Express Scripts Announces 2017 Second Quarter Results
ST. LOUIS, July 25, 2017 /PRNewswire/ -- Express Scripts Holding Company (Nasdaq: ESRX) announced 2017 second quarter net income of $801.8 million or $1.37 per diluted share. 2017 second quarter adjusted earnings per diluted share was $1.73.*
"We leverage the power and potential of our independent model to succeed in the areas of healthcare that patients and clients value most," said Tim Wentworth, President and CEO, Express Scripts. "In just the past quarter, we launched two new ways to deliver more value directly to members at the point of sale, increased our ability to lower drug prices via a new group purchasing organization agreement, acquired a leading workers' compensation benefits company, and introduced novel SafeGuardRx solutions to address complex, expensive illnesses. These are just a few highlights, but they underline the unique value of our flexibility, innovation and independence: only Express Scripts can partner with anyone in the supply chain at any time to deliver better value to patients, clients and shareholders."
"We are currently developing a multi-year, enterprise-wide initiative to transform our organization by the end of 2021," added Eric Slusser, Chief Financial Officer. "We are investing to deliver an improved experience with better engagement and greater efficiency, which will evolve the way we do business with patients, providers and our clients. Based on our work to date, we estimate the initiative will deliver savings of approximately $550 million to $600 million annually by 2021. This initiative will also allow us to continue tackling the challenges plan sponsors face in an increasingly complex healthcare environment with an industry-leading cost position," said Slusser.
Second Quarter 2017 Results
The following compares second quarter 2017 and 2016 operating results:
-- Adjusted claims of 350.0 million, flat - See Table 1
-- GAAP net income of $801.8 million, up 11%
-- GAAP earnings per diluted share of $1.37, up 21%
-- EBITDA of $1,824.1 million, up 1% - See Table 3
-- EBITDA per adjusted claim of $5.21, up 1% - See Table 3
-- Adjusted net income of $1,011.6 million, up 1% - See Tables 5 and 5A
-- Adjusted earnings per diluted share of $1.73, up 10% - See Table 4
-- Net cash flow provided by operating activities of $1,081.2 million, up
146%
As expected, revenue and operating income of $52.6 million related to the Anthem contract was realized in the second quarter of 2017 compared to $106.6 million in the second quarter of 2016 due to the structure of the contract. See the table below for 2017 second quarter financial results attributable to Anthem.
2017 Guidance
The Company increased its guidance for 2017 adjusted earnings per diluted share from a range of $6.90 to $7.04 to a range of $6.95 to $7.05, which represents growth of 10% over 2016 adjusted earnings per diluted share results at the mid-point of the range.
The Company expects total adjusted claims for the third quarter of 2017 to be in the range of 340 million to 350 million. Adjusted earnings per diluted share for the third quarter of 2017 is estimated to be in the range of $1.88 to $1.92, which represents growth of 8% to 10% over the third quarter of 2016.
Additional details on this guidance can be found in Table 6. For a discussion of the financial measures presented herein which are not calculated or presented in accordance with U.S. generally accepted accounting principles ("GAAP"), see "Supplemental Information Regarding Non-GAAP Financial Measures" below.
Contribution of Anthem, Coventry and Catamaran
As previously disclosed, while Anthem has not provided formal written notice that it does not intend to renew its contract with the Company, based on statements in conversations with Anthem management and other actions taken by Anthem, the Company believes it is unlikely its contract with Anthem will be extended. The table below provides the portion of our estimated 2017 second quarter financial results attributable to Anthem (also see Tables 7 and 8 for further details of 2017 second quarter and 2016 full year financial results attributable to Anthem). In addition to disclosing the estimated impact of the Anthem contribution, the tables below include the estimated contribution of the Company's remaining business with Coventry and Catamaran, both of which were acquired and are rolling off the Company's book of business. The Company is providing this information to assist in an analysis of the underlying performance of the Company's core PBM business, excluding the contributions from Coventry and Catamaran, to which we refer together as the "Transitioning Clients," as well as Anthem.
Second Quarter 2017 Overview
(in millions, except per claim data) Q2 2017 Anthem and Transitioning
Clients(1) Q2 2017
(Consolidated, (Excluding
as reported) Anthem and
Transitioning
Clients)(1)
--- ----------
Q2 2017* Q2 2017
(Attributable to (Attributable to
Anthem) Transitioning
Clients)
--- -------
Adjusted claims 350.0 58.4 0.7 290.9
--------------- ----- ---- --- -----
Revenues(2) $25,347.5 $4,739.1 $148.4 $20,460.0
---------- --------- -------- ------ ---------
Net Income $801.8 N/A N/A N/A
---------- ------ --- --- ---
EBITDA(3) $1,824.1 $609.1 $44.4 $1,170.6
-------- -------- ------ ----- --------
EBITDA per adjusted claim(3) $5.21 $10.43 N/A $4.02
--------------------------- ----- ------ --- -----
* Includes $52.6 million
payment related to the
structure of the Anthem
contract.
