SXC Health solutions announces record third quarter financial results
- Following strong quarterly results, SXC increases guidance for fiscal
2009 -
LISLE, IL,
Q3 2009 Highlights
------------------
- Revenue was $383.5 million compared to $318.1 million in Q3 fiscal
2008
- Gross profit was $47.7 million compared to $34.9 million in Q3 fiscal
2008
- Adjusted EBITDA(1) was $24.3 million compared to $11.9 million in Q3
fiscal 2008
- GAAP net income increased to $11.2 million, or $0.43 per share
(fully-diluted), compared to $3.5 million, or $0.15 per share (fully-
diluted), in Q3 fiscal 2008
- Non-GAAP adjusted earnings per share(1) (diluted), which excludes the
NMHC transaction-related amortization, was $0.47 compared to $0.24 in
Q3 fiscal 2008
- Cash from operations was $17.9 million compared to $3.3 million in Q3
fiscal 2008
- Adjusted prescription claim volume(1) for the PBM segment was 9.9
million compared to 8.9 million in Q3 fiscal 2008
- Gross margin per adjusted prescription for the PBM segment was $3.67
compared to $2.77 in Q3 fiscal 2008
- Mail order penetration increased to 9.5% compared to 8% in Q3 fiscal
2008
- Transaction processing volume for the HCIT segment was 92.0 million
in Q3 fiscal 2009 compared to 103.3 million in Q3 fiscal 2008
- Awarded a contract with the Ohio Bureau of Workers' Compensation, the
largest workers compensation organization in the U.S.
- Awarded a PBM services contract with Presbyterian Health Plan valued
at $150 million annually
- Renewed a multi-year PBM contract with the Employer-Union Health
Benefits Trust Fund of Hawaii
- Entered into a strategic relationship with Allscripts Misys to
enhance the e-prescribing options available to SXC's clients
- Completed a public offering of 5,175,000 common shares at a price of
$41.50 per share for net proceeds of approximately $204.1 million
- Subsequent to quarter-end, announced a PBM contract with Spectral
Solutions valued at $50 million annually
"Solid execution on our growth strategies combined with sound fundamentals in our markets led to another strong quarter and an increase to our key guidance targets," said Mark Thierer, President and CEO of SXC. "In addition to new customer wins, we are driving both top-line and bottom-line growth by increasing the mail-order penetration in our customer base and converting a number of Health Care IT clients to a broader platform of our PBM services. With future growth in mind, we completed a successful
Financial Review
----------------
Revenue and gross profit segmented by PBM and HCIT was as follows:
SXC evaluates segment performance based on revenue and gross profit. A reconciliation of the Company's business segments to the consolidated financial statements for the three- and nine-month periods ended
Three months ended September 30, (unaudited, in thousands)
PBM HCIT Consolidated
--------------------- --------------------- ---------------------
Q3 2009 Q3 2008 Q3 2009 Q3 2008 Q3 2009 Q3 2008
---------- ---------- ---------- ---------- ---------- ----------
Revenue $ 357,473 $ 297,178 $ 26,056 $ 20,923 $ 383,529 $ 318,101
Gross
profit $ 36,239 $ 24,524 $ 11,441 $ 10,362 $ 47,680 $ 34,886
Gross
profit % 10.1% 8.3% 43.9% 49.5% 12.4% 11.0%
Nine months ended September 30, (unaudited, in thousands)(2)
PBM HCIT Consolidated
--------------------- --------------------- ---------------------
YTD 09 YTD 08 YTD 09 YTD 08 YTD 09 YTD 08
---------- ---------- ---------- ---------- ---------- ----------
Revenue $ 919,158 $ 502,038 $ 76,160 $ 68,135 $ 995,318 $ 570,173
Gross
profit $ 99,550 $ 41,338 $ 34,526 $ 36,668 $ 134,076 $ 78,206
Gross
profit % 10.8% 8.2% 45.3% 53.8% 13.5% 13.7%
PBM revenue was
Q3 2009 HCIT revenue was
For the YTD period, HCIT revenue increased to
Product Development Costs
Product development costs for Q3 2009 were
Selling, General and Administration ("SG&A") Costs
SG&A costs for Q3 2009 were
Adjusted EBITDA(1)
Q3 2009 adjusted EBITDA was
Income Taxes
The Company recognized income tax expense of
Net Income
The Company reported Q3 2009 net income of
Cash from Operations
SXC continues to generate strong cash from operations. For Q3 2009, the Company generated
At
2009 Financial Guidance
With today's announcement, SXC is revising certain of its 2009 financial targets for:
- Revenue of $1.375-$1.425 billion versus prior estimate of $1.35-$1.4
billion
