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SXC Health solutions announces record third quarter financial results
Date:11/5/2009

    - Following strong quarterly results, SXC increases guidance for fiscal
    2009 -

LISLE, IL, Nov. 5 /PRNewswire-FirstCall/ - SXC Health Solutions Corp. ("SXC" or the "Company") (NASDAQ: SXCI, TSX: SXC), announces its financial results for the three- and nine-month periods ended September 30, 2009. Financial references are in U.S. dollars unless otherwise indicated.

    Q3 2009 Highlights
    ------------------

    -   Revenue was $383.5 million compared to $318.1 million in Q3 fiscal
        2008
    -   Gross profit was $47.7 million compared to $34.9 million in Q3 fiscal
        2008
    -   Adjusted EBITDA(1) was $24.3 million compared to $11.9 million in Q3
        fiscal 2008
    -   GAAP net income increased to $11.2 million, or $0.43 per share
        (fully-diluted), compared to $3.5 million, or $0.15 per share (fully-
        diluted), in Q3 fiscal 2008
    -   Non-GAAP adjusted earnings per share(1) (diluted), which excludes the
        NMHC transaction-related amortization, was $0.47 compared to $0.24 in
        Q3 fiscal 2008
    -   Cash from operations was $17.9 million compared to $3.3 million in Q3
        fiscal 2008
    -   Adjusted prescription claim volume(1) for the PBM segment was 9.9
        million compared to 8.9 million in Q3 fiscal 2008
    -   Gross margin per adjusted prescription for the PBM segment was $3.67
        compared to $2.77 in Q3 fiscal 2008
    -   Mail order penetration increased to 9.5% compared to 8% in Q3 fiscal
        2008
    -   Transaction processing volume for the HCIT segment was 92.0 million
        in Q3 fiscal 2009 compared to 103.3 million in Q3 fiscal 2008
    -   Awarded a contract with the Ohio Bureau of Workers' Compensation, the
        largest workers compensation organization in the U.S.
    -   Awarded a PBM services contract with Presbyterian Health Plan valued
        at $150 million annually
    -   Renewed a multi-year PBM contract with the Employer-Union Health
        Benefits Trust Fund of Hawaii
    -   Entered into a strategic relationship with Allscripts Misys to
        enhance the e-prescribing options available to SXC's clients
    -   Completed a public offering of 5,175,000 common shares at a price of
        $41.50 per share for net proceeds of approximately $204.1 million
    -   Subsequent to quarter-end, announced a PBM contract with Spectral
        Solutions valued at $50 million annually

"Solid execution on our growth strategies combined with sound fundamentals in our markets led to another strong quarter and an increase to our key guidance targets," said Mark Thierer, President and CEO of SXC. "In addition to new customer wins, we are driving both top-line and bottom-line growth by increasing the mail-order penetration in our customer base and converting a number of Health Care IT clients to a broader platform of our PBM services. With future growth in mind, we completed a successful $204 million financing in the quarter that was oversubscribed by investors. The proceeds provide us with the resources to explore acquisition opportunities and to pursue the growing sales pipeline with prospective and existing clients."

    Financial Review
    ----------------

Revenue and gross profit segmented by PBM and HCIT was as follows:

SXC evaluates segment performance based on revenue and gross profit. A reconciliation of the Company's business segments to the consolidated financial statements for the three- and nine-month periods ended September 30, 2009 and 2008 is as follows:

    Three months ended September 30, (unaudited, in thousands)

                      PBM                  HCIT              Consolidated
            --------------------- --------------------- ---------------------
              Q3 2009    Q3 2008    Q3 2009    Q3 2008    Q3 2009    Q3 2008
            ---------- ---------- ---------- ---------- ---------- ----------
    Revenue $ 357,473  $ 297,178  $  26,056  $  20,923  $ 383,529  $ 318,101
    Gross
     profit $  36,239  $  24,524  $  11,441  $  10,362  $  47,680  $  34,886
    Gross
     profit %   10.1%       8.3%      43.9%      49.5%      12.4%      11.0%



    Nine months ended September 30, (unaudited, in thousands)(2)

