CATALYST HEALTH : Solutions Reports Strong Earnings for Third Quarter 2010
11/03/2010| 03:35pm US/Eastern
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Catalyst Health Solutions, Inc. (NASDAQ: CHSI), a pharmacy benefit
management company, today announced its financial results for the third
quarter ended September 30, 2010. The Company reported record quarterly
net income of $21.5 million, up 25% compared to $17.2 million in the
prior year. Earnings per diluted share increased by $0.09 to $0.48 from
$0.39. Revenue for the quarter ended September 30, 2010, grew by $199.5
million to $925.1 million from $725.6 million in the prior year.
?We are pleased with the Company's operational and financial
performance,? stated David T. Blair, Chief Executive Officer of
Catalyst. ?In the third quarter, we completed the strategic acquisition
of Independence Blue Cross' (IBC) pharmacy benefit management
subsidiary, FutureScripts, retained key clients, sold new business and
implemented a $350 million credit facility to fund future acquisitions.?
This quarter, in conjunction with the closing of the FutureScripts
acquisition, the Company will also report adjusted earnings per diluted
share excluding the impact of acquisition related intangible
amortization. Third quarter 2010 adjusted earnings per diluted share
increased by $0.10 to $0.51 from $0.41 adjusted earnings per diluted
share in the prior year. Management believes that this non-GAAP
financial measure provides useful supplemental information regarding the
performance of our business operations and facilitates comparisons to
our historical operating results.
Client Retention Catalyst
successfully renewed customer relationships in 2010 covering
approximately 2.2 million lives. Client renewals this year include
Wellmark Blue Cross and Blue Shield of Iowa, State of Louisiana Office
of Group Benefits, State of Mississippi and School Employees' Health
Plan, Hotel Employees and Restaurant Employees International Union
(H.E.R.E.I.U.)/Culinary Health Fund, Delhaize America, Fortune Brands
and Ahold. ?Clearly, it has been a significant accomplishment to secure
multi-year contract extensions,? added Blair. ?With our recent client
renewals complete, nine of our ten largest accounts have two or more
years remaining on their current contract term.?
New Sales Catalyst has secured
new PBM business consisting of self-funded employers, unions and managed
care plans which cumulatively represent more than $400 million in
annualized revenue. Previously announced new sales this year include
Ford Motor Company, University of Virginia, Upper Peninsula Health Plan
and Hannaford Bros. Co. The Company continues to pursue additional sales
opportunities with a January 1, 2011 effective date across various
markets.
FutureScripts The Company's
acquisition of FutureScripts closed in the third quarter of 2010.
Catalyst acquired FutureScripts for $225.5 million in cash, which
includes the value of a future tax benefit for Catalyst. The Company
incurred approximately $1.6 million of acquisition related expenses
through the third quarter.
FutureScripts provides pharmacy benefit management services to
approximately 1 million members and manages over 14 million
prescriptions annually. Catalyst manages IBC's pharmacy benefits under
the terms of a 10-year contract. IBC is a leading health insurer in
southeastern Pennsylvania and through IBC and its affiliates provide
coverage to nearly 3.3 million people. ?This transaction between
Catalyst and IBC creates a uniquely aligned relationship that will drive
improved outcomes and lower healthcare costs for IBC's clients and
members,? commented Blair. ?The alliance validates Catalyst's
client-centric value proposition and provides Catalyst with significant
growth opportunities for years to come.?
2010 Financial Guidance The
Company confirms it is tracking toward its previously stated 2010
guidance of $1.80 per diluted share which equates to $1.91 adjusted
earnings per diluted share. Management now expects 2010 revenue of
approximately $3.7 billion.
Preliminary 2011 Financial Guidance With
new sales commitments, recent client renewals and trends in prescription
utilization, revenue in 2011 is projected to grow by 25% to 30%. The
Company is initially targeting 2011 adjusted earnings growth of 15% to
25% which equates to $2.20 to $2.39 adjusted earnings per diluted share.