- Gross profit of $180-$182 million versus prior estimate of $166-$171
million
- Fully-diluted GAAP EPS (including all transaction-related
amortization) of $1.57-$1.62 versus prior estimate of $1.42-$1.50
- Adjusted EBITDA of $87-$89 million versus prior estimate of $78-$81
million
- Fully-diluted Non-GAAP adjusted earnings per share(1) (excluding the
NMHC transaction-related amortization) of $1.76-$1.81 versus prior
estimate of $1.62-$1.70
Notice of Conference Call
SXC will host a conference call on
A live audio webcast of the conference call will be available www.sxc.com and www.newswire.ca. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast. An archived replay of the webcast will be available for 365 days.
(1)Non-GAAP Financial Measures
SXC reports its financial results in accordance with generally accepted accounting principles in the
Adjusted earnings per share is a non-GAAP measure which takes earnings per share and adds back the impact of amortization expense related to the acquisition of NMHC, net of tax. Acquisition-related amortization expense is a non-cash expense arising from the acquisition of intangible assets in connection with the acquisition. SXC excludes acquisition-related amortization expense from non-GAAP adjusted earnings per share because it believes (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of SXC 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 contribute to revenue in the period presented as well as future periods and should also note that such expense will recur in future periods. The 2009 guidance of adjusted earnings per share was computed by taking the Company's GAAP earnings per share guidance and adding back the expected impact of acquisition-related amortization expense, net of tax.
Adjusted EBITDA is a non-GAAP measure that management believes is a useful supplemental measure of operating performance prior to net interest income (expense), income taxes, depreciation, amortization and stock-based compensation. Management believes it is useful to exclude depreciation, amortization and net interest income (expense) as these are essentially fixed amounts that cannot be influenced by management in the short term. In addition, management believes it is useful to exclude stock-based compensation as this is not a cash expense.
Adjusted prescription volume equals SXC'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 earnings per share, adjusted EBITDA and adjusted prescription 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 reconciliation of adjusted earnings per share and adjusted EBITDA.
Adjusted earnings per share and adjusted EBITDA do not have standardized meanings prescribed by GAAP. The Company's method of calculating these items may differ from the methods used by other companies and, accordingly, it may not be comparable to similarly titled measures used by other companies. Reconciliation of adjusted EBITDA to net income and adjusted net income to net income is shown below:
For the three For the nine
months ended months ended
September 30, September 30,
2009 2008 2009 2008
-------- -------- -------- --------
(unaudited) (in thousands)
Adjusted EBITDA $24,310 $11,886 $64,298 $27,795
Amortization of Intangible Assets (2,238) (3,449) (7,478) (6,277)
Depreciation of Property & Equipment (2,037) (1,669) (5,981) (4,715)
Stock-Based Compensation (1,046) (902) (2,476) (3,006)
Other Income (Expense) 20 50 62 15
Interest Income (Expense), Net (987) (1,101) (2,676) (198)
Income Tax (Expense) (6,813) (1,276) (14,881) (3,451)
-------- -------- -------- --------
Net Income $11,209 $3,539 $30,868 $10,163
-------- -------- -------- --------
-------- -------- -------- --------
Non-GAAP Adjusted Earnings Per Share For the For the
3 months 3 months
ended ended
Sept 30, Sept 30,
2009 2008
-------- --------
(unaudited)
(in thousands, except per share data)
Net Income $11,209 $3,539
Amortization of NMHC Intangibles (Net of Taxes) 1,027 2,244
-------- --------
Adjusted Net-Income $12,236 5,783
-------- --------
-------- --------
Adjusted EPS (diluted) $0.47 $0.24
(2)On
The net effect is that SXC's year-over-year revenues have increased dramatically while gross profit margin and adjusted EBITDA have increased in absolute dollar terms, but have declined as a percentage of total sales. These changes do not affect profitability on an absolute dollar or per share basis.