                      PBM                  HCIT              Consolidated
            --------------------- --------------------- ---------------------
               YTD 09     YTD 08     YTD 09     YTD 08     YTD 09     YTD 08
            ---------- ---------- ---------- ---------- ---------- ----------
    Revenue $ 919,158  $ 502,038  $  76,160  $  68,135  $ 995,318  $ 570,173
    Gross
     profit $  99,550  $  41,338  $  34,526  $  36,668  $ 134,076  $  78,206
    Gross
     profit %   10.8%       8.2%      45.3%      53.8%      13.5%      13.7%

PBM revenue was $357.5 million for Q3 2009, compared to $297.2 million for Q3 2008. PBM revenue for the year-to-date ("YTD") period was $919.2 million, compared to $502.0 million in the prior year.

Q3 2009 HCIT revenue was $26.1 million, which included approximately $1.5 million of performance awards for achieving certain predetermined savings commitments and service level guarantees, compared to $20.9 million in the same period in 2008. Recurring revenue consisted of transaction processing revenue of $16.5 million, compared to $11.6 million in Q3 2008 and maintenance revenue of $4.7 million, compared to $4.0 million in Q3 2008. Recurring revenue accounted for 81% of HCIT revenue in Q3 2009, compared to 75% in Q3 2008. Q3 2009 non-recurring revenue consisted of professional service revenue of $3.2 million, compared to $3.8 million in Q3 2008, and system sales revenue of $1.7 million, compared to $1.5 million in Q3 2008.

For the YTD period, HCIT revenue increased to $76.2 million, compared to $68.1 million in the prior year period. Transaction processing revenue for the YTD period was $45.9 million, compared to $38.2 million in the prior year period. Maintenance revenue for the YTD period was $13.7 million, compared to $12.3 million in the prior year period. Recurring revenue in the YTD period accounted for 78% of HCIT revenue compared to 74% in the prior year period. Professional services revenue for the YTD period was $10.6 million, compared to $10.7 million in the prior year period. System sales revenue for the YTD period was $6.0 million, compared to $6.9 million in the prior year period.

Product Development Costs

Product development costs for Q3 2009 were $2.8 million, compared to $2.5 million in Q3 2008. Product development costs for the YTD period were $9.0 million, compared to $7.4 million in the prior year period. Product development remains a key priority for SXC as the Company seeks to develop enhancements to existing products and the launch of new offerings.

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

SG&A costs for Q3 2009 were $22.2 million, compared to $21.9 million in Q3 2008. SG&A for the YTD period was $64.9 million, compared to $47.3 million in the prior year period. On a quarter-over-quarter basis, the Company has added a significant level of new business while keeping SG&A costs relatively flat. The change in the YTD period is largely attributable to increased operating expenses due to the acquisition of NMHC.

Adjusted EBITDA(1)

Q3 2009 adjusted EBITDA was $24.3 million, compared to $11.9 million in Q3 2008. Adjusted EBITDA for the YTD period was $64.3 million, compared to $27.8 million in the prior year period. The year-over-year growth in adjusted EBITDA was due primarily to the addition of the NMHC business, cost and revenue synergies generated from the acquisition, new contract wins and improved purchasing efficiencies on prescription drugs.

Income Taxes

The Company recognized income tax expense of $6.8 million in Q3 2009, compared to an income tax expense of $1.3 million in Q3 2008. Income tax expense for the YTD period was $14.9 million, representing an effective tax rate of 32.5%, compared to an income tax expense of $3.5 million in the prior year period, representing an effective tax rate of 25.3%. The effective income tax rate increased year-over-year primarily due to greater pre-tax income that has resulted from the growth in the business.

Net Income

The Company reported Q3 2009 net income of $11.2 million, or $0.43 per share (fully-diluted), which included $1.7 million of intangible amortization related to the purchase of NMHC, compared to $3.5 million, or $0.15 per share (fully-diluted), which included $3.1 million of NMHC intangible amortization, in Q3 2008. Net income for the YTD period was $30.9 million, or $1.22 per share (fully-diluted), which also included $5.9 million of NMHC intangible amortization, compared to net income in the prior year period of $10.2 million, or $0.44 per share (fully-diluted), which included $5.1 million of NMHC intangible amortization.

