Express Scripts Announces 2017 Fourth Quarter and Full Year Results
ST. LOUIS, Feb. 27, 2018 /PRNewswire/ -- Express Scripts Holding Company (Nasdaq: ESRX) announced consolidated 2017 fourth quarter and full year net income of $2,327.6 million and $4,517.4 million, respectively, or $4.10 and $7.74 per diluted share, respectively. Consolidated 2017 fourth quarter and full year adjusted earnings per diluted share were $2.16 and $7.10, respectively.*
"Throughout 2017, Express Scripts kept our patients and clients ahead of the curve by providing best-in-class solutions. These solutions limited prescription drug spending growth to an average of 1.5% over 2016, a record low, for commercial plans," said Tim Wentworth, President and CEO. "We have also seen a strong start to 2018, with outstanding client implementations, a solid start to the selling season and new strategic collaborations. With this foundation and momentum, we are well positioned to drive core business growth in 2018 and beyond."
Business Outlook
"With a significant number of our largest renewals completed and strong momentum in the market, we are in a position to provide an early look at our consolidated retention rate for the 2018 selling season, which we expect to reach 96% to 98%," said Wentworth.
The Company's enterprise value initiative is estimated to cost approximately $600 million to $650 million and to deliver cumulative savings of nearly $1.2 billion by 2021, with an annual run rate of between $550 million to $600 million thereafter. This initiative is expected to help the Company achieve its targeted compounded annual adjusted EBITDA growth rate for the core business from 2017-2020 of between 2% and 4%, and drive significant value to patients and clients beginning in 2018.
___________________________
* Each of net income, adjusted net income, earnings per diluted share, adjusted earnings per diluted share, adjusted EBITDA 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. For a description of the financial measures presented herein which are not calculated or presented in accordance with accounting principles generally accepted in the United States ("GAAP"), see Supplemental Information Regarding Non-GAAP Financial Measures below.
Net cash flow provided by operating activities for the year ending December 31, 2018, is expected to increase $850 million to $900 million as a result of the Tax Cuts and Jobs Act (the "Tax Act"), enacted in December 2017. Express Scripts is pleased to announce additional investments in our employees and communities made possible, in part, by passage of the Tax Act. The Tax Act generates an opportunity to reward our most valuable asset, our employees, who work hard every day to serve our patients and clients, build strong relationships in our communities and create long-term shareholder value. Non-executive employees will participate in a one-time bonus pool of approximately $20 million, with each of the eligible employees receiving a bonus, ranging from $500 to $2,000, based on tenure. Additionally, a total of approximately $30 million will be donated to an education fund for the benefit of children of our employees, covering post-secondary, including vocational, education, and our charitable foundation to support the local philanthropic needs of the communities in which we operate. The donations will be excluded from our adjusted earnings per diluted share. However, the $20 million bonus pool will be included in adjusted earnings per diluted share, and, due to our strong start to the year, we are not lowering our current guidance for the effect of these payments. Finally, the Company is committed to maintaining strong investment grade ratings. The Company's priorities for deploying capital remain the same: pay down debt, fund internal growth, make strategic acquisitions and return cash to shareholders in the form of share repurchases.
Consolidated Fourth Quarter and Full Year 2017 Review
The following compares consolidated fourth quarter 2017 and 2016 operating results **:
-- Adjusted claims of 355.8 million, flat from 2016
-- GAAP net income of $2,327.6 million, up 62% ($1,381.0 million
attributable to the Tax Act)
-- GAAP earnings per diluted share of $4.10, up 75% ($2.43 per share
attributable to the Tax Act)
-- Adjusted EBITDA of $2,147.9 million, up 5%
-- Adjusted net income of $1,229.0 million, up 7%
-- Adjusted earnings per diluted share of $2.16, up 15%
-- Net cash flow provided by operating activities of $1,369.8, million down
39%
The following compares consolidated full year 2017 and 2016 operating results **:
-- Adjusted claims of 1,401.1 million, flat from 2016
-- GAAP net income of $4,517.4 million, up 33% ($1,381.0 million
attributable to Tax Act)
-- GAAP earnings per diluted share of $7.74, up 44% ($2.37 per share
attributable to Tax Act)
-- Adjusted EBITDA of $7,415.5 million, up 2%
-- Adjusted net income of $4,139.5 million, up 3%
-- Adjusted earnings per diluted share of $7.10, up 11%
-- Net cash flow provided by operating activities of $5,351.3 million, up
9%
As a result of enactment of the Tax Act, the Company revalued its deferred tax assets and liabilities to reflect the reduction in the federal tax rate. This revaluation resulted in an increase in GAAP net income for the three months and year ended December 31, 2017, of approximately $1.4 billion.
