ST. LOUIS, April 28 /PRNewswire-FirstCall/ -- Express Scripts, Inc. announced first quarter net income of $70.0 million, or $0.89 per diluted share, a 20 percent increase over $0.74 per diluted share reported for the same quarter of 2003. The Company generated $97.8 million of cash flow from operations in the first quarter compared with $94.4 million in the same quarter last year.
“We are pleased by our strong start in 2004, and our outlook for the future,” stated Barrett Toan, chairman and chief executive officer. “The record level of mail and generic utilization this quarter demonstrates the increased demand for our PBM tools, which help clients reduce their drug trend. Members covered by step therapy programs have more than doubled from last year to over 10 million, and clients implementing these programs experience, on average, a two percent increase in generic utilization. Our business model aligns our interests with our clients and members, and we benefit when our members use more generics, choose preferred lower-cost brand drugs and take advantage of our cost-effective mail services.”
“This quarter, we also completed the acquisition of CuraScript, which is providing immediate benefits by improving the quality and affordability of specialty drug therapy for clients and patients.”
Strong Operating Results
Revenues for the first quarter of 2004 were $3.6 billion, a 13 percent increase over the same quarter last year due to drug price inflation, the acquisition of CuraScript, and increased prescriptions managed by Express Scripts on an adjusted basis. Increased use of lower-cost generic drugs (approximately 49 percent of total prescriptions compared to 47 percent last year), and increased member co-payments to retail network pharmacies, which the Company does not record as revenue, partially offset these increases.
Mail pharmacy prescriptions increased 25 percent to 9.3 million during the first quarter of 2004 from 7.4 million last year. Mail claims as a percentage of total adjusted claims grew to 23 percent from 19 percent for the same period last year. In addition to distributing a record number of mail prescriptions, Express Scripts attained a 97 percent beneficiary satisfaction rating from the Department of Defense (“DoD”) for the TRICARE mail program, representing the third consecutive quarter of earning an incentive payment under this contract.
Retail network claims processed in the first quarter were 93.5 million, a 3 percent reduction from 96.7 million last year; however, with the growth in mail pharmacy services, total adjusted claims increased 2 percent over last year. Express Scripts experienced strong sales for 2004 business, and the net new business will begin during the second quarter with the addition of some large accounts including the TRICARE Retail Pharmacy program. Effective June 1, 2004, Express Scripts will provide access to a retail pharmacy network, prior authorization services, beneficiary communication materials and a call center to handle beneficiary inquiries for approximately 2.5 million DoD beneficiaries who currently utilize the retail pharmacy benefit.
“Also, beginning May 3rd, we begin enrollment in the Pharmacy Care Alliance Medicare discount card program, which we are sponsoring with the National Association of Chain Drug Stores,” added Toan. “We look forward to making the use of prescription drugs safer and more affordable for America’s seniors.”
Gross profit per adjusted claim for the first quarter was $1.82, an increase from $1.75 reported for the same quarter last year. Selling, general and administrative expenses of $95.2 million decreased 6 percent from $101.8 million for the first quarter of 2003. As a result, operating income was $126.5 million, an increase of 17 percent over the first quarter of 2003, and EBITDA per adjusted claim was $1.16 compared to $1.01 last year.
During the quarter, the Company refinanced its existing credit facility with a new $800 million financing package with favorable rates, and flexible, limited covenants. In conjunction with the refinancing, the Company recorded additional interest expense of $3.6 million ($2.2 million net of tax), or $0.03 per diluted share, reflecting the write-off of deferred financing fees. In addition, in conjunction with the early termination of a client in 2001, the Company received a termination payment in the first quarter of $5.5 million ($3.4 million net of tax), or $0.04 per diluted share.
2004 Earnings Guidance
The Company believes its financial performance will continue to benefit from increased membership, growth in mail and retail prescriptions beginning in the second quarter, further increases in generic utilization, improved formulary compliance with preferred, lower-cost brands, growth in its specialty PBM offering, increased productivity, and capital structure improvements. Based on these strong fundamentals, Express Scripts believes that its 2004 diluted earnings per share will increase 20 percent to 25 percent over 2003, excluding charges the Company incurred in the first quarter and anticipates incurring in the second quarter for the early retirement of debt, and the termination payment discussed above.
On April 19, 2004 Express Scripts sent a Notice of Redemption to the holders of the Company’s 9 5/8% Series B Senior Notes (“Notes”) due June 15, 2009, and will redeem the $204.5 million outstanding principal amount of the Notes on June 15, 2004 at a redemption price equal to 104.8125% of the principal amount of the Notes together with accrued interest. The Company will record additional interest expense of $12.2 million ($7.6 million net of tax) in the second quarter as a result of the redemption of this debt.
