Catalyst Health Solutions, Inc. (NASDAQ: CHSI), today announced
its financial results for the fourth quarter and year ended
December 31, 2011.
Fourth Quarter Year-Over-Year Highlights:
- Revenue increased 38% to $1.54
billion
- Adjusted earnings per diluted share
increased 23% to $0.69
- GAAP earnings per diluted share were
$0.39
Full Year 2011 Highlights:
- Revenue increased 42% to $5.33
billion
- Adjusted earnings per diluted share
increased 23% to $2.37
- GAAP earnings per diluted share were
$1.39
- Executed strategic acquisition of
Walgreens Health Initiatives (WHI) in June
- Completed integration of FutureScripts,
achieved financial targets
- Continued expansion of Generic
Advantage Plan, Catalyst Mobile and Retail 90 offering to provide
cost savings to clients and members
“We are pleased with the Company’s performance,” stated David T.
Blair, Chairman and Chief Executive Officer of Catalyst. “This was
a transformational year for the Company as we made significant
investments to scale the business and position Catalyst to benefit
from the changing market dynamics. During the quarter, we made
great progress on the integration of WHI and continue to be
on-track for our stated financial goals. With favorable industry
trends and client demands for transparency, combined with our value
proposition and clinical excellence, Catalyst continues to be well
positioned to drive meaningful long-term earnings growth.”
Fourth Quarter Results
Revenue for the fourth quarter increased by $428.0 million, or
38%, to $1.54 billion from $1.12 billion in the prior year’s
comparable quarter. The increase relates to additional prescription
volume from WHI, volume from new clients and price inflation on
brand drugs, partially offset by increased generic utilization.
Total prescription volume, after adjusting for the difference in
days supply between 90-day prescriptions (mail and retail) and
traditional 30-day retail prescriptions, was up 30% to 32.1 million
for the quarter versus 24.6 million for the same period in 2010,
excluding administrative services only (ASO) claims. ASO claims
increased significantly with the acquisition of WHI to 21.1 million
in the fourth quarter of 2011 from 120 thousand in the prior year
period. Due to the limited nature of services or contractual
responsibilities, ASO claims are accounted for on a net basis in
revenue. Adjusted mail-order penetration decreased to 10% from 12%
due to the change in mix with the WHI client base included in the
fourth quarter volume. Generic utilization increased to 75% from
73% in the fourth quarter of 2010.
Gross profit for the fourth quarter increased $26.5 million, to
$92.6 million, compared to $66.1 million, or a growth of 40% over
the fourth quarter of the prior year. The increase in gross profit
was due to the addition of WHI volume, higher generic utilization
and margin contribution from new clients, offset by lower margins
on renewal business. Fourth quarter gross profit is reported net of
$5.6 million of acquisition related intangible asset
amortization.
Fourth quarter operating income was $32.3 million compared to
$37.4 million in the fourth quarter of 2010. The decrease in
operating income was primarily due to higher selling, general and
administrative (SG&A) expenses, which included WHI SG&A
expenses. In the fourth quarter, SG&A also included WHI
transition and integration expenses of $13.5 million, and
acquisition related intangible amortization of $5.0 million.
Adjusting for these items, fourth quarter SG&A would have been
$41.8 million and operating income would have increased by 36% to
$50.8 million.
Net income for the fourth quarter of 2011 was $19.1 million, or
$0.39 per diluted share, compared to the prior year’s net income of
$22.6 million, or $0.51 per diluted share.
Full Year Results
Revenue for the twelve months ended December 31, 2011 increased
42% to $5.33 billion from $3.76 billion in the prior year. The
increase in revenue was due to the addition of WHI and
FutureScripts revenue, increases in prescription volume from new
business and price inflation on brand drugs, offset by the impact
of generic utilization.
Total prescription volume, after adjusting for the difference in
days supply between 90-day prescriptions (mail and retail) and
traditional 30-day retail prescriptions, rose 35% to 113.4 million
compared to 84.0 million in the prior year, excluding
administrative services only (ASO) claims. ASO claims increased
significantly with the acquisition of WHI from 0.5 million in 2010
to 45.2 million in 2011. Due to the limited nature of services or
contractual responsibilities, ASO claims are accounted for on a net
basis in revenue. Adjusted mail-order penetration decreased to 10%
from 11% due to the change in mix with the WHI client base included
in 2011 volume. Generic utilization for the year increased to 74%
from 72% in 2010.