The Company repurchased a total of 45.9 million shares under its share repurchase program for $2,947.4 million in the aggregate during 2017. In December 2017, the Board of Directors of the Company approved a 45 million share increase in the authorized number of shares that may be purchased under the share repurchase program.
___________________________
** See Supplemental Information Regarding Non-GAAP Financial Measures and Supplemental Tables below for additional information.
Net cash flow provided by operating activities in the fourth quarter of 2017 was down 39% from the comparable quarter in 2016 due primarily to the tax benefit related to the divestiture of PolyMedica Corporation received in the fourth quarter of 2016, transaction costs paid in the fourth quarter of 2017 for the acquisition of eviCore healthcare ("eviCore"), the sale of United BioSource Holdings, Inc. ("UBC") and changes in the timing of year-end payables.
In October 2017, the Company modified its existing credit agreement to increase the 2015 revolving facility to $3.5 billion and extend the termination date to 2022. The Company also established a commercial paper program up to an amount outstanding at any time of $3.5 billion, fully backed by the amended facility. In November 2017, the Company issued $1.4 billion of senior notes due November 2020 and 2022. The net proceeds from the sale of the senior notes were used to repay $400.0 million of outstanding principal on the 2015 five-year term loan, to fund a portion of the purchase price of the Company's acquisition of eviCore and for general corporate purposes.
The Company's consolidated 2017 fourth quarter and full year financial results include the post-acquisition results of eviCore, which the Company acquired December 15, 2017, and the results of UBC prior to its sale on December 27, 2017.
Core Business(1) Fourth Quarter and Full Year 2017 Review
The following compares core business fourth quarter 2017 and 2016 operating results**:
-- Adjusted claims of 295.7 million, flat from 2016
-- Adjusted EBITDA of $1,486.3 million, up 5%
The following compares core business full year 2017 and 2016 operating results**:
-- Adjusted claims of 1,164.8 million, flat from 2016
-- Adjusted EBITDA of $4,943.4 million, up 3%
2018 Guidance
As previously stated, the Company is using $20 million of the tax benefit from the Tax Act to fund a bonus pool to reward our non-executive employees. While it was not contemplated when the 2018 guidance was released, we are not adjusting our guidance for the item. The Company reaffirms its guidance and expects consolidated 2018 adjusted earnings per diluted share guidance in the range of $9.27 to $9.47 ($1.60 attributable to the Tax Act), which represents growth of 32% over 2017 consolidated adjusted earnings per diluted share at the mid-point of the range.
The Company expects total adjusted claims for the first quarter of 2018 to be in the range of 335 million to 345 million, of which 280 million to 290 million is attributable to the core business. Consolidated adjusted earnings per diluted share for the first quarter of 2018 are estimated to be in the range of $1.73 to $1.78, which represents growth of 30% to 34% over the first quarter of 2017.
Additional details on the consolidated and core business guidance can be found in Table 6. For a description of the financial measures presented herein which are not calculated or presented in accordance with GAAP, see "Supplemental Information Regarding Non-GAAP Financial Measures" below.
___________________________
** See Supplemental Information Regarding Non-GAAP Financial Measures and Supplemental Tables below for additional information.
Conference Call Details
The Company will hold its quarterly conference call to discuss 2017 fourth quarter and full year financial results and the other matters discussed in this press release on Wednesday, February 28, 2018, at 8:30 a.m. Eastern Time (7:30 a.m. Central Time). The call includes a slide presentation and is being webcast via the Internet and can be accessed at the Investor Information section of Express Scripts' web site at http://www.express-scripts.com/corporate.
About Express Scripts
Express Scripts is leading the way for 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 a full range of integrated pharmacy benefit management services, including home delivery pharmacy care, specialty pharmacy care and benefit management, benefit-design consultation, drug utilization review, formulary management and medical and drug data analysis, that guide patients and plans toward better health by prioritizing quality care at competitive rates. Our services drive down the cost of care for employer-funded, Medicare, Medicaid and Public Exchange plans. Express Scripts also distributes a full range of biopharmaceutical products and offers innovative medical benefit management 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, 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 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 business performance; (iii) planning and forecasting for future periods; and (iv) assessing period-to-period performance trends. Management assesses the Company's core business operating performance using 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 the business. Adjusted EBITDA per adjusted claim provides management and investors with useful information about the earnings and performance of the Company on a per unit basis.
