Diplomat Announces 3rd Quarter Financial Results
FLINT, Mich., Nov. 6, 2018 /PRNewswire/ -- Diplomat Pharmacy, Inc. (NYSE: DPLO), the nation's largest independent provider of specialty pharmacy services, announced financial results for the quarter ended September 30, 2018. All comparisons, unless otherwise noted, are to the quarter ended September 30, 2017. Prior period financials have been recast to include certain direct expenses as part of cost of sales instead of selling, general and administrative ("SG&A") expense for our specialty segment. This change is a reclassification only and has no impact on overall results.
Third Quarter 2018 Highlights include:
-- Revenue of $1,373 million, compared to $1,125 million, an increase of
22%
-- Specialty segment revenue of $1,212 million, compared to $1,125
million
-- PBM segment revenue of $170 million, which was not part of the
business in the prior year period
-- Specialty segment total prescriptions dispensed of 230,000, compared to
222,000
-- PBM segment total volume, adjusted to 30-day equivalent, of 1,931,000
-- Gross margin of 6.8% versus 5.8%
-- Specialty segment gross margin of 5.5% versus 5.8%
-- PBM segment gross margin of 15.5%
-- EPS of $0.00 per diluted common share versus $0.01
-- Adjusted EBITDA of $41.9 million, compared to $23.2 million
-- Adjusted EBITDA margin of 3.1% versus 2.1%
-- Net cash used in operating activities was $33.4 million, compared to net
cash provided by operating activities of $38.3 million
-- Net Debt, including contingent consideration, increased to $646.7
million, from $609.2 million at June 30, 2018
Brian Griffin, Chairman and CEO of Diplomat, commented, "Third quarter results were solid as we continue to successfully execute on our growth plan. Results were driven by strong Specialty segment growth and PBM performance. We recently opened our new state-of-the-art distribution and call center facility in Chandler, Arizona, furthering our efforts to provide the highest quality patient care nationwide. Every day we put our patients first, while at the same time investing in initiatives to drive further growth and productivity."
Third Quarter Financial Summary:
Revenue for the third quarter of 2018 was $1,373 million, compared to $1,125 million in the third quarter of 2017, an increase of $248 million or 22%. Revenue was comprised of $1,212 million and $170 million from our Specialty segment and our Pharmacy Benefit Management ("PBM") segment, respectively. The increase in our Specialty segment was driven by manufacturer price increases, approximately $10 million from our recent acquisitions, access to dispense drugs that were new in the past year and increased volume due to both payor and physician relationships. These increases were partially offset by a decrease in hepatitis C business versus the prior year period and reimbursement compression.
Gross profit in the third quarter of 2018 was $93.4 million and generated a 6.8% gross margin, compared to $65.1 million gross profit and a 5.8% gross margin in the third quarter of 2017. Gross profit was comprised of $67.0 million and $26.3 million from our Specialty segment and PBM segment, respectively. The gross margin increase in the quarter was primarily due to the impact of our PBM acquisitions, partially offset by reimbursement compression in our Specialty segment.
SG&A expenses for the third quarter of 2018 were $83.4 million, an increase of $20.6 million, compared to $62.8 million in the third quarter of 2017. This increase is primarily driven by an $11.0 million increase in employee cost, including employee cost for our acquired entities and a $4.0 million increase in share-based compensation. Also contributing to the SG&A expense increase was a $7.0 million increase in amortization expense from definite-lived intangible assets, inclusive of capitalized software for internal use, associated with our acquired entities. We also experienced increases in other SG&A expenses; including, rent due to the addition of our Chandler, Arizona facility, travel, consulting and professional fees, as well as other miscellaneous expenses. These increases were partially offset by a $2.4 million decrease in acquisition related expenses.
Net income attributable to Diplomat for the third quarter of 2018 was $0.2 million compared to $1.0 million in the third quarter of 2017. This decrease was primarily driven by an $8.1 million increase in interest expense due to a significant increase in outstanding debt to fund our PBM acquisitions, partially offset by a $7.6 million increase in income from operations. Adjusted EBITDA for the third quarter of 2018 was $41.9 million compared to $23.2 million in the third quarter of 2017, an increase of $18.7 million.
Earnings per share for the third quarter of 2018 was $0.00 per basic/diluted common share, compared to $0.01 per basic/diluted common share for the third quarter of 2017.
2018 Financial Outlook
For the full-year 2018, we are updating our previous financial guidance:
-- Revenue between $5.5 and $5.7 billion, versus the previous range of $5.5
and $5.9 billion
-- Net (loss) income attributable to Diplomat between $(7.5) and $2.6
million, versus the previous range of $(11.0) and $0.5 million
-- Adjusted EBITDA between $164 and $170 million, no change to previous
range
-- Diluted EPS between $(0.10) and $0.03, versus the previous range of
$(0.15) and $0.01
Our EPS expectations assume approximately 74,300,000 weighted average common shares outstanding on a diluted basis and a tax rate of (10)% and 40% versus (5)% and 32%, for the low- and high-end of the range, respectively, for the full year 2018, each of which could differ materially.
