2007 Earnings Per Share Guidance Increased -- Midpoint Reflects 39
Percent Growth
Record Third Quarter Cash Flow From Operations of $247 million
ST. LOUIS, Oct. 24, 2007 (PRIME NEWSWIRE) -- Express Scripts, Inc. (Nasdaq:ESRX) announced third quarter net income of $142.9 million, or $0.56 per diluted share, which includes non-recurring charges totaling $0.04 per diluted share discussed below. Excluding these charges, diluted earnings per share was $0.60, a 43 percent increase over $0.42 per diluted share for the same quarter last year. All per share amounts have been adjusted to reflect the Company's 2-for-1 stock split, which was effective June 22, 2007.
The Company reported cash flow from operations of $247.0 million in the third quarter compared to $158.8 million for the same period last year. During the quarter, Express Scripts repurchased 6.1 million shares of common stock for $313.6 million, and year to date, the Company has repurchased 23.1 million shares for $1,140.3 million.
"Our outstanding results demonstrate the power of aligning interests with plan sponsors and patients, which continues to fuel our success," stated George Paz, president, chief executive officer and chairman. "Our industry-leading generic utilization rate reached a record 62.2 percent this quarter, and demonstrates the success of our business model."
"We are entering the next stage of alignment: enabling better health and value at the consumer level. By unlocking value one member at a time, we are generating increased savings for our clients through lower-cost drugs and channels, and better health outcomes through improved therapy adherence. As we deliver savings for our clients, we deliver stronger performance for our stockholders."
Third Quarter Review
Total adjusted claims for the quarter were 123.9 million. Retail network claims processed in the third quarter were 92.1 million, home delivery claims were 10.2 million, and Specialty and Ancillary Services ("SAAS") claims were 1.2 million.
Gross profit for the third quarter increased 19 percent to $444.5 million from $374.3 million last year. The increase reflects higher generic utilization and lower retail and home delivery drug purchasing costs. Gross profit per adjusted claim was a record $3.59, a 20 percent increase over $2.99 for the same quarter last year.
During the third quarter, the Company recorded non-recurring charges of $18.5 million ($11.4 million net of tax), or $0.04 per diluted share in the SAAS segment, the majority of which pertained to a charge to bad debt expense resulting from the insolvency of a specialty distribution client. Adjusted operating income, excluding these non-recurring charges, increased 36 percent to $279.1 million from $205.7 million last year.
Adjusted operating income for the SAAS segment decreased $1.3 million sequentially from $10.5 million in the second quarter to $9.2 million in the third quarter due to the infusion line of business. The infusion line of business had an operating loss of $6.8 million for the quarter and $12.5 million for 9 months ended September 30, 2007. The Company recently announced plans to close 6 under-performing infusion sites and reduce overhead to improve the operating performance of this line of business. Concurrent with these changes, Express Scripts will evaluate the strategic fit of the infusion business in the Company's product portfolio.
Operating income for the PBM segment increased 39 percent to $269.9 million from $194.0 million last year reflecting higher generic utilization and lower retail and home delivery drug purchasing costs. These same factors translated into strong EBITDA growth. Adjusted EBITDA increased 32 percent to $302.3 million from $229.5 million last year and reached a record $2.44 per adjusted claim, a 33 percent increase over $1.84 last year.
2007 Earnings Guidance
As a result of the strong underlying trends in the overall business, the Company is raising its previous 2007 diluted earnings per share guidance from a range of $2.23 to $2.29 to a range of $2.28 to $2.32. This guidance range excludes the non-recurring items identified in Tables 3 and 4 below. In addition, cash flow from operations is expected to be in the upper half of the previous guidance range of $750 million to $850 million.
Express Scripts, Inc. is one of the largest PBM companies in North America, providing PBM services to over 50 million members through thousands of client groups, including managed-care organizations, insurance carriers, employers, third-party administrators, public sector, workers compensation, and union-sponsored benefit plans.
Express Scripts provides integrated PBM services, including network-pharmacy claims processing, home delivery services, benefit-design consultation, drug-utilization review, formulary management, disease management, and medical- and drug-data analysis services. The Company also distributes a full range of injectable and infusion biopharmaceutical products directly to patients or their physicians, and provides extensive cost-management and patient-care services.
Express Scripts is headquartered in St. Louis, Missouri. More information can be found at http://www.express-scripts.com, which includes expanded investor information and resources.