Cash from Operations

SXC continues to generate strong cash from operations. For Q3 2009, the Company generated $17.9 million of cash through its operations, compared to $3.3 million during Q3 2008. The Company's quarterly cash flows can be impacted by the timing of pharmacy deposits and rebate payments it receives for certain customers. For the YTD period, SXC generated cash from operations of $49.6 million, compared to $20.6 million in the prior year period.

At September 30, 2009 and December 31, 2008, SXC had cash and cash equivalents totalling $319.5 million and $67.7 million, respectively. On September 23, 2009, SXC completed a public offering of 5,175,000 of its common shares, including 675,000 shares sold pursuant to the exercise of the underwriters' over-allotment option, for net proceeds to the Company of approximately $204.1 million.

2009 Financial Guidance

With today's announcement, SXC is revising certain of its 2009 financial targets for:

    -   Revenue of $1.375-$1.425 billion versus prior estimate of $1.35-$1.4
        billion
    -   Gross profit of $180-$182 million versus prior estimate of $166-$171
        million
    -   Fully-diluted GAAP EPS (including all transaction-related
        amortization) of $1.57-$1.62 versus prior estimate of $1.42-$1.50
    -   Adjusted EBITDA of $87-$89 million versus prior estimate of $78-$81
        million
    -   Fully-diluted Non-GAAP adjusted earnings per share(1) (excluding the
        NMHC transaction-related amortization) of $1.76-$1.81 versus prior
        estimate of $1.62-$1.70

Notice of Conference Call

SXC will host a conference call on Thursday, November 5, 2009 at 8:30 a.m. ET to discuss its financial results. Mark Thierer, President and CEO, and Jeff Park, EVP and CFO will co-chair the call. All interested parties can join the call by dialing 1-866-250-4877 or 416-644-3422. Please dial in 15 minutes prior to the call to secure a line. The conference call will be archived for replay until Thursday, November 12, 2009 at midnight. To access the archived conference call, please dial 1-877-289-8525 or 416-640-1917 and enter the reservation code 4169797 followed by the number sign.

A live audio webcast of the conference call will be available www.sxc.com and www.newswire.ca. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast. An archived replay of the webcast will be available for 365 days.

(1)Non-GAAP Financial Measures

SXC reports its financial results in accordance with generally accepted accounting principles in the United States ("GAAP"). SXC's management also evaluates and makes operating decisions using various other measures. Two such measures are adjusted earnings per share and adjusted EBITDA, which are non-GAAP financial measures. SXC's management believes that these measures provide useful supplemental information regarding the performance of SXC's business operations.

Adjusted earnings per share is a non-GAAP measure which takes earnings per share and adds back the impact of amortization expense related to the acquisition of NMHC, net of tax. Acquisition-related amortization expense is a non-cash expense arising from the acquisition of intangible assets in connection with the acquisition. SXC excludes acquisition-related amortization expense from non-GAAP adjusted earnings per share because it believes (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of SXC business operations and (ii) such expenses can vary significantly between periods as a result of new acquisitions and full amortization of previously acquired intangible assets. Investors should note that the use of these intangible assets contribute to revenue in the period presented as well as future periods and should also note that such expense will recur in future periods. The 2009 guidance of adjusted earnings per share was computed by taking the Company's GAAP earnings per share guidance and adding back the expected impact of acquisition-related amortization expense, net of tax.

Adjusted EBITDA is a non-GAAP measure that management believes is a useful supplemental measure of operating performance prior to net interest income (expense), income taxes, depreciation, amortization and stock-based compensation. Management believes it is useful to exclude depreciation, amortization and net interest income (expense) as these are essentially fixed amounts that cannot be influenced by management in the short term. In addition, management believes it is useful to exclude stock-based compensation as this is not a cash expense.

