total Revenues for the three and nine months ended September 30, 2017 and 2016 (in thousands):

                                                           Three Months Ended September 30,                       Percent                      Nine Months Ended September 30,                        Percent
                                                                                                                    Growth                                                                              Growth


                                                          2017                     2016                                            2017                             2016
                                                          ----                     ----                                            ----                             ----

    U.S. Generic Pharmaceuticals:

    U.S. Generics Base                                            $192,333                                          $263,431                             (27)%                                            $647,415                                            $941,955                             (31)%

    Sterile Injectables                                174,982                              136,966                                   28%                           486,928                                 386,900                                   26%

    New Launches and Alternative
     Dosages                                           129,339                              133,294                                  (3)%                           647,606                                 353,584                                   83%
                                                       -------                              -------                                                                 -------                                 -------

    Total U.S. Generic
     Pharmaceuticals                                              $496,654                                          $533,691                              (7)%                                          $1,781,949                                          $1,682,439                                6%
                                                                  --------                                          --------                                                                            ----------                                          ----------

    U.S. Branded Pharmaceuticals:

    Specialty Products:

    XIAFLEX(R)                                                     $52,511                                           $47,695                               10%                                            $152,113                                            $134,159                               13%

    SUPPRELIN(R) LA                                     20,638                               19,392                                    6%                            63,468                                  57,855                                   10%

    Other Specialty (1)                                 40,634                               35,298                                   15%                           113,407                                 100,240                                   13%

    Total Specialty Products                                      $113,783                                          $102,385                               11%                                            $328,988                                            $292,254                               13%
                                                                  --------                                          --------                                                                              --------                                            --------

    Established Products:

    OPANA(R) ER                                                    $14,756                                           $36,834                             (60)%                                             $82,056                                            $120,058                             (32)%

    PERCOCET(R)                                         31,349                               33,881                                  (7)%                            93,183                                 103,182                                 (10)%

    VOLTAREN(R) Gel                                     19,102                               18,993                                    1%                            53,646                                  82,030                                 (35)%

    LIDODERM(R)                                         12,851                               19,704                                 (35)%                            37,705                                  66,455                                 (43)%

    Other Established (2)                               41,962                               68,046                                 (38)%                           133,572                                 213,019                                 (37)%

    Total Established Products                                    $120,020                                          $177,458                             (32)%                                            $400,162                                            $584,744                             (32)%

    Total U.S. Branded
     Pharmaceuticals (3)                                          $233,803                                          $279,843                             (16)%                                            $729,150                                            $876,998                             (17)%
                                                                  --------                                          --------                                                                              --------                                            --------

    Total International
     Pharmaceuticals                                               $56,430                                           $70,801                             (20)%                                            $189,119                                            $209,324                             (10)%
                                                                   -------                                           -------                                                                              --------                                            --------

    Total Revenues                                                $786,887                                          $884,335                             (11)%                                          $2,700,218                                          $2,768,761                              (2)%
                                                                  ========                                          ========                                                                            ==========                                          ==========



    (1)   Products included within Other Specialty include TESTOPEL(R), NASCOBAL(R) Nasal Spray, and AVEED(R).

    (2)   Products included within Other Established include, but are not limited to, TESTIM(R) and FORTESTA(R) Gel, including the authorized generic.

    (3)   Individual products presented above represent the top two performing products in each product category and/or any product having revenues in excess of $25 million during any quarterly period in 2017 or 2016. LIDODERM(R) is separately presented as its revenues exceeded $25 million in certain quarterly
     periods in 2016.
 

 

The following table presents unaudited Condensed Consolidated Statement of Operations data for the three and nine months ended September 30, 2017 and 2016 (in thousands, except per share data):

                                          Three Months Ended September 30,                 Nine Months Ended September 30,

                                         2017                                2016                   2017                   2016
                                         ----                                ----                   ----                   ----

    TOTAL REVENUES                                $786,887                             $884,335                                     $2,700,218     $2,768,761

    COSTS AND EXPENSES:

    Cost of revenues                  514,522                               557,472                1,722,885                          1,878,395

    Selling, general and
     administrative                   135,880                               186,735                  468,675                            558,160

    Research and development           39,644                                44,885                  123,522                            137,166

    Litigation-related and other
     contingencies, net              (12,352)                               18,256                 (14,016)                            28,715

    Asset impairment charges           94,924                                93,504                1,023,930                            263,080

    Acquisition-related and
     integration items                 16,641                                19,476                   31,711                             80,201
                                       ------                                ------                   ------                             ------

    OPERATING LOSS FROM CONTINUING
     OPERATIONS                                   $(2,372)                           $(35,993)                                    $(656,489)    $(176,956)
                                                   -------                             --------                                      ---------      ---------

    INTEREST EXPENSE, NET             127,521                               112,184                  361,267                            340,896

    LOSS ON EXTINGUISHMENT OF DEBT          -                                    -                  51,734                                  -

    OTHER (INCOME) EXPENSE, NET       (2,097)                              (2,866)                (10,843)                               402

    LOSS FROM CONTINUING OPERATIONS
     BEFORE INCOME TAX                          $(127,796)                          $(145,311)                                  $(1,058,647)    $(518,254)
                                                 ---------                            ---------                                    -----------      ---------

    INCOME TAX (BENEFIT) EXPENSE     (28,109)                               46,185                 (97,517)                         (627,807)

    (LOSS) INCOME FROM CONTINUING
     OPERATIONS                                  $(99,687)                          $(191,496)                                    $(961,130)      $109,553
                                                  --------                            ---------                                      ---------       --------

    DISCONTINUED OPERATIONS, NET OF
     TAX                                3,017                              (27,423)               (705,886)                          (118,747)
                                        -----                               -------                 --------                           --------

    CONSOLIDATED NET LOSS                        $(96,670)                          $(218,919)                                  $(1,667,016)      $(9,194)
                                                  --------                            ---------                                    -----------        -------

    Less: Net income attributable to
     noncontrolling interests               -                                    -                       -                                16

    NET LOSS ATTRIBUTABLE TO ENDO
     INTERNATIONAL PLC                           $(96,670)                          $(218,919)                                  $(1,667,016)      $(9,210)
                                                  ========                            =========                                    ===========        =======