2018 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 and other 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 adjusted EBITDA, respectively. Accordingly, the Company is unable to provide a reconciliation of 2018 guidance for either adjusted EPS to EPS 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 first quarter and full-year 2018 GAAP financial results. With respect to consolidated adjusted EPS, amortization of intangible assets is expected to be approximately $0.55 and $2.27 per share for the first quarter and full-year 2018, respectively.
Financial Information for our Core Business and Transitioning Clients: The financial measures attributable to our core business and the transitioning clients presented herein, including adjusted EBITDA and adjusted EBITDA per adjusted claims 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 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 each of the transitioning clients, including interest and depreciation and amortization. Accordingly, the Company is unable to provide net income attributable to any of the transitioning clients or its core business excluding the transitioning clients, and is therefore also unable to provide a reconciliation of adjusted EBITDA to net income attributable to transitioning clients or core business. 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 business, as discussed above.
SAFE HARBOR STATEMENT
This press release contains forward-looking statements, including, but not limited to, our 2018 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 27, 2018. 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.
EXPRESS SCRIPTS HOLDING COMPANY
Unaudited Consolidated Statement of Operations
Three Months Ended Year Ended
December 31, December 31,
------------ ------------
(in millions, except
per share data) 2017 2016 2017 2016
---- ---- ---- ----
Revenues* $25,378.8 $24,863.3 $100,064.6 $100,287.5
Cost of revenues* 22,888.3 22,525.1 91,302.5 91,667.0
-------- -------- -------- --------
Gross profit 2,490.5 2,338.2 8,762.1 8,620.5
Selling, general and
administrative 908.1 863.5 3,268.1 3,532.7
----- ----- ------- -------
Operating income 1,582.4 1,474.7 5,494.0 5,087.8
------- ------- ------- -------
Other (expense)
income:
Interest income and
other 14.2 6.7 42.9 34.1
Interest expense and
other (168.0) (146.0) (607.9) (694.8)
------ ------ ------ ------
(153.8) (139.3) (565.0) (660.7)
------ ------ ------ ------
Income before income
taxes 1,428.6 1,335.4 4,929.0 4,427.1
(Benefit) provision
for income taxes (902.3) (104.4) 397.3 999.5
------ ------ ----- -----
Net income 2,330.9 1,439.8 4,531.7 3,427.6
Less: Net income
attributable to
non-controlling
interest 3.3 5.1 14.3 23.2
--- --- ---- ----
Net income
attributable to
Express Scripts $2,327.6 $1,434.7 $4,517.4 $3,404.4
======== ======== ======== ========
Weighted-average
number of common
shares
outstanding during
the period:
Basic 565.0 609.1 580.1 626.9
Diluted 568.4 613.5 583.4 631.4
Earnings per share
attributable to
Express Scripts:
Basic $4.12 $2.36 $7.79 $5.43
Diluted $4.10 $2.34 $7.74 $5.39
* Includes retail pharmacy co-payments of $1,831.6
million and $1,883.3 million for the three months
ended December 31, 2017 and 2016, respectively, and
$8,241.3 million and $8,569.2 million for the years
ended December 31, 2017 and 2016, respectively.