Express Scripts Receives National Recognition
Express Scripts made its first appearance on the BusinessWeek Top 50, which ranks the best-performing companies in the S&P 500. According to BusinessWeek, the Top 50 represents, “a ranking on companies that symbolize the best in Corporate America, both in operational performance and in their ability to convert that success into lucrative gains for shareholders.”
Fortune magazine has designated Express Scripts as one of America’s most- admired companies in 2004, placing the Company fifth among the top 10 healthcare companies. The ranking is based on eight key attributes including innovation, employee talent, use of corporate assets, social responsibility, quality of management, financial soundness, long term investment, and quality of products and services.
Express Scripts, Inc. is one of the largest PBM companies in North America providing PBM services to over 50 million members through facilities in thirteen states and Canada. Express Scripts serves thousands of client groups, including managed care organizations, insurance carriers, third-party administrators, government-sponsored benefit plans, employers, and union- sponsored benefit plans.
Express Scripts provides integrated PBM services, including network pharmacy claims processing, mail pharmacy services, benefit design consultation, drug utilization review, formulary management, disease management, medical and drug data analysis services, and medical information management services. The Company also provides distribution services for specialty pharmaceuticals. Express Scripts is headquartered in St. Louis, Missouri. More information can be found at http://www.express-scripts.com/ , which includes expanded investor information and resources.
SAFE HARBOR STATEMENT
This press release contains forward-looking statements, including, but not limited to, statements related to the Company’s plans, objectives, expectations (financial and otherwise) or intentions. Actual results may differ significantly from those projected or suggested in any forward-looking statements. Factors that may impact these forward-looking statements include but are not limited to:
-- risks associated with our acquisitions (including our acquisition of CuraScript) which include integration risks and costs, risks of client retention and repricing of client contracts, and risks associated with the operations of acquired businesses -- risks associated with our ability to maintain growth rates, or to control operating or capital costs -- continued pressure on margins resulting from client demands for lower prices, enhanced service offerings and/or higher service levels, and the possible termination of, or unfavorable modification to, contracts with key clients or providers -- competition in the PBM industry, and our ability to consummate contract negotiations with prospective clients, as well as competition from new competitors offering services that may in whole or in part replace services that we now provide to our customers -- adverse results in regulatory matters, the adoption of new legislation or regulations (including increased costs associated with compliance with new laws and regulations, such as privacy regulations under the Health Insurance Portability and Accountability Act (“HIPAA”)), more aggressive enforcement of existing legislation or regulations, or a change in the interpretation of existing legislation or regulations -- adverse results in litigation, including a number of pending class action cases that challenge certain of our business practices -- risks arising from investigations of certain PBM practices and pharmaceutical pricing, marketing and distribution practices currently being conducted by the U.S. Attorney offices in Philadelphia and Boston and other regulatory agencies including the Department of Labor -- increased compliance risks relating to our contracts with the DoD TRICARE Plan and various state governments and agencies -- the possible loss, or adverse modification of the terms, of relationships with pharmaceutical manufacturers, or changes in pricing, discount or other practices of pharmaceutical manufacturers -- risks associated with the use and protection of the intellectual property we use in our business -- risks associated with our leverage and debt service obligations, including the effect of certain covenants in our borrowing agreements -- risks associated with our ability to continue to develop new products, services and delivery channels -- general developments in the health care industry, including the impact of increases in health care costs, changes in drug utilization and cost patterns and introductions of new drugs -- uncertainties regarding the implementation and the ultimate terms of proposed government initiatives, including the Medicare prescription drug benefit -- increase in credit risk relative to our clients due to adverse economic trends -- risks associated with our inability to attract and retain qualified personnel -- other risks described from time to time in our filings with the SEC
