Revenues of $787M, an 11 percent decrease compared to third-quarter 2016 revenues of $884M.
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[09-November-2017] |
DUBLIN, Nov. 9, 2017 /PRNewswire/ --
Endo International (NASDAQ: ENDP) today reported third-quarter 2017 financial results, including:
“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:
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:
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:
The Company’s 2017 non-GAAP financial guidance is based on the following assumptions:
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:
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. View original content:http://www.prnewswire.com/news-releases/endo-reports-third-quarter-2017-financial-results-300553207.html SOURCE Endo International plc | ||
Company Codes: NASDAQ-NMS:ENDP |