NeighborCare Reports Second Quarter Fiscal 2005 Results; Revenues
Grow 13.5% Year-Over-Year; Total Beds Served Up 13.0%
Year-Over-Year; NeighborCare Signs Definitive Agreement to Acquire
an Additional 10,000 Beds BALTIMORE, May 4 /PRNewswire-FirstCall/
-- NeighborCare, Inc. today announced its results for the second
quarter of fiscal 2005 ended March 31, 2005. Net revenues in the
quarter totaled $404.7 million compared with $356.6 million last
year, a 13.5% increase. Net revenues for the year to date period
were up 14.6% to $796.7 million from $695.0 million. For the
quarter, income from continuing operations was $9.7 million, or
$0.22 per diluted share. In the same quarter of the prior year,
income from continuing operations was $8.2 million, or $0.19 per
diluted share. Income from continuing operations for the quarter
ended March 31, 2005 includes an unusual charge totaling $1.4
million before taxes ($0.8 million after taxes or $0.02 per diluted
share) predominately related to state Medicaid audits related to
prior periods which were a direct charge to gross profit for the
quarter. In addition, income from continuing operations for the
current quarter includes the effect of expenses incurred in
connection with the unsolicited tender offer to purchase all of our
outstanding common stock, as well as adjustments for certain
strategic planning, severance and other operating items together
aggregating $0.7 million. Income from continuing operations for the
quarter ended March 31, 2004 includes certain strategic planning,
severance and other operating items aggregating $2.0 million. For
the current year to date period, income from continuing operations
was $19.4 million or $0.43 per diluted share. For the prior year to
date period, loss from continuing operations was ($5.9) million or
($0.14) per diluted share. NeighborCare's income from continuing
operations, excluding the charges and adjustments noted above and
an adjustment to a 40% effective tax rate, was $11.2 million, or
$0.25 per diluted share for the current quarter. In the same
quarter of the prior year, income from continuing operations
adjusted for certain strategic planning, severance and other
operating items and including an adjustment to a 40% tax rate was
$10.2 million, or $0.23 per diluted share. For the current year to
date period, adjusted income from continuing operations was $21.6
million or $0.48 per diluted share compared to $19.4 million or
$0.44 per diluted share in the prior year to date period. (See
Table 3 in "Financial Highlights" on page 6 for a reconciliation of
income from continuing operations to income from continuing
operations, as adjusted). Adjusted EBITDA for the quarter ended
March 31, 2005 was $32.4 million compared with adjusted EBITDA of
$28.7 million for the same period last year or an increase of
13.1%. For the current year to date period, adjusted EBITDA was
$62.8 million compared to $54.3 million in the prior year to date
period or an increase of 15.7%. (See Table 2 in "Financial
Highlights" on page 6 for a reconciliation of income (loss) from
continuing operations to EBITDA and adjusted EBITDA). John J.
Arlotta, NeighborCare's Chairman, President and CEO, said, "I am
pleased to report that NeighborCare recorded strong performance for
our second quarter of 2005 in line with the indications I provided
on our last earnings call. Despite start-up expenses for our new
drug repack facility and continued pricing pressures, on a
sequential basis we were able to maintain our adjusted gross
margins for the quarter and through our cost control program,
adjusted EBITDA margin improved." Arlotta added, "I am also pleased
to announce today our most recent acquisition of Primecare Pharmacy
in Los Angeles, California, a 10,000 bed institutional pharmacy
which is an outstanding add-on to our existing business in southern
California. This acquisition brings our total beds served to almost
300,000 and solidifies us as the second largest provider in the
institutional pharmacy industry today. Importantly, this bed count
demonstrates our continued success in growing our business both
organically and through acquisitions." At March 31, 2005,
NeighborCare served 289,362 beds. Organic net bed growth for the
quarter totaled 671 beds. Bed counts ending March 31, 2004 and
December 31, 2004 were 255,990 and 287,249, respectively. Average
revenue per bed per month for the quarter ended March 31, 2005 was
$415 compared to $406 for the same quarter of the prior year.
Quarterly Results Review Introductory Note. Net revenues and cost
of revenues do not include intersegment revenues and related cost
of revenues with Genesis Healthcare Corporation (GHC) for periods
prior to the spin-off (October 1, 2003 through December 1, 2003).
