Accredo Health, Inc. Announces Third Quarter Results.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. -- 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 results for its third quarter ended March 31, 2005. Revenues for the quarter increased 26% to $517,060,000 compared to $409,308,000 for the same period in fiscal 2004. 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 ) increased 2% to $41,103,000 for the quarter ended March 31, 2005, as compared to $40,310,000 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. Transaction costs Transaction Costs Costs incurred when buying or selling securities. These include brokers' commissions and spreads (the difference between the price the dealer paid for a security and the price they can sell it). associated with the Company's pending acquisition by 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. (Medco) (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. ) were approximately $1.4 million ($0.8 million net of tax), or $.02 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, 2005. Net earnings decreased 5% to $20,175,000, or $0.40 per diluted share, for the quarter ended March 31, 2005 compared to $21,127,000, or $0.43 per diluted share, for the same period in fiscal 2004. Excluding the Medco transaction costs described above, net earnings were $0.42 per diluted share for the quarter ended March 31, 2005. David D. Stevens, Accredo's chief executive officer commented, "This is a unique time in the history of Accredo. The fundamentals of our specialty pharmacy business remain strong, and the strategic alliance with Medco is performing extremely well. We are excited about the prospect of combining two market leaders in Accredo and Medco in order to develop a new and expanded specialty pharmaceutical service model with the broadest offering of products in the competitive space." Joel R. Kimbrough, Accredo's chief financial officer, added, "We experienced broad revenue growth across our product lines and exceeded $500 million in consolidated revenues for the second consecutive quarter. We exceeded our current quarter growth rate for five of our seven core product lines. With regard to our new product offerings, the seven products launched since 2003 are producing annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. revenues in excess of $110 million based on their third quarter run rate. Based on our results for the nine months ended March 31, 2005, we expect these seven products to exceed our previous revenue estimate range of $80 to $100 million for fiscal 2005. In addition, we are pleased with the improvements in cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses both on a sequential and quarter over quarter basis." 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 quarters ended March 31, 2005 and 2004 is as follows (in thousands):
2005 2004
--------------------
Net income $ 20,175 $ 21,127
Minority interest in consolidated subsidiary 133 688
Interest expense, net 3,819 1,964
Income tax expense 12,959 13,254
Depreciation and amortization 4,017 3,277
--------------------
EBITDA $ 41,103 $ 40,310
====================
Q2) Why did 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. decrease to 16.3% in the March 2005 quarter compared to 20.5% achieved in the same quarter last year and 17.8% for the December 2004 quarter? A2) For the quarter ended March 31, 2005, gross profit margins decreased to 16.3% compared to 20.5% in the same quarter last year. The decline is primarily a result of reductions in reimbursement Reimbursement Payment made to someone for out-of-pocket expenses has incurred. levels from government and commercial payors in the March 2005 quarter as compared to the same quarter last year. These reductions principally relate to our hemophilia hemophilia (hē'məfĭl`ēə,–fēl`yə), genetic disease in which the clotting ability of the blood is impaired and excessive bleeding results. (specifically products reimbursed by MediCal beginning June 1, 2004, and Medicare beginning January 1, 2005), PAH PAH, PAHA aminohippuric acid. PAH abbr. para-aminohippuric acid PAH 1 Polycyclic aromatic hydrocarbon, see there 2. Pulmonary artery HTN (specifically products reimbursed by Medicare) and IVIG IVIG Intravenous immunoglobulin, see there product lines. Furthermore, the decrease is a result of product mix changes. We derived a larger percentage of our revenues from lower margin products in the March 2005 quarter when compared to the same quarter last year, including changes resulting from our expanded relationship with Medco and the increasing volume of our seven new products introduced since 2003. Gross profit margins decreased from 17.8% in the December 2004 quarter to 16.3% in the March 2005 quarter. The gross margin reductions occurred for substantially the same reasons described above. However, the decrease is also due to changes in product mix related to the increased revenue from the seasonal drug Synagis(R) which has a lower gross profit margin than our composite gross profit margin. Q3) Based on the results through the March 2005 quarter, what is the Company's latest outlook for the fiscal 2005 Synagis(R) season? A3) For the nine months ended March 31, 2005, we experienced significant revenue growth in Synagis(R) on a year-over-year