Catamaran Corporation announces strong first quarter financial results

SCHAUMBURG, Il, May 1, 2014 - Catamaran Corporation ("Catamaran" or the "Company") (NASDAQ:CTRX - News) (TSX:CCT.TO - News), a leading provider of pharmacy benefit management ("PBM") services and technology, announces its financial results for the three-month period ended March 31, 2014.

Q1 2014 Highlights

• Revenue increased 53% to $4.9 billion in Q1 2014, compared to $3.2 billion in Q1 2013
• Gross profit increased 27% to $314.7 million in Q1 2014, compared to $248.4 million in Q1 2013
• EBITDA¹ increased 19% to $170.9 million in Q1 2014, compared to $143.5 million in Q1 2013
• Net income attributable to the Company increased 23% to $63.4 million, or $0.31 per share (fully-diluted) in Q1 2014, compared to $51.4 million, or $0.25 per share (fully-diluted) in Q1 2013

• Adjusted EPS¹ (fully-diluted) increased 19% to $0.50 in Q1 2014, compared to $0.42 in Q1 2013
   
• Cash flow from operations increased 114% to $135.7 million in Q1 2014, compared to $63.3 million in Q1 2013
   
• Adjusted prescription claim volume¹ for the PBM segment increased 51% to 100.0 million in Q1 2014, compared to 66.4 million in Q1 2013
   
• Generic dispense rate increased to 85% for Q1 2014, compared to 83% in Q1 2013
   
• Issued $500 million in 4.75% senior notes due March 2021
   
• Repaid $300 million of revolving credit facility borrowings
   
• Announced the promotions of Jeff Park to Executive Vice President of Operations and Mike Shapiro to Chief Financial Officer.

"The first quarter was a strong start to the year, highlighted by successful new client implementations representing more than $1 billion in new revenue and solid financial results. The team continues to deliver on our integration efforts for Restat and Cigna, as well as our Catamaran Difference initiative" said Mark Thierer, Chairman and CEO of Catamaran Corporation.

Financial Review

Revenue and Gross Profit segmented by PBM and HCIT:
Catamaran evaluates segment performance based on revenue and gross profit. Reconciliations of the Company's business segments, PBM and Health Care Information Technology ("HCIT"), to the consolidated financial statements for the three-month period ended March 31, 2014 and 2013 are as follows:

Three months ended March 31, (unaudited, in thousands)

				PBM								HCIT								Consolidated
				2014				2013				2014				2013				2014				2013
Revenue			$	4,878,375			$	3,181,553			$	36,104			$	38,163			$	4,914,479			$	3,219,716
Cost of revenue				4,583,284				2,954,101				16,533				17,243				4,599,817				2,971,344
Gross profit			$	295,091			$	227,452			$	19,571			$	20,920			$	314,662			$	248,372
Gross profit %				6.0	%			7.1	%			54.2	%			54.8	%			6.4	%			7.7	%

Revenue
Q1 2014 PBM revenue increased $1.7 billion, or 53%, to $4.9 billion, compared to $3.2 billion in Q1 2013. The increase is mainly due to organic growth driven by increased demand and claim volume added through new customer implementations including the continued implementation of the Cigna contract.  Additionally, Q1 2014 had additional claim volume due to the Restat acquisition completed in Q4 2013. HCIT revenue decreased $2.1 million, or 5%, to $36.1 million in Q1 2014, compared to $38.2 million in Q1 2013 primarily due to lower professional services revenue.

Gross Profit
Gross profit for Q1 2014 increased $66.3 million, or 27%, to $314.7 million, compared to $248.4 million in Q1 2013. The increase during this period is mostly due to the successful implementations of new customer contracts in 2014 including the continued implementation of the Cigna contract. Gross profit percentage decreased to 6.4% of revenue in Q1 2014, from 7.7% of revenue in Q1 2013 mainly due to the large Cigna volume carrying a significantly lower gross profit percentage per claim compared to the historical PBM business.