About SXC Health Solutions Corp.
SXC Health Solutions Corp. is a leading provider of pharmacy benefit management ("PBM") services and Healthcare Information Technology ("HCIT") solutions to the healthcare benefits management industry. As the industry's "Technology-Enabled PBM"(TM), SXC's product offerings and solutions combine a wide range of advanced PBM services, software applications, application service provider processing services, and professional services to help healthcare organizations reduce the cost of prescription drugs and deliver better healthcare to their members. SXC serves many of the largest organizations in the pharmaceutical supply chain, such as health plans; employers; Federal, provincial, and state governments; institutional pharmacies; pharmacy benefit managers; and retail pharmacy chains. SXC is headquartered in Lisle, Illinois with multiple locations in
Forward-Looking Statements
Certain statements included herein, including those that express management's expectations or estimates of our future performance, constitute "forward-looking statements" within the meaning of applicable securities laws. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management at this time, are inherently subject to significant business, economic and competitive uncertainties and contingencies. We caution that such forward-looking statements involve known and unknown risks, uncertainties and other risks that may cause our actual financial results, performance, or achievements to be materially different from our estimated future results, performance or achievements expressed or implied by those forward-looking statements. Numerous factors could cause actual results to differ materially from those in the forward-looking statements, including without limitation, our ability to achieve increased market acceptance for our product offerings and penetrate new markets; consolidation in the healthcare industry; the existence of undetected errors or similar problems in our software products; our ability to identify and complete acquisitions, manage our growth and integrate acquisitions; our ability to compete successfully; potential liability for the use of incorrect or incomplete data; the length of the sales cycle for our healthcare software solutions; interruption of our operations due to outside sources; our dependence on key customers; maintaining our intellectual property rights and litigation involving intellectual property rights; our ability to obtain, use or successfully integrate third-party licensed technology; compliance with existing laws, regulations and industry initiatives and future change in laws or regulations in the healthcare industry; breach of our security by third parties; our dependence on the expertise of our key personnel; our access to sufficient capital to fund our future requirements; and potential write-offs of goodwill or other intangible assets. This list is not exhaustive of the factors that may affect any of our forward-looking statements. Other factors that should be considered are discussed from time to time in SXC's filings with the U.S. Securities and Exchange Commission, including the risks and uncertainties discussed under that captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2008 Annual Report on Form 10-K and subsequent Form 10-Qs, which are available at www.sec.gov. Investors are cautioned not to put undue reliance on forward-looking statements. All subsequent written and oral forward-looking statements attributable to SXC or persons acting on our behalf are expressly qualified in their entirety by this notice. We disclaim any intent or obligation to update publicly these forward-looking statements, whether as a result of new information, future events or otherwise.
Certain of the assumptions made in preparing forward-looking information and management's expectations include: maintenance of our existing customers and contracts, our ability to market our products successfully to anticipated customers, the impact of increasing competition, the growth of prescription drug utilization rates at predicted levels, the retention of our key personnel, our customers continuing to process transactions at historical levels, that our systems will not be interrupted for any significant period of time, that our products will perform free of major errors, our ability to obtain financing on acceptable terms and that there will be no significant changes in the regulation of our business.
SXC HEALTH SOLUTIONS CORP.
