U.S. Markets closed

Endo Reports Third-Quarter 2018 Financial Results

DUBLIN, Nov. 8, 2018 /PRNewswire/ -- 

  • Third-quarter 2018 revenues of $745 million compared to third-quarter 2017 revenues of $787 million
  • Third-quarter 2018 XIAFLEX® franchise revenues increased 22 percent versus third-quarter 2017 to $64 million
  • Third-quarter 2018 Sterile Injectables revenues increased 17 percent versus third-quarter 2017 to $237 million
  • Company raises 2018 financial guidance

Endo International plc (ENDP) today reported third-quarter 2018 financial results, including:

  • Revenues of $745 million, a decrease of 5 percent compared to third-quarter 2017 revenues of $787 million; revenues increased 4 percent compared to second-quarter 2018.
  • Reported net loss from continuing operations of $146 million compared to third-quarter 2017 reported net loss from continuing operations of $100 million.
  • Reported diluted loss per share from continuing operations of $0.65 compared to third-quarter 2017 reported diluted loss per share from continuing operations of $0.45.
  • Adjusted income from continuing operations of $165 million compared to third-quarter 2017 adjusted income from continuing operations of $204 million.
  • Adjusted diluted EPS from continuing operations of $0.71 compared to third-quarter 2017 adjusted diluted EPS from continuing operations of $0.91.
  • Adjusted EBITDA of $328 million compared to third-quarter 2017 adjusted EBITDA of $375 million.

"We had strong operational performance in the quarter, delivering double-digit growth in our U.S. Branded Sterile Injectables business and in the Specialty Products portfolio of our U.S. Branded - Specialty & Established Pharmaceuticals business," said Paul Campanelli, President and Chief Executive Officer of Endo. "We are focused on enhancing our capabilities in these businesses through the Somerset/Wintac acquisition, which we anticipate will close during the first quarter of 2019, and on our planned expansion into the medical aesthetics market. On that front, I am extremely pleased with the previously reported positive results from the Phase 3 CCH for cellulite clinical trials and I look forward to taking the next steps to bring this treatment to patients."

FINANCIAL PERFORMANCE


(in thousands, except per share amounts)



Three Months Ended September 30,




Nine Months Ended September 30,




2018


2017


Change


2018


2017


Change

Total Revenues

$

745,466



$

786,887



(5)

%


$

2,160,689



$

2,700,218



(20)

%

Reported Loss from Continuing Operations

$

(146,071)



$

(99,687)



47

%


$

(696,288)



$

(961,130)



(28)

%

Reported Diluted Weighted Average Shares

224,132



223,299



%


223,829



223,157



%

Reported Diluted Loss per Share from Continuing Operations

$

(0.65)



$

(0.45)



44

%


$

(3.11)



$

(4.31)



(28)

%

Adjusted Income from Continuing Operations

$

164,845



$

204,052



(19)

%


$

487,823



$

686,498



(29)

%

Adjusted Diluted Weighted Average Shares1

232,358



224,216



4

%


228,195



223,779



2

%

Adjusted Diluted EPS from Continuing Operations

$

0.71



$

0.91



(22)

%


$

2.14



$

3.07



(30)

%

__________

(1)

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


CONSOLIDATED RESULTS

Total revenues were $745 million in third-quarter 2018 compared to $787 million in the same period in 2017. This performance was primarily attributable to competitive pressures and product discontinuations in the U.S. Generic Pharmaceutical segment, the divestiture of the Company's Mexican business, Somar, and the voluntary market withdrawal of OPANA® ER. These factors were partially offset by the launch of ertapenem for injection, the authorized generic of INVANZ®, and continued strong growth in the U.S. Branded - Sterile Injectables segment.

