NCRX Neighborcare (MM)

NeighborCare Reports Fiscal 2004 Year End Results; Revenues Grow 10.2% Year-Over-Year; First Year of Positive Net Organic Bed Growth in Four Years BALTIMORE, Nov. 18 /PRNewswire-FirstCall/ -- NeighborCare, Inc. (NASDAQ:NCRX) today announced its results for the fourth quarter and fiscal year ended September 30, 2004. Net revenues in the quarter totaled $377.4 million compared with $322.9 million last year. Full year net revenues were $1.4 billion compared with the year ago level of $1.2 billion. In accordance with generally accepted accounting principles (GAAP), the revenue numbers exclude intersegment revenues with Genesis HealthCare Corporation (GHC) for the period prior to its spin-off on December 1, 2003. Net revenues, as adjusted for intersegment transactions with GHC, totaled $342.2 million in the year ago quarter for a year over year increase of 10.3%. For the fiscal year, adjusted net revenues were up 10.2% to $1.5 billion from $1.3 billion in the year ago period (see Introductory Note in "Quarterly Results Review" and Table 1 in "Financial Highlights" for a reconciliation of net revenue to net revenue, as adjusted). For the quarter, income from continuing operations was $6.1 million, or $0.14 per diluted share. In the same quarter of the prior year, loss from continuing operations was ($0.5) million, or ($0.03) per diluted share. For the full year, loss from continuing operations was ($6.6) million, or ($0.15) per diluted share. This includes the effect of expenses incurred in connection with our competitor's unsolicited tender offer to purchase all of our outstanding common stock, as well as certain strategic planning, severance and other operating items, together aggregating $3.6 million and $63.8 million for the quarter and fiscal year ended September 30, 2004, respectively. For the prior year period, income from continuing operations was $4.0 million, or $0.03 per diluted share. NeighborCare's income from continuing operations, excluding the effect of expenses incurred in connection with our competitor's unsolicited tender offer to purchase all of our outstanding common stock, as well as certain strategic planning, severance and other operating items and including an adjustment to a 40% effective tax rate, was $9.3 million, or $0.21 per diluted share for the current quarter. In the same quarter of the prior year, income from continuing operations adjusted for these charges as well as intersegment gross profit on sales to GHC was $8.0 million, or $0.20 per diluted share. Income from continuing operations adjusted for these charges for the current full year was $38.0 million, or $0.86 per diluted share when compared to the adjusted amounts of $21.1 million or $0.52 per diluted share in the prior year period (see Table 3 in "Financial Highlights" for a reconciliation of income from continuing operations to income from continuing operations, as adjusted). Adjusted EBITDA for the quarter ended September 30, 2004 was $28.2 million compared with adjusted EBITDA of $22.7 million for the same period last year. Full year adjusted EBITDA was $110.8 million versus $69.3 million last year (see Table 2 in "Financial Highlights" for a reconciliation of income from continuing operations to EBITDA and adjusted EBITDA). Prior periods adjusted EBITDA may not be considered comparable for several reasons including: First, 2003 EBITDA excludes gross profit on intersegment revenues from GHC of $4.0 million and $16.1 million for the three and twelve months ended September 30, 2003, respectively. Second, prior periods presented also include corporate overhead costs that could not be allocated to discontinued operations of $8.2 million and $31.7 million for the three and twelve months ended September 30, 2003, respectively. Third, for the current twelve-month period ended September 30, 2004, adjusted EBITDA excludes gross profit on intersegment sales from GHC prior to the spin-off of $2.7 million. Adjusted EBITDA for all periods presented excludes the results of discontinued operations. John J. Arlotta, NeighborCare's Chairman, President and CEO, said, "I am extremely pleased with the progress this company has made in its first year as a stand-alone company. Despite anticipated industry pricing and reimbursement dynamics that have created a headwind, our people are executing well on our stated plan to transform our company and our industry. I am very proud of what our employees have accomplished." Arlotta added, "NeighborCare's achievements were numerous in 2004. Service costs declined, we deployed innovative new technology for our pharmacies and our customers, and our state-of-the-art drug repack facility is nearing completion. We negotiated better contracts with suppliers and we initiated a new formulary with rapidly improving compliance. Importantly, net organic bed gains