Third Quarter 2016 Conference Call November 8, 2016
Forward-Looking Statements Certain statements made in this presentation may constitute forward-looking statements, including, but not limited to, statements regarding expected future performance of Valeant Pharmaceuticals International, Inc. (“Valeant” or the “Company”), including guidance with respect to Total Revenues, Adjusted EPS (non-GAAP) and Adjusted EBITDA (non-GAAP) and the assumptions used in connection with such guidance, the outlook and anticipated growth profile of the Company’s new operating and reportable segments, the anticipated receipt of clinical data for certain of our pipeline products and the expected timing of such data, the anticipated approval and launch dates for certain of our pipeline products and R&D programs, anticipated debt reduction and repayment (including our ability to pay down debt and the availability of cash flow and asset sales proceeds for such purpose), the Company’s plans for future strategic alternatives for certain of its assets, anticipated investments in R&D, quality initiatives and new product launch capability, plans to reduce operating costs and the anticipated savings from such reduction, proposed supply chain rationalization and the anticipated improvements to gross profit from such rationalization, the Company’s ability to address legacy issues, and the Company’s mission and the plans, goals and strategies related thereto. Forward-looking statements may generally be identified by the use of the words “anticipates,” “expects,” “intends,” “plans,” “should,” “could,” “would,” “may,” “will,” “believes,” “estimates,” “potential,” “target,” or “continue” and variations or similar expressions. These statements are based upon the current expectations and beliefs of management and are subject to certain risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include, but are not limited to, risks and uncertainties discussed in the Company's most recent annual and quarterly reports and detailed from time to time in Valeant’s other filings with the Securities and Exchange Commission and the Canadian Securities Administrators, which factors are incorporated herein by reference. Readers are cautioned not to place undue reliance on any of these forward-looking statements. These forwardlooking statements speak only as of the date hereof. Valeant undertakes no obligation to update any of these forward-looking statements to reflect events or circumstances after the date of this presentation or to reflect actual outcomes, except as required by law.
The guidance in this presentation is only effective as of the date given, November 8, 2016, and will not be updated or affirmed unless and until the Company publicly announces updated or affirmed guidance.
1
Non-GAAP 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 including (i) Adjusted Earnings per Share (“EPS”), (ii) Adjusted Net Income, (iii) Adjusted EBITDA, (iv) Adjusted Cost of Goods, (v) Adjusted Selling, general and administrative, (vi) Adjusted Research & Development, (vii) R&D Investment (non-GAAP), (viii) Gross Margin (non-GAAP), (ix) Segment Gross Margin (non-GAAP), (x) Adjusted Operating Margin, (xi) Adjusted Operating Income, (xii) Adjusted Segment Operating Income, (xiii) EBITDA, and (xiv) EBITA. The reconciliations of these historic non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in the appendix to this presentation. Other than with respect to Total Revenues, the Company only provides guidance on a non-GAAP basis and does not provide reconciliations of such forward-looking non-GAAP measures to GAAP, due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliations. In periods where there are not expected to be significant acquisitions or divestitures, the Company believes it might have a basis for forecasting the GAAP equivalent for certain costs, such as amortization, that would otherwise be treated as non-GAAP to calculate projected net income (loss). However, because other deductions (e.g., restructuring, gain or loss on extinguishment of debt and litigation settlements) used to calculate projected net income (loss) vary dramatically based on actual events, the Company is not able to forecast on a GAAP basis with reasonable certainty all deductions needed in order to provide a GAAP calculation of projected net income (loss) at this time. The amounts of these deductions may be material and, therefore, could result in projected GAAP EPS and GAAP net income (loss) being materially less than projected Adjusted EPS (non-GAAP) and Adjusted EBITDA (non-GAAP). Management uses these non-GAAP measures as key metrics in the evaluation of Company performance and the consolidated financial results and, in part, in the determination of cash bonuses for its executive officers. The Company believes these non-GAAP measures are useful to investors in their assessment of our operating performance and the valuation of our Company. In addition, these nonGAAP measures address questions the Company routinely receives from analysts and investors and, in order to assure that all investors have access to similar data, the Company has determined that it is appropriate to make this data available to all investors. However, non-GAAP financial measures are not prepared in accordance with GAAP, as they exclude certain items as described herein. Therefore, the information is not necessarily comparable to other companies and should be considered as a supplement to, not a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP. Please see the appendix to this presentation for a more detailed description of each non-GAAP financial measure used by the Company herein, including the adjustments reflected in each non-GAAP measure.
2
Today’s Topics
3
1
Q3 2016 Financial Results
2
Business Segments Under New Structure
3
Revised Full Year 2016 Guidance
4
Progress Since 2Q / Creating the New Valeant
3Q 2016 Performance Positives 3Q Sequential Improvement vs 2Q •
Revenue
•
Operating Expenses
•
Operating Margin
•
Adjusted EBITDA
Debt Reduction
•
Negatives Brodalumab PDUFA Date Delay •
Delay three months to February 16, 2017
Operating /Quality Challenges •
Rochester NY Site Inspection
•
Product Recall/Consumer Business
•
Dental Backorder
$450M Debt Reduction Since 2Q New Generic Competitors
Investing in R&D Through OpEx Savings •
Reduced Adj. SG&A by $20M vs 2Q
•
Ofloxin Otic
•
Ziana
•
Zegerid
Sequential Business Growth •
GI Growth, Xifaxan TRx +7% vs 2Q
•
Derm Growth +3% vs 2Q
New Hires
4
•
CFO, Paul Herendeen
•
EVP Quality, Louis Yu
Legacy Matters
3Q 2016 Financial Results 3Q 2016 Results
2Q 2016 Results
1Q 2016 Results
4Q 2015 Results
3Q 2015 (Y/Y) Results2
$2,480M
$2,420M
$2,372M
$2,757M
$2,787M
Adj. COGS (non-GAAP)1
$645M
$630M
$586M
$663M
$598M
Adj. SG&A (non-GAAP)1
$642M
$662M
$737M
$682M
$674M
Adj. R&D (non-GAAP)1
$101M
$108M
$103M
$96M
$101M
44%
42%
39%
47%
50%
GAAP EPS (diluted)
($3.49)
($0.88)
$(1.08)
$(1.12)
$0.14
Adj. EPS (non-GAAP)1
$1.55
$1.40
$1.27
$1.55
$2.41
Cash Flow from Operations (GAAP)
$570M
$448M
$557M
$598M
$733M
$1,163M
$1,088M
$1,008M
$1,370M
$1,471M
Revenues
Adj. Operating Margin (non-GAAP)1
Adj. EBITDA (non-GAAP)1
5
1. 2.
See slide 2 for note on non-GAAP information and the Appendix for reconciliations and further information Third quarter 2015 results include price appreciation credits allocated among certain of the Company’s U.S. product portfolios.
