Catamaran Corporation Announces Record Second Quarter Financial Results

- Quarterly net income of $27.3 million and EBITDA of $58.6 million reach record levels -

- Q2 revenue of $1.7 billion increases 40% compared to prior year -

- 2012 guidance updated to reflect merger with Catalyst -

LISLE, IL, Aug. 1, 2012 /PRNewswire/ - Catamaran Corporation (formerly known as SXC Health Solutions Corp.) (“Catamaran” or the “Company”) (NASDAQ: CTRX, TSX: CCT), a leading provider of pharmacy benefit management (“PBM”) services and technology, announces its financial results for the three and six month periods ended June 30, 2012.

Q2 2012 Highlights

• Revenue grew 40% on a year over year basis to $1.7 billion, compared to $1.2 billion in Q2 2011
• Gross profit increased 65% to $122.5 million during Q2 2012, compared to $74.2 million in Q2 2011
• Net income increased 27% to $27.3 million, or $0.41 per share (fully-diluted) for Q2 2012, compared to $21.6 million, or $0.34 per share (fully-diluted), in Q2 2011
• EBITDA¹ increased 50% to $58.6 million for Q2 2012, compared to $39.0 million in Q2 2011
• Adjusted earnings per share¹ (fully-diluted), increased 29% to $0.49 for Q2 2012, compared to $0.38 in Q2 2011
• Both GAAP and Non-GAAP EPS included a $0.09 per share (fully-diluted), impact from transaction expenses and tax expense related to the Catalyst acquisition in Q2 2012
• Cash from operations increased $31.1 million during Q2 2012 compared to Q2 2011
• Adjusted prescription claim volume¹ for the PBM segment increased 46% to 33.2 million, in Q2 2012 compared to 22.8 million in Q2 2011
• Transaction processing volume for the HCIT segment increased to 116.7 million for Q2 2012 compared to 98.1 million in Q2 2011
• Generic dispense rate increased to an industry leading 81% for Q2 2012 compared to 78% in Q2 2011
• The Company issued 5,980,000 common shares through a public offering in May 2012, yielding $519.3 million in proceeds
• Today the Company announced, a five year full service PBM contract with BCBS Arizona, valued at $350 million per year in annual drug spend
• Successfully converted two HCIT clients to PBM services in the quarter
• Subsequent to the quarter end, completed the merger with Catalyst Health Solutions, Inc. (“Catalyst”), a full-service PBM
• Executed a $1.8 billion credit agreement subsequent to the quarter end to partially finance the Catalyst acquisition

“During Q2 we continued to execute on our plan, which yielded another quarter of strong results. The completion of our merger with Catalyst and the rebranding of the combined companies to Catamaran Corporation is the start of a remarkable and transformative time for our Company. This combination brings together the right resources and scale to help solve healthcare challenges for our customers and deliver a distinct product and experience. We believe our increased purchasing power, coupled with a management team that’s second to none, has created a truly scaled alternative to the traditional PBM model. All of these factors have put us in a great position to continue delivering a record setting 2012 and continued growth moving forward,” said Mark Thierer, Chairman and CEO of Catamaran Corporation.

Financial Review

Revenue and Gross Profit segmented by PBM and HCIT:

Catamaran evaluates segment performance based on revenue and gross profit. Reconciliations of the Company’s business segments, PBM and Health Care Information Technology (“HCIT”), to the consolidated financial statements for the three and six months ended June 30, 2012 and 2011 are as follows:

Three months ended June 30, (unaudited, in thousands)

Six months ended June 30, (unaudited, in thousands)

PBM Revenue

Q2 2012 PBM revenue increased $478.3 million, or 40%, to $1.7 billion, compared to $1.2 billion in Q2 2011. Revenue was $3.3 billion for the year to date (“YTD”) period ended June 30, 2012, an increase of $1.1 billion, or 48%, as compared to the same period in 2011. The increase in revenue is primarily due to increased prescription claim volume as a result of new customer implementations during 2012, as well as revenues generated from customers acquired from the acquisition of HealthTran, LLC (“HealthTran”) which closed on January 1, 2012.