Adjusted prescription volume equals SXC's Mail Service prescriptions multiplied by three, plus its retail and specialty prescriptions. The Mail Service prescriptions are multiplied by three to adjust for the fact that they typically include approximately three times the amount of product days supplied compared with retail prescriptions.

Management believes that adjusted earnings per share, adjusted EBITDA and adjusted prescription volume provide useful supplemental information to management and investors regarding the performance of the Company's business operations and facilitate comparisons to its historical operating results. Management also uses this information internally for forecasting and budgeting as it believes that the measures are indicative of the Company's core operating results. Note however, that these items are performance measures only, and do not provide any measure of the Company's cash flow or liquidity. Non-GAAP financial measures should not be considered as a substitute for measures of financial performance in accordance with GAAP, and investors and potential investors are encouraged to review the reconciliation of adjusted earnings per share and adjusted EBITDA.

Adjusted earnings per share and adjusted EBITDA do not have standardized meanings prescribed by GAAP. The Company's method of calculating these items may differ from the methods used by other companies and, accordingly, it may not be comparable to similarly titled measures used by other companies. Reconciliation of adjusted EBITDA to net income and adjusted net income to net income is shown below:

                                             For the three      For the nine
                                              months ended      months ended
                                              September 30,     September 30,
                                             2009     2008     2009     2008
                                          -------- -------- -------- --------
                                                (unaudited) (in thousands)

    Adjusted EBITDA                       $24,310  $11,886  $64,298  $27,795

    Amortization of Intangible Assets      (2,238)  (3,449)  (7,478)  (6,277)

    Depreciation of Property & Equipment   (2,037)  (1,669)  (5,981)  (4,715)

    Stock-Based Compensation               (1,046)    (902)  (2,476)  (3,006)

    Other Income (Expense)                     20       50       62       15

    Interest Income (Expense), Net           (987)  (1,101)  (2,676)    (198)

    Income Tax (Expense)                   (6,813)  (1,276) (14,881)  (3,451)
                                          -------- -------- -------- --------

    Net Income                            $11,209   $3,539  $30,868  $10,163
                                          -------- -------- -------- --------
                                          -------- -------- -------- --------



    Non-GAAP Adjusted Earnings Per Share                    For the  For the
                                                           3 months 3 months
                                                              ended    ended
                                                            Sept 30, Sept 30,
                                                               2009     2008
                                                            -------- --------
    (unaudited)
    (in thousands, except per share data)

    Net Income                                              $11,209   $3,539

    Amortization of NMHC Intangibles (Net of Taxes)           1,027    2,244
                                                            -------- --------

    Adjusted Net-Income                                     $12,236    5,783
                                                            -------- --------
                                                            -------- --------

    Adjusted EPS (diluted)                                    $0.47    $0.24

(2)On April 30, 2008, SXC closed the acquisition of NMHC. As a result, SXC has introduced some new segmentation and presentation of its financial results. Revenue is now segmented into two groups: Pharmacy Benefits Management ("PBM") which includes informedRx as well as mail-order and specialty pharmacies, and Healthcare Information Technology ("HCIT"). SXC records PBM revenue from NMHC exclusively on a gross basis which equates to the prescription price paid by consumers plus an administrative fee. The HCIT business records revenue only on the basis of the administrative fee; drug ingredient cost is not included in revenues or cost of claims.

The net effect is that SXC's year-over-year revenues have increased dramatically while gross profit margin and adjusted EBITDA have increased in absolute dollar terms, but have declined as a percentage of total sales. These changes do not affect profitability on an absolute dollar or per share basis.

About SXC Health Solutions Corp.

SXC Health Solutions Corp. is a leading provider of pharmacy benefit management ("PBM") services and Healthcare Information Technology ("HCIT") solutions to the healthcare benefits management industry. As the industry's "Technology-Enabled PBM"(TM), SXC's product offerings and solutions combine a wide range of advanced PBM services, software applications, application service provider processing services, and professional services to help healthcare organizations reduce the cost of prescription drugs and deliver better healthcare to their members. SXC serves many of the largest organizations in the pharmaceutical supply chain, such as health plans; employers; Federal, provincial, and state governments; institutional pharmacies; pharmacy benefit managers; and retail pharmacy chains. SXC is headquartered in Lisle, Illinois with multiple locations in North America. Learn more at www.sxc.com.