basis. We continue to expect to achieve revenue growth from Synagis(R) in fiscal 2005 greater than 20%, which is higher than the domestic growth rate released by the manufacturer. This growth rate exceeds the top-end of our previously released range of 15% to 20%. During fiscal 2004, Synagis(R) revenues were approximately $108 million. As a reminder, sales of Synagis(R) primarily occur in the second and third quarters of our fiscal year. Q4) Why were general and administrative expenses 7.0% of revenue in the March 2005 quarter compared to 8.3% reported in the December 2004 quarter? A4) General and administrative expenses as a percent of total revenues decreased to 7.0% in the March 2005 quarter from 8.3% in the December 2004 quarter. The decrease on a percentage of revenue basis is a result of increased revenues and product mix, driven in part from our expanded relationship with Medco. On an absolute value basis, general and administrative expenses decreased from $42.1 million in the December 2004 quarter to $36.4 million in the March 2005 quarter. This decrease is primarily related to decreases in salaries and associated fringe benefits fringe benefits, n.pl the benefits, other than wages or salary, provided by an employer for employees (e.g., health insurance, vacation time, disability income). . These decreases were partially offset by approximately $1.4 million in transaction costs associated with Medco's proposed acquisition of the Company. These transaction costs primarily consisted of legal, investment banking and other professional fees. Q5) Why did bad debt expense decrease to 1.3% of revenue in the March 2005 quarter compared to 2.3% in the same quarter last year? A5) The decrease in bad debts as a percentage of revenues is primarily due to the following: (i) a decrease in the percentage of our revenues that were reimbursed by major medical benefit plans versus prescription card benefits; and (ii) the impact of changes in product mix, including the incremental Additional or increased growth, bulk, quantity, number, or value; enlarged. Incremental cost is additional or increased cost of an item or service apart from its actual cost. Medco revenues in the March 2005 quarter that did not exist in the same quarter last year. The change in revenue mix discussed above directly impacts the percentage of revenue reimbursed by prescription card benefits versus major medical benefit plans. The majority of the reimbursement provided by major medical benefit plans are subject to much higher co-payment and deductible That which may be taken away or subtracted. In taxation, an item that may be subtracted from gross income or adjusted gross income in determining taxable income (e.g., interest expenses, charitable contributions, certain taxes). amounts versus the typical $20 to $30 co-pay generally required by prescription card benefit plans. Q6) Why did interest expense (net) increase to $14.7 million in the nine months ended March 31, 2005, from $6.4 million in the nine months ended March 31, 2004? A6) Interest expense (net) for the nine months ended March 31, 2005, includes the write-off of approximately $4.4 million in unamortized debt issuance costs associated with the replacement and expansion of the Company's Senior Credit facility. This write-off was recorded during the September 2004 quarter. Upon the closing of the expanded facility (now at $550 million capacity), the Company increased its borrowings to $375.0 million. The borrowings were primarily used to fund the acquisition of Hemophilia Resources of America, Inc. (HRA HRA Health Reimbursement Arrangement HRA Health Risk Assessment HRA Housing and Redevelopment Authority HRA Human Resources Administration HRA Health Reimbursement Account HRA Housing Revenue Account ) that also occurred during the September 2004 quarter. Excluding the write-off of unamortized debt issuance costs, interest expense (net) would have been $10.3 million for the nine months ended March 31, 2005, as compared to $6.4 million for the nine months ended March 31, 2004. This increase is attributable to increased borrowings under the expanded facility and higher interest rates during fiscal 2005 as compared to the same period in fiscal 2004. Amounts borrowed under the previous Senior Credit facility were approximately $182.5 million at March 31, 2004. With regard to the expanded Senior Credit facility, we made a voluntary prepayment Prepayment 1. The payment of a debt obligation prior to its due date. 2. The excess payment over a scheduled debt repayment amount. Notes: 1. Examples include deferred expenses such as rent and early loan repayments. 