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

    Continuing operations                          $(0.45)                             $(0.86)                                       $(4.31)         $0.49

    Discontinued operations              0.02                                (0.12)                  (3.16)                            (0.53)

    Basic                                          $(0.43)                             $(0.98)                                       $(7.47)       $(0.04)
                                                    ======                               ======                                         ======         ======

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

    Continuing operations                          $(0.45)                             $(0.86)                                       $(4.31)         $0.49

    Discontinued operations              0.02                                (0.12)                  (3.16)                            (0.53)

    Diluted                                        $(0.43)                             $(0.98)                                       $(7.47)       $(0.04)
                                                    ======                               ======                                         ======         ======

    WEIGHTED AVERAGE SHARES:

    Basic                             223,299                               222,767                  223,157                            222,579

    Diluted                           223,299                               222,767                  223,157                            223,060
 

 

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

                     September 30,             December 31,

                              2017                         2016
                              ----                         ----

    ASSETS

    CURRENT ASSETS:

    Cash and cash
     equivalents                      $738,393                       $517,250

    Restricted cash
     and cash
     equivalents           361,137                        282,074

    Accounts
     receivable            531,488                        992,153

    Inventories, net       443,270                        555,671

    Assets held for
     sale                   65,565                        116,985

    Other current
     assets                 56,626                        125,326

    Total current
     assets                         $2,196,479                     $2,589,459
                                    ----------                     ----------

    TOTAL NON-
     CURRENT ASSETS      9,698,992                     11,685,650

    TOTAL ASSETS                   $11,895,471                    $14,275,109
                                   ===========                    ===========

    LIABILITIES AND
     SHAREHOLDERS'
     EQUITY

    CURRENT
     LIABILITIES:

    Accounts payable
     and accrued
     expenses,
     including legal
     settlement
     accruals                       $1,986,405                     $2,470,016

    Liabilities held
     for sale               13,456                         24,338

    Other current
     liabilities            42,260                        140,391

    Total current
     liabilities                    $2,042,121                     $2,634,745
                                    ----------                     ----------

    LONG-TERM DEBT,
     LESS CURRENT
     PORTION, NET        8,246,605                      8,141,378

    OTHER
     LIABILITIES           841,761                        797,397

    TOTAL
     SHAREHOLDERS'
     EQUITY                764,984                      2,701,589
                           -------                      ---------

    TOTAL
     LIABILITIES AND
     SHAREHOLDERS'
     EQUITY                        $11,895,471                    $14,275,109
                                   ===========                    ===========
 

 

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

                                                         Nine Months Ended September 30,

                                                      2017                                  2016
                                                      ----                                  ----

    OPERATING ACTIVITIES:

    Consolidated net loss                                    $(1,667,016)                                          $(9,194)

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

    Depreciation and
     amortization                                  742,936                                 716,332

    Asset impairment charges                     1,023,930                                 284,409

    Other, including cash
     payments to claimants
     from Qualified
     Settlement Funds (1)                          324,212                               (548,170)

    Net cash provided by
     operating activities                                        $424,062                                           $443,377
                                                                 --------                                           --------

    INVESTING ACTIVITIES:

    Purchases of property,
     plant and equipment                                        $(94,102)                                         $(88,087)

    Acquisitions, net of cash
     acquired                                            -                               (30,394)

    Proceeds from sale of
     business and other
     assets, net                                    96,066                                   6,686

    Increase in restricted
     cash and cash
     equivalents (1)                             (624,145)                              (588,455)

    Decrease in restricted
     cash and cash
     equivalents (1)                               545,379                                 898,288

    Other                                            7,000                                (19,172)


    Net cash (used in)
     provided by investing
     activities                                                 $(69,802)                                          $178,866
                                                                 --------                                           --------

    FINANCING ACTIVITIES:

    Payments on borrowings,
     net                                                        $(12,325)                                        $(305,634)

    Other                                        (123,028)                               (28,877)

    Net cash used in
     financing activities                                      $(135,353)                                        $(334,511)
                                                                ---------                                          ---------

    Effect of foreign
     exchange rate                                                 $3,686                                             $1,497

    Movement in cash held for
     sale                                          (1,450)                                      -

    NET INCREASE IN CASH AND
     CASH EQUIVALENTS                                            $221,143                                           $289,229
                                                                 --------                                           --------

    CASH AND CASH
     EQUIVALENTS, BEGINNING
     OF PERIOD                                     517,250                                 272,348

    CASH AND CASH
     EQUIVALENTS, END OF
     PERIOD                                                      $738,393                                           $561,577
                                                                 ========                                           ========


    (1)   Included within the above Condensed Consolidated Statements of Cash Flows is the impact of payments into and out of QSFs for
     mesh-related product liability. Cash payments into QSFs result in a cash outflow for investing activities (CFI). Cash releases
     from QSFs result in a cash inflow for investing activities and a corresponding outflow for operating activities (CFO). The
     following table reflects the mesh-related payment activities for the nine months ended September 30, 2017 and 2016 by cash flow
     component:

 

                                                                    Nine Months Ended September 30,

                                                                            2017                                                          2016

                                        Impact on CFO                                     Impact on CFI                    Impact on CFO               Impact on CFI

                                              (a)                                                                                (a)
                                              ---                                                                                ---

    Cash
     contributions to
     Qualified
     Settlement Funds                               $                            -                                           $(623,128)                                        $                  -   $(587,782)

    Cash payments to
     claimants from
     Qualified
     Settlement Funds                       (545,379)                                              545,379                                 (898,288)                                          898,288

    Cash payments
     made directly to
     claimants                                (3,625)                                                    -                                  (5,561)                                               -


    Total                                                               $(549,004)                                            $(77,749)                                                  $(903,849)     $310,506
                                                                         =========                                              ========                                                    =========      ========


    (a)    These amounts are included in "Other, including cash payments to claimants from Qualified Settlement Funds (1)" in the Condensed Consolidated Statements of Cash Flows above.

 

 

SUPPLEMENTAL FINANCIAL INFORMATION

To supplement the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses certain non-GAAP financial measures. For additional information on the Company's use of such non-GAAP financial measures, refer to Endo's Current Report on Form 8-K furnished today to the Securities and Exchange Commission, which includes an explanation of the Company's reasons for using non-GAAP measures.