Earnings in 2011 will be largely impacted by non-recurring expenses
related to the integration of FutureScripts which management expects
will be $6 to $10 million. The range of adjusted earnings per diluted
share growth reflects the current uncertainty regarding the timing and
extent of anticipated upfront FutureScripts implementation and
transition expenses as well as post-transition revenue and earnings
contributions for 2011. Also, net income and revenue for 2011 may be
impacted by greater than projected generic utilization. Management will
discuss earnings and revenue growth drivers for 2011 and beyond during
its third quarter earnings call.
Third Quarter Results Revenue
for the third quarter increased by $199.5 million, or 27.5%, to $925.1
million from $725.6 million in the prior year's comparable quarter. The
increase in revenue is due to the increase in prescription volume and
price inflation on brand drugs, offset by the impact of the increase in
generic utilization. Total unadjusted claims processed in the third
quarter increased to 17.2 million from 13.9 million for the same period
in 2009. The increase in prescription volume was primarily due to the
addition of new clients and the impact of acquisitions. Generic
utilization increased to 72% from 67% in the third quarter of 2009.
Adjusting for the difference in days supply between mail order and
retail, total prescription volume was 18.7 million.
Gross profit for the third quarter increased $12.7 million, to $61.7
million, or 6.7% of revenue, compared to $49.0 million, or 6.7% of
revenue, in the third quarter of the prior year. The increase in gross
profit is primarily due to the increase in revenue, higher generic
utilization, continued realization of the economics of our mail service
pharmacy, the contribution of performance management fees, higher
formulary compliance, and improved contract performance related to drug
manufacturer rebates and pharmacy reimbursements.
Third quarter operating income increased 25.6% to $35.0 million from
$27.9 million in the third quarter of 2009. The increase in operating
income was primarily due to the increase in gross profit, offset by a
$5.6 million increase in selling, general and administrative expenses.
The increase in selling, general and administrative expenses was
primarily associated with initiatives to support the Company's continued
growth, such as additional employee, facilities and vendor costs to
serve and implement new clients and investments in expanding capacity at
our mail service operations. Additionally, the growth in selling,
general and administrative expenses reflect transaction expenses
associated with corporate development activities and the consolidation
of the operating expenses from the Company's recent acquisitions.
Net income for the third quarter of 2010 was $21.5 million, or $0.48 per
diluted share, compared to the prior year's net income of $17.2 million,
or $0.39 per diluted share.
Nine Months Results Revenue for
the nine months ended September 30, 2010 increased 23.3%, to
approximately $2.6 billion from $2.1 billion in the prior year. The
increase in revenue is due to the increase in prescription volume and
price inflation on brand drugs, offset by the impact of the increase in
generic utilization. Total unadjusted claims processed increased to 49.7
million for the nine months ended September 30, 2010 from 41.5 million
for the same period in 2009. The increase in prescription volume was
primarily due to the addition of new clients and the impact of
acquisitions.
Adjusting for the difference in days supply between mail order and
retail, total prescription volume was 54.1 million, an increase of 9.5
million, or 21.3%, compared to 44.6 million in the prior year.
Gross profit for the first nine months of 2010, increased by $32.9
million to $168.1 million, or 6.3% of revenue, compared to $135.2
million, or 6.3% of revenue, in the first nine months of the prior year.
The increase in gross profit is primarily due to the increase in
revenue, higher generic utilization, continued realization of the
economics of our mail service pharmacy, the contribution of performance
management fees, higher formulary compliance, and improved contract
performance related to drug manufacturer rebates and pharmacy
reimbursements.
Operating income increased by $19.6 million to $95.1 million in the
first nine months of 2010 from $75.5 million in the same period of the
prior year. The increase in operating income was primarily due to the
increase in gross profit offset by a $13.3 million increase in selling,
general and administrative expenses. The increase in selling, general
and administrative expenses was associated with initiatives to support
the Company's continued growth, such as additional employee, facilities
and vendor costs to serve and implement new clients and investments in
expanding capacity at our mail service operations. Additionally, the
growth in selling, general and administrative expenses reflect
transaction expenses associated with corporate development activities
and the consolidation of the operating expenses from the Company's
recent acquisitions.
Net income for the first nine months of 2010 was $58.4 million, or $1.31
per diluted share, compared to $47.2 million, or $1.08 per diluted
share, in the prior year.