GAAP net loss from continuing operations in third-quarter 2018 was $146 million compared to GAAP net loss from continuing operations of $100 million during the same period in 2017. This result was primarily attributable to the gross margin impact of the quarter's revenue reduction and increased asset impairment charges. GAAP diluted net loss per share from continuing operations for third-quarter 2018 was $0.65 compared to GAAP diluted net loss per share from continuing operations of $0.45 in third-quarter 2017.

Adjusted income from continuing operations in third-quarter 2018 was $165 million compared to $204 million in third-quarter 2017. This performance was primarily attributable to the divestiture of Somar and the voluntary market withdrawal of OPANA® ER. Adjusted diluted EPS from continuing operations in third-quarter 2018 was $0.71 compared to $0.91 in third-quarter 2017.

U.S. BRANDED - SPECIALTY & ESTABLISHED PHARMACEUTICALS

In November 2018, the Company reported positive results from two Phase 3 clinical trials of collagenase clostridium histolyticum (or "CCH") for the treatment of cellulite in the buttocks. Trial subjects receiving CCH showed highly statistically significant levels of improvement in the appearance of cellulite with treatment, as measured by the trial's primary endpoint.

Third-quarter 2018 U.S. Branded - Specialty & Established Pharmaceuticals results include:

  • Revenues of $220 million compared to $234 million in third-quarter 2017; this performance was primarily attributable to the voluntary cessation of OPANA® ER shipments in third-quarter 2017. Excluding the impact of OPANA® ER, revenues were consistent with third-quarter 2017.
  • Specialty Products revenues increased 13 percent in third-quarter 2018 compared to third-quarter 2017, primarily driven by the continued strong performance from XIAFLEX®. Sales of XIAFLEX® increased 22 percent compared to third-quarter 2017; this increase was primarily attributable to volume growth in both Peyronie's Disease and Dupuytren's Contracture indications.

U.S. BRANDED - STERILE INJECTABLES

During third-quarter 2018, the U.S. Branded Sterile Injectables segment launched ertapenem for injection, the authorized generic of INVANZ®.

Third-quarter 2018 U.S. Branded - Sterile Injectables results include:

  • Revenues of $237 million, an increase of 17 percent compared to third-quarter 2017. This increase was primarily attributable to the launch of ertapenem for injection and the continued strong growth of ADRENALIN® and VASOSTRICT®.

U.S. GENERIC PHARMACEUTICALS

During third-quarter 2018, the U.S. Generic Pharmaceuticals segment launched 3 products, including colchicine tablets, the authorized generic of COLCRYS®, which was the result of a first-to-file paragraph four settlement agreement.

Third-quarter 2018 U.S. Generic Pharmaceuticals results include:

  • Revenues of $258 million compared to $295 million in third-quarter 2017; this performance was primarily attributable to competitive pressures in the generic business and previously announced product discontinuations, partially offset by the launch of colchicine tablets.

INTERNATIONAL PHARMACEUTICALS

Third-quarter 2018 International Pharmaceuticals revenues were $30 million, compared to $56 million in the same period in 2017. This performance is primarily attributable to the Somar divestiture in the fourth-quarter of 2017.

2018 FINANCIAL GUIDANCE

For the full twelve months ending December 31, 2018, at current exchange rates, Endo is raising its financial guidance. The Company now estimates:

  • Total revenues to be between $2.87 billion and $2.92 billion;
  • Adjusted diluted EPS from continuing operations to be between $2.65 and $2.75; and
  • Adjusted EBITDA from continuing operations to be between $1.32 billion and $1.34 billion.

The Company's 2018 non-GAAP financial guidance is based on the following assumptions:

  • Adjusted gross margin of approximately 68.5%;
  • Adjusted operating expenses as a percentage of revenues of approximately 27.0%;
  • Adjusted interest expense of approximately $525 million;
  • Adjusted effective tax rate of approximately 8.5% to 9.5%; and
  • Adjusted diluted weighted average shares outstanding of approximately 230 million.