3Q 2016 Results by Segment BAUSCH + LOMB / INTERNATIONAL
BRANDED Rx
US DIVERSIFIED PRODUCTS
CORPORATE
DURABLE GROWTH
GROWTH
CASH GENERATING
OVERHEAD
$1,162M
$847M
$471M
61%
83%
88%
R&D Investment (non-GAAP)1
$22M
$21M
$2M
$56M
Adjusted SG&A (non-GAAP)1
$339M
$163M
$31M
$109M
Adjusted Operating Income (non-GAAP)1
$348M
$521M
$379M
($165M)
DURABLE GROWTH
GROWTH
CASH GENERATING
OVERHEAD
Segment as % of Total Company Revenues
47%
34%
19%
NA
Segment as % of Total Company EBITA (non-GAAP)1
32%
48%
35%
(15%)
Revenue
Gross Margin (non-GAAP)1
6
1.
See slide 2 for note on non-GAAP information and Appendix for reconciliations and further information
Bausch + Lomb / International (~50% of Valeant1) “Durable” SEE BETTER TO LIVE BETTER 3Q 2016 Revenues
2Q 2016 Revenues
1Q 2016 Revenues
4Q 2015 Revenues
3Q 2015 (Y/Y) Revenues
Global Vision Care
$195M
$194M
$170M
$172M
$194M
Global Surgical
$154M
$175M
$164M
$181M
$151M
Global Consumer
$383M
$397M
$351M
$363M
$367M
Global Ophthalmology Rx
$159M
$159M
$139M
$163M
$171M2
International
$271M
$273M
$248M
$308M
$236M
$1,162M
$1,198M
$1,072M
$1,187M
$1,119M
Business Unit
Total
7
1. 2.
2016 revenue based on annualized guidance Third quarter 2015 results include price appreciation credits allocated among certain of the Company’s U.S. product portfolios.
Branded Rx (~30% of Valeant1) “Growth” INVESTING IN Rx FRANCHISES 3Q 2016 Revenues
2Q 2016 Revenues
1Q 2016 Revenues
4Q 2015 Revenues
3Q 2015 (Y/Y) Revenues
Salix
$436M
$341M
$340M
$497M
$461M2
Dermatology
$223M
$188M
$215M
$297M
$450M2
Canada
$82M
$80M
$73M
$85M
$80M
Oncology
$77M
$77M
$72M
$77M
$69M
Dentistry
$29M
$45M
$38M
$45M
$44M
All Other
($0M)
$1M
$1M
$1M
-
Total
$847M
$732M
$739M
$1,002M
$1,104M
Business Unit
8
1. 2.
2016 revenue based on annualized guidance Third quarter 2015 results include price appreciation credits allocated among certain of the Company’s U.S. product portfolios.
U.S. Diversified Products (~20% of Valeant1) “Cash Generating” OPTIMIZING PORTFOLIO OF HIGH-MARGIN, LOW INVESTMENT BUSINESSES Business Unit
3Q 2016 Revenues
2Q 2016 Revenues
1Q 2016 Revenues
4Q 2015 Revenues
3Q 2015 (Y/Y) Revenues
Neuro & Other
$322M
$345M
$422M
$423M
$416M2
Generics
$120M
$122M
$119M
$115M
$125M
Solta
$8M
$7M
$6M
$9M
$9M
Obagi
$17M
$13M
$10M
$17M
$12M
Other
$4M
$4M
$3M
$4M
$2M
Total
$471M
$491M
$560M
$568M
$564M
9
1. 2.
2016 revenue based on annualized guidance Third quarter 2015 results include price appreciation credits allocated among certain of the Company’s U.S. product portfolios.
Revised Full Year 2016 Guidance Revised 2016 Guidance
Previous 2016 Guidance
Total Revenues
$9.55B - $9.65B
$9.9B - $10.1B
Adjusted EPS (non-GAAP)1
$5.30 - $5.50
$6.60 - $7.00
Adjusted EBITDA (non-GAAP) 1
$4.25B - $4.35B
$4.80B - $4.95B
10
1.
See slide 2 for note on non-GAAP information and Appendix for further information
Bridge to Adjusted EPS Guidance (non-GAAP)1 $6.80
~ ($0.55) B+L International
~$0.38 Efficiencies ~($0.45) Branded Rx •
Challenges in Europe and Asia
•
Eastern Europe • inventory reduction • Consumer Recall
• •
Egypt Currency / Devaluation
~($0.20) Diversified Products Dental Backorder Dermatology Softness e.g., Back to • School Seasonality •
Previous 2016 EPS Guidance
~$6.60 - $7.00 Adj EPS
11
1. 2.
(non-GAAP)2
Assuming 2Q annualized rate See slide 2 for note on non-GAAP information and the Appendix for further information
~($0.20) Incremental Expenses Late Cycle Product Inventory Mgmt Earlier Generic Launches
$5.40 • •
Severance / New Hire Expenses Incremental Investments
Updated 2016 EPS Guidance
~$5.30 - $5.50 Adj EPS (non-GAAP)2
Focus on the Balance Sheet Stable current and forecasted liquidity position • ~$660M cash as of quarter end 2017: Repaid Q1 through Q3 2017 mandatory amortization • ~$160M mandatory 2017 term loan repayments remaining • Planned to be completed by year end 2016 leaving no remaining 2017 mandatory amortization payments
$1.61B permanent debt repayment year-to-date as of November 8th • Repaid $450M additional permanent debt (since end of Q2) • Completed all 2016 scheduled amortization payments 2016: Committed to minimum permanent debt pay down of $1.7B
We continue to expect free cash flow and non-core asset sales to reduce debt by more than $5B within 18 months (from Aug. 9th 2016)
12
Tangible Progress Since 2Q / Creating the New Valeant New Management Additions GI Growth – Xifaxan® PCP strategy, Oral Relistor Launch
Dermatology Rx Recovery / Walgreens Improvement Consumer Business Continues Consistent Growth Stabilization of Salesforce
Continuing R&D Investments 2016 -2017 Action Plan Creating the New Valeant
13
New Management Additions Paul S. Herendeen EVP, Finance & Chief Financial Officer
Louis W. Yu, Ph.D Chief Quality Officer, Global Quality
• Joined Valeant in August 2016
• Joined Valeant in October 2016
• EVP & CFO of Zoetis Inc. for 2 years
• EVP, Global Quality and Compliance at The Perrigo Company from 2006 to 2016
• CFO of Warner Chilcott from 2005 to 2013 and from 1998 to 2001 • EVP & CFO of MedPointe from 2001 until 2005 • Held various positions with the investment banking group of Oppenheimer & Company, the capital markets group of Continental Bank Corporation and as a senior auditor with Arthur Andersen & Company
14
• Previously served as the highest quality officer for CV Therapeutics, Forest Laboratories and Solvay Pharmaceuticals USA. • Served in the Quality and R&D organizations for over 16 years at various Johnson & Johnson companies in positions of increasing responsibility
GI Update Business Unit Salix
3Q 2016 Revenues
2Q 2016 Revenues
1Q 2016 Revenues
4Q 2015 Revenues
3Q 2015 Revenues1
$436M
$341M
$340M
$497M
$461M
Xifaxan 2016 Retail TRx Performance2 Xifaxan Growth
•
Continued Xifaxan monthly TRx 14% year-over-year in 3Q and 24% yr/yr
65,000 60,000
Solution for Primary Care Physicians
Achieved yearover-year growth in other Salix brands
•
Identified PCP solution – 4Q Event
55,000 50,000 45,000
•
Uceris® TRx growth of 6%
•
Apriso® TRx growth of 5%
40,000 35,000
15
1. 2.
