By Parke Shall
We need to follow up on numerous warnings we have made on Concordia (NASDAQ:CXRX) by making one final warning. It looks as though the company is destined for some type of restructuring, and we would guess that it is going to happen before the end of the year this year.
Concordia came out and reported results yesterday. Putting it nicely, the results were abysmal, with revenue sinking more than 8% and the company posting a massive net loss due to a one time impairment charge of over $1B. Seeking Alpha reported:
Concordia International Q4 results ($M):
- Revenues: 170.4 (-8.1%).
- Net Loss: (663.8)
- Non-GAAP Net Income: 6.7 (-89.1%)
- Non-GAAP EPS: 0.13 (-89.5%)
- EBITDA: (570.0) (-999%)
- Non-GAAP EBITDA: 80.5 (-33.0%).
- The large net loss was due to impairment charges of $562.1M, $306.9M related to its North America segment product portfolio and $255.2 related to its International segment product portfolio.
The company took more than $1 billion in a writedown and posted a GAAP loss per share of over $25 per share for the quarter. The wheels have come off the Concordia bus and it doesn't look as though the company is going to get back on track, at least under its current capital structure, anytime soon.
The company's new CEO seemed to play coy on the call and didn't seem to want to reveal any of the company's plans until the second half of the year. Is it possible he's working on a restructuring as we speak? Fierce Pharma reported,
New CEO Allan Oberman said headwinds-which includes inquiries in the U.S. and the U.K.-"have necessitated a reassessment of our business model" for Concordia, a model that oft been said to mimic that of Valeant Pharmaceuticals because of its price hikes, rampant M&A and large debt load.
He then laid out a five-point plan he said would get the drugmaker back on track. That includes tightening up its financial and management operations, expanding its product portfolio and developing a comprehensive long-term growth strategy with a consultant.
The big reveal on the new strategy won't come until H2 2017 but analysts were told it could involve refinancing and the sale of assets. Analysts also were assured Concordia has enough cash and liquidity to service its debt for the next 12 months.
Despite some of the positive sounding statements made by current executives, there is nothing positive about this report at all. In fact, we believe these horrific writedowns and ugly quarter do nothing but prove the case that the company will need to restructure itself, perhaps through a bankruptcy proceeding. While the new CEO comments that the company has enough to pay off its interest expense and service its debt for the next year, what happens after that year?
We don't think the company is going to wait to find out.
If the business prospects have dried up and the company isn't generating cash the way that it should be, they are only prolonging the inevitable. Honestly, we don't see it taking until the end of the year for the company to realize that a restructuring may be the best option they can partake in. Any type of bankruptcy restructuring would likely render the equity worthless and continue to result in significant losses for shareholders, even from the 52 week low that the share price it's on today.
We have been stating for the better part of the last year that the signs coming out of Concordia looked to be ominous, at best. The CEO leaving in 2016 was just the first of a collective group of tea leaves we read throughout the course of the year, always coming to the same conclusion that the company was in financial dire straits and that the equity may wind up worthless or close to worthless.
CXRX data by YCharts
It now looks as though we are one quarter closer to that prediction becoming a reality. With Concordia trading at 52 week lows and looking weak, it is only a matter of time before the equity falls below under one dollar per share. A friendly reminder to those that are thinking about buying because the stock has already lost 95% of its value off of its highs: The most you can still lose from here remains 100%.
Time and time again we have advised investors not to chase companies like SunEdison or WetSeal that appear to be on the verge of bankruptcy. CXRX is no different and should not be an area where investors allocate capital right now.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.