Revenue and stock value–along with debt–continue to climb for a Montreal-based company determined to become one of the five biggest drug companies in the world.

Valeant Pharmaceuticals’ revenues totalled $3.7 billion U.S. for the first nine months of 2013, 45 per cent more than the same period in 2012. Meanwhile its stock price has more than doubled in the last year.

But its long term debt has been mounting steadily too, rising 62 per cent in the first nine months of 2013 to over $17 billion.

It all traces back to what Aegis Capital analyst Raghuram Selvaraju calls “a buying spree of monumental proportions.”

That spree included the purchase of eye health company Bausch and Lomb for $8.7 billion and medical device systems maker Solta Medical for $250 million in the last year.

If interest rates stay low, Valeant can comfortably keep borrowing money to fund the acquisition streak it hopes will launch it into the ranks of the world’s five most valuable pharmaceutical companies by 2016, Selvaraju said.

Some are concerned a change in interest rates could spell disaster for the company, though. Such a rise would make it harder for Valeant to raise the funds it needs to keep up its expansion, Selvaraju said.

“In recent months the company has faced some criticism for the high debt that it insists on carrying in order to fund all of these acquisitions,” Selvaraju said in a phone interview.

But with revenues high and interest rates low, at least for now, that criticism hasn’t been reflected in the company’s stock prices.

Only a hike in interest rates will make Valeant feel the weight of its debts, Selveraju said. “If long term interest rates start to spike, the party’s over.”

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Valeant will also have to keep its effective tax rate low to maintain its acquisition streak. Selvaraju said that rate was 2.8 per cent in the third quarter of 2013, well below Canada’s 15 per cent corporate tax rate.

“That’s another reason why shareholders love this company,” Selvaraju said.

The company keeps taxes low by spreading its operations across various jurisdictions worldwide, including several with extremely low corporate taxes, Selvaraju said.

“This is a company that moves ahead of the tax authorities very aggressively,” Selvaraju said. He said you’d need a PhD in tax law to understand the company’s tax-management system. He’s confident that system will succeed in keeping Valeant’s tax rate low “for at least the next five years.”

That’s good news for investors, since a low tax rate is a big part of what is making Valeant’s revenues climb. It’s the other crucial factor, along with low interest rates, in the company’s success.  Valeant’s low tax rate means it can lay out huge sums to acquire a company and then reap more revenue from it than the company was making before being sold.

“Every time Valeant acquires a company, the cash flows associated with the products of that company wind up being taxed at Valeant’s lower effective tax rate, as opposed to the effective tax rate that was being applied to them before. That effectively makes the cash flows associated with companies that Valeant acquires two-to-three times more profitable immediately after the acquistion is closed,” Selvaraju said.

With some major acquisitions under its belt and an expansion strategy investors appear confident in, Valeant seems poised for its biggest-ever takeover. There’s widespread speculation that the company is eyeing a merger of equals in the near future. Selvaraju said Aegis Capital’s top choice is for Valeant to merge with Isreal’s Teva Pharmaceutical Industries Ltd.

Canadian fashion retailer Le Château experienced a net loss of $12.1 million during the first three quarters of 2013. The loss represents a 36.6% increase over the net loss experienced during the first three quarters of 2012.  

 Le Château’s third quarter report attributed the loss to increases in general expenses and expenses related to promotional activity, selling, and administration. The report noted that the loss was also due to the increased use of stock as compensation for employees.

The company, which specializes in clothing, accessories, and footwear for women and men, has seen its net earnings decline steadily since 2009. Johnny Del Ciancio, Le Château’s vice-president of finance, acknowledged the downward trend.

“The loss is obviously concerning. Our goal is to reduce it. At the end of the day, you somewhat have to weather the storm,” Del Ciancio said.

 Michael McIntyre, a professor of finance with Carleton University’s Sprott School of Business, also said the loss trend is worrisome.

“It’s not a good thing, they’re definitely struggling,” McIntyre said. “They’re not going to disappear soon, but they’re under threat.”