See "Footnotes to Press
Release," below.
In the second quarter of 2017 our core PBM business, excluding Anthem and the Transitioning Clients, had EBITDA growth of 6.0% and EBITDA per adjusted claim growth of 5.8% when compared to the second quarter of 2016 (see Table 7).
Business Outlook
The Company is updating its expected 2018 retention rate for the 2017 selling season to be in the range of 94% to 96%, excluding the impact of the remaining Coventry business rolling off in 2017.
The Company's enterprise value initiative is currently estimated to cost approximately $600 million to $650 million and to deliver cumulative savings of nearly $1.2 billion by 2021. This initiative is expected to help the Company achieve its targeted Core PBM compounded annual EBITDA growth rate from 2017-2020 of 2% to 4% and drive significant value to all of our patients and clients beginning in 2018. The Company expects to formalize the plan for our enterprise value initiative by the end of 2017.
Conference Call Details
The Company will hold its quarterly conference call to discuss 2017 second quarter financial results and the other matters discussed in this press release on Wednesday, July 26, 2017, at 8:30 a.m. EDT (7:30 a.m. CDT). The call includes a slide presentation and is being webcast via the Internet and can be accessed at the Investor Relations section of Express Scripts' web site at http://www.express-scripts.com/corporate.
About Express Scripts
Express Scripts puts medicine within reach of tens of millions of people by aligning with plan sponsors, taking bold action and delivering patient-centered care to make better health more affordable and accessible.
Headquartered in St. Louis, Express Scripts provides integrated pharmacy benefit management services, including network-pharmacy claims processing, home delivery pharmacy care, specialty pharmacy care, specialty benefit management, benefit-design consultation, drug utilization review, formulary management, and medical and drug data analysis services. Express Scripts also distributes a full range of biopharmaceutical products and provides extensive cost-management and patient-care services.
For more information, visit Lab.Express-Scripts.com or follow @ExpressScripts on Twitter.
Supplemental Information Regarding Non-GAAP Financial Measures
The following provides supplemental information regarding the non-GAAP financial measures presented herein, including the reconciliation of such measures to the most directly comparable financial measures calculated in accordance with GAAP. Adjusted earnings per diluted share (or adjusted EPS), EBITDA, adjusted EBITDA, EBITDA per adjusted claim, adjusted EBITDA per adjusted claim, adjusted net income, adjusted income before income taxes, adjusted gross profit and adjusted selling, general and administrative are non-GAAP financial measures presented herein, are not calculated or presented in accordance with GAAP, and should be considered in addition to, but not as a substitute for, or superior to, financial measures prepared in accordance with GAAP. The Company believes that these non-GAAP financial measures provide management and investors with useful information about the earnings impact of certain expenses and are useful for (i) comparison of our earnings to those of other companies; (ii) a better understanding of the Company's ongoing core performance; (iii) planning and forecasting for future periods; and (iv) assessing period-to-period performance trends. Management assesses the Company's operating performance using EBITDA and adjusted EBITDA in order to better isolate the impact of certain expenses that may not be comparable between periods or indicative of the ongoing performance of our core operations. EBITDA per adjusted claim and adjusted EBITDA per adjusted claim provide management and investors with useful information about the earnings and performance of the Company on a per unit basis.
2017 Guidance Information: Due to the inherent difficulty of forecasting the timing and amount of certain items that would impact EPS and net income, including discrete tax items, the Company is unable to reasonably estimate the related impact of such items to EPS and net income, the GAAP financial measures most directly comparable to adjusted EPS and EBITDA, respectively. Accordingly, the Company is unable to provide a reconciliation of 2017 guidance for either adjusted EPS to EPS or EBITDA to net income. For the same reasons, the Company is unable to address the probable significance of the unavailable information, which could have a significant impact on the Company's third quarter and full-year 2017 GAAP financial results. With respect to adjusted EPS, amortization of intangible assets is expected to be approximately $0.40 and $1.57 per share for the third quarter and full-year 2017, respectively.
Financial Information for Anthem and Transitioning Clients and our Core PBM Business: The financial measures attributable to Anthem, the Transitioning Clients and our Core PBM Business presented herein, including EBITDA, adjusted EBITDA, EBITDA per adjusted claim and adjusted EBITDA per adjusted claim are also non-GAAP financial measures. These measures are not calculated or presented in accordance with GAAP, and should be considered in addition to, but not as a substitute for, or superior to, financial measures prepared in accordance with GAAP. These measures represent operating results attributable to specific clients of the Company; however, they are not regularly reviewed by our Chief Executive Officer to assess the performance of any of these clients or make decisions about resources to be allocated to any such client. These measures also reflect management's estimates as to allocation of costs of its PBM business to Anthem and each of the Transitioning Clients and may not be indicative of costs actually incurred as a result of servicing each of these clients. However, management is unable to reasonably estimate the allocation of certain key items that would impact net income attributable to Anthem and each of the Transitioning Clients, including interest and depreciation and amortization. Accordingly, the Company is unable to provide net income attributable to any of Anthem and the Transitioning Clients or its core PBM business excluding Anthem and the Transitioning Clients, and is unable to provide a reconciliation of either EBITDA or adjusted EBITDA to net income. For the same reasons, the Company is unable to address the probable significance of the unavailable information, which could have a significant impact on the Company's long-term outlook for the core PBM, as discussed above.