EXPRESS SCRIPTS HOLDING COMPANY
Unaudited Consolidated Balance Sheet
December 31, December 31,
(in millions) 2017 2016
---- ----
Assets
Current assets:
Cash and cash equivalents $2,309.6 $3,077.2
Receivables, net 7,056.3 7,062.1
Inventories 2,124.9 1,959.0
Prepaid expenses and other current
assets 466.3 265.1
----- -----
Total current assets 11,957.1 12,363.4
Property and equipment, net 551.3 607.0
Computer software, net 814.9 712.6
Goodwill 31,099.7 29,277.8
Other intangible assets, net 9,625.9 8,636.9
Other assets 206.9 147.2
Total assets $54,255.8 $51,744.9
========= =========
Liabilities and stockholders' equity
Current liabilities:
Claims and rebates payable $10,188.5 $8,836.9
Accounts payable 3,755.7 3,875.7
Accrued expenses 2,869.3 2,993.2
Short-term debt and current
maturities of long-term debt 1,032.9 722.3
------- -----
Total current liabilities 17,846.4 16,428.1
Long-term debt 14,981.5 14,846.0
Deferred taxes 2,562.4 3,603.3
Other liabilities 740.2 623.7
Total liabilities 36,130.5 35,501.1
-------- --------
Stockholders' equity:
Preferred stock, 15.0 shares
authorized, $0.01 par value per
share; no shares issued and
outstanding - -
8.6 8.6
Common stock, 2,985.0 shares
authorized, $0.01 par value per
share; shares issued: 862.3 and
857.5, respectively; shares
outstanding: 564.4 and 605.5,
respectively
Additional paid-in capital 23,537.8 23,233.6
Accumulated other comprehensive loss (2.9) (12.3)
Retained earnings 16,318.6 11,801.2
-------- --------
39,862.1 35,031.1
Common stock in treasury at cost,
297.9 and 252.0 shares, respectively (21,742.5) (18,795.1)
--------- ---------
Total Express Scripts stockholders'
equity 18,119.6 16,236.0
-------- --------
Non-controlling interest 5.7 7.8
--- ---
Total stockholders' equity 18,125.3 16,243.8
-------- --------
Total liabilities and stockholders'
equity $54,255.8 $51,744.9
========= =========
EXPRESS SCRIPTS HOLDING COMPANY
Unaudited Consolidated Statement of Cash Flows
Year Ended
December 31,
------------
(in millions) 2017 2016
---- ----
Cash flows from operating
activities:
Net income $4,531.7 $3,427.6
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,802.0 2,154.6
Deferred income taxes (1,678.9) (497.4)
Employee stock-based compensation
expense 99.6 107.0
Other, net 43.3 (36.2)
Changes in operating assets and
liabilities:
Receivables 55.9 (374.0)
Inventories (166.7) 64.1
Other current and noncurrent assets (172.5) (137.5)
Claims and rebates payable 1,114.9 (560.8)
Accounts payable (126.8) 436.4
Accrued expenses (241.7) 404.2
Other current and noncurrent
liabilities 90.5 (68.6)
---- -----
Net cash flows provided by operating
activities 5,351.3 4,919.4
------- -------
Cash flows from investing
activities:
Acquisitions, net of cash acquired (3,501.1) -
Capital expenditures for property
and equipment and computer software (267.4) (330.4)
Net cash proceeds from the sale of
business 85.3 -
Other, net (7.4) (21.5)
Net cash used in investing
activities (3,690.6) (351.9)
-------- ------
Cash flows from financing
activities:
Treasury stock acquired (2,938.0) (4,746.9)
Proceeds from long-term debt, net
of discounts 1,398.9 5,986.8
Repayment of long-term debt (1,125.0) (5,932.5)
Commercial paper borrowings, net 194.8 -
Net proceeds from employee stock
plans 81.0 87.2
Other, net (44.9) (72.4)
Net cash used in financing
activities (2,433.2) (4,677.8)
-------- --------
Effect of foreign currency
translation adjustment 4.9 1.2
Net decrease in cash and cash
equivalents (767.6) (109.1)
Cash and cash equivalents at
beginning of period 3,077.2 3,186.3
------- -------
Cash and cash equivalents at end of
period $2,309.6 $3,077.2
======== ========
Table 1
Express Scripts Holding Company Unaudited Consolidated Selected Information
(in millions)
Three Months Ended Year Ended
December 31, December 31,
------------ ------------
2017 2016 2017 2016
---- ---- ---- ----
Claims Volume
Network 222.2 223.1 877.6 887.4
Home delivery and
specialty(2) 29.4 30.4 116.7 120.2
Total claims 251.6 253.5 994.3 1,007.6
----- ----- ----- -------
Adjusted network(3) 270.3 266.2 1,061.0 1,056.5