The tables below provide reconciliations of certain of our non-GAAP financial measures, both historical and forward-looking, to their most directly comparable GAAP amounts. Refer to the "Notes to the Reconciliations of GAAP and Non-GAAP Financial Measures" section below for additional details regarding the adjustments to the non-GAAP financial measures detailed throughout this Supplemental Financial Information section.

Reconciliation of EBITDA and Adjusted EBITDA (non-GAAP)

The following table provides a reconciliation of Net loss attributable to Endo International plc (GAAP) to Adjusted EBITDA (non-GAAP) for the three and nine months ended September 30, 2017 and 2016 (in thousands):

                                 Three Months Ended September 30,                Nine Months Ended September 30,
                                                                                 -------------------------------

                                2017                               2016                   2017                   2016
                                ----                               ----                   ----                   ----

    Net loss attributable
     to Endo International
     plc (GAAP)                        $(96,670)                          $(218,919)                                  $(1,667,016)    $(9,210)

    Income tax (benefit)
     expense                (28,109)                              46,185                 (97,517)                         (627,807)

    Interest expense, net    127,521                              112,184                  361,267                            340,896

    Depreciation and
     amortization (18)       183,475                              230,520                  680,385                            695,432

    EBITDA (non-GAAP)                   $186,217                             $169,970                                     $(722,881)    $399,311
                                        --------                             --------                                      ---------     --------


    Inventory step-up and
     other cost savings
     (2)                                    $66                              $14,208                                           $281     $111,787

    Upfront and milestone-
     related payments (3)        775                                1,770                    6,952                              5,875

    Inventory reserve
     (decrease) increase
     from restructuring
     (4)                          -                             (9,041)                   7,899                             24,592

    Royalty obligations
     (5)                          -                                   -                       -                           (7,750)

    Separation benefits
     and other
     restructuring (6)        80,693                               18,823                  120,078                             45,820

    Certain litigation-
     related and other
     contingencies, net
     (7)                   (12,352)                              18,256                 (14,016)                            28,715

    Asset impairment
     charges (8)              94,924                               93,504                1,023,930                            263,080

    Acquisition-related
     and integration costs
     (9)                      1,201                                7,907                    8,137                             55,422

    Fair value of
     contingent
     consideration (10)       15,440                               11,569                   23,574                             24,779

    Loss on extinguishment
     of debt (11)                  -                                   -                  51,734                                  -

    Share-based
     compensation             13,247                               14,953                   40,252                             43,473

    Other (income)
     expense, net (19)       (2,097)                             (2,866)                (10,843)                               402

    Other adjustments           (58)                                 614                     (75)                             (781)

    Discontinued
     operations, net of
     tax (15)                (3,017)                              27,423                  705,886                            118,747

    Net income
     attributable to
     noncontrolling
     interests (16)                -                                   -                       -                                16
                                 ---                                 ---                     ---                               ---

    Adjusted EBITDA (non-
     GAAP)                              $375,039                             $367,090                                     $1,240,908   $1,113,488
                                        ========                             ========                                     ==========   ==========
 

 

Reconciliation of Adjusted Income from Continuing Operations (non-GAAP)

The following table provides a reconciliation of our (Loss) income from continuing operations (GAAP) to our Adjusted income from continuing operations (non-GAAP) for the three and nine months ended September 30, 2017 and 2016 (in thousands):

                                    Three Months Ended September 30,                Nine Months Ended September 30,

                                   2017                               2016         2017                     2016
                                   ----                               ----         ----                     ----

    (Loss) income from
     continuing operations
     (GAAP)                               $(99,687)                          $(191,496)                             $(961,130)    $109,553

    Non-GAAP adjustments:

    Amortization of intangible
     assets (1)                 161,413                              211,548                  615,490                     636,061

    Inventory step-up and
     other cost savings (2)          66                               14,208                      281                     111,787

    Upfront and milestone-
     related payments (3)           775                                1,770                    6,952                       5,875

    Inventory reserve
     (decrease) increase from
     restructuring (4)                -                             (9,041)                   7,899                      24,592

    Royalty obligations (5)           -                                   -                       -                    (7,750)

    Separation benefits and
     other restructuring (6)     80,693                               18,823                  120,078                      45,820

    Certain litigation-related
     and other contingencies,
     net (7)                   (12,352)                              18,256                 (14,016)                     28,715

    Asset impairment charges
     (8)                        94,924                               93,504                1,023,930                     263,080

    Acquisition-related and
     integration costs (9)        1,201                                7,907                    8,137                      55,422

    Fair value of contingent
     consideration (10)          15,440                               11,569                   23,574                      24,779

    Loss on extinguishment of
     debt (11)                        -                                   -                  51,734                           -

    Non-cash and penalty
     interest charges (12)            -                                   -                       -                      4,092

    Other (13)                    3,035                                   53                  (1,133)                    (5,437)

    Tax adjustments (14)       (41,456)                              48,418                (195,298)                   (637,998)
                                -------                               ------                 --------                    --------

    Adjusted income from
     continuing operations
     (non-GAAP)                            $204,052                             $225,519                                $686,498     $658,591
                                           ========                             ========                                ========     ========
 

 

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

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

 

                                                                                       Three Months Ended September 30, 2017
                                                                                       -------------------------------------

                             Total revenues           Cost of revenues               Gross                                   Gross margin %    Total operating expenses                   Operating                Operating (loss) income from        Operating margin %       Other non-operating expense,                      (Loss)                       Income tax (benefit) expense            Effective tax rate          (Loss) income from continuing            Discontinued operations, net of               Net (loss) income attributable                Diluted (loss) income per share
                                                                                                                                                                                                                       continuing operations                                                   net                                                                                                                                             operations                                   tax                                                                           from continuing operations (17)

                                                                                    margin                                                                                                 expense to                                                                                                                 income from continuing operations
                                                                                                                                                                                                                                                                                                                               before income tax                                                                                                                                                                              to Endo International plc

                                                                                                                                                                                                     revenue %
                                                                                                                                                                                                      --------

    Reported (GAAP)                          $786,887                   $514,522                  $272,365                                35 %                          $274,737                              35 %                            $(2,372)                      -%                            $125,424                                $(127,796)                              $(28,109)                       22 %                                $(99,687)                                     $3,017                                      $(96,670)                                        $(0.45)