Earnings Conference Call Information
As previously announced, the Company will hold a conference call to discuss its third quarter performance this evening, November 6, 2018, at 5:00 p.m. Eastern Time. Shareholders and interested participants may listen to a live broadcast of the conference call by dialing 833-286-5805 (647-689-4450 for international callers) and referencing participant code 7553049 approximately 15 minutes prior to the call. A live webcast of the conference call and associated slide presentation will be available on the investor relations section of the Company's website for approximately 90 days at ir.diplomat.is.
About Diplomat
Diplomat (NYSE: DPLO) is the nation's largest independent provider of specialty pharmacy and infusion services. Diplomat helps people with complex and chronic health conditions in all 50 states, partnering with payers, providers, hospitals, manufacturers, and more. Rooted in this patient care expertise, Diplomat also serves payers through CastiaRx, a leading specialty benefit manager, and offers tailored solutions for healthcare innovators through EnvoyHealth. Diplomat opened its doors in 1975 as a neighborhood pharmacy with one essential tenet: "Take good care of patients and the rest falls into place." Today, that tradition continues--always focused on improving patient care. For more information, visit diplomat.is.
Non-GAAP Information
We define Adjusted EBITDA as net income (loss) attributable to Diplomat before interest expense, income taxes, depreciation and amortization, share-based compensation, change in fair value of contingent consideration and other merger and acquisition-related expenses, restructuring and impairment charges, and certain other items that we do not consider indicative of our ongoing operating performance (which are itemized below in the reconciliation to net income (loss) attributable to Diplomat). Adjusted EBITDA is not in accordance with, or an alternative to, GAAP. In addition, this non-GAAP measure is not based on any comprehensive set of accounting rules or principles. You should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in the presentation, and we do not infer that our future results will be unaffected by unusual or non-recurring items.
We consider Adjusted EBITDA to be a supplemental measure of our operating performance. We present Adjusted EBITDA because it is used by our Board of Directors and management to evaluate our operating performance. Adjusted EBITDA is also used as a factor in determining incentive compensation, for budgetary planning and forecasting overall financial and operational expectations, for identifying underlying trends, and for evaluating the effectiveness of our business strategies. Further, we believe it assists us, as well as investors, in comparing performance from period-to-period on a consistent basis. Other companies in our industry may calculate Adjusted EBITDA differently than we do and their calculation may not be comparable to our Adjusted EBITDA metric. A reconciliation of Adjusted EBITDA, a non-GAAP measure, to net income (loss) attributable to Diplomat can be found below.
Forward Looking Statements
This press release contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give current expectations or forecasts of future events or our future financial or operating performance, and include Diplomat's expectations regarding revenues, net (loss) income attributable to Diplomat, Adjusted EBITDA, EPS, market share, the expected benefits and performance of acquisitions and growth strategies. The forward-looking statements contained in this press release are based on management's good-faith belief and reasonable judgment based on current information. These statements are qualified by important risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from those forecasted or indicated by such forward-looking statements. These risks and uncertainties include: our ability to adapt to changes or trends within the specialty pharmacy industry; complying with complex and evolving requirements and changes in state and federal government regulations, including Medicare and Medicaid; current or proposed legislative and regulatory policies designed to manage healthcare costs or alter healthcare financing practices; significant and increasing pricing pressure from third-party payors; the amount of direct and indirect remuneration fees, as well as the timing of assessing such fees and the methodology used to calculate such fees; the outcome of material legal proceedings; our relationships with wholesalers and key pharmaceutical manufacturers; bad publicity about, or market withdrawal of, specialty drugs we dispense; a significant increase in competition from a variety of companies in the health care industry; our ability to expand the number of specialty drugs we dispense and related services; maintaining existing patients; revenue concentration of the top specialty drugs we dispense; increasing consolidation in the healthcare industry; managing our growth effectively; our ability to drive volume through a refreshed marketing strategy in traditional specialty pharmacy; our capability to penetrate the fragmented infusion market; the success of our strategy in the PBM space; our ability to effectively execute our acquisition strategy or successfully integrate acquired businesses, including any delays or difficulties in integrating the combined businesses, and the ability to achieve cost savings and operating synergies and the timing thereof; the dependence on our senior management and key employees and managing recent turnover among key employees; and the additional factors set forth in "Risk Factors" in Diplomat's Annual Report on Form 10-K for the year ended December 31, 2017 and in subsequent reports filed with or furnished to the Securities and Exchange Commission. Except as may be required by any applicable laws, Diplomat assumes no obligation to publicly update such forward-looking statements, which are made as of the date hereof or the earlier date specified herein, whether as a result of new information, future developments, or otherwise.