Selling, General and Administrative ("SG&A") Costs
SG&A costs for Q1 2014 increased $30.0 million, or 30%, to $130.5 million, compared to $100.5 million in Q1 2013. This increase is mainly due to the addition of operating costs related to the Company's acquisition of Restat that were not present during Q1 2013.  Additionally, SG&A costs increased as a result of additional resources needed to support the growth of the PBM revenue.

Amortization
Amortization of intangible assets for Q1 2014 increased $4.9 million or 9.8% to $55.0 million, compared to $50.1 million in Q1 2013. This increase is mainly driven by the amortization of intangible assets acquired in the acquisition of Restat.

Interest and Other Expense, Net
Interest and other expense, net for Q1 2014 increased $0.3 million to $11.3 million compared to $11.0 million in Q1 2013. This increase is mainly due to higher average principal amount of long-term debt outstanding, offset by a decline in the interest rate applicable to the Company's credit agreement borrowings during Q1 2014 as compared to Q1 2013. The Company expects  interest expense to increase in future quarters due to the issuance in March 2014 of $500.0 million aggregate principal amount of 4.75% senior notes.

Income Taxes
The Company recognized income tax expense of $28.1 million for Q1 2014, representing an effective tax rate of 27%, compared to $23.0 million, representing an effective tax rate of 29%, for the same period in 2013. The increase in income tax expense during this period was mainly due to higher taxable income compared to the prior periods. The Company's effective tax rate decreased primarily due to the mixture of taxable income amongst jurisdictions.

Net Income and EPS Attributable to the Company
The Company reported Q1 2014 net income attributable to the Company of $63.4 million, or $0.31 per share (fully-diluted), compared to $51.4 million, or $0.25 per share (fully-diluted), in Q1 2013. Net income attributable to the Company increased during this period mainly due to increased revenue as a result of new customer implementations in 2014 and the acquisition of Restat. The increase was partially offset by increases in SG&A expense, interest expense and amortization of intangible assets.

Q1 2014 Adjusted EPS¹ (fully-diluted), which excludes all amortization of intangible assets of $55.0 million, net of tax, increased 19% to $0.50 per share (fully-diluted) in Q1 2014, compared to $0.42 per share (fully-diluted) in Q1 2013.

EBITDA¹
Q1 2014 EBITDA increased $27.3 million, or 19%, to $170.9 million, compared to $143.5 million in Q1 2013. The increase during this period is mainly due to increased net income attributable to the Company as a result of increased revenue as noted previously. The increase was offset by increased SG&A costs due to the acquisition of Restat and additional resources added to support the growth of the Company.

Cash Flow
For Q1 2014, the Company generated $135.7 million of cash from operations, compared to $63.3 million of cash during the same period in 2013.  Cash from operations increased primarily due to an increase in net income.  Additionally, the Company generated approximately $176.6 million in cash from financing activities due to the issuance of $500 million in senior notes, offset by repaying $300 million on the Company's revolving credit facility.

2014 Full Year Financial Guidance
With today's announcement, the Company is updating  its 2014 full year financial guidance

• Revenue of $20 to $21 billion
• EBITDA¹ of $770 to $810 million
• GAAP EPS (fully-diluted) of $1.38 to $1.50
• Adjusted EPS¹ (fully-diluted) of $2.10 to $2.22 (excluding all amortization of intangible assets)

Notice of Conference Call
Catamaran will host a conference call on Thursday, May 1, 2014, at 8:30 a.m. ET to discuss its financial results. Mark Thierer, Chairman and CEO, and Mike Shapiro, SVP and CFO, will co-chair the call. This call is being webcast and can be accessed from the IR Events page of the Catamaran Corporation web site at www.catamaranrx.com.  An archived replay of the webcast will be available for 90 days.

¹Non-GAAP Financial Measures

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

Adjusted EPS adds back the impact of all intangible asset amortization, net of tax. Amortization of intangible asset arises from the acquisition of intangible assets in connection with the Company's acquisitions. The Company excludes intangible asset amortization from EPS because it believes (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of Catamaran's 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 contributes to revenue in the periods presented as well as future periods and should also note that such expenses will recur in future periods.

