Catalyst Health Solutions, Inc. (NASDAQ: CHSI), a pharmacy
benefit management (PBM) company, today announced its financial
results for the quarter ended June 30, 2010. The Company reported
quarterly net income of $19.5 million, up 21% compared to $16.2
million in the prior year. Earnings per diluted share increased by
$0.07 to $0.44 from $0.37. Revenue for the quarter ended June 30,
2010, grew by 24% to $890.1 million from $717.6 million in the
prior year.
“We are pleased with our second quarter financial performance
and the Company's continued execution of its strategic plans. Key
client renewals, new sales and the significant transaction with
Independence Blue Cross position the Company for long-term
continued growth,” stated David T. Blair, Chief Executive Officer
of Catalyst.
This year the Company has successfully renewed key customer
relationships including the State of Mississippi and School
Employees' Health Plan which covers 190,000 members, the State of
Louisiana Office of Group Benefits which covers 225,000 members,
the Hotel Employees and Restaurant Employees International Union
(H.E.R.E.I.U)/Culinary Health Fund which covers 185,000
participants and Delhaize America which covers Food Lion’s 55,000
members and Hannaford Bros. Co.’s 20,000 members.
Additionally, Catalyst has secured new PBM business consisting
of self-funded employers, unions and health plans which
cumulatively represent more than $250 million in annualized
revenues. “Clearly, 2010 is shaping up to be another strong year
for new business,” said Blair.
The Company’s generic dispensing rate increased 4 percentage
points from the second quarter of 2009 to its current rate of 71%.
“Our clinically focused approach increases generic utilization, a
key driver of margin growth through aligned incentives with our
clients,” added Blair.
Acquisition of
FutureScripts
Catalyst also announced that it has signed a definitive
agreement to acquire Independence Blue Cross’ (IBC) FutureScripts
subsidiaries for $225 million in cash. FutureScripts provides
Catalyst with additional meaningful scale, delivering PBM services
to approximately 1 million lives and managing over 14 million
prescriptions annually. Following the closing of the FutureScripts
acquisition, Catalyst will manage IBC’s pharmacy benefits under the
terms of a new 10-year contract. IBC is a leading health insurer in
southeastern Pennsylvania. 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 once again validates Catalyst’s client-centric value
proposition.”
The transaction is expected to close in 2010, subject to
customary closing conditions and the expiration of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act.
Credit Facility
The Company has also entered into a new five-year $350 million
senior credit facility with a lending group led by SunTrust
Robinson Humphrey, Inc., as Administrative Agent. The new senior
credit facility is comprised of a $200 million revolving credit
facility and a $150 million term loan. This new senior credit
facility replaces the Company's previous $100 million secured
revolving credit facility.
Hai Tran, Chief Financial Officer of Catalyst, commented, "We
appreciate the support of the strong group of banking partners and
believe the commitment of these banks is a testament to the
Company's historical performance as well as its future prospects.
The new credit facility will provide us with additional financial
capacity as we execute on our strategic plans."
2010 Financial
Guidance
The Company’s previously stated earnings guidance for 2010 was
$1.80 to $1.88 per diluted share. Transaction expenses and
financing costs related to the acquisition of FutureScripts and the
new credit facility are expected to be $0.06 per diluted share in
the second half of 2010. As a result, management now expects 2010
earnings to be at the low end of its guidance range. Management
confirms the Company is tracking towards its previously stated 2010
revenue guidance of $3.3 billion to $3.6 billion. The 2010
financial guidance excludes FutureScripts results after the
transaction closes.
Second Quarter
Results
Revenue for the second quarter increased by $172.5 million, or
24%, to $890.1 million from $717.6 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 second quarter increased to 16.4
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. Generic utilization increased to 71% from 67% in the
second quarter of 2009.
Adjusting for the difference in days supply between mail-order
and retail, total prescription volume was 17.8 million, an increase
of 2.9 million, or 20%, compared to 14.9 million in the prior year.
Adjusted mail order prescription volume was 2.2 million for the
second quarter, a 45% increase over the 1.5 million adjusted mail
order prescriptions in the prior year.
Gross profit for the second quarter increased $10.6 million, to
$55.7 million, or 6.3% of revenue, compared to $45.1 million, or
6.3% of revenue, in the second quarter of the prior year. The
increase in gross profit is primarily due to the increase in
revenue, the realization of the economics of our mail service
pharmacy, higher generic utilization, the contribution of
performance management fees, enhanced drug manufacturer rebates,
improved pharmacy reimbursement rates and higher formulary
compliance.
Second quarter operating income increased 22% to $31.6 million
from $25.9 million in the second quarter of 2009. The increase in
operating income was primarily due to the increase in gross profit,
offset by a $4.8 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.
Net income for the second quarter of 2010 was $19.5 million, or
$0.44 per diluted share, compared to the prior year’s net income of
$16.2 million, or $0.37 per diluted share.
Six Months
Results
Revenue for the six months ended June 30, 2010 increased 21%, to
approximately $1.7 billion from $1.4 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 32.5 million for the six months ended June 30, 2010
from 27.7 million for the same period in 2009. The increase in
prescription volume was primarily due to the addition of new
clients.
Adjusting for the difference in days supply between mail-order
and retail, total prescription volume was 35.4 million, an increase
of 5.7 million, or 19%, compared to 29.7 million in the prior year.
Adjusted mail order prescription volume was 4.3 million for the
first six months of 2010, a 41% increase over the 3.1 million
adjusted mail order prescriptions in the prior year.
Gross profit for the first six months of 2010, increased by
$20.1 million to $106.4 million, or 6.2% of revenue, compared to
$86.3 million, or 6.1% of revenue, in the first six months of the
prior year. The increase in gross profit is primarily due to the
increase in revenue, the realization of the economics of our mail
service pharmacy, higher generic utilization, the contribution of
performance management fees, enhanced drug manufacturer rebates,
improved pharmacy reimbursement rates and higher formulary
compliance.
Operating income increased by $12.4 million to $60.1 million in
the first six months of 2010 from $47.7 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 $7.7 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.
Net income for the first six months of 2010 was $36.9 million,
or $0.83 per diluted share, compared to $30.0 million, or $0.69 per
diluted share, in the prior year.
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 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 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
six months ended June 30, ended June 30,
2010 2009 2010 2009
Revenue (excludes member co-payments of $231,174, $189,878,
$485,377 and $392,303 for the three months and six months ended
June 30, 2010 and 2009, respectively) $ 890,107 $ 717,629 $
1,722,419 $ 1,420,901 Direct expenses 834,383 672,494 1,616,048
1,334,636 Selling, general and administrative expenses
24,083 19,262 46,292 38,581 Total operating
expenses 858,466 691,756 1,662,340
1,373,217 Operating income 31,641 25,873 60,079 47,684 Interest
income (expense), net (117) 160 (274)
353 Income before income taxes 31,524 26,033 59,805 48,037 Income
tax expense 12,045 9,876 22,905 18,062
Net income $ 19,479 $ 16,157 $ 36,900 $ 29,975 Net income
per share, basic $ 0.44 $ 0.38 $ 0.84 $ 0.70 Net income per share,
diluted $ 0.44 $ 0.37 $ 0.83 $ 0.69 Weighted average shares of
common stock outstanding, basic 43,846 43,039 43,735 42,987
Weighted average shares of common stock outstanding, diluted 44,521
43,770 44,463 43,697
CATALYST HEALTH SOLUTIONS,
INC. and Subsidiaries CONSOLIDATED SELECTED
INFORMATION (In thousands) (Unaudited)
For the three months For the six months ended June
30, ended June 30, 2010 2009
2010 2009 Retail prescriptions 15,619 13,368
31,064 26,632 Total mail prescriptions 740 512 1,440 1,019 Total
prescriptions 16,359 13,880 32,504 27,651 Total adjusted
prescriptions(1) 17,839 14,904 35,384 29,689
Adjusted mail order penetration
%(2)
12% 10% 12% 10% Generic utilization % 71% 67% 70% 67%
Gross profit
55,724 45,135 106,371 86,265 Operating income 31,641 25,873 60,079
47,684 Depreciation & amortization 3,268 2,834 6,381 5,579
(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.
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