PharMerica Corporation (PMC)
Q1 2008 Earnings Call
May 9, 2008 10 a.m.
Gregory S. Weishar – Chief Executive Officer and President
Michael J. Culotta – Chief Financial Officer and Executive Vice President
Berard E. Tomassetti – Senior Vice President and Chief Accounting Officer
Tim Jolley – Vice President of Planning and Analysis
Terry Hartlage – Vice President of Finance
Adam Feinstein – Lehman Brothers
Eric Gommel – Stifel, Nicolaus & Company, Inc.
Melissa Jaffee – Merrill Lynch
Robert Willoughby – Banc of America Securities LLC
Previous Statements by PMC
» PharMerica Corporation Q4 2008 Earnings Call Transcript
» PharMerica Corporation Q3 2008 Earnings Call Transcript
» PharMerica Corporation Q2 2008 Earnings Call Transcript
Good morning and thank you for joining us for the First 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; Berard Tomassetti, Senior Vice President and Chief Accounting Officer; and Tim Jolley [ph], Vice President of Planning and Analysis.
Before beginning our remarks regarding the first 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 most recent annual report on Form 10-K, the 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 these matters discussed on this call. 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.
Gregory S. Weishar
Thanks, Terry. Welcome, everyone. As always, we are pleased to have the opportunity to discuss our company’s results with you today. Let’s remember this is only the second full quarter of operating results for the combined businesses of KPS and PharMerica LTC.
As you recall, the combined businesses of KPS and PharMerica LTC were merged on July 31, 2007, and what this means is that the quarter-over-quarter comparisons are not meaningful. The financial results of the first quarter of 2007 only represent the results of operations and cash flows of KPS. Mike will go into the financial details later, but I will give you the highlights.
Yesterday we released our first quarter and we filed our 10-Q. Our diluted earnings per share was $0.11 for the quarter. The integration, merger-related costs and other charges represented $4.1 million or $0.08 diluted loss per share. Excluding the integration, merger-related costs and other charges, diluted earnings per share totaled $0.19.
Total revenues were $495.1 million, and on a sequential quarter basis, this was an increase of 59 basis points or $2.9 million increase. We dispensed over 10.2 million prescriptions compared to 10.1 million in the fourth quarter of 2007.
Our adjusted EBITDA was $21.1 million, giving us a 4.3 adjusted EBITDA margin. Adjusted EBITDA for the first quarter compared to the fourth quarter was negatively impacted by $2.5 million for employer taxes and employee benefits. Most of this is not recurring in the remaining quarters, as most employees will have exceeded their maximum by the end of this quarter.
We continue to see strong cash flow, generating over $11.2 million in the first quarter of 2008, and we continue to reduce debt as we pay down $10 million of long-term debt in this quarter.
Talking to analysts and shareholders they all ask us about generics. Here are some key points. Profits on generics are attractive for the first couple of years. After that, profitability falls to roughly an average margin, gross profit margin, as increased manufacturer availability permits payers to lower reimbursement. We have about a two-year window of generous profits here.
I think the way to look at our business model is if there is a lot of brands coming into the pipeline, that’s good for our business. Likewise, if there’s a lot of generics coming into the pipeline, that’s also good for our business. And it’s also good for our customers because generics are a lower-cost alternative. Think of it this way. New brands drive rebates and revenue whereas new generics drive improved gross margins and pressure revenue. Historically, we’ve had brand growth or generic growth, never both growing at the same time. So right now it’s the sweet spot for generic drugs. Given that we do a great job of moving generics, we have an industry-leading generic dispensing rate of over 68%. We have the opportunity to recoup the rebates we lose when the brand drug goes off patent. We replace that margin stream with the attractive margins on the generics.