SAFE HARBOR STATEMENT
This press release contains forward-looking statements, including, but not limited to, statements related to the Company's plans, objectives, expectations (financial and otherwise) or intentions. Actual results may differ significantly from those projected or suggested in any forward-looking statements. Factors that may impact these forward-looking statements include but are not limited to:
* uncertainties associated with our acquisitions, which include
integration risks and costs, uncertainties associated with client
retention and repricing of client contracts, and uncertainties
associated with the operations of acquired businesses
* costs and uncertainties of adverse results in litigation,
including a number of pending class action cases that challenge
certain of our business practices
* investigations of certain PBM practices and pharmaceutical
pricing, marketing and distribution practices currently being
conducted by various regulatory agencies and state attorneys
general
* changes in industry pricing benchmarks such as average wholesale
price ("AWP") and average manufacturer price ("AMP"), which could
have the effect of reducing prices and margins
* increased compliance risk relating to our contracts with the DoD
TRICARE Management Activity and various state governments and
agencies
* results in regulatory matters, the adoption of new legislation or
regulations (including increased costs associated with compliance
with new laws and regulations), more aggressive enforcement of
existing legislation or regulations, or a change in the
interpretation of existing legislation or regulations
* uncertainties regarding the Medicare Part D prescription drug
benefit, including the financial impact to us to the extent that
we participate in the program on a risk-bearing basis,
uncertainties of client or member losses to other providers under
Medicare Part D, and increased regulatory risk
* the possible loss, or adverse modification of the terms, of
contracts with pharmacies in our retail pharmacy network
* competition in the PBM and specialty pharmacy industries, and our
ability to consummate contract negotiations with prospective
clients, as well as competition from new competitors offering
services that may in whole or in part replace services that we now
provide to our customers
* our ability to continue to develop new products, services and
delivery channels
* our ability to maintain growth rates, or to control operating or
capital costs
* uncertainties associated with U.S. Centers for Medicare &
Medicaid's ("CMS") implementation of the Medicare Part B
Competitive Acquisition Program ("CAP"), including the potential
loss of clients/revenues to providers choosing to participate in
the CAP
* continued pressure on margins resulting from client demands for
lower prices, enhanced service offerings and/or higher service
levels, and the possible termination of, or unfavorable
modification to, contracts with key clients or providers
* the possible loss, or adverse modification of the terms, of
relationships with pharmaceutical manufacturers, or changes in
pricing, discount or other practices of pharmaceutical
manufacturers or interruption of the supply of any pharmaceutical
products
* the use and protection of the intellectual property we use in our
business
* our leverage and debt service obligations, including the effect of
certain covenants in our borrowing agreements
* general developments in the health care industry, including the
impact of increases in health care costs, changes in drug
utilization and cost patterns and introductions of new drugs
* increase in credit risk relative to our clients due to adverse
economic trends or other factors
* our ability to attract and retain qualified employees
* other risks described from time to time in our filings with the
SEC
We do not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
EXPRESS SCRIPTS, INC.
Unaudited Consolidated Statement of Operations
Three months ended Nine months ended
September 30, September 30,
(in millions, except -------------------- --------------------
per share data) 2007 2006 2007 2006
--------- --------- --------- ---------
Revenues (a) $ 4,519.0 $ 4,330.2 $13,658.9 $13,131.3
Cost of revenues (a) 4,074.5 3,955.9 12,344.9 12,048.8
--------- --------- --------- ---------
Gross profit 444.5 374.3 1,314.0 1,082.5
Selling, general and
administrative 183.9 168.6 539.7 500.8
--------- --------- --------- ---------
Operating income 260.6 205.7 774.3 581.7
--------- --------- --------- ---------
Other (expense) income :
Non-operating gains
(charges), net 0.2 -- (18.6) --
Undistributed loss
from joint venture (0.3) (0.4) (1.1) (1.2)
Interest income 2.7 2.3 8.1 11.3
Interest expense (31.3) (26.4) (79.1) (70.6)
--------- --------- --------- ---------
(28.7) (24.5) (90.7) (60.5)
--------- --------- --------- ---------
Income before income
taxes 231.9 181.2 683.6 521.2
Provision for income
taxes 89.0 66.5 254.3 194.0
--------- --------- --------- ---------
Net income $ 142.9 $ 114.7 $ 429.3 $ 327.2
========= ========= ========= =========
Basic earnings per
share ("EPS"): $ 0.56 $ 0.42 $ 1.63 $ 1.16
========= ========= ========= =========
Weighted average number
of common shares
outstanding during the
period - Basic EPS 254.2 272.2 263.1 282.4
========= ========= ========= =========
Diluted earnings per
share $ 0.56 $ 0.42 $ 1.61 $ 1.14
========= ========= ========= =========
Weighted average number
of common shares
outstanding during the
period - Diluted EPS 257.3 276.4 266.3 287.0
========= ========= ========= =========
(1) Excludes estimated retail pharmacy co-payments of $909.4 million
and $942.8 million for the three months ended September 30, 2007
and 2006, respectively and $2,841.5 million and $3,209.2 million
for the nine months ended September 30, 2007 and 2006,
respectively. These are amounts we instructed retail pharmacies
to collect from members. We have no information regarding actual
co-payments collected.