Adjusted home
delivery and
specialty(3) 85.5 88.7 340.1 351.1
---- ---- ----- -----
Total adjusted
claims(3) 355.8 354.9 1,401.1 1,407.6
===== ===== ======= =======
Depreciation and Amortization (D&A):
Revenue
amortization(4) $55.4 $55.4 $221.7 $200.5
Cost of revenues
depreciation 34.0 27.9 130.2 113.4
Selling, general and
administrative
depreciation 52.4 53.4 207.7 208.4
Selling, general and
administrative
amortization(4) 316.1 406.7 1,242.4 1,632.3
Total D&A $457.9 $543.4 $1,802.0 $2,154.6
====== ====== ======== ========
Generic Fill Rate**
Network 86.0% 85.8% 86.7% 86.0%
Home delivery 83.5% 81.4% 83.0% 80.8%
Overall 85.7% 85.2% 86.2% 85.3%
See Footnotes to Press Release
**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 Year Ended
December 31, December 31,
------------ ------------
2017 2016 2017 2016
---- ---- ---- ----
Gross profit, as
reported $2,490.5 $2,338.2 $8,762.1 $8,620.5
Amortization of
intangible assets
(4) 55.4 55.4 221.7 200.5
Enterprise value
initiative costs (5) 2.7 - 5.0 -
Adjusted gross profit $2,548.6 $2,393.6 $8,988.8 $8,821.0
======== ======== ======== ========
Selling, general and
administrative, as
reported $908.1 $863.5 $3,268.1 $3,532.7
Amortization of
intangible assets
(4) 316.1 406.7 1,242.4 1,632.3
Enterprise value
initiative costs (5) 16.9 - 37.8 -
Transaction and
integration costs
(6) 91.9 - 91.9 -
Other compensation
costs (7) - 41.2 - 41.2
Adjusted selling,
general and
administrative $483.2 $415.6 $1,896.0 $1,859.2
====== ====== ======== ========
See Footnotes to Press Release
Table 3
Express Scripts Holding Company Unaudited EBITDA and Adjusted EBITDA Reconciliation
(in millions, except per claim data)
Provided below is a reconciliation of EBITDA and Adjusted EBITDA attributable to Express Scripts, which are non-GAAP financial measures, to net income
attributable to Express Scripts. The Company believes net income is the most directly comparable measure under GAAP.
Three Months Ended Year Ended
December 31, December 31,
------------ ------------
2017 2016 2017 2016
---- ---- ---- ----
Net income
attributable to
Express Scripts, as
reported $2,327.6 $1,434.7 $4,517.4 $3,404.4
(Benefit) provision
for income taxes
(8) (902.3) (104.4) 397.3 999.5
Depreciation and
amortization(4),* 457.9 543.4 1,802.0 2,154.6
Other expense
(income), net 153.8 139.3 565.0 660.7
----- ----- ----- -----
EBITDA attributable
to Express Scripts $2,037.0 $2,013.0 $7,281.7 $7,219.2
Adjustments to EBITDA
Transaction and
integration costs
(6) 91.9 - 91.9 -
Enterprise value
initiative
costs(5),* 19.0 - 41.9 -
Other compensation
costs (7) - 41.2 - 41.2
--- ---- --- ----
Adjusted EBITDA
attributable to
Express Scripts $2,147.9 $2,054.2 $7,415.5 $7,260.4
Total adjusted
claims(3) 355.8 354.9 1,401.1 1,407.6
Adjusted EBITDA
attributable to
Express Scripts,
per adjusted claim $6.04 $5.79 $5.29 $5.16
See Footnotes to Press Release
* Depreciation and amortization for the three months and year
ended December 31, 2017, as presented above includes $0.6
million and $0.9 million, respectively, of accelerated
depreciation in connection with the enterprise value
initiative which is not otherwise included in enterprise value
initiative costs.
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 Year Ended
December 31, December 31,
------------ ------------
2017 2016 2017 2016
(per diluted share)
------------------
Diluted EPS
attributable to
Express Scripts, as
reported $4.10 $2.34 $7.74 $5.39
Excluding items indicated:
Amortization of
intangible assets
(4),* 0.65 0.75 2.51 2.90
Enterprise value
initiative costs
(5),* 0.03 - 0.07 -
Discrete tax items
(8) (2.49) (0.97) (2.40) (1.00)
Debt redemption
costs (9),* - - - 0.22
Transaction and
integration costs
(6),* 0.16 - 0.16 -
Other compensation
costs (7),* - 0.06 - 0.06
Loss on disposal
(10),* 0.03 - 0.03 -
Tax impact of
excluded items (11) (0.32) (0.30) (1.01) (1.18)
Diluted EPS
attributable to
Express Scripts,
adjusted $2.16 $1.88 $7.10 $6.39
----- ----- ----- -----
See Footnotes to Press Release
*Presented on a pre-tax basis.