Forward-Looking Statements

Certain statements included herein, including those that express management's expectations or estimates of our future performance, constitute "forward-looking statements" within the meaning of applicable securities laws. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management at this time, are inherently subject to significant business, economic and competitive uncertainties and contingencies. We caution that such forward-looking statements involve known and unknown risks, uncertainties and other risks that may cause our actual financial results, performance, or achievements to be materially different from our estimated future results, performance or achievements expressed or implied by those forward-looking statements. Numerous factors could cause actual results to differ materially from those in the forward-looking statements, including without limitation, our ability to achieve increased market acceptance for our product offerings and penetrate new markets; consolidation in the healthcare industry; the existence of undetected errors or similar problems in our software products; our ability to identify and complete acquisitions, manage our growth and integrate acquisitions; our ability to compete successfully; potential liability for the use of incorrect or incomplete data; the length of the sales cycle for our healthcare software solutions; interruption of our operations due to outside sources; our dependence on key customers; maintaining our intellectual property rights and litigation involving intellectual property rights; our ability to obtain, use or successfully integrate third-party licensed technology; compliance with existing laws, regulations and industry initiatives and future change in laws or regulations in the healthcare industry; breach of our security by third parties; our dependence on the expertise of our key personnel; our access to sufficient capital to fund our future requirements; and potential write-offs of goodwill or other intangible assets. This list is not exhaustive of the factors that may affect any of our forward-looking statements. Other factors that should be considered are discussed from time to time in SXC's filings with the U.S. Securities and Exchange Commission, including the risks and uncertainties discussed under that captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2008 Annual Report on Form 10-K and subsequent Form 10-Qs, which are available at www.sec.gov. Investors are cautioned not to put undue reliance on forward-looking statements. All subsequent written and oral forward-looking statements attributable to SXC or persons acting on our behalf are expressly qualified in their entirety by this notice. We disclaim any intent or obligation to update publicly these forward-looking statements, whether as a result of new information, future events or otherwise.

Certain of the assumptions made in preparing forward-looking information and management's expectations include: maintenance of our existing customers and contracts, our ability to market our products successfully to anticipated customers, the impact of increasing competition, the growth of prescription drug utilization rates at predicted levels, the retention of our key personnel, our customers continuing to process transactions at historical levels, that our systems will not be interrupted for any significant period of time, that our products will perform free of major errors, our ability to obtain financing on acceptable terms and that there will be no significant changes in the regulation of our business.

                         SXC HEALTH SOLUTIONS CORP.
                         Consolidated Balance Sheets
                      (in thousands, except share data)

                                                  September 30,  December 31,
                                                  ------------- -------------
                                                          2009          2008
                                                  ------------- -------------
                                                    (unaudited)
    ASSETS

    Current assets
      Cash and cash equivalents                    $   319,522   $    67,715
      Restricted cash                                   12,433        12,498
      Accounts receivable, net of allowance
       for doubtful accounts of
       $3,319 (2008 - $3,570)                           90,083        80,531
      Rebates receivable                                20,577        29,586
      Unbilled revenue                                       -            73
      Prepaid expenses and other assets                  4,718         4,382
      Inventory                                          7,023         6,689
      Income tax recoverable                                 -         1,459
      Deferred income taxes                              9,919        10,219
                                                  ------------- -------------
        Total current assets                           464,275       213,152

    Property and equipment, net of
     accumulated depreciation of
     $25,388 (2008 - $19,449)                           19,543        20,756
    Goodwill                                           141,785       143,751
    Other intangible assets, net of
     accumulated amortization of
     $21,585 (2008 - $14,099)                           39,820        46,406
    Deferred financing charges                           1,154         1,481
    Deferred income taxes                                1,846         1,323
    Other assets                                         1,293         1,474
                                                  ------------- -------------
    Total assets                                   $   669,716   $   428,343
                                                  ------------- -------------
                                                  ------------- -------------


