Valeant Pharmaceuticals (VRX: $36/share) had been in a bit of a limbo lately, as investors awaited the long delayed 4Q15 results. The company finally released its earnings today and the results were to be expected if you heeded our previous warnings.
Bad News Not A Surprise
In the release, the company recognized the significant issues it faces after the termination of its relationship with Philidor, the cancellation of almost all price increases, and underperformance in several of its business lines. Not only did Valeant report weak results for 4Q15, but looking forward, the company guided for revenue ($2.3-$2.4 billion vs. $2.8-$3.1 billion expected) and earnings ( $1.30-$1.55/share vs. $2.35-$2.55/share expected) to come in significantly below expectations.
Adding even more uncertainty, Valeant also revealed that it faces a risk of default if it is unable to file its 10-K with the SEC by April 29, which would break its reporting covenant in its bond indentures. The initial filing was due February 29 but has been delayed while Valeant investigates its business relationship with Philidor. Valeant is already in the process to extend deadlines for filing it 10-Q for the first quarter of 2016.
Valeant Pharmaceuticals – Has The House Of Cards Finally Collapsed?
As early as June 2014, we pointed out Valeant was presenting itself in a misleading way. Ultimately, the company was relying on non-GAAP metrics to present its cash flow as highly positive, when in fact, the true cash flows of the business have been highly negative. This contrast between cash flow calculations is a topic of much debate between bears and bulls of Valeant and really gets at the heart of why non-GAAP metrics continually fail investors when analyzing a company. Analysis using Valeant’s reported “Cash Earnings” weren’t getting a true picture of the company, as can be seen in Figure 1.
PDF here, video below
Published on Mar 15, 2016
Details behind our research that led us to publish multiple warnings on Valeant Pharmaceuticals (VRX) stock, which dropped 50% today.