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Express Scripts Reports Second Quarter Results
Date:8/7/2012

ST. LOUIS, Aug. 7, 2012 /PRNewswire/ -- Express Scripts (Nasdaq: ESRX) announced 2012 second quarter net income of $170.9 million, or $0.21 per diluted share.  Adjusted earnings per share, as detailed in Table 4 were $0.88 per diluted share for the second quarter.

"Our strong second quarter results, the first as a combined organization, demonstrate the continued execution of our business model of alignment," stated George Paz, chairman and chief executive officer. "We are fully underway with the integration process and will continue to focus on lowering healthcare costs while improving health outcomes.  As a result of our steadfast commitment to providing exemplary service and innovative offerings to clients and patients, we are experiencing strong retention rates." 

Second Quarter 2012 Review (Data reflected on an adjusted basis. See Tables 2 and 3)All key metrics compared to 2011 were affected by the inclusion of Medco results beginning in the second quarter of 2012.  Gross profit margin and EBITDA per adjusted claim increases over last year are mainly attributed to improved operating performance, including increased generic utilization.

  • Adjusted claims of 404.3 million, up 118% from second quarter 2011  
  • Gross profit of $2.2 billion, up 165% from second quarter 2011
  • Gross profit margin of 7.8% up from 7.1% in second quarter 2011
  • EBITDA of $1.5 billion, up 132% from second quarter 2011
  • EBITDA per adjusted claim of $3.69, up 7% from second quarter 2011
  • Cash flow from operations of $0.7 billion, up 58% from second quarter 2011
  • Integration and Other Highlights

  • The destination operating platform was selected and the first tier of member lives was successfully transitioned.
  • The Company signed a new multi-year pharmacy network agreement with Walgreens.
  • To date, the Company has achieved a retention rate for its combined business exceeding 95%, which is consistent with historical norms.
  • GuidanceDue to strong operating performance, increased generic utilization and the accelerated realization of synergies, the Company now expects to achieve adjusted earnings per share for 2012 in the range of $3.60 to $3.75.  Adjusted earnings per share excludes items as detailed in Table 6.

    Total adjusted claims are expected to be approximately 1.4 billion.  The guidance range assumes 2012 diluted weighted-average shares of 750 million.  Diluted weighted-average shares may differ due to, among other factors, the exercise of stock options and settlement of restricted stock units, and differences in the dilutive impact of awards granted under either of Express Scripts' or Medco's share-based compensation agreements.  The guidance range assumes a full year 2012 adjusted effective tax rate of approximately 39%.  Variations in assumed diluted weighted-average shares and tax rate may materially impact the guidance range.

    The Company continues to expect to realize $1 billion in net synergies once fully integrated.

    About Express ScriptsExpress Scripts manages more than a billion prescriptions each year for tens of millions of people. On behalf of our clients — employers, health plans, unions and government health programs — we make the use of prescription drugs safer and more affordable. We innovate to enhance patient care, reduce pharmacy-related waste and increase therapy adherence. Building on a strong clinical foundation, we apply our understanding of the behavioral sciences — an approach we call Consumerology® — to make it easier for people to choose better health.

    Headquartered in St. Louis, Express Scripts provides integrated pharmacy benefit management services, including network-pharmacy claims processing, home delivery, specialty benefit management, benefit-design consultation, drug-utilization review, formulary management, and medical and drug data analysis services. The company also distributes a full range of biopharmaceutical products and provides extensive cost-management and patient-care services.

    For more information, visit www.Express-Scripts.com or follow @ExpressScripts on Twitter.

    SAFE HARBOR STATEMENTThis press release contains forward-looking statements, including, but not limited to, statements related to the Company's plans, objectives, expectations (financial and otherwise) or intentions. Actual results may differ significantly from those projected or suggested in any forward-looking statements.  Factors that may impact these forward-looking statements can be found in the Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Form 10-Q filed with the SEC on August 7, 2012.  A copy of this form can be found at the Investor Relations section of Express Scripts' web site at http://www.express-scripts.com/corporate.

    We do not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. EXPRESS SCRIPTS HOLDING COMPANY  Unaudited Consolidated Statement of Operations  Three Months Ended
    June 30,  Six Months Ended
    June 30, (in millions, except per share data) 2012201120122011Revenues(1)

    $  27,692.5$  11,361.4$  39,825.1$  22,455.9Cost of revenues(1)

    25,579.610,577.336,880.220,926.3Gross profit 

    2,112.9784.12,944.91,529.6Selling, general and administrative

    1,580.8204.81,848.3397.9Operating income

    532.1579.31,096.61,131.7Other (expense) income:Undistributed gain from joint venture 

