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Chem Rx Corporation Reports Third Quarter 2008 Financial Results

Friday, November 14, 2008 General News J E 4
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LONG BEACH, N.Y., Nov. 14 Chem Rx Corporation(OTC Bulletin Board: CHRX, CHRXU, CHRXW), a leading provider of institutionalpharmacy services, today reported financial results for the third quarterended September 30, 2008.

Net sales of Chem Rx Corporation for the third quarter ended September 30,2008 were $89.9 million, an 11.3% increase compared to $80.8 million for thethird quarter ended September 30, 2007. This growth was primarily attributedto increased beds serviced by the Company's facilities, primarily as a resultof a continued focus on relationship management and high quality customerservice.

Gross profit for the third quarter ended September 30, 2008 was $23.7million, a 20.7% increase compared to pro forma gross profit of $19.6 millionfor the quarter ended September 30, 2007. Gross profit as a percentage of netsales was 26.3% and 24.3% for the three months ended September 30, 2008 and2007, respectively. The increase in the gross profit dollars and percent wasattributable to the growth in net sales, coupled with efficiencies resultingfrom greater utilization of the Company's facilities, other fixed-costresources and the increased availability and use of generic drugs.

Selling, general and administrative expenses for the third quarter endedSeptember 30, 2008 were $20.6 million, compared to pro forma selling, generaland administrative expenses of $16.5 million for the quarter ended September30, 2007. The increase in selling, general and administrative expenses wasprimarily attributable to higher expenditures, including costs related tosalaries and benefits and additional depreciation expense, to support therevenue growth at the Company's facilities and costs of the recently openedFlorida location. In addition, the Company incurred increased professionalfees and other costs related primarily to the cost of being a public company,an increase in delivery expenses due to increased sales and higher fuel costs,higher bad debt expense and higher recruitment fees and temporary employees.Selling, general and administrative expenses for the third quarter endedSeptember 30, 2008 declined by over $300,000 on a sequential basis due to theinitial results of the Company's recently implemented cost savingsinitiatives.

Adjusted earnings before interest, income taxes, depreciation andamortization ("Adjusted EBITDA") was $6.1 million for the third quarter endedSeptember 30, 2008, compared to pro forma Adjusted EBITDA of $6.0 million forthe third quarter ended September 30, 2007. Adjusted EBITDA is a non-GAAPfinancial measure.

Interest expense was $3.4 million for the three months ended September 30,2008, compared to pro forma interest expense of $3.7 million for the threemonths ended September 30, 2007.

Income before income taxes for the third quarter was $231,000, compared toa pre-tax loss in each of the prior two quarters of 2008. The Companyrecorded a provision for income taxes of $428,000, based on the Company'sexpected effective tax rate on projected pre-tax results from operations forthe year ending December 31, 2008. The Company recorded a proforma income taxbenefit of $148,000 for the three months ended September 30, 2007.

Net loss for the third quarter ended September 30, 2008 was $(197,000), or($0.01) per basic and diluted share, compared to pro forma net loss of$(222,000), or ($0.02) per pro forma basic and diluted share, for the quarterended September 30, 2007.

Steven C. Silva, President and Chief Operating Officer, commented, "We arepleased with our net bed growth through November and are well on our way toexceeding our 2008 goal of 70,000 by the end of the year. Our entry into thecorrectional facilities sector has contributed to this increase as our Albanylocation is doing very well and we expect further expansion in this newmarket."

Gary M. Jacobs, Chief Financial Officer, said, "The key initiatives thatwe put in place over the past quarter are beginning to show results. We arepleased with the improvement in the gross margin this quarter over the secondquarter of this year. Our cost containment initiatives are beginning to resultin savings to the Company as reflected in the reduction in SG&A this quarter,despite the increased cost associated with our implementation of SarbanesOxley. Our adjusted EBITDA increased by 18.5% on a sequential quarter basis to$6.1 million. We continue to believe that these initiatives will providepositive results to the Company. "

Recent Corporate Developments

As of September 30, 2008, the Company served 68,941 beds. As of November1, 2008, Chem Rx Corporation is serving 69,795 beds, a five percent increaseover the past six months. The net bed growth was attributable to growthacross the Company's institutional facilities, primarily in Albany,Pennsylvania, New Jersey and Florida.

Conference Call

The Company will host a conference call at 8:30 am ET today to review itsquarterly results. To participate in the conference call, please dial 1-877-407-0784 (USA) or 1-201-689-8560 (international). In addition, a dial-upreplay of the conference call will be available beginning November 14, 2008 atapproximately 11:30 a.m. ET and will remain available until November 21, 2008.To access the replay, please dial 1-877-660-6853 (USA) or 1-201-612-7415(international) and reference the account number 3055 and the access code300565. A web cast of the call will also be available from the InvestorRelations section on the corporate web site at http://www.chemrx.net throughDecember 14, 2008.