    Items impacting
     comparability:

      Amortization of
       intangible assets (1)                        -                 (161,413)                  161,413                                                                     -                                                              161,413                                                             -                                  161,413                                       -                                                             161,413                                           -                                       161,413                                            0.73

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

      Upfront and milestone-
       related payments (3)                         -                     (688)                      688                                                                  (87)                                                                  775                                                             -                                      775                                       -                                                                 775                                           -                                           775                                               -

      Separation benefits
       and other
       restructuring (6)                            -                  (78,680)                   78,680                                                               (2,013)                                                               80,693                                                             -                                   80,693                                       -                                                              80,693                                           -                                        80,693                                            0.36

      Certain litigation-
       related and other
       contingencies, net
       (7)                                         -                         -                        -                                                               12,352                                                              (12,352)                                                            -                                 (12,352)                                      -                                                            (12,352)                                          -                                      (12,352)                                         (0.06)

      Asset impairment
       charges (8)                                  -                         -                        -                                                             (94,924)                                                               94,924                                                             -                                   94,924                                       -                                                              94,924                                           -                                        94,924                                            0.43

      Acquisition-related
       and integration costs
       (9)                                         -                         -                        -                                                              (1,201)                                                                1,201                                                             -                                    1,201                                       -                                                               1,201                                           -                                         1,201                                            0.01

      Fair value of
       contingent
       consideration (10)                           -                         -                        -                                                             (15,440)                                                               15,440                                                             -                                   15,440                                       -                                                              15,440                                           -                                        15,440                                            0.07

      Other (13)                                    -                         -                        -                                                                    -                                                                    -                                                      (3,035)                                    3,035                                       -                                                               3,035                                           -                                         3,035                                            0.01

      Tax adjustments (14)                          -                         -                        -                                                                    -                                                                    -                                                            -                                        -                                 41,456                                                             (41,456)                                          -                                      (41,456)                                         (0.19)

      Exclude discontinued
       operations, net of
       tax (15)                                     -                         -                        -                                                                    -                                                                    -                                                            -                                        -                                      -                                                                   -                                    (3,017)                                       (3,017)                                              -
                                                                                                     ---                                                                                                                                                                                                                                                                                                                                                                                                ------

    After considering
     items (non-GAAP)                        $786,887                   $273,675                  $513,212                                65 %                          $173,424                              22 %                            $339,788                     43 %                             $122,389                                  $217,399                                 $13,347                         6 %                                 $204,052                             $             -                                      $204,052                                           $0.91
                                             ========                   ========                  ========                                                              ========                                                              ========                                                      ========                                  ========                                 =======                                                             ========                             ===============                                      ========                                           =====



                                                                                 Three Months Ended September 30, 2016
                                                                                 -------------------------------------

                             Total revenues           Cost of revenues               Gross                                   Gross margin %    Total operating expenses          Operating expense to revenue      Operating (loss) income from        Operating margin %       Other non-operating expense,                      (Loss)                       Income tax expense (benefit)            Effective tax rate          (Loss) income from continuing            Discontinued operations, net of             Net (loss) income attributable to               Diluted (loss) income per share
                                                                                                                                                                                                             %         continuing operations                                                   net                                                                                                                                             operations                                   tax                               Endo International plc (16)                 from continuing operations (17)

                                                                                    margin                                                                                                                                                                                                                            income from continuing operations
                                                                                                                                                                                                                                                                                                                               before income tax
                                                                                                  ------                                                                                                                                                                                                             ----------------------------------

    Reported (GAAP)                          $884,335                   $557,472                  $326,863                                37 %                          $362,856                              41 %                           $(35,993)                    (4)%                             $109,318                                $(145,311)                                $46,185                       (32)%                               $(191,496)                                  $(27,423)                                    $(218,919)                                        $(0.86)

    Items impacting
     comparability:

      Amortization of
       intangible assets (1)                        -                 (211,548)                  211,548                                                                     -                                                              211,548                                                             -                                  211,548                                       -                                                             211,548                                           -                                       211,548                                            0.95

      Inventory step-up and
       other cost savings
       (2)                                         -                  (14,208)                   14,208                                                                     -                                                               14,208                                                             -                                   14,208                                       -                                                              14,208                                           -                                        14,208                                            0.06

      Upfront and milestone-
       related payments (3)                         -                     (664)                      664                                                               (1,106)                                                                1,770                                                             -                                    1,770                                       -                                                               1,770                                           -                                         1,770                                            0.01

      Inventory reserve
       decrease from
       restructuring (4)                            -                     9,041                   (9,041)                                                                    -                                                              (9,041)                                                            -                                  (9,041)                                      -                                                             (9,041)                                          -                                       (9,041)                                         (0.04)

      Separation benefits
       and other
       restructuring (6)                            -                  (12,989)                   12,989                                                               (5,834)                                                               18,823                                                             -                                   18,823                                       -                                                              18,823                                           -                                        18,823                                            0.08

      Certain litigation-
       related and other
       contingencies, net
       (7)                                         -                         -                        -                                                             (18,256)                                                               18,256                                                             -                                   18,256                                       -                                                              18,256                                           -                                        18,256                                            0.08

      Asset impairment
       charges (8)                                  -                         -                        -                                                             (93,504)                                                               93,504                                                             -                                   93,504                                       -                                                              93,504                                           -                                        93,504                                            0.42

      Acquisition-related
       and integration costs
       (9)                                         -                         -                        -                                                              (7,907)                                                                7,907                                                             -                                    7,907                                       -                                                               7,907                                           -                                         7,907                                            0.04

      Fair value of
       contingent
       consideration (10)                           -                         -                        -                                                             (11,569)                                                               11,569                                                             -                                   11,569                                       -                                                              11,569                                           -                                        11,569                                            0.05

      Other (13)                                    -                         -                        -                                                                    -                                                                    -                                                         (53)                                       53                                       -                                                                  53                                           -                                            53                                               -

      Tax adjustments (14)                          -                         -                        -                                                                    -                                                                    -                                                            -                                        -                               (48,418)                                                              48,418                                           -                                        48,418                                            0.22

      Exclude discontinued
       operations, net of
       tax (15)                                     -                         -                        -                                                                    -                                                                    -                                                            -                                        -                                      -                                                                   -                                     27,423                                         27,423                                               -
                                                                                                     ---