HCIT Revenue

HCIT revenue increased $12.4 million, or 42%, to $41.6 million in Q2 2012 compared to $29.2 million in Q2 2011. HCIT revenue increased $22.6 million, or 41%, to $77.5 million for the YTD period ended June 30, 2012, as compared to $54.9 million for the same period in 2011. The increase in the quarterly and YTD periods were primarily due to an increase in revenues earned from transaction processing, revenues generated from the HCIT customer base acquired from HealthTran and an increase in system sales.

Consolidated Gross Profit

Gross profit for Q2 2012 increased $48.3 million, or 65%, to $122.5 million compared to $74.2 million in Q2 2011. Gross profit increased $95.1 million, or 69%, to $232.9 million for the YTD period ended June 30, 2012 as compared to $137.8 million for the same period in 2011. The increase is mostly due to incremental PBM revenues generated from new customer implementations in 2012 and customers acquired from HealthTran. Gross profit percentage increased to 7% of revenue inQ2 2012 from 6% of revenue in Q2 2011. Gross profit has increased from 6% of revenue to 7% of revenue during the YTD period ended June 30, 2012 as compared to the same period in 2011. The gross profit percentage increased in both periods primarily as a result of realizing synergies with the integration of HealthTran customers acquired.

Selling, General and Administration (“SG&A”) Costs

SG&A costs for Q2 2012 were $61.2 million compared to $32.2 million in Q2 2011. SG&A costs increased by $55.2 million, or 93% to $114.9 million for the YTD period ended June 30, 2012 compared to $59.7 million for the same period in 2011. SG&A costs have increased due to the addition of operating costs related to the Company’s recent acquisitions, including HealthTran, additional resources added to support the growth of the PBM segment and due to transaction and integration expenses related to the merger with Catalyst totaling $6.4 million for Q2 2012, and $6.7 million for the YTD period ended June 30, 2012.

Income Taxes

The Company recognized income tax expense of $17.1 million for Q2 2012, representing an effective tax rate of 38.5%, as compared to $10.9 million, representing an effective tax rate of 33.6%, for the same period in 2011. The Company recognized income tax expense of $30.5 million for the YTD period ended June 30, 2012, representing an effective tax rate of 36.2%, as compared to $20.0 million, representing an effective tax rate of 33.4%, for the same period in 2011. The Company’s effective tax rate increased during these periods primarily due to expenses incurred during 2012 related to the merger with Catalyst that are not tax deductible.

Net Income

The Company reported Q2 2012 net income of $27.3 million, or $0.41 per share (fully-diluted), compared to $21.6 million, or $0.34 per share (fully-diluted), in Q2 2011. Net income for the YTD period ended June 30, 2012 was $53.7 million or $0.82 per share (fully-diluted), as compared to $39.8 million or $0.63 per share (fully-diluted) for the same period in 2011. The increase is driven by an increase in revenues from new customer implementations and the HealthTran acquisition offset by an increase in SG&A expense and amortization of intangibles due to acquisitions, and transaction expenses related to the merger with Catalyst and the increase in tax expense due to non-deductible transaction expenses.

Adjusted EPS¹ (fully-diluted), which excludes all transaction-related amortization of intangible assets, net of tax, increased 29% to $0.49 per share (fully-diluted), compared to $0.38 per share (fully-diluted) in Q2 2011. Adjusted EPS¹ (fully-diluted) increased 44% for the YTD period ended June 30, 2012 to $1.01 (fully-diluted), as compared to $0.70 (fully-diluted), in the same period of 2011.

EBITDA¹

Q2 2012 EBITDA increased 50% to $58.6 million compared to $39.0 million in Q2 2011. In the quarter the Company incurred $6.4 million of transaction expenses related to the merger with Catalyst, which are not excluded from EBITDA. EBITDA for the YTD period ended June 30, 2012 increased 56% to $113.0 million, compared to $72.5 million for the same period of 2011. The EBITDA growth was due primarily to new contract implementations, as well as additional business generated from recent acquisitions and their associated synergies.