Pro Forma Adjusted EBITDA and Adjusted EBITDA

To assist financial statement users in their assessment of the Company'shistorical performance and their evaluation of the Company's potential forfuture earnings and cash flows, the Company has included in this press releasefinancial measures referred to as adjusted earnings before interest, taxes,depreciation and amortization (Adjusted EBITDA) as well as Adjusted EBITDA ona pro forma basis (Pro Forma Adjusted EBITDA). Pro Forma Adjusted EBITDAmodifies Adjusted EBITDA for the corresponding prior period (before theOctober 26, 2007 business combination) to include the estimated effect of thebusiness combination, financing transactions and certain other effects of thebusiness combination as if the business combination had taken place at thestart of such prior period. Adjusted EBITDA and Pro Forma Adjusted EBITDA arepresented because the Company believes each is a supplemental measure ofperformance that can be used by securities analysts, investors and otherinterested parties in the evaluation of its performance. Other companies maycalculate EBITDA differently. Adjusted EBITDA and Pro Forma Adjusted EBITDAare not measurements of financial performance under generally acceptedaccounting principles (GAAP) and should not be considered as measures ofliquidity or as alternatives to operating income, net income or cash flow fromoperating activities as indicators of operating performance or any othermeasures of performance derived in accordance with GAAP. As non-GAAPfinancial measures, Adjusted EBITDA and Pro Forma Adjusted EBITDA, havecertain material limitations as follows:

-- They do not include interest expense. Because the Company hassubstantial obligations for borrowed money, interest is a necessary andsignificant part of the Company's costs. Therefore, any measures that excludeinterest have material limitations;

-- They do not include depreciation and amortization expense. Because theCompany needs capital assets to generate revenues, depreciation andamortization expense is a necessary and ongoing part of the Company's costs.Therefore, any measures that exclude depreciation and amortization expensehave material limitations;

-- They do not include taxes. Because the payment of taxes is a necessaryand ongoing part of the Company's operations, any measures that exclude taxeshave material limitations;

-- They include additional adjustments described in the table at the endof this press release primarily related to certain non-cash compensation costsand other non-recurring expenses; and

-- Pro Forma Adjusted EBITDA includes adjustments to estimate the proforma effects of the business combination including the business combinationfinancing transactions.

Management compensates for these limitations by considering the economiceffect of the adjusted items independently as well as in connection with itsanalysis of net earnings.

About Chem Rx

Founded more than 40 years ago, Chem Rx is a major institutional pharmacyserving the New York City metropolitan area, as well as parts of New Jersey,upstate New York, Pennsylvania and Florida. Chem Rx's client base includesskilled nursing facilities and a wide range of other long-term carefacilities. Chem Rx annually provides over six million prescriptions to69,795 residents of more than 457 institutional facilities. Chem Rx's websiteaddress is www.chemrx.net.

Forward Looking Statements

This press release contains forward-looking statements within the meaningof the Private Securities Litigation Reform Act of 1995 about Chem RxCorporation. Forward-looking statements are statements that are nothistorical facts. Such forward-looking statements are based upon the currentbeliefs and expectations of Chem Rx's management and are subject to risks anduncertainties that could cause actual results to differ from the forward-looking statements. The following factors, among others, could cause actualresults to differ from those set forth in the forward-looking statements:compliance with government regulations; changes in legislation or regulatoryenvironments; requirements or changes adversely affecting the health careindustry, including changes in Medicare reimbursement policies; fluctuationsin customer demand; management of rapid growth; intensity of competition;timing, approval and market acceptance of new product introductions andinstitutional pharmacy locations; general economic conditions; geopoliticalevents and regulatory changes, as well as other relevant risks detailed inChem Rx Corporation's filings with the SEC. The information set forth hereinshould be read in light of such risks. Chem Rx Corporation does not assumeany obligation to update the information contained in this press release.Contacts: Gary M. Jacobs Stephanie Carrington Chief Financial Officer The Ruth Group Chem Rx Corporation 646-536-7017 516-889-8770 scarrington@theruthgroup.com Chem Rx Corporation U.S. GAAP to Non-GAAP Financial Measure Reconciliation Unaudited Pro Forma Adjusted EBITDA and Adjusted EBITDA (in thousands) Chem Rx Corporation Unaudited Pro Forma Actual Three Months Three Months Ended Ended September 30, September 30, U.S. GAAP 2007 2008 NET SALES $80,805 $89,929 COST OF SALES 61,175 66,236 GROSS PROFIT 19,630 23,693 SELLING, GENERAL & ADMINISTRATIVE EXPENSES 16,473 20,564 OPERATING INCOME 3,157 3,129 OTHER INCOME (EXPENSE) Interest income 8 18 Interest expense (3,739) (3,387) Other income 204 471 TOTAL OTHER EXPENSE (3,527) (2,898) INCOME (LOSS