Express Scripts Reports First Quarter Results

EXPRESS SCRIPTS, INC.

Unaudited Consolidated Statement of Operations

Three Months Ended
March 31,

 (in millions, except per share data)

2011

2010

Revenues(1)

$ 11,094.5

$ 11,138.4

Cost of revenues (1)

10,349.0

10,475.2

   Gross profit

745.5

663.2

Selling, general and administrative

193.1

208.5

Operating income

552.4

454.7

Other (expense) income:

   Interest income  

0.4

1.7

   Interest expense  

(39.7)

(42.8)

(39.3)

(41.1)

Income before income taxes

513.1

413.6

Provision for income taxes

186.6

153.0

Net income from continuing operations

326.5

260.6

Net loss from discontinued operations, net of tax

-

(0.4)

Net income

$      326.5

$      260.2

Weighted average number of common shares

outstanding during the period:

   Basic

529.0

549.8

   Diluted

533.9

555.8

Basic earnings per share:

     Continuing operations

$        0.62

$        0.47

     Discontinued operations

-

-

     Net earnings

0.62

0.47

Diluted earnings per share:

     Continuing operations

$        0.61

$        0.47

     Discontinued operations

-

-

     Net earnings

0.61

0.47

(1) Includes retail pharmacy co-payments of $1,526.5 million and $1,662.6 million for the three months ended March 31, 2011 and 2010, respectively.

EXPRESS SCRIPTS, INC.

Unaudited Consolidated Balance Sheet

March 31,

December 31,

(in millions, except share data)

2011

2010

Assets

Current assets:

Cash and cash equivalents

$        766.1

$                 523.7

Restricted cash and investments

15.9

16.3

Receivables, net

1,907.0

1,720.9

Inventories

325.5

382.4

Deferred taxes

49.5

86.0

Prepaid expenses

48.5

177.6

Other current assets

35.7

34.4

   Total current assets

3,148.2

2,941.3

Property and equipment, net

359.1

372.7

Goodwill

5,486.9

5,486.2

Other intangible assets, net

1,685.3

1,725.0

Other assets

28.6

32.6

   Total assets

$   10,708.1

$            10,557.8

Liabilities and Stockholders' Equity

Current liabilities:

Claims and rebates payable

$     2,500.0

$              2,666.5

Accounts payable

673.8

656.7

Accrued expenses

537.0

593.9

Current maturities of long-term debt

0.1

0.1

   Total current liabilities

3,710.9

3,917.2

Long-term debt

2,494.0

2,493.7

Other liabilities

540.0

540.3

   Total liabilities

6,744.9

6,951.2

Stockholders' Equity:

Preferred stock, 5,000,000 shares authorized, $0.01 par value per share;  

and no shares issued and outstanding

-

-

Common stock, 1,000,000,000 shares authorized, $0.01 par value per share;  

shares issued: 690,606,000 and 690,231,000, respectively;

shares outstanding: 529,454,000 and 528,069,000, respectively

6.9

6.9

Additional paid-in capital

2,371.0

2,354.4

Accumulated other comprehensive income

21.1

19.8

Retained earnings

5,696.3

5,369.8

8,095.3

7,750.9

Common stock in treasury at cost, 161,152,000 and  

162,162,000 shares, respectively

(4,132.1)

(4,144.3)

   Total stockholders' equity

3,963.2

3,606.6

   Total liabilities and stockholders' equity

$   10,708.1

$            10,557.8

EXPRESS SCRIPTS, INC.

Unaudited Consolidated Statement of Cash Flows

Three Months Ended
March 31,

(in millions)

2011

2010

Cash flows from operating activities:

Net income  

$ 326.5

$    260.2

Net loss from discontinued operations, net of tax

-

0.4

     Net income from continuing operations

326.5

260.6

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

62.9

58.7

Non-cash adjustments to net income

55.6

40.8

Changes in operating assets and liabilities:  

Accounts receivable

(189.3)

394.8

Claims and rebates payable

(166.5)

(203.7)

Other net changes in operating assets and liabilities

155.2

208.8

Net cash provided by operating activities — continuing operations

244.4

760.0

Net cash provided by operating activities — discontinued operations

-

0.8

Net cash flows provided by operating activities

244.4

760.8

Cash flows from investing activities:

Purchases of property and equipment

(19.5)

(33.7)

Other

1.7

5.2

Net cash used in investing activities - continuing operations

(17.8)

(28.5)

Net cash used in investing activities - discontinued operations

-

(0.5)

Net cash used in investing activities

(17.8)

(29.0)

Cash flows from financing activities:

Tax benefit relating to employee stock compensation

13.0

26.7

Net proceeds from employee stock plans

2.6

10.7

Treasury stock acquired

-

(218.2)

Repayment of long-term debt

-

(180.0)

Net cash provided by (used in) financing activities

15.6

(360.8)

Effect of foreign currency translation adjustment

0.2

1.7

Net increase in cash and cash equivalents

242.4

372.7

Cash and cash equivalents at beginning of period

523.7

1,070.4

Cash and cash equivalents at end of period

$ 766.1

$ 1,443.1

Table 1

Unaudited Consolidated Selected Information

(in millions)

Three Months Ended
March 31,  

Claims Volume

2011

2010

Network

148.8

149.0

Home Delivery & Specialty (1)

13.2

13.4

  Total claims

162.0

162.4

 Total adjusted claims(2)

186.1

186.6

Depreciation and Amortization (D&A):  

Revenue amortization(3)

$ 28.5

$ 28.5

Cost of revenues depreciation

10.7

8.5

Selling, general and administrative depreciation

13.5

11.5

Selling, general and administrative amortization

10.2

10.2

     Total D&A

$ 62.9

$ 58.7

Generic Fill Rate

Network

75.0%

71.3%

Home Delivery

61.8%

59.4%

Overall

73.8%

70.2%

Note: See Appendix for footnotes.  