    4.3-4.3-Interest income2.31.54.61.9Interest expense and other 

    (175.2)(50.3)(307.2)(90.0)(168.6)(48.8)(298.3)(88.1)Income before income taxes

    363.5530.5798.31,043.6Provision for income taxes

    192.6196.3359.6382.9Net income 

    $
    70.9$
    334.2$
    438.7$
    .7Weighted average number of common shares outstanding during the period: Basic 

    807.8502.6646.6515.7Diluted 

    823.9507.0663.2520.3Basic earnings per share

    $
    .21$
    .66$
    .68$
    .28Diluted earnings per share

    $
    .21$
    .66$
    .66$
    .27(1) Includes retail pharmacy co-payments of $3,519.1 million and $1,457.1 million for the three months ended June 30, 2012 and 2011, respectively and $5,015.7 million and $2,983.6 million for the six months ended June 30, 2012 and 2011, respectively.  EXPRESS SCRIPTS HOLDING COMPANY  Unaudited Consolidated Balance Sheet  June 30,December 31,  (in millions) 20122011 Assets  Current assets:  Cash and cash equivalents 

    $
    ,420.0$
    5,620.1 Restricted cash and investments 

    28.917.8 Receivables, net 

    5,997.81,915.7 Inventories 

    1,423.8374.4 Deferred taxes 

    335.945.8 Prepaid expenses and other current assets 

    454.984.2Total current assets 

    9,661.38,058.0 Property and equipment, net 

    1,768.5416.2 Goodwill 

    29,358.65,485.7 Other intangible assets, net 

    17,203.41,620.9 Other assets 

    66.726.2Total assets 

    $   58,058.5$
    5,607.0 Liabilities and Stockholders' Equity  Current liabilities:  Claims and rebates payable 

    $
    ,904.1$
    2,874.1 Accounts payable 

    2,020.5928.1 Accrued expenses 

    1,989.9656.0 Short term loan payable 

    1,039.6- Current maturities of long-term debt 

    889.7999.9Total current liabilities 

    12,843.85,458.1 Long-term debt 

    16,312.37,076.4 Other liabilities 

    6,774.1598.8Total liabilities 

    35,930.213,133.3 Stockholders' Equity:  Preferred stock, 15.0 shares authorized, $0.01 par value per share and no shares issued and outstanding 

    -- Common stock, 2,985.0 shares authorized, $0.01 par value per share shares issued: 809.6 and 690.7, respectively;  shares outstanding: 809.6 and 484.6, respectively 

    8.16.9 Additional paid-in capital 

    20,918.12,438.2 Accumulated other comprehensive income 

    8.117.0 Retained earnings 

    1,194.06,645.622,128.39,107.7 Common stock in treasury at cost, zero and 206.1 shares, respectively 

    -(6,634.0)Total stockholders' equity 

    22,128.32,473.7Total liabilities and stockholders' equity 

    $   58,058.5$
    5,607.0 EXPRESS SCRIPTS  Unaudited Consolidated Statement of Cash Flows  Six Months Ended
    June 30,  (in millions) 20122011 Cash flows from operating activities:  Net income$
    438.7$
    .7 Adjustments to reconcile net income to net cash provided by operating activities:  Depreciation and amortization 

    670.2126.2 Non-cash adjustments to net income 

    95.6124.4 Deferred financing fees 

    26.92.4 Changes in operating assets and liabilities, net of effects of acquisition: Accounts receivable 

    175.8(223.6) Claims and rebates payable 

    (453.1)(135.6) Other net changes in operating assets and liabilities 

    302.1148.6 Net cash flows provided by operating activities 

    1,256.2703.1 Cash flows from investing activities:  Acquisition of business, net of cash acquired 

    (10,283.6)- Purchases of property and equipment 

    (66.6)(54.1) Other 

    (11.2)2.4 Net cash used in investing activities 

    (10,361.4)(51.7) Cash flows from financing activities:  Proceeds from long-term debt, net of discounts 

    7,353.61,494.0 Repayment of long-term debt 

    (2,500.1)(0.1) Proceeds (repayment) of revolving credit line, net 

    (600.0)100.0 Proceeds from accounts receivable financing facility 

    600.0- Repayments of accounts receivable financing facility 

    (1.7)- Excess tax benefit relating to employee stock compensation 

    15.625.9 Net proceeds from employee stock plans 

    141.123.1 Deferred financing fees 

    (103.2)(10.9) Treasury stock acquired 

    -(2,515.7) Net cash provided by (used in) financing activities 

    4,905.3(883.7) Effect of foreign currency translation adjustment 

    (0.2)(0.4) Net decrease in cash and cash equivalents 

    (4,200.1)(232.7) Cash and cash equivalents at beginning of period 

    5,620.1523.7 Cash and cash equivalents at end of period 

    $
    ,420.0$
    291.0 Table 1   Express Scripts Holding Company Unaudited Consolidated Selected Information  (in millions)  Three Months Ended
    June 30, Six Months Ended
    June 30,Claims Volume2012201120122011Network