Consolidated Balance Sheets
(in thousands, except share data)
September 30, December 31,
------------- -------------
2009 2008
------------- -------------
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 319,522 $ 67,715
Restricted cash 12,433 12,498
Accounts receivable, net of allowance
for doubtful accounts of
$3,319 (2008 - $3,570) 90,083 80,531
Rebates receivable 20,577 29,586
Unbilled revenue - 73
Prepaid expenses and other assets 4,718 4,382
Inventory 7,023 6,689
Income tax recoverable - 1,459
Deferred income taxes 9,919 10,219
------------- -------------
Total current assets 464,275 213,152
Property and equipment, net of
accumulated depreciation of
$25,388 (2008 - $19,449) 19,543 20,756
Goodwill 141,785 143,751
Other intangible assets, net of
accumulated amortization of
$21,585 (2008 - $14,099) 39,820 46,406
Deferred financing charges 1,154 1,481
Deferred income taxes 1,846 1,323
Other assets 1,293 1,474
------------- -------------
Total assets $ 669,716 $ 428,343
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 5,920 $ 8,302
Customer deposits 12,553 11,875
Salaries and wages payable 13,184 15,681
Accrued liabilities 27,709 32,039
Pharmacy benefit management rebates payable 43,830 36,326
Pharmacy benefit claim payments payable 51,808 51,406
Deferred revenue 8,430 7,978
Current portion of long-term debt 4,800 3,720
------------- -------------
Total current liabilities 168,234 167,327
Long-term debt, less current installments 40,320 43,920
Deferred income taxes 13,032 15,060
Deferred lease inducements 2,867 3,217
Deferred rent 1,327 1,461
Other liabilities 2,929 3,195
------------- -------------
Total liabilities 228,709 234,180
Shareholders' equity
Common shares: no par value,
unlimited shares authorized;
29,979,169 shares issued and
outstanding at September 30, 2009
(2008 - 24,103,032 shares) 360,131 146,988
Additional paid-in capital 14,661 11,854
Retained earnings 66,619 35,751
Accumulated other comprehensive loss (404) (430)
------------- -------------
Total shareholders' equity 441,007 194,163
------------- -------------
Total liabilities and shareholders' equity $ 669,716 $ 428,343
------------- -------------
------------- -------------
SXC HEALTH SOLUTIONS CORP.
Consolidated Statements of Operations
(in thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
--------------------------- ---------------------------
2009 2008 2009 2008
------------- ------------- ------------- -------------
(unaudited) (unaudited)
Revenue:
PBM $ 357,473 $ 297,178 $ 919,158 $ 502,038
HCIT:
Transaction
processing 16,461 11,631 45,852 38,167
Maintenance 4,733 3,998 13,684 12,338
Professional
services 3,187 3,836 10,630 10,693
System sales 1,675 1,458 5,994 6,937
------------- ------------- ------------- -------------
Total revenue 383,529 318,101 995,318 570,173
Cost of revenue:
PBM 321,234 272,654 819,608 460,700
HCIT 14,615 10,561 41,634 31,267
------------- ------------- ------------- -------------
Total cost
of revenue 335,849 283,215 861,242 491,967
------------- ------------- ------------- -------------
Gross profit 47,680 34,886 134,076 78,206
Expenses:
Product
development
costs 2,833 2,486 9,024 7,425
Selling, general
and adminis-
trative 22,153 21,863 64,857 47,291
Depreciation of
property and
equipment 1,467 1,222 4,354 3,416
Amortization
of intangible
assets 2,238 3,449 7,478 6,277
------------- ------------- ------------- -------------
28,691 29,020 85,713 64,409
------------- ------------- ------------- -------------
Operating income 18,989 5,866 48,363 13,797
Interest income (101) (508) (572) (2,209)
Interest expense 1,088 1,609 3,248 2,407
------------- ------------- ------------- -------------
Net interest expense 987 1,101 2,676 198
Other income, net (20) (50) (62) (15)
------------- ------------- ------------- -------------
Income before
income taxes 18,022 4,815 45,749 13,614
Income tax
expense (benefit):
Current 9,215 3,356 15,818 5,335
Deferred (2,402) (2,080) (937) (1,884)
------------- ------------- ------------- -------------
6,813 1,276 14,881 3,451
Net income $ 11,209 $ 3,539 $ 30,868 $ 10,163
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Earnings
per share:
Basic $ 0.45 $ 0.15 $ 1.25 $ 0.45
Diluted $ 0.43 $ 0.15 $ 1.22 $ 0.44
Weighted average
number of
shares used
in computing
earnings
per share:
Basic 25,111,763 23,891,438 24,651,293 22,616,694
Diluted 26,109,202 24,346,740 25,318,349 23,034,651
SXC HEALTH SOLUTIONS CORP.
