National Medical Health Card Systems, Inc. (Nasdaq: NMHC), a
national independent pharmacy benefit manager ("PBM"), today
reported its results for the 2007 fiscal third quarter. Jim Smith,
president and chief executive officer, stated, �Third quarter 2007
results reflect the dynamics we experienced in the first half, with
gross margin benefiting from higher generic use and favorable
client mix trends but operating income impacted by lower rebate
revenue, higher expenses and a decrease in the number of covered
lives. We are pleased that the efforts we have devoted to our
enhanced selling process continue to result in a growing pipeline
of sales prospects. These efforts are yielding increasing
final-stage opportunities for NMHC across a number of vertical
markets resulting in several attractive wins, including the State
of Hawaii which we announced yesterday. Our focus for the remainder
of the fiscal year is on demonstrating the competitive advantages
in NMHC�s PBM, Specialty, Mail Order and Part D areas of expertise,
and on closing more business that can contribute to fiscal 2008.�
2007 Fiscal Third Quarter Operating Results Revenue for the 2007
fiscal third quarter decreased 33.1% to $145.0 million from $216.8
million for the same period last year. The decrease is primarily
the result of a decrease in covered lives as compared to last year.
Gross profit for the 2007 fiscal third quarter was $21.3 million as
compared to $22.4 million for the same period last year reflecting
a decrease of 4.9%. The decrease in gross profit is primarily
attributable to a $1.7 million reduction from the PBM segment,
primarily related to a reduction in rebate revenue stemming from
current trends in negotiations with NMHC�s clients, offset by
improvements in our client mix. This decrease was partially offset
by a $592,000 increase in gross profit from our Specialty segment.
Gross profit, as a percentage of revenue, increased to 14.7% for
the 2007 fiscal third quarter as compared to 10.3% for the same
period last year. Gross profit per estimated paid prescription
increased to $3.87 from $2.77 for the same period last year. The
32.1% decrease in our script count was primarily offset by an
increase in the gross profit per script. Estimated adjusted paid
prescriptions for the 2007 fiscal third quarter were 5.5 million as
compared to 8.1 million for the same period last year. Estimated
adjusted prescription volume equals prescriptions processed at our
mail service facility multiplied by 3, plus retail prescriptions.
The prescriptions processed at our mail service facility are
multiplied by 3 to adjust for the fact that they typically include
approximately 3 times the amount of product days supplied compared
with retail prescriptions. SG&A increased $2.1 million, or
10.9%, from $19.3 million for the 2006 fiscal third quarter to
$21.4 million for the 2007 fiscal third quarter. This increase is
primarily the result of an $1.5 million net increase in
compensation and related items (inclusive of $293,000 of additional
stock-based compensation recognized in accordance with the
provisions of FAS 123R), a $466,000 increase in professional fees
and insurance, and $137,000 net increase in other selling, general
and administrative expenses. Operating loss for the 2007 fiscal
third quarter was $76,000 as compared to operating income of $3.1
million for the 2006 third quarter. Our effective tax rate was
(66.7%) for the three months ended March 31, 2007 as compared to
42.6% for the three months ended March 31, 2006. This benefit for
the three months ended March 31, 2007 primarily resulted from a
$439,000 reversal of a prior state tax reserve as the related
statute of limitations expired during the quarter ended March 31,
2007 offset by lower pre-tax income combined with the�effects
of�expensing employee stock options in accordance with SFAS No.
123R. EBITDA (earnings before interest, taxes, depreciation and
amortization) for the 2007 fiscal third quarter was $2.5 million, a
49.0% decrease as compared to $4.9 million for the 2006 fiscal
third quarter. EBITDA before stock-based compensation expense for
the 2007 fiscal third quarter was $3.4 million as compared to $5.6
million for the same period last year, a 39.3% decrease. EBITDA per
estimated paid prescription decreased to $0.45 during the 2007
fiscal third quarter from $0.60 during the same period last year.