2. of $25 million on March 31, 2005. Based on our near-term working capital requirements Capital requirements Financing required for the operation of a business, composed of long-term and working capital plus fixed assets. and the amount of cash on hand, we will continue to evaluate the possibility of making additional voluntary prepayments Prepayments Payments made in excess of scheduled mortgage principal repayments. . Amounts borrowed under the expanded Senior Credit facility were $347.2 million at March 31, 2005. Q7) Why was net cash provided by operating activities $32.7 million for the quarter ended March 31, 2005, as compared to $23.6 million for the quarter ended March 31, 2004 and net cash used in operating activities of $13.2 million for the quarter ended December 31, 2004? A7) The 38% increase in cash flow from operations in the March 2005 quarter as compared to the March 2004 quarter is primarily attributable to increases from the timing of payment of certain accounts payable, accrued expenses Accrued Expense An accounting expense recognized in the books before it is paid for. It is a liability, usually current. These expenses are typically periodic and documented upon a company's balance sheet due to the high probability of collection. , and income taxes, coupled with a decrease in inventory in the current quarter. The aforementioned increases were partially offset by an increase in 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 resulting from our sequential revenue growth. Day's sales outstanding (DSOs) decreased 12 days from 82 days as of March 31, 2004, to 70 days as of March 31, 2005. This is driven in part by the affect of our expanded PBM PBM - play by mail. See play by electronic mail. relationships, as well as improved billing and collection processes. We are pleased with the DSO See CSO. level we achieved as of March 31, 2005, and it is comparable to DSO levels that were attained before the acquisition of the SPS (Standby Power System) A UPS system that switches to battery backup upon detection of power failure. See UPS. SPS - Symbolic Programming System. Assembly language for IBM 1620. division from Gentiva Health Services Gentiva Health Services, headquartered in Long Island, New York, is one of the largest providers of health care and specialty pharmaceutical services in the United States. A publicly traded NASDAQ: GTIV company,[1] , Inc. in 2002. Net cash provided by operating activities was $32.7 million for the quarter ended March 31, 2005, as compared to net cash used in operating activities of $13.2 million for the quarter ended December 31, 2004. The $45.9 million increase in cash flow from operations primarily relates to a decrease in accounts receivable and inventory, coupled with an increase in the tax benefit of disqualifying disposition disqualifying disposition The sale, gift, or exchange of stock acquired through an employee stock purchase plan within two years of enrollment or one year of the purchase date. A disqualifying disposition results in ordinary income for tax purposes. of stock options. These increases were partially offset by a decrease in accounts payable and accrued expenses. Consolidated DSOs decreased from 73 days at December 31, 2004, to 70 days at March 31, 2005. Day's supply in inventory decreased to 28 days as of March 31, 2005, as compared to 32 days as of December 31, 2004. This decrease primarily relates to a reduction in blood clotting factor blood clotting factor Coagulation factor, see there inventory due to certain purchasing commitments that were fulfilled as of December 31, 2004. Q8) Why did net cash used in financing activities increase to $10.2 million in the quarter ended March 31, 2005, as compared to $0.1 million in the same quarter last year? A8) The increase in net cash used in financing activities is primarily due to a voluntary prepayment on the Company's Senior Credit Facility. As discussed above, in addition to the regularly scheduled principal payment, we made an additional $25 million voluntary prepayment on the last day of our fiscal third quarter. Also, we distributed $0.9 million to our joint venture partners during the March 2005 quarter. These amounts were partially offset by proceeds from the issuance of our common stock, primarily stemming from stock option exercises during the March 2005 quarter. Q9) What is the status of the launch of the Company's newest product, Ventavis(TM), and what impact will it have on the Company's results of operations and financial position as of and for the fiscal year ended June 30, 2005? A9) We began purchasing Ventavis(TM) (iloprost) Inhalation inhalation /in·ha·la·tion/ (in?hah-la´shun) 1. the drawing of air or other substances into the lungs.inhala´tional 2. the drawing of an aerosolized drug into the lungs with the breath. 3. Solution and the related product equipment at the end of our March 2005 quarter. In addition, we launched the product ahead of our anticipated timeline and shipped our first patients during the March 2005 quarter. The shipments and associated costs did not have a material impact on our consolidated results of operations or financial position as of and for the quarter ended March 31, 2005. We are encouraged by the volume of initial patient referrals and anticipate that Ventavis(TM) will be a material addition to our growing pulmonary hypertension Pulmonary Hypertension Definition Pulmonary hypertension is a rare lung disorder characterized by increased pressure in the pulmonary artery. The pulmonary artery carries oxygen-poor blood from the lower chamber on the right side of the heart (right product line. 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, risks associated with the proposed acquisition of the Company by Medco, 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, resolution of existing or future claims adverse to the Company, 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, 2004.