CONTACT:
Terri Anne Powers, Vice President Investor Relations
312.889.5244 | tpowers@diplomat.is
DIPLOMAT PHARMACY, INC.
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
September 30,
December 31,
ASSETS 2018 2017
Current assets:
Cash and equivalents $
8,214 $
84,251
Receivables, net 358,158 332,091
Inventories 169,863 206,603
Prepaid expenses and other current assets 13,491 11,125
549,726 634,070
Total current assets
Property and equipment, net 40,924 38,990
Capitalized software for internal use, net 29,842 36,520
Goodwill 834,580 832,624
Definite-lived intangible assets, net 340,651 392,011
Other noncurrent assets 4,938 6,208
$
1,800,661 $
1,940,423
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $
315,268 $
384,719
Rebates payable 29,954 28,744
Borrowings on line of credit 178,250 188,250
Short-term debt, including current portion of long-term debt 11,500 11,500
Accrued expenses:
Compensation and benefits 16,771 9,584
Contingent consideration 5,200 8,100
Other 21,542 20,560
578,485 651,457
Total current liabilities
Long-term debt, less current portion 440,552 521,098
Deferred income taxes 12,423 14,367
Contingent consideration 4,050 4,000
Other 295
1,035,805 1,190,922
Total liabilities
Commitments and contingencies
Shareholders' equity:
Preferred stock (10,000,000 shares authorized; none issued and outstanding) -
Common stock (no par value, 590,000,000 shares authorized; 74,448,430 and 73,871,424 shares
issued and outstanding at September 30, 2018 and December 31, 2017,
respectively) 629,283 619,235
Additional paid-in capital 48,172 38,450
Retained earnings 87,445 91,816
Accumulated other comprehensive loss (44) -
764,856 749,501
Total shareholders' equity
$
1,800,661 $
1,940,423
Total liabilities and shareholders' equity
DIPLOMAT PHARMACY, INC.
Condensed Consolidated Statements of Operations (Unaudited)
(dollars in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
Net sales $
1,373,334 $
1,124,957 $
4,131,896 $
3,330,161
Cost of sales (1,279,976) (1,059,867) (3,849,743) (3,128,595)
Gross profit 93,358 65,090 282,153 201,566
Selling, general and administrative expenses (83,419) (62,782) (255,705) (185,867)
Income from operations 9,939 2,308 26,448 15,699
Other (expense) income:
Interest expense (10,179) (2,054) (30,998) (6,034)
Impairment of non-consolidated entities (286) (329) -
Other 574 45 1,385 111
Total other expense (9,891) (2,009) (29,942) (5,923)
Income (loss) before income taxes 48 299 (3,494) 9,776
Income tax benefit (expense) 121 662 (750) (1,101)
Net income (loss) 169 961 (4,244) 8,675
Less: net loss attributable to noncontrolling interest - (55) (299)
---
Net income (loss) attributable to Diplomat Pharmacy, Inc. $
169 $
1,016 $
(4,244) $
8,974
Net income (loss) per common share:
---
Basic $
0.00 $
0.01 $
(0.06) $
0.13
Diluted $
0.00 $
0.01 $
(0.06) $
0.13
Weighted average common shares outstanding:
---
Basic 74,386,386 68,371,429 74,181,869 67,600,920
Diluted 74,741,511 68,769,618 74,181,869 68,259,416
DIPLOMAT PHARMACY, INC.