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 Year Ended
December 31, 2017 December 31, 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 $1,428.6 $(902.3) $4,929.0 $397.3
Net income
attributable to
non-controlling
interest (3.3) - (14.3) -
---- --- ----- ---
Income before
income taxes
attributable to
Express Scripts 1,425.3 (902.3) -63.3% 4,914.7 397.3 8.1%
Excluding items indicated:
Discrete tax
items(8) - 1,417.9 - 1,402.4
Loss on disposal
(10) 17.7 6.5 17.7 6.5
Enterprise value
initiative
costs(5) 19.6 7.2 42.8 15.7
Transaction and
integration
costs (6) 91.9 33.7 91.9 33.7
Amortization of
intangible
assets(4) 371.5 134.0 1,464.1 536.1
----- ----- ------- -----
Income before
income taxes
attributable to
Express Scripts,
as adjusted $1,926.0 $697.0 36.2% $6,531.2 $2,391.7 36.6%
Adjusted net
income
attributable to
Express Scripts $1,229.0 $4,139.5
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 Year Ended
December 31, 2016 December 31, 2016
----------------- -----------------
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 $1,335.4 $(104.4) $4,427.1 $999.5
Net income
attributable to
non-controlling
interest (5.1) - (23.2) -
---- --- ----- ---
Income before income
taxes attributable
to Express Scripts 1,330.3 (104.4) -7.8% 4,403.9 999.5 22.7%
Excluding items indicated:
Amortization of
intangible
assets(4) 462.1 171.5 1,832.8 679.8
Discrete tax
items(8) - 598.2 - 633.9
Debt redemption
costs (9) - - 135.6 50.3
Other compensation
costs (7) 41.2 15.3 41.2 15.3
---- ---- ---- ----
Income before income
taxes attributable
to Express Scripts,
as adjusted $1,833.6 $680.6 37.1% $6,413.5 $2,378.8 37.1%
Adjusted net income
attributable to
Express Scripts $1,153.0 $4,034.7
See Footnotes to Press Release
Table 6
Express Scripts Holding Company Unaudited 2018 Guidance Information
Adjusted diluted EPS and adjusted 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.
Consolidated
Guidance Estimated Estimated
Year Ending Year Ending
December 31, 2018 December 31, 2018
----------------- -----------------
(in millions, except
per share data) Current Guidance Previous Guidance*
---------------- -----------------
Adjusted Diluted EPS
attributable to
Express Scripts $9.27 to $9.47 $9.27 to $9.47
Year over year
growth 31%-33% 31%-33%
Total adjusted
claims 1,345 to 1,395 1,345 to 1,395
Revenue $99,000 to $102,000 $99,000 to $102,000
Adjusted EBITDA
attributable to
Express Scripts $7,600 to $7,800 $7,600 to $7,800
Diluted weighted
average shares
outstanding during
the period 540 to 560 540 to 560
Net cash flow
provided by
operating
activities $5,775 to $6,275 $5,775 to $6,275
(in millions, except
per share data) Estimated
Three Months Ending
March 31, 2018
--------------
Adjusted Diluted EPS
attributable to
Express Scripts $1.73 to $1.78
Year over year
growth 30%-34%
Total adjusted
claims 335 to 345
Core Business
Guidance Estimated Estimated
Year Ending Year Ending
December 31, 2018 December 31, 2018
----------------- -----------------
(in millions, except
per share data) Current Guidance Previous Guidance
---------------- -----------------
Total adjusted
claims 1,125 to 1,165 1,125 to 1,165
Revenue $80,500 to $83,000 $80,500 to $83,000
Adjusted EBITDA
attributable to
Express Scripts $5,250 to $5,400 $5,250 to $5,400
Core Business
Guidance (in
millions, except per
share data) Estimated
Three Months Ending
March 31, 2018
--------------
Total adjusted
claims 280 to 290
*Updated 2018 guidance was
provided in January 2018 to
reflect the effects of the Tax
Act, enacted in December 2017.