SAFE HARBOR STATEMENT
This press release contains forward-looking statements, including, but not limited to, our 2017 guidance, business outlook and our statements related to the Company's plans, objectives, expectations (financial and otherwise) or intentions. Actual results may differ materially from those projected or suggested in any forward-looking statements. Factors that may impact these forward-looking statements can be found in Management's Discussion and Analysis of Financial Condition and Results of Operations and Item 1A - "Risk Factors" in the Company's Annual Report on Form 10-K filed with the SEC on February 14, 2017 and the Company's Quarterly Report on Form 10-Q filed with the SEC on July 25, 2017. A copy of these documents can be found at the Investor Information section of Express Scripts' web site at http://www.express-scripts.com/corporate.
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. As stated above, based on Anthem's recent statements and other actions taken by Anthem, the Company believes it is unlikely that its contract with Anthem will be extended. We do not currently intend to release publicly any updates regarding our relationship with Anthem after the date hereof, whether as a result of renewed discussions with Anthem or otherwise.
*All net income, adjusted net income, earnings per diluted share, adjusted earnings per diluted share, EBITDA, adjusted EBITDA, EBITDA per adjusted claim and adjusted EBITDA per adjusted claim amounts are presented as attributable to Express Scripts, excluding non-controlling interest representing the share allocated to members of our consolidated affiliates.
EXPRESS SCRIPTS HOLDING COMPANY
Unaudited Consolidated Statement of Operations
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
(in millions, except per share data) 2017 2016 2017 2016
---- ---- ---- ----
Revenues* $25,347.5 $25,222.3 $50,002.4 $50,014.1
Cost of revenues* 23,186.3 23,061.1 45,968.5 46,005.9
-------- -------- -------- --------
Gross profit 2,161.2 2,161.2 4,033.9 4,008.2
Selling, general and administrative 782.6 904.9 1,600.7 1,811.1
----- ----- ------- -------
Operating income 1,378.6 1,256.3 2,433.2 2,197.1
------- ------- ------- -------
Other (expense) income:
Interest income and other 8.8 10.3 15.1 19.1
Interest expense and other (146.5) (136.8) (292.2) (275.4)
------ ------ ------ ------
(137.7) (126.5) (277.1) (256.3)
------ ------ ------ ------
Income before income taxes 1,240.9 1,129.8 2,156.1 1,940.8
Provision for income taxes 435.4 402.7 800.3 681.5
----- ----- ----- -----
Net income 805.5 727.1 1,355.8 1,259.3
Less: Net income attributable to non-controlling interest 3.7 6.4 7.7 12.5
--- --- --- ----
Net income attributable to Express Scripts $801.8 $720.7 $1,348.1 $1,246.8
====== ====== ======== ========
Weighted-average number of common shares
outstanding during the period:
Basic 582.9 631.3 591.9 638.1
Diluted 585.6 635.7 595.4 642.7
Earnings per share attributable to Express Scripts:
Basic $1.38 $1.14 $2.28 $1.95
Diluted $1.37 $1.13 $2.26 $1.94
* Includes retail pharmacy co-
payments of $2,017.6 million
and $2,136.4 million for the
three months ended June 30,
2017 and 2016, respectively,
and $4,483.9 million and
$4,677.4 million for the six
months ended June 30, 2017 and
2016, respectively.