    After considering
     items (non-GAAP)                        $884,335                   $327,104                  $557,231                                63 %                          $224,680                              25 %                            $332,551                     38 %                             $109,265                                  $223,286                                $(2,233)                       (1)%                                 $225,519                             $             -                                      $225,519                                           $1.01
                                             ========                   ========                  ========                                                              ========                                                              ========                                                      ========                                  ========                                 =======                                                             ========                             ===============                                      ========                                           =====



                                                                                  Nine Months Ended September 30, 2017
                                                                                  ------------------------------------

                             Total revenues           Cost of revenues               Gross                                   Gross margin %    Total operating expenses          Operating expense to revenue      Operating (loss) income from        Operating margin %       Other non-operating expense,                      (Loss)                       Income tax (benefit) expense            Effective tax rate          (Loss) income from continuing            Discontinued operations, net of             Net (loss) income attributable to             Dilute (loss) income per share from
                                                                                                                                                                                                             %         continuing operations                                                   net                                                                                                                                             operations                                   tax                                 Endo International plc                      continuing operations (17)

                                                                                    margin                                                                                                                                                                                                                            income from continuing operations
                                                                                                                                                                                                                                                                                                                               before income tax
                                                                                                  ------                                                                                                                                                                                                             ----------------------------------

    Reported (GAAP)                        $2,700,218                 $1,722,885                  $977,333                                36 %                        $1,633,822                              61 %                          $(656,489)                   (24)%                             $402,158                              $(1,058,647)                              $(97,517)                        9 %                               $(961,130)                                 $(705,886)                                  $(1,667,016)                                        $(4.31)

    Items impacting
     comparability:

      Amortization of
       intangible assets (1)                        -                 (615,490)                  615,490                                                                     -                                                              615,490                                                             -                                  615,490                                       -                                                             615,490                                           -                                       615,490                                            2.75

      Inventory step-up and
       other cost savings
       (2)                                         -                     (281)                      281                                                                     -                                                                  281                                                             -                                      281                                       -                                                                 281                                           -                                           281                                               -

      Upfront and milestone-
       related payments (3)                         -                   (2,039)                    2,039                                                               (4,913)                                                                6,952                                                             -                                    6,952                                       -                                                               6,952                                           -                                         6,952                                            0.03

      Inventory reserve
       increase from
       restructuring (4)                            -                   (7,899)                    7,899                                                                     -                                                                7,899                                                             -                                    7,899                                       -                                                               7,899                                           -                                         7,899                                            0.04

      Separation benefits
       and other
       restructuring (6)                            -                  (85,367)                   85,367                                                              (34,711)                                                              120,078                                                             -                                  120,078                                       -                                                             120,078                                           -                                       120,078                                            0.54

      Certain litigation-
       related and other
       contingencies, net
       (7)                                         -                         -                        -                                                               14,016                                                              (14,016)                                                            -                                 (14,016)                                      -                                                            (14,016)                                          -                                      (14,016)                                         (0.06)

      Asset impairment
       charges (8)                                  -                         -                        -                                                          (1,023,930)                                                            1,023,930                                                             -                                1,023,930                                       -                                                           1,023,930                                           -                                     1,023,930                                            4.59

      Acquisition-related
       and integration costs
       (9)                                         -                         -                        -                                                              (8,137)                                                                8,137                                                             -                                    8,137                                       -                                                               8,137                                           -                                         8,137                                            0.04

      Fair value of
       contingent
       consideration (10)                           -                         -                        -                                                             (23,574)                                                               23,574                                                             -                                   23,574                                       -                                                              23,574                                           -                                        23,574                                            0.11

     Loss on extinguishment
      of debt (11)                                  -                         -                        -                                                                    -                                                                    -                                                     (51,734)                                   51,734                                       -                                                              51,734                                           -                                        51,734                                            0.23

    Other (13)                                      -                         -                        -                                                                    -                                                                    -                                                        1,133                                   (1,133)                                      -                                                             (1,133)                                          -                                       (1,133)                                         (0.01)

      Tax adjustments (14)                          -                         -                        -                                                                    -                                                                    -                                                            -                                        -                                195,298                                                            (195,298)                                          -                                     (195,298)                                         (0.88)

      Exclude discontinued
       operations, net of
       tax (15)                                     -                         -                        -                                                                    -                                                                    -                                                            -                                        -                                      -                                                                   -                                    705,886                                        705,886                                               -
                                                                                                     ---

    After considering
     items (non-GAAP)                      $2,700,218                 $1,011,809                $1,688,409                                63 %                          $552,573                              20 %                          $1,135,836                     42 %                             $351,557                                  $784,279                                 $97,781                        12 %                                 $686,498                             $             -                                      $686,498                                           $3.07
                                           ==========                 ==========                ==========                                                              ========                                                            ==========                                                      ========                                  ========                                 =======                                                             ========                             ===============                                      ========                                           =====



                                                                                  Nine Months Ended September 30, 2016
                                                                                  ------------------------------------

                             Total revenues           Cost of revenues               Gross                                   Gross margin %    Total operating expenses          Operating expense to revenue      Operating (loss) income from        Operating margin %       Other non-operating expense,                      (Loss)                       Income tax (benefit) expense            Effective tax rate              Income from continuing               Discontinued operations, net of             Net (loss) income attributable to               Diluted income (loss) per share
                                                                                                                                                                                                             %         continuing operations                                                   net                                                                                                                                             operations                                   tax                               Endo International plc (16)                 from continuing operations (17)

                                                                                    margin                                                                                                                                                                                                                            income from continuing operations
                                                                                                                                                                                                                                                                                                                               before income tax
                                                                                                  ------                                                                                                                                                                                                             ----------------------------------

    Reported (GAAP)                        $2,768,761                 $1,878,395                  $890,366                                32 %                        $1,067,322                              39 %                          $(176,956)                    (6)%                             $341,298                                $(518,254)                             $(627,807)                      121 %                                 $109,553                                  $(118,747)                                      $(9,210)                                          $0.49

    Items impacting
     comparability:

      Amortization of
       intangible assets (1)                        -                 (636,061)                  636,061                                                                     -                                                              636,061                                                             -                                  636,061                                       -                                                             636,061                                           -                                       636,061                                            2.84