    285.6148.0438.6296.8Home delivery and specialty(1)

    40.713.454.726.6Total claims 

    326.3161.4493.3323.4  Total adjusted claims(2)

    404.3185.7597.1371.8 Depreciation and Amortization (D&A): Revenue amortization(3)

    $
    28.5$  28.5$
    57.0$
    57.0 Cost of revenues depreciation 

    25.510.937.121.6 Selling, general and administrative

     depreciation 

    59.113.773.827.2 Selling, general and administrative

     amortization 

    492.110.2502.320.4Total D&A 

    $  605.2$  63.3$  670.2$  126.2 Generic Fill Rate  Network 

    78.7%75.2%78.4%75.1% Home delivery 

    70.5%62.7%69.4%62.2% Overall 

    77.8%74.0%77.4%73.9% Note: See Appendix for footnotes.
    Table 2Calculation of Express Scripts Holding Company Adjusted Gross Profit and SG&A(in millions) Three Months Ended
    June 30, Six Months Ended
    June 30,2012201120122011Gross profit, as reported

    $   2,112.9$  784.1$   2,944.9$   1,529.6Amortization of legacy Express Scripts intangible assets (3)

    28.528.557.057.0Non-recurring transaction and integration costs (4)

    11.9-11.9-Adjusted gross profit

    $   2,153.3$  812.6$   3,013.8$   1,586.6Selling, general and administrative, as reported

    $   1,580.8$  204.8$   1,848.3$
    397.9Amortization of legacy Express Scripts intangible assets (3)

    10.210.220.420.4Amortization of Medco-related intangible assets (5)

    481.9-481.9-Non-recurring transaction and integration costs (4)

    343.9-370.6-Adjusted selling, general and administrative

    $
    744.8$  194.6$
    975.4$
    377.5 Note: See Appendix for footnotes.
    The Company is providing adjusted gross profit and selling, general and administrative expenses excluding the impact of non-recurring charges and amortization of intangible assets in order to compare the underlying financial performance to prior periods. Table 3  Express Scripts Holding Company EBITDA Reconciliation  (in millions, except per claim data) The following is a reconciliation of net income to EBITDA(6).  The Company believes net income is the most directly comparable measure calculated under U.S. GAAP.  Three Months Ended
    June 30, Six Months Ended
    June 30,2012201120122011Net income, as reported

    $
    70.9$  334.2$
    438.7$
    .7  Provision for income taxes

    192.6196.3359.6382.9  Depreciation and amortization

    605.263.3670.2126.2  Interest expense, net

    172.948.8302.688.1 Undistributed gain from joint venture 

    (4.3)-(4.3)-EBITDA, as reported

    1,137.3642.61,766.81,257.9Non-recurring transaction and integration costs (4)

    355.8-382.5-Adjusted EBITDA 

    $   1,493.1$  642.6$   2,149.3$   1,257.9Total adjusted claims

    404.3185.7597.1371.8Adjusted EBITDA per adjusted claim

    $
    3.69$
    3.46$
    3.60$
    3.38 Note: See Appendix for footnotes.
     The Company is providing EBITDA excluding the impact of non-recurring charges in order to compare the underlying financial performance to prior periods.  Table 4  Calculation of Express Scripts Holding Company Adjusted EPS Three Months Ended
    June 30, Six Months Ended
    June 30, 2012201120122011 (per diluted share) EPS, as reported$
    .21$
    .66$
    .66$
    .27Non-recurring/transaction-related items: Transaction and integration costs (4)

    0.25-0.35-Medco acquisition pre-close financing costs (7)

    --0.08-Discrete tax items (8)

    0.05-0.07-Amortization of: Legacy Express Scripts intangible assets(3)

    0.030.050.070.09Medco-related intangible assets(5)

    0.34-0.44-EPS, adjusted$
    .88$
    .71$
    .67$
    .36 Note: See Appendix for footnotes.
     The Company is providing diluted earnings per share excluding the impact of non-recurring / transaction-related items and amortization of intangible assets in order to compare the underlying financial performance to prior periods.  Table 5  Calculation of Express Scripts Holding Company Adjusted Effective Income Tax Rate (in millions)  Three Months Ended
    June 30, Six Months Ended
    June 30, 2012201120122011Provision for income taxes, as reported$  192.6$  196.3$  359.6$   382.9Discrete tax items (8)

    39.6-44.8-Adjusted provision for income taxes

    153.0196.3314.8382.9Income before income taxes, as reported

    363.5530.5798.31,043.6Adjusted effective income tax rate

    42.1%37.0%39.4%36.7% Note: See Appendix for footnotes.
     The Company is providing adjusted effective income tax rate excluding the impact of discrete tax items in order to compare the underlying financial performance to prior periods.  Table 6  2012 Guidance Information  Estimated
    Year Ended
    December 31, 2012  (per diluted share) Revised adjusted EPS guidance $ 3.60  to  $ 3.75 GAAP items not included in guidance:Amortization of legacy Express Scripts intangible assets