EXPRESS SCRIPTS HOLDING COMPANY
Unaudited Consolidated Balance Sheet
June 30, December 31,
(in millions) 2017 2016
---- ----
Assets
Current assets:
Cash and cash equivalents $2,352.5 $3,077.2
Receivables, net 7,067.5 7,062.1
Inventories 1,918.7 1,959.0
Prepaid expenses and other current assets 298.1 265.1
----- -----
Total current assets 11,636.8 12,363.4
Property and equipment, net 1,255.2 1,273.6
Goodwill 29,425.5 29,277.8
Other intangible assets, net 8,063.9 8,636.9
Other assets 132.0 193.2
Total assets $50,513.4 $51,744.9
========= =========
Liabilities and stockholders' equity
Current liabilities:
Claims and rebates payable $9,081.1 $8,836.9
Accounts payable 4,383.6 3,875.7
Accrued expenses 2,163.3 2,993.2
Current maturities of long-term debt 1,151.3 722.3
------- -----
Total current liabilities 16,779.3 16,428.1
Long-term debt 13,835.2 14,846.0
Deferred taxes 3,471.2 3,603.3
Other liabilities 677.6 623.7
Total liabilities 34,763.3 35,501.1
-------- --------
Stockholders' equity:
Preferred stock, 15.0 shares authorized, $0.01 par value per share;
no shares issued and outstanding - -
Common stock, 2,985.0 shares authorized, $0.01 par value per share;
shares issued: 861.3 and 857.5, respectively;
shares outstanding: 577.5 and 605.5, respectively 8.6 8.6
Additional paid-in capital 23,446.8 23,233.6
Accumulated other comprehensive loss (7.6) (12.3)
Retained earnings 13,149.3 11,801.2
-------- --------
36,597.1 35,031.1
Common stock in treasury at cost, 283.8 and 252.0 shares, respectively (20,852.5) (18,795.1)
--------- ---------
Total Express Scripts stockholders' equity 15,744.6 16,236.0
-------- --------
Non-controlling interest 5.5 7.8
--- ---
Total stockholders' equity 15,750.1 16,243.8
-------- --------
Total liabilities and stockholders' equity $50,513.4 $51,744.9
========= =========
EXPRESS SCRIPTS HOLDING COMPANY
Unaudited Consolidated Statement of Cash Flows
Six Months Ended
June 30,
--------
(in millions) 2017 2016
---- ----
Cash flows from operating activities:
Net income $1,355.8 $1,259.3
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 894.8 1,073.5
Deferred income taxes (175.6) (212.3)
Employee stock-based compensation expense 52.1 54.7
Other, net 20.4 (4.5)
Changes in operating assets and liabilities:
Accounts receivable (26.2) (670.6)
Inventories 40.3 307.4
Other current and noncurrent assets (23.6) (74.5)
Claims and rebates payable 240.2 (761.8)
Accounts payable 475.4 751.1
Accrued expenses (818.0) (452.6)
Other current and noncurrent liabilities 46.0 (79.6)
---- -----
Net cash flows provided by operating activities 2,081.6 1,190.1
------- -------
Cash flows from investing activities:
Acquisitions, net of cash acquired (122.7) -
Purchases of property and equipment (105.3) (158.5)
Other, net (7.5) (3.4)
Net cash used in investing activities (235.5) (161.9)
------ ------
Cash flows from financing activities:
Treasury stock acquired (2,020.0) (3,320.2)
Repayment of long-term debt (575.0) (1,575.0)
Net proceeds from employee stock plans 37.5 35.9
Proceeds from long-term debt, net of discounts - 1,991.0
Excess tax benefit relating to employee stock-based compensation - 9.7
Other, net (16.3) (35.4)
Net cash used in financing activities (2,573.8) (2,894.0)
-------- --------
Effect of foreign currency translation adjustment 3.0 3.9
Net decrease in cash and cash equivalents (724.7) (1,861.9)
Cash and cash equivalents at beginning of period 3,077.2 3,186.3
------- -------
Cash and cash equivalents at end of period $2,352.5 $1,324.4
======== ========
Table 1
Express Scripts Holding Company Unaudited Consolidated Selected Information
(in millions)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2017 2016 2017 2016
---- ---- ---- ----
Claims Volume
Network 218.8 221.2 441.9 447.3
Home delivery and specialty(4) 29.5 29.5 58.5 59.8
Total claims 248.3 250.7 500.4 507.1
----- ----- ----- -----
Adjusted network(5) 264.1 263.4 531.2 530.9
Adjusted home delivery and specialty(5) 85.9 85.9 170.5 174.7
---- ---- ----- -----
Total adjusted claims(5) 350.0 349.3 701.7 705.6
===== ===== ===== =====
Depreciation and Amortization (D&A):
Revenue amortization(6) $55.4 $55.4 $110.8 $89.7
Cost of revenues depreciation 32.3 29.1 64.3 58.0
Selling, general and administrative depreciation 52.8 55.4 104.0 108.5
Selling, general and administrative amortization(6) 308.7 408.3 615.7 817.3
Total D&A $449.2 $548.2 $894.8 $1,073.5
====== ====== ====== ========
Generic Fill Rate**
Network 87.2% 86.3% 87.1% 86.1%
Home delivery 82.8% 80.9% 82.5% 80.3%
Overall 86.6% 85.6% 86.5% 85.4%
See Footnotes to Tables
**The home delivery generic fill rate is currently lower than the
network generic fill rate as fewer generic substitutions are
available among maintenance medications (e.g., therapies for chronic
conditions) commonly dispensed from home delivery pharmacies compared
to acute medications, which are primarily dispensed by pharmacies in
our retail networks.
Table 2
Express Scripts Holding Company Unaudited Adjusted Gross Profit and Adjusted SG&A Reconciliation
Provided below are reconciliations of adjusted gross profit and adjusted selling, general and administrative expenses, which are non-GAAP measures, to gross profit and selling, general and administrative expenses,
respectively, which are the most directly comparable measures calculated in accordance with GAAP.