Cash from Operations

For Q2 2012, the Company generated $29.7 million of cash from operations, compared to a use of $1.4 million of cash during the same period in 2011. For the YTD period ended June 30, 2012, the Company generated $85.9 million of cash from operations, compared to a use of $0.6 million of cash during the same period in 2011. The increased transaction volume in the PBM segment, propelled by new customer implementations during 2012, as well as the additional business generated as a result of the Company’s recent acquisitions, were the primary drivers of increased operating cash flow during 2012.

2012 Full Year Financial Guidance

With today’s announcement, the Company is updating its 2012 full year financial targets to reflect the merger with Catalyst. The updated GAAP EPS (fully diluted) and Adjusted EPS (fully diluted) amounts consider the effects of the approximately 33.4 million shares issued to complete the merger;

• Revenue of $9.9 to $10.0 billion.
• EBITDA¹ of $353 to $358 million.
• GAAP EPS (fully-diluted) of $1.24 to $1.27.
• Adjusted EPS¹ (fully-diluted) of $2.14 to $2.17 (excluding all transaction-related amortization of $126-128 million less an estimated 2012 tax rate of 38-40%).

Notice of Conference Call

Catamaran will host a conference call on Wednesday, August 1, 2012, at 8:30 a.m. ET to discuss its financial results. Mark Thierer, Chairman and CEO, and Jeff Park, EVP and CFO, will co-chair the call. This call is being webcast and can be accessed from the IR Events page of the Catamaran Corporation web site at www.catamaranrx.com. An archived replay of the webcast will be available for 90 days.

¹Non-GAAP Financial Measures

Catamaran reports its financial results in accordance with generally accepted accounting principles in the United States (“GAAP”). Catamaran’s management also evaluates and makes operating decisions using various other measures. Two such measures are Adjusted EPS and EBITDA, which are non-GAAP financial measures. Catamaran’s management believes that these two measures provide useful supplemental information regarding the performance of Catamaran’s business operations.

Adjusted EPS adds back the impact of all amortization of intangible asset expenses, net of tax. Amortization of intangible asset expense arises from the acquisition of intangible assets in connection with the Company’s business acquisitions. The Company excludes acquisition-related amortization expense from EPS because it believes (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of Catamaran’s business operations and (ii) such expenses can vary significantly between periods as a result of new acquisitions and full amortization of previously acquired intangible assets. Investors should note that the use of these intangible assets contributes to revenue in the periods presented as well as future periods and should also note that such expenses will recur in future periods.

EBITDA is a non-GAAP measure that management believes is a useful supplemental measure of operating performance prior to interest and other expense, net, income taxes, depreciation and amortization. Management believes it is useful to exclude these expenses as they are essentially amounts that cannot be influenced by management in the short term.

The 2012 full year guidance of EBITDA was computed using the Company’s estimated 2012 earnings before interest and other expense, net, taxes, depreciation and amortization. Adjusted EPS was computed by taking the Company’s GAAP EPS (fully-diluted) guidance and adding back the expected impact of all acquisition-related amortization expense totaling approximately $126-128 million less an estimated 2012 tax rate of 38-40%.

Adjusted prescription claim volume equals Catamaran’s mail service prescriptions multiplied by three, plus its retail and specialty prescriptions. The mail service prescriptions are multiplied by three to adjust for the fact that they typically include approximately three times the amount of product days supplied compared with retail prescriptions.

Management believes that Adjusted EPS, EBITDA and adjusted prescription claim volume provide useful supplemental information to management and investors regarding the performance of the Company’s business operations and facilitate comparisons to its historical operating results. Management also uses this information internally for forecasting and budgeting as it believes that the measures are indicative of the Company’s core operating results. Note, however, that these items are performance measures only, and do not provide any measure of the Company’s cash flow or liquidity. Non-GAAP financial measures should not be considered as a substitute for measures of financial performance in accordance with GAAP, and investors and potential investors are encouraged to review the reconciliations of Adjusted EPS and EBITDA to their most directly comparable GAAP measure.