Express
Scripts Q2
| Express
Scripts Q2
|
| (FOOL
CONFERENCE
CALL
SYNOPSIS)* By Debora Tidwell (MF Debit) Express Scripts UNION CITY, Ca., July 27, 1996/FOOLWIRE/ --- Express Scripts reported their Q2 1996 earnings on Thursday, July 25th after the market close. Revenue was up 36.5% to $184 million, up from $135 million in Q2 1995. Net income was up 41.5% to $6.4 million, up from $4.5 million last year. Earnings per share were up 30% over Q2 last year and came in at $0.39 per share which was in line with analyst estimates.
Year-to-date, the company's revenue stands at $353 million, up $100 million over the first half of last year. Net income also has done well, they are at $12 million year-to-date, up from $8 million at this point last year.
All the business units are making strides. The pharmacy benefit business is doing well. They have added new members during the quarter. They have additional plans coming on in August and September. In the PPS area, they have assigned a study to do an evaluation, a profiling service for a major Blue Cross plan. They will speak more about the UHN alliance on the vision side. They are also expecting continued growth in home infusion which has exceeded its revenue and net income goals year-to-date and is doing very well.
They continued to experience margin pressure on pricing but have been able to benefit from economies of scale and also from reductions as a percentage of revenue in SG&A.
(Note: going forward, the call was very difficult to understand because of the sound quality.)
The equity section of the balance sheet has doubled since the end of last year and increased by approximately $90 million since June of 1995. The key reasons are the stock offering completed in April. The second item of note is the short term investments is $53.4 million which represents the offering proceeds and the interest received and reinvested on those proceeds to date. The accounts receivable balance is up, which reflects the increased business. Even though the dollar amount has increased more than $25 million since the beginning of the year, the days outstanding on receivables has improved 4 days at this point over last year.
SG&A expenses increased because they are trying to finance new skill development. The percentage increase has slowed, but they are spending to reinvest in new development. For example, the amount of effort they put into developing the vision program has required them to build an indemnity managed care medical claims payment operation to support the vision program expansion. And then they have been adding sites in home infusion too and those sites take between 9 and 15 months to get to break-even. In every area, whether it is in the science department, the MIS area, program development, or marketing, they have been investing so they can continue to grow.
The cost of sales this year has shown pretty reasonable consistency, but has trended a little bit up. Partly that reflects the fact that the claims business is growing slightly faster than the mail order business where the margins are a little bit lower. They have seen pricing compression both in the mail and the claims areas so that is going to show up as the cost of sales trending upwards.
They have been able to leverage purchasing power to contribute to the discounts they get for moving the market share in their formulated programs. Those numbers have come in as they anticipated and they think it has put them in a good competitive situation. They don't feel that their discounts are necessarily the strongest in the industry but do think they are quite competitive with what's available through other people. When you look at cost of sales, you've got the mix between the businesses, the pricing factors, and obviously the discounts and then it's just a question of what they can make up in terms of economies to offset any net reduction there.
As they have renewed their business for next year, they have definitely seen a greater willingness on the part of their HMO clients and some of their managed indemnity clients to take steps to restrict the number of drugs available on the formula and that is going to have a two-fold benefit. One, it will allow them to provide a higher value-added service to their clients, and will also help them with market share and improve discounting. Those are industry trends they think they will see pick up as time goes by.
The managed care organizations are using more drugs than the indemnity programs. The reason for that is that the primary care physicians who are the gatekeepers in the HMO world do tend to rely on drug therapy. Since they are more likely the first line of care, Express Scripts is seeing more use of prescription drugs. And, indeed, in some therapy areas like depression they are seeing mono-therapy using only drugs now, much more so than in the past. This is not only happening in a single therapy category, although cardiology and depression drugs are clearly leaders. HMO clients are having difficult times getting price increases and in some markets are under pressure to reduce premiums and this is requiring them to rethink their pharmacy program.
The managed care plan, Premier, now covers 450,000 lives as of July 1st and have another 300,000 that they are implementing at the time for this quarter to take them to about 750,000 by the end of the quarter. This is on schedule.
They had an announcement on the Vision Program this last quarter. The company announced an alliance with Eye Health Network (owned by Omega Health Systems) to jointly market an opthomology and optometry program to managed care companies. They plan to restructure the vision program into a separate subsidiary and expect to do that this quarter.
Express Scripts projections of where they thought they would be were on target. All the business units were contributing and they have several projects they are working on in the pipeline. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. | |
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