Diplomat Announces 2nd Quarter Financial Results

08/06/2018
2nd Quarter Revenue of $1,416 Million, an increase of 26%, Net (Loss) Income Attributable to Diplomat of $(4.0) Million compared to $3.6 Million, Adjusted EBITDA of $42.7 Million, an increase of 70%

FLINT, Mich., Aug. 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 June 30, 2018.  All comparisons, unless otherwise noted, are to the quarter ended June 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 expense ("SG&A") for our specialty segment.  This change is a reclassification only and has no impact on overall results.

Diplomat Specialty Pharmacy (PRNewsFoto/Diplomat Pharmacy, Inc.)

Second Quarter 2018 Highlights include:

  • Revenue of $1,416 million, compared to $1,126 million, an increase of 26%
    • Specialty segment revenue of $1,234 million, compared to $1,126 million
    • PBM segment revenue of $189 million, which was not part of the business in the prior year period
  • Specialty segment total prescriptions dispensed of 236,000, compared to 220,000
  • PBM segment total volume, adjusted to 30-day equivalent, of 2,123,000
  • Gross margin of 6.9% versus 5.9%
    • Specialty segment gross margin of 5.9% versus 5.9%
    • PBM segment gross margin of 13.7%
  • EPS of $(0.05) per diluted common share versus $0.05
    • Adjusted EPS of $0.17 versus $0.25
  • Adjusted EBITDA of $42.7 million, compared to $25.2 million
    • Adjusted EBITDA margin of 3.0% versus 2.2%
  • Net cash provided by operating activities was $18.1 million, compared to $23.0 million
  • Net debt, including contingent consideration, reduced to $609.2 million, from $618.2 million at March 31, 2018

Brian Griffin, Chairman and CEO of Diplomat, commented "The Diplomat team delivered another great quarter with record revenue and adjusted EBITDA, driven by continued solid execution of our plan.  Our PBM integration is reaching its conclusion with CastiaRx demonstrating strong results in the quarter, as well as continued momentum on our growth and profitability initiatives across the entire enterprise.  I am truly excited to join such a highly energized organization and look forward to exploring our growth potential for the benefit of all of our stakeholders."

Second Quarter Financial Summary:

Revenue for the second quarter of 2018 was $1,416 million, compared to $1,126 million in the second quarter of 2017, an increase of $290 million or 26%.  Revenue was comprised of $1,234 million and $189 million from our Specialty segment and our Pharmacy Benefit Management ("PBM") segment, respectively.  There was a $6.4 million inter-company elimination of revenue, and associated cost of sales, between the segments.  The increase in our Specialty segment revenue was primarily driven by $29 million of revenue from our acquisitions.  The remaining increase in our Specialty segment was driven by manufacturer price increases, access to dispense drugs that were new in the past year and increased volume due to both payor and physician relationships.   

Gross profit in the second quarter of 2018 was $98.4 million and generated an 6.9% gross margin, compared to $66.7 million gross profit and 5.9% gross margin in the second quarter of 2017.  Gross profit was comprised of $72.5 million and $25.9 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, as well as the impact of the acquired entities in our Specialty segment versus the prior year period.

SG&A for the second quarter of 2018 were $90.6 million, an increase of $28.8 million, compared to $61.9 million in the second quarter of 2017.  This increase is primarily driven by approximately $12.7 million related to employee cost, including employee cost for our acquired entities, a $4.1 million increase in share-based compensation, and approximately $0.6 million of non-recurring severance expense.  Also contributing to the SG&A expense increase was a $7.3 million increase in amortization expense from definite-lived intangible assets, including capitalized software for internal use, and a $2.3 million increase in the fair value of contingent consideration, both of which are associated with our acquired entities.  We also experienced increases in other SG&A; including, building and equipment with the addition of our Chandler, Arizona facility, recruiting primarily related to our CEO search, travel, and other miscellaneous expenses. 

Net (loss) income attributable to Diplomat for the second quarter of 2018 was $(4.0) million compared to $3.6 million in the second quarter of 2017.  This decrease was primarily driven by an $8.5 million increase in interest expense due to a significant increase in outstanding debt to fund our PBM acquisitions.  Adjusted EBITDA for the second quarter of 2018 was $42.7 million compared to $25.2 million in the second quarter of 2017, an increase of $17.5 million. 

Earnings per share for the second quarter of 2018 was $(0.05) per basic/diluted common share, compared to $0.05 per basic/diluted common share for the second quarter of 2017.  Diluted non-GAAP adjusted earnings per share ("Adjusted EPS") was $0.17 in the second quarter of this year compared to $0.25 in the second quarter of 2017.  

2018 Financial Outlook

For the full-year 2018, we are updating our previous financial guidance:

  • Revenue between $5.5 and $5.9 billion, no change to previous range
  • Net (loss) income attributable to Diplomat between $(11.0) and $0.5 million, versus the previous range of $4.5 and $13.0 million
  • Adjusted EBITDA between $164 and $170 million, no change to previous range
  • Diluted EPS between $(0.15) and $0.01, versus the previous range of $0.06 and $0.17

Our EPS expectations assume approximately 74,300,000 weighted average common shares outstanding on a diluted basis and a tax rate of (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 second quarter performance this evening, August 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 1842529 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 services—helping people with complex health conditions in all 50 states. Rooted in this patient care expertise, Diplomat also provides industry-focused specialty solutions through two brands: CastiaRx, which serves payers as a leading specialty benefit manager, and EnvoyHealth, which offers tailored solutions for healthcare innovators. 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

Adjusted EPS adds back, net of income taxes, the impact of all merger and acquisition related expenses, including amortization of intangible assets, the change in fair value of contingent consideration, as well as transaction-related costs.  We exclude merger and acquisition-related expenses from Adjusted EPS because we believe the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations and such expenses can vary significantly between periods as a result of new acquisitions, full amortization of previously acquired intangible assets, or ultimate realization of contingent consideration.  Investors should note that acquisitions, once consummated, contribute to revenue in the periods presented as well as future periods and should also note that amortization and contingent consideration expenses may recur in future periods.  A reconciliation of Adjusted EPS, a non-GAAP measure, to EPS as prepared in accordance with accounting principles generally accepted in the United States ("GAAP") can be found below.  Please note that going forward Diplomat will no longer present, or provide guidance with respect to, Adjusted EPS.

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 (loss) income 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 and Adjusted EPS to be supplemental measures of our operating performance.  We present Adjusted EBITDA and Adjusted EPS because they are 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 they assist 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 and Adjusted EPS differently than we do and these calculations may not be comparable to our Adjusted EBITDA and Adjusted EPS metrics.  A reconciliation of Adjusted EBITDA, a non-GAAP measure, to net (loss) income 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; 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)








June 30,


December 31,

ASSETS


2018


2017

Current assets:






Cash and equivalents

$

7,360

$

84,251


Receivables, net 


349,845


332,091


Inventories


170,175


206,603


Prepaid expenses and other current assets


18,012


11,125


          Total current assets


545,392


634,070

Property and equipment, net


38,838


38,990

Capitalized software for internal use, net


33,865


36,520

Goodwill


836,427


832,624

Definite-lived intangible assets, net


357,841


392,011

Other noncurrent assets


5,507


6,208


          Total assets

$

1,817,870

$

1,940,423






LIABILITIES AND SHAREHOLDERS' EQUITY





Current liabilities:






Accounts payable

$

383,969

$

384,719


Rebates payable


25,257


28,744


Borrowings on line of credit


135,100


188,250


Short-term debt, including current portion of long-term debt


11,500


11,500


Accrued expenses:






     Compensation and benefits


13,641


9,584


     Contingent consideration


5,300


8,100


     Other


22,005


20,560


          Total current liabilities


596,772


651,457

Long-term debt, less current portion


442,734


521,098

Deferred income taxes


13,515


14,367

Contingent consideration


5,870


4,000

Other



1,507


-


          Total liabilities


1,060,398


1,190,922

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; 74,282,135 and 73,871,424






     shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively)


625,354


619,235


Additional paid-in capital


45,804


38,450


Retained earnings


87,276


91,816


Accumulated other comprehensive loss


(962)


-


          Total shareholders' equity


757,472


749,501


          Total liabilities and shareholders' equity

$

1,817,870

$

1,940,423

 

 

DIPLOMAT PHARMACY, INC.

Condensed Consolidated Statements of Operations (Unaudited)

(dollars in thousands, except per share amounts)

























































Three Months Ended



Six Months Ended









June 30,



June 30,









2018


2017



2018


2017

Net sales




$

1,416,078

$

1,126,464


$

2,758,562

$

2,205,204

Cost of sales




(1,317,662)


(1,059,750)



(2,569,768)


(2,068,728)


     Gross profit


98,416


66,714



188,794


136,476

Selling, general and administrative expenses


(90,642)


(61,871)



(172,329)


(123,085)


     Income from operations


7,774


4,843



16,465


13,391

Other (expense) income:











Interest expense


(10,392)


(1,931)



(20,819)


(3,980)


Other





394


34



811


66

Total other expense


(9,998)


(1,897)



(20,008)


(3,914)


     (Loss) income before income taxes


(2,224)


2,946



(3,543)


9,477

Income tax (expense) benefit


(1,740)


544



(871)


(1,763)


     Net (loss) income


(3,964)


3,490



(4,414)


7,714

Less: net loss attributable to noncontrolling interest


-


(101)



-


(244)

Net (loss) income attributable to Diplomat Pharmacy, Inc.