EBITDA is a non-GAAP measure that management believes is a useful supplemental measure of operating performance. EBITDA consists of earnings attributable to the Company prior to depreciation, amortization, interest and other expense, net, income taxes and adjustments to remove the applicable impact of any non-controlling interest. Management believes it is useful to exclude these items, as they are essentially amounts that cannot be influenced by management in the short term.

The 2014 full year EBITDA guidance was computed using the Company's estimated 2014 earnings attributable to the Company prior to depreciation, amortization, interest and other expense, net, income taxes and adjustments to remove the applicable impact of any non-controlling interest. The 2014 full year Adjusted EPS guidance was computed by taking the Company's GAAP EPS (fully-diluted) guidance and adding back the expected impact of all 2014 amortization of intangible assets totaling approximately $210 to $215 million, net of estimated income taxes (expected at 28-30%).

Adjusted prescription claim volume equals Catamaran'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 EPS, EBITDA and adjusted prescription claim 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 reconciliations of Adjusted EPS and EBITDA to their most directly comparable GAAP measure.

Adjusted EPS and 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, may not be comparable to similarly titled measures used by other companies.

EBITDA Reconciliation						Three Months Ended March 31,
(in thousands)						2014				2013
						(unaudited)
Net income attributable to the Company (GAAP)					$	63,445			$	51,408
Add:
	Depreciation of property and equipment					13,359				8,103
	Amortization of intangible assets					54,986				50,056
	Interest and other expense, net					11,336				11,039
	Income tax expense					28,108				23,028
	Adjustments related to non-controlling interest					(384)				(92)
EBITDA					$	170,850			$	143,542

Adjusted EPS Reconciliation
(in thousands, except per share data)
				Three Months Ended March 31,
				2014								2013
				Operational Results				Per Diluted Share				Operational Results				Per Diluted Share
				(unaudited)
Net income attributable to the Company (GAAP)			$	63,445			$	0.31			$	51,408			$	0.25
Amortization of intangible assets				54,986				0.26				50,056				0.24
Tax effect of reconciling item				(14,681)				(0.07)				(14,466)				(0.07)
Non-GAAP net income attributable to the Company			$	103,750			$	0.50			$	86,998			$	0.42

About Catamaran Corporation

Catamaran, the industry's fastest-growing pharmacy benefits manager, helps organizations and the communities they serve take control of prescription drug costs. Managing more than 350 million prescriptions each year on behalf of over 32 million members, our flexible, holistic solutions improve patient care and empower individuals to take charge of their health. Processing one in every five prescription claims in the U.S., Catamaran's skill and scale deliver compelling financial results and sustainable improvement in the overall health of members. Catamaran is headquartered in Schaumburg, IL., with multiple locations in the U.S. and Canada. For more information, please visit Catamaranrx.com, and for industry news and information follow Catamaran on Twitter, @CatamaranCorp.