2014
2015
Third quarter 2015 results include price appreciation credits allocated among certain of the Company’s U.S. product portfolios. Symphony IDV: Retail TRx
2016
Dec
Nov
Oct
Sep
Aug
Jul
Jun
May
Apr
Relistor family TRxs up 10% vs last 4 weeks
Mar
•
Launched Relistor Oral
30,000 Feb
Secured Relistor Oral coverage for ~50% of Commercial lives within only 2 months of product launch
Jan
•
Dermatology Rx Recovery / Walgreens Improvement Business Unit
3Q 2016 Revenues
2Q 2016 Revenues
1Q 2016 Revenues
4Q 2015 Revenues
3Q 2015 Revenues1
Dermatology
$223M
$188M
$215M
$297M
$450M
2016 Rx Growth
•
Dermatology 2016 Rx Performance TRx and NRx growth continues to show recovery post 2015
350,000 300,000
Pipeline Update
Expected Phase 3 Data for a novel topical medication for the treatment of mild to moderate psoriasis in 2Q17
Promoted Brands NRx
Promoted Brands RRx
Source: Symphony IDV, Promoted Brands includes Acanya, Carac, Clindagel, Elidel, Locoid, Luzu, Noritate, Onexton, RAM 08, Solodyn, Zyclara and Jublia 4ML Equivalents* *Jublia ML Equivalent TRx’s = Jublia 4ML TRx’s + 2*Jublia 8ML TRx’s
16
1.
Third quarter 2015 results include price appreciation credits allocated among certain of the Company’s U.S. product portfolios.
2016-09
•
2016-08
PDUFA date Feb. 16, 2017
50,000
2016-07
•
100,000
2016-06
Brodalumab Update
FDA has notified us of a 3 month extension related to review of REMS program
150,000
2016-05
•
Substantial improvement in patient access and prior authorization program
2016-04
•
200,000
2016-03
Walgreens
250,000
2016-02
ASPs have increased +40% vs 2Q following implemented access solutions
2016-01
•
Promoted Brands TRx
Year-to-date US Consumer Business Strength 8.3%
Top US consumer healthcare companies1
7.7%
5.2% 4.3%
YTD Average Market Growth of 2%
3.7% 2.4% 2.0% 1.4%
-0.4% -1.1%
-1.3% -1.7% -2.3% -3.0%
$MM
$1,949
17
1
$658
$623
$4,755
$1,070
$908
$962
$1,516
$602
$1,163
YTD 10-02-16. Based on IRI Definition of Manufacturers in Healthcare with >$500MM in Annual Sales. Excludes private Label.
Source: IRI Market Advantage – Total US MULO - Valeant Includes Costco
$475
$11,079
$481
$2,553
Salesforce Stabilization
Total US Sales Force Retention by Quarter 95% 94% 93% 92% 91% 90% 89% 88% 87% 86% 1Q 2016
18
Source: Internal company data. Total US sales force retention data by quarter.
2Q 2016
3Q 2016
Continuing R&D Investments Key Upcoming R&D Programs •
Biologic for treatment of severe psoriasis
•
2Q17 Anticipated Launch1
Brodalumab
• latanoprostene bunod •
Mid-2017 Anticipated Launch1
•
Topical combination product for moderate to severe psoriasis
Topical Psoriasis Product
Next Generation Xifaxan
Once daily single agent therapy eye drop for reduction of IOP
•
NDA filing expected 2H17
•
New formulation of rifaxamin planned to enter Phase 3 in 2H17
134 Total Company R&D Projects Overall R&D +38% Y/Y Launch Timeframe
% of R&D Programs
2017-2019
~80%
2020-beyond
~20%
Derm, 20 Other, 23 GI, 16 B+L, 76
19
1
Subject to regulatory approval
2016 – 2017 Action Plan
20
1
Building the New Valeant Team
2
Investing in R&D / Quality / New Product Launch Capability
3
Reducing Operating Costs – Zero Based Budgeting, Saving $75-100M in 2017
4
Improving Gross Profit by an Annualized $150-250M by 2020 through Supply Chain Rationalization
5
Addressing Legacy Valeant Issues
Creating the “New Valeant” OUR MISSION Improve People’s Lives with our Healthcare Products
STABILIZE 2016
New Management Fixing Derm Growing Salix Paying down debt Stabilizing Salesforce
2016-2017 Action Plan Added New Segment Transparency 21
TURNAROUND 2017-2018
Strengthen balance sheet Focus on specialty driven markets Focus on markets with above average growth rates Focus on leadership position and pipeline Efficient resource allocation
TRANSFORM 2018+
Lead in our categories
Launch new products Balance organic and inorganic growth
Appendix
22
Q3 2016 Top 10 Products – B+L / International Top 10 products by revenues, trailing five quarters Rank
23
Product
Q3 2016
Q2 2016
Q1 2016
Q4 2015
Q3 2015
1
SofLens® Total
$78M
$79M
$70M
$73M
$83M
2
Occuvite + Preservision®
$65M
$68M
$55M
$60M
$57M
3
ReNu® Total
$58M
$54M
$48M
$53M
$52M
4
Lotemax® Total
$39M
$33M
$31M
$42M
$43M1
5
PureVision® Total
$34M
$38M
$37M
$34M
$40M
6
Biotrue® MultiPurpose Solution
$33M
$31M
$27M
$27M
$30M
7
Cerave® Total
$31M
$30M
$37M
$37M
$25M
8
BioTrue® ONEday Total
$29M
$27M
$21M
$20M
$22M
9
ArtelacTM
$21M
$20M
$20M
$21M
$20M
10
Bausch + Lomb Ultra® Total
$20M
$17M
$12M
$13M
$13M
1.
Third quarter 2015 results include price appreciation credits allocated among certain of the Company’s U.S. product portfolios.
Q3 2016 Top 10 Products – Branded Rx Top 10 products by revenues, trailing five quarters Rank
24
Product
Q3 2016
Q2 2016
Q1 2016
Q4 2015
Q3 2015
1
Xifaxan® Total
$273M
$200M
$208M
$205M
$220M
2
Provenge®
$77M
$78M
$72M
$77M
$69M
3
Jublia® Total
$44M
$31M
$38M
$68M
$106M
4
Uceris® Tablets
$40M
$37M
$35M
$39M
$46M
5
Apriso®
$38M
$32M
$33M
$31M
$35M
6
Total Arestin®
$28M
$43M
$34M
$32M
$35M
7
Elidel®
$27M
$23M
$20M
$24M
$31M
8
Solodyn®
$26M
$17M
$23M
$25M
$66M
9
Glumetza®SLX
$24M
$16M
$3M
$81M
$53M1
10
Relistor®
$20M
$15M
$17M
$22M
$15M
1.
