Concordia Announces Fourth Quarter and Fiscal 2016 Results

• 2016 consolidated revenue of $816.2 million
• 2016 GAAP net loss from continuing operations of $1,314.1 million
• 2016 adjusted EBITDA¹ of $468.1 million

• Fourth quarter consolidated revenue of $170.4 million
• Fourth quarter adjusted EBITDA¹ of $80.5 million

• Company establishes 2017 objectives focused on stabilizing the business
• Concurrently developing long-term growth strategy
• Appointed Allan Oberman as CEO

OAKVILLE, ON, March 15, 2017 /PRNewswire/ - Concordia International Corp. ("Concordia" or the "Company") (NASDAQ: CXRX) (TSX: CXR), an international specialty pharmaceutical company focused on generic and legacy pharmaceutical products, today announced its financial and operational results for the three and twelve months ended December 31, 2016. All financial references are in U.S. dollars unless otherwise noted.

"Our 2016 results represent the culmination of a challenging and transitional year for Concordia," said Allan Oberman, Chief Executive Officer of Concordia. "The ongoing impact of financial and industry headwinds on the business, and the resulting erosion to our stakeholder value, have necessitated a reassessment of our business model. We are working diligently to stabilize our business and define our long-term growth strategy. These efforts in 2017 are focused on five key business priorities: strengthening our operational execution, enhancing our financial management, expanding our product portfolio, stakeholder outreach, and developing a comprehensive long-term growth strategy. Despite the significant challenges facing our business, I am encouraged by what I have seen in my first few months at Concordia. I look forward to continuing a deep review of the business and expect to provide a more detailed growth strategy in the second half of the year."

Fourth Quarter 2016 Financial Results and Recent Events  

• Consolidated revenue of $170.4 million, a decrease of 8.1% compared with the third quarter of 2016.
  
  
• GAAP net loss includes fourth quarter impairment charges of $562.1 million, and GAAP loss per share of $13.00. The impairment charges consisted of $306.9 million related to the Company's North America segment product portfolio and $255.2 million related to the Company's International segment product portfolio.
  
  
• Adjusted EBITDA¹ of $80.5 million and adjusted earnings per share¹ of $0.13, includes a charge of $4.5 million of previously capitalized research and development expenses related to the Company's phase 3 trial for Photodynamic Therapy with Photofrin®.
  
  
• Reported Concordia International segment results in the fourth quarter that were 1.3% higher on a constant currency basis² compared to the third quarter of 2016, increasing from £104.6 million to £106.0 million in the period.
  
  
• Total cash and cash equivalents of $397.9 million as of December 31, 2016. The Company disclosed on February 1, 2017, that it made a cash payment of approximately £73.5 million to Cinven⁶ pursuant to the terms of the share purchase agreement to acquire the Company's International segment. During the year ended December 31, 2016, the Company generated cash flows from operating activities of $408.3 million versus $122.0 million in 2015.

Edward Borkowski, Chief Financial Officer of Concordia, commented: "During the fourth quarter, our North American business continued to be challenged. We remain focused on stabilizing this segment, while evaluating opportunities to further leverage and diversify our International segment. As part of the ongoing strategic assessment of the business, we are evaluating all aspects of the Company. We have launched near-term initiatives that we believe will improve both working capital and operating efficiencies.  Furthermore, we have expanded our disclosure regarding the Company's liquidity and capital structure in our financial statements. Lastly, considering the industry headwinds the Company is facing, coupled with our efforts to stabilize the business while creating a long-term growth strategy, we do not believe it is appropriate to issue full-year guidance for 2017, at this time. We will continue to assess the timing of providing guidance as we make progress throughout the year."

Fourth Quarter 2016 Segment Results

• On a constant currency basis², the Concordia International segment delivered slightly improved results, increasing by 1.3% in the fourth quarter of 2016 compared to the third quarter of 2016. Concordia International segment revenue for the fourth quarter of 2016 was $128.7 million, compared with $137.4 million in the third quarter of 2016, representing a 6.3% decrease primarily due to foreign exchange translation.
• Since October 21, 2015, the Company's International segment launched 36 products. These products include branded and generic therapies for the treatment of prostate cancer, pain, depression, and obesity, among other conditions. The Company took an in-process research and development impairment charge of $58.5 million in the fourth quarter of 2016 relating to projects that it decided to discontinue, or certain projects with lower future forecasts compared with those at the time of the Concordia International acquisition.
• Concordia North America segment revenue of $39.3 million in the fourth quarter of 2016 compared to $45.5 million in the third quarter of 2016. The decrease was due to competitive market pressures as further described below.
• Orphan Drug segment revenue of $2.4 million in the fourth quarter of 2016, compared with $2.6 million in the third quarter of 2016.