During the 2007 fiscal third quarter, NMHC did not pay $1.4 million
of dividends on the series A preferred stock until April 2, 2007;
during the 2006 fiscal third quarter, NMHC paid $1.4 million of
dividends on the series A preferred stock. Net loss available to
common stockholders for the 2007 fiscal third quarter was $1.1
million, or $(0.20) per basic and diluted share, as compared to net
income available to common stockholders of $510,000, or $0.10 per
basic share and diluted share, for the same period last year. For
the 2007 fiscal third quarter, the Company's weighted-average
number of diluted shares outstanding approximated 5.5 million
shares, as compared to 5.3 million shares for the same period last
year. The 2007 fiscal third quarter calculation does not assume the
conversion of approximately 7.0 million shares of redeemable
convertible preferred stock or the outstanding options to purchase
shares of common stock as they are anti-dilutive. For the same
period last year, the calculation did not assume the conversion of
approximately 7.0 million shares of redeemable convertible
preferred stock as they are anti-dilutive. Operating Results for
the Nine Months ended March 31, 2007 Through the nine months ended
March 31, 2007, revenue decreased 18.2% to $533.0 million from
$651.4 million for the same period last year. The decrease is
primarily the result of a decrease in covered lives as compared to
last year. Through the nine months ended March 31, 2007, gross
profit was $66.2 million as compared to $69.7 million for the same
period last year reflecting a decrease of 5.0%. This decrease is
primarily the result of a $5.7 million reduction in rebate revenue
from our PBM segment (exclusive of the $1.0 million Rebate Error as
defined and discussed in our Quarterly Report on Form 10-Q for the
period ended September 30, 2006 (�First Quarter 10-Q�)) due to the
current trends in negotiations with our clients offset by
improvements in our client mix. This decrease was partially offset
by i) $506,000 net increase which consists of $1.5 million relating
to the Claims Payable Error offset by $1.0 million relating to the
Rebate Error as defined and discussed in our First Quarter 10-Q,
ii) $794,000 increase in gross profit from our PBM segment,
exclusive of the impact of the changes in rebates, and iii)
$940,000 increase in gross profit from our Specialty segment. Gross
profit, as a percentage of revenue, increased to 12.4% for the nine
months ended March 31, 2007 as compared to 10.7% for the same
period last year. Estimated adjusted paid prescriptions for the
nine months ended March 31, 2007 was 19.4 million as compared to
25.6 million for the same period last year. Gross profit per
estimated paid prescription increased to $3.41 from $2.72 for the
same period last year. Through the nine months ended March 31,
2007, SG&A increased $4.5 million, or 7.9%, from $56.9 million
to $61.4 million for the same period last year. This increase is
primarily the result of i) a $2.8 million increase in compensation
and related items (inclusive of $992,000 of additional stock-based
compensation recognized in accordance with the provisions of FAS
123R), ii) a $2.0 million increase in professional fees and
insurance, and iii) a $247,000 net increase which consists of
$831,000 relating to the Claims Payable Error offset by $584,000
relating to the Lease Error as defined and discussed in our First
Quarter 10-Q. These increases were offset by a net reduction of
$547,000 in other SG&A. Selling, general and administrative
expenses as a percent of revenue increased from 8.7% for the nine
months ended March 31, 2006 to 11.5% for the nine months ended
March 31, 2007. Our effective tax rate was 41.1% for the nine
months ended March 31, 2007 as compared to 42.6% for the nine
months ended March 31, 2006. The decrease in the effective tax rate
for the nine months ended March 31, 2007 primarily resulted from a
$439,000 reversal of a prior state tax reserve as the related
statute of limitations expired during the quarter ended March 31,
2007 offset by lower pre-tax income combined with the�effects
of�expensing employee stock options in accordance with SFAS No.