Non-GAAP Financial Information
This press release includes certain non-GAAP financial information as
defined by Securities and Exchange Commission Regulation G.Pursuant
to the requirements of this regulation, reconciliations of this non-GAAP
financial information to Catalyst Health Solutions, Inc. financial
statements as prepared under generally accepted accounting principles
(GAAP) are included in this press release.Catalyst's management
believes providing investors with this information give additional
insights into its results of operations.While Catalyst's
management believes that these non-GAAP financial measures are useful in
evaluating its operations, this information should be considered as
supplemental in nature and not as a substitute for the related financial
information prepared in accordance with GAAP.
About Catalyst Health Solutions, Inc. (www.chsi.com):
Catalyst Health Solutions, Inc. is built on strong, innovative
principles in the management of prescription drug benefits and provides
an unbiased, client-centered philosophy resulting in industry-leading
client retention rates. The Company's subsidiaries include Catalyst Rx,
a full-service pharmacy benefit manager serving more than 7 million
lives in the United States and Puerto Rico; HospiScript Services, LLC,
one of the largest providers of pharmacy benefit management services to
the hospice industry; and Immediate Pharmaceutical Services, Inc., a
fully integrated prescription mail service facility in Avon Lake, Ohio.
The Company's clients include self-insured employers, including state
and local governments, managed care organizations, unions, hospices,
third-party administrators and individuals.
This press release may contain ?forward-looking statements? as defined
in the Private Securities Litigation Reform Act of 1995. These
statements involve a number of risks and uncertainties that might
materially affect our results, particularly those risks referred to in
our Annual Report on Form 10-K for the year ended December 31, 2009, and
in our Quarterly Report on Form 10-Q for the quarter ended June 30,
2010, under ?Item 1A. Risk Factors.? Readers are urged to carefully
review and consider the various disclosures made in our Annual Report on
Form 10-K, our Forms 10-Q, and our other filings with the Securities and
Exchange Commission that attempt to advise interested parties of the
risks and uncertainties that may affect our business. Catalyst Health
Solutions, Inc. does not undertake any obligation to update
forward-looking statements, whether as a result of new information,
future events, or other developments.
CATALYST HEALTH SOLUTIONS, INC.
and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
For the three months
For the nine months
ended September 30,
ended September 30,
2010
2009
2010
2009
Revenue (excludes member co-payments of $251,412, $206,441, $736,789
and $598,744 for the three months and nine months ended September
30, 2010 and 2009, respectively)
$ 925,056
$ 725,579
$ 2,647,475
$ 2,146,480
Direct expenses
863,313
676,612
2,479,361
2,011,248
Selling, general and administrative expenses
26,739
21,102
73,031
59,683
Total operating expenses
890,052
697,714
2,552,392
2,070,931
Operating income
35,004
27,865
95,083
75,549
Interest and other income
695
103
874
706
Interest expense
(1,286)
(113)
(1,739)
(363)
Income before income taxes
34,413
27,855
94,218
75,892
Income tax expense
12,908
10,625
35,813
28,687
Net income
$ 21,505
$ 17,230
$ 58,405
$ 47,205
Net income per share, basic
$ 0.49
$ 0.40
$ 1.33
$ 1.10
Net income per share, diluted
$ 0.48
$ 0.39
$ 1.31
$ 1.08
Weighted average shares of common stock outstanding, basic
43,928
43,185
43,800
43,054
Weighted average shares of common stock outstanding, diluted
44,586
44,040
44,522
43,811
CATALYST HEALTH SOLUTIONS, INC.
and Subsidiaries
CONSOLIDATED SELECTED INFORMATION
(In thousands)
(Unaudited)
For the three months
For the nine months
ended September 30,
ended September 30,
2010
2009
2010
2009
Retail prescriptions
16,403
13,403
47,467
40,035
Total mail prescriptions
767
494
2,207
1,513
Total prescriptions
17,170
13,897
49,674
41,548
Total adjusted prescriptions(1)
18,704
14,885
54,088
44,574
Adjusted mail order penetration %(2)
12%
10%
12%
10%
Generic utilization %
72%
67%
71%
67%
Gross profit
$ 61,743
$ 48,967
$ 168,114
$ 135,232
Operating income
35,004
27,865
95,083
75,549
Depreciation & amortization
3,870
3,479
10,251
9,058
(1)
Adjusted prescription volume equals the number of mail-order
prescriptions multiplied by 3, plus retail prescriptions. Mail-order
prescriptions are multiplied by 3 to adjust for the fact that they
include approximately 3 times the number of product days supplied
compared with retail prescriptions.
