Medco Health Solutions' CEO Discusses Q4 2011 Results - Earnings Call Transcript

Medco Health Solutions (MHS)

Q4 2011 Earnings Call

February 21, 2012 8:30 am ET

Executives

Valerie Haertel -

David B. Snow - Chairman and Chief Executive Officer

Richard J. Rubino - Chief Financial Officer and Senior Vice President of Finance

Timothy C. Wentworth - Group President of Employer and Key Accounts

Analysts

Vijay Kumar - Deutsche Bank AG, Research Division

Kipp R.F. Davis - Barclays Capital, Research Division

Ricky Goldwasser - Morgan Stanley, Research Division

Thomas Gallucci - Lazard Capital Markets LLC, Research Division

John Kreger - William Blair & Company L.L.C., Research Division

Steven Valiquette - UBS Investment Bank, Research Division

Presentation

Operator

Compare to:
Previous Statements by MHS
» Medco Health Solutions' CEO Discusses Q3 2011 Results - Earnings Call Transcript
» MedcoHealth Solutions' CEO Discusses Q2 2011 Results - Earnings Call Transcript
» MedcoHealth Solutions' CEO Discusses Q1 2011 Results - Earnings Call Transcript

Good morning. My name is Darla, and I will be your conference operator today. At this time, I would like to welcome everyone to the Medco Health Solutions Fourth Quarter 2011 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Valerie Haertel, Vice President of Investor Relations. Please go ahead.

Valerie Haertel

Thank you, Darla. Good morning, and thank you for joining us on Medco's Fourth Quarter and Full Year 2011 Earnings Conference Call. With me today as speakers are Chairman and Chief Executive Officer, Dave Snow; and Chief Financial Officer, Rich Rubino. Also joining us for our question-and-answer session are Kenny Klepper, President and Chief Operating Officer; Tom Moriarty, General Counsel, Secretary and President of the global pharmaceutical strategies; and Tim Wentworth, Group President of Employer and Key Accounts.

During the course of this call, we will make forward-looking statements as that term is defined in the Private Securities and Litigation Reform Act of 1995. No forward-looking statement can be guaranteed, and actual results may differ materially from those projected. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. Forward-looking statements made on this call should be evaluated together with the risks and uncertainties that affect our business, particularly those disclosed in our SEC filings. Copies of Medco's filings are available from the SEC, the Medco Investor Relations Department or the Medco website. Medco intends to use the Investor Relations section of its website as a means of disclosing material nonpublic information and for complying with these disclosure obligations under Regulation FD. The copyrights for the contents of this discussion and the written materials used on this earnings call are owned by Medco Health Solutions, Inc. 2012. Slides to accompany our presentation, which detail our financial and operating results, are currently available in the Events section of the Investor Relations site on medcohealth.com. Additionally, we expect to file our 10-K after the close of the market today.

At this time, I would like to turn the call over to Medco's Chairman and CEO, Dave Snow. Dave?

David B. Snow

Thank you, Valerie, and thanks all of you for joining us this morning. Today, we are reporting record fourth quarter and full year 2011 earnings, reflecting strong financial and operating performance. I will be focusing my remarks on our full year 2011 results, and Rich will focus his commentary on our fourth quarter performance. The results I will discuss exclude expenses associated with our pending merger with Express Scripts unless otherwise noted.

Now I'd like to begin with our full year 2011 year-over-year financial and operational performance. Every single 2011 number I mention represents a Medco record. We reported GAAP diluted earnings per share of $3.62 or $3.74 when excluding $80.2 million of merger-related expenses, an increase of 18.4% over the $30.16 per share we earned in 2010. Even when including the merger-related expenses, our 2011 EPS represents a record. Our diluted earnings per share, excluding all intangible amortization and merger-related expenses increased 17.5% to $4.17 from $3.55 in 2010. Total net revenues for 2011 grew 6.2% to $70.1 billion. Product net revenues increased 5.7% over 2010 levels to $68.6 billion, and service revenues increased 39% to $1.5 billion.

Our total gross margin dollars reached $4.62 billion in 2011, up 6.7% from the $4.34 billion in 2010. EBITDA rose 6.6% to $3.2 billion in 2011 from just under $3 billion in 2010. Our EBITDA per adjusted prescription increased 3.9% to $3.23 in 2011 compared to $3.11 in 2010. Our total prescription volume adjusting for the difference in days' supply between mail-order and retail increased 2.5% over full year 2010 to 980.7 million. Mail-order prescription volume increased 3% to 113.1 million, the generic volumes increasing 8.3% to 73.2 million. Our overall utilization rates were steady to up slightly in the course of 2011 compared to 2010. Our full year 2011 generic dispensing rate increased 2.8 percentage points to 73.8%. The mail-order generic dispensing rate for 2011 increased 3.3 percentage points to 64.8%, while the retail generic dispensing rate increased 2.6 percentage points in 2011 to 75.3%.

Our Accredo specialty business also delivered record revenue and operating income. Revenue increased 18.5% to $13.4 billion, and operating income grew 27.9% to $560.6 million. To repeat what I said earlier, all of the 2011 statistics I just mentioned represent Medco records.

Turning to sales for 2011, annualized new-named sales totaled $3.2 billion. Net new sales totaled $2.1 billion, and our client retention rate exceeded 99%. We continue to win new business for 2012, and our 2012 annualized new-named sales currently stand at approximately $2.6 billion, up from the $1.6 billion we reported last quarter. As the government becomes an even more significant payer over the next several years, I'm pleased to report that Medco's PDP experienced overall enrollment growth in 2012 of 64%. This includes 14% growth in the individual market and a very strong 140% in our EGWP business. Our high level of success is directly linked to excellence and execution, a key reason why Medco's PDP remains the highest ranked national PDP by CMS.

Read the rest of this transcript for free on seekingalpha.com