Gross profit recorded in 2011 increased by $73.6 million or 31%
to $307.9 million, compared to $234.2 million in the prior year.
The increase in gross profit was due to the addition of WHI and
FutureScripts revenue, higher generic utilization and margin
contribution from new clients, offset by lower margins on renewal
business. Gross profit for 2011 is reported net of $12.9 million of
acquisition related intangible asset amortization.
Operating income declined by $18.3 million to $114.2 million in
2011 from $132.5 million in the prior year. The decrease in
operating income was due to the increase in gross profit offset by
SG&A expenses associated with transaction, transition and
integration expenses for WHI of $47.6 million, increased expenses
for the WHI and FutureScripts operations and incremental intangible
amortization in SG&A of $15.5 million. The effective tax rate
for 2011 was 37.7%, compared to 37.9% in 2010. Net income for 2011
was $67.0 million, or $1.39 per diluted share, compared to $81.0
million, or $1.82 per diluted share in the prior year.
2012 Financial Guidance
The Company reaffirms its previously provided 2012 financial
guidance for revenue in the range of $5.8 billion to $6.2 billion
and adjusted earnings per share of $2.60 to $2.80. GAAP earnings in
2012 will be impacted by non-recurring expenses related to the
integration of WHI, which management expects will be approximately
$15 million to $20 million, as well as a full year impact of
acquisition intangible amortization of approximately $40 million.
See “2012 Adjusted Earnings per Share Guidance” Table below for a
reconciliation of GAAP to non-GAAP measures.
Conference Call
The Company will hold a conference call on Wednesday, February
22, 2012, at 8:00 a.m. Eastern time. To participate, call
1-800-930-7616, access code 4123722 ten minutes prior to the
scheduled start time. The recorded call will be available for
telephonic replay from February 22nd, after 11:00 a.m. Eastern
time, through March 3rd at 11:00 a.m. Eastern time. To access the
replay, dial 1-888-203-1112, replay access code 4123722.
About Catalyst Health Solutions, Inc.
(www.chsi.com):
Catalyst Health Solutions, Inc., the fastest growing national
PBM in the U.S., 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 (PBM) serving more than 18
million lives in the United States and Puerto Rico; HospiScript
Services, LLC, one of the largest providers of PBM services to the
hospice industry; FutureScripts, LLC, a full-service PBM serving
approximately one million lives in the mid-Atlantic region; and a
fully integrated prescription mail service facility. The Company's
clients include self-insured employers, including state and local
governments, managed care organizations, unions, hospices,
third-party administrators and individuals.
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 gives 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.
Cautionary Statement Regarding Forward-Looking
Statements
This press release contains "forward-looking statements" as that
term is defined in the Private Securities Litigation Reform Act of
1995 and within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. We use words such as
"anticipates," "believes," "plans," "expects," "projects,"
"future," "intends," "may," "will," "should," "could," "estimates,"
"predicts," "potential," "continue," "guidance" and similar
expressions to identify these forward-looking statements. We
undertake no obligation to publicly update any forward-looking
statement, whether as a result of new information, future events or
otherwise. Forward-looking statements are not historical facts, but
rather are based on our current expectations, estimates,
assumptions and projections about the business, trends in the
pharmacy benefit management ("PBM") industry, and developments in
the legal, regulatory and economic environment. Accordingly, you
should not place undue reliance on any such statements. In
addition, our actual results may vary materially from those
anticipated in such forward-looking statements as a result of many
factors, many of which are beyond our control, and we cannot
guarantee that our performance will be consistent with such
forward-looking statements. We believe that these factors include,
but are not limited to, the following:
- Competition in the PBM industry is
intense and could impair our ability to attract and retain
clients;
- Our failure to anticipate and
appropriately adapt to changes in the rapidly changing health care
industry;
- The loss of one or more key network
pharmacies impairing the competitiveness of our services;
- From time to time we engage in
transactions to acquire other companies or businesses and if we are
unable to effectively integrate or manage acquired businesses, our
operating results may be adversely affected;
- A failure in the security or stability
of our technology infrastructure, or the infrastructure of one or
more of our key vendors, or a significant failure or disruption in
service within our operations or the operations of such
vendors;
- Our failure to execute on, or other
issues arising under, key client contracts upon which our continued
financial growth and profitability are dependent;
- If we or our suppliers fail to comply
with complex and evolving laws and regulations, we could suffer
penalties, be required to pay substantial damages and/or make
significant changes to our operations;
- Changes in applicable laws or
regulations, or their interpretation or enforcement, or the
enactment of new laws or regulations, which apply to our business
practices (past, present or future) or require us to spend
significant resources in order to comply;
- Healthcare reform and other government
efforts to reduce healthcare costs and alter healthcare financing
practices could lead to a decreased demand for our services or to
reduced profitability;
- Changes relating to Medicare Part D
impairing our ability to market services to Medicare Part D
eligible plans or members;
- Changes in industry pricing benchmarks
could adversely affect our financial performance; and
- The terms and covenants relating to our
existing indebtedness, our credit ratings and profile, or the
future level of our indebtedness could adversely impact our
financial performance and liquidity.