GAAP requires that intersegment revenues from GHC for periods prior
to the spin-off be eliminated in consolidation and that the
associated gross profit be included in NeighborCare's discontinued
operations. For comparison purposes, the presentation of adjusted
net revenues, cost of revenues and gross margin reflect the
adjustment to include the intersegment transactions as these
transactions with GHC are and will continue to be reflected in
continuing operations in all periods subsequent to December 1,
2003. NeighborCare accounts for discontinued operations, including
assets distributed, under the provisions of Statement of Financial
Accounting Standards, No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144"). Under SFAS 144,
discontinued businesses including assets distributed are removed
from the results of continuing operations and presented as a
separate line on the statement of operations. Adjusted net revenues
and gross margin also reflects an adjustment to add back the
current quarter charges related to state Medicaid audits. (See
Reconciliation Table 1 in "Financial Highlights" on page 6).
Revenues. Net revenues in the quarter increased $48.1 million, or
13.5%, to $404.7 million from $356.6 million in the year ago
quarter. This was principally driven by growth in revenue of the
Company's institutional pharmacy segment of approximately $47.1
million, or 15.5% over the same period in the prior year. This
growth was driven by an increase in bed census, as well as
increased drug trend partially offset by certain state Medicaid
reimbursement reductions and competitive price reductions. Cost of
revenues. Cost of revenues in the quarter increased by $39.0
million, or 13.8%, to $321.3 million from $282.3 million in the
year ago quarter. Increases in delivery costs - including fuel,
labor costs and insurance - were partially offset by reduced labor
costs due to pharmacy consolidations and process improvement
initiatives. Gross margin. Gross margin in the quarter declined to
20.6% from 20.9% last year. This reduction is primarily due to the
charge recorded related to the state Medicaid audits. On an
adjusted basis, gross margin remained constant at 20.9%. Selling,
general and administrative (SG&A). SG&A in the current
quarter increased $8.9 million to $60.5 million from the year ago
level of $51.6 million. The primary reason for the increase in
SG&A is acquisitions, increased salary and wages expense due to
the creation of corporate functions after the spin-off of GHC, the
expensing of restricted stock granted to employees, increased
depreciation expense, and costs incurred in connection with
Sarbanes-Oxley compliance. As a percentage of adjusted net
revenues, SG&A was 14.9% compared to 14.5% for the same period
in the prior year. Liquidity and capital resources. NeighborCare
ended the quarter with $27.3 million of cash and $263.0 million of
working capital. Outlook NeighborCare today commented on the
Company's previously issued fiscal 2005 guidance. Revenues are
expected to be toward the middle of the original range of
$1.55-$1.725 billion for 2005 or approximately $1.6 billion.
Adjusted EBITDA and adjusted earnings per share, which in each case
exclude one time charges and special items, are now expected to be
approximately $132 million and $1.02 per share, respectively.
One-time charges or special items would reduce net income, EBITDA
and net income per share. We are not able to reasonably forecast
such charges or items at this time and accordingly have not
provided an estimate of their impact on net income, EBITDA or net
income per share nor an estimate of net income. (See reconciliation
in "Earnings Outlook for the Fiscal Year Ended September 30, 2005"
on page 9). Conference Call NeighborCare will host a conference
call and webcast at 10:00 a.m. Eastern Time on May 5, 2005 to
discuss results for the second fiscal quarter. The conference call
information follows: Toll-Free Number: (888) 240-0264 Toll Number:
(706) 679-5757 Leader: John Arlotta Conference ID: 5738227
Investors can also access the conference live via webcast through
NeighborCare's web site at
http://www.neighborcare.com/investor/earnings.cfm, where a replay
of the call will also be posted. About NeighborCare, Inc.
NeighborCare, Inc. (NASDAQ:NCRX) is one of the nation's leading
institutional pharmacy providers serving long term care and skilled
nursing facilities, specialty hospitals, assisted and independent
living communities, and other assorted group settings. NeighborCare
also provides infusion therapy services, home medical equipment,
respiratory therapy services, community-based retail pharmacies and
group purchasing. In total, NeighborCare's operations span the
nation, providing pharmaceutical services in 34 states and the
District of Columbia. Visit our website at
http://www.neighborcare.com/. Statements made in this document, our
website and in our other public filings and releases, which are not
historical facts contain "forward-looking" statements (as defined
in the Private Securities Litigation Reform Act of 1995) that
involve risks and uncertainties and are subject to change at any
time. These forward-looking statements may include, but are not
limited to, statements containing words such as "anticipate,"
"believe," "plan," "estimate," "expect," "intend," "may", "target"
and similar expressions. Such forward looking statements include,
without limitation, statements regarding the effect of the spin-off
on our operations, expected changes in reimbursement rates and
inflationary increases in state Medicaid rates, expected bed count,
expected SG&A expense, anticipated restructuring charges, our
anticipated results of operations for fiscal 2005 and estimates of
timing and costs savings related to cost improvement initiatives.
