Endo Reports First-Quarter 2017 Financial Results

DUBLIN, May 9, 2017 /PRNewswire/ --

• First-quarter 2017 revenues increased 8 percent from prior year to $1,038 million
• First-quarter 2017 U.S. Generic Pharmaceuticals revenue increased 24 percent to $722 million
• First-quarter 2017 reported $0.74 diluted (GAAP) loss per share from continuing operations
• First-quarter 2017 adjusted diluted earnings per share (EPS) from continuing operations increased 14 percent to $1.23
• First-quarter 2017 reported (GAAP) consolidated net loss of $174 million
• First-quarter 2017 adjusted EBITDA increased 21 percent to $478 million
• Company reaffirms 2017 full-year revenues, adjusted EBITDA and adjusted diluted EPS financial guidance

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

• Revenues of $1,038 million, an 8 percent increase compared to first-quarter 2016 revenues of $964 million.
• Reported net loss from continuing operations of $165 million compared to first-quarter 2016 reported net loss from continuing operations of $89 million.
• Reported diluted loss per share from continuing operations of $0.74 compared to first-quarter 2016 reported diluted loss per share from continuing operations of $0.40.
• Adjusted net income from continuing operations of $275 million, a 14 percent increase compared to first-quarter 2016 adjusted net income from continuing operations of $241 million.
• Adjusted diluted EPS from continuing operations of $1.23, a 14 percent increase compared to first-quarter 2016 adjusted diluted EPS from continuing operations of $1.08.
• Adjusted EBITDA from continuing operations of $478 million, a 21 percent increase compared to first-quarter 2016 adjusted EBITDA of $396 million.

"During Endo's February 2017 earnings call, we outlined key priorities that we believe will enable us to achieve our Company's vision. As we noted, we expect this to take time, but our strong first-quarter performance illustrates how our renewed focus on execution is beginning to yield results. The quarter benefited from new Generic product introductions and continued strong growth from our Branded Specialty products business," said Paul Campanelli, President and CEO of Endo. "As a result, we generated substantial adjusted EBITDA in the quarter that was further enhanced by cost savings from our 2016 and 2017 restructurings and related initiatives."

CONSOLIDATED RESULTS

Total revenues increased by 8 percent to $1,038 million in first-quarter 2017 compared to the same period in 2016. This increase resulted primarily from the fourth-quarter 2016 introductions of key first-to-file generic products, quetiapine extended-release (ER) tablets and ezetimibe tablets. GAAP net loss from continuing operations in first-quarter 2017 was $165 million compared to GAAP net loss from continuing operations of $89 million during the same period in 2016 primarily attributable to the after-tax impact of goodwill and intangible asset impairment charges during first-quarter 2017 compared to the same period last year. GAAP net loss per share from continuing operations for the first-quarter 2017 was $0.74, compared to GAAP net loss per share from continuing operations of $0.40 in first-quarter 2016.

Adjusted net income from continuing operations in first-quarter 2017 increased by 14 percent to $275 million compared to first-quarter 2016, driven primarily by the contributions of ezetimibe, quetiapine ER, Sterile Injectables, and our Branded Specialty products. Adjusted net income per share from continuing operations for the three months ended March 31, 2017 increased 14 percent to $1.23 compared to first-quarter 2016.

U.S. GENERIC PHARMACEUTICALS

During first-quarter 2017, the U.S. Generic Pharmaceuticals segment submitted four regulatory filings and launched four new products, including ephedrine sulfate injection following the approval of its New Drug Application by the U.S. Food and Drug Administration (FDA).

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

• Revenues of $722 million, a 24 percent increase compared to first-quarter 2016; this increase was primarily attributable to the fourth-quarter 2016 introductions of quetiapine ER tablets, the generic version of SEROQUEL XR^®, and ezetimibe tablets, the generic equivalent of ZETIA^®. Par has first-to-file status and associated marketing exclusivity for each product. Revenue growth also benefited from the launch of ephedrine sulfate injection.
• Sterile Injectables increased 22 percent compared to first-quarter 2016; this increase was driven primarily by VASOSTRICT^® and ADRENALIN^®.
• Generics base business decreased 32 percent compared to first-quarter 2016; this decrease primarily resulted from the impact on first-quarter 2017 related to 2016 competitive events and previously announced product discontinuances.

U.S. BRANDED PHARMACEUTICALS

During first-quarter 2017, highly statistically significant data from Endo's Phase 2b study of XIAFLEX^® in patients with cellulite was presented at the Aesthetica Super Symposium (American Society of Plastic Surgeons) and the American Academy of Dermatology Annual Meeting. Phase 3 clinical trials are expected to begin in the second half of 2017.

On March 14, 2017, the FDA's Advisory Committees voted 18 to eight, with one abstention, that the benefits of reformulated OPANA^® ER no longer outweigh its risks, while a number of the Committee members expressed their preference that OPANA^® ER remain on the market with additional regulatory restrictions. Following the outcome of the FDA advisory committee meetings, the Company stated its belief that OPANA^® ER remains an important clinical choice for appropriate patients and that Endo plans to work collaboratively with the FDA as it completes its product evaluation.

