Pharmerica Corporation (PMC)

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PharMerica Corporation (PMC)

Q2 2008 Earnings Call Transcript

August 8, 2008 11:00 am ET


Terry Hartlage – VP of Finance

Greg Weishar – CEO

Mike Culotta – EVP & CFO


Eric Gommel – Stifel, Nicolaus & Company

Adam Feinstein – Lehman Brothers

Aron Gornin [ph] – Bank of America Securities

Frank Morgan – Jeffries & Company

Jason Gurda – Leerink Swann



Good day, ladies and gentlemen and welcome to the Q2 2008 PharMerica Corporation Earnings Conference Call. My name is Latetia and I’ll be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this call. If at any time during this call you require assistance, please press star followed by zero and a coordinator will be happy to assist you. I would now like to turn the presentation over to your host for today, Ms. Terry Hartlage [ph], Vice President of Finance. Please proceed.

Terry Hartlage

Good morning and thank you for joining us for the 2008 second 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

Before beginning our remarks regarding the second 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 report on Form 10-Q. Copies of these documents may be obtained from the SEC or by visiting the Investor Relations section of our Web site. PharMerica assumes no obligation to update these matters discussed on this call. During this call we will be referring to non-GAAP financial measure. 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 second 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 Web site along with a transcript of this call.

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

Greg Weishar

Thanks, Terry. Welcome everyone. As always, we are pleased to have the opportunity to discuss our company’s results with you. We have just achieved our one-year milestone and while we are satisfied with what we have accomplished in the past year, we also know there is lot of work ahead of us.

As you recall, the combined businesses of KPS and PharMerica LTC were merged on July 31, 2007, and what this means is from a comparative financial standpoint, the results of prior year second quarter and the six months ending June 30, 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 second quarter results and we filed our 10-Q. Our diluted earnings per share were $0.10 for the quarter. The integration, merger-related costs and other charges represented $6.6 million or $0.12 diluted loss per share. Excluding the integration, merger-related costs and other charges, diluted earnings per share totaled $0.22. Our total diluted earnings per share for the six months ended excluding the cost described above were $0.41. Total revenues were $486.3 million and we dispensed approximately 10.1 million prescriptions. Our adjusted EBITDA was $22.4 million, giving us a 4.6 adjusted EBITDA margin and we are seeing good sequential improvement here given the first quarter adjusted EBITDA margin was 4.3% and for 2007 it was 3% on a combined basis. We continued to generate strong cash flow, over $13 million in the second quarter of 2008 and $24.2 million for the six months ended June 30, 2008. I think the takeaway from our last three quarters is that you are seeing improved consistency in our financial results and that is as a result of consolidating our pharmacies and streamlining operations. If you compare the adjusted EBITDA on a combined basis for the first two quarters of 2007, it was $30.7 million compared to $43.5 million for the first two quarters of 2008.

I think from these comparisons you can easily see we are capturing the operational and overhead synergies from pharmacy consolidations and integrations which is one of our key initiatives and really the focus of putting the two companies together. We have now completed 57% of our pharmacy consolidations overhead and of the total planned 26 consolidations, 17 of the pharmacies are now completed. We will have completed about 70% by the end of the third quarter and over 90% of the consolidations by the end of the fourth quarter. We are confident we will exceed the $30 million synergy target. The financial impact of our efforts will become more evident in 2009 as you will see further positive impact on margins from these consolidations and other integration savings. Once the pharmacy consolidation phase is complete in 2009, we will then have 17 legacy KPS locations that we will be converting to the LTC 400 operating system which is our operating platform. So, by the end of 2009 we will expect to be on one operating platform and have completed consolidations and systems conversion all of those related to the merger business. We believe one platform gives us a long-term competitive advantage and certainly simplifies the management of our business.

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