$

(3,964)

$

3,591


$

(4,414)

$

7,958

















Net (loss) income per common share:










Basic





$

(0.05)

$

0.05


$

(0.06)

$

0.12

Diluted





$

(0.05)

$

0.05


$

(0.06)

$

0.12

















Weighted average common shares outstanding:










Basic






74,158,622


67,528,151



74,077,916


67,209,280

Diluted






74,158,622


68,211,882



74,077,916


67,997,929

 

 

DIPLOMAT PHARMACY, INC.

Condensed Consolidated Statements of Operations, Inclusive of Reportable Segment Breakout (Unaudited)

(dollars in thousands, except per share amounts)

























































Three Months Ended



Six Months Ended









June 30,



June 30,









2018


2017



2018


2017

Net sales - Specialty

$

1,233,746

$

1,126,464


$

2,386,725

$

2,205,204

Net sales - PBM



188,747


-



380,215


-

Inter-segment elimination


(6,415)


-



(8,378)


-


     Net sales


1,416,078


1,126,464



2,758,562


2,205,204

















Cost of sales - Specialty


(1,161,206)


(1,059,750)



(2,241,365)


(2,068,728)

Cost of sales - PBM


(162,871)


-



(336,781)


-

Inter-segment elimination


6,415


-



8,378


-


     Cost of sales


(1,317,662)


(1,059,750)



(2,569,768)


(2,068,728)

















Gross profit - Specialty


72,540


66,714



145,360


136,476

Gross profit - PBM


25,876


-



43,434


-


     Gross profit


98,416


66,714



188,794


136,476

Selling, general and administrative expenses


(90,642)


(61,871)



(172,329)


(123,085)


     Income from operations


7,774


4,843



16,465


13,391

Other (expense) income:











Interest expense


(10,392)


(1,931)



(20,819)


(3,980)


Other





394


34



811


66

Total other expense


(9,998)


(1,897)



(20,008)


(3,914)


     (Loss) income before income taxes


(2,224)


2,946



(3,543)


9,477

Income tax (expense) benefit


(1,740)


544



(871)


(1,763)


     Net (loss) income


(3,964)


3,490



(4,414)


7,714

Less: net loss attributable to noncontrolling interest


-


(101)



-


(244)

Net (loss) income attributable to Diplomat Pharmacy, Inc.

$

(3,964)

$

3,591


$

(4,414)

$

7,958

















Net (loss) income per common share:










Basic





$

(0.05)

$

0.05


$

(0.06)

$

0.12

Diluted





$

(0.05)

$

0.05


$

(0.06)

$

0.12

















Weighted average common shares outstanding:










Basic






74,158,622


67,528,151



74,077,916


67,209,280

Diluted






74,158,622


68,211,882



74,077,916


67,997,929

 

 

DIPLOMAT PHARMACY, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(dollars in thousands)













Six Months Ended June 30,



2018


2017

Cash flows from operating activities:






Net (loss) income

$

(4,414)

$

7,714


Adjustments to reconcile net (loss) income to net cash provided by operating activities:








Depreciation and amortization


48,170


31,935




Share-based compensation expense


10,122


3,798




Net provision for doubtful accounts


3,919


5,401




Amortization of debt issuance costs


2,742


595




Changes in fair values of contingent consideration


2,339


-




Contingent consideration payments


(2,704)


-




Deferred income tax expense


(632)


979




Other


-


6




Changes in operating assets and liabilities, net of business acquisitions:









Accounts receivable


(22,732)


(3,024)





Inventories


36,407


37,179





Accounts payable 


(8,013)


(14,353)





Other assets and liabilities


1,448


(2,977)






Net cash provided by operating activities


66,652


67,253

Cash flows from investing activities:






Expenditures for capitalized software for internal use


(5,878)


(2,459)


Expenditures for property and equipment


(5,487)


(2,289)


Payments to acquire businesses, net of cash acquired


(1,289)


(53,571)


Other


46


(43)






Net cash used in investing activities


(12,608)


(58,362)

Cash flows from financing activities:






Net payments on line of credit


(53,150)


(36,734)


Payments on long-term debt


(79,750)


(3,313)


Proceeds from long-term debt


-


25,000


Proceeds from issuance of stock upon stock option exercises


3,351


6,007


Payments of debt issuance costs


(821)


-


Contingent consideration payments


(565)


-






Net cash used in financing activities


(130,935)


(9,040)






Net decrease in cash and equivalents


(76,891)


(149)

Cash and equivalents at beginning of period


84,251


7,953

Cash and equivalents at end of period

$

7,360

$

7,804

Supplemental disclosures of cash flow information:






Cash paid for interest

$

18,589

$

3,386


Cash paid for income taxes


1,741


4,458

 

 

Adjusted EBITDA

The table below presents a reconciliation of net (loss) income attributable to Diplomat Pharmacy, Inc. to Adjusted EBITDA for the periods indicated.