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

• Revenues of $250 million, a 19 percent decrease compared to first-quarter 2016; this decrease was primarily attributable to generic erosion adversely impacting the Company's established products portfolio, including VOLTAREN^® Gel, FROVA^®, OPANA^® ER and LIDODERM^®, along with the divestiture of STENDRA^®.
• Specialty products increased 11 percent in the first-quarter 2017 versus the same period in 2016, driven by the strong performance from XIAFLEX^® and SUPPRELIN^® LA. Sales of XIAFLEX^®, our flagship Branded product, increased 12 percent compared to first-quarter 2016; this increase was primarily attributable to strong demand growth.

INTERNATIONAL PHARMACEUTICALS

Endo's previously announced divestiture of its South African subsidiary, Litha Healthcare Group, to Acino Pharma AG is expected to close in the second quarter of 2017, subject to customary conditions, including the expiration or termination of waiting periods under applicable competition laws. In first-quarter 2017, the Company also announced that due diligence had begun on the potential divestiture of its Mexican subsidiary, Somar, which is continuing to progress.

First-quarter 2017 International Pharmaceuticals revenues were $65 million, an 8 percent decrease compared to first-quarter 2016.

2017 FINANCIAL GUIDANCE

For the full twelve months ended December 31, 2017, at current exchange rates, Endo is providing guidance on revenue, GAAP and adjusted diluted income (loss) per share from continuing operations and adjusted EBITDA from continuing operations, along with certain assumptions used in determining these measures. The Company estimates:

• Total revenues to be between $3.45 billion to $3.60 billion;
• Reported diluted GAAP loss per share from continuing operations to be between $0.80 and $0.50;
• Adjusted diluted EPS from continuing operations to be between $3.45 to $3.75; and
• Adjusted EBITDA from continuing operations to be between $1.50 billion to $1.58 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 22.5% to 23.0%;
• Adjusted interest expense of approximately $490 million to $500 million;
• Adjusted effective tax rate of approximately 13.0% to 14.0%; 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 March 31, 2017, the Company had $617.6 million in unrestricted cash; debt of $8.3 billion; net debt of approximately $7.6 billion and a net debt to adjusted EBITDA ratio of 4.4.

First-quarter 2017 cash provided by operating activities was $168 million, compared to $46 million of net cash used by operating activities in the comparable 2016 period. The growth compared to 2016 was primarily attributable to strong operating results and the favorable impact of changes in working capital and other assets and liabilities.

During first-quarter 2017, the Company recorded total combined pre-tax, non-cash impairment charges of $204 million, which primarily consisted of a goodwill impairment charge of $83 million and other intangible asset impairments of $119 million, including the following items:

• 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.
• Endo identified certain market conditions impacting the recoverability of developed technology intangible assets in its U.S. Generic Pharmaceuticals segment. As a result, Endo determined that these intangible assets are impaired. The non-cash impairment charge related to these intangible assets totaled $73 million.

In addition, the Company recorded first-quarter 2017 restructuring cash charges of $15 million related to its restructuring program that primarily impacted its Corporate and Branded pharmaceuticals R&D functions. As announced in January 2017, Endo expects to realize approximately $40 million to $50 million in annual run rate pre-tax cost savings by the fourth quarter of 2017 as a result of these restructuring actions.

In April 2017, Endo refinanced its $3.7 billion existing credit agreement, significantly enhancing the Company's operational flexibility over the medium to long-term and extending its maturity schedule.

CONFERENCE CALL INFORMATION

Endo will conduct a conference call with financial analysts to discuss this press release today at 8:30 a.m. ET. The dial-in number to access the call is U.S./Canada (866) 497-0462, International (678) 509-7598, and the passcode is 6086379. Please dial in 10 minutes prior to the scheduled start time.

A replay of the call will be available from May 9, 2017 at 11:30 a.m. ET until 11:30 a.m. ET on May 23, 2017 by dialing U.S./Canada (855) 859-2056, International (404) 537-3406, and entering the passcode 6086379.

A simultaneous webcast of the call can be accessed by visiting www.endo.com. In addition, a replay of the webcast will be available until 11:30 a.m. ET on May 23, 2017. 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 months ended March 31, 2017 and 2016:

The following table presents unaudited Condensed Consolidated Statement of Operations data for the three months ended March 31, 2017 and 2016 (in thousands, except per share data):

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

The following table presents unaudited Condensed Consolidated Statement of Cash Flow data for the three months ended March 31, 2017 and 2016 (in thousands):

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 months ended March 31, 2017 and 2016 (in thousands):

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 months ended March 31, 2017 and 2016 (in thousands):

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 months ended March 31, 2017 and 2016 (in thousands):

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 months ended March 31, 2017 and 2016 are as follows:

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

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

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 May 9, 2017.
• The Company is currently in the process of completing its assessment of debt extinguishment and debt modification accounting under GAAP related to its recently announced debt refinancing transactions, which closed on April 27, 2017. This assessment will include an analysis of financing fees paid to third parties in connection with the new and existing debt agreements. Depending on the results of this analysis, we could incur material debt extinguishment charges, which could also significantly impact our 2017 GAAP diluted loss per share guidance range. Debt extinguishment charges, if any, would be recorded in the second quarter of 2017. The Company currently plans to update its GAAP diluted loss per share guidance range in its second quarter 2017 earnings release.

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 March 31, 2017 (in thousands) and the calculation of our Net Debt Leverage Ratio (non-GAAP):

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 and its components (unlike U.S. GAAP net income 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. 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 high-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 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.