MedcoHealth Solutions Q3 2010 Earnings Call Transcript

MedcoHealth Solutions (MHS)

Q3 2010 Earnings Call

November 02, 2010 8:30 am ET

Executives

Valerie Haertel - IR

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

Robert Epstein - Chief Medical Officer and President of Medco Research Institute

David Snow - Chairman and Chief Executive Officer

Analysts

Lisa Gill - JP Morgan Chase & Co

Ricky Goldwasser - Morgan Stanley

Ross Muken - Deutsche Bank AG

Steven Valiquette - UBS Investment Bank

Kemp Dolliver - Avondale Partners, LLC

Glen Santangelo - Crédit Suisse AG

Thomas Gallucci - Lazard Capital Markets LLC

Robert Willoughby

Lawrence Marsh - Barclays Capital

John Kreger - William Blair & Company L.L.C.

Presentation

Operator

Compare to:
Previous Statements by MHS
» MedcoHealth Solutions Q2 2010 Earnings Call Transcript
» Medco Health Solutions, Inc. Q1 2010 Earnings Call Transcript
» Medco Health Solutions Q4 2009 Earnings Call Transcript

Good morning. My name is Cynthia, and I will be your conference operator today. At this time, I would like to welcome everyone to the MedcoHealth Solutions Third Quarter 2010 Earnings Call. [Operator Instructions] I would now like to turn today's call over to Valerie Haertel, Vice President of Investor Relations. Please go ahead.

Valerie Haertel

Thank you, Cynthia. Good morning, everyone, and thank you for joining us on Medco's Third Quarter 2010 Earnings Conference Call. With me today as speakers are Dave Snow, Chairman and Chief Executive Officer; and Rich Rubino, Chief Financial Officer. Also joining us for our question-and-answer session are: Tom Moriarty, General Counsel, Secretary and Senior Vice President of Pharmaceutical Strategies and Solutions; Tim Wentworth, Group President of the Employer and Key Account; Steve Fitzpatrick, President of Accredo Health Group; Mary Daschner, Group President, Government CBM; Brian Griffin in his new role as President of International; and Rob Epstein, Chief Medical Officer and President of the Medical Research Institure.

We ask that you limit your questions to no more than two, in order to enable as many participants on the call to have as their questions answered.

During the course of this call, we will make forward-looking statements as that term is defined in Private Securities 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 its disclosure obligations under Regulation FD. The copyrights for the contents of this discussion and the written materials used on this earning call are owned by MedcoHealth Solutions Inc. 2010.

Slides to accompany our presentation, which detail our financial and operating results and the guidance discussed on this call, are currently available in the events section of the Investor Relations site on medcohealth.com. Additionally, please note that we expect to file our 10-Q after the close of the market today. At this time, I would like to turn the call over to Dave Snow. Dave?

David Snow

Thank you, Valerie, and thanks, all of you, for joining us this morning. Today, we are reporting record third quarter 2010 earnings and raising and narrowing our previously improved full year 2010 guidance for GAAP diluted earnings per share and diluted earnings per share, excluding intangible amortization from the 2003 spinoff. In addition, we are providing solid 2011 diluted GAAP earnings per share guidance, projecting growth of 12% to 17%. Turning to the third quarter results. We achieved record results in all of the following measures: GAAP diluted earnings per share of $0.85, up 23.2% over third quarter of 2009; diluted earnings per share, excluding the amortization of intangibles from the spinoff of $0.91, up 21.3%; gross margin of $1.12 billion, up 7.6% with a strong gross margin percentage of 6.9%; EBITDA of $771 million, up 7.2%; EBITDA per adjusted script of $3.28, which beats our previous record that was set in the third quarter of last year; additionally, on a sequential basis, EBITDA for adjusted script increased 7.2% from $3.06 in the second quarter of 2010; net income of $371.5 million, up 10.7%; generic mail-order prescriptions of $17.1 million, up 15.5%; generic dispensing rate of 71.6%, up 3.9 percentage points, with the mail generic dispensing rate component increasing a substantial 4.7 percentage points; Accredo revenues of $2.9 billion, up 19.9%; and one final record of note, Accredo operating income of $112 million, up 19.8%; in addition, Medco's net revenues grew 10.3% to $16.3 billion, just $100 million below our previous record, which was achieved last quarter, reflecting normal retail seasonality; and finally, our mail penetration rate was identical to last year at 34.5%.

Our leadership in clinical innovation, combined with our deeply rooted focus on operational excellence, has enabled us to remain highly successful in the marketplace, both in gaining new customers and as importantly, keeping our valued customers at historically high retention rates. On that note, as has been publicly reported, CalPERS, a very sophisticated purchaser, conducted a competitive bidding process and again selected Medco as their PBM. CalPERS will be renewing their contract with Medco for a three-year term beginning January 1, 2012. Our 2010 annualized new-named and net-new sales remained strong at over $5 billion. For 2011, our annualized new-named sales increased to $1.7 billion, up from the previously reported $1 billion. And our net-new sales are now $1.4 billion.

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