Catalyst Health Solutions Inc.
) reported first-quarter operating earnings per share of 62 cents,
beating the Zacks Consensus Estimate by 5 cents. The result also
compares favorably with 52 cents earned in the prior-year
Accounting for theCHI transaction, transition and integration
related cost of 11 cents, and amortization of intangible assets of
12 cents, the company reported net income of 39 cents per share,
down from 45 cents per share earned in the year-ago quarter.
Revenue grossed $1.45 billion in the quarter, up 30% year over
year. However, the top line failed to achieve the Zacks Consensus
Estimate of $1.51 billion. The year-over-year increase in revenue
was driven by added prescription volume from Catalyst Rx Health
("CHI"), commencement of services with new pharmacy benefits
management ("PBM") clients and higher prices of brand drugs.
Nevertheless, client attrition, higher generic utilization, coupled
with higher member co-payments, dwarfed the positives.
Additionally, total prescription volume, excluding
administrative services only (ASO) claims, rose to 30.7 million
from 24.9 million in the prior-year quarter. Meanwhile, ASO claims
jumped to 22.8 million from 0.1 million in the year-ago quarter,
attributable to a change in mix within the CHI client base.
Generic utilization in the quarter improved to 76% from 74% in
the year-ago quarter.
Gross profit surged 54.8% year over year to $95.3 million. The
addition of CHI, margin contribution from new clients, better
generic utilization and enhanced retail pharmacy economics drove
the improvement in gross profit. However, lower margins on renewal
business, client attrition and startup costs associated with Script
Relief were partial offsets.
Selling, general and administration expense more than doubled to
$67.7 million in the quarter due to investments made in the CHI
acquisition, Invest Now initiative, IT infrastructure improvements
and Script Relief. Total operating expense escalated 35% year over
year to $1.43 billion.
Operating income thus increased 19% year over year to $46.3
million in the quarter.
On April 18, Catalyst Health
entered into a $4.4 billion takeover agreement with rival PBM
SXC Health Solutions Corp.
As per the agreement, SXC Health will acquire Catalyst Health
for $28 per share in cash and offer 0.6606 shares of SXC
Health in exchange of every share of Catalyst Health.
Following the acquisition, the shareholders of SXC Health and
Catalyst Health will own 65% and 35% of the combined company,
respectively. The takeover is expected to be completed by the
second half of this year.
On March 19, Catalyst Health
announced a long-term agreement with Regence Rx Inc. to exclusively
provide pharmacy benefit management ("PBM") service to the latter's
clients through its PBM unit - Catalyst Rx.
The PBM business of Catalyst Health will be boosted as Regence
Health Plans cover over 1.2 million policyholders.
The deal will be effective from May 1, 2012 to December 31, 2017
and carries an option for extension till December 2021.
On February 21, 2012, Catalyst Health announced the extension of
its subsidiary Catalyst Rx's alliance with
WellCare Health Plans Inc.
). Catalyst Rx provides pharmacy benefit services to the
Catalyst Health continues to expect 2012 revenue in the range of
$5.8-6.2 billion and adjusted earnings per share guidance in the
range of $2.60-2.80.
Catalyst Health reported improved top line on the basis of
enhanced operational efficiency and increased prescription volume.
Additionally, the acquisition strategy of the company proved to be
advantageous, as CHI is adding substantially to volume and thereby,
However, the expenses of the company are constantly on the rise,
thereby weighing on the margins.
We retain our neutral long term recommendation on Catalyst
Health. The quantitative Zacks #3 Rank (short-term Hold rating) for
the company indicates no clear directional pressure on the stock
over the near term.
CATALYST HEALTH (CHSI): Free Stock Analysis
SXC HEALTH SOL (SXCI): Free Stock Analysis
WELLCARE HEALTH (WCG): Free Stock Analysis
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