BALANCE SHEET, LIQUIDITY AND OTHER UPDATES

As of September 30, 2018, the Company had $1.1 billion in unrestricted cash; debt of $8.3 billion; net debt of approximately $7.1 billion and a net debt to adjusted EBITDA ratio of 5.3.

Third-quarter 2018 cash used in operating activities was $22 million, compared to $83 million of net cash provided by operating activities in the comparable 2017 period.

CONFERENCE CALL INFORMATION

Endo will conduct a conference call with financial analysts to discuss this press release today at 8:00 a.m. ET. The dial-in number to access the call is U.S./Canada (866) 497-0462, International (678) 509-7598, and the passcode is 6154109. Please dial in 10 minutes prior to the scheduled start time.

A replay of the call will be available from November 8, 2018 at 11:00 a.m. ET until 11:00 a.m. ET on November 11, 2018 by dialing U.S./Canada (855) 859-2056, International (404) 537-3406, and entering the passcode 6154109.

A simultaneous webcast of the call can be accessed by visiting http://investor.endo.com/events-and-presentations. In addition, a replay of the webcast will be available on the Company website for one year following the event.

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

 

FINANCIAL SCHEDULES


The following table presents Endo's unaudited Total Revenues for the three and nine months ended September 30, 2018 and 2017 (dollars in thousands):



Three Months Ended September 30,


Percent
Growth


Nine Months Ended September 30,


Percent
Growth


2018


2017



2018


2017


U.S. Branded - Specialty &
Established Pharmaceuticals:












Specialty Products:












XIAFLEX®

$

64,214



$

52,511



22

%


$

184,855



$

152,113



22

%

SUPPRELIN® LA

20,408



20,638



(1)

%


60,948



63,468



(4)

%

Other Specialty (1)

43,576



40,634



7

%


114,202



113,407



1

%

Total Specialty Products

$

128,198



$

113,783



13

%


$

360,005



$

328,988



9

%

Established Products:












PERCOCET®

$

30,730



$

31,349



(2)

%


$

93,539



$

93,183



%

VOLTAREN® Gel

15,057



19,102



(21)

%


44,185



53,646



(18)

%

OPANA® ER



14,756



(100)

%




82,056



(100)

%

Other Established (2)

46,115



54,813



(16)

%


135,243



171,277



(21)

%

Total Established Products

$

91,902



$

120,020



(23)

%


$

272,967



$

400,162



(32)

%

Total U.S. Branded - Specialty &
Established Pharmaceuticals (3)

$

220,100



$

233,803



(6)

%


$

632,972



$

729,150



(13)

%

U.S. Branded - Sterile Injectables:












VASOSTRICT®

$

112,333



$

105,741



6

%


$

332,387



$

300,649



11

%

ADRENALIN®

35,460



25,335



40

%


101,858



50,464



NM

Ertapenem for injection

25,798





NM


25,798





NM

Other Sterile Injectables (4)

63,559



70,829



(10)

%


210,804



203,252



4

%

Total U.S. Branded - Sterile Injectables (3)

$

237,150



$

201,905



17

%


$

670,847



$

554,365



21

%

Total U.S. Generic Pharmaceuticals

$

257,969



$

294,749



(12)

%


$

748,445



$

1,227,584



(39)

%

Total International Pharmaceuticals

$

30,247



$

56,430



(46)

%


$

108,425



$

189,119



(43)

%

Total Revenues

$

745,466



$

786,887



(5)

%


$

2,160,689



$

2,700,218



(20)

%

__________

(1)

Products included within Other Specialty include TESTOPEL®, NASCOBAL® Nasal Spray and AVEED®.

(2)

Products included within Other Established include, but are not limited to, LIDODERM®, EDEX®, TESTIM® and FORTESTA® Gel, including the authorized generics.

(3)

Individual products presented above represent the top two performing products in each product category and/or any product having revenues in excess of $25 million during any quarterly period in 2018 or 2017.

(4)

Products included within Other Sterile Injectables include, but are not limited to, APLISOL® and ephedrine sulfate injection.