Condensed Consolidated Statements of Operations, Inclusive of Reportable Segment Breakout (Unaudited)
(dollars in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
Net sales - Specialty $
1,212,298 $
1,124,957 $
3,599,023 $
3,330,161
Net sales - PBM 169,933 550,148
Inter-segment elimination (8,897) (17,275)
Net sales 1,373,334 1,124,957 4,131,896 3,330,161
Cost of sales - Specialty (1,145,288) (1,059,867) (3,386,653) (3,128,595)
Cost of sales - PBM (143,585) (480,365)
Inter-segment elimination 8,897 17,275
Cost of sales (1,279,976) (1,059,867) (3,849,743) (3,128,595)
Gross profit - Specialty 67,010 65,090 212,370 201,566
Gross profit - PBM 26,348 69,783
Gross profit 93,358 65,090 282,153 201,566
Selling, general and administrative expenses (83,419) (62,782) (255,705) (185,867)
Income from operations 9,939 2,308 26,448 15,699
Other (expense) income:
Interest expense (10,179) (2,054) (30,998) (6,034)
Impairment of non-consolidated entities (286) (329)
Other 574 45 1,385 111
Total other expense (9,891) (2,009) (29,942) (5,923)
Income (loss) before income taxes 48 299 (3,494) 9,776
Income tax benefit (expense) 121 662 (750) (1,101)
Net income (loss) 169 961 (4,244) 8,675
Less: net loss attributable to noncontrolling interest - (55) (299)
---
Net income (loss) attributable to Diplomat Pharmacy, Inc. $
169 $
1,016 $
(4,244) $
8,974
Net income (loss) per common share:
---
Basic $
0.00 $
0.01 $
(0.06) $
0.13
Diluted $
0.00 $
0.01 $
(0.06) $
0.13
Weighted average common shares outstanding:
---
Basic 74,386,386 68,371,429 74,181,869 67,600,920
Diluted 74,741,511 68,769,618 74,181,869 68,259,416
DIPLOMAT PHARMACY, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)
Nine Months Ended September 30,
2018 2017
Cash flows from operating activities:
Net (loss) income $
(4,244) $
8,675
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization 72,547 48,813
Share-based compensation expense 15,771 5,487
Net provision for doubtful accounts 5,862 7,523
Amortization of debt issuance costs 3,703 892
Changes in fair values of contingent consideration 2,419 1,965
Contingent consideration payments (3,181)
Deferred income tax benefit (2,034) (637)
Impairment of non-consolidated entities 329
Other (43) 1
Changes in operating assets and liabilities, net of business acquisitions:
Accounts receivable (31,090) 4,117
Inventories 36,717 22,379
Accounts payable (72,018) (3,055)
Other assets and liabilities 8,469 (2,514)
Net cash provided by operating activities 33,207 93,646
Cash flows from investing activities:
Expenditures for capitalized software for internal use (8,736) (3,252)
Expenditures for property and equipment (7,880) (3,414)
Payments to acquire businesses, net of cash acquired (1,139) (76,646)
Other 46 (38)
Net cash used in investing activities (17,709) (83,350)
Cash flows from financing activities:
Net payments on line of credit (10,000) (17,663)
Payments on long-term debt (82,625) (6,031)
Proceeds from long-term debt 25,000
Proceeds from issuance of stock upon stock option exercises 3,999 7,597
Contingent consideration payments (2,088) -
Payments of debt issuance costs (821) -
Net cash (used in) provided by financing
activities (91,535) 8,903
Net (decrease) increase in cash and
equivalents (76,037) 19,199
Cash and equivalents at beginning of period 84,251 7,953
Cash and equivalents at end of period $
8,214 $
27,152
Supplemental disclosures of cash flow information:
Cash paid for interest $
27,707 $
5,125
Cash paid for income taxes 2,142 4,716
Adjusted EBITDA
The table below presents a reconciliation of net income (loss) attributable to Diplomat Pharmacy, Inc. to Adjusted EBITDA for the periods indicated.
For the three months ended September For the nine months ended September
30, 30,
2018 2017 2018 2017
(dollars in thousands) (unaudited)
Net income (loss) attributable to Diplomat Pharmacy, Inc. $169 $1,016 $(4,244) $8,974
Depreciation and amortization 24,377 16,877 72,547 48,813
Interest expense 10,179 2,054 30,998 6,034
Income tax (benefit) expense (121) (662) 750 1,101
EBITDA $34,604 $19,285 $100,051 $64,922
Contingent consideration and other merger and acquisition expense $577 $3,016 $5,700 $4,133
Share-based compensation expense 5,649 1,688 15,771 5,487
Employer payroll taxes - option repurchases and exercises 52 33 193 218
Restructuring and impairment charges 286 329
Severance and related fees 779 78 2,729 781
Other items (915) (483) (372)
Adjusted EBITDA $41,947 $23,185 $124,290 $75,169
2018 Full Year Guidance: GAAP to Non-GAAP Reconciliation
The tables below present a reconciliation of net income attributable to Diplomat Pharmacy, Inc. to Adjusted EBITDA for the year ended December 31, 2018.
Reconciliation of GAAP to Adjusted EBITDA
(dollars in thousands) (unaudited)
Range
Low
High
---
Net (loss) income attributable to Diplomat Pharmacy, Inc. $(7,511) $2,593
Depreciation and amortization 98,000 97,000
Interest expense 43,000 41,000
Income tax expense (1) 683 1,729
EBITDA $134,172 $142,322
Contingent consideration and other merger and acquisition expense $7,000 $6,000
Share-based compensation expense 19,000 $18,500
Employer payroll taxes - option repurchases and exercises 500 $300
Restructuring and impairment charges 329 $329
Severance and related fees 3,500 $3,000
Other items (500) $(450)
Adjusted EBITDA $164,000 $170,000
(1 )Assumes a tax rate of -10 and 40 percent, for the low- and high-end, respectively.
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SOURCE Diplomat Pharmacy, Inc.