were positive for the first time in over four years and our customer retention rates improved significantly. We also opened 8 new pharmacies, and completed 3 acquisitions. In short, NeighborCare remains on track to deliver on the plan we outlined in June of 2004." At September 30, 2004, NeighborCare served 262,755 beds. Organic net bed growth for the year totaled 6,521 beds. Bed counts ending September 30, 2003 and June 30, 2004 were 246,141 and 262,927, respectively. Average revenue per bed per month for the quarter ended September 30, 2004 was $427 compared to $402 in the prior year period. Quarterly Results Review Introductory Note. Net revenues and cost of revenues do not include intersegment revenues and related cost of revenues with GHC for periods prior to the spin-off. 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, costs of revenues and gross margin reflects the adjustment to include the intersegment transactions as these transactions with GHC are and will continue to be reflected in continuing operations in the current and future periods (see Reconciliation Table 1 in "Financial Highlights") 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. Revenues. Net revenue growth for the quarter over the year ago period was principally driven by growth in revenue of the Company's institutional pharmacy segment of approximately $55.5 million or 20.5% over the prior year. On an as adjusted basis this growth was $36.3 million, or 12.5% 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, the full impact of the amended GHC contract along with competitive price reductions. Cost of revenues. Cost of revenues in the quarter increased by $47.7 million, or 19.0%, to $298.9 million from $251.2 million in the year ago quarter. Cost of revenues in the quarter compared with the as adjusted level last year increased $32.5 million, or 12.2% to $298.9 million from the as adjusted year ago level of $266.4 million. Gross margin. Gross margin in the quarter declined to 20.8% from 22.2% last year. On an as adjusted basis, gross margin declined to 20.8% from 22.1% last year, or 130 basis points. Reduction in the gross margin is primarily attributable to state Medicaid reimbursement reductions and changes in product mix and contract pricing, including the impact of the amended contract with GHC. Selling, general and administrative. SG&A in the current quarter increased $1.3 million to $50.3 million from the year ago level of $49.0 million. The year ago level included approximately $8.2 million of shared overhead costs not allocated to discontinued operations. The resulting net increase in SG&A expenses after taking into account the effect of the shared overhead costs is primarily due to the vesting of restricted stock awards granted during the year and expensed over the vesting period and increases in legal and consulting fees. As a percentage of revenue, SG&A was 13.3% this quarter compared with 15.2% last year. Liquidity and capital resources. NeighborCare ended the quarter with $81.9 million of cash and $291.0 million of working capital. The Company generated $71.8 million year to date in operating cash flows and has $262.3 million of indebtedness. NeighborCare's $100 million revolving credit facility remains undrawn. Outlook NeighborCare today commented on the Company's previously issued fiscal 2005 guidance. Revenues are still expected to be in the range of $1.55-$1.725 billion for 2005. EBITDA and earnings per share, which in each case exclude one time charges and special items, are expected to be at the low end of the previously announced ranges of $150-$165 million and $1.35-$1.60 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 earnings outlook and related reconciliation.) Conference Call NeighborCare will host a conference call and webcast at 9:30 a.m. Eastern Time on November 19, 2004 to discuss results for the fourth fiscal quarter. The conference call information follows: Toll-Free Number: (888) 240-0264 Toll Number: (706) 679-5757 Leader: John Arlotta Conference ID: 2244000 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 32 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 federal securities laws) 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 estimated revenues, income from continuing operations, adjusted EBITDA, income from continuing operations per share and adjusted earnings per share, 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 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: costs, changes in the reimbursement rates or methods of payment from Medicare or Medicaid, or the implementation of other measures to reduce reimbursement for our services; changes in pharmacy legislation and payment formulas; the expiration of enactments providing for additional government funding; efforts of third party payors to control costs; the impact of federal and state regulations; changes in payor mix and payment methodologies; further consolidation of managed care organizations and other third party payors; competition in our business; an increase in insurance costs and potential liability for losses not covered by, or in excess of, our insurance; competition for qualified staff in the healthcare industry; our ability to control operating costs, and generate sufficient cash flow to meet operational and financial requirements; and an economic downturn or changes in the laws affecting our business in those markets in which NeighborCare operates. Our business, operations or results could also be affected by and the effects of Omnicare's tender offer or its pendency on the company and its business, employees, customers and suppliers. 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 Fiscal Year Ended September 30, September 30, 2004 2003 2004 2003 Net revenues $377,449 $322,934 $1,443,583 $1,243,857 Cost of revenues 298,900 251,161 1,137,218 961,978 Gross profit 78,549 71,773 306,365 281,879 Selling, general and administrative 50,318 49,045 195,603 212,551 Depreciation and amortization 7,423 8,582 26,686 31,631 Strategic planning, severance and other operating items 2,104 7,539 45,598 17,142 Takeover defense expenses 1,472 - 18,223 - Operating income 17,232 6,607 20,255 20,555 Interest expense, net 4,319 3,722 19,018 14,358 Other expense 1,004 1,007 4,457 4,289 Income (loss) before income tax provision (benefit) 11,909 1,878 (3,220) 1,908 Income tax provision (benefit) 5,795 2,356 3,372 (2,048) Income (loss) from continuing operations 6,114 (478) (6,592) 3,956 Income from discontinued operations, net of taxes - 8,084 8,435 28,732 Net income 6,114 7,606 1,843 32,688 Preferred stock dividends - 692 - 2,701 Net income available to common shareholders $6,114 $6,914 $1,843 $29,987 Per common share data Basic Income (loss) from continuing operations $0.14 $(0.03) $(0.15) $0.03 Income from discontinued operations $- $0.20 $0.19 $0.71 Net income available to common shareholders $0.14 $0.17 $0.04 $0.74 Weighted average shares outstanding 43,751 39,768 42,863 40,756 Diluted Income (loss) from continuing operations $0.14 $(0.03) $(0.15) $0.03 Income from discontinued operations $- $0.20 $0.19 $0.71 Net income available to common shareholders $0.14 $0.17 $0.04 $0.74 Weighted average shares outstanding 44,447 39,768 42,863 40,757 NEIGHBORCARE, INC. SEGMENT INFORMATION (Unaudited) (in thousands) Institutional Corporate Pharmacy and Other Consolidated Three months ended September 30, 2004 Net revenues $325,919 $51,530 $377,449 Gross profit $63,550 $14,999 $78,549 Operating income (loss) $31,163 $(13,931) $17,232 Three months ended September 30, 2003 Net revenues $270,392 $52,542 $322,934 Gross profit $55,736 $16,037 $71,773 Operating income (loss) $25,879 $(19,272) $6,607 Fiscal year ended September 30, 2004 Net revenues $1,228,759 $214,824 $1,443,583 Gross profit $240,334 $66,031 $306,365 Operating income (loss) $117,321 $(97,066) $20,255 Fiscal year ended September 30, 2003 Net revenues $1,030,412 $213,445 $1,243,857 Gross profit $212,650 $69,229 $281,879 Operating income (loss) $92,325 $(71,770) $20,555 Total assets as of September 30, 2004 $217,969 $631,439 $849,408 September 30, 2003 $192,543 $1,746,186 $1,938,729 Note: Reference Table 1 of the Financial Highlights section for intersegment adjustments 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 (in thousands, except per share amounts) Three Months Ended Fiscal Year Ended 30-Sep-04 30-Sep-03 30-Jun-04 30-Sep-04 30-Sep-03 Net revenues - as reported $377,449 $322,934 $371,094 $1,443,583 $1,243,857 Add back: Intersegment revenues with Genesis HealthCare - 19,245 - 13,013 78,019 Net revenues - as adjusted $377,449 $342,179 $371,094 $1,456,596 $1,321,876 Cost of revenues - as reported $298,900 $251,161 $294,061 $1,137,218 $961,978 Add back: Intersegment cost of revenues for Genesis HealthCare - $15,273 - $10,332 $61,918 Cost of revenues - as adjusted $298,900 $266,434 $294,061 $1,147,550 $1,023,896 Gross Profit - as adjusted $78,549 $75,745 $77,033 $309,046 $297,980 Gross Margin - as adjusted 20.8% 22.1% 20.8% 21.2% 22.5% Table 2 - Reconciliation of income from continuing operations, as reported, to EBITDA and Adjusted EBITDA (in thousands) Three Months Ended Fiscal Year Ended 30-Sep-04 30-Sep-03 30-Jun-04 30-Sep-04 30-Sep-03 Income (loss) from continuing operations - as reported $6,114 $(478) $(6,773) $(6,592) $3,956 Add back: Other expense 1,004 1,007 1,137 4,457 4,289 Income tax expense 5,795 2,356 4,720 3,372 (2,048) Interest expense, net 4,319 3,722 4,492 19,018 14,358 Depreciation and amortization 7,423 8,582 7,107 26,686 31,631 EBITDA $24,655 $15,189 $10,683 $46,941 $52,186 Add back: Strategic planning, severance and other operating items 2,104 7,539 792 45,598 17,142 Takeover defense expenses 1,472 - 16,751 18,223 - Adjusted EBITDA $28,231 $22,728 $28,226 $110,762 $69,328 Table 3 - Reconciliation of income from continuing operations, as reported, to income from continuing operations, as adjusted (in thousands, except per share amounts) Three Months Ended Fiscal Year Ended 30-Sep-04 30-Sep-03 30-Jun-04 30-Sep-04 30-Sep-03 Income (loss) from continuing operations - as reported $6,114 $(478) $(6,773) $(6,592) $3,956 Add back (deduct): Intersegment revenues with Genesis HealthCare - 19,245 - 13,013 78,019 Intersegment cost of revenues for Genesis HealthCare - (15,273) - (10,332) (61,918) Strategic planning, severance and other operating items 2,104 7,539 792 45,598 17,142 Takeover defense expenses 1,472 - 16,751 18,223 - Tax impact of items added back above and adjustment to 40% effective tax rate on income from continuing operations (399) (3,000) (1,476) (21,941) (16,108) Income from continuing operations - as adjusted $9,291 $8,033 $9,294 $37,969 $21,091 Income from continuing operations - as adjusted per share - basic $0.21 $0.20 $0.21 $0.89 $0.52 Weighted average shares - basic 43,751 39,768 43,682 42,863 40,756 Income from continuing operations - as adjusted per share - diluted $0.21 $0.20 $0.21 $0.86 $0.52 Weighted average shares - diluted 44,447 39,768 44,120 44,076 40,757 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 30, September 30, 2004 2003 ASSETS Current assets Cash and cash equivalents $81,923 $132,726 Restricted investments in marketable securities - 29,320 Accounts receivable, net 230,903 366,886 Inventory 64,111 66,747 Prepaid expenses and other current assets 40,046 89,918 Total current assets 416,983 685,597 Property, plant and equipment, net 84,215 751,996 Restricted investments in marketable securities - 61,271 Other long-term assets 19,353 81,304 Identifiable intangible assets, net 12,737 20,866 Goodwill 316,120 337,695 Total assets $849,408 $1,938,729 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current portion of long-term debt $4,263 $20,135 Accounts payable and accrued expenses 116,965 214,689 Income taxes payable 4,747 4,116 Total current liabilities 125,975 238,940 Long-term debt 258,008 591,484 Other long-term liabilities 70,765 134,952 Total liabilities 454,748 965,376 Minority interest 7,880 10,359 Redeemable preferred stock - 46,831 Total shareholders' equity 386,780 916,163 Total liabilities and shareholders' equity $849,408 $1,938,729 NEIGHBORCARE, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited, in thousands) Fiscal Year Three Months Ended Ended September 30, 30-Sep-04 2004 2003 Cash flows from operating activities Net income (loss) available to common shareholders $6,114 $1,843 $29,987 Net charges included in operations not requiring funds 10,525 66,396 143,322 Changes in operating assets and liabilities Change in accounts receivable, net (5,423) (49,406) (37,451) Change in accounts payable and accrued expenses 10,879 48,581 (17,899) Other, net 1,530 4,338 (7,398) Net cash provided by operating activities 23,625 71,752 110,561 Cash flows from investing activities Capital expenditures (9,495) (29,634) (59,758) Acquisitions - (31,992) - Eldercare acquisitions - (36,351) (11,248) Proceeds from sale of Eldercare assets - 7,129 55,123 Other, net - 2,193 3,595 Net cash (used in) provided by investing activities (9,495) (88,655) (12,288) Cash flows from financing activities Distributions of cash to GHC - (63,141) - Funds received from GHC for debt financing - 135,885 - Repayment of long-term debt (783) (560,743) (77,369) Proceeds from issuance of long-term debt, net of debt issuance costs - 458,284 - Repurchase of common stock - - (36,208) Other (1,568) (4,185) - Net cash used in financing activities (2,351) (33,900) (113,577) Net increase (decrease) in cash and cash equivalents 11,779 (50,803) (15,304) Cash and cash equivalents at beginning of period 70,144 132,726 148,030 Cash and cash equivalents at end of period $81,923 $81,923 $132,726 NEIGHBORCARE, INC. EARNINGS OUTLOOK FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2005 (Unaudited, in thousands except per share amounts) Reconciliation of net income FY2005E (excluding one time charges or special items) to EBITDA Low End of High End of Range Range Net income (excluding one time charges or special items) $60,220 $71,000 Add back (deduct): Income taxes 36,200 $44,520 Depreciation and amortization 33,500 34,500 Interest expense 15,000 12,000 Equity in earnings of equity method investments (520) (520) Minority interest 5,450 3,500 EBITDA $149,850 $165,000 DATASOURCE: NeighborCare, Inc. CONTACT: Investors: Tania Almond, Investor Relations of NeighborCare, +1-410-528-7555; or Media: Dan Gagnier or Alex Eule of Citigate Sard Verbinnen, +1-212-687-8080, for NeighborCare Web site: http://www.neighborcare.com/

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