 

 

The following table presents unaudited Condensed Consolidated Statement of Operations data for the three and nine months ended September 30, 2018 and 2017 (in thousands, except per share data):



Three Months Ended September 30,


Nine Months Ended September 30,


2018


2017


2018


2017

TOTAL REVENUES

$

745,466



$

786,887



$

2,160,689



$

2,700,218


COSTS AND EXPENSES:








Cost of revenues

412,965



514,522



1,198,468



1,722,885


Selling, general and administrative

163,791



135,880



478,615



468,675


Research and development

39,683



39,644



160,431



123,522


Litigation-related and other contingencies, net

(1,750)



(12,352)



15,370



(14,016)


Asset impairment charges

142,217



94,924



613,400



1,023,930


Acquisition-related and integration items

1,288



16,641



13,284



31,711


OPERATING LOSS FROM CONTINUING OPERATIONS

$

(12,728)



$

(2,372)



$

(318,879)



$

(656,489)


INTEREST EXPENSE, NET

131,847



127,521



385,896



361,267


LOSS ON EXTINGUISHMENT OF DEBT







51,734


OTHER INCOME, NET

(1,507)



(2,097)



(33,216)



(10,843)


LOSS FROM CONTINUING OPERATIONS BEFORE
INCOME TAX

$

(143,068)



$

(127,796)



$

(671,559)



$

(1,058,647)


INCOME TAX EXPENSE (BENEFIT)

3,003



(28,109)



24,729



(97,517)


LOSS FROM CONTINUING OPERATIONS

$

(146,071)



$

(99,687)



$

(696,288)



$

(961,130)


DISCONTINUED OPERATIONS, NET OF TAX

(27,134)



3,017



(43,273)



(705,886)


NET LOSS

$

(173,205)



$

(96,670)



$

(739,561)



$

(1,667,016)


NET (LOSS) INCOME PER SHARE—BASIC:








Continuing operations

$

(0.65)



$

(0.45)



$

(3.11)



$

(4.31)


Discontinued operations

(0.12)



0.02



(0.19)



(3.16)


Basic

$

(0.77)



$

(0.43)



$

(3.30)



$

(7.47)


NET (LOSS) INCOME PER SHARE—DILUTED:








Continuing operations

$

(0.65)



$

(0.45)



$

(3.11)



$

(4.31)


Discontinued operations

(0.12)



0.02



(0.19)



(3.16)


Diluted

$

(0.77)



$

(0.43)



$

(3.30)



$

(7.47)


WEIGHTED AVERAGE SHARES:








Basic

224,132



223,299



223,829



223,157


Diluted

224,132



223,299



223,829



223,157



 

 

The following table presents unaudited Condensed Consolidated Balance Sheet data at September 30, 2018 and December 31, 2017 (in thousands):



September 30,
2018


December 31,
2017

ASSETS




CURRENT ASSETS:




Cash and cash equivalents

$

1,118,885



$

986,605


Restricted cash and cash equivalents

289,667



320,453


Accounts receivable

467,156



517,436


Inventories, net

332,787



391,437


Other current assets

67,104



55,146


Total current assets

$

2,275,599



$

2,271,077


TOTAL NON-CURRENT ASSETS

8,246,063



9,364,503


TOTAL ASSETS

$

10,521,662



$

11,635,580


LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY




CURRENT LIABILITIES:




Accounts payable and accrued expenses, including legal settlement accruals

$

1,985,637



$

2,184,618


Other current liabilities

35,831



36,291


Total current liabilities

$

2,021,468



$

2,220,909


LONG-TERM DEBT, LESS CURRENT PORTION, NET

8,228,612



8,242,032


OTHER LIABILITIES

491,041



687,759


SHAREHOLDERS' (DEFICIT) EQUITY

(219,459)



484,880


TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY

$

10,521,662



$

11,635,580



 

 

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



Nine Months Ended September 30,


2018


2017

OPERATING ACTIVITIES:




Net loss

$

(739,561)



$

(1,667,016)


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




Depreciation and amortization

556,503



742,936


Asset impairment charges

613,400



1,023,930


Other, including cash payments to claimants from Qualified Settlement Funds

(233,350)



322,312


Net cash provided by operating activities

$

196,992



$

422,162


INVESTING ACTIVITIES:




Purchases of property, plant and equipment, excluding capitalized interest

$

(56,544)



$

(94,102)


Proceeds from sale of business and other assets, net

43,753



96,066


Other

(891)



7,000


Net cash (used in) provided by investing activities

$

(13,682)



$

8,964


FINANCING ACTIVITIES:




Payments on borrowings, net

$

(29,535)



$

(12,325)


Other

(33,273)



(123,028)


Net cash used in financing activities

$

(62,808)



$

(135,353)


Effect of foreign exchange rate

(608)



3,983


Movement in cash held for sale



(1,450)


NET INCREASE IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND
RESTRICTED CASH EQUIVALENTS

$

119,894



$

298,306


CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH
EQUIVALENTS, BEGINNING OF PERIOD

1,311,014



805,180


CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH
EQUIVALENTS, END OF PERIOD

$

1,430,908



$

1,103,486



 

SUPPLEMENTAL FINANCIAL INFORMATION

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

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

Reconciliation of EBITDA and Adjusted EBITDA (non-GAAP)


The following table provides a reconciliation of Net loss (GAAP) to Adjusted EBITDA (non-GAAP) for the three and nine months ended September 30, 2018 and 2017 (in thousands):



Three Months Ended September 30,


Nine Months Ended September 30,


2018


2017


2018


2017

Net loss (GAAP)

$

(173,205)



$

(96,670)



$

(739,561)



$

(1,667,016)


Income tax expense (benefit)

3,003



(28,109)



24,729



(97,517)


Interest expense, net

131,847



127,521



385,896



361,267


Depreciation and amortization (15)

176,856



183,475



521,325



680,385


EBITDA (non-GAAP)

$

138,501



$

186,217



$

192,389



$

(722,881)










Inventory step-up and other cost savings (2)

$

71



$

66



$

261



$

281


Upfront and milestone-related payments (3)

4,731



775



43,027



6,952


Inventory reserve increase from restructuring (4)

207





2,797



7,899


Separation benefits and other restructuring (5)

3,794



80,693



79,344



120,078


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

(1,750)



(12,352)



15,370



(14,016)


Asset impairment charges (7)

142,217



94,924



613,400



1,023,930


Acquisition-related and integration costs (8)

519



1,201



1,553



8,137


Fair value of contingent consideration (9)

769



15,440



11,731



23,574


Loss on extinguishment of debt (10)







51,734


Share-based compensation

13,736



13,247



43,722



40,252


Other income, net (16)

(1,507)



(2,097)



(33,216)



(10,843)


Other adjustments

(67)



(58)



(775)



(75)


Discontinued operations, net of tax (13)

27,134



(3,017)



43,273



705,886


Adjusted EBITDA (non-GAAP)

$

328,355



$

375,039



$

1,012,876



$

1,240,908



 

 

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


The following table provides a reconciliation of our Loss from continuing operations (GAAP) to our Adjusted income from continuing operations (non-GAAP) for the three and nine months ended September 30, 2018 and 2017 (in thousands):



Three Months Ended September 30,


Nine Months Ended September 30,


2018


2017


2018


2017

Loss from continuing operations (GAAP)

$

(146,071)



$

(99,687)



$

(696,288)



$

(961,130)


Non-GAAP adjustments:








Amortization of intangible assets (1)

161,275



161,413



471,662



615,490


Inventory step-up and other cost savings (2)

71



66



261



281


Upfront and milestone-related payments (3)

4,731



775



43,027



6,952


Inventory reserve increase from restructuring (4)

