Accredo Health, Inc. Announces Record Third Quarter Results.Business Editors MEMPHIS Memphis, city, ancient Egypt Memphis (mĕm`fĭs), ancient city of Egypt, capital of the Old Kingdom (c.3100–c.2258 B.C.), at the apex of the Nile delta and 12 mi (18 km) from Cairo. , Tenn.--(BUSINESS WIRE)--May 3, 2004 Accredo Health, Incorporated (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on : ACDO ACDO Air Carrier District Office ACDO Assistant Command Duty Officer ) today reported record results for its third quarter ended March 31, 2004. Net earnings were $21.1 million or $0.43 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, for the quarter ended March 31, 2004. The company had incurred a net loss of $18.7 million, or $0.39 per diluted share, for the same period in fiscal 2003. The loss was due to the bad debt expense of $66.1 million recorded in the March 2003 quarter compared to $9.3 million recorded in the March 2004 quarter. Revenues for the quarter increased 14% to $409.3 million compared to $358.1 million for the same period in fiscal 2003. In addition, gross profit margins Gross profit margin Gross profit divided by sales, which is equal to each sales dollar left over after paying for the cost of goods sold. gross profit margin A measure calculated by dividing gross profit by net sales. were 20.5% and earnings before minority interest, interest, taxes, depreciation and amortization (EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become ) as a percentage of total revenues were 9.8% for the quarter ended March 31, 2004. An explanation and reconciliation of net income under generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting (GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). ) to EBITDA is discussed in the question and answer section of this press release. David D. Stevens, Accredo's chief executive officer commented, "We are pleased with the record results achieved in the March quarter. We are also excited about our recently announced new and expanded relationships. Bertek Pharmaceuticals, Inc. selected us as one of three specialty pharmacy providers of APOKYN(TM) used in the treatment of Parkinson's disease Parkinson's disease or Parkinsonism, degenerative brain disorder first described by the English surgeon James Parkinson in 1817. When there is no known cause, the disease usually appears after age 40 and is referred to as Parkinson's disease. for patients who suffer from debilitating de·bil·i·tat·ing adj. Causing a loss of strength or energy. Debilitating Weakening, or reducing the strength of. Mentioned in: Stress Reduction periods of total or partial immobility immobility standing still and disinclined to move, as in an animal suddenly blinded; responds to other stimuli unless immobility is part of a dummy syndrome when all stimuli are ignored. or "off" episodes associated with the disease. In addition, we have expanded our relationship with Medco Health Solutions Medco Health Solutions, Inc. (NYSE: MHS) is a leading pharmacy benefit manager (PBM) company based in Franklin Lakes, New Jersey. The current chairman is David Snow. The company formed in August 2003 as a spinoff from Merck & Co.. , Inc. (NYSE NYSE See: New York Stock Exchange : MHS (1) (Message Handling Service) An earlier messaging system from Novell that supported multiple operating systems and other messaging protocols, including SMTP, SNADS and X.400. It used the SMF-71 messaging format. ) through a ten-year strategic alliance becoming the preferred retail and home delivery pharmacy provider to Medco Health Solutions, Inc. ("Medco") members for the specialty products we currently dispense dispense /dis·pense/ (-pens´) to prepare medicines for and distribute them to their users. dis·pense v. To prepare and give out medicines. . While we continued to benefit from prior payor agreements with Medco in the March quarter, we did not experience any transfer of new patients pursuant to the new strategic alliance. However, we do expect the transfer of patients to begin by the end of our fourth quarter. These events continue to validate our niche specialty pharmacy model." Joel R. Kimbrough, Accredo's chief financial officer, added, "We are pleased with the continued overall revenue growth. In addition, based upon our results through the March quarter, we also expect to achieve 37% to 39% growth in our Synagis(R) revenues for the treatment of RSV RSV respiratory syncytial virus; Rous sarcoma virus. RSV abbr. respiratory syncytial virus RSV 1 Respiratory syncytial virus, see there 2 Rous sarcoma virus, see there in infants in fiscal 2004. As a reminder, we began distributing certain products on a consignment The delivery of goods to a carrier to be shipped to a designated person for sale. A Bailment of goods for sale. A consignment is an arrangement resulting from a contract in which one person, the consignor, either ships or entrusts goods to another, the basis and sold our infertility infertility, inability to conceive or carry a child to delivery. The term is usually limited to situations where the couple has had intercourse regularly for one year without using birth control. business during fiscal 2003 eliminating revenues from these products in future periods. In the March 2003 quarter, our revenues from these products amounted to approximately $23.0 million. Excluding the $23.0 million, total revenues increased 22% from the March 2003 to the March 2004 quarter." Mr. Kimbrough continued, "Based upon our results to date, the continuing unknown reimbursement Reimbursement Payment made to someone for out-of-pocket expenses has incurred. environment related to MediCal and excluding any potential benefit from our new relationship with Medco, we expect our results for our fiscal year ending June 30, 2004 to be at the lower end