A Complete Disaster: Inside Concordia International Corp.’s Worst Quarter Yet

Here’s a postmortem look at Concordia International Corp.’s (TSX:CXR)(NASDAQ:CXRX) brutal third-quarter earnings release.

The Motley Fool

“Exhausted” would be the best way to describe Concordia International Corp.’s (TSX:CXR)(NASDAQ:CXRX) management’s tone during yesterday’s disastrous earnings call. As per the latest Q3 filing, the tarnished Canadian pharmaceutical company reported revenues of $185.5 million and EPS of $.69 versus the consensus $206 million and $.35, respectively.

Moreover, EBITDA decreased 43.4% year over year, while operating margins declined 52% from Q3 2015. In light of the disappointing numbers, Concordia’s management were left with no recourse but to suspend 2016 revenue guidance, further obfuscating the future of the company. This latest quarter was the worst yet in a series of bad quarters, and at this point, Concordia is purely a speculative play and utterly un-investable.

Business model proven to be unsustainable

As the majority of Concordia’s debt-fueled acquisitions have been end of life cycle or off patent, the company continues to struggle amid mounting competition for some of its core brands. Q3 saw large year over year declines in Plaquenil (-$13.3 million), Nilandron (-$5.5 million), and, more importantly, Donnatal ($-11.3 million)–Concordia’s biggest revenue driver in the United States.

Segment revenues for the International and North American segments were also hard hit with declines of 9.3% and 50% year over year, respectively; orphan drugs were the sole bright spot with an 8.3% increase.

And it’s not just the competitive environment that’s pressuring prices. Concordia is currently being investigated in the U.K. by the Competition and Market Authority (CMA) regarding unfair pricing of drugs covered by the National Health Service; management estimates that as much as 9% of Concordia’s revenues might be affected by the investigation.

Toxic balance sheet

For Concordia, the only issue more contentious than its pricing practices is the company’s incredible degree of leverage. As of Q3, Concordia is carrying over $3.25 billion in debt on the balance sheet, including a recent $350 million senior note issuance. And what does the company plan on doing with this $350 million? What else, but to acquire more assets?

Although the new CEO is well aware of the company’s financial woes, deleveraging will be taking a back seat to exploring growth prospects and beefing up its current line for possible divestitures. Currently, Concordia’s credit doesn’t go very far as the capital markets are concerned (for example, 2023 bonds are going for just $.53 on the dollar), and with a market cap of just $135 million, the margin of error here is minuscule.

A glimmer of hope

Okay, so Concordia is a highly leveraged, tainted brand with no suitors for a potential buyout. That being said, there are few bright spots for a speculative case.

One, the company is expecting to launch 60 new products by Q4 2018. Two, management will be looking to streamline operations and boost margins through layoffs among the sales staff of the legacy brands. And three, there will be non-core asset sales to improve the balance sheet.

If the new CEO manages to implement these much-needed reforms, we might get something resembling a recovery, but, until then, leave Concordia to the traders.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Alexander John Tun has no position in any stocks mentioned.

More on Investing

Business man on stock market financial trade indicator background.
Tech Stocks

1 Growth Stock Down 50 Percent to Buy Right Now

There are plenty of growth stocks in the market worth considering, but Shopify (TSX:SHOP) looks like one of the best…

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

edit Sale sign, value, discount
Stocks for Beginners

These 3 Growth Stocks Are on Sale and Set to Surge

Some growth stocks are on sale right now that offer massive long-term potential for investors. Here's a trio to consider…

Read more »

Cannabis grows at a commercial farm.
Cannabis Stocks

Why Canopy Growth Stock Could Double in 2024

Canopy Growth (TSX:WEED) stock saw its share more than double in the last two weeks. So, can it do it…

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »