Omnicare's CEO Discusses F2Q12 Earnings Results - Earnings Call Transcript

Omnicare, Inc. (OCR)

F2Q12 Earnings Call

July 25, 2012 9:00 am ET

Executives

Patrick C. Lee – Vice President of Investor Relations

John L. Workman – President, Interim Executive Officer & Chief Financial Officer

Nitin Sahney – Chief Operating Officer, Executive Vice President & President Specialty Care Group

Robert Kraft – Senior Vice President of Finance

Analyst

Lawrence Marsh – Barclays Capital

Lisa Gill – JP Morgan

Glen Santangelo – Credit Suisse

Charles Rhyee – Cowen & Co.

Robert Jones – Goldman Sachs

Steven Valiquette – UBS

Frank Morgan – RBC Capital Markets

Presentation

Operator

At this time I would like to welcome everyone to Omnicare’s second quarter 2012 conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question and answer session. (Operator Instructions) I would now like to turn the call over to Patrick Lee, Omnicare’s Vice President of Investor Relations. Mr. Lee, you may begin your conference.

Patrick C. Lee

With me on the call are John Workman, President, Interim Chief Executive Officer; Nitin Sahney, Chief Operating Officer; and Rocky Kraft, Senior Vice President of Finance. Before we begin let me remind you that during this call we will make remarks that constitute forward-looking statements. Actual results may differ as a result of a variety of factors including those identified in our earnings release and in our various filings with the SEC.

You are also cautioned that any forward-looking statements reflect management’s current views only and that the company undertakes no obligation to revise or update such statements in the future. For simplicity sake and to focus on what we believe are the best indicators of our operating performance we will discuss results from continuing operations and we’ll also exclude special items from all periods in our discussions today. The reconciliation of this non-GAAP information has been attached to our earnings release and is also available on our website.

Also on our website you will find second quarter supplemental slides which we will follow during our discussion today. Before turning the call over to John, I’d like to remind the analyst to limit themselves to one question and one follow up during our question and answer session so others may ask their questions. With that, it is my pleasure to turn the call over to John Workman.

John L. Workman

As you know, I was named the interim chief executive officer in early June 2012 and Nitin Sahney was named the chief operating officer. Nitin and I view this as a partnership and we remain focused on improving the operations of the company particularly in long [inaudible]. In a short while Nitin is going to provide you some perspective six weeks into his new role.

Before we discuss the quarter I want to provide you with an update on the CEO search on behalf of the board of directors. The board of directors has retained a national search firm. The process is underway including meetings with senior management of the company. As you know, I am a candidate and as such am engaged in the process myself. The board expects to complete the process by the end of the third quarter 2012. While that process is underway, Nitin and I are working together to execute the company’s strategy including making refinements as appropriate.

Now, turning to the quarter’s financial results; we are pleased with our second quarter results. Adjusted cash based earnings per diluted share from continuing operations was $0.83 for the quarter compared to $0.69 a year ago and $0.81 in the first quarter of 2012. These strong results benefitted from generic drug efficiencies and in other strong specialty care performance. Cash flow from operations was $120 million for the quarter which included a $50 million payment under the DEA settlement announced earlier in the second quarter.

Long term care’s adjusted operating income from continuing operations of $150.8 million was a 16% improvement over the same quarter a year ago. Specialty care group’s adjusted operating income of $31.9 million was a 30% improvement over the second quarter of 2011, a continued exceptionally solid performance.

Next, turning to metrics, our retention rate for the quarter in long term care was 92.3% returning to the 92% to 94% range we saw in 2011. Importantly, service related losses were 38% lower as compared to the second quarter 2011. Our net organic bed activity for the quarter in long term care was a net loss of 8,637 beds. While an improvement over the first quarter 2012 we are disappointed in our progress particularly as it relates to new beds added. We have commented on the fact that new beds have been lagging in our expectations on past calls.

Consequently, we do not currently expect net organic bed growth in our patient related beds for the full year 2012 though we do expect to see continued improvement over the prior year as we move through the third and fourth quarters 2012. Nitin will discuss some specific strategies about how we plan to address this situation and restore organic bed growth.

Our total scripts dispensed in the second quarter were 30.1 million scripts down approximately 650,000 scripts from the first quarter of 2012. We saw a similar seasonal decline from the first to second quarter in 2011 also. I’ll remind everybody that while we discuss beds our revenue is driven by scripts.

Finally, a few additional highlights before I turn it over to Nitin for his observations and then to Rocky Kraft for a more detailed review of our financial results. During the second quarter of 2012 we concluded the exchange offer described on our first quarter 2012 earnings call which further strengthened our capital structure. Subsequent to the end of the second quarter we agreed to purchase the pharmacy operations of Five Star. This acquisition will allow us to pick up the rest of the Five Star beds we do not serve today and also add customers that were served by the Five Star pharmacy operations. We expect the acquisition to close in the second half of the year.

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