of our previous revenue estimate range of $1.50 billion to $1.55 billion and our previous earnings per share estimate range of $1.58 to $1.63. In the June 2004 quarter, we will incur incremental costs Costs which are additional costs to the Service appropriations that would not have been incurred absent support of the contingency operation. See also financial management. in preparation for the implementation of the Medco alliance. In addition, we are increasing our estimates for our fiscal year ending June 30, 2005 previously announced. Due to the expanded relationship with Medco, we estimate that for our fiscal year ending June 30, 2005, we will achieve revenues in the $1.85 billion to $1.90 billion range and earnings per share of $1.88 to $1.93. These estimates do assume reductions in the MediCal and Medicare reimbursement rates based upon information we have at this time. These estimates assume no new indications for current product lines, potential new product lines or future acquisitions and could be impacted upon final resolution by MediCal of the reimbursement rate changes now being considered." In addition to the previous discussions, we are providing the following questions and answers related to our operating results and our on-going business: Q1) What is the reconciliation of net income under GAAP to EBITDA? A1) When we refer to EBITDA, we mean net income before minority interest, interest, income tax expense, and depreciation and amortization. We have included the EBITDA information because we consider it to be a good indication of our ability to generate cash flow in order to liquidate To pay and settle the amount of a debt; to convert assets to cash; to aggregate the assets of an insolvent enterprise and calculate its liabilities in order to settle with the debtors and the creditors and apportion the remaining assets, if any, among the stockholders or owners of the our liabilities and reinvest re·in·vest tr.v. re·in·vest·ed, re·in·vest·ing, re·in·vests To invest (capital or earnings) again, especially to invest (income from securities or funds) in additional shares. in our Company. EBITDA is not a measurement of financial performance under GAAP and should not be considered a substitute for net income as a measure of performance or for cash flow as a measure of liquidity. A reconciliation of net income under GAAP to EBITDA for the quarter ended March 31, 2004 is as follows (in thousands):
2004
-------
Net income $21,127
Minority interest in consolidated subsidiary 688
Interest expense, net 1,964
Income tax expense 13,254
Depreciation and amortization 3,277
-------
EBITDA $40,310
=======
EBITDA as a percentage of total revenues 9.8%
=======
Q2) Why did the Company incur a loss of $18.7 million in the March 2003 quarter? A2) During the March 2003 quarter, we analyzed historical collection rates and other data used in estimating the allowance for doubtful accounts Allowance for Doubtful Accounts An estimation made by a company and documented on its balance sheet for receivables that might go uncollected. Notes: It is standard practice for a company to have funds set aside for money that cannot be collected. . Our calculations indicated that the accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying reserve needed to be increased. As a result of the new information obtained through the analysis, we recorded a charge to bad debt expense and increased the allowance for doubtful accounts resulting in a net loss of $18.7 million for the quarter ended March 31, 2003. Q3) What changes have been made to the income statement for the March 2003 quarter? A3) As discussed in the June 2003 quarter, management determined that the recognition of revenue is upon the delivery of product to the patient (which typically occurs one day after shipment), and the Company has no further obligation related to such product. Previously, the Company considered the delivery to occur when the product was shipped. As a result, the impact on the March 2003 financial results was a decrease in revenues from $366.6 million (as previously reported) to $358.1 million and an increase in net loss from $17.8 million, or $0.37 per diluted share, (as previously reported) to a net loss of $18.7 million, or $0.39 per diluted share. In addition, amortization of debt financing Debt Financing When a firm raises money for working capital or capital expenditures by selling bonds, bills, or notes to individual and/or institutional investors. In return for lending the money, the individuals or institutions become creditors and receive a promise to repay costs amounting to $370,000 has been reclassified from amortization expense to interest expense in the March 2003 quarter. The reclassification Reclassification The process of changing the class of mutual funds once certain requirements have been met. These requirements are generally placed on load mutual funds. Reclassification is not considered to be a taxable event. of the amortization expense to interest expense did not impact net income. Q4) Why did gross profit margins decrease to 20.5% in the March 2004 quarter compared to 20.8% achieved in the same quarter last year? A4) For the March 2004 quarter, gross profit margins decreased to 20.5% compared to 20.8% in the same quarter last year. The decrease is primarily a result of product mix changes. We derived a larger percentage of our revenues from lower margin products (primarily Synagis(R)) in the March 2004 quarter when compared to the same quarter last year. We expect our overall gross margin percentage to be in the 20.5% to 21.5% range in the fourth quarter of fiscal 2004. Q5) What is the status of proposed changes in Medicare and MediCal reimbursement rates? A5) The recently passed Medicare rate reduction that was effective January 1, 2004, excluded blood clotting factor blood clotting factor Coagulation factor, see there from the rate change of AWP AWP Awaiting Parts (military equipment status) AWP Average Wholesale Price AWP Annual Work Plan AWP Associated Writing Programs AWP Amusement with Prizes AWP Any Willing Provider AWP Aerial Work Platform less 5% to AWP less 15%. The summary of these proposed changes is vague as to the impact, if any, on blood clotting factor reimbursement in fiscal 2005 and 2006. We now understand that it is CMS's intention that the ASP plus 6% reimbursement formula will affect blood clotting factor reimbursement during those periods. On December 23, 2003, the United States District Court for the Eastern District of California The U.S. District Court for the Eastern District of California is composed of six divisions. The Bakersfield division has jurisdiction over certain cases in Inyo and Kern counties and on federal lands and National Parks. issued an injunction enjoining en·join tr.v. en·joined, en·join·ing, en·joins 1. To direct or impose with authority and emphasis. 2. To prohibit or forbid. See Synonyms at forbid. the State of California from implementing a scheduled 5% reimbursement rate reduction paid to providers of the state's MediCal program, which was scheduled to take effect on January 1, 2004. The length of the injunction and the ultimate outcome of this litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. are uncertain at this time. In addition, MediCal's proposed change to ASP plus 20% as a reimbursement formula for blood clotting factor was to be effective January 1, 2004. Presently, there has been no clarification by the State of California as to the definition of ASP or other information to establish product reimbursement levels or planned implementation dates. The Company's earnings guidance includes an estimate of the effect from these proposed changes beginning January 1, 2004. Q6) Why does the revenue and earnings guidance indicate a sequential decline from the third quarter to the fourth quarter? A6) For fiscal year 2004, Synagis(R) will achieve revenues in the range of $104 to $106 million, a 37% to 39% increase over last year, which does not include the revenues recorded by our unconsolidated joint ventures. The majority of the Synagis(R) revenue and the related earnings are generated in the second and third quarters. As previously announced, the Company's conference call to discuss the third quarter results is scheduled for Monday, May 3, 2004, at 9:00 a.m. CDT CDT abbr. Central Daylight Time CDT Central Daylight Time CDT n abbr (US) (= Central Daylight Time) → hora de verano del centro; (BRIT . The conference call will be web-cast live on the Accredo Health, Incorporated web site. Interested parties may access the web-cast at www.accredohealth.com beginning at 9:00 a.m. CDT on May 3, 2004. A replay of the call will be available, and there will also be a playback of the conference call available over the Internet beginning approximately one hour after the end of the conference call. The replay of the call will be available until May 21, 2004 at 5:00 p.m. CDT. To access the replay call, dial 402-220-2491 and enter the code 23001592. The Internet playback option will be archived on the Company's website. To access the Internet playback, go to www.accredohealth.com. In addition to historical information, certain of the statements in the preceding paragraphs, particularly those anticipating future financial performance, business prospects and growth and operating strategies constitute forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. within the meaning of the "safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. " provisions of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. Such statements may be identified by words such as anticipate, believe, estimate, expect, intend, predict, hope or similar expressions. Such statements, which include estimated financial information or results and the quoted comments of Mr. Stevens and Mr. Kimbrough above, are based on management's current expectations and are subject to a number of factors and uncertainties which could cause actual results to differ materially from those described in the forward-looking statements, including, without limitation, the loss of a biopharmaceutical relationship, our inability to sell existing products, difficulties integrating acquisitions, the impact of pharmaceutical industry regulation, the difficulty of predicting FDA FDA abbr. Food and Drug Administration FDA, n.pr See Food and Drug Administration. FDA, n.pr the abbreviation for the Food and Drug Administration. and other regulatory authority Noun 1. regulatory authority - a governmental agency that regulates businesses in the public interest regulatory agency administrative body, administrative unit - a unit with administrative responsibilities approvals, the regulatory environment and changes in healthcare policies and structure, acceptance and demand for new pharmaceutical products and new therapies, the impact of competitive products and pricing, the ability to obtain products from suppliers, reliance on strategic alliances, the ability to expand through joint ventures and acquisitions, the ability to maintain pricing arrangements with suppliers that preserve margins, the need for and ability to obtain additional capital, the seasonality and variability of operating results, the Company's ability to implement its strategies and achieve its objectives and the risks and uncertainties described in reports filed by Accredo with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, including without limitation, cautionary statements under the heading "Risk Factors" made in Accredo's Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for its year ended June 30, 2003.
Accredo Health, Incorporated
Condensed Consolidated Statements of Income (Loss)
(amounts in thousands, except share data)
(Unaudited) (Unaudited)
Nine Months Ended Three Months Ended
March 31, March 31,
2004 2003 2004 2003
Net patient
revenue $ 1,103,197 $ 1,015,676 $ 398,919 $ 349,372
Other revenue 28,604 27,259 9,667 8,336
Equity in net
income of joint
ventures 2,272 1,345 722 405
----------- ----------- ----------- -----------
Total revenues 1,134,073 1,044,280 409,308 358,113
Cost of sales 894,338 830,202 325,517 283,531
----------- ----------- ----------- -----------
Gross profit 239,735 214,078 83,791 74,582
General &
administrative
expenses 103,166 97,174 34,178 33,761
Bad debts 23,731 80,345 9,303 66,103
Depreciation and
amortization 9,333 7,548 3,277 2,715
----------- ----------- ----------- -----------
Income (loss) from
operations 103,505 29,011 37,033 (27,997)
Interest expense,
net (6,365) (7,194) (1,964) (2,384)
Minority interest
in consolidated
subsidiary (1,741) (1,473) (688) (470)
----------- ----------- ----------- -----------
Net income (loss)
before income
taxes 95,399 20,344 34,381 (30,851)
Provision for
income tax
expense (benefit) 36,855 8,048 13,254 (12,128)
----------- ----------- ----------- -----------
Net income (loss) $ 58,544 $ 12,296 $ 21,127 $ (18,723)
=========== =========== =========== ===========
Earnings (loss)
per share:
Basic $ 1.22 $ 0.26 $ 0.44 $ (0.39)
Diluted $ 1.20 $ 0.25 $ 0.43 $ (0.39)
Weighted average
shares
outstanding:
Basic 48,050,099 47,419,325 48,307,891 47,698,820
Diluted 48,869,037 48,488,663 49,277,358 48,541,507
Condensed Consolidated Balance Sheets
(amounts in thousands)
(Unaudited)
March 31, June 30,
2004 2003
Cash & cash
equivalents $ 44,635 $ 48,006
Accounts
receivable, net 354,420 307,982
Inventories 139,536 89,985
Other current
assets 46,530 55,909
Fixed assets, net 34,759 31,681
Intangible and
other assets 409,608 381,220
----------- -----------
Total assets $ 1,029,488 $ 914,783
=========== ===========
Current
liabilities $ 259,493 $ 206,008
Long-term debt 166,605 178,438
Other liabilities 24,182 17,629
Stockholders'
equity 579,208 512,708
----------- -----------
Total liabilities
and stockholders'
equity $ 1,029,488 $ 914,783
=========== ===========
Condensed Consolidated Statements of Cash Flow
(amounts in thousands)
(Unaudited) (Unaudited)
Nine Months Ended Three Months Ended
March 31, March 31,
2004 2003 2004 2003
Net cash provided
by operating
activities $ 49,206 $ 47,954 $ 23,584 $ 16,078
Net cash (used in)
investing
activities (46,122) (33,937) (4,722) (22,279)
Net cash provided
by (used in)
financing
activities (6,455) (24,868) (90) 1,920
----------- ----------- ----------- -----------
Increase
(decrease) in
cash and cash
equivalents $ (3,371) $ (10,851) $ 18,772 $ (4,281)
=========== =========== =========== ===========
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