Third quarter 2015 results include price appreciation credits allocated among certain of the Company’s U.S. product portfolios.
Q3 2016 Top 10 Products – US Diversified Products Top 10 products by revenues, trailing five quarters Rank
25
Product
Q3 2016
Q2 2016
Q1 2016
Q4 2015
Q3 2015
1
Wellbutrin® Total
$65M
$80M
$67M
$90M
$88M
2
Nitropress®
$36M
$34M
$58M
$58M
$35M
3
Xenazine® US
$35M
$42M
$47M
$50M
$57M
4
Isuprel®
$30M
$40M
$66M
$53M
$50M
5
Cuprimine®
$29M
$25M
$27M
$27M
$27M
6
Syprine®
$26M
$20M
$23M
$23M
$19M
7
Ofloxacin Otic
$20M
-
-
$2M
$21M
8
Neo/Poly/HC Otic
$18M
$5M
-
$13M
$4M
9
Mephyton®
$15M
$14M
$16M
$13M
$19M
10
Migranal® AG
$15M
$16M
$9M
$10M
$9M
Bausch + Lomb / Int’l Segment Trailing Five Quarters1 Bausch + Lomb / International
3Q 2016
2Q 2016
1Q 2016
4Q 2015
3Q 2015
Global Vision Care Revenue
$195M
$194M
$170M
$172M
$194M
Global Surgical Revenue
$154M
$175M
$164M
$181M
$151M
Global Consumer Revenue
$383M
$397M
$351M
$363M
$367M
Global Ophtho Rx Revenue
$159M
$159M
$139M
$163M
$171M3
International Revenue
$271M
$273M
$248M
$308M
$236M
$1,162M
$1,198M
$1,072M
$1,187M
$1,119M
61%
63%
62%
63%
67%
Segment R&D (non-GAAP)2
$22M
$22M
$18M
$16M
$16M
Adjusted SG&A (non-GAAP)2
$339M
$381M
$352M
$342M
$332M
Adjusted Segment Operating Income (non-GAAP)2
$348M
$356M
$290M
$391M
$398M
Segment Revenue Segment Gross Margin (non-GAAP)2
26
1. 2. 3.
Products with sales outside the U.S. impacted by F/X changes. Please note rounding impact on percentages See slide 2 for note on non-GAAP information and the Appendix for reconciliations and further information Third quarter 2015 results include price appreciation credits allocated among certain of the Company’s U.S. product portfolios.
Branded Rx Segment Trailing Five Quarters1 Brand Rx
3Q 2016
2Q 2016
1Q 2016
4Q 2015
3Q 2015
Salix Revenue
$436M
$341M
$340M
$497M
$461M3
Dermatology Revenue
$223M
$188M
$215M
$297M
$450M3
Canada Revenue
$82M
$80M
$73M
$85M
$80M
Dendreon Revenue
$77M
$77M
$72M
$77M
$69M
Dentistry Revenue
$29M
$45M
$38M
$45M
$44M
All Other Revenue
($0M)
$1M
$1M
$1M
-
$847M
$732M
$739M
$1,002M
$1,104M
83%
82%
83%
84%
86%
Segment R&D (non-GAAP)2
$21M
$26M
$25M
$15M
$12M
Adjusted SG&A (non-GAAP)2
$163M
$176M
$264M
$231M
$235M
Adjusted Segment Operating Income (non-GAAP)2
$521M
$395M
$319M
$590M
$696M
Segment Revenue
Segment Gross Margin (non-GAAP)2
27
1. 2. 3.
Products with sales outside the U.S. impacted by F/X changes. Please note rounding impact on percentages See slide 2 for note on non-GAAP information and the Appendix for reconciliations and further information Third quarter 2015 results include price appreciation credits allocated among certain of the Company’s U.S. product portfolios.
Diversified Products Segment Trailing Five Quarters1 Diversified Products
3Q 2016
2Q 2016
1Q 2016
4Q 2015
3Q 2015
Neuro & Other Revenue
$322M
$345M
$422M
$423M
$416M3
Generics Revenue
$120M
$122M
$119M
$115M
$125M
Solta Revenue
$8M
$7M
$6M
$9M
$9M
Obagi Revenue
$17M
$13M
$10M
$17M
$12M
Other Revenue
$4M
$4M
$3M
$4M
$2M
Segment Revenue
$471M
$491M
$560M
$568M
$564M
Segment Gross Margin (non-GAAP)2
88%
86%
90%
87%
86%
Segment R&D (non-GAAP)2
$2M
$2M
$2M
$1M
$1M
Adjusted SG&A (non-GAAP)2
$31M
$37M
$39M
$36M
$36M
Adjusted Segment Operating Income (non-GAAP)2
$379M
$385M
$465M
$457M
$450M
28
1. 2. 3.
Products with sales outside the U.S. impacted by F/X changes. Please note rounding impact on percentages See slide 2 for note on non-GAAP information and the Appendix for reconciliations and further information Third quarter 2015 results include price appreciation credits allocated among certain of the Company’s U.S. product portfolios.
Financial Summary – Adjusted (non-GAAP) Presentation Reconciliation Qtr 3 2016
GAAP Amortization resulting from inventory step-up Acquisition-related contingent consideration In-process research and development impairments and other costs Other (income)/expense Restructuring, Integration, acquisition and other costs Other non-GAAP charges Amortization and impairments of finite-lived intangibles Goodwill impairment Amortization of deferred financing costs and debt discounts Foreign exchange and other Tax effect on non-GAAP adjustments Non-GAAP
Cost of Total Goods Gross Sold Margin $ 649.2 $ 1,821.6 (1.7) 1.7 (2.1) 2.1 $ 645.4 $ 1,825.4
GAAP Amortization resulting from inventory step-up Depreciation expense resulting from PP&E step-up/down Acquisition-related contingent consideration Share-based compensation In-process research and development impairments and other costs Other (income)/expense Restructuring, Integration, acquisition and other costs Other non-GAAP charges Amortization and impairments of finite-lived intangibles Amortization of deferred financing costs and debt discounts Foreign exchange and other Tax effect on non-GAAP adjustments Non-GAAP
Cost of Total Goods Gross Sold Margin $ 647.3 $ 1,762.4 (7.5) 7.5 (3.9) 3.9 (5.7) 5.7 $ 630.2 $ 1,779.5
*Earnings Per Share Impact will not foot due to rounding.