Financial Results  

Consolidated Operating Results

Revenue for the year ended December 31, 2016 increased by $421.9 million, or 107%, compared to the corresponding period in 2015. This increase was primarily due to a $441.8 million increase in revenue for the year from the Concordia International segment acquired on October 21, 2015 and, therefore, was only included in the comparative period for a portion of the fourth quarter of 2015. The increase was mainly offset by a $20.1 million decrease in revenue from the Concordia North America segment as a result of generic product launches and other competitive marketplace pressures associated with the Concordia North America product portfolio.

Gross profit for the year ended December 31, 2016 increased by $295.0 million, or 98%, compared to the corresponding period in 2015. This increase was primarily due to a $318.5 million increase in gross profit for the year from the Concordia International segment acquired on October 21, 2015 and, therefore, was only included in the comparative period for a portion of the fourth quarter of 2015. The increase was partially offset by a $21.9 million decrease in gross profit from the Concordia North America segment. The gross profit decrease within the Concordia North America segment was larger than the revenue decrease primarily due to a higher proportion of full year revenue being earned from lower margin authorized generic sales. Gross profit in both 2016 and 2015 was negatively impacted by non-cash inventory fair value adjustments in the amount of $21.4 million and $33.9 million, respectively, arising as a result of acquired inventory from business acquisitions.

Adjusted gross profit¹ for the year ended December 31, 2016, removing the impact of the non-cash fair value adjustments, increased by $282.5 million, or 85%, compared to 2015, which is lower than the gross profit increase due to the higher non-cash inventory fair value adjustment in 2015.

The change in gross profit and adjusted gross profit as a percentage of revenue in the year ended December 31, 2016 compared to 2015 reflects the impact of lower margins within the Concordia International segment and a change in product sales to lower margin authorized generic products lowering gross profit margins from the Concordia North America segment.

Operating expenses for the year ended December 31, 2016 increased by $1.3 billion, compared to 2015. Operating expenses were higher primarily due to impairment charges of $1.1 billion recorded during 2016, as well as the increased size of the Company's business after the completion of the acquisition of the portfolio of products from Covis Pharma S.a.r.l. and Covis Injectables S.a.r.l. and the acquisition of the Concordia International segment.

General and administrative expenses reflect costs related to salaries and benefits, professional and consulting fees, ongoing public company costs, travel, facility leases and other administrative expenditures. General and administrative expenses for the year ended December 31, 2016 increased by $26.7 million, or 90%, compared to 2015 due to the increased size of the Company. General and administrative expenses for the year as a percentage of revenue were 7%, compared with 8% in 2015.

Selling and marketing expenses reflect costs incurred by the Company for the marketing, promotion and sale of the Company's broad portfolio of products across the Company's segments. Selling and marketing costs for the year ended December 31, 2016 increased by $27.6 million, or 118%, compared to 2015. These costs have increased due to the expansion of Concordia's product portfolio from 6 core products in the first quarter of 2015 to currently over 200 products.

Research and development costs for the year ended December 31, 2016 increased by $25.6 million, or 171%, compared to 2015. Research and development costs include expenses of the Concordia International segment for product expansion efforts and costs associated with the Concordia North America segment. In December 2016, the Company terminated a phase 3 trial for Photodynamic Therapy with Photofrin® which resulted in $4.5 million of previously capitalized costs being recorded as research and development expenses.

Operating (loss) income from continuing operations, for the year ended December 31, 2016, reflects increased operating expenses compared to 2015, primarily due to the impairment charges described above, partially offset by the increased gross profit from the Concordia International segment.

The current income tax expense recorded for the year ended December 31, 2016 increased by $27.8 million, compared to 2015. Income taxes were higher primarily due to the increased taxable income from the Concordia International segment.

The net loss from continuing operations for the year ended December 31, 2016 was $1.3 billion, and loss per share ("EPS") was $25.76 per share. Significant components comprising the net loss in 2016 are impairment charges of $1.1 billion, net foreign exchange losses of $124.9 million, and the deduction of other significant cash and non-cash expenses which include, but are not limited to, amortization expense and interest and accretion expenses.

Adjusted EBITDA¹ for the year ended December 31, 2016 increased by $202.4 million, or 76%, compared to 2015 primarily due to a full year of operating results from the Concordia International segment. Adjusted EBITDA¹ in 2016 of $468.1 million, by segment, was $177.4 million from Concordia North America, $319.6 million from Concordia International, offset by a loss of $9.0 million from Orphan Drugs. In addition, the Company incurred $19.8 million of corporate costs related to the Corporate Head Office.

As of December 31, 2016, the Company had cash of $397.9 million and, subject to compliance with certain incurrence covenants under the Company's debt agreements, currently has up to $60 million available to it in a revolving credit facility before it is subject to financial maintenance covenants under its credit agreement.

