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 RetentionCatalyst
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 SalesCatalyst 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.
FutureScriptsThe 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 GuidanceThe
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
GuidanceWith 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 ResultsRevenue
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 ResultsRevenue
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).
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