29
Total Gross Margin SG&A 73.5% $ 660.9 0.1%
0.1%
R&D Expense $ 100.8
(19.4)
73.6% $ 641.5
$
100.8
Interest (Recovery of) Net Operating Expense, Provision for Income/ Margin net income taxes (Loss) EPS* -34.8% $ 467.1 $ (113.3) $(1,218.4) $ (3.49) 0.1% 1.7 0.00 0.4% 9.0 0.03 1.5% 36.0 0.10 0.0% 1.1 0.00 0.8% 20.7 0.06 0.9% 21.5 0.06 32.5% 807.1 2.30 42.3% 1,049.0 2.99 (32.6) 32.6 0.09 0.9 0.00 218.2 (218.2) (0.62) 43.7% $ 434.5 $ 104.9 $ 543.0 $ 1.55
Qtr 2 2016 Total Interest (Recovery of) Net Gross R&D Operating Expense, Provision for Income/ Margin SG&A Expense Margin net income taxes (Loss) EPS* 72.8% $ 671.5 $ 124.3 3.3% $ 470.4 $ (72.8) $ (302.3) $ (0.88) 0.3% 0.3% 7.5 0.02 0.2% (0.6) (0.4) 0.2% 4.9 0.01 0.3% 6.9 0.02 1.7 -0.1% (1.7) (0.00) 0.7% 17.4 0.05 -1.9% (45.3) (0.13) 0.8% 19.5 0.06 0.2% (10.3) (15.5) 1.3% 31.5 0.09 36.7% 887.6 2.54 (36.1) 36.1 0.10 (13.8) (0.04) 160.8 (160.8) (0.46) 73.5% $ 662.3 $ 108.4 41.7% $ 434.3 $ 88.0 $ 487.5 $ 1.40
Financial Summary – Adjusted (non-GAAP) Presentation Reconciliation GAAP Amortization resulting from inventory step-up Depreciation expense resulting from PP&E step-up/down Acquisition-related contingent consideration Share-based compensation In-process research and development impairments and other costs Other (income)/expense Restructuring, Integration, acquisition and other costs Other non-GAAP charges Amortization and impairments of finite-lived intangibles Amortization of deferred financing costs and debt discounts Foreign exchange and other Tax effect on non-GAAP adjustments Non-GAAP
Cost of Total Goods Gross Sold Margin $ 620.2 $ 1,741.7 (28.9) 28.9 (1.9) 1.9 (3.3) 1.4 $ 586.1 $ 1,773.9
GAAP Amortization resulting from inventory step-up Depreciation expense resulting from PP&E step-up/down Acquisition-related contingent consideration Share-based compensation In-process research and development impairments and other costs Philidor Rx Services wind down costs Other (income)/expense Restructuring, Integration, acquisition and other costs Other non-GAAP charges Amortization and impairments of finite-lived intangibles Amortization of deferred financing costs and debt discounts Foreign exchange and other Tax effect on non-GAAP adjustments Non-GAAP
Cost of Total Goods Gross Sold Margin $ 719.2 $ 2,028.0 (36.0) 36.0 (6.2) 6.2 (2.1) (2.5) (12.0) 12.0 $ 662.9 $ 2,079.7
*Earnings Per Share Impact will not foot due to rounding.
30
Qtr 1 2016 Total Interest (Recovery of) Gross R&D Operating Expense, Provision for Margin SG&A Expense Margin net income taxes 73.4% $ 812.6 $ 103.1 2.8% $ 425.7 $ 7.2 1.2% 1.2% 0.1% (0.6) (0.3) 0.1% 0.1% 0.9 0.0% 0.0% 1.0% 1.7% 0.1% (76.0) 3.3% 29.3% (20.5)
74.9% $
736.9
$
102.8
39.4% $
405.2
$
70.7 77.9
Qtr 4 2015 Total Interest (Recovery of) Gross R&D Operating Expense, Provision for Margin SG&A Expense Margin net income taxes 73.6% $ 742.9 $ 95.9 6.1% $ 431.7 $ 118.5 1.3% 1.3% 0.2% (0.7) (0.4) 0.3% -1.7% 5.6 -0.2% 5.1% -0.1% (64.5) 2.2% 1.6% 3.5% 0.4% (1.5) 0.5% 28.6% (27.7)
75.6% $
681.8
$
95.5
47.3% $
404.0
$
234.6 353.1
Net Income/ (Loss) EPS* $ (373.7) $ (1.08) 28.9 0.08 2.8 0.01 2.4 0.01 (0.9) (0.00) 0.5 0.00 22.6 0.06 39.8 0.11 77.4 0.22 694.5 1.99 20.5 0.06 (1.5) (0.00) (70.7) (0.20) $ 442.6 $ 1.27
Net Income/ (Loss) EPS* $ (385.9) $ (1.12) 36.0 0.10 7.3 0.02 (45.6) (0.13) (5.6) (0.02) 140.3 0.41 62.0 0.18 42.9 0.12 96.0 0.28 13.5 0.04 788.5 2.29 27.7 0.08 (1.4) (0.00) (234.6) (0.68) $ 541.1 $ 1.55
Financial Summary – Adjusted (non-GAAP) Presentation Reconciliation
GAAP Amortization resulting from inventory step-up Depreciation expense resulting from PP&E step-up/down Acquisition-related contingent consideration Share-based compensation In-process research and development impairments and other costs Other (income)/expense Restructuring, Integration, acquisition and other costs Other non-GAAP charges Amortization and impairments of finite-lived intangibles Amortization of deferred financing costs and debt discounts Foreign exchange and other Tax effect on non-GAAP adjustments Non-GAAP *Earnings Per Share Impact will not foot due to rounding.