As at December 31, 2016 and March 15, 2017, the Company had, respectively, 51,089,556 and 51,089,556 common shares issued and outstanding.

Conference Call Notification

The Company will hold a conference call on Wednesday, March 15, 2017, at 8:30 a.m. ET, hosted by senior management. A question-and-answer session will follow the corporate update.

This call is being webcast and can be accessed by going to:

http://event.on24.com/r.htm?e=1364892&s=1&k=BE872C54B2DAB39831EE64A7A2B385D5

An archived replay of the webcast will be available by clicking the link above.

About Concordia

Concordia is a diverse, international specialty pharmaceutical company focused on generic and legacy pharmaceutical products. The Company has an international footprint with sales in more than 90 countries, and has a diversified portfolio of more than 200 established, off-patent products. Concordia also markets orphan drugs through its Orphan Drugs Division, consisting of Photofrin® for the treatment of certain rare forms of cancer.

Concordia operates out of facilities in Oakville, Ontario and, through its subsidiaries, operates out of facilities in Bridgetown, Barbados; London, England and Mumbai, India.

Non-IFRS Measures

This press release makes reference to certain measures that are not recognized measures under International Financial Reporting Standards ("IFRS"). These non-IFRS measures do not have a standardized meaning prescribed by IFRS, and are therefore unlikely to be comparable to similar measures presented by other companies. When used, these measures are defined in such terms as to allow the reconciliation to the closest IFRS measure. These measures are provided as additional information to complement those IFRS measures by providing further understanding of the Company's results of operations from management's perspective. Accordingly, they should not be considered in isolation nor as a substitute for analyses of the Company's financial information reported under IFRS. Management uses non-IFRS measures such as EBITDA, adjusted EBITDA, adjusted gross profit, adjusted net income and adjusted EPS ("Adjusted EPS") to provide a supplemental measure of operating performance and thus highlight trends in the core business that may not otherwise be apparent when relying solely on IFRS financial measures. Management also believes that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of issuers. Management also uses non-IFRS measures in order to facilitate operating performance comparisons from period to period, prepare annual operating budgets, and to assess its ability to meet future debt service, capital expenditure, and working capital requirements. Readers are cautioned that the non-IFRS measures contained herein may not be appropriate for any other purpose.

During the second quarter of 2016, the Company amended its definition of Adjusted EBITDA and adjusted net income to adjust for costs associated with legal settlements (net of insurance recoveries, where applicable) and related legal costs. Management believes that these costs should be adjusted to provide analysts, investors and other interested parties with results reflecting the core business. This amendment had no impact on previously issued Non-GAAP measures as these expenses did not exist in previous periods for the Company.

As used herein, Adjusted EPS is defined as adjusted net income divided by the weighted average number of fully diluted shares outstanding. Adjusted net income is defined as net income (loss) adjusted for certain charges including costs associated with acquisitions, restructuring initiatives, and other costs (which includes onerous contract costs and direct costs associated with contractual terminations), initial exchange listing expenses on the NASDAQ, non-operating gains/losses, integration costs, legal settlements (net of insurance recoveries) and related legal costs, non-cash items such as unrealized gains / losses on derivative instruments, share based compensation, fair value changes including purchase consideration and derivative financial instruments, asset impairments, fair value increases to inventory arising from purchased inventory from a business combination, gains / losses from the sale of assets and unrealized gains / losses related to foreign exchange, noncash accretion expense and the tax impact of the above items. Management believes Adjusted EPS is an important measure of operating performance and cash flow, and provides useful information to investors.

EBITDA is defined as net income / (loss) adjusted for net interest and accretion expense, income tax expense, depreciation and amortization.  Management uses EBITDA to assess the Company's operating performance.

Adjusted EBITDA is defined as EBITDA adjusted for certain charges including costs associated with acquisitions, restructuring initiatives, and other costs (which includes onerous contract costs and direct costs associated with contractual terminations), initial exchange listing expenses on the NASDAQ, non-operating gains/losses, integration costs, legal settlements (net of insurance recoveries) and related legal costs, non-cash items such as unrealized gains / losses on derivative instruments, share based compensation, fair value changes including purchase consideration and derivative financial instruments, asset impairments, fair value increases to inventory arising from purchased inventory from a business combination, gains / losses from the sale of assets and unrealized gains / losses related to foreign exchange. Management uses Adjusted EBITDA, among other Non-IFRS financial measures, as the key metric in assessing business performance when comparing actual results to budgets and forecasts. Management believes Adjusted EBITDA is an important measure of operating performance and cash flow, and provides useful information to investors because it highlights trends in the underlying business that may not otherwise be apparent when relying solely on IFRS measures.

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