For the three months ended June 30,


For the six months ended June 30,


2018


2017


2018


2017


(dollars in thousands) (unaudited)

Net (loss) income attributable to Diplomat Pharmacy, Inc.

$            (3,964)


$              3,591


$            (4,414)


$              7,958

Depreciation and amortization

24,219


16,538


48,170


31,935

Interest expense

10,392


1,931


20,819


3,980

Income tax expense (benefit)

1,740


(544)


871


1,763

EBITDA

$            32,387


$            21,516


$            65,446


$            45,636









Contingent consideration and other merger and acquisition expense

$              3,122


$                569


$              5,123


$              1,117

Share-based compensation expense

6,961


2,826


10,122


3,798

Employer payroll taxes - option repurchases and exercises

63


100


141


185

Severance and related fees

611


40


1,950


702

Other items

(440)


116


(440)


544

Adjusted EBITDA

$            42,704


$            25,167


$            82,342


$            51,982

 

 

Adjusted EPS (diluted)

Below is a reconciliation of net (loss) income attributable to Diplomat Pharmacy, Inc. per diluted share to Adjusted EPS for the periods indicated.  Please note that this will be the last time this table is provided, going forward Diplomat will no longer present, or provide guidance with respect to, Adjusted EPS.


For the three months ended June 30,


For the six months ended June 30,


2018


2017


2018


2017


(dollars in thousands, except per share amounts) (unaudited)

Net (loss) income attributable to Diplomat Pharmacy, Inc.

$                         (3,964)


$                            3,591


$                         (4,414)


$                            7,958

Amortization of acquisition-related definite-lived intangible assets

17,072


10,927


34,082


20,612

Amortization of acquisition-related capitalized software for internal use

2,511


2,017


4,722


4,033

Contingent consideration and other merger and acquisition expense

3,122


569


5,123


1,117

Income tax impact of adjustments 1

(6,130)


(362)


(11,860)


(4,288)

Adjusted non-GAAP net income

$                         12,611


$                          16,742


$                         27,653


$                          29,432









Net (loss) income attributable to Diplomat Pharmacy, Inc.

$                            (0.05)


$                              0.05


$                            (0.06)


$                              0.12

Amortization of acquisition-related definite-lived intangible assets

0.23


0.16


0.46


0.30

Amortization of acquisition-related capitalized software for internal use

0.03


0.03


0.06


0.06

Contingent consideration and other merger and acquisition expense

0.04


0.01


0.07


0.02

Income tax impact of adjustments

(0.08)


(0.01)


(0.16)


(0.06)

Adjusted EPS

$                              0.17


$                              0.25


$                              0.37


$                              0.43









Weighted average common shares outstanding:








Basic

74,158,622


67,528,151


74,077,916


67,209,280

Diluted

74,532,702


68,211,882


74,475,967


67,997,929

 



1

27 percent tax rate used for the three months and six months ended June 30, 2018; 2.7 percent used in the three months ended June 30, 2017; 16.6 percent used in the six months ended June 30, 2017.

 

 

2018 Full Year Guidance: GAAP to Non-GAAP Reconciliation

The table below presents 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.

$          (11,000)


$                 500

Depreciation and amortization

98,000


97,000

Interest expense

42,000


40,000

Income tax expense 1

540


240

EBITDA

$          129,540


$          137,740





Contingent consideration and other merger and acquisition expense 

$              7,000


$              6,000

Share-based compensation expense

24,500


24,000

Employer payroll taxes - option repurchases and exercises

500


300

Severance and related fees

2,900


2,400

Other items

(440)


(440)

Adjusted EBITDA

$          164,000


$          170,000



1

Assumes a tax rate of (5) and 32 percent, for the low- and high-end, respectively.

 

 

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SOURCE Diplomat Pharmacy, Inc.

NYSE: DPLO

+0.07 +0.35% $ 20.24 Volume: 637,684 Common Stock | 20 minute delay October 19, 2018

Investor Contact

Terri Anne Powers,
Vice President, Investor Relations
Diplomat Pharmacy Inc.
tpowers@diplomat.is
Phone: 312.889.5244

Email Now