EXPRESS SCRIPTS, INC.
Unaudited Consolidated Balance Sheet
September 30, December 31,
(in millions, except share data) 2007 2006
---------- ----------
Assets
Current assets:
Cash and cash equivalents $ 96.0 $ 131.0
Receivables, net 1,308.4 1,334.4
Inventories 158.8 194.6
Deferred taxes 113.3 90.9
Prepaid expenses and other current assets 19.6 21.2
---------- ----------
Total current assets 1,696.1 1,772.1
Property and equipment, net 203.9 201.4
Goodwill 2,689.5 2,686.0
Other intangible assets, net 350.9 378.4
Other assets 43.6 70.2
---------- ----------
Total assets $ 4,984.0 $ 5,108.1
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Claims and rebates payable $ 1,203.8 $ 1,275.7
Accounts payable 547.2 583.4
Accrued expenses 401.2 390.2
Current maturities of long-term debt 240.1 180.1
---------- ----------
Total current liabilities 2,392.3 2,429.4
Long-term debt 1,740.3 1,270.4
Other liabilities 314.0 283.4
---------- ----------
Total liabilities 4,446.6 3,983.2
---------- ----------
Stockholders' Equity:
Preferred stock, 5,000,000 shares
authorized, $0.01 par value per share;
and no shares issued and outstanding -- --
Common stock, 1,300,000,000 shares
authorized, $0.01 par value per share;
shares issued: 318,875,000 and
159,442,000, respectively; shares
outstanding: 252,044,000 and 135,650,000,
respectively 3.2 1.6
Additional paid-in capital 550.4 495.3
Accumulated other comprehensive income 19.4 11.9
Retained earnings 2,446.4 2,017.3
---------- ----------
3,019.4 2,526.1
Common stock in treasury at cost, 66,831,000
and 23,792,000 shares, respectively (2,482.0) (1,401.2)
---------- ----------
Total stockholders' equity 537.4 1,124.9
---------- ----------
Total liabilities and stockholders'
equity $ 4,984.0 $ 5,108.1
========== ==========
EXPRESS SCRIPTS, INC.
Unaudited Condensed Consolidated Statement of Cash Flows
Nine months ended
September 30,
----------------------
(in millions) 2007 2006
---------- ----------
Cash flow from operating activities:
Net income $ 429.3 $ 327.2
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 75.3 75.7
Non-cash adjustments to net income 52.3 44.4
Changes in operating assets and
liabilities:
Claims and rebates payable (72.0) (178.8)
Other net changes in operating assets and
liabilities 13.4 84.1
---------- ----------
Net cash provided by operating activities 498.3 352.6
---------- ----------
Cash flows from investing activities:
Purchases of property and equipment (49.5) (38.2)
Sale of marketable securities 34.2 --
Other (0.6) 0.1
---------- ----------
Net cash used in investing activities (15.9) (38.1)
---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt 700.0 --
Repayment of long-term debt (120.1) (80.1)
(Repayment of) proceeds from revolving
credit line, net (50.0) 200.0
Tax benefit relating to employee stock
compensation 43.7 33.0
Treasury stock acquired (1,140.3) (906.8)
Net proceeds from employee stock plans 47.1 28.8
Deferred financing fees (1.3) (0.3)
---------- ----------
Net cash used in financing activities (520.9) (725.4)
---------- ----------
Effect of foreign currency translation
adjustment 3.5 1.1
---------- ----------
Net decrease in cash and cash equivalents (35.0) (409.8)
Cash and cash equivalents at beginning of
period 131.0 477.9
---------- ----------
Cash and cash equivalents at end of period $ 96.0 $ 68.1
========== ==========
EXPRESS SCRIPTS, INC.
