Pharmerica Corporation (PMC)

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PharMerica Corporation (PMC)

Q3 2008 Earnings Call Transcript

October 31, 2008 11:00 am ET


Teri Hartlage - VP of Finance

Greg Weishar - CEO

Mike Culotta - EVP and CFO

Berard Tomassetti - SVP and CAO


Adam Feinstein - Barclays Capital

Melissa Jaffe - Merrill Lynch

Robert Willoughby - Banc of America Securities

Charles Rhyee - Oppenheimer

Constantine Davides - JMP Securities

David Woodyatt - Keeley Asset Management

Jason Gurda - Leerink Swann



Welcome to the third quarter, 2008 PharMerica Corporation Earnings Conference Call. My name is Carmen, and I'll be your coordinator for today. At this time all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder ladies and gentlemen, this conference call is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Ms. Teri Hartlage, VP of Finance. Please proceed.

Teri Hartlage

Good morning and thank you for joining us for the 2008 third quarter conference call for PharMerica Corporation. On the call with me today are Greg Weishar, Chief Executive Officer, Mike Culotta, Executive Vice President and Chief Financial Officer, and Berard Tomassetti, Senior Vice President and Chief Accounting Officer.

Before beginning our remarks regarding the third quarter results, I would like to make a cautionary statement. During the call today, we will make forward-looking statements about our business prospects and financial expectations. We want to remind you that there are many risks and uncertainties that could cause our actual results to differ materially from our current expectations.

In addition to the risks and uncertainties discussed in yesterday's press release and in the comments made during this conference call, more detailed information about additional risks and uncertainties may be found in our SEC filings, including our annual report on Form 10-K and our more recent quarterly reports on Form 10-Q. Copies of these documents may be obtained from the SEC or by visiting the Investor Relations section of our website. PharMerica assumes no obligation to update these matters discussed on the call.

During this call we will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available on our third quarter 2008 financial results press release. We have made available to you our press release and our 10-Q filed with the SEC. In addition, this webcast will be on our website along with the transcript from this call.

I would now like to turn the presentation over to Greg.

Greg Weishar

Thanks Teri. Welcome everyone. As always, we are pleased to discuss our company's results today, and once again we have made solid progress, I'm pleased to report, both for this quarter and year-to-date. But before I get started, I want to remind you the combined business of KPS and PharMerica LTC were merged on July 31 of last year. Therefore, comparative financial standpoint the results of the prior year's third quarter and the nine months ended September 30, 2007 represent the results of operations and cash flows of KPS for those full periods and for PharMerica LTC effective August 1st, 2007.

As always, Mike will provide the details, financial details later, but let me give you the highlights.

Yesterday we released our third quarter results and we filed our 10-Q. Our diluted earnings per share, was $0.14 for the quarter, the integration, merger related cost and other charges represented $7.1 million or $0.13 diluted loss per share. Excluding the integration, merger related costs and other charges, diluted earnings per share totaled $0.27. Our total diluted earnings per share for the nine months ended, excluding the costs described above was $0.68. Total revenues, were $486.2 million and we dispensed approximately 10 million prescriptions again this quarter.

Our adjusted EBITDA was $25.1 million, giving us a 5.2% adjusted EBITDA margin. This represents solid sequential improvement in EBITDA margin, given the second quarter adjusted EBITDA margin was 4.6% and for the year 2007, adjusted EBITDA margin was 3.1% on a combined basis.

We continue to generate strong cash flow over $17.5 million in the third quarter of 2008 and $41.7 million for the nine months ended September 30th, 2008. Year-to-date, the big takeaway from our last three quarters, is that you are seeing greater consistency in our financial results, as we both consolidate the pharmacies and streamline operations.

The adjusted EBITDA, on a combined basis year-to-date was $68.6 million, compared to $45.8 million for the first three quarters of 2007. We're clearly capturing the operational and overhead synergies from pharmacy consolidations and integrations. Recall, this was the driver and the thesis of the merger. We're also very proud that we have decreased our debt leverage. The coverage ratio has fallen from 3.1 times EBITDA at our inception to 2.1 times EBITDA as of September 30th, 2008.

So, in the last year, we've been able to significantly reduce our leverage, through a combination of debt pay down and improvements in our operations. I'm also pleased to report we have now completed over 90% of our pharmacy consolidations. Of the total planned 26 consolidations, 24 are now complete. We have one more to complete this year and then one in '09 and then we are done.

We are confident we will exceed the $30 million synergy target and in 2009 we anticipate further improvements and margin from consolidations, pharmacy consolidations and other integration savings.

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