Express Scripts Holding (ESRX) Q2 2012 Earnings Call August 08, 2012 10:00 am ET Executives David Myers - Vice President of Investor Relations Jeffrey L. Hall - Chief Financial Officer and Executive Vice President George Paz - Chairman, Chief Executive Officer and President Analysts Thomas Gallucci - Lazard Capital Markets LLC, Research Division Lawrence C. Marsh - Barclays Capital, Research Division Glen J. Santangelo - Crédit Suisse AG, Research Division Lisa C. Gill - JP Morgan Chase & Co, Research Division Robert M. Willoughby - BofA Merrill Lynch, Research Division John Kreger - William Blair & Company L.L.C., Research Division Ricky Goldwasser - Morgan Stanley, Research Division Charles Rhyee - Cowen and Company, LLC, Research Division Steven Valiquette - UBS Investment Bank, Research Division Presentation Operator
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At this point, I'll turn the call over to Jeff, who'll discuss our second quarter financial results.Jeffrey L. Hall Thanks, David. Well, obviously, we've had a few busy months here, including closing the Medco acquisition, executing our integration plan, migrating the first year of WAG, focusing on the selling season and signing a new contract with Walgreens. In addition, we're also reporting strong second quarter earnings and increasing guidance for the year. Adjusted claims for the quarter were 404.3 million, up 118% from last year. Our generic fill rate was 77.8%, up from 74% a year ago. In keeping with our model of alignment, as our clinical programs delivered savings to our clients, we also improved our gross profit. SG&A was up $80 million versus Q1 pro forma for the acquisition, as a result of an increase in management incentive compensation to reflect the increase in our expectations for the year and the reclassification of several Medco expenses from cost of goods sold to SG&A to conform with Express Scripts accounting methodology. EBITDA for the quarter was $1.5 billion, and EBITDA per RX was up 14% versus prior year, again pro forma for the acquisition. Interest expense in the quarter was $169.5 million, as a result of the repayment of $1.5 billion of bonds at an average rate of 5.9% and continued low floating rates. Interest expense for 2012 is expected to be approximately $530 million. This quarter's effective tax rate, excluding non-recurring items related to purchase accounting, was 42.1%. The higher rate for the quarter was the result of several factors related to the closing of the transaction and a necessary year-to-date true-up. We still expect our effective tax rate to be 39%, which means the tax rate for the second half is expected to be approximately 38%. EPS for the second quarter was $0.88, a 24% increase over last year. Cash from operations was $726 million, a 58% increase from last year. Including Medco's first quarter performance, year-to-date cash from operations is approximately $2 billion.
As a result of strong performance in the first half of the year and the accelerated realization of synergies, we are increasing our guidance range for 2012. We now expect EPS for the year, excluding transaction, integration and amortization expenses, to be in the range of $3.60 to $3.75, representing growth of 24% over 2011 at the midpoint. As we have said before, this range assumes that shares outstanding for the year will be 750 million and the tax rate will be 39%. If the share count or tax rate changes from these assumptions, our EPS forecast could change.We are in the process of reviewing the strategic alternatives for several of our adjacent businesses, which are not core to our PBM offering. We do not expect the ultimate disposition of these businesses to have a material impact on our financial results. In summary, integration is proceeding well, and we continue to expect to complete the integration and achieve $1 billion of net synergies in 2014. At this point, I'll turn the call over to George. George Paz Thank you, Jeff, and good morning, everyone. Four months post closing, we are more confident that the combination with Medco provides significant opportunities to innovate, drive out waste and improve how health care is delivered. As part of our integration, we are combining Medco's clinical approach through its therapeutic research centers and the use of specialized pharmacists with Consumerology, the application of behavioral sciences to health care. By blending the combined clinical skills with the behavioral sciences, we will be able to accelerate clinical offerings from our greater efficiencies in the health care system and better protect American families from the rising cost of prescription medications. Our shared vision is to increase therapy adherence where appropriate, lower costs and drive a better health outcome. Our previous acquisitions have succeeded through a disciplined approach to integration, including clinical programs, rationalization of our footprint and system migration. We believe operating on one platform is imperative in offering best-in-class service and meeting the market challenges and opportunities presented by Health Care Reform, Medicare and Medicaid expansion. Read the rest of this transcript for free on seekingalpha.com