(in millions, except per claim, per share and ratio data)
Table 1
Unaudited Operating Statistics
--------------------------------------------------------------------
3 months 3 months 3 months 3 months 3 months
ended ended ended ended ended
9/30/2007 6/30/2007 3/31/2007 12/31/2006 9/30/2006
--------- --------- --------- ---------- ---------
Revenues
PBM 3,612.4 3,669.3 3,608.9 3,626.3 3,465.1
SAAS 906.6 931.1 930.6 902.4 865.1
-------- -------- -------- --------- ---------
Total
consolidated
revenues 4,519.0 4,600.4 4,539.5 4,528.7 4,330.2
======== ======== ======== ======== ========
Claims Detail
Network (1) 92.1 94.1 96.8 97.8 93.2
Home delivery 10.2 10.2 10.0 10.3 10.2
-------- -------- -------- --------- ---------
Total PBM claims 102.3 104.3 106.8 108.1 103.4
-------- -------- -------- --------- ---------
Adjusted PBM claims
(2) 122.7 124.8 126.8 128.7 123.8
======== ======== ======== ======== ========
SAAS claims (3) 1.2 1.2 1.2 1.3 1.3
-------- -------- -------- --------- ---------
Total adjusted
claims (4) 123.9 126.0 128.0 130.0 125.1
======== ======== ======== ======== ========
Per Adjusted Claim
Adjusted Gross
profit $ 3.59 $ 3.52 $ 3.26 $ 3.19 $ 2.99
Adjusted EBITDA $ 2.44 $ 2.27 $ 2.11 $ 2.06 $ 1.84
--------------------------------------------------------------------
Selected Ratio Analysis
Table 2
---------------------------------------------------------------------
As of As of As of As of As of
9/30/2007 6/30/2007 3/31/2007 12/31/2006 9/30/2006
--------- --------- --------- ---------- ---------
Debt to EBITDA
ratio (6) 1.8x 1.8x 1.4x 1.6x 1.9x
EBITDA interest
coverage (7) 10.7x 10.7x 10.2x 9.7x 9.4x
Operating cash
flow interest
coverage (8) 7.7x 7.2x 7.9x 6.9x 6.6x
Debt to
capitalization
(9) 78.7% 73.6% 51.4% 56.3% 62.7%
---------------------------------------------------------------------
See Notes to Unaudited Operating Statistics and Selected Ratio
Analysis
Unaudited Earnings Excluding Non-recurring Items
Table 3
---------------------------------------------------------------------
3 months 3 months 9 months 9 months
ended ended ended ended
9/30/2007 9/30/2006 9/30/2007 9/30/2006
--------- --------- --------- ---------
Reported income before
taxes $ 231.9 $ 181.2 $ 683.6 $ 521.2
Transaction costs for
terminated proposal
to acquire Caremark,
less special dividend
received on Caremark
stock and gain on
sale of Caremark stock (0.2) -- 18.6 --
Settlement of contractual
item with supply chain
vendor -- -- (9.0) --
Non-recurring items,
majority of which relates
to bad debt charge in
specialty distribution
line of business 18.5 -- 18.5 --
--------- --------- --------- ---------
Income before taxes
excluding net non-
recurring charges 250.2 181.2 711.7 521.2
Adjusted provision for
income taxes 96.0 66.5 264.8 194.0
--------- --------- --------- ---------
Net income excluding net
non-recurring charges $ 154.2 $ 114.7 $ 446.9 $ 327.2
========= ========= ========= =========
Weighted average number of
shares outstanding during
period - diluted 257.3 276.4 266.3 287.0
Diluted earnings per share
excluding net charges $ 0.60 $ 0.42 $ 1.68 $ 1.14
Diluted earnings per share
as reported 0.56 0.42 1.61 1.14
--------- --------- --------- ---------
Impact of non-recurring
items $ (0.04) $ -- $ (0.07) $ --
---------------------------------------------------------------------
The Company is providing diluted earnings per share excluding the
impact of certain charges in order to compare the underlying
financial performance to prior periods.