    LIABILITIES AND SHAREHOLDERS' EQUITY

    Current liabilities
      Accounts payable                             $     5,920   $     8,302
      Customer deposits                                 12,553        11,875
      Salaries and wages payable                        13,184        15,681
      Accrued liabilities                               27,709        32,039
      Pharmacy benefit management rebates payable       43,830        36,326
      Pharmacy benefit claim payments payable           51,808        51,406
      Deferred revenue                                   8,430         7,978
      Current portion of long-term debt                  4,800         3,720
                                                  ------------- -------------
        Total current liabilities                      168,234       167,327

    Long-term debt, less current installments           40,320        43,920
    Deferred income taxes                               13,032        15,060
    Deferred lease inducements                           2,867         3,217
    Deferred rent                                        1,327         1,461
    Other liabilities                                    2,929         3,195
                                                  ------------- -------------
        Total liabilities                              228,709       234,180



    Shareholders' equity
      Common shares: no par value,
       unlimited shares authorized;
       29,979,169 shares issued and
       outstanding at September 30, 2009
       (2008 - 24,103,032 shares)                      360,131       146,988
      Additional paid-in capital                        14,661        11,854
      Retained earnings                                 66,619        35,751
      Accumulated other comprehensive loss                (404)         (430)
                                                  ------------- -------------
        Total shareholders' equity                     441,007       194,163

                                                  ------------- -------------
    Total liabilities and shareholders' equity     $   669,716   $   428,343
                                                  ------------- -------------
                                                  ------------- -------------



                         SXC HEALTH SOLUTIONS CORP.
                    Consolidated Statements of Operations
                    (in thousands, except per share data)

                           Three months ended           Nine months ended
                              September 30,               September 30,
                      --------------------------- ---------------------------
                           2009          2008          2009          2008
                      ------------- ------------- ------------- -------------
                               (unaudited)                 (unaudited)
    Revenue:
      PBM              $   357,473   $   297,178   $   919,158   $   502,038
      HCIT:
        Transaction
         processing         16,461        11,631        45,852        38,167
        Maintenance          4,733         3,998        13,684        12,338
        Professional
         services            3,187         3,836        10,630        10,693
        System sales         1,675         1,458         5,994         6,937
                      ------------- ------------- ------------- -------------
    Total revenue          383,529       318,101       995,318       570,173

    Cost of revenue:
      PBM                  321,234       272,654       819,608       460,700
      HCIT                  14,615        10,561        41,634        31,267
                      ------------- ------------- ------------- -------------
    Total cost
     of revenue            335,849       283,215       861,242       491,967
                      ------------- ------------- ------------- -------------
    Gross profit            47,680        34,886       134,076        78,206

    Expenses:
      Product
       development
       costs                 2,833         2,486         9,024         7,425
      Selling, general
       and adminis-
       trative              22,153        21,863        64,857        47,291
      Depreciation of
       property and
       equipment             1,467         1,222         4,354         3,416
      Amortization
       of intangible
       assets                2,238         3,449         7,478         6,277
                      ------------- ------------- ------------- -------------
                            28,691        29,020        85,713        64,409
                      ------------- ------------- ------------- -------------

    Operating income        18,989         5,866        48,363        13,797

    Interest income           (101)         (508)         (572)       (2,209)
    Interest expense         1,088         1,609         3,248         2,407
                      ------------- ------------- ------------- -------------
      Net interest expense     987         1,101         2,676           198

    Other income, net          (20)          (50)          (62)          (15)
                      ------------- ------------- ------------- -------------

    Income before
     income taxes           18,022         4,815        45,749        13,614

    Income tax
     expense (benefit):
      Current                9,215         3,356        15,818         5,335
      Deferred              (2,402)       (2,080)         (937)       (1,884)
                      ------------- ------------- ------------- -------------
                             6,813         1,276        14,881         3,451

    Net income         $    11,209   $     3,539   $    30,868   $    10,163
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Earnings
     per share:
      Basic            $      0.45   $      0.15   $      1.25   $      0.45
      Diluted          $      0.43   $      0.15   $      1.22   $      0.44