(in millions)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2017 2016 2017 2016
---- ---- ---- ----
Gross profit, as reported $2,161.2 $2,161.2 $4,033.9 $4,008.2
Amortization of intangible assets (6) 55.4 55.4 110.8 89.7
Adjusted gross profit $2,216.6 $2,216.6 $4,144.7 $4,097.9
======== ======== ======== ========
Selling, general and administrative, as reported $782.6 $904.9 $1,600.7 $1,811.1
Amortization of intangible assets (6) 308.7 408.3 615.7 817.3
Adjusted selling, general and administrative $473.9 $496.6 $985.0 $993.8
====== ====== ====== ======
See Footnotes to Press
Release
Table 3
Express Scripts Holding Company Unaudited EBITDA Reconciliation
(in millions, except per claim data)
Provided below is a reconciliation of EBITDA attributable to Express Scripts, which is a non-GAAP financial measure, to net income attributable to Express Scripts. The Company believes net income is the most directly comparable
measure under GAAP.
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2017 2016 2017 2016
---- ---- ---- ----
Net income attributable to Express Scripts, as reported $801.8 $720.7 $1,348.1 $1,246.8
Provision for income taxes (7) 435.4 402.7 800.3 681.5
Depreciation and amortization (6) 449.2 548.2 894.8 1,073.5
Interest expense, interest income and other 137.7 126.5 277.1 256.3
----- ----- ----- -----
EBITDA attributable to Express Scripts $1,824.1 $1,798.1 $3,320.3 $3,258.1
Total adjusted claims(5) 350.0 349.3 701.7 705.6
EBITDA attributable to Express Scripts, per adjusted claim $5.21 $5.15 $4.73 $4.62
See Footnotes to Press
Release
Table 4
Express Scripts Holding Company Unaudited Adjusted Diluted EPS Reconciliation
Provided below is a reconciliation of Adjusted Diluted EPS attributable to Express Scripts, which is a non-GAAP measure, to diluted
EPS attributable to Express Scripts, which is its most directly comparable measure calculated in accordance with GAAP.
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2017 2016 2017 2016
(per diluted share)
Diluted EPS attributable to Express Scripts, as reported $1.37 $1.13 $2.26 $1.94
Excluding items indicated:
Debt redemption costs (8),* - - - 0.02
Discrete tax items (7) (0.03) (0.02) 0.02 (0.05)
Amortization of intangible assets (6),* 0.62 0.73 1.22 1.41
Tax impact of excluded items (9) (0.23) (0.27) (0.45) (0.53)
Diluted EPS attributable to Express Scripts, adjusted $1.73 $1.57 $3.05 $2.79
----- ----- ----- -----
See Footnotes to Press
Release
*Presented on a pre-tax basis. A change to the presentation of this
table was made to reflect the tax impact of non-GAAP excluded items
as a single adjustment for the three and six months ended June 30,
2017 and 2016.
Table 5
Express Scripts Holding Company Unaudited Adjusted Net Income and
Adjusted Effective Income Tax Rate Reconciliation
(in millions)
Presented below is a reconciliation of adjusted net income attributable to Express Scripts, which is a non-GAAP financial measure, to income before income taxes, which is its most directly comparable measure calculated in accordance with GAAP.
Three Months Ended Six Months Ended
June 30, 2017 June 30, 2017
------------- -------------
Income Provision Effective Income Provision Effective
before for income income tax before for income income tax
income taxes rate income taxes rate
taxes taxes
----- -----
Income before income taxes, as reported $1,240.9 $435.4 $2,156.1 $800.3
Net income attributable to non-controlling interest (3.7) - (7.7) -
---- --- ---- ---
Income before income taxes attributable to Express Scripts 1,237.2 435.4 35.2% 2,148.4 800.3 37.3%
Excluding items indicated:
Discrete tax items(7) - 20.2 - (9.7)
Amortization of intangible assets(6) 364.1 134.1 726.5 267.3
----- ----- ----- -----
Income before income taxes attributable to Express Scripts,
as adjusted $1,601.3 $589.7 36.8% $2,874.9 $1,057.9 36.8%
Adjusted net income attributable to Express Scripts $1,011.6 $1,817.0
See Footnotes to Press
Release
Table 5A
Express Scripts Holding Company Unaudited Adjusted Net Income and
Adjusted Effective Income Tax Rate Reconciliation
(in millions)
Presented below is a reconciliation of adjusted net income attributable to Express Scripts, which is a non-GAAP financial measure, to income before income taxes, which is its most directly comparable measure calculated in accordance with GAAP.