      Inventory step-up and
       other cost savings
       (2)                                         -                 (110,437)                  110,437                                                               (1,350)                                                              111,787                                                             -                                  111,787                                       -                                                             111,787                                           -                                       111,787                                            0.50

      Upfront and milestone-
       related payments (3)                         -                   (1,973)                    1,973                                                               (3,902)                                                                5,875                                                             -                                    5,875                                       -                                                               5,875                                           -                                         5,875                                            0.03

      Inventory reserve
       increase from
       restructuring (4)                            -                  (24,592)                   24,592                                                                     -                                                               24,592                                                             -                                   24,592                                       -                                                              24,592                                           -                                        24,592                                            0.11

      Royalty obligations
       (5)                                         -                     7,750                   (7,750)                                                                    -                                                              (7,750)                                                            -                                  (7,750)                                      -                                                             (7,750)                                          -                                       (7,750)                                         (0.03)

      Separation benefits
       and other
       restructuring (6)                            -                  (19,394)                   19,394                                                              (26,426)                                                               45,820                                                             -                                   45,820                                       -                                                              45,820                                           -                                        45,820                                            0.21

      Certain litigation-
       related and other
       contingencies, net
       (7)                                         -                         -                        -                                                             (28,715)                                                               28,715                                                             -                                   28,715                                       -                                                              28,715                                           -                                        28,715                                            0.13

      Asset impairment
       charges (8)                                  -                         -                        -                                                            (263,080)                                                              263,080                                                             -                                  263,080                                       -                                                             263,080                                           -                                       263,080                                            1.18

      Acquisition-related
       and integration costs
       (9)                                         -                         -                        -                                                             (55,422)                                                               55,422                                                             -                                   55,422                                       -                                                              55,422                                           -                                        55,422                                            0.25

      Fair value of
       contingent
       consideration (10)                           -                         -                        -                                                             (24,779)                                                               24,779                                                             -                                   24,779                                       -                                                              24,779                                           -                                        24,779                                            0.11

      Non-cash and penalty
       interest charges (12)                        -                         -                        -                                                                    -                                                                    -                                                      (4,092)                                    4,092                                       -                                                               4,092                                           -                                         4,092                                            0.02

      Other (13)                                    -                         -                        -                                                                8,350                                                               (8,350)                                                      (2,913)                                  (5,437)                                      -                                                             (5,437)                                          -                                       (5,437)                                         (0.02)

      Tax adjustments (14)                          -                         -                        -                                                                    -                                                                    -                                                            -                                        -                                637,998                                                            (637,998)                                          -                                     (637,998)                                         (2.87)

      Exclude discontinued
       operations, net of
       tax (15)                                     -                         -                        -                                                                    -                                                                    -                                                            -                                        -                                      -                                                                   -                                    118,747                                        118,747                                               -
                                                                                                     ---

    After considering
     items (non-GAAP)                      $2,768,761                 $1,093,688                $1,675,073                                60 %                          $671,998                              24 %                          $1,003,075                     36 %                             $334,293                                  $668,782                                 $10,191                         2 %                                 $658,591                             $             -                                      $658,575                                           $2.95
                                           ==========                 ==========                ==========                                                              ========                                                            ==========                                                      ========                                  ========                                 =======                                                             ========                             ===============                                      ========                                           =====

 

 

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 nine months ended September 30, 2017 and 2016 are as follows:

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


                                               Three Months Ended September 30,                        Nine Months Ended September 30,
                                                                                                       -------------------------------

                                                2017                           2016                     2017                 2016
                                                ----                           ----                     ----                 ----

    Amortization of
     intangible assets
     excluding fair
     value step-up from
     contingent
     consideration                                      $151,250                                     $198,117                          $585,025  $606,090

    Amortization of
     intangible assets
     related to fair
     value step-up from
     contingent
     consideration                            10,163                           13,431                             30,465                  29,971
                                                                              ------

    Total                                               $161,413                                     $211,548                          $615,490  $636,061
                                                        ========                                     ========                          ========  ========

 

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


                                                               Three Months Ended September 30,

                                                                   2017                                          2016

                                              Cost of            Operating              Cost of                  Operating
                                              revenues           expenses               revenues                 expenses
                                             --------           ----------             --------                 ----------

    Fair value step-up of
     inventory sold                                       $66                                   $             -            $11,129   $   -

    Excess manufacturing
     costs that will be
     eliminated pursuant
     to integration plans                            -                             -                                 3,079       -

    Total                                                 $66                                   $             -            $14,208   $   -
                                                          ===                                 ===           ===            ======= === ===

 

                                           Nine Months Ended September 30,

                                            2017                                       2016

                           Cost of        Operating             Cost of revenues       Operating
                           revenues       expenses                                     expenses
                          --------       ----------             ----------------      ----------

    Fair value step-up of
     inventory sold                 $281                                        $   -             $99,099   $957

    Excess manufacturing
     costs that will be
     eliminated pursuant
     to integration plans         -                         -                             11,338      393

    Total                           $281                                        $   -            $110,437 $1,350
                                    ====                                      === ===            ======== ======

 

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


                                                               Three Months Ended September 30,

                                                                   2017                                           2016

                                             Cost of             Operating              Cost of                   Operating
                                             revenues            expenses               revenues                  expenses
                                            --------            ----------             --------                  ----------

    Sales-based
     milestones                                          $688                                   $             -               $664  $     -

    Development-based
     milestones                                     -                             87                                       - 1,106

    Total                                                $688                                               $87                $664   $1,106
                                                         ====                                               ===                ====   ======

 

                                                               Nine Months Ended September 30,

                                                                     2017                                      2016

                                             Cost of               Operating              Cost of                          Operating
                                             revenues              expenses               revenues                         expenses
                                            --------              ----------             --------                         ----------

    Sales-based
     milestones                                          $2,039                                   $                    -                                       $1,973                        $     -

    Development-based
     milestones                                     -                            4,913                                              -                           3,902

    Total                                                $2,039                                                   $4,913                                        $1,973                         $3,902
                                                         ======                                                   ======                                        ======                         ======


    (4)     To exclude charges reflecting adjustments to excess inventory reserves related to the 2017 U.S. Generics Pharmaceuticals restructuring initiative and 2016 U.S. Generic
     Pharmaceuticals restructuring initiative during the nine months ended September 30, 2017 and 2016 and exclude decreases of excess inventory reserves recorded during the three months
     ended September 30, 2016, primarily related to the 2016 U.S. Generic Pharmaceuticals restructuring initiative. This 2016 adjustment resulted from the sell-through of certain inventory
     previously reserved.