Consolidated Statements of Cash Flows
(in thousands)
Three months ended Nine months ended
September 30, September 30,
--------------------------- ---------------------------
2009 2008 2009 2008
------------- ------------- ------------- -------------
(unaudited) (unaudited)
Cash flows from
operating activities:
Net income $ 11,209 $ 3,539 $ 30,868 $ 10,163
Items not
involving cash:
Stock-based
compensation 1,046 902 2,477 3,006
Depreciation
of property
and equipment 2,037 1,669 5,981 4,715
Amortization
of intangible
assets 2,239 3,449 7,478 6,277
Deferred lease
inducements
and rent (115) (99) (484) (206)
Deferred
income taxes (2,402) (2,080) (937) (1,884)
Tax benefit on
option exercises (1,341) (719) (3,447) (799)
Gain on foreign
exchange (24) (7) (50) (14)
Changes in
operating assets
and liabilities,
net of effects
from acquisition:
Accounts
receivable (9,070) (4,970) (9,444) 7,858
Rebates
receivable 1,935 1,864 9,009 3,017
Restricted cash 1,702 (335) 65 (4,660)
Unbilled revenue - 2 73 103
Prepaid expenses 862 (407) (302) 915
Inventory (915) 93 (318) (171)
Income tax
recoverable 2,967 1,264 5,205 1,618
Accounts payable (2,466) (768) (2,382) 496
Accrued
liabilities 2,441 1,211 (3,575) (4,452)
Pharmacy benefit
claim payments
payable 9,868 2,585 402 1,049
Pharmacy benefit
management
rebates payable (2,026) (2,632) 7,504 (5,080)
Deferred revenue (63) (139) 409 (393)
Customer deposits (94) (1,172) 678 (1,070)
Other 122 20 383 111
------------- ------------- ------------- -------------
Net cash
provided by
operating
activities 17,912 3,270 49,593 20,599
Cash flows from
investing activities:
Purchases of property
and equipment (865) (2,556) (6,611) (5,970)
Lease inducements
received - - - 373
Acquisitions,
net of cash
acquired - (892) (2,176) (102,562)
------------- ------------- ------------- -------------
Net cash used
in investing
activities (865) (3,448) (8,787) (108,159)
Cash flows
from financing
activities:
Issuance of
long-term debt - - - 48,000
Proceeds from
public offering,
net of issuance
costs 204,107 - 204,107 -
Payment of
financing costs - - - (1,792)
Repayment of
long-term debt (1,200) (120) (2,520) (240)
Proceeds from
exercise of
options 1,569 1,107 5,917 1,440
Tax benefit on
option exercises 1,341 719 3,447 799
------------- ------------- ------------- -------------
Net cash
provided by
financing
activities 205,817 1,706 210,951 48,207
Effect of foreign
exchange on
cash balances 24 7 50 14
------------- ------------- ------------- -------------
Increase (decrease)
in cash and
cash equivalents 222,888 1,535 251,807 (39,339)
Cash and cash
equivalents,
beginning
of period 96,634 50,055 67,715 90,929
------------- ------------- ------------- -------------
Cash and cash
equivalents,
end of period $ 319,522 $ 51,590 $ 319,522 $ 51,590
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
%SEDAR: 00001439E
For further information: Jeff Park, Chief Financial Officer, SXC Health Solutions, Inc., Tel: (630) 577-3100, [email protected]; Dave Mason, Investor Relations - Canada, The Equicom Group Inc., (416) 815-0700 ext. 237, [email protected]; Susan Noonan, Investor Relations - U.S., The SAN Group, LLC, (212) 966-3650, [email protected]
Share this article