Factors that could cause actual results to differ materially
include, but are not limited to, the following: our ability, and
the ability of our customers, to comply with Medicare or Medicaid
reimbursement regulations or other applicable laws, changes in the
reimbursement rates or methods of payment from Medicare and
Medicaid, or the implementation of other measures to reduce the
reimbursement for our services and the impact of the Medicare
Prescription Drug, Improvement and Modernization Act of 2003,
changes in pharmacy legislation and payment formulas, the impact of
federal and state regulations, competition in our businesses, the
impact of Omnicare, Inc.'s unsolicited tender offer to acquire all
of our outstanding common stock, competition for qualified
management and pharmacy professionals, the impact of investigations
and audits relating to alleged violations of federal and/or state
regulations, changes in the acuity of patients, payor mix and
payment methodologies, further consolidation of managed care
organizations and other third party payors, the effect of the
expiration or termination of certain service and supply contracts,
changes in or our failure to satisfy pharmaceutical manufacturers'
rebate programs, an economic downturn or changes in the laws
affecting our business in those markets in which we operate, the
impact of acquisitions, and our ability to integrate acquired
businesses, on our operations and finances, our ability to control
operating costs and generate sufficient cash flow to meet
operational and financial requirements, our ability, and the
ability of our subsidiary guarantors, to fulfill debt obligations,
our covenants and restrictions contained in financing agreements
which limit our discretion in the operation of our business, our
charter documents and the Pennsylvania Business Corporation Law of
1988, as amended, which could delay or prevent a change of control,
availability of financial and other resources to us after the spin-
off of GHC, operating inefficiencies and higher costs after the
spin-off of GHC, federal income tax liabilities and indemnification
obligations related to the spin-off of GHC, conflicts of interest
as a result of our continuing relationship with GHC after the
spin-off, the ability of GHC, as our largest customer, to operate
as a separate entity and acts of God or public authorities, war,
civil unrest, terrorism, fire, floods, earthquakes and other
matters beyond our control. The forward-looking statements involve
known and unknown risks, uncertainties and other factors that are,
in some cases, beyond our control. We caution investors that any
forward-looking statements made by us are not guarantees of future
performance. We disclaim any obligation to update any such factors
or to announce publicly the results of any revisions to any of the
forward-looking statements to reflect future events or
developments. NEIGHBORCARE, INC. CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS (Unaudited, in thousands except per share amounts)
Three Months Ended Six Months Ended March 31, March 31, 2005 2004
2005 2004 Net revenues $404,706 $356,646 $796,706 $695,040 Cost of
revenues 321,329 282,285 631,063 544,256 Gross profit 83,377 74,361
165,643 150,784 Selling, general and administrative 60,518 51,599
120,164 108,635 Strategic planning, severance and other operating
items (64) 2,037 455 42,701 Takeover defense expenses 785 - 1,557 -
Operating income (loss) 22,138 20,725 43,467 (552) Interest
expense, net 4,498 4,553 8,529 10,207 Other expense 1,173 1,225
2,301 2,317 Income (loss) before income tax provision (benefit)
16,467 14,947 32,637 (13,076) Income tax provision (benefit) 6,782
6,731 13,250 (7,143) Income (loss) from continuing operations 9,685
8,216 19,387 (5,933) Income from discontinued operations, net of
taxes - - - 8,435 Net income $9,685 $8,216 19,387 2,502 Per common
share data Basic Income (loss) from continuing operations $0.22
$0.19 $0.44 $(0.14) Income from discontinued operations $ - $ - $ -
$0.20 Net income $0.22 $0.19 $0.44 $0.06 Weighted average shares
outstanding 43,838 43,640 43,823 42,010 Diluted Income (loss) from
continuing operations $0.22 $0.19 $0.43 $(0.14) Income from