    (5)     To adjust for the reversal of the remaining VOLTAREN(R) Gel minimum royalty obligations as a result of a generic entrant during the first quarter of 2016.

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

 

                                                  Three Months Ended September 30,

                                                    2017                                           2016

                        Cost of revenues          Operating               Cost of revenues         Operating
                                                  expenses                                         expenses
                        ----------------         ----------               ----------------        ----------

    Separation benefits                  $19,535                                             $284              $5,564 $9,234

    Accelerated
     depreciation and
     product
     discontinuation              59,805                               -                                7,425 (4,968)

    Other                          (660)                          1,729                                     -  1,568

    Total                                $78,680                                           $2,013             $12,989 $5,834
                                         =======                                           ======             ======= ======

 

                                                                      Nine Months Ended September 30,

                                                                        2017                                                 2016

                                               Cost of                Operating              Cost of                Operating
                                               revenues               expenses               revenues               expenses
                                              --------               ----------             --------               ----------

    Separation benefits                                    $21,805                                        $19,539                                        $11,969                                     $18,008

    Accelerated
     depreciation and
     product
     discontinuation
     charges                                     59,805                                398                                7,425                             2,803

    Other                                         3,757                             14,774                                    -                            5,615

    Total                                                  $85,367                                        $34,711                                        $19,394                                     $26,426
                                                           =======                                        =======                                        =======                                     =======


    (7)     To exclude litigation-related settlement charges, reimbursements and certain settlements related to intellectual property suits previously filed by our subsidiaries.

    (8)     To exclude pre-tax, non-cash goodwill, intangible asset and property, plant and equipment impairment charges.



    During the third quarter of 2017, we recorded total pre-tax, non-cash impairment charges of $95 million. Approximately $17 million was related to property, plant and equipment charges related to
     our previously announced restructuring initiatives and held-for-sale accounting for Somar. The remaining charges during the third quarter were largely the result of market conditions impacting the
     recoverability of certain indefinite and finite-lived intangible assets in our U.S. Generic Pharmaceuticals and U.S. Branded Pharmaceuticals segments.



    During the second quarter of 2017, we recorded total pre-tax, non-cash impairment charges of $725 million. We announced the 2017 U.S. Generic Pharmaceuticals restructuring initiative in July 2017,
     which includes the discontinuation of certain commercial products. As a result, we assessed the recoverability of the impacted products, resulting in pre-tax, non-cash intangible asset impairment
     charges of approximately $58 million. We also recorded property, plant and equipment impairments related to this restructuring totaling $32 million. As a result of the decision to withdrawal
     OPANA(R) ER, we determined that the carrying amount of this intangible asset was no longer recoverable, resulting in a pre-tax, non-cash impairment charge of $21 million, representing the
     remaining carrying amount. As a result of the aforementioned actions related to OPANA(R) ER and the continued erosion of its U.S. Branded Pharmaceuticals segment's Established Products portfolio, we
     initiated an interim goodwill impairment analysis of our Branded reporting unit. We recorded a pre-tax, non-cash asset impairment charge of $180 million for the amount by which the carrying amount
     exceeded the reporting unit's fair value. We entered into a definitive agreement to sell Somar on June 30, 2017, which resulted in Somar's assets and liabilities being classified as held for sale.
     The initiation of held-for-sale accounting, together with the agreed upon sale price, triggered an impairment review. Accordingly, we performed an impairment analysis using a market approach and
     determined that impairment charges were required. We recorded pre-tax non-cash impairment charges of $26 million, $90 million and $10 million related to Somar's goodwill, other intangible assets
     and property, plant and equipment, respectively. The remaining charges during the second quarter were largely the result of market conditions impacting the recoverability of certain indefinite and
     finite-lived intangible assets in our U.S. Generic Pharmaceuticals, U.S. Branded Pharmaceuticals and International Pharmaceuticals segments.



    During the first quarter of 2017, we recorded total impairment charges of $204 million. Pursuant to an existing agreement with Novartis AG, Endo's subsidiary, Paladin Labs Inc., licensed the Canadian
     rights to commercialize serelaxin, an investigational drug for the treatment of acute heart failure (AHF). On March 22, 2017, Novartis announced that a Phase III study of serelaxin in patients with
     AHF failed to meet its primary endpoints. As a result, Endo has concluded that its serelaxin in-process research and development intangible asset is fully impaired resulting in a $45 million non-
     cash impairment charge. As a result of the serelaxin intangible impairment, Endo assessed the recoverability of its Paladin goodwill balance and determined that the estimated fair value of the
     Paladin reporting unit was below its book value, resulting in a non-cash goodwill impairment charge of $83 million. The remaining charges were largely the result of certain market conditions
     impacting the recoverability of developed technology intangible assets in Endo's U.S. Generic Pharmaceuticals segment.



    During the three and nine months ended September 30, 2016, we recorded pre-tax, non-cash impairment charges of $94 million and $263 million, respectively. As a result of unfavorable formulary
     changes and generic competition for sumatriptan, we experienced a downturn in the performance of our SUMAVEL(R) DOSEPRO(R) product, resulting in a non-cash impairment charge of $73 million during
     the third quarter of 2016. Also during the third quarter of 2016, we determined that we would not pursue commercialization of a product in certain international markets, resulting in a non-cash
     asset impairment charge of $16 million. As a result of the 2016 U.S. Generic Pharmaceuticals restructuring initiative, we recorded $100 million of non-cash impairment charges during the first
     quarter of 2016 resulting from the discontinuation of certain commercial products and the abandonment of certain IPR&D projects. The remaining charges during the three and nine months ended
     September 30, 2016 were largely the result of market and regulatory conditions impacting the recoverability certain indefinite and finite-lived intangible assets in our U.S. Generic Pharmaceuticals
     segment.