    Weighted average
     number of
     shares used
     in computing
     earnings
     per share:
      Basic             25,111,763    23,891,438    24,651,293    22,616,694
      Diluted           26,109,202    24,346,740    25,318,349    23,034,651



                         SXC HEALTH SOLUTIONS CORP.
                    Consolidated Statements of Cash Flows
                               (in thousands)

                           Three months ended           Nine months ended
                              September 30,               September 30,
                      --------------------------- ---------------------------
                           2009          2008          2009          2008
                      ------------- ------------- ------------- -------------
                               (unaudited)                 (unaudited)

    Cash flows from
     operating activities:
      Net income       $    11,209   $     3,539   $    30,868   $    10,163
      Items not
       involving cash:
        Stock-based
         compensation        1,046           902         2,477         3,006
        Depreciation
         of property
         and equipment       2,037         1,669         5,981         4,715
        Amortization
         of intangible
         assets              2,239         3,449         7,478         6,277
        Deferred lease
         inducements
         and rent             (115)          (99)         (484)         (206)
        Deferred
         income taxes       (2,402)       (2,080)         (937)       (1,884)
        Tax benefit on
         option exercises   (1,341)         (719)       (3,447)         (799)
        Gain on foreign
         exchange              (24)           (7)          (50)          (14)
      Changes in
       operating assets
       and liabilities,
       net of effects
       from acquisition:
        Accounts
         receivable         (9,070)       (4,970)       (9,444)        7,858
        Rebates
         receivable          1,935         1,864         9,009         3,017
        Restricted cash      1,702          (335)           65        (4,660)
        Unbilled revenue         -             2            73           103
        Prepaid expenses       862          (407)         (302)          915
        Inventory             (915)           93          (318)         (171)
        Income tax
         recoverable         2,967         1,264         5,205         1,618
        Accounts payable    (2,466)         (768)       (2,382)          496
        Accrued
         liabilities         2,441         1,211        (3,575)       (4,452)
        Pharmacy benefit
         claim payments
         payable             9,868         2,585           402         1,049
        Pharmacy benefit
         management
         rebates payable    (2,026)       (2,632)        7,504        (5,080)
        Deferred revenue       (63)         (139)          409          (393)
        Customer deposits      (94)       (1,172)          678        (1,070)
        Other                  122            20           383           111
                      ------------- ------------- ------------- -------------
          Net cash
           provided by
           operating
           activities       17,912         3,270        49,593        20,599

    Cash flows from
     investing activities:
      Purchases of property
       and equipment          (865)       (2,556)       (6,611)       (5,970)
      Lease inducements
       received                  -             -             -           373
      Acquisitions,
       net of cash
       acquired                  -          (892)       (2,176)     (102,562)
                      ------------- ------------- ------------- -------------
        Net cash used
         in investing
         activities           (865)       (3,448)       (8,787)     (108,159)

    Cash flows
     from financing
     activities:
      Issuance of
       long-term debt            -             -             -        48,000
      Proceeds from
       public offering,
       net of issuance
       costs               204,107             -       204,107             -
      Payment of
       financing costs           -             -             -        (1,792)
      Repayment of
       long-term debt       (1,200)         (120)       (2,520)         (240)
      Proceeds from
       exercise of
       options               1,569         1,107         5,917         1,440
      Tax benefit on
       option exercises      1,341           719         3,447           799
                      ------------- ------------- ------------- -------------
        Net cash
         provided by
         financing
         activities        205,817         1,706       210,951        48,207

    Effect of foreign
     exchange on
     cash balances              24             7            50            14

                      ------------- ------------- ------------- -------------
    Increase (decrease)
     in cash and
     cash equivalents      222,888         1,535       251,807       (39,339)

    Cash and cash
     equivalents,
     beginning
     of period              96,634        50,055        67,715        90,929

                      ------------- ------------- ------------- -------------
    Cash and cash
     equivalents,
     end of period     $   319,522   $    51,590   $   319,522   $    51,590
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

SOURCE SXC Health Solutions Corp.


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SOURCE SXC Health Solutions Corp.
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