123R. EBITDA for the nine months ended March 31, 2007 was $11.9
million, a 34.3% decrease, as compared to $18.1 million for the
same period last year. EBITDA before stock-based compensation
expense for the nine months ended March 31, 2007 was $14.9 million
as compared to $20.1 million for the same period last year, a 25.9%
decrease. EBITDA per estimated paid prescription decreased to $0.61
during the nine months ended March 31, 2007 from $0.71 during the
same period last year. Net loss available to common stockholders
for the nine months ended March 31, 2007 was $1.2 million, or
$(0.22) per basic and diluted share as compared to net income
available to common stockholders of $3.2 million, or $0.63 per
basic share and $0.61 per diluted share for the same period last
year. For the nine months ended March 31, 2007, the Company's
weighted-average number of diluted shares outstanding approximated
5.4 million shares, as compared to 5.3 million shares for the same
period last year. The calculation for the nine months ended March
31, 2007 does not assume the conversion of approximately 7.0
million shares of redeemable convertible preferred stock or the
outstanding options to purchase shares of common stock as they are
anti-dilutive. For the same period last year, the calculation did
not assume the conversion of approximately 7.0 million shares of
redeemable convertible preferred stock as they were anti-dilutive.
Business Outlook As noted in the Company�s press release of
November 15, 2006, the fiscal 2007 earnings guidance issued on
September 11, 2006 should not be relied upon. Management is not
providing forward looking financial guidance at this time.
Conference Call Management will host a conference call tomorrow,
May 9, 2007, to discuss its 2007 fiscal third quarter and
year-to-date results at 8:30 a.m. ET. To listen to the call, please
dial (706) 634-1287. A live webcast of the call will be accessible
on the Company's website, www.nmhc.com. The webcast will be
archived on the site and a telephone replay will be available for
seven days beginning at 8:00 p.m. ET. To access the replay, please
dial (706) 645-9291 using the using conference ID: 6641750.
Non-GAAP Measures In addition to the results presented in
accordance with GAAP throughout this press release, NMHC has
presented non-GAAP financial measures, such as EBITDA, EBITDA per
paid prescription, and gross profit and SG&A expenses exclusive
of various errors which are defined and discussed in the First
Quarter 10-Q. NMHC calculates and uses EBITDA as an indicator of
their ability to generate cash from their reported operating
results. This measurement is used in concert with net income and
cash flows from operations, which measure actual cash generated in
the period. In addition, we believe that EBITDA is a supplemental
measurement tool used by analysts and investors to help evaluate
overall operating performance and the ability to incur and service
debt and make capital expenditures. EBITDA does not represent funds
available for their discretionary use, nor is it intended to
represent or to be used as a substitute for net income or cash
flows from operations data as measured under GAAP. The items
excluded from EBITDA but included in the calculation of their
reported net income are significant components of their
consolidated statements of income, and must be considered in
performing a comprehensive assessment of their overall financial
performance. EBITDA, and the associated year-to-year trends, should
not be considered in isolation. Their calculation of EBITDA may not
be consistent with calculations of EBITDA used by other companies.
Reconciliation schedules to the comparable GAAP measures are
available in the tables below. Estimated adjusted prescription
volume equals prescriptions processed at our mail service facility
multiplied by 3, plus retail prescriptions. These prescriptions
processed at our mail service facility are multiplied by 3 to
adjust for the fact that they typically include approximately 3
times the amount of product days supplied compared with retail
prescriptions. EBITDA per paid prescription is calculated by
dividing EBITDA by estimated adjusted prescriptions. While gross
profit and SG&A expenses excluding the impact of various errors
which are defined and discussed in the First Quarter 10-Q are not
measures of financial performance under U.S. generally accepted
accounting principles, they are provided as information for
investors for analysis purposes in evaluating the effect of the
identified errors on our gross profit and SG&A. Gross profit
and SG&A excluding the impact of the identified errors are not
meant to be considered a substitute or replacement for gross profit
or SG&A as prepared in accordance with U.S. generally accepted
accounting principles. The reconciliations from gross profit and
SG&A to gross profit and SG&A excluding the impact of the
identified errors are available in the tables below. About NMHC
National Medical Health Card Systems, Inc. provides PBM services to
plan clients, which include managed care organizations, local
governments, unions, corporations and third party health care plan
administrators through its network of licensed pharmacies
throughout the United States. The Company's PBM services include
electronic point-of-sale pharmacy claims management, retail
pharmacy network management, mail service pharmacy claims
management, specialty pharmacy claims management, benefit design
consultation, preferred drug management programs, drug review and
analysis, consulting services, disease information services, data
access, reporting and information analysis, and physician
profiling. In addition, the Company operates a mail service
pharmacy and a specialty pharmacy. Forward-Looking Statements This
press release and any attachment thereto contains forward-looking
information about National Medical Health Card Systems, Inc.'s
financial results and estimates, business prospects, and products
and services that involve substantial risks and uncertainties or
other factors that may cause actual results, performance or
achievements to be materially different from any future results,
performance or achievements expressed or implied by such
forward-looking statements. You can identify these statements by
the use of words such as "may," "could," "estimate," "will,"
"believe," "anticipate," "think," "intend," "expect," "project,"
"plan," "target," "forecast", and similar words and expressions
which identify forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements
are not guarantees of future performance and involve known and
unknown risks and uncertainties, and other factors. Readers are
cautioned not to place undue reliance on such statements, which
speak only as of the date hereof. For a discussion of such risks,
uncertainties and other matters that could cause actual results to
differ materially, including risks relating to, among other
factors, pricing, competition in the bidding and proposal process,
our ability to consummate contract negotiations with prospective
clients, dependence on key members of management, government
regulation, acquisitions and affiliations, the market for PBM
services, readers are urged to carefully review and consider
various disclosures made by NMHC in its Annual Report on Form 10-K
for the fiscal year ended June 30, 2006, and in its reports on
Forms 10-Q and 8-K filed with the U.S. Securities and Exchange
Commission. NMHC assumes no obligation to update any
forward-looking statements contained in this document or the
attachments to reflect new information or future events or
developments after the date any such statement is made. NATIONAL
MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEETS (In thousands, except per share data) � � March 31,
June 30, Assets 2007� 2006� (unaudited) Current: � Cash and cash
equivalents $ 5,620� $ 8,410� Restricted cash 9,481� 4,845�
Accounts receivable, net of allowance for doubtful accounts of
$2,226 and $2,261, respectively � 67,941� 82,365� Rebates
receivable 43,042� 48,911� Inventory 4,453� 5,666� Deferred tax
assets 1,797� 2,278� Prepaid expenses and other current assets � �
� � 3,876� � � 2,623� Total current assets 136,210� 155,098� �
Property and equipment, net 16,366� 13,653� Intangible assets, net
2,687� 3,013� Goodwill 99,414� 99,319� Other non-current assets � �
� � � � 1,418� � � 1,070� Total Assets � � � � � � $ 256,095� � $
272,153� � Liabilities, Redeemable Preferred Equity, and Common
Stockholders' Equity Current Liabilities: � Claims payable to
pharmacies $ 62,300� $ 88,979� Rebates payable to clients 55,173�
60,953� Trade and other payables and accrued expenses 17,703�
12,248� Current portion of capital lease obligations 1,124� 16�
Income taxes payable and other current liabilities � � � 2,819� � �
-� Total current liabilities 139,119� 162,196� � Capital lease
obligations, less current portion 1,720� -� Other non-current
liabilities 915� 829� Deferred tax liability � � � � � � � 8,759� �
� 7,784� Total liabilities � � � � � � � 150,513� � � 170,809� �
Commitments and Contingencies Redeemable Preferred Equity: � �
Series A redeemable convertible preferred stock $.10 par value;
15,000,000 shares authorized, 6,956,522 issued and outstanding,
aggregate liquidation preference of $107,686,961 76,694� 76,338� �
Common Stockholders' Equity: � Common Stock, $.001 par value,
35,000,000 shares authorized, 10,111,837 and 9,933,697 shares
issued, 5,471,365 and 5,293,797 outstanding, respectively 10� 10� �
Additional paid-in-capital 131,717� 126,630� Accumulated deficit
(50,960) (49,755) Treasury stock at cost, 4,639,900 shares � � � �
(51,879) � � (51,879) Total common stockholders' equity � � � � �
28,888� � � 25,006� Total Liabilities, Redeemable Preferred Equity,
and Common Stockholders' Equity $ 256,095� � $ 272,153� NATIONAL
MEDICAL HEALTH CARD SYSTEMS, INC AND SUBSIDIARIES CONSOLIDATED
STATEMENT OF INCOME (Amounts in thousands, except per share
amounts) � � Three months ended Nine months ended March 31, March
31, 2007� 2006� 2007� 2006� (Unaudited) (Unaudited) (Unaudited)
(Unaudited) Revenue (excludes participant co-payments retained by
the pharmacies of $53,393, $82,544, $198,683 and $243,043,
respectively) � $ 145,026� $ 216,801� $ 533,043� $ 651,402� � Cost
of claims (excludes participant co-payments retained by the
pharmacies of $53,393, $82,544, $198,683 and $243,043,
respectively) � 123,700� 194,381� 466,819� 581,742� � � � � � � � �
� � � � � Gross profit 21,326� 22,420� 66,224� 69,660� � Selling,
general and administrative expenses � � 21,402� � � 19,308� � �
61,446� � � 56,897� � Operating (loss) income (76) 3,112� 4,778�
12,763� � Other income (expense): Interest expense (100) (64) (350)
(246) Interest income 433� 433� 1,245� 1,053� Other income
(expense), net � � � 1� � � 20� � � 21� � � (20) 334� 389� 916�
787� � Income before (benefit) provision for income taxes 258�
3,501� 5,694� 13,550� (Benefit) provision for income taxes � �
(172) � � 1,493� � � 2,339� � � 5,777� � Net income � � � � $ 430�
� $ 2,008� � $ 3,355� � $ 7,773� � Redeemable convertible preferred
stock cash dividends 1,381� 1,381� 4,204� 4,204� Accretion of
transaction expenses � � 117� � � 117� � � 356� � � 356� � Net
(loss) income available to common stockholders � $ (1,068) � $ 510�
� $ (1,205) � $ 3,213� � � Earnings (loss) per common share: Basic
� � � � $ (0.20) � $ 0.10� � $ (0.22) � $ 0.63� Diluted * � � � � $
(0.20) � $ 0.10� � $ (0.22) � $ 0.61� � � Weighted average number
of common shares outstanding: Basic � � � � � 5,471� � � 5,200� � �
5,443� � � 5,111� Diluted * � � � � � 5,471� � � 5,302� � � 5,443�
� � 5,268� � � * For the three and nine months ended March 31,
2006, the redeemable convertible preferred stock was anti-dilutive
and the �as if converted� method was not used to calculate the
number of weighted average diluted shares. For the three and nine
months ended March 31, 2007, the redeemable convertible preferred
stock and the outstanding options to purchase shares of common
stock were anti-dilutive and the �as if converted� method was not
used to calculate the number of weighted average diluted shares.
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) � � Nine
Months March 31, � 2007� � 2006� (unaudited) (unaudited) � Cash
flows from operating activities: Net income $ 3,355� $ 7,773�
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization 7,108� 5,399�
Employee stock option compensation expense 3,032� 1,913�
Amortization of deferred gain (21) (37) Amortization of deferred
financing costs 85� 84� Loss on disposal of capital assets -� 54�
Provision for doubtful accounts 928� 525� Deferred income taxes
1,456� 1,276� Excess tax benefits from exercise of stock options -�
(1,237) Changes in assets and liabilities: Restricted cash (4,636)
(612) Accounts receivable 13,496� 2,745� Rebates receivable 5,869�
(17,493) Inventory 1,213� (212) Due from affiliates -� 31� Prepaid
expenses and other current assets (1,253) 2,131� Other non-current
assets (433) 9� Claims payable to pharmacies (26,679) (3,445)
Rebates payable to clients (5,780) 13,216� Trade and other payables
and accrued expenses 4,791� (6,869) Income taxes payable and other
current liabilities 3,016� 2,164� � � Other non-current liabilities
� � � 107� � � (126) Net cash provided by operating activities � �
� 5,654� � � 7,289� � Cash flows from investing activities: Capital
expenditures (4,027) (5,869) Acquisition of Inteq, net of cash
acquired -� 116� Acquisition of PPP, net of cash acquired (901)
(426) Acquisition of MPP (266) -� � � Proceeds from sale of capital
assets � � 5� � � 169� Net cash used in investing activities � � �
(5,189) � � (6,010) � Cash flows from financing activities:
Proceeds from exercise of stock options 1,858� 4,681� Proceeds from
revolving credit facility 26,850� 72,075� Repayment of revolving
credit facility (26,850) (72,075) Payment of redeemable convertible
preferred stock cash dividends (2,823) (4,204) Excess tax benefits
from exercise of options -� 1,237� � � Repayments of debt and
capital lease obligations � (2,290) � � (21) Net cash (used in)
provided by financing activities � (3,255) � � 1,693� � Net
(decrease) increase in cash and cash equivalents (2,790) 2,972�
Cash and cash equivalents at beginning of period � � 8,410� � �
7,272� Cash and cash equivalents at end of period � $ 5,620� � $
10,244� NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARIES
GROSS PROFIT RECONCILIATION $ IN THOUSANDS � � While gross profit
excluding the impact of errors as discussed and defined in our
First Quarter 10-Q is not a measure of financial performance under
U.S. generally accepted accounting principles, it is provided as
information for investors for analysis purposes in evaluating the
effect of the identified errors on gross profit. Gross profit
excluding the impact of the identified errors is not meant to be
considered a substitute or replacement for gross profit as prepared
in accordance with U.S. generally accepted accounting principles.