Despite the continuing net loss, the company experienced a 2% year-to-date sales increase during the third quarter of 2013 compared to the previous year. Le Château attributed this increase to improvements in product assortment, regional strengths, and the performance of its new-concept and top-performing stores. 

McIntyre said the company will have to carve out a space for itself within today’s competitive retail market.

“They probably have to have a really good, hard look at reinventing themselves and figuring out: what is it they do well? What market niche do they really appeal to?” he said. “And if they find out that niche is shrinking or getting stolen then they have to reinvent themselves.”

The company experienced its largest third quarter sales increase in the footwear division. Third quarter year-to-date footwear sales rose 13.5% between 2012 and 2013.

“You search for where you’re winning and try to exploit that,” McIntyre said.

Del Ciancio said the company is continuing to move forward.

“Obviously we want to get back to profitability and that is our target. We’ve made a lot of strategic changes in terms of product and our store concepts,” he said.

Del Ciancio said the changes began five years ago. The company broadened its target market from customers between the ages of 18 and 25 to customers between the ages of 25 and 45. It began to focus on value and quality rather than price-point and improved its footwear line to include leather products. The company also began selling its products online.

“I think a lot of the changes that we had to make are sort of behind us now, it’s now focusing on efficiency,” Del Ciancio said. “Increasing productivity in the stores, that’s our challenge right now.”

While the third quarter report stated that sales are generally higher in the fourth quarter due to the holiday season, it noted that total retail sales had decreased by 2.2% during the first five weeks of the 2013 fourth quarter compared to the previous year.

The company’s fourth quarter wraps up at the end of January, but results won’t be released until later in the year.

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To see the annotations in this document, click on the “Notes” tab. To see the full-size document and annotations, click here.

NexJ Systems needs to sell more of its business software if it wants to convince investors it has a bright future, said TD analyst Scott Penner.

Software license sales dropped 88 percent in the 2013 third quarter from $2.5 million for the same period in 2010, according to third-quarter financial statements for those years.

Total revenue for the 2013 third-quarter was $6.6 million, up slightly from $6 million in 2012 for the same period. NexJ Systems, a Toronto-based company, develops software that helps financial and healthcare businesses manage its clients.

Profit magazine named NexJSystem Canada’s fastest growing company in 2012.

The company has posted year-over-year third-quarter losses due to growing expenses since its entry into the Toronto Stock Exchange in 2011.

Penner said the company has dedicated more resources within the past year to selling licenses for its healthcare software, Connected Wellness. However, sales are not following — net losses grew 400 per cent from 2010 to 2013.

According to Penner, the company has made healthcare the focus of its marketing efforts but hasn’t provided substantial information on how much money they’re making.

“They have this health business that really doesn’t generate a lot of revenue but there’s quite a bit of investment going into it,” Penner said.

The analyst said in an interview that some fluctuation is to be expected, but more sales would be better.

“When you’re dealing with relatively small numbers and a relatively small number of customers, you’re going see some of those dramatic ups and downs” Penner said.

“In itself it’s not any sort of death knell, but we would like to see them booking a lot more business before being a little bit more positive on the outlook,” he continued.

In its MD&A for the 2013 third quarter, NexJ Systems noted that its sales tend to fluctuate across quarters because product implementation timelines range from nine to 18 months.

But in the same document, the company noted that allowing other companies to resell its software was a potential area for  revenue growth. In the first quarter of 2013, NexJ Systems signed a deal with SAP, a German software company, to resell some of its products.

Penner said the company has had two changes of senior management in its sales division since 2011, which makes it “tough to get any real continuity.”

Richard Davis, an analyst at Canaccord Genuity, echoed Penner’s outlook on the company. In a letter to investors dated Nov. 3, Davis suggested that if the company can sell more software licenses, its stock might improve. The share price has lagged for the past year between $1.71 and $4, down from its initial offering of $9 in 2011.

Penner said Canada’s weaker dollar could help NexJ Systems sell more software licenses in the United States. Three-quarters of its 2012 revenue, representing $20.7 million, came from the U.S., according to corporate documents.