Forward-Looking Statements

Certain statements included herein, including guidance and those that express management's objectives and the strategies to achieve those objectives, as well as information with respect to the Company's beliefs, plans, expectations, anticipations, estimates and intentions, 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; our ability to compete successfully; our dependence on, and ability to retain, key customers; customer demands for enhanced services levels or loss or unfavorable modification with our customers; the risks and challenges associated with our PBM partnering agreement with Cigna Corporation due to the size of the client and the complexity and long-term nature of the agreement; consolidation in the healthcare industry; our ability to identify and complete acquisitions, manage our growth, integrate acquisitions and achieve expected synergies from acquisitions; changes in industry pricing benchmarks and continuing market and economic challenges; our ability to maintain our relationships with pharmacy providers, pharmaceutical manufacturers, third-party rebate administrators and suppliers; compliance with existing laws, regulations and industry initiatives and future change in laws or regulations in the healthcare industry; our ability to maintain our relationships with suppliers; the outcome of any legal or tax proceeding that has been or may be instituted against us; the existence of undetected errors or similar problems in our software products; potential liability for the use of incorrect or incomplete data; interruption of our operations due to outside sources and breach of our security by third parties; our dependence on the expertise of our senior management and other personnel; maintaining our intellectual property rights and litigation involving intellectual property rights; our ability to obtain, use or successfully integrate third-party licensed technology; our ability to accurately forecast our financial results; our level of indebtedness and the covenants and restrictions in the agreements governing our outstanding indebtedness; our access to sufficient capital to fund our future requirements; potential write-offs of goodwill or other intangible assets; and the material weakness identified in our internal control over financial reporting. The foregoing list of factors is not exhaustive and is subject to change and there can be no assurance that such assumptions will reflect the actual outcome of such items or factors. Other factors that should be considered are discussed from time to time in Catamaran's filings with the U.S. Securities and Exchange Commission, including the risks and uncertainties discussed under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K and subsequent filings with the U.S. Securities and Exchange Commission, which are available at www.sec.gov.

When relying on forward-looking information to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. In making the forward-looking statements contained herein, the Company does not assume any future significant acquisitions, dispositions or one-time items. It does assume, however, the renewal of certain customer contracts. Every year, the Company has major customer contracts that come up for renewal. In addition, the Company also assumes new customer contracts. In this regard, the Company is pursuing large opportunities that present a very long and complex sales cycle which substantially affects its forecasting abilities. The Company has assumed certain timing for the realization of these opportunities which it believes is reasonable but which may not be achieved. Furthermore, the pursuit of these larger opportunities does not ensure a linear progression of revenue and earnings since they may involve significant up- front costs followed by renewals and cancellations of existing contracts. The Company has assumed certain revenues which may not be realized. The Company has also assumed that the material factors referred to in the previous paragraph will not cause such forward-looking information to differ materially from actual results or events. There can be no assurance that such assumptions will reflect the actual outcome of such items or factors. Accordingly, investors are cautioned not to put undue reliance on forward-looking statements.  All subsequent written and oral forward-looking statements attributable to Catamaran or persons acting on our behalf are expressly qualified in their entirety by this notice.

THE FORWARD-LOOKING INFORMATION CONTAINED IN THIS RELEASE REPRESENTS THE COMPANY'S CURRENT EXPECTATIONS AND, ACCORDINGLY, IS SUBJECT TO CHANGE. HOWEVER, THE COMPANY EXPRESSLY DISCLAIMS ANY INTENTION OR OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING INFORMATION, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE, EXCEPT AS REQUIRED BY APPLICABLE LAW.

CATAMARAN CORPORATION
Consolidated Balance Sheets
(in thousands, except share data)
						March 31, 2014				December 31, 2013
						(unaudited)
ASSETS
Current assets
	Cash and cash equivalents				$	684,715			$	387,241
	Restricted cash					32,222				32,220
	Accounts receivable, net of allowance for doubtful accounts of $5,061 (2013 — $5,860)					1,131,425				959,586
	Rebates receivable					668,053				305,955
	Other current assets					152,790				152,673
		Total current assets				2,669,205				1,837,675
Property and equipment, net of accumulated depreciation of $117,426 (2013 — $103,858)						191,304				197,007
Goodwill						4,722,555				4,720,275
Other intangible assets, net of accumulated amortization of $416,269 (2013 — $363,546)						1,126,433				1,181,419
Other long-term assets						84,976				59,387
Total assets					$	8,794,473			$	7,995,763
LIABILITIES AND EQUITY
Current liabilities
	Accounts payable				$	962,039			$	817,805
	Accrued expenses and other current liabilities					295,545				254,100
	Rebates payable					718,900				356,265
	Current portion - long-term debt					56,250				50,000
		Total current liabilities				2,032,734				1,478,170
Deferred income taxes						291,361				301,341
Long-term debt						1,396,661				1,215,363
Other long-term liabilities						86,930				89,391
		Total liabilities				3,807,686				3,084,265
Shareholders' equity
	Common shares: no par value, unlimited shares authorized; 206,854,499 shares issued and outstanding at March 31, 2014 (December 31, 2013 — 206,305,070 shares)					4,238,684				4,215,291
	Additional paid-in capital					67,484				77,790
	Retained earnings					680,606				617,161
	Accumulated other comprehensive loss					(1,895)				(1,752)
		Total  shareholders' equity				4,984,879				4,908,490
	Non-controlling interest					1,908				3,008
		Total equity				4,986,787				4,911,498
Total liabilities and equity					$	8,794,473			$	7,995,763