Table 7
Express Scripts Holding Company Operating Results Excluding Estimate of Contribution related to Transitioning Clients
(amounts in millions except per claim figures)
(Three months ended) December 31, 2017 December 31, 2016 Change
------
Consolidated Transitioning Core business(1) Consolidated Transitioning Core business(1) As Reported Core business(1)
As Reported Clients(1) As Reported Clients(1)
(Table 8)
--------
Adjusted claims Table 1 355.8 60.1 295.7 354.9 60.5 294.4 0.3% 0.4%
Revenues(12) $25,378.8 $4,863.7 $20,515.1 $24,863.3 $4,737.3 $20,126.0 2.1% 1.9%
Net income $2,327.6 N/A N/A $1,434.7 N/A N/A 62.2% N/A
Adjusted EBITDA Table 3 $2,147.9 $661.6 $1,486.3 $2,054.2 $636.9 $1,417.3 4.6% 4.9%
Adjusted EBITDA/adjusted claim Table 3 $6.04 N/A $5.03 $5.79 N/A $4.81 4.3% 4.6%
(Year ended) December 31, 2017 December 31, 2016 Change
------
Consolidated Transitioning Core business(1) Consolidated Transitioning Core business(1) As Reported Core business(1)
As Reported Clients(1) As Reported Clients(1)
Q4 2016 (Table 8)
------- --------
Adjusted claims Table 1 1,401.1 236.3 1,164.8 1,407.6 238.6 1,169.0 -0.5% -0.4%
Revenues(12) $100,064.6 19,152.9 $80,911.7 $100,287.5 $18,772.8 $81,514.7 -0.2% -0.7%
Net income $4,517.4 N/A N/A $3,404.4 N/A N/A 32.7% N/A
Adjusted EBITDA Table 3 $7,415.5 $2,472.1 $4,943.4 $7,260.4 $2,470.4 $4,790.0 2.1% 3.2%
Adjusted EBITDA/adjusted claim Table 3 $5.29 N/A $4.24 $5.16 N/A $4.10 2.5% 3.4%
See Footnotes to Press Release.
Table 8**
Express Scripts Holding Company - Estimate of Transitioning Clients
Contribution by Quarter
(amounts in millions except per claim figures)
Anthem** ,(1)
Q1 2016 Q2 2016 Q3 2016 Q4 2016
------- ------- ------- -------
Adjusted Claims 54.5 54.2 54.3 56.6
Revenues(12) $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)
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)
Q1 2016 Q2 2016 Q3 2016 Q4 2016
------- ------- ------- -------
Adjusted Claims 60.1 59.1 58.9 60.5
Revenues(12) $4,554.2 $4,826.8 $4,654.5 $4,737.3
Adjusted EBITDA* $517.9 $694.2 $621.4 $636.9
Core (Excluding Transitioning
Clients)(12)
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
* Q4 2016 Adjusted EBITDA includes an
adjustment for other compensation costs
of $41.2 million.
** For presentation purposes, Table 8 is
consistent with the Q1 2017 Press
Release presentation. As noted in
footnote 1, Anthem financial results
were combined with each of the
Transitioning Clients in Q3 and Q4 2017
upon announcement by Anthem on October
18, 2017, of its intention not to renew
its contract with the Company.
See Footnotes to Press Release
Footnotes to Press Release
(1) The Company's core business
excludes the contributions from
Coventry and Catamaran, both of
which were acquired and are
transitioning off the Company's book
of business, as well as Anthem, to
which we refer together as the
"Transitioning Clients." Amounts
attributable to 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 each of the Transitioning
Clients. Both direct and indirect
costs were allocated based on
management's best estimates of costs
attributable to servicing each of
the Transitioning Clients, and,
where appropriate, are based on
actual cost or adjusted claims
attributable to each of the
Transitioning Clients.
(2) Includes home delivery,
specialty and other including: (i)
drugs distributed through patient
assistance programs administered
through UBC, which were disposed of
as part of the sale of UBC on
December 27, 2017; (ii) drugs
distributed to clients of other PBMs
under limited distribution contracts
with pharmaceutical manufacturers;
and (iii) Freedom Fertility claims.
(3) Total adjusted network claims
includes an adjustment to reflect
non-specialty network claims filled
through our 90-day programs. These
claims are 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 Schedule A
below.
(4) Amortization of intangible assets
includes amounts in both revenues
and selling, general and
administrative expense.
Revenue amortization is related to
the customer contract with Anthem,
which commenced upon closing 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 ($35.6
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
December 31, 2017 and 2016.
Intangible amortization of $221.7
million ($140.5 million net of tax)
and $200.5 million ($126.1 million
net of tax) is included as a
reduction to revenue for the years
ended December 31, 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
$126.7 million and $105.6 million of
revenue amortization recognized for
the years ended December 31, 2017
and 2016, respectively.
Selling, general, and administrative
expense includes the amortization of
other intangible assets and computer
software acquired through business
combinations, of $316.1 million
($201.9 million net of tax) and
$406.7 million ($255.8 million net
of tax) for the three months ended
December 31, 2017 and 2016, and for
the years ended December 31, 2017
and 2016 of $1,242.4 million ($787.5
million net of tax) and $1,632.3
million ($1,026.9 million net of
tax), respectively.