Furthermore, the company recently publicized a new American business opportunity. On Jan. 21 NexJ Systems announced it had struck a deal with Ransford Health, an American management-consulting firm. It will begin offering NexJ Systems’ Connected Wellness software to its clients.

Despite NexJ Systems’ challenges in license sales, analysts aren’t ready to declare the company a sell just yet. In December the TSX granted NexJ Systems permission to buy back one million of its shares, a positive sign to investors.

“They obviously think there’s value in their shares at this price and they have the cash, so why wouldn’t they buy them themselves,” Penner said.

Penner said the buyback is an indication of a healthy amount of cash in the company and confidence in its share value.

At the end of 2013 third quarter, NexJ Systems had $28 million in cash and cash equivalent assets. It had $46 million in the third quarter of 2012.

NexJ Systems is expected to release its 2013 fourth-quarter results in early February.

By: Sarah Turnbull

Netflix is an American company that functions as a subscription-based movie, television, and documentary rental service. Members have complete control of what they watch and when they watch it through Netflix’s Internet streaming service. U.S. only members have the option of receiving DVD rentals by mail.

While it has a large Canadian consumer base, it is traded solely on NASDAQ, an American stock exchange.

On January 22, Netflix publicly released its fourth quarterly earning reports. Stock prices shot up 16.4 percent that day, as a result of the company’s successful finance report.

In 2013, the company made a profit of 112 million dollars on 4.4 billion dollars in revenue, a net margin of 2.6 percent. Their earnings have increased 21 percent since 2012.

This comes as no surprise as their subscription rates have been steadily increasing over the years.

Their fourth quarter efforts in 2013 drew in 2.3 million new Netflix users in the U.S. This came to a whopping 3.4 million members domestically, including both paid and free-trail consumers.

Since opening up their network to international markets two years ago, Netflix has seen a major increase in subscription rates across the globe. In the final quarter of 2011, international subscriptions came to 1, 858 thousand, as opposed to 10.9 million in the fourth quarter of 2013.

Below is an annotated copy of Netflix’s fourth quarter earnings report. Click on Notes to scan through the document.

While the numbers reflect the continued success of the business, Bernard Von Teichman, an Investment Services Associate at Richardson GMP, says that stock buyers should be weary of the recent influx.

“You don’t want to buy in at its peak price. Right now the stock price has never been this high, so you’re taking on that risk. I just think you can find better risk adjusted returns, elsewhere,” says Von Teichman.

The company has seen a shift away from DVD rentals and mail delivery, towards a major trend of online streaming. Netflix provides its users with over one billion hours worth of TV shows and movies.

This past year, 63 percent of the company’s revenue came from domestic streaming subscriptions. This is a 25.9 percent leap from last year results (Note to Reader: Refer to segment contribution results in Q4 report).

While the viewership online is soaring, the fourth quarter report also shows domestic DVD sales down by 19.9 percent.

Professor James Bowen, a business technology expert at the Telfer School of Management says that as a result of companies like Netflix and HBO, there is a major cultural shift towards online television streaming.

“The idea that a broadcaster somewhere decides at what content, at what channel, and at what time we’re going to see something, is just so totally 20^th century,” Bowen says.

This type of media consumption has led to what Netflix calls “Binge-Watching.” A recent survey states that 73% of online streamers consider binge watching as 2-6 episodes in one sitting.

Companies like Netflix have provided viewers with the ability to control how much TV their going to watch in a day.

However, Bowen says that as a result of varying copyright legislation in different countries, Netflix may run into problems with their online streaming service.

“What you can see on the Canadian version and the American version is different,” says Bowen. “If they’re going to try and do this internationally, they’re going to have to have many different menu selections based on varying geographical regions.”

Nevertheless, CEO Reed Hastings and CFO David Wells predict similar financial growth trends in the upcoming quarter.

In 2014, Netflix plans to add to their extensive TV series selection with new seasons of the House of Cards, Orange is the New Black, Lilyhammer, and Derek.