Earnings Guidance Forecast Excluding Non-recurring Items
Table 4
---------------------------------------------------------------------
For the year ended
December 31, 2007
--------------------
Earnings guidance range, including
net non-recurring charges $ 2.21 to $ 2.25
Impact of non-recurring items per
Table 3 0.07 0.07
------- -------
Earnings guidance range, excluding
net non-recurring charges $ 2.28 to $ 2.32
======= ========
---------------------------------------------------------------------
---------------------------------------------------------------------
Calculation of Adjusted Operating Income and EBITDA
Table 5
3 months 9 months
ended ended
9/30/2007 9/30/2007
--------- ---------
Operating Income, as reported $ 260.6 $ 774.3
Settlement of contractual item with supply
chain vendor -- (9.0)
Non-recurring items, majority of which
relates to bad debt charge in specialty
distribution line of business 18.5 18.5
--------- ---------
Adjusted Operating Income $ 279.1 $ 783.8
========= =========
EBITDA, as reported (5) $ 283.8 $ 849.6
Settlement of contractual item with supply
chain vendor -- (9.0)
Non-recurring items, majority of which
relates to bad debt charge in specialty
distribution line of business 18.5 18.5
--------- ---------
Adjusted EBITDA $ 302.3 $ 859.1
========= =========
The Company is providing adjusted operating income and
EBITDA excluding the impact of non-recurring charges in order to
compare the underlying financial performance to prior periods.
---------------------------------------------------------------------
EXPRESS SCRIPTS, INC.
Notes to Unaudited Operating Statistics and Selected Ratio Analysis
(in millions)
(1) Network claims exclude drug formulary only claims where we only
administer the clients formulary and approximately 0.5 million
manual claims per quarter.
(2) PBM adjusted claims represent network claims plus mail claims,
which are multiplied by 3, as mail claims are typically 90 day
claims and network claims are generally 30 day claims. Adjusted
claims calculated from the table may differ due to rounding.
(3) Specialty and Ancillary Services (SAAS) claims represent the
distribution of pharmaceuticals through Patient Assistance
Programs and the distribution of pharmaceuticals where we have
been selected by the pharmaceutical manufacturer as part of a
limited distribution network. They also represent the
distribution of specialty drugs through our CuraScript
subsidiary.
(4) Total adjusted claims includes PBM adjusted claims plus SAAS
claims.
(5) The following is a reconciliation of EBITDA to net income and to
net cash provided by operating activities as the Company
believes they are the most directly comparable measures
calculated under Generally Accepted Accounting Principles:
3 months ended 9 months ended
September 30, September 30,
------------------ ------------------
2007 2006 2007 2006
-------- -------- -------- --------
Net income $ 142.9 $ 114.7 $ 429.3 $ 327.2
Income taxes 89.0 66.5 254.3 194.0
Depreciation and
amortization * 23.2 23.8 75.3 75.7
Interest expense, net 28.6 24.1 71.0 59.3
Undistributed loss from joint
venture 0.3 0.4 1.1 1.2
Non-operating charges, net (0.2) -- 18.6 --
-------- -------- -------- --------
EBITDA 283.8 229.5 849.6 657.4
Current income taxes (90.5) (50.3) (261.4) (183.2)
Interest expense less
amortization (28.0) (23.6) (69.4) (57.8)
Undistributed loss from
joint venture (0.3) (0.4) (1.1) (1.2)
Non-operating charges, net 0.2 -- (18.6) --
Other adjustments to
reconcile net income to net
cash provided by operating
activities 81.8 3.6 (0.8) (62.6)
-------- -------- -------- --------
Net cash provided by
operating activities $ 247.0 $ 158.8 $ 498.3 $ 352.6
======== ======== ======== ========
EBITDA is earnings before other income (expense), interest, taxes,
depreciation and amortization, or operating income plus depreciation
and amortization. EBITDA is presented because it is a widely
accepted indicator of a company's ability to service indebtedness
and is frequently used to evaluate a company's performance. EBITDA,
however, should not be considered as an alternative to net income,
as a measure of operating performance, as an alternative to cash
flow, as a measure of liquidity or as a substitute for any other
measure computed in accordance with accounting principles generally
accepted in the United States. In addition, our definition and
calculation of EBITDA may not be comparable to that used by other
companies.
* Includes depreciation and
amortization expense of:
Gross profit 6.6 8.6 24.4 26.9
Selling, general and
administrative 16.6 15.2 50.9 48.8
-------- -------- -------- --------
23.2 23.8 75.3 75.7
======== ======== ======== ========
(6) Represents debt as of the balance sheet date divided by EBITDA
for the twelve months ended.
(7) Represents EBITDA for the twelve months ended divided by
interest expense for the twelve months ended.
(8) Represents Operating Cash Flow for the twelve months ended
divided by interest expense for the twelve months ended.
(9) Represents debt divided by the total of debt and stockholders
equity.