Accredo Health, Incorporated
Condensed Consolidated Statements of Income
(amounts in thousands, except share data)
(Unaudited) (Unaudited)
Nine Months Ended Three Months Ended
March 31, March 31,
2005 2004 2005 2004
Net patient revenue $ 1,411,120 $ 1,103,197 $ 507,914 $ 398,919
Other revenue 27,815 28,604 8,574 9,667
Equity in net income
of joint ventures 1,805 2,272 572 722
---------------------- ------------------------
Total revenues 1,440,740 1,134,073 517,060 409,308
Cost of sales 1,189,843 894,338 432,994 325,517
---------------------- ------------------------
Gross profit 250,897 239,735 84,066 83,791
General &
administrative
expenses 114,420 103,166 36,370 34,178
Bad debts 18,997 23,731 6,593 9,303
Depreciation and
amortization 11,850 9,333 4,017 3,277
---------------------- ------------------------
Income from
operations 105,630 103,505 37,086 37,033
Interest expense, net (14,681) (6,365) (3,819) (1,964)
Minority interest in
consolidated
subsidiary (510) (1,741) (133) (688)
---------------------- ------------------------
Income before income
taxes 90,439 95,399 33,134 34,381
Provision for income
taxes 35,015 36,855 12,959 13,254
---------------------- ------------------------
Net income $ 55,424 $ 58,544 $ 20,175 $ 21,127
====================== ========================
Earnings per share:
Basic $ 1.13 $ 1.22 $ 0.41 $ 0.44
Diluted $ 1.12 $ 1.20 $ 0.40 $ 0.43
Weighted average
shares outstanding:
Basic 48,891,593 48,050,099 49,130,520 48,307,891
Diluted 49,488,066 48,869,037 50,186,424 49,277,358
Condensed Consolidated Balance Sheets
(amounts in thousands)
(Unaudited)
March 31, June 30,
2005 2004
Cash & cash
equivalents $ 78,204 $ 42,743
Accounts receivable,
net 402,196 325,642
Inventories 153,107 128,323
Other current assets 61,048 52,370
Fixed assets, net 45,422 41,283
Other assets 580,012 407,821
-----------------------
Total assets $ 1,319,989 $ 998,182
=======================
Current liabilities $ 255,689 $ 192,504
Long-term debt 344,064 174,866
Other liabilities 33,966 28,869
Stockholders' equity 686,270 601,943
-----------------------
Total liabilities and
stockholders' equity$ 1,319,989 $ 998,182
=======================
Condensed Consolidated Statements of Cash Flow
(amounts in thousands)
(Unaudited) (Unaudited)
Nine Months Ended Three Months Ended
March 31, March 31,
2005 2004 2005 2004
Net cash provided by
operating activities$ 56,759 $ 49,206 $ 32,669 $ 23,584
Net cash used in
investing activities (205,115) (46,122) (8,024) (4,722)
Net cash provided by
(used in) financing
activities 183,817 (6,455) (10,215) (90)
---------------------- ------------------------
Increase (decrease)
in cash and cash
equivalents $ 35,461 $ (3,371) $ 14,430 $ 18,772
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