CATAMARAN CORPORATION
Consolidated Statements of Operations
(in thousands, except share and per share data)
						Three Months Ended March 31,
						2014				2013
						(unaudited)
Revenue					$	4,914,479			$	3,219,716
Cost of revenue						4,599,817				2,971,344
Gross profit						314,662				248,372
Expenses:
	Selling, general and administrative					130,519				100,495
	Depreciation of property and equipment					12,368				6,970
	Amortization of intangible assets					54,986				50,056
						197,873				157,521
Operating income						116,789				90,851
Interest and other expense, net						11,336				11,039
Income before income taxes						105,453				79,812
Income tax expense (benefit):
	Current					40,442				39,680
	Deferred					(12,334)				(16,652)
						28,108				23,028
Net income					$	77,345			$	56,784
	Less: Net income attributable to non-controlling interest					13,900				5,376
Net income attributable to the Company					$	63,445			$	51,408
Earnings per share attributable to the Company:
	Basic				$	0.31			$	0.25
	Diluted				$	0.31			$	0.25
Weighted average number of shares used in computing earnings per share:
	Basic					206,525,188				205,576,875
	Diluted					207,086,677				206,423,549

CATAMARAN CORPORATION
Consolidated Statements of Cash Flows
(in thousands)
								Three Months Ended March 31,
								2014				2013
								(unaudited)
Cash flows from operating activities:
	Net income						$	77,345			$	56,784
	Items not involving cash:
		Stock-based compensation						6,828				6,644
		Depreciation of property and equipment						13,359				8,103
		Amortization of intangible assets						54,986				50,056
		Deferred lease inducements and rent						(77)				14,528
		Deferred income taxes						(12,334)				(16,652)
		Tax benefit on option exercises						(2,692)				(4,928)
		Deferred financing cost amortization						2,188				2,493
	Changes in operating assets and liabilities, net of effects from acquisitions:
		Accounts receivable						(171,907)				(1,664)
		Rebates receivable						(362,352)				(14,553)
		Restricted cash						(2)				227
		Other current assets						26,312				12,467
		Accounts payable						144,264				(34,136)
		Accrued expenses and other current liabilities						20,753				(10,154)
		Rebates payable						362,635				(8,674)
		Other long-term assets and liabilities						(23,630)				2,764
			Net cash provided by operating activities					135,676				63,305
Cash flows from investing activities:
	Acquisition, net of cash acquired							(2,026)				—
	Purchases of property and equipment							(12,782)				(25,243)
	Proceeds from restricted cash							—				20,004
			Net cash used by investing activities					(14,808)				(5,239)
Cash flows from financing activities:
	Proceeds from issuance of debt							492,500				—
	Repayment of long-term debt							(306,250)				(100,000)
	Payment of financing costs							(955)				—
	Proceeds from exercise of options							3,567				785
	Tax benefit on option exercises							2,692				4,928
	Payments of contingent consideration							—				(23,203)
	Distributions to non-controlling interest							(15,000)				—
			Net cash provided (used) by financing activities					176,554				(117,490)
Effect of foreign exchange on cash balances								52				4
Increase (decrease) in cash and cash equivalents								297,474				(59,420)
Cash and cash equivalents, beginning of period								387,241				370,776
Cash and cash equivalents, end of period							$	684,715			$	311,356

 

SOURCE Catamaran