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, INC. Unaudited Consolidated Statement of Operations Three months ended March 31, (in thousands, except per share data) 2004 2003 Revenues (A) $3,627,815 $3,223,981 Cost of revenues (A) 3,406,028 3,014,368 Gross profit 221,787 209,613 Selling, general and administrative 95,244 101,786 Operating income 126,543 107,827 Other (expense) income : Undistributed loss from joint venture (1,340) (1,539) Interest income 824 868 Interest expense (12,710) (10,702) (13,226) (11,373) Income before income taxes 113,317 96,454 Provision for income taxes 43,354 36,805 Income before cumulative effect of accounting change 69,963 59,649 Cumulative effect of accounting change, net of tax - (1,028) Net income $69,963 $58,621 Basic earnings per share: Before cumulative effect of accounting change $0.90 $0.77 Cumulative effect of accounting change - (0.01) Net income $0.90 $0.76 Weighted average number of common shares outstanding during the period - Basic EPS 77,333 77,547 Diluted earnings per share: Before cumulative effect of accounting change $0.89 $0.75 Cumulative effect of accounting change - (0.01) Net income $0.89 $0.74 Weighted average number of common shares outstanding during the period - Diluted EPS 78,571 79,075 (A) Excludes estimated retail pharmacy co-payments of $1,400,225 and $1,333,683, respectively. These are amounts we instructed retail pharmacies to collect from members. We have no information regarding actual co-payments collected. EXPRESS SCRIPTS, INC. Unaudited Consolidated Balance Sheet March 31, December 31, (in thousands, except share data) 2004 2003 Assets Current assets: Cash and cash equivalents $300,857 $396,040 Receivables, net 1,092,043 1,011,154 Inventories 128,603 116,375 Deferred taxes 17,156 15,346 Prepaid expenses and other current assets 23,287 21,220 Total current assets 1,561,946 1,560,135 Property and equipment, net 177,783 177,312 Goodwill, net 1,699,010 1,421,493 Other intangible assets, net 259,056 232,059 Other assets 21,847 18,175 Total assets $3,719,642 $3,409,174 Liabilities and Stockholders’ Equity Current liabilities: Claims and rebates payable $1,224,384 $1,178,321 Accounts payable 253,999 232,290 Accrued expenses 216,549 215,797 Current maturities of long-term debt 22,084 - Total current liabilities 1,717,016 1,626,408 Long-term debt 582,947 455,018 Other liabilities 141,422 133,755 Total liabilities 2,441,385 2,215,181 Stockholders’ equity: Preferred stock, $0.01 par value per share, 5,000,000 shares authorized, and no shares issued and outstanding - - Common stock, $0.01 par value per share, 181,000,000 shares authorized, and 79,786,000 and 79,795,000 shares issued and outstanding, respectively 797 798 Additional paid-in capital 476,707 484,663 Unearned compensation under employee compensation plans (22,728) (23,302) Accumulated other comprehensive income 3,655 3,638 Retained earnings 934,513 864,550 1,392,944 1,330,347 Common Stock in treasury at cost, 1,855,000 and 2,223,000 shares, respectively (114,687) (136,354) Total stockholders’ equity 1,278,257 1,193,993 Total liabilities and stockholders’ equity $3,719,642 $3,409,174 EXPRESS SCRIPTS, INC. Unaudited Condensed Consolidated Statement of Cash Flows Three months ended March 31, (in thousands) 2004 2003 Cash flow from operating activities: Net income $69,963 $58,621 Adjustments to reconcile net income to net cash provided by operating activities, excluding the effect of the acquisition: Depreciation and amortization 15,705 13,163 Non-cash adjustments to net income 21,764 11,629 Net changes in operating assets and liabilities (9,647) 11,023 Net cash provided by operating activities 97,785 94,436 Cash flows from investing activities: Purchases of property and equipment (7,739) (9,195) Acquisition, net of cash acquired, and investment in joint venture (331,810) 2,804 Other (905) 7 Net cash used in investing activities (340,454) (6,384) Cash flows from financing activities: Proceeds from long-term debt 675,000 - Repayment of long-term debt (525,000) (25,000) Treasury stock acquired (9,891) - Deferred financing fees (6,029) - Net proceeds from employee stock plans 13,541 1,939 Net cash provided by (used in) financing activities 147,621 (23,061) Effect of foreign currency translation adjustment (135) 896 Net (decrease) increase in cash and cash equivalents (95,183) 65,887 Cash and cash equivalents at beginning of period 396,040 190,654 Cash and cash equivalents at end of period $300,857 $256,541 EXPRESS SCRIPTS, INC. Table 1 Unaudited Operating Statistics (in thousands, except per claim) 3 months 3 months 3 months 3 months 3 months ended ended ended ended ended 3/31/2004 12/31/2003 9/30/2003 6/30/2003 3/31/2003 Revenue Detail Network revenues $2,337,254 $2,344,426 $2,201,301 $2,303,311 $2,188,208 Mail revenues 1,213,080 1,067,299 984,468 964,119 972,255 Services revenues 