The foregoing review of important factors should not be
construed as exhaustive and should be read in conjunction with the
other cautionary statements that are included herein and elsewhere,
including the risk factors included in Catalyst Health Solutions,
Inc.'s most recent reports on Form 10-K and Form 10-Q and other
documents of Catalyst Health Solutions, Inc. on file with the
Securities and Exchange Commission ("SEC"). Any forward-looking
statements made in this material are qualified in their entirety by
these cautionary statements, and there can be no assurance that the
actual results or developments anticipated by us will be realized
or, even if substantially realized, that they will have the
expected consequences to, or effects on, us or our business or
operations.
CATALYST HEALTH SOLUTIONS, INC. and
Subsidiaries CONSOLIDATED STATEMENTS OF
OPERATIONS (In thousands, except per share data)
(Unaudited) For the three
months
ended December 31,
For the twelve months
ended December 31,
2011 2010 2011
2010 Revenue (excludes member co-payments of $574,564,
$288,517, $1,844,113, and $1,025,306 for the three months and
twelve months ended December 31, 2011 and 2010, respectively)
$1,544,656
$1,116,617
$5,329,594
$3,764,092
Direct expenses 1,452,031 1,050,482 5,021,709 3,529,843
Selling, general and administrative expenses 60,337 28,714
193,665 101,745 Total operating expenses
1,512,368 1,079,196 5,215,374 3,631,588
Operating income 32,288 37,421 114,220 132,504 Interest and other
income 6 63 232 937 Interest expense (1,942 ) (1,288 ) (7,495 )
(3,027 ) Income before income taxes 30,352 36,196 106,957 130,414
Income tax expense 11,614 13,644 40,370 49,457
Net income 18,738 22,552 66,587 80,957 Add: Net loss
attributable to non-controlling interest (401 ) — (401 ) —
Net income attributable to the Company $ 19,139 $
22,552 $ 66,988 $ 80,957 Net income per
share attributable to the Company, basic
$0.39
$0.51
$1.41
$1.85
Net income per share attributable to the Company, diluted
$0.39
$0.51
$1.39
$1.82
Weighted average shares of common stock outstanding, basic 48,985
44,019 47,569 43,855 Weighted average shares of common stock
outstanding, diluted 49,471 44,634 48,107 44,536
CATALYST HEALTH SOLUTIONS, INC. and Subsidiaries
CONSOLIDATED SELECTED INFORMATION (In
thousands) (Unaudited)
For the three months
ended December 31,
For the twelve months
ended December 31,
2011 2010 2011
2010 Pharmacy claims processed(1) Retail prescriptions
23,159 18,357 82,075 62,630 90 – day retail prescriptions 1,950
1,138 6,515 3,957 Mail-order prescriptions 1,016 956 3,938 3,154
Total prescriptions 26,125 20,451 92,528 69,741 Total adjusted
prescriptions(2) 32,057 24,638 113,434 83,963
Adjusted mail order penetration % (3)
10% 12% 10% 11% Adjusted 90 – day penetration % (4) 28% 25% 28% 25%
Generic utilization % 75% 73% 74% 72%
Gross profit
$92,625 $66,135 $307,885 $234,249 Depreciation & amortization
14,074 7,055 40,082 17,306 (1) Pharmacy claims
processed exclude administrative service only (ASO) claims. ASO
claims are prescriptions that receive a limited scope of services
or contractual responsibilities. These services are generally
limited to prescription adjudication and processing and discount
card programs. ASO claims are reported on a net-revenue basis. ASO
claims were approximately 21.1 million and 0.1 million for the
three months ended December 31, 2011 and 2010, respectively, and
45.2 million and 0.5 million for the twelve months ended December
31, 2011 and 2010, respectively. (2) Adjusted prescription
volume equals the number of 90-day retail prescriptions and
mail-order prescriptions multiplied by 3, plus retail
prescriptions. 90-day retail prescriptions and 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. (3) The percentage of
adjusted mail-order prescriptions to total adjusted prescriptions.