(2)
The percentage of adjusted mail-order prescriptions to total
adjusted prescriptions.
CATALYST HEALTH SOLUTIONS, INC.
and Subsidiaries
Adjusted Earnings Per Share Reconciliation
(Unaudited)
We are providing diluted earnings per share excluding the impact of
the acquisitions related intangible amortization in order to compare
our underlying financial performance to prior periods. Catalyst's
management believes that this non-GAAP financial measure provides
useful supplemental information regarding the performance of our
business operations and facilitates comparisons to our historical
operating results.
For the three months
For the nine months
ended September 30,
ended September 30,
2010
2009
2010
2009
GAAP diluted earnings per share
$ 0.48
$ 0.39
$ 1.31
$1.08
Adjustment for amortization of:
FutureScripts related intangible assets (1)
0.01
–
0.01
–
All other acquisition related intangible assets (2)
0.02
0.02
0.05
0.05
Diluted earnings per share, as adjusted
$ 0.51
$ 0.41
$ 1.37
$ 1.13
(1)
This adjustment represents the per share effect of the FutureScripts
related intangible amortization. Intangible amortization of $50
thousand ($31 thousand net of tax) is included in selling, general
and administrative expense for the three months and nine months
ended September 30, 2010. Intangible amortization of $450 thousand
($280 thousand net of tax) is included as a reduction of revenue for
the three months and nine months ended September 30, 2010.
(2)
This adjustment represents the per share effect of all other
acquisition related intangible amortization. Intangible amortization
of $1.3 million ($0.8 million net of tax) and $1.2 million ($0.8
million net of tax) is included in selling, general and
administrative expense for the three months ended September 30, 2010
and 2009, respectively. Intangible amortization of $3.8 million
($2.3 million net of tax) and $3.5 million ($2.2 million net of tax)
is included in selling, general and administrative expense for the
nine months ended September 30, 2010 and 2009, respectively.
CATALYST HEALTH SOLUTIONS, INC.
and Subsidiaries
2010 Adjusted Earnings Per Share Guidance Information
(Unaudited)
For the year ended
December 31, 2010
GAAP diluted earnings per share
$ 1.80
Adjustment for amortization of:
FutureScripts related intangible assets(1)
0.04
All other acquisition related intangible assets (2)
0.07
Diluted earnings per share, as adjusted
$ 1.91
(1)
This adjustment represents the expected per share effect of the
FutureScripts related intangible amortization. For the year ended
December 31, 2010, intangible amortization of $0.3 million ($0.2
million net of tax) will be included in selling, general and
administrative expense and intangible amortization of $2.7 million
($1.7 million net of tax) will be included as a reduction of revenue.
(2)
This adjustment represents the expected per share effect of the all
other acquisition related intangible amortization. For the year
ended December 31, 2010, intangible amortization of $5.1 million
($3.2 million net of tax) will be included in selling, general and
administrative expense.
CATALYST HEALTH SOLUTIONS, INC.
and Subsidiaries
2011 Adjusted Earnings Per Share Guidance Information
(Unaudited)
Estimated
Year ended December 31, 2011
Low End
High End
GAAP diluted earnings per share
$ 2.00
$ 2.19
Adjustment for amortization of:
FutureScripts related intangible assets(1)
0.12
0.12
All other acquisition related intangible assets (2)
0.08
0.08
Diluted earnings per share, as adjusted
$ 2.20
$ 2.39
(1)
This adjustment represents the expected per share effect of the
FutureScripts related intangible amortization. For the year ended
December 31, 2011, intangible amortization is expected to be
approximately $10.0 million ($6.2 million net of tax).
(2)
This adjustment represents the expected per share effect of the all
other acquisition related intangible amortization. For the year
ended December 31, 2011, intangible amortization is expected to be
approximately $5.4 million ($3.4 million net of tax).
Catalyst Health Solutions, Inc. Hai Tran, Chief Financial
Officer 301-548-2900 htran@chsi.com
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