SXC second quarter revenue increases 153% to $1.2 billion

SXC Health Solutions Corp. ("SXC" or the "Company") (NASDAQ: SXCI, TSX: SXC), a leading provider of technology and pharmacy benefit management ("PBM") services, announces its financial results for the three-month and six-month periods ended June 30, 2011.

Q2 2011 Highlights

• Revenue grew 153% on a year over year basis to $1.2 billion, compared to $479.4 million in Q2 2010
• Gross profit was $74.2 million, compared to $53.7 million in Q2 2010
• Adjusted EBITDA¹ increased 32% to $41.4 million, compared to $31.5 million in Q2 2010
• GAAP net income increased to $21.6 million, or $0.34 per share (fully-diluted), compared to $17.1 million, or $0.27 per share (fully-diluted), in Q2 2010
• Non-GAAP adjusted earnings per share¹ (fully-diluted), which excludes amortization of intangible assets, increased 31% to $0.38, compared to $0.29 in Q2 2010
• Adjusted prescription claim volume¹ for the PBM segment was 22.8 million, compared to 11.8 million in Q2 2010
• Transaction processing volume for the Health Care Information Technology ("HCIT") segment was 98.1 million, compared to 99.6 million in Q2 2010
• Generic dispense rate increased to 78% compared to 74% in Q2 2010
• Successfully converted an HCIT client to PBM services in the quarter
• Announced a three-year HCIT service contract with HealthPlus of Michigan serving 215,000 members
• Announced expanded relationship with HealthSpring Inc., to add approximately $1 billion in annual drug spend from its Bravo Health acquisition effective January 1, 2012
• Announced a five-year sub-contract from HP Enterprise Services to provide PBM services to the State of Nevada's 180,000 Medicaid members
• Announced a three-year HCIT service contract with Health Alliance Plan of Michigan, serving 500,000 members
• Completed the acquisition of MedMetrics Health Partners, Inc. ("MedMetrics"), a full-service PBM and previously a client of SXC
• Subsequent to quarter end announced the acquisition of PTRX, Inc. and SaveDirectRx, Inc., both previously a client of SXC

"We continued to show strong revenue, adjusted EBITDA and gross profit growth during Q2 with the ramp up of the Optima account and the HealthSpring contract in full swing," said Mark Thierer, Chairman, CEO and President of SXC.  "As we increase our scale and enhance our services through organic and acquisitive growth, our opportunity to compete for new business is only getting better. We are right in the middle of the selling season and we have already exceeded our plan for new wins this year. We are also continually identifying opportunities to expand our flexible and customized programs with existing clients through our mail and specialty pull-through strategies and our industry leading generic utilization."

Financial Review

Revenue and gross profit segmented by PBM and HCIT:

SXC evaluates segment performance based on revenue and gross profit. Reconciliations of the Company's business segments to the consolidated financial statements for the three and six months ended June 30, 2011 and 2010 are as follows:

Revenue

Q2 2011 PBM revenue was $1.2 billion, compared to $451.3 million for Q2 2010. PBM revenue for the year to date (YTD) period was $2.3 billion, compared to $878.8 million in the prior year period. The increase in revenue on a year over year basis is primarily due to new customer starts, including HealthSpring on January 1, 2011 and Optima on April 1, 2011, as well as revenues generated from the acquisition of MedfusionRx.

Q2 2011 HCIT revenue was $29.2 million, compared to $28.2 million for Q2 2010.  For the YTD period, HCIT revenue was $54.9 million, compared to $52.8 million in the prior year period. In Q2 2011, the Company experienced an increase in revenue earned from professional services and the sale of a new software license to an existing customer.

Gross Profit

Consolidated gross profit for Q2 2011 was $74.2 million, an increase of $20.5 million compared to $53.7 million in Q2 2010. For the YTD period, consolidated gross profit was $137.8 million, an increase of $33.8 million compared to $104.0 million in the prior year period. The increase in consolidated gross profit was due primarily to incremental PBM revenues generated from new customers and MedfusionRx activity, as compared to the same period in 2010. Gross margin as a percentage of revenue was 6.1% for Q2 2011, compared to 11.2% in Q2 2010, due to new business wins carrying a lower gross profit percentage than the historical rates for the PBM segment.

Product Development Costs 

Product development costs increased to $3.7 million in Q2 2011, compared to $3.0 million in Q2 2010.  Product development costs for the YTD period were $7.0 million, compared to $6.1 million in the prior period. Product development continues to be a key focus of the Company as it pursues the enhancement of existing products, as well as the development of new offerings, to support its market expansion.

Selling, General and Administration ("SG&A") Costs

SG&A costs for Q2 2011 were $32.2 million, compared to $21.5 million in Q2 2010. SG&A costs for the YTD period were $59.7 million, compared to $42.8 million in the prior year period. The change in SG&A costs was due to additional resources to support the Company's organic growth, increased stock-based compensation and additional operating and transaction costs related to MedfusionRx and MedMetrics.

Adjusted EBITDA

Q2 2011 adjusted EBITDA increased 32% to $41.4 million, compared to $31.5 million in Q2 2010. Adjusted EBITDA for the YTD period was $76.6 million, compared to $59.2 million in the prior year period. The growth in adjusted EBITDA was due primarily to new contract wins, the addition of MedfusionRx and MedMetrics, HCIT-to-PBM customer conversions, and improved purchasing efficiencies on prescription drugs.

Net Income

The Company reported Q2 2011 net income of $21.6 million, or $0.34 per share (fully-diluted), compared to $17.1 million, or $0.27 per share (fully-diluted), in Q2 2010. Net income for the YTD period was $39.8 million, or $0.63 per share (fully-diluted), compared to net income in the prior year period of $31.9 million, or $0.51 per share (fully-diluted).

Cash from Operations

In Q2 2011, the Company used $1.4 million of cash from operations, compared to $39.5 million generated in cash from operations during Q2 2010. For the YTD period, SXC used cash from operations of $0.6 million, compared to generating $36.8 million in the prior period. The Company's cash flows were impacted by the timing of pharmacy benefit claim payments and rebate payments received. Over the course of the year these timing issues are expected to normalize and SXC expects to continue to generate strong cash flow growth on a year-over-year basis.        

At June 30, 2011 and December 31, 2010, SXC had cash and cash equivalents totalling $319.7 million and $321.3 million, respectively.  Subsequent to the quarter the Company announced an acquisition that will utilize $77 million when the transaction closes, which is expected in Q4 2011. The Company believes that its cash on hand, together with cash generated from operating activities will be sufficient to support planned operations for the foreseeable future.

2011 Full Year Financial Guidance

With today's announcement, SXC is revising upward certain of its 2011 full year financial targets. The revised targets do not take into account the recently announced acquisition of PTRX and SaveDirectRx, as it has not yet closed:

• Revenue of $4.6 to $4.7 billion, versus prior estimate of $4.3 to $4.5 billion
• Adjusted EBITDA of $168 to $172 million, versus prior estimate of $165 to $171 million
• GAAP EPS (fully-diluted) of $1.43 to $1.47, versus prior estimate of $1.40 to $1.47
• Adjusted EPS (fully-diluted) of $1.58 to $1.62 versus prior estimate of $1.55 to $1.62 (excluding amortization of intangible assets).

SOURCE SXC Health Solutions Corp.