21,963 21,358 14,922 17,787 18,811 PBM revenues 3,572,297 3,433,083 3,200,691 3,285,217 3,179,274 Services revenues 27,555 26,941 26,082 28,637 27,793 Other revenues 27,963 27,713 21,829 20,343 16,914 Non-PBM revenues 55,518 54,654 47,911 48,980 44,707 Total revenues $3,627,815 $3,487,737 $3,248,602 $3,334,197 $3,223,981 Per Claim Network revenue/claim $24.99 $24.47 $24.34 $23.99 $22.64 Mail revenue/claim $130.93 $123.76 $120.70 $118.65(A) $130.84 Claims Detail Network (B) 93,517 95,808 90,427 96,025 96,667 Mail 9,265 8,624 8,156 8,126 7,431 Total PBM claims 102,782 104,432 98,583 104,151 104,098 Non-PBM claims (C) 793 859 896 966 889 Total claims 103,575 105,291 99,479 105,117 104,987 Adjusted claims (D) 122,105 122,539 115,791 121,369 119,849 Margin Analysis Gross profit margin 6.1% 6.7% 6.4% 6.5% 6.5% EBITDA margin (E) 3.9% 3.8% 3.9% 3.7% 3.8% Per Adjusted Claim Gross profit $1.82 $1.90 $1.79 $1.79 $1.75 EBITDA (E) $1.16 $1.08 $1.09 $1.02 $1.01 See Notes to Unaudited Operating Statistics Selected Ratio Analysis Table 2 As of As of As of As of As of 3/31/2004 12/31/2003 9/30/2003 6/30/2003 3/31/2003 Debt to EBITDA ratio (F) 1.2x 0.9x 0.9x 1.0x 1.2x EBITDA interest coverage (G) 12.1x 12.1x 11.0x 9.8x 10.1x Operating cash flow interest coverage (H) 10.6x 11.0x 9.4x 7.2x 10.7x Debt to capitalization (I) 32.1% 27.6% 27.9% 29.7% 33.6% EXPRESS SCRIPTS, INC. Notes to Unaudited Operating Statistics and Selected Ratio Analysis (in thousands) (A) The decrease in mail revenue per claim in the second quarter of 2003 as compared to the first quarter of 2003 reflects the Department of Defense (“DoD”) TRICARE Management Activity mail contract in which we earn a fee per prescription filled by our mail order facility. Revenues and cost of revenues do not include ingredient costs. (B) Network claims exclude drug formulary only claims where we only administer the clients formulary and approximately 0.5 million manual claims per quarter. (C) Non-PBM claims represent the distribution of pharmaceuticals through Patient Assistance Programs and the distribution of pharmaceuticals where we have been selected by the pharmaceutical manufacturer as part of a limited distribution network. (D) Adjusted claims represent network claims and non-PBM claims plus mail claims, which are multiplied by 3, as mail claims are typically 90 day claims and network claims are generally 30 day claims. (E) The following is a reconciliation of EBITDA to net income and to net cash provided by operating activities as the Company believes they are the most directly comparable measures calculated under Generally Accepted Accounting Principles: 3 months ended March 31, 2004 2003 Net income $69,963 $58,621 Income taxes 43,354 36,805 Depreciation and amortization * 15,705 13,163 Interest expense, net 11,886 9,834 Undistributed loss from joint venture 1,340 1,539 Cumulative effect of accounting change, net of tax - 1,028 EBITDA 142,248 120,990 Current income taxes (36,388) (30,850) Interest expense less amortization (7,837) (9,116) Undistributed loss from joint venture (1,340) (1,539) Other adjustments to reconcile net income to net cash provided by operating activities 1,102 14,951 Net cash provided by operating activities $97,785 $94,436 EBITDA is earnings before other income (expense), interest, taxes, depreciation and amortization, or operating income plus depreciation and amortization. EBITDA is presented because it is a widely accepted indicator of a company’s ability to service indebtedness and is frequently used to evaluate a company’s performance. EBITDA, however, should not be considered as an alternative to net income, as a measure of operating performance, as an alternative to cash flow, as a measure of liquidity or as a substitute for any other measure computed in accordance with accounting principles generally accepted in the United States. In addition, our definition and calculation of EBITDA may not be comparable to that used by other companies. * Includes depreciation and amortization expense of: Gross profit $5,992 $5,146 Selling, general and administrative 9,713 8,017 $15,705 $13,163 (F) Represents debt as of the balance sheet date divided by EBITDA for the twelve months ended. (G) Represents EBITDA for the twelve months ended divided by interest for the twelve months ended. (H) Represents Operating Cash Flow for the twelve months ended divided by interest for the twelve months ended. For the first quarter of 2004 and second quarter of 2003, this ratio was negatively impacted by the non-recurring charges to interest expense of $3.6 million and $5.0 million, respectively, which pertains to the early retirement of debt. (I) Represents debt divided by the total of debt and stockholders equity.
Express Scripts, Inc.
CONTACT: Edward Stiften, Chief Financial Officer, or David Myers, VicePresident Investor Relations, both of Express Scripts, Inc., +1-314-702-7173,investor.relations@express-scripts.com
Web site: http://www.express-scripts.com/