(4) The percentage of adjusted 90-day retail prescriptions
and 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
ended December 31,
For the twelve months
ended December 31,
2011 2010 2011
2010 GAAP diluted earnings per share $0.39 $0.51 $1.39 $1.82
Adjustments for CHII transaction,
transition and integration related cost (1)
0.17 — 0.61 — Adjustment to amortization of intangible
assets (2) 0.13 0.05 0.37 0.11
Diluted earnings per share, as
adjusted
$0.69 $0.56 $2.37 $1.93 (1) This adjustment
represents the per share effect of transaction, transition and
integration costs directly related to the acquisition of Catalyst
Rx Health Initiatives Inc. ("CHII"), formerly Walgreens Health
Initiatives, Inc., of approximately $13.5 million and $47.6 million
($8.3 million and $29.7 million after tax) for the three months and
twelve months ended December 31, 2011, respectively. Transaction,
transition and integration expenses include, but are not limited
to, charges related to the acquisition of CHII, primarily comprised
of transaction closing costs, professional fees (banking, legal and
accounting), transition services, integration, retention payments,
severance and other acquisition-related expenses or post-closing
expenses. These charges include only expenses that are expected to
end when the integration is complete. Transaction expenses of
approximately $12.2 million ($7.6 million after tax) are included
in selling, general and administrative expenses for the twelve
months ended December 31, 2011. There were no transaction expenses
for the three months ended December 31, 2011. Transition and
integration expenses of $13.5 million and $35.4 million ($8.3
million and $22.1 million after tax) are included in selling,
general and administrative expenses for the three months and twelve
months ended December 31, 2011. (2) This adjustment
represents the expected per share effect of CHII and all other
prior acquisition related intangible amortization. Acquisition
related intangible amortization of approximately $5.0 million and
$15.5 million ($3.1 million and $9.7 million after tax) for the
three months and twelve months ending December 31, 2011,
respectively, is included in selling, general and administrative
expenses. Acquisition related intangible amortization of
approximately $5.6 million and $12.9 million ($3.4 million and $8.0
million after tax) is included as a reduction to revenue for the
three months and twelve months ended December 31, 2011,
respectively.
CATALYST HEALTH SOLUTIONS, INC.
and Subsidiaries 2012 Adjusted Earnings Per Share
Guidance Information (Unaudited)
Estimated
Year ended December 31, 2012
Low End
High End
GAAP diluted earnings per share
$ 1.91
$ 2.05
Adjustment for CHII transition and
integration related costs (1)
0.19
0.25
Adjustment for amortization of intangible
assets (2)
0.50
0.50
Diluted earnings per share, as
adjusted
$ 2.60
$ 2.80
(1) This adjustment represents the expected per share
effect of transition and integration costs directly related to the
acquisition of Catalyst Rx Health Initiatives Inc. ("CHII"),
formerly Walgreens Health Initiatives, Inc. For the year ended
December 31, 2012, transition and integration costs are expected to
be approximately $15.0 million to $20.0 million ($9.3 million and
$12.4 million net of tax). (2) This adjustment represents
the expected per share effect of the all acquisition related
intangible amortization. For the year ended December 31, 2012,
intangible amortization is expected to be approximately $40.0
million ($24.8 million net of tax).
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