discontinued operations $ - $ - $ - $0.20 Net income $0.22 $0.19
$0.43 $0.06 Weighted average shares outstanding 44,688 43,957
44,649 42,010 NEIGHBORCARE, INC. SEGMENT INFORMATION (Unaudited)
(in thousands) Institutional Corporate Pharmacy and Other
Consolidated Three months ended March 31, 2005 Net revenues
$350,344 $54,362 $404,706 Gross profit $67,206 $16,171 $83,377
Operating income (loss) $33,344 $(11,206) $22,138 Three months
ended March 31, 2004 Net revenues $303,256 $53,390 $356,646 Gross
profit $57,704 $16,657 $74,361 Operating income (loss) $28,521
$(7,796) $20,725 Six months ended March 31, 2005 Net revenues
$688,176 $108,530 $796,706 Gross profit $132,705 $32,938 $165,643
Operating income (loss) $66,394 $(22,927) $43,467 Six months ended
March 31, 2004 Net revenues $585,047 $109,993 $695,040 Gross profit
$115,818 $34,966 $150,784 Operating income (loss) $55,094 $(55,646)
$(552) Total assets as of March 31, 2005 $282,235 $605,187 $887,422
September 30, 2004 $217,969 $631,439 $849,408 Note: Reference Table
1 of the Financial Highlights section for intersegment adjustments
and special charges which impact only the institutional pharmacy
segment. NEIGHBORCARE, INC. FINANCIAL HIGHLIGHTS (Unaudited) Table
1 - Reconciliation of net revenues, cost of revenues, gross profit
and gross margin, each as adjusted (in thousands) Three Months
Ended Six Months Ended 31-Mar-05 31-Mar-04 31-Dec-04 31-Mar-05
31-Mar-04 Net revenues - as reported $404,706 $356,646 $392,000
$796,706 $695,040 Add back: Intersegment revenues with Genesis
HealthCare - - - - 13,013 Unusual charge 1,400 - - 1,400 Net
revenues - as adjusted $406,106 $356,646 $392,000 $798,106 $708,053
Cost of revenues - as reported $321,329 $282,285 $309,734 $631,063
$544,256 Add back: Intersegment cost of revenues for Genesis
HealthCare - $ - - $ - $10,332 Cost of revenues - as adjusted
$321,329 $282,285 $309,734 $631,063 $554,588 Gross Margin $ - as
adjusted $84,777 $74,361 $82,266 $167,043 $153,465 Gross Margin % -
as adjusted 20.9% 20.9% 21.0% 20.9% 21.7% Table 2 - Reconciliation
of income (loss) from continuing operations, as reported, to EBITDA
and Adjusted EBITDA (in thousands) Three Months Ended Six Months
Ended 31-Mar-05 31-Mar-04 31-Dec-04 31-Mar-05 31-Mar-04 Income
(loss) from continuing operations - as reported $9,685 $8,216
$9,702 $19,387 $(5,933) Add back (deduct): Other expense 1,173
1,225 1,128 2,301 2,317 Income tax provision (benefit) 6,782 6,731
6,468 13,250 (7,143) Interest expense, net 4,498 4,553 4,031 8,529
10,207 Depreciation and amortization 8,182 5,912 7,697 15,879
12,156 EBITDA $30,320 $26,637 $29,026 $59,346 $11,604 Add back:
Unusual charge 1,400 - - 1,400 - Strategic planning, severance and
other operating items (64) 2,037 519 455 42,701 Takeover defense
expenses 785 - 772 1,557 - Adjusted EBITDA $32,441 $28,674 $30,317
$62,758 $54,305 Table 3 - Reconciliation of income (loss) from
continuing operations, as reported, to income from continuing
operations, as adjusted (in thousands, except per share amounts)
Three Months Ended Six Months Ended 31-Mar-05 31-Mar-04 31-Dec-04
31-Mar-05 31-Mar-04 Income (loss) from continuing operations - as
reported $9,685 $8,216 $9,702 $19,387 $(5,933) Add back (deduct):
Intersegment revenues with Genesis HealthCare - - - - 13,013
Intersegment cost of revenues for Genesis HealthCare - - - -
(10,332) Unusual charge 1,400 - - 1,400 - Strategic planning,
severance and other operating items (64) 2,037 519 455 42,701
Takeover defense expenses 785 - 772 1,557 - Tax impact of items
added back above to 40% effective tax rate (653) (63) (516) (1,170)
(20,065) Income from continuing operations - as adjusted $11,153
$10,190 $10,477 $21,629 $19,384 Income from continuing operations -
as adjusted per share - basic $0.25 $0.23 $0.24 $0.49 $0.46
Weighted average shares - basic 43,838 43,640 43,809 43,823 42,010
Income from continuing operations - as adjusted per share - diluted
$0.25 $0.23 $0.24 $0.48 $0.44 Weighted average shares - diluted
44,688 43,957 44,545 44,649 43,875 Notes: - Adjusted EBITDA is a
non-GAAP financial measure that management considers, along with
GAAP measures, when evaluating the Company's operating performance.