    $0.13Amortization of Medco-related intangible assets (9)

    $1.18Transaction and integration costs(10)

     To be determined The guidance range assumes 2012 diluted weighted-average shares of 750 million.  Diluted weighted-average shares may differ due to, among other factors, the exercise of stock options and settlement of restricted stock units, and differences in the dilutive impact of awards granted under either of Express Scripts' or Medco's share-based compensation agreements.  The guidance range assumes full year and second half 2012 adjusted effective tax rates of approximately 39% and 38%, respectively.  Variations in assumed diluted weighted-average shares and tax rate may materially impact the guidance range.  Note: See Appendix for footnotes.
     Appendix  Footnotes (1)Includes home delivery, specialty and other including:  (a) drugs distributed through patient assistance programs (b) drugs we distribute to other PBMs' clients under limited distribution contracts with pharmaceutical manufacturers and (c) FreedomFP claims. (2) Total adjusted claims reflect home delivery claims multiplied by 3, as home delivery claims typically cover a time period 3 times longer than retail claims. (3) Amortization of legacy Express Scripts intangible assets include amounts in both revenues and selling, general and administrative expense. Revenue amortization is related to the customer contract with WellPoint which consummated upon closing of the NextRx acquisition in 2009.  Under U.S. GAAP standards, amortization of intangibles that arise in connection with consideration given to a customer by a vendor is characterized as a reduction of revenues.  Intangible amortization of $28.5 million ($16.5 million and $18.0 million net of tax in 2012 and 2011, respectively) is included as a reduction to revenue for the three months ended June 30, 2012 and 2011.
    Intangible amortization of $57.0 million ($34.5 million and $36.1 million net of tax in 2012 and 2011, respectively) is included as a reduction to revenue for the six months ended June 30, 2012 and 2011.
    In addition, intangible amortization of $10.2 million ($5.9 million and $6.4 million net of tax in 2012 and 2011, respectively) and $20.4 million ($12.4 million and $12.9 million net of tax in 2012 and 2011, respectively) is included in selling, general and administrative expense in the three months and six months ended June 30, 2012 and 2011, respectively. (4) Non-recurring transaction and integration costs include those directly related to the acquisition of Medco Health Solutions, Inc. ("Medco").  Costs of $11.9 million ($6.9 million and $7.2 million net of tax for the three months and six months ended June 30, 2012, respectively), primarily composed of integration-related activities are included in cost of revenues for the three months and six months ended June 30, 2012.
    Costs of $343.9 million ($199.1 million net of tax) and $370.6 million ($224.5 million net of tax) primarily composed of severance costs, including stock compensation, are included in selling, general and administrative expense in the three months and six months ended June 30, 2012, respectively. (5) Amortization of intangible assets related to the acquisition of Medco of $481.9 million ($279.1 million and $291.9 million net of tax for the three months and six months ended June 30, 2012, respectively) is included in selling, general and administrative expense in the three months and six months ended June 30, 2012. (6)EBITDA is earnings before taxes, depreciation and amortization, net interest and other income (expense); or alternatively calculated as operating income plus depreciation and amortization.  EBITDA is presented because it is a widely accepted indicator of a company's ability to service indebtedness and is frequently used to evaluate a company's performance.  EBITDA, however, should not be considered as an alternative to net income, as a measure of operating performance, as an alternative to cash flow, as a measure of liquidity or as a substitute for any other measure computed in accordance with U.S. GAAP. In addition, this definition and calculation of EBITDA may not be comparable to that used by other companies.(7)Financing costs include fees related to the amortization of remaining bridge loan fees, commitment fees related to the new credit agreement and interest and fees on the senior notes secured in conjunction with the acquisition of Medco.  Costs of $5.7 million ($3.3 million net of tax) and $85.2 million ($51.6 million net of tax) are included in interest expense in the three months and six months ended June 30, 2012, respectively. (8)Provision for income taxes includes discrete tax items of $39.6 million and $44.8 million for the three months and six months ended June 30, 2012, respectively. These items primarily relate to adjustments to prior year income tax return filings and a reversal of the deferred tax asset previously established for transaction-related costs that became nondeductible upon the consummation of the Merger.(9) Adjusted EPS will exclude amortization of Medco-related intangible assets.  The current estimate of full year amortization based on the preliminary purchase price allocation.  The preliminary purchase price allocation may be subject to further refinement and may result in significant changes.(10) Adjusted EPS will exclude Medco-related transaction and integration costs. The full-year impact of these costs have yet to be determined.  


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