31
Cost of Total Goods Gross Sold Margin $ 634.6 $ 2,138.6 (27.2) 27.2 (5.0) 5.0 (4.0) 4.0 $ 598.4 $ 2,174.8
Qtr 3 2015 Total Interest (Recovery of) Net Gross R&D Operating Expense, Provision for Income/ Margin SG&A Expense Margin net income taxes (Loss) EPS* 76.7% $ 697.6 $ 101.6 16.1% $ 419.5 $ (57.4) $ 49.5 $ 0.14 1.0% 1.0% 27.2 0.08 0.2% (1.0) (0.3) 0.2% 6.3 0.02 0.1% 3.8 0.01 (15.5) 0.6% 15.5 0.04 3.4% 95.8 0.28 1.1% 30.2 0.09 3.0% 82.6 0.24 0.1% (7.4) 0.4% 11.4 0.03 24.4% 679.2 1.97 (20.3) 20.3 0.06 31.0 0.09 208.1 (208.1) (0.60) 78.0% $ 673.7 $ 101.3 50.2% $ 399.2 $ 150.7 $ 844.7 $ 2.41
Financial Summary – Adjusted (non-GAAP) Presentation Reconciliation
GAAP Amortization resulting from inventory step-up Depreciation expense resulting from PP&E step-up/down Other non-GAAP charges Non-GAAP
GAAP Amortization resulting from inventory step-up Depreciation expense resulting from PP&E step-up/down Philidor Rx Services wind down costs Other non-GAAP charges Non-GAAP
GAAP Amortization resulting from inventory step-up Depreciation expense resulting from PP&E step-up/down Other non-GAAP charges Non-GAAP
32
Qtr 3 2016 B&L / International
Qtr 2 2016 B&L / International
Segment R&D Operating Gross Margin SG&A Investment Income 60.8% $ 339.1 $ 22.2 $ 345.6
Segment R&D Operating Gross Margin SG&A Investment Income 63.1% $ 380.7 $ 22.4 $ 352.1 0.0% 0.4 0.3% 4.1 0.0% (0.5) 63.4% $ 380.7 $ 22.4 $ 356.1
0.2% 61.1% $
Segment Gross Margin 60.8% 0.4% 0.2%
22.2 $
2.5 348.1
Qtr 1 2016 B&L / International R&D Operating SG&A Investment Income $ 351.6 $ 18.2 $ 281.8 4.4 2.0
0.2% 61.5% $
Segment Gross Margin 65.9% 0.2% 0.5% 0.1% 66.7%
339.1 $
351.6 $
18.2 $
1.7 289.9
Qtr3 2015 B&L / International R&D Operating SG&A Investment Income $ 338.7 $ 16.3 $ 382.5 2.3 5.2 (6.5) 7.5 $ 332.2 $ 16.3 $ 397.5
Segment Gross Margin 61.8% 0.5% 0.5% 0.2% 63.1%
Qtr 4 2015 B&L / International R&D Operating SG&A Investment Income $ 351.7 $ 16.4 $ 365.6 6.1 6.2 (8.6) 8.6 (1.5) 4.0 $ 341.6 $ 16.4 $ 390.5
Financial Summary – Adjusted (non-GAAP) Presentation Reconciliation
GAAP Amortization resulting from inventory step-up Depreciation expense resulting from PP&E step-up/down Other non-GAAP charges Non-GAAP
GAAP Amortization resulting from inventory step-up Depreciation expense resulting from PP&E step-up/down Philidor Rx Services wind down costs Other non-GAAP charges Non-GAAP
GAAP Amortization resulting from inventory step-up Depreciation expense resulting from PP&E step-up/down Other non-GAAP charges Non-GAAP
33
Qtr 3 2016 Branded Rx
Qtr 2 2016 Branded Rx
Segment R&D Operating Gross Margin SG&A Investment Income 83.0% $ 163.0 $ 20.5 $ 520.1 0.2% 1.7
Segment R&D Operating Gross Margin SG&A Investment Income 79.8% $ 176.2 $ 41.2 $ 366.8 1.0% 7.1 0.0% (0.2) 0.8% (15.5) 21.0 81.5% $ 176.2 $ 25.7 $ 394.7
-0.1% 83.1% $
Segment Gross Margin 79.1% 3.3% 0.0%
20.5 $
(1.0) 520.8
Qtr 1 2016 Branded Rx R&D Operating SG&A Investment Income $ 276.3 $ 24.6 $ 284.0 24.5 (0.1)
-0.1% 82.5% $
Segment Gross Margin 83.2% 2.3% 0.0% 0.0% 85.5%
163.0 $
(12.1) 264.2 $
24.6 $
11.0 319.4
Qtr 3 2015 Branded Rx R&D Operating SG&A Investment Income $ 235.6 $ 12.1 $ 671.0 24.9 (0.3) 0.1 0.3 $ 235.3 $ 12.1 $ 696.3
Qtr 4 2015 Branded Rx Segment R&D Operating Gross Margin SG&A Investment Income 80.0% $ 282.5 $ 15.4 $ 503.3 3.0% 29.9 -0.2% 0.8% 83.9% $
(51.3) 231.2 $
15.4 $
48.8 8.0 590.0
Financial Summary – Adjusted (non-GAAP) Presentation Reconciliation Qtr 3 2016 US Diversified
Qtr 2 2016 US Diversified
GAAP Integration related technology transfers Non-GAAP
Segment R&D Operating Gross Margin SG&A Investment Income 87.4% $ 31.0 $ 1.8 $ 378.3 0.1% 0.6 87.5% $ 31.0 $ 1.8 $ 378.9
Segment R&D Operating Gross Margin SG&A Investment Income 86.2% $ 36.6 $ 2.4 $ 384.0 0.1% 0.7 86.3% $ 36.6 $ 2.4 $ 384.7
GAAP Integration related technology transfers Non-GAAP
Qtr 1 2016 US Diversified Segment R&D Operating Gross Margin SG&A Investment Income 90.2% $ 39.4 $ 1.8 $ 464.2 0.1% 0.8 90.3% $ 39.4 $ 1.8 $ 465.0
Qtr 4 2015 US Diversified R&D Operating SG&A Investment Income $ 36.4 $ 0.8 $ 455.8 1.5 $ 36.4 $ 0.8 $ 457.3
GAAP Integration related technology transfers Non-GAAP
Qtr 3 2015 US Diversified R&D Operating SG&A Investment Income $ 35.7 $ 1.0 $ 447.5 2.7 $ 35.7 $ 1.0 $ 450.2
34
Segment Gross Margin 85.9% 0.5% 86.4%
Segment Gross Margin 86.8% 0.3% 87.0%
Financial Summary – Adjusted (non-GAAP) Presentation Reconciliation
GAAP Acquisition-related contingent consideration In-process research and development impairments and other costs Other (income)/expense Restructuring, Integration, acquisition and other costs Other non-GAAP charges Amortization and impairments of finite-lived intangibles Goodwill impairment Non-GAAP
35
Qtr 3 2016 Corporate R&D Operating SG&A Investment Income 127.8 $ 56.3 $ (2,107.0) 9.0 36.0 1.1 20.7 (19.4) 19.4 807.1 1,049.0 108.4 $ 56.3 $ (164.7)
Reconciliation of reported Net Income (Loss) to EBITDA and Adjusted EBITDA ($M) Adjusted EBITDA (non-GAAP) Three Months Ended September 30, 2016
June 30,
2015
2016
49.5 419.5 (57.4) 726.4 $ 1,138.0
$ (302.3) 470.4 (72.8) 935.1 $ 1,030.4
Net income (loss) attributable to Valeant Pharmaceuticals International, Inc. Interest expense, net Provision for income taxes Depreciation and amortization including impairments of finite-lived intangible assets EBITDA Adjustments: Goodwill impairment Restructuring, integration, acquisition-related and other costs In-process research and development impairments and other charges Share-based compensation Acquisition-related adjustments excluding amortization of finite-lived intangible assets, net of depreciation expense Loss on extinguishment of debt Foreign exchange and other Other non-GAAP charges (a)
$(1,218.4) 467.1 (113.3) 850.6 $ (14.0) 1,049.0 20.7 36.0 36.8 10.7 0.9 22.6
82.6 95.8 50.5 31.0 31.0 41.9
Adjusted EBITDA (non-GAAP)
$ 1,162.7
