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Q3 2013 Earnings Call
November 05, 2013 10:00 am ET
Gregory S. Weishar - Chief Executive Officer, President and Director
David W. Froesel - Chief Financial Officer, Executive Vice President and Treasurer
Charles Rhyee - Cowen and Company, LLC, Research Division
Jason Gurda - KeyBanc Capital Markets Inc., Research Division
Brendan Strong - Barclays Capital, Research Division
Steven Valiquette - UBS Investment Bank, Research Division
Robert M. Willoughby - BofA Merrill Lynch, Research Division
Diego Hernandez Diaz
Previous Statements by PMC
» PharMerica Corporation Discusses Q3 2013 Results (Webcast)
» PharMerica Management Discusses Q2 2013 Results - Earnings Call Transcript
» PharMerica Management Discusses Q1 2013 Results - Earnings Call Transcript
I would now like to turn the conference over to Ms. Cynthia Archer, Manager, Treasury and Risk. Please proceed.
Good morning, and thank you for joining us for the third quarter conference call. On the call with me today are Greg Weishar, Chief Executive Officer; and David Froesel, Executive Vice President, Chief Financial Officer and Treasurer.
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 this morning's press release and in the comments made during this conference call, more detailed information about the additional risks and uncertainties may be found in our SEC filings, including our annual report on Form 10-K and quarterly report 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 the matters discussed on this call.
During the 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 in our press release and in our Form 10-Q. 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.
And now, at this time, I would like to turn the presentation over to Greg.
Gregory S. Weishar
Thank you, Cynthia. Thanks to everyone on this call this morning for your attendance. We certainly appreciate that.
Given what our stock has done this morning, I think it's probably best that we just sign off now, but no. With all due -- I will go through this just to -- as you saw in this morning's earnings release, we significantly exceeded expectations.
Revenue, adjusted diluted earnings per share and cash flow from operations all exceeded expectations for the third quarter of 2013.
Compared to the third quarter of 2012, adjusted diluted earnings per share increased 29% to $0.49. Adjusted EBITDA increased 18% to $33.9 million, and adjusted EBITDA margin increased 120 basis points to 7.7%.
On a sequential quarter basis, revenues, excluding the onetime impact of $2.9 million reduction due to California Medicaid legislation, increased 2.1%, and that was primarily due to drug -- price inflation, brand drug price inflation.
Gross profit margin declined from 19.2% to 18.7%, also due to brand drug price inflation.
As you know, brand drug gross profit margins typically are less than generic drug gross profit margins.
Regarding cash flows provided by operations, we achieved new records for the quarter and on a year-to-date basis. Cash flow provided by operations for the current quarter was $78.1 million or 52% greater than the prior year's comparable quarter. Cash flow was $152 million for the first 9 months of 2013, which is 47% higher than last year's comparable period.
Cash flow improved primarily due to a reduction in inventory and higher year-over-year adjusted EBITDA.
In the core institutional pharmacy business, we continue to see evidence that sales and account management team is making progress in driving new sales and retaining existing clients.
On a year-to-date basis, excluding the impact of Golden Living and Kindred, net customer account activity showed an improvement of approximately 27%, and that's compared to the same period last year.
And as we sit here early in the fourth quarter, we remain optimistic of further improvement over the coming quarters.
If we exclude Golden Living and Kindred from the calculus, for 2013 we will come very close to achieving our much anticipated goal of organic growth.
We believe we can sustain sales and retention momentum over the coming quarters. This momentum is a direct reflection of the many organizational and product changes we have put in place over the past several years.
Today we have the best client solutions in the industry, superior cost-containment programs, best-in-class pharmacy services and an industry-leading generic dispensing rate of 83.3%.
We are well-positioned to aggressively compete in the long-term care market by saving our clients' money and helping them better compete in their markets.
Let me give you a couple of examples of how we do that. First, generics have been and will continue to be a big win for our clients and customers. As we move into 2014 and 2015, given the brand patent expirations, we estimate, in 2014, the generic dispensing rate will be between 85% to 86% of all prescriptions dispensed; and in 2015, 88% to 89% of all prescriptions dispensed.