The reconciliation from gross profit to gross profit excluding the
impact of the identified errors is as follows: � � Nine Months
Ended March 31, 2007� � 2006� � Gross profit, as reported $ 66,224�
$ 69,660� � Impact of errors identified during the First Quarter
10-Q � Rebate Errors 1,017� -� � Claims Payable Errors (692) -�
Claims Payable Error (see offset in SG&A Reconciliation) �
(831) -� (1,523) � Other 27� -� � � Adjusted gross profit, on a
proforma basis $ 65,745� $ 69,660� NATIONAL MEDICAL HEALTH CARD
SYSTEMS, INC. AND SUBSIDIARIES SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES RECONCILIATION $ IN THOUSANDS � � While SG&A excluding
the impact of errors as discussed and defined in our First Quarter
10-Q is not a measure of financial performance under U.S. generally
accepted accounting principles, it is provided as information for
investors for analysis purposes in evaluating the effect of the
identified errors on SG&A. SG&A excluding the impact of the
identified errors is not meant to be considered a substitute or
replacement for SG&A as prepared in accordance with U.S.
generally accepted accounting principles. The reconciliation from
SG&A to SG&A excluding the impact of the identified errors
is as follows: � Nine Months Ended March 31, 2007� � 2006� �
Selling, general and administrative expenses, as reported $ 61,446�
$ 56,897� � Impact of errors identified during the First Quarter
10-Q � Claims Payable Error (see offset in Gross Profit
Reconciliation) (831) -� Accounting Treatment For Leases Error 584�
Other 47� -� � � Adjusted selling, general and administrative
expenses, on a proforma basis $ 61,246� $ 56,897� NATIONAL MEDICAL
HEALTH CARD SYSTEMS, INC. AND SUBSIDIARIES EBITDA RECONCILIATION $
IN THOUSANDS Nine Months Ended March 31, 2007� � 2006� � Cash flow
from operations $ 5,654� $ 7,289� Provision for income taxes 2,339�
5,777� Interest income, net (895) (807) Net change in assets and
liabilities 10,289� 8,461� Non-cash items to reconcile net cash
from operations to net income � (5,480) � � (2,578) EBITDA �
11,907� � � 18,142� � Stock-based compensation expense 3,032�
1,913� � � EBITDA before stock-based compensation expense $ 14,939�
$ 20,055� NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND
SUBSIDIARIES EBITDA RECONCILIATION $ IN THOUSANDS Quarter Ended
March 31, 2007� � 2006� � Net cash (used in) provided by operating
activities $ (2,353) $ 1,929� (Benefit) provision for income taxes
(172) 1,493� Interest income, net (333) (369) Net change in assets
and liabilities 6,756� 3,070� Non-cash items to reconcile net cash
from operations to net income � (1,444) � � (1,184) EBITDA � 2,454�
� � 4,939� � Stock-based compensation expense 964� 649� � � EBITDA
before stock-based compensation expense $ 3,418� $ 5,588�
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