Nov 4 2010
SXC Health Solutions Corp. ("SXC" or the "Company") (NASDAQ: SXCI, TSX: SXC), announces its financial results for the three-month and nine-month periods ended September 30, 2010. Financial references are in U.S. dollars unless otherwise indicated.
Q3 2010 Highlights
- Revenue grew $106.4 million, or 28% on a year over year basis to $489.9 million, compared to $383.5 million in Q3 2009
- Gross profit grew $5.2 million, or 11% on a year over year basis to $52.9 million, compared to $47.7 million in Q3 2009
- Adjusted EBITDA¹ was $30.4 million, representing 58% of gross profit in the quarter compared to $24.3 million in Q3 2009, which represented 51% of gross profit
- Net income increased $5.0 million, or 44% on a year over year basis to $16.2 million, compared to $11.2 million, in Q3 2009
- Non-GAAP adjusted earnings per share¹ (diluted) was $0.27, which excludes certain transaction-related amortization, compared to $0.23 in Q3 2009
- Cash from operations increased $8.2 million in the quarter to $26.1 million, compared to $17.9 million in Q3 2009
- Adjusted prescription claim volume¹ for the PBM segment was 11.9 million, compared to 9.9 million in Q3 2009
- Transaction processing volume for the HCIT segment was 100.7 million, compared to 92.0 million in Q3 2009
- Mail order penetration was 12%, compared to 9.5% in Q3 2009
- Awarded a $720 million three-year PBM contract from a large U.S. east coast health plan with an April 2011 launch.
- Successfully converted another HCIT client to PBM services in the quarter
- Executed a two-for-one stock split
- Ranked 6th in Fortune magazine's Top 100 Fastest-Growing Companies
- Won the URAC Best Practices Award in Health Care Consumer Empowerment and Protection Awards competition for a collaboration between informedRx® and EMPLOYERS Occupational Health, a specialty provider of workers' compensation insurance
"We are just now completing the most successful selling season in our history, which began with the HealthSpring announcement earlier this year, and culminated with the three-year $720 million PBM contract for a large U.S. east coast health plan that we announced last month," said Mark Thierer, President and CEO of SXC. "We expect to go live with approximately 1.1 million new lives in 2011 under our PBM service offering. These wins clearly demonstrate the attractive nature of our customized and flexible pharmacy management solutions across each of our target markets."
Financial Review
SXC evaluates segment performance based on revenue and gross profit. A reconciliation of the Company's PBM and HCIT business segments to the consolidated financial statements for the three-month and nine-month periods ended September 30, 2010 and 2009 is as follows:
Three months ended September 30, (unaudited, in thousands)
Nine months ended September 30, (unaudited, in thousands)
Revenue
Q3 2010 PBM revenue was $463.0 million, compared to $357.5 million for Q3 2009. 2010 PBM revenue for the year-to-date (YTD) period was $1,341.8 million, compared to $919.2 million in the prior period. The increase in revenue is primarily due to new customer starts as of January 1, 2010 in addition to an increase in PBM services sold to several HCIT customers during 2010 and the end of 2009. Due to the additional type of services provided, these customers moved from the HCIT segment to the PBM segment.
Q3 2010 HCIT revenue was $26.9 million, compared to $26.1 million for Q3 2009. Q3 revenues included non-recurring revenues of $1.5 million principally due to the completion of a license project that was accepted by the client during the current period. 2010 HCIT revenue was $79.7 million for the YTD period, compared to $76.2 million in the prior period.
Gross Profit
Gross profit for Q3 2010 increased $5.2 million to $52.9 million, compared to $47.7 million in Q3 2009. 2010 gross profit increased $22.8 million for the YTD period to $156.8 million, compared to $134.1 million in the prior period. The year-over-year increase in gross profit during the Q3 and YTD periods, was primarily due to increased margins earned from incremental PBM revenues, a $3.0 million performance award in the HCIT segment earned in Q2 2010 and $1.5 million license project completed in Q3 2010. Gross margin as a percentage of revenue was 10.8% for Q3 2010, compared to 12.4% in the prior period. The lower percentage is due to an increase in PBM revenues which carry a lower margin percentage as compared to HCIT revenues.
Product Development Costs
Product development costs for Q3 2010 were $3.1 million, compared to $2.8 million for Q3 2009. Product development costs for the YTD period were $9.2 million, compared to $9.0 million in the prior period. Product development remains a key priority for SXC as the Company seeks to develop enhancements to existing products and launch new offerings.
Selling, General and Administration ("SG&A") Costs
SG&A costs for Q3 2010 were $21.6 million, compared to $22.2 million in Q3 2009. SG&A costs for the YTD period were $64.4 million, compared to $64.9 million in the prior period. The Company is focused on controlling costs and it was able to decrease SG&A costs on a year-over-year basis.
Adjusted EBITDA¹
Q3 2010 adjusted EBITDA increased $6.1 million to $30.4 million, compared to $24.3 million in Q3 2009. In the quarter, adjusted EBITDA included the non-recurring $1.5 million in the HCIT segment. Adjusted EBITDA for the YTD period was $89.6 million, compared to $64.3 million in the prior period. The year-over-year growth in adjusted EBITDA was due primarily to new contract wins, HCIT to PBM customer conversions, as well as improved purchasing efficiencies on prescription drugs.
Income Taxes
The Company recognized income tax expense of $8.4 million in Q3 2010, representing an effective tax rate of 34.3%, compared to an income tax expense of $6.8 million in Q3 2009, representing an effective tax rate of 37.8%. Income tax expense for the YTD period was $23.9 million, representing an effective tax rate of 33.2%, compared to an income tax expense of $14.9 million in the prior period, resulting in an effective tax rate of 32.5%. The change in the effective tax rate between Q3 2010 and the same period in 2009 is primarily due to the Company outperforming its initial 2009 income estimates, which resulted in the Company increasing its rate during Q3 2009 to arrive at the updated expected full year 2009 effective tax rate.
Net Income
Net income increased $5.0 million to $16.2 million in Q3 2010, or $0.26 per share (fully-diluted), compared to $11.2 million, or $0.21 per share (fully-diluted) in Q3 2009. Net income for the YTD period was $48.1 million, or $0.77 per share (fully-diluted), compared to net income in the prior period of $30.9 million, or $0.61 per share (fully-diluted). Included in net income for YTD periods of 2010 and 2009 were intangible asset amortization of $5.9 million and $7.5 million, respectively.
Cash from Operations
SXC continues to generate strong cash from operations. For Q3 2010, the Company generated an increase of $8.2 million to $26.1 million of cash from operations, compared to $17.9 million during Q3 2009. For the YTD period, SXC generated cash from operations of $62.9 million, compared to $49.6 million in the prior period.
At September 30, 2010 and December 31, 2009, SXC had cash and cash equivalents totalling $379.1 million and $304.4 million, respectively.
2010 Full Year Financial Guidance
With today's announcement, SXC is raising certain components of its 2010 full year financial targets:
- Revenue of $1.9 to $2.0 billion, remains unchanged
- Gross profit of $207 to $210 million versus prior estimate of $202 to $210 million
- Adjusted EBITDA of $117 to $119 million versus prior estimate of $115 to $117 million
- Fully-diluted GAAP EPS (including all transaction-related amortization) of $1.00 to $1.02, versus prior estimate of $0.98 to $1.00
- Fully-diluted Non-GAAP adjusted EPS¹ (excluding certain transaction-related amortization) of $1.06 to $1.08, versus prior estimate of $1.04 to $1.06
Source:
SXC HEALTH SOLUTIONS CORP.