Table 2

Calculation of Adjusted Gross Profit and SG&A

(in millions)

Three Months Ended
March 31,  

2011

2010

Gross profit, as reported

$ 745.5

$ 663.2

Amortization of NextRx-related intangible assets (3)

28.5

28.5

Non-recurring integration-related costs (4)

-

25.9

Adjusted gross profit

$ 774.0

$ 717.6

Selling, general and administrative expenses, as reported

$ 193.1

$ 208.5

Amortization of legacy intangible assets (5)

8.6

8.6

Amortization of NextRx-related intangible assets (3)

1.6

1.6

Non-recurring integration-related costs (4)

-

6.0

Adjusted selling, general and administrative expenses

$ 182.9

$ 192.3

Note: See Appendix for footnotes.  

The Company is providing adjusted gross profit and selling, general and administrative expenses excluding the impact of non-recurring charges and amortization of intangible assets in order to compare the underlying financial performance to prior periods.

Table 3

EBITDA Reconciliation

(in millions, except per claim data)

The following is a reconciliation of net income from continuing operations to EBITDA(6) from continuing operations.  The Company believes net income is the most directly comparable measure calculated under U.S. GAAP.

Three Months Ended
March 31,  

2011

2010

Net income from continuing operations, as reported

$ 326.5

$ 260.6

 Provision for income taxes

186.6

153.0

 Depreciation and amortization

62.9

58.7

 Interest expense, net

39.3

41.1

EBITDA from continuing operations, as reported

615.3

513.4

Non-recurring integration-related costs (4)

-

31.9

Adjusted EBITDA from continuing operations

$ 615.3

$ 545.3

Total adjusted claims

186.1

186.6

Adjusted EBITDA per adjusted claim

$   3.31

$   2.92

Note: See Appendix for footnotes.  

The Company is providing EBITDA excluding the impact of non-recurring charges in order to compare the underlying financial performance to prior periods.

Table 4

Calculation of Adjusted EPS  

Three Months Ended
March 31,  

2011

2010

(per diluted share)

EPS from continuing operations, as reported

$ 0.61

$ 0.47

Non-recurring items:

Integration-related costs (4)

-

0.04

Amortization of:

Legacy intangible assets (5)

0.01

0.01

NextRx-related intangible assets (3)

0.04

0.03

EPS from continuing operations, adjusted

$ 0.66

$ 0.55

Note: See Appendix for footnotes.  

The Company is providing diluted earnings per share excluding the impact of non-recurring charges and intangibles amortization in order to compare the underlying financial performance to prior periods.

Table 5

2011 Guidance Information

Estimated
Year Ended
December 31, 2011

(per diluted share)

Reaffirmed adjusted EPS guidance

$ 3.15

to

$ 3.25

GAAP items not included in guidance:

Amortization of legacy intangible assets (7)

0.04

0.04

Amortization of NextRx-related intangible assets (8)

0.15

0.15

Note: See Appendix for footnotes.  

Appendix

Footnotes

(1) These claims include home delivery, specialty and other claims including:  (a) drugs distributed through patient assistance programs (b) drugs we distribute to other PBM's clients under limited distribution contracts with pharmaceutical manufacturers and (c) Emerging Market claims.

(2) Total adjusted claims reflect home delivery claims multiplied by 3, as home delivery claims typically cover a time period 3 times longer than retail claims.

(3) Amortization of NextRx-related intangible assets include amounts in both revenues and selling, general and administrative expense. Revenue amortization is related to the customer contract with WellPoint which consummated upon closing of the NextRx acquisition in 2009.  Under U.S. GAAP standards, amortization of intangibles that arise in connection with consideration given to a customer by a vendor is characterized as a reduction of revenues.  Intangible amortization of $28.5 million ($18.1 and $18.0 million net of tax in 2011 and 2010, respectively)  is included as a reduction to revenue for the three months ended March 31, 2011 and 2010.  

In addition, intangible amortization of $1.6 million ($1.0 million net of tax) is included in selling, general and administrative expense in the three months ended March 31, 2011 and 2010.

(4) Integration-related costs include those costs directly related to the acquisition of NextRx, primarily comprised of transition services, integration, site closures and severance costs of $25.9 million ($16.3 million net of tax) is included in cost of revenues for the three months ended March 31, 2010.  

Additionally, the Company incurred integration-related costs of $6.0 million ($3.8 million net of tax) included in selling, general and administrative expense in the three months ended March 31, 2010.

(5) This adjustment represents the effect of Express Scripts' legacy intangible amortization, prior to the acquisition of NextRx.  Intangible amortization of $8.6 million ($5.5 and $5.4 million net of tax for 2011 and 2010, respectively) is included in selling, general and administrative expense for three months ended March 31, 2011 and 2010, respectively.

(6) EBITDA is earnings before taxes, depreciation and amortization, net interest and other income (expense); or alternatively calculated as 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 U.S. GAAP. In addition, this definition and calculation of EBITDA may not be comparable to that used by other companies.

(7) This adjustment represents the per share effect of Express Scripts' legacy intangible amortization, prior to the acquisition of NextRx.  Intangible amortization of approximately $34.2 million will be included in selling, general and administrative expense in 2011.

(8) This adjustment represents the per share effect of the NextRx-related intangible amortization.  Intangible amortization of approximately $114.0 million will be included as a reduction to revenue in 2011.  Intangible amortization of $6.5 million will be included in selling, general and administrative expense in 2011.