Pharmerica Corporation (PMC)

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PharMerica (PMC)

Q2 2014 Earnings Call

August 05, 2014 10:00 am ET

Executives

Berard E. Tomassetti - Chief Accounting Officer and Senior Vice President

Gregory S. Weishar - Chief Executive Officer, President and Director

David W. Froesel - Chief Financial Officer, Executive Vice President and Treasurer

Analysts

Charles Rhyee - Cowen and Company, LLC, Research Division

Jeffrey Bailin - Crédit Suisse AG, Research Division

Jason Gurda - KeyBanc Capital Markets Inc., Research Division

Steven Valiquette - UBS Investment Bank, Research Division

Robert M. Willoughby - BofA Merrill Lynch, Research Division

Eric Percher - Barclays Capital, Research Division

Michael John Petusky - Noble Financial Group, Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Q2 2014 PharMerica Corporation Earnings Conference Call. My name is Stephanie, and I will be your call operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. And now I'd like to turn the conference over to Mr. Berard Tomassetti, Chief Accounting Officer. Please proceed, sir.

Berard E. Tomassetti

Good morning, and thank you for joining us for the second quarter 2014 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 second quarter of 2014 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 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 our annual report on Form 10-K 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 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 in our press release and in our quarterly report on Form 10-Q. We have made available to you our press release and our quarterly report on Form 10-Q filed with the SEC. In addition, this webcast will be on our website, along with a transcript from this call.

And now at this time, I would like to turn the presentation over to Greg.

Gregory S. Weishar

Thank you, Berard. Thank you for -- all of you for attending. As always, we appreciate your interest in PharMerica.

As you saw in this morning's earnings release, we reported another strong quarter of results. Revenue, adjusted EBITDA and adjusted diluted earnings per share all exceeded expectations for the second quarter. The results for the second quarter and first half of the year demonstrate the company has made good progress towards achieving 2014 financial and operational goals. We believe we are poised for a strong 2015 and long-term growth and value creation.

Let me summarize the highlights. Excluding Golden Living and Kindred, we posted another sequential quarter of organic growth in the institutional pharmacy business. In fact, the second quarter represented the company's best quarter for organic growth. This gives us confidence that we will achieve net organic growth for the year and highlights what we believe is PharMerica's growing market strength in the core institutional pharmacy business.

The company's investments in specialty oncology through Onco360 and specialty home infusion through Amerita continue to post strong double-digit revenue growth. These specialty pharmacy businesses are consistent with the company's strategic focus on pursuing diversified growth opportunities in closely related pharmacy markets. We continue to believe these businesses will generate revenues of approximately $400 million by 2016.

We also continue to drive client value through an industry-leading generic dispensing rate. The generic dispensing rate for the quarter was 85%, an improvement of 170 basis points year-over-year and 50 basis points sequentially. Looking towards the end of 2015 and 2016, the generic dispensing rate is forecasted to hit 88%, and this is primarily due to upcoming patent expirations on such drugs as Abilify, Namenda and NEXIUM.

Complementing organic growth initiatives, we have a stated goal to complete acquisitions yearly that generate at least $100 million of annualized sales. We are targeting companies in the institutional pharmacy and specialty home infusion pharmacy market. And so far this year, we have announced an acquisition in each segment: in the specialty home infusion market, Altius, which serves the Arizona market; and in the institutional pharmacy market most recently, Rx Advantage, which serves Southern Alabama and Western Florida.

We are currently in due diligence with a number of acquisition opportunities and are optimistic we will achieve the $100 million in annual revenue acquisition goal.

So with that, I'll turn it over to Dave, and he'll walk you through the financials.

David W. Froesel

Thank you, Greg, and good morning. I would like to spend the next several minutes discussing our results of operations for the second quarter of 2014.

Revenues reported for the second quarter of 2014 were $448.6 million, which represents an increase of $17.8 million or approximately 4% versus the second quarter of 2013. The increase in revenues on a year-over-year basis was primarily attributable to PharMerica's new investment in Onco360, strong branded drug inflation and growth in our specialty home infusion business, Amerita. More importantly, revenues associated with Onco360, specialty home infusion and branded drug inflation more than offset losses in revenue associated with Kindred and Golden Living.

Read the rest of this transcript for free on seekingalpha.com