(a) Other non-GAAP charges for the periods above include: Integration related inventory and technology transfer costs CEO termination costs (cash severance payment) Legal and other professional fees Settlement of certain disputed invoices related to transition services Legal settlements and related fees Net (gain)/loss on sale of assets Gain/loss on disposal of fixed assets Post-combination expense related to acceleration of unvested stock for Salix employees, Synergetics employees and cash bonuses paid to Amoun employees Philidor Rx Services, LLC net loss through deconsolidation as of January 31, 2016 Other (primarily termination of certain supply and distribution agreements in Q4 2015)
$
36
22.6 1.0 18.5 0.7 0.4 -
$
March 31, 2015 2016 (restated)
2015
$ (373.7) 425.7 7.2 746.8 $ 806.0
19.5 17.4 33.7 14.4 (13.8) (13.9)
152.9 12.3 25.9 57.7 (10.4) 179.8
39.8 0.5 63.5 31.3 (1.5) 68.0
68.9 35.0 31.6 20.0 76.0 9.4
$ 1,470.8
$ 1,087.7
$ 1,398.9
$ 1,007.6
$ 1,127.0
$
1,369.5
$
$
$
$
$
$
93.6 12.1 7.4 5.5 (4.9) -
(13.9) 5.7 10.2 15.5 (34.4) (10.9) -
-
-
-
2.0
-
-
$
179.8 2.8 4.8 3.8 168.4 -
68.0 3.3 9.7 29.0 1.6 1.9 -
$
$
97.7 296.9 84.5 407.0 886.1
2015
(53.0) 411.8 (13.1) 635.0 980.7
41.9 3.9 25.6 4.6 7.8
$
December 31,
9.4 3.3 1.4 4.7 -
$
$
(385.9) 431.7 118.5 859.1 1,023.4 94.5 140.3 28.7 (9.6) (1.4) 93.6
-
-
14.2
21.8 0.7
-
38.7 20.6
Non-GAAP Appendix (1/4) Description of Non-GAAP Financial Measures To supplement the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses certain non-GAAP financial measures, as follows. Other companies may use similarly titled non-GAAP financial measures that are calculated differently from the way we calculate such measures. Accordingly, our nonGAAP financial measures may not be comparable to similar non-GAAP measures. We caution investors not to place undue reliance on such non-GAAP measures, but instead to consider them with the most directly comparable GAAP measures. Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation. They should be considered as a supplement to, not a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP. Adjusted EPS and Adjusted Net Income Management uses Adjusted EPS (the most directly comparable GAAP financial measure for which is GAAP EPS) and Adjusted net income (loss) (the most directly comparable GAAP financial measure for which is GAAP net income (loss)) for strategic decision making, forecasting future results and evaluating current performance. In addition, cash bonuses for the Company’s executive officers are based, in part, on the achievement of certain Adjusted EPS targets. Such non-GAAP measures exclude the impact of certain items (as further described below) that may obscure trends in the Company’s underlying performance. By disclosing these non-GAAP measures, management intends to provide investors with a meaningful, supplemental comparison of the Company’s operating results and trends for the periods presented. Management believes these measures are also useful to investors as such measures allow investors to evaluate the Company’s performance using the same tools that management uses to evaluate past performance and prospects for future performance. Accordingly, the Company believes that Adjusted net income (loss) and Adjusted EPS are useful to investors in their assessment of the Company’s operating performance and the valuation of the Company. However, in recent periods, our GAAP net income and GAAP EPS were significantly lower than our Adjusted net income and Adjusted EPS. Adjusted EPS and Adjusted net income reflect adjustments based on the following items: • Acquisition- related adjustments excluding amortization of finite-lived assets: The Company has excluded the impact of fair value inventory amortization step-up resulting from acquisitions as the amount and frequency such adjustments are not consistent and are significantly impacted by the timing and size of its acquisitions. In addition, the Company has excluded the impact of acquisition-related contingent consideration non-cash adjustments due to the inherent uncertainty and volatility associated with such amounts based on changes in assumptions with respect to fair value estimates, and the amount and frequency of such adjustments are not consistent and are significantly impacted by the timing and size of the Company’s acquisitions, as well as the nature of the agreed-upon consideration. • Amortization and impairments of finite-lived intangible assets: The Company has excluded the impact of amortization and impairments of finite-lived intangible assets, as such amounts are inconsistent in amount and frequency and are significantly impacted by the timing and/or size of acquisitions. The Company believes that the adjustments of these items more closely correlate with the sustainability of the Company’s operating performance. Although the Company excludes amortization of intangible assets from its non-GAAP expenses, the Company believes that it is important for investors to understand that such intangible assets contribute to revenue generation. Amortization of intangible assets that relate to past acquisitions will recur in future periods until such intangible assets have been fully amortized. Any future acquisitions may result in the amortization of additional intangible assets and potential impairment charges. • Goodwill Impairment: The Company has excluded the impact of goodwill impairment, which is a one-time charge. When the Company has made acquisitions where the consideration paid was in excess of the fair value of the assets acquired, the remaining purchase price is booked as goodwill. Goodwill is written off when an impairment test indicates that the value of the assets acquired has been reduced. For assets that we developed ourselves, no goodwill is booked. We exclude goodwill impairment charges because they are one-time, non-recurring and because they are impacted by the timing and size of acquisitions. In addition, management excludes these charges in measuring the performance of the Company and the business. However, goodwill impairment charges do reflect deterioration in the value of business units. • In-Process research and development impairments and other charges: The Company has excluded expenses associated with acquired in-process research and development impairments and other charges, as these amounts are inconsistent in amount and frequency and are significantly impacted by the timing, size and nature of acquisitions.