207





2,797



7,899


Separation benefits and other restructuring (5)

3,794



80,693



79,344



120,078


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

(1,750)



(12,352)



15,370



(14,016)


Asset impairment charges (7)

142,217



94,924



613,400



1,023,930


Acquisition-related and integration costs (8)

519



1,201



1,553



8,137


Fair value of contingent consideration (9)

769



15,440



11,731



23,574


Loss on extinguishment of debt (10)







51,734


Other (11)

1,353



3,035



(29,908)



(1,133)


Tax adjustments (12)

(2,270)



(41,456)



(25,126)



(195,298)


Adjusted income from continuing operations (non-GAAP)

$

164,845



$

204,052



$

487,823



$

686,498



 

 

null

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


The following tables provide detailed reconciliations of various other income statement data between the GAAP and non-GAAP amounts for the three and nine months ended September 30, 2018 and 2017 (in thousands, except per share data):




Three Months Ended September 30, 2018



Total revenues


Cost of revenues


Gross margin


Gross margin %


Total operating expenses


Operating expense to revenue %


Operating (loss) income from continuing operations


Operating margin %


Other non-operating expense, net


(Loss) income from continuing operations before income tax


Income tax expense


Effective tax rate


(Loss) income from continuing operations


Discontinued operations, net of tax


Net (loss) income


Diluted (loss) income per share from continuing operations (14)

Reported (GAAP)


$    745,466


$    412,965


$    332,501


44.6 %


$    345,229


46.3 %


$    (12,728)


(1.7)%


$ 130,340


$    (143,068)


$    3,003


(2.1)%


$ (146,071)


$    (27,134)


$    (173,205)


$        (0.65)

Items impacting
comparability:

































Amortization of
intangible assets (1)



(161,275)


161,275







161,275





161,275





161,275



161,275


0.71

Inventory step-up and
other cost savings (2)



(71)


71







71





71





71



71


Upfront and

milestone-related
payments (3)



(745)


745




(3,986)




4,731





4,731





4,731



4,731


0.02

Inventory reserve
increase from
restructuring (4)



(207)


207







207





207





207



207


Separation benefits
and other
restructuring (5)



(3,626)


3,626




(168)




3,794





3,794





3,794



3,794


0.02

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







1,750




(1,750)





(1,750)





(1,750)



(1,750)


(0.01)

Asset impairment
charges (7)







(142,217)




142,217





142,217





142,217



142,217


0.62

Acquisition-related
and integration costs (8)







(519)




519





519





519



519


Fair value of
contingent
consideration (9)







(769)




769





769





769



769


Other (11)













(1,353)


1,353





1,353



1,353


0.01

Tax adjustments (12)















2,270




(2,270)



(2,270)


(0.01)

Exclude discontinued
operations, net of tax (13)



















27,134


27,134


After considering items
(non-GAAP)


$    745,466


$    247,041


$    498,425


66.9 %


$    199,320


26.7 %


$    299,105


40.1 %


$ 128,987


$     170,118


$    5,273


3.1 %


$  164,845


$             —


$     164,845


$          0.71




































Three Months Ended September 30, 2017



Total revenues


Cost of revenues


Gross margin


Gross margin %


Total operating expenses


Operating expense to revenue %


Operating (loss) income from continuing operations


Operating margin %


Other non-operating expense, net


(Loss) income from continuing operations before income tax


Income tax (benefit) expense


Effective tax rate


(Loss) income from continuing operations


Discontinued operations, net of tax


Net (loss) income


Diluted (loss) income per share from continuing operations (14)

Reported (GAAP)


$    786,887


$    514,522


$    272,365


34.6 %


$    274,737


34.9 %


$      (2,372)


(0.3)%


$ 125,424


$    (127,796)


$ (28,109)


22.0 %


$   (99,687)


$        3,017


$      (96,670)


$        (0.45)

Items impacting
comparability:

































Amortization of
intangible assets (1)



(161,413)