Three Months Ended Six Months Ended
June 30, 2016 June 30, 2016
------------- -------------
Income Provision Effective Income Provision f Effective
before for income income tax before or income income tax
income taxes rate income taxes rate
taxes taxes
----- -----
Income before income taxes, as reported $1,129.8 $402.7 $1,940.8 $681.5
Net income attributable to non-controlling interest (6.4) - (12.5) -
---- --- ----- ---
Income before income taxes attributable to Express Scripts 1,123.4 402.7 35.8% 1,928.3 681.5 35.3%
Excluding items indicated:
Debt redemption costs (8) - - 9.7 3.6
Discrete tax items(7) - 13.8 - 33.5
Amortization of intangible assets(6) 463.7 171.9 907.0 336.3
----- ----- ----- -----
Income before income taxes attributable to Express Scripts,
as adjusted $1,587.1 $588.4 37.1% $2,845.0 $1,054.9 37.1%
Adjusted net income attributable to Express Scripts $998.7 $1,790.1
See Footnotes to Press
Release
Table 6
Express Scripts Holding Company Unaudited 2017 Guidance Information
Adjusted diluted EPS and EBITDA are non-GAAP financial measures. For a discussion of the financial measures presented herein that are not calculated or presented in accordance with GAAP, see "Supplemental
Information Regarding Non-GAAP Financial Measures" above.
Estimated Estimated
Year Ending Year Ending
December 31, 2017 December 31, 2017
(in millions, except per share data) Current Guidance Previous Guidance
---------------- -----------------
Adjusted Diluted EPS attributable to Express Scripts $6.95 to $7.05 $6.90 to $7.04
Year over year growth 9%-10% 8%-10%
Total adjusted claims 1,385 to 1,415 1,375 to 1,425
EBITDA attributable to Express Scripts $7,330 to $7,490 $7,310 to $7,510
Diluted weighted average shares outstanding during the period 580 to 590 575 to 595
Net cash flow provided by operating activities $4,700 to $5,200 $4,700 to $5,200
Estimated
Three Months Ending
September 30, 2017
(in millions, except per share data) Current Guidance
----------------
Adjusted Diluted EPS attributable to Express Scripts $1.88 to $1.92
Year over year growth 8%-10%
Total adjusted claims 340 to 350
Table 7
Express Scripts Holding Company Operating Results Excluding Estimate of Contribution related to Anthem and Transitioning Clients
(amounts in millions except per claim figures)
(Three months ended) Q2 2017 Q2 2016 Q2 2017 Change
--------------
Consolidated Anthem(1) Transitioning Excluding Consolidated Anthem(1) Transitioning Excluding As Reported Excluding
As Reported Clients(1) Anthem & As Reported (Table 8) Clients(1) Anthem & Anthem &
Q2 2017 Transitioning Q2 2016 (Table 8) Transitioning Transitioning
Clients(1) Clients(1) Clients(1)
--------- --------- ---------
Adjusted claims Table 1 350.0 58.4 0.7 290.9 349.3 54.2 4.9 290.2 0.2% 0.2%
Revenues(2) $25,347.5 $4,739.1 $148.4 $20,460.0 $25,222.3 $4,354.9 $471.9 $20,395.5 0.5% 0.3%
Net income $801.8 N/A N/A N/A $720.7 N/A N/A N/A 11.3% N/A
EBITDA(3) Table 3 $1,824.1 $609.1 $44.4 $1,170.6 $1,798.1 $644.7 $49.5 $1,103.9 1.4% 6.0%
EBITDA/adjusted claim(3) Table 3 $5.21 $10.43 N/A $4.02 $5.15 $11.89 N/A $3.80 1.2% 5.8%
(Six months ended) Q2 2017 Q2 2016 Q2 2017 Change
--------------
Consolidated Anthem(1) Transitioning Excluding Consolidated Anthem(1) Transitioning Excluding As Reported Excluding
As Reported Clients(1) Anthem & As Reported (Table 8) Clients(1) Anthem & Anthem &
Q2 2017 Transitioning Q2 2016 (Table 8) Transitioning Transitioning
Clients(1) Clients(1) Clients(1)
--------- --------- ---------
Adjusted claims Table 1 701.7 117.4 1.6 582.7 705.6 108.7 10.5 586.4 -0.6% -0.6%
Revenues(2) $50,002.4 $9,262.1 $361.4 $40,378.9 $50,014.1 $8,451.6 $929.4 $40,633.1 0.0% -0.6%
Net income $1,348.1 N/A N/A N/A $1,246.8 N/A N/A N/A 8.1% N/A
EBITDA(3) Table 3 $3,320.3 $1,104.1 $98.5 $2,117.7 $3,258.1 $1,112.6 $99.5 $2,046.0 1.9% 3.5%
EBITDA/adjusted claim(3) Table 3 $4.73 $9.40 N/A $3.63 $4.62 $10.24 N/A $3.49 2.4% 4.0%
See Footnotes to Press
Release.