37
Non-GAAP Appendix (2/4) •
•
• • • •
Restructuring, integration, acquisition-related expenses and other costs: In recent years, the Company completed a number of acquisitions, which resulted in operating expenses which varied significantly from period to period and which would not otherwise have been incurred. The type, nature, size and frequency of the Company’s acquisitions have varied considerably period to period. As a result, the type and amount of the restructuring, integration and deal costs have also varied significantly from acquisition to acquisition. In addition, the costs associated with an acquisition varied significantly from quarter to quarter, with most costs generally decreasing over time. Consequently, given the variability and volatility of these costs from acquisition to acquisition and period to period and because these costs are incremental and directly related to the acquisition, the Company does not view these costs as normal operating expenses. Furthermore, due to the volatility of these costs and due to the fact that they are directly related to the acquisitions, the Company believes that such costs generally were not relevant to assessing or estimating the long-term performance of the acquired businesses or assets as part of the Company. Also, the size, complexity and/or volume of past acquisitions, which often drove the magnitude of such expenses, were not necessarily indicative of the size, complexity and/or volume of any future acquisitions. By excluding these expenses from its non-GAAP measures, management believes it provided supplemental information that assisted investors with their evaluation of the Company’s ability to utilize its existing assets and with its estimation of the long-term value that acquired assets would generate for the Company. Furthermore, the Company believes that the adjustments of these items provided supplemental information with regard to the sustainability of the Company’s operating performance, allowed a more informative comparison of the financial results to historical operations and forward-looking guidance and, as a result, provided useful supplemental information to investors. Other Non-GAAP Charges: The Company has excluded certain other amounts including integration related inventory charges and technology transfer costs, CEO termination costs, legal and professional fees incurred in connection with recent legal and governmental proceedings, investigations and information requests respecting certain of our distribution, marketing, pricing, disclosure and accounting practices, certain accelerated depreciation expenses due to fixed assets write-offs acquired from Salix, certain costs associated with the wind-down of the arrangements with Philidor Rx Services, LLC (“Philidor”), and a charge in connection with a settlement of certain disputed invoices related to transition services. In addition, the Company has excluded certain other expenses that are the result of other, non-comparable events to measure operating performance, primarily including costs associated with legal settlements and related fees, post-combination expenses associated with business combinations for the acceleration of employee stock awards and/or cash bonuses, loss upon deconsolidation of Philidor and gains/losses from the sale of assets and businesses. In addition, in the first quarter of 2016, the Company also excluded revenue related to Philidor for January 2016. These events arise outside of the ordinary course of continuing operations. Given the unique nature of the matters relating to these costs, the Company believes these items are not normal operating expenses. For example, legal settlements and judgments vary significantly, in their nature, size and frequency, and, due to this volatility, the Company believes the costs associated with legal settlements and judgments are not normal operating expenses. In addition, as opposed to more ordinary course matters, the Company considers that each of the recent proceedings, investigations and information requests, given their nature and frequency, are outside of the ordinary course and relate to unique circumstances. The Company believes that the exclusion of such out-of-the-ordinary-course amounts provides supplemental information to assist in the comparison of the financial results of the Company from period to period and, therefore, provides useful supplemental information to investors. However, investors should understand that many of these costs could recur and that companies in our industry often face litigation. Amortization of deferred financing costs and debt discounts: The Company has excluded amortization of deferred financing costs and debt discounts and write-down of deferred financing costs as these represent non-cash components of interest expense. Loss on extinguishment of debt: The Company has excluded loss on extinguishment of debt as this represents a non-cash charge, and the amount and frequency of such charges is not consistent and is significantly impacted by the timing and size of debt financing transactions. Foreign exchange and other: The Company has excluded the impact of foreign currency fluctuations primarily related to intercompany financing arrangements in evaluating company performance. Tax: The Company has included the tax impact of the non-GAAP adjustments using an annualized effective tax rate.
Please also see the reconciliation in this appendix for further information as to how these non-GAAP measures are calculated for the periods presented.
38
Non-GAAP Appendix (3/4) Adjusted EBITDA Adjusted EBITDA is net income (its most directly comparable GAAP financial measure) adjusted for certain items, as further described below. Management uses this non-GAAP measure as part of its guidance and to forecast future results. Management also believes Adjusted EBITDA is a useful measure to evaluate current performance. Adjusted EBITDA is intended to show our unleveraged, pre-tax operating results and therefore reflects our financial performance based on operational factors, excluding anticipated non-cash losses or gains and before interest (to show unlevered cash flow) and taxes (which depend in part on interest expense). Adjusted EBITDA reflects the adjustments reflected in Adjusted EPS (see disclosure above). In addition, the Company excludes the impact of costs relating to share-based compensation. Due to subjective assumptions and a variety of award types, the Company believes that the exclusion of share-based compensation expense allows for more meaningful comparisons of operating results to peer companies. Share-based compensation expense can vary significantly based on the timing, size and nature of awards granted. Finally, to the extent not already adjusted for, Adjusted EBITDA reflects adjustments for interest, taxes, depreciation and amortization (EBITDA represents earnings before interest, taxes, depreciation and amortization). Adjusted Cost of Goods (COGS) Management uses this non-GAAP measure (the most directly comparable GAAP financial measure for which is Cost of Goods Sold) as a supplemental measure for period-to-period comparison. Adjusted Cost of Goods Sold excludes certain costs primarily relating to fair value step-up adjustments to inventory and property, plant and equipment and integration-related inventory charges and technology transfers, which relate to acquisitions and can cause variability from period to period. The Company believes that the exclusion of such amounts provides supplemental information to assist in the comparison of the financial results of the Company from period to period and, therefore, provides useful supplemental information to investors. Please also see the reconciliation tables in this appendix for further information as to how this non-GAAP measure is calculated for the periods presented. Adjusted Selling, General and Administrative Management uses this non-GAAP measure (the most directly comparable GAAP financial measure for which is selling, general and administrative as a supplemental measure for period-to-period comparison. Adjusted Selling, General and Administrative excludes, as applicable, CEO termination benefits, accelerated depreciation expense related to fixed assets acquired in the acquisition of Salix, certain costs associated with the wind-down of the arrangements with Philidor, and certain costs primarily related to legal and other professional fees relating to legal and governmental proceedings, investigations and information requests respecting certain of our distribution, marketing, pricing, disclosure and accounting practices. See the discussion under “Other Non-GAAP charges” above. Please also see the reconciliation tables in this appendix for further information as to how this non-GAAP measure is calculated for the periods presented. Adjusted R&D and R&D Investment (non-GAAP) Management uses each of these non-GAAP measures (the most directly comparable GAAP financial measure for which is research and development expenses) as a supplemental measure for period-to-period comparison. Adjusted R&D / R&D Investment (non-GAAP) reflects adjustments for a charge in connection with a settlement of certain disputed invoices related to transition services. Please also see the reconciliation tables in this appendix for further information as to how this non-GAAP measure is calculated for the periods presented. Gross Margin (non-GAAP) and Segment Gross Margin (non-GAAP) Management uses these non-GAAP measures (the most directly comparable GAAP financial measure for which is Product sales less Cost of goods sold) to assess performance of its business units and operating and reportable segments, and the Company in total, without the impact of foreign currency exchange fluctuations, fair value adjustments to inventory in connection with business combinations and integration related inventory charges and technology transfer costs. In the first quarter of 2016, the Company also excluded revenue related to Philidor for January 2016. Such measures are useful to investors as it provides a supplemental period-to-period comparison.
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Non-GAAP Appendix (4/4) Adjusted Operating Margin, Adjusted Operating Income and Adjusted Segment Operating Income Management uses these non-GAAP measures (the most directly comparable GAAP financial measure for which is Total GAAP Revenue less total operating expenses (GAAP)) to assess performance of its business units and operating and reportable segments, and the Company, in total, without the impact of foreign currency exchange fluctuations, fair value adjustments to inventory in connection with business combinations and integration related inventory charges and technology transfer costs. In addition, it excludes certain CEO termination benefits, certain accelerated depreciation expense, acquisition related contingent consideration, in-process research and development impairments and other charges, restructuring, integration and acquisition-related expenses, amortization and impairments of finite-lived intangible assets, other non-GAAP charges for wind down operating costs, legal and other professional fees relating to legal and governmental proceedings, investigations and information requests respecting certain of our distribution, marketing, pricing, disclosure and accounting practices, a charge in connection with a settlement of certain disputed invoices related to transition services and loss upon deconsolidation of Philidor. In the first quarter of 2016, the Company also excluded revenue related to Philidor for January 2016. The Company believes the exclusion of such amounts provides supplemental information to management and the users of the financial statements to assist in the understanding of the financial results of the Company from period to period and, therefore, provides useful supplemental information to investors. EBITDA EBITDA represents earnings before interest, taxes, depreciation and amortization. EBITA EBITA represents earnings before interest, taxes and amortization.
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