 

 

    (9)     Adjustments for acquisition and integration items primarily relate to various acquisitions. Amounts included the following (in thousands):


                                      Three Months Ended September 30,                Nine Months Ended September 30,


                                            2017                               2016                      2017                   2016
                                            ----                               ----                      ----                   ----

    Integration
     costs
     (primarily
     third-party
     consulting
     fees)                                     $                     -                                         $7,125                                          $4,476                               $38,311

    Transition
     services                                  -                                         1,259                                   -                              9,729

    Other                                  1,201                                          (477)                              3,661                               7,382

    Total                                                       $1,201                                          $7,907                                          $8,137                               $55,422
                                                                ======                                          ======                                          ======                               =======


    (10)  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.

    (11)  To exclude the loss on the extinguishment of debt associated with our April 2017 refinancing.

    (12)  To exclude penalty interest charges.

    (13)  Adjustments to other included the following (in thousands):

 

 

                                      Three Months Ended September 30,

                                                   2017                                    2016

                            Operating           Other non-              Operating         Other non-
                            expenses            operating               expenses          operating
                                                 expenses                                  expenses
                           ----------          -----------             ----------        -----------

    Foreign currency
     impact related to the
     re-measurement of
     intercompany debt
     instruments                    $      -                                      $3,005                $   - $(114)

    Other miscellaneous             -                               30                              -     167

    Total                           $      -                                      $3,035                $   -    $53
                                  ===    ===                                      ======              === ===    ===

 

                                                                      Nine Months Ended September 30,

                                                                             2017                                            2016

                                              Operating                   Other non-                Operating               Other non-
                                              expenses                    operating                 expenses                operating
                                                                           expenses                                          expenses
                                             ----------                  -----------               ----------              -----------

    Foreign currency
     impact related to the
     re-measurement of
     intercompany debt
     instruments                                      $              -                                          $(2,922)                                      $                       -                        $1,558

    Other miscellaneous
     expense (income)                                 -                                    1,789                                (8,350)                                            1,355

    Total                                             $              -                                          $(1,133)                                                       $(8,350)                        $2,913
                                                    ===            ===                                           =======                                                         =======                         ======


    (14)  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.


    As previously disclosed, during the second quarter of 2016, Endo recorded a discrete GAAP tax benefit of $636 million arising from outside basis differences generated as part of a legal entity
     restructuring. This benefit and the associated component of the 2016 U.S. federal return to provision adjustment recorded in the third quarter of 2017 were excluded from our adjusted effective tax rate
     in accordance with the Company's non-GAAP accounting policy.


    (15)  To exclude the results of the businesses reported as discontinued operations, net of tax in the Condensed Consolidated Statement of Operations.

    (16)  Net income attributable to noncontrolling interests is excluded from Adjusted EBITDA (non-GAAP) and Net (loss) income attributable to Endo International plc.

    (17)  Calculated as income (loss) 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                  Nine Months Ended
                               September 30,                      September 30,

                                2017                   2016                   2017                   2016
                                ----                   ----                   ----                   ----

    GAAP EPS                 223,299                222,767                223,157                223,060

    Non-GAAP EPS             224,216                223,139                223,779                223,060


    (18)  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.

    (19)  To exclude Other (income) expense, net per the Condensed Consolidated Statement of Operations.
 

Reconciliation of Adjusted Diluted Earnings Per Share Guidance (non-GAAP)

The following table provides a reconciliation of our Projected GAAP diluted loss per share from continuing operations to our Adjusted diluted earnings per share from continuing operations for 2017:

 

                                        Year Ending

                                     December 31, 2017

    Projected GAAP diluted loss per
     share from continuing
     operations                           $(4.94)      to  $(4.64)

    Amortization of commercial
     intangible assets                       3.44

    Acquisition related, integration
     and restructuring charges and
     certain excess costs that will
     be eliminated pursuant to
     integration plans                       1.10

    Asset impairment charges                 4.57

    Loss on extinguished debts               0.23

    Other                                  (0.07)

    Tax effect of pre-tax
     adjustments at applicable tax
     rates                                 (0.98)

    Adjusted diluted earnings per
     share from continuing
     operations                             $3.35       to    $3.65
                                            =====             =====

 

The Company's guidance is being issued based on certain assumptions including:

  • Certain of the above amounts are based on estimates and there can be no assurance that Endo will achieve these results.
  • Includes all completed and pending business development transactions as of November 9, 2017.
 

Reconciliation of Net Debt Leverage Ratio (non-GAAP)

The following table provides a reconciliation of our Net loss attributable to Endo International plc (GAAP) to our Adjusted EBITDA (non-GAAP) for the twelve months ended September 30, 2017 (in thousands) and the calculation of our Net Debt Leverage Ratio (non-GAAP):

                                         Twelve Months Ended

                                         September 30, 2017
                                         ------------------

    Net loss attributable to Endo
     International plc (GAAP)                                $(5,004,872)

    Income tax (benefit) expense                   (169,794)

    Interest expense, net                            473,050

    Depreciation and amortization (18)               940,755

    EBITDA (non-GAAP)                                        $(3,760,861)
                                                              -----------


    Inventory step-up and other cost
     savings                                                      $14,193

    Upfront and milestone-related
     payments                                          9,407

    Inventory reserve decrease from
     restructuring                                     7,762

    Separation benefits and other
     restructuring                                   157,294

    Certain litigation-related and other
     contingencies, net                             (18,781)

    Asset impairment charges                       4,542,015

    Acquisition-related and integration
     costs                                            16,493

    Fair value of contingent
     consideration                                    22,618

    Loss on extinguishment of debt                    51,734

    Share-based compensation                          55,435

    Other income, net                               (11,583)

    Other adjustments                                    706

    Discontinued operations, net of tax              710,417

    Adjusted EBITDA (non-GAAP)                                 $1,796,849
                                                               ==========


    Calculation of Net Debt:

    Debt                                                       $8,280,810

    Cash (excluding Restricted Cash)                 738,393

    Net Debt (non-GAAP)                                        $7,542,417
                                                               ==========


    Calculation of Net Debt Leverage:

    Net Debt Leverage Ratio (non-GAAP)                   4.2
                                                         ===

 

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 U.S. 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 U.S. 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 U.S. 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, except for projected adjusted diluted EPS from continuing operations. 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 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.

 

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, 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 results of any pending or future litigation, investigations or claims; 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, 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.

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Company Codes: NASDAQ-NMS:ENDP
 
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