(5) Costs included in cost of
revenues (gross profit), primarily
comprised of professional fees,
severance and other business
activity charges in connection with
the enterprise value initiative, are
$2.7 million ($1.6 million net of
tax) for the three months ended
December 31, 2017 and $5.0 million
($3.1 million net of tax) for the
year ended December 31, 2017.
Costs included in selling, general
and administrative, primarily
comprised of professional fees,
severance and other business
activity charges in connection with
the enterprise value initiative, are
$16.9 million ($10.8 million net of
tax) for the three months ended
December 31, 2017 and $37.8 million
($24.0 million net of tax) for the
year ended December 31, 2017.
(6) Transaction and integration costs
include those costs directly related
to the acquisition of eviCore and
myMatrixx Holdings, Inc. and the
sale of UBC. Costs of $91.9 million
($58.2 million net of tax) are
primarily composed of professional
fees, integration-related
activities and severance costs, and
are included in selling, general and
administrative expense for the three
months and year ended December 31,
2017.
(7) Costs of $41.2 million ($25.9
million net of tax) for the three
months and year ended December 31,
2016, are related to compensation in
connection with the net tax benefit
of approximately $511.0 million
related to the divestiture of
PolyMedica Corporation (Liberty).
Following receipt of the tax benefit
proceeds, the Board of Directors
authorized the use of $41.2 million,
approximately 8%, or $0.06 per share
($0.04 per share net of tax), of the
PolyMedica tax benefit proceeds to
reward employees for the significant
contribution this multi-year effort
provided the Company and its
shareholders.
(8) (Benefit) provision for income
taxes includes discrete tax benefits
of $1,417.9 million and $1,402.4
million for the three months and
year ended December 31, 2017,
respectively, related primarily to
the deferred tax implications of the
Tax Act. (Benefit) provision for
income taxes includes discrete tax
benefits of $598.2 million and
$633.9 million for the three months
and year ended December 31, 2016,
respectively, related primarily to
changes in unrecognized tax
benefits. In October 2016, we
recognized a net tax benefit of
approximately $511.0 million related
to the divestiture of Liberty.
(9) Debt redemption costs, which
include write-off of discounts,
premiums, deferred financing costs
and other costs incurred for the
early redemption of senior notes,
totaled $135.6 million ($85.3
million net of tax) and are included
in interest expense for the year
ended December 31, 2016.
(10) In December 2017, the Company
sold UBC for approximately $150.0
million, which included both cash
and a note receivable. We recorded a
$17.7 million ($11.2 million net of
tax) loss on disposal, which is
reported within interest expense and
other for the three months and year
ended December 31, 2017.
(11) 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.
(12) Consolidated revenues and
Transitioning Clients revenues
include intangible amortization
related to the customer contract
with Anthem of $55.4 million for
each of the three months ended
December 31, 2017 and 2016.
Consolidated revenues and
Transitioning Clients revenues
include intangible amortization
related to the customer contract
with Anthem of $221.7 million and
$200.5 million for the years ended
December 31, 2017 and 2016,
respectively.
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 Q2 As reported Revision Revised Q3
Q1 2016 2016 Q2 2016 2016 Q3 2016 2016
------- ---- ------- ---- ------- ----
Claims Volume
Network 226.1 - 226.1 221.2 - 221.2 217.0 - 217.0
Home
delivery
and
specialty(2) 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(3) 234.7 32.8 267.5 229.4 34.0 263.4 224.5 34.9 259.4
Adjusted
home
delivery
and
specialty(3) 88.8 - 88.8 85.9 - 85.9 87.7 - 87.7
---- --- ---- ---- --- ---- ---- --- ----
Total
adjusted
claims(3) 323.5 32.8 356.3 315.3 34.0 349.3 312.2 34.9 347.1
As reported Revision Revised Q1 As reported Revision Revised As reported Revision Revised Q3
Q1 2015 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(2) 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(3) 219.1 33.0 252.1 232.9 35.6 268.5 240.8 36.9 277.7
Adjusted
home
delivery
and
specialty(3) 88.5 - 88.5 88.3 - 88.3 87.5 - 87.5
---- --- ---- ---- --- ---- ---- --- ----
Total
adjusted
claims(3) 307.6 33.0 340.6 321.2 35.6 356.8 328.3 36.9 365.2
View original content:http://www.prnewswire.com/news-releases/express-scripts-announces-2017-fourth-quarter-and-full-year-results-300605276.html
SOURCE Express Scripts Holding Company