Adjusted EBITDA is reconciled to the most directly comparable GAAP
financial measure. - Income from continuing operations - as
adjusted is a non-GAAP financial measure that management considers,
along with GAAP measures, when evaluating the Company's operating
performance. This non-GAAP financial measure is reconciled to the
most directly comparable GAAP financial measure. NEIGHBORCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited, in thousands)
September March 31, December 31, 30, 2005 2004 2004 ASSETS Current
assets Cash and cash equivalents $27,316 $21,092 $81,923 Accounts
receivable, net 265,557 253,015 230,903 Inventories 69,779 73,873
64,111 Prepaid expenses and other current assets 43,906 41,026
40,046 Total current assets 406,558 389,006 416,983 Property, plant
and equipment, net 95,600 91,207 84,215 Other long-term assets
21,343 20,735 19,353 Identifiable intangible assets, net 16,824
16,990 12,737 Goodwill 347,097 342,940 316,120 Total assets
$887,422 $860,878 $849,408 LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities Current portion of long-term debt $9,035
$22,150 $4,263 Accounts payable and accrued expenses 119,604 96,029
116,965 Income taxes payable 14,878 8,838 4,747 Total current
liabilities 143,517 127,017 125,975 Long-term debt 255,648 258,418
258,008 Other long-term liabilities 73,049 70,738 70,765 Total
liabilities 472,214 456,173 454,748 Minority interest 7,893 7,531
7,880 Total shareholders' equity 407,315 397,174 386,780 Total
liabilities and shareholders' equity $887,422 $860,878 $849,408
NEIGHBORCARE, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, in thousands) Three Months Six Months Ended March Ended
31, March 31, 2005 2005 2004 Cash flows from operating activities
Net income $9,685 $19,387 $2,502 Net charges included in operations
not requiring funds 12,892 28,159 26,412 Changes in operating
assets and liabilities, excluding impact of business acquisitions
Change in accounts receivable, net (14,372) (34,504) (39,986)
Change in accounts payable and accrued expenses 28,909 10,475
79,671 Other, net 537 (8,330) (33,384) Net cash provided by
operating activities 37,651 15,187 35,215 Cash flows from investing
activities Capital expenditures (10,408) (23,133) (16,545) Business
acquisitions (7,011) (46,900) (3,969) Other, net - (2,004) (33,432)
Net cash used by investing activities (17,419) (72,037) (53,946)
Cash flows from financing activities Net borrowings against
revolving credit facility (13,000) 4,000 Repayment of long-term
debt (1,070) (2,399) (556,285) Proceeds from issuance of long-term
debt, net of debt issuance costs - - 465,804 Distributions of cash
to GHC - - (63,154) Funds received from GHC for debt financing - -
135,885 Other 62 642 (4,907) Net cash provided (used) by financing
activities (14,008) 2,243 (22,657) Net increase (decrease) in cash
and cash equivalents 6,224 (54,607) (41,388) Cash and cash
equivalents at beginning of period 21,092 81,923 132,726 Cash and
cash equivalents at end of period $27,316 $27,316 $91,338
NEIGHBORCARE, INC. EARNINGS OUTLOOK FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 2005 (Unaudited, in thousands except per share
amounts) Reconciliation of net income to Adjusted EBITDA FY2005E
Net income $43,309 Add back: Unusual charge 1,400 Strategic
planning, severance and other operating items 455 Takeover defense
expenses 1,557 Income taxes 29,080 Depreciation and amortization
33,743 Interest expense 18,556 Other expense 4,300 Adjusted EBITDA
$132,400 Reconciliation of net income to adjusted net income and
EPS to adjusted EPS $ Per Share Net income $43,309 $0.97 Add back:
Unusual charge 1,400 0.03 Strategic planning, severance and other
operating items 455 0.01 Takeover defense expenses 1,557 0.03 Tax
impact of adjustments (1,365) (0.03) Adjusted net income $45,356
$1.02 DATASOURCE: NeighborCare, Inc. CONTACT: Investor: Tania
Almond, Investor Relations, NeighborCare, +1-410-528-7555, or
Media: Denise DesChenes or Dan Gagnier, Citigate Sard Verbinnen,
+1-212-687-8080, for NeighborCare Web site:
http://www.neighborcare.com/
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