Table 8
Express Scripts Holding Company - Estimate of Anthem and
Transitioning Clients Contribution by Quarter
(amounts in millions except per claim figures)
Anthem(1),(3)
Q1 2016 Q2 2016 Q3 2016 Q4 2016
------- ------- ------- -------
Adjusted Claims 54.5 54.2 54.3 56.6
Revenues(2) $4,096.7 $4,354.9 $4,243.0 $4,381.3
Adjusted EBITDA* $467.9 $644.7 $572.1 $563.3
Adjusted EBITDA/adjusted claim* $8.59 $11.89 $10.54 $9.95
Transitioning Clients(1),(3)
Q1 2016 Q2 2016 Q3 2016 Q4 2016
------- ------- ------- -------
Adjusted Claims 5.6 4.9 4.6 3.9
Revenues $457.5 $471.9 $411.5 $356.0
Adjusted EBITDA* $50.0 $49.5 $49.3 $73.6
Combined Contribution(1),(3)
Q1 2016 Q2 2016 Q3 2016 Q4 2016
------- ------- ------- -------
Adjusted Claims 60.1 59.1 58.9 60.5
Revenues(2) $4,554.2 $4,826.8 $4,654.5 $4,737.3
Adjusted EBITDA* $517.9 $694.2 $621.4 $636.9
Core PBM (Excluding Anthem and Transitioning Clients)(1),(3)
Q1 2016 Q2 2016 Q3 2016 Q4 2016
------- ------- ------- -------
Adjusted Claims 296.2 290.2 288.2 294.4
Revenues $20,237.6 $20,395.5 $20,755.6 $20,126.0
Adjusted EBITDA* $942.1 $1,103.9 $1,326.7 $1,417.3
Adjusted EBITDA/adjusted claim* $3.18 $3.80 $4.60 $4.81
(*) Adjusted EBITDA with respect to Q1,
Q2 and Q3 2016 is equal to "EBITDA" as
no adjustments to EBITDA were made for
these periods and Q4 included an
adjustment for other compensation costs
of $41.2 million and is equal to
"Adjusted EBITDA."
See Footnotes to Press Release
Footnotes to Press Release
(1) Amounts attributable to Anthem
and each of the Transitioning
Clients are based on management's
estimates regarding, among other
items, cost allocation and may not
be indicative of costs actually
incurred as a result of servicing
Anthem and each of the Transitioning
Clients. Both direct and indirect
costs were allocated based on
management's best estimates of costs
attributable to servicing Anthem and
each of the Transitioning Clients,
and, where appropriate, are based on
actual cost or adjusted claims
attributable to Anthem and each of
the Transitioning Clients.
(2) Consolidated revenues and Anthem
revenues include intangible
amortization related to the customer
contract with Anthem of $55.4
million for the three months ended
June 30, 2017 and 2016,
respectively. Consolidated revenues
and Anthem revenues include
intangible amortization related to
the customer contract with Anthem of
$110.8 million and $89.7 million for
the six months ended June 30, 2017
and 2016, respectively.
(3) EBITDA, Adjusted EBITDA, EBITDA
per adjusted claim and adjusted
EBITDA per adjusted claim are non-
GAAP financial measures. For a
discussion of the financial measures
presented herein that are not
calculated or presented in
accordance with U.S. generally
accepted accounting principles
("GAAP"), see "Supplemental
Information Regarding Non-GAAP
Financial Measures" above.
(4) Includes home delivery,
specialty and other including: (i)
drugs distributed through patient
assistance programs, (ii) drugs
distributed to clients of other PBMs
under limited distribution contracts
with pharmaceutical manufacturers
and (iii) Freedom Fertility claims.
(5) Total adjusted network claims
includes an adjustment to reflect
non-specialty network claims filled
through our 90-day programs. These
claims are now multiplied by three,
as these claims, on average,
typically cover a time period three
times longer than other network
claims. Home delivery claims are
also multiplied by three, consistent
with prior practice, as home
delivery claims typically cover a
time period three times longer than
unadjusted network claims. See
Footnotes to Press Release -
Schedule A below.
(6) Amortization of intangible assets
includes the following items:
Amortization of legacy Express
Scripts, Inc. ("ESI") intangible
assets include amounts in both
revenues and selling, general and
administrative expense.
Revenue amortization is related to
the customer contract with Anthem,
which commenced upon closing of the
NextRx acquisition in 2009.
Amortization of intangibles that
arises in connection with
consideration given to a customer by
a vendor is characterized as a
reduction of revenues. Intangible
amortization of $55.4 million ($35.1
million net of tax) and $55.4
million ($34.8 million net of tax)
is included as a reduction to
revenue for the three months ended
June 30, 2017 and 2016,
respectively. Intangible
amortization of $110.8 million
($70.1 million net of tax) and $89.7
million ($56.4 million net of tax)
is included as a reduction to
revenue for the six months ended
June 30, 2017 and 2016,
respectively. The Company's 10-year
agreement with Anthem under which we
provide pharmacy benefit management
services to Anthem and its
designated affiliates was previously
amortized using a modified pattern
of benefit method over an estimated
useful life of 15 years. Beginning
in March 2016, we began amortizing
our agreement with Anthem over the
remaining term of the contract
(i.e., using a modified pattern of
benefit over an estimated useful
life of 10 years from the time the
agreement was executed in 2009),
which resulted in an additional
$31.7 million of revenue
amortization recognized for both the
three months ended June 30, 2017 and
2016, respectively, and an
additional $63.4 million and $42.2
million of revenue amortization
recognized for the six months ended
June 30, 2017 and 2016,
respectively.
