Concordia Healthcare Corp. T.CXR.R

RBC

[retiredcf]

March 23, 2016

Concordia Healthcare Corp.

Q4/15 - Slight Beat to RBC and Consensus, Guidance Reiterated (Constant FX Basis)

Impact: Positive

First impression

• Slight Beat vs. consensus; expect more detail from the conference call tomorrow. CXRX's Q4 results, which contained a partial contribution from AMCo (closed Oct 21st, 2015) were a bit above consensus and our recently revised outlook for revenue ($189.9MM) and Adj. EBITDA ($118.8MM). The beat vs. our forecast is largely related to stronger than anticipated AMCo (Concordia International) revenues of $115.7MM vs. our $92.2MM forecast. Legacy (Concordia North America) revenues of $74.2MM were weaker than our expected $92.2MM likely due in part to the genericization of Dibenzyline. We also note that gross margins of 78% were a bit below our expectations (~82%) and reflect a higher proportion of lower margin AMCo revenue vs. U.S. legacy revenue. We remain buyers of CXRX given its continued discount to the peer group.

• Q4 revenues of $191.9MM for the quarter vs. $42.9MM last year, above our $189.4MM forecast and consensus of $187.9MM. Concordia reported Q4 revenues of $191.9MM for the quarter vs. $42.9MM last year, above our $189.4MM forecast and consensus of $187.9MM (FactSet: 10 analysts, range $154.5-201.4MM). The large YoY increase is attributed to the addition of the Covis portfolio (deal closed in April 2015) and AMCo (deal closed October 21, 2015).

• Adj. EBITDA $120.1MM vs. $117.5MM consensus, RBC forecast of $118.8MM. Adjusted EBITDA in Q4 was $120.1MM vs. $25.4MM last year, our $118.8MM forecast, and consensus of $117.5MM (FactSet: 9 analysts, range $110.5-120.7MM). The YoY increase is largely due to M&A activity (Covis and AMCo).

• Cash EPS of $1.24 in-line with our $1.23 forecast, below $1.29 consensus. Q4 cash EPS of $1.24 was slightly above our $1.23 estimate but below consensus of $1.29 (FactSet: 6 analysts, range $1.23-$1.48). Cash EPS in Q4/14 was $0.74. We note that without the $1.48 outlier, the EPS would have been essentially in-line.

• Guidance reaffirmed but on a constant exchange basis. Management also reaffirmed its 2016 guidance of $1.02-1.06B in revenue (consensus $1.0B), Adj. EBITDA of $610-640MM (consensus $612MM), Adj. EPS of $6.29-6.77, and year-end Net Debt/EBITDA of ~5.5x. We believe this signals that nothing has changed operationally, but does not reflect recent FX headwinds, particularly those facing sterling/USD. However, we note that our forecasts already take into account these FX headwinds.

• Conference call on Thursday, March 24th, at 8:30 a.m. ET. Management will discuss results on a conference call tomorrow morning (March 24th) at 8:30am. Dial in is 647-427-7450 or 888-231-8191, reference number: 45328971. On the call, we are looking for detail on AMCo strength and legacy weakness.

Sector: Biotech & Pharma, Healthcare

Outperform

NASDAQ: CXRX; TSX: CXR Price: USD 30.49