Other legacy ESI intangible
amortization of $21.1 million ($13.3
million net of tax) and $9.5 million
($6.0 million net of tax) for the
three months ended June 30, 2017 and
2016, respectively, is included in
selling, general and administrative
expense. Other legacy ESI
intangible amortization of $29.0
million ($18.3 million net of tax)
and $18.9 million ($11.9 million net
of tax) for the six months ended
June 30, 2017 and 2016,
respectively, is included in
selling, general and administrative
expense.
Amortization of intangible assets
related to the acquisition of Medco
of $287.6 million ($181.6 million
net of tax) and $398.8 million
($251.0 million net of tax) for the
three months ended June 30, 2017 and
2016, respectively, is included in
selling, general and administrative
expense. Amortization of intangible
assets related to the acquisition of
Medco of $586.7 million ($370.8
million net of tax) and $798.4
million ($502.4 million net of tax)
for the six months ended June 30,
2017 and 2016, respectively, is
included in selling, general and
administrative expense.
(7) Provision for income taxes
includes discrete tax benefits of
$20.2 million and $13.8 million for
the three months ended June 30, 2017
and 2016, respectively, and includes
discrete tax charges of $9.7 million
and discrete tax benefits of $33.5
million for the six months ended
June 30, 2017 and 2016,
respectively. The 2017 net discrete
tax items relate primarily to a
revaluation of net deferred tax
attributes. The 2016 net discrete
tax items relate primarily to
changes in unrecognized tax
benefits.
(8) Debt redemption costs, which
include write-off of discounts,
write-off of deferred financing
costs and interest accrued from
February 25, 2016 to the redemption
date incurred for the early
redemption of senior notes, totaled
$9.7 million ($6.1 million net of
tax) and are included in interest
expense for the six months ended
June 30, 2016.
(9) Represents adjustment for the
tax impact related to non-GAAP
items excluded from adjusted diluted
EPS. See Table 5 and 5A for
calculation of adjusted effective
income tax rate.
Footnotes to Press Release: Schedule A
Express Scripts Holding Company Unaudited 2016 and 2015 Claims Recast
As previously reported in our February 14, 2017 press release and explained in footnote (5), we changed our methodology for calculating network claims retrospectively for 2016 and 2015. Provided below are recasts of the revised methodology for reporting network claims.
(in millions)
As reported Revision Revised Q1 As reported Revision Revised As reported Revision Revised Q3
Q1 2016 2016 Q2 2016 Q2 2016 Q3 2016 2016
------- ---- ------- ------- ------- ----
Claims Volume
Network 226.1 - 226.1 221.2 - 221.2 217.0 - 217.0
Home delivery and specialty(4) 30.3 - 30.3 29.5 - 29.5 30.0 - 30.0
---- --- ---- ---- --- ---- ---- --- ----
Total claims 256.4 - 256.4 250.7 - 250.7 247.0 - 247.0
Adjusted network(5) 234.7 32.8 267.5 229.4 34.0 263.4 224.5 34.9 259.4
Adjusted home delivery and
specialty(5) 88.8 - 88.8 85.9 - 85.9 87.7 - 87.7
---- --- ---- ---- --- ---- ---- --- ----
Total adjusted claims(5) 323.5 32.8 356.3 315.3 34.0 349.3 312.2 34.9 347.1
As reported Revision Revised As reported Revision Revised As reported Revision Revised Q3
Q1 2015 Q1 2015 Q2 2015 Q2 2015 Q3 2015 2015
------- ------- ------- ------- ------- ----
Claims Volume
Network 219.1 - 219.1 228.2 - 228.2 232.8 - 232.8
Home delivery and specialty(4) 30.2 - 30.2 30.2 - 30.2 30.0 - 30.0
---- --- ---- ---- --- ---- ---- --- ----
Total claims 249.3 - 249.3 258.4 - 258.4 262.8 - 262.8
Adjusted network(5) 219.1 33.0 252.1 232.9 35.6 268.5 240.8 36.9 277.7
Adjusted home delivery and
specialty(5) 88.5 - 88.5 88.3 - 88.3 87.5 - 87.5
---- --- ---- ---- --- ---- ---- --- ----
Total adjusted claims(5) 307.6 33.0 340.6 321.2 35.6 356.8 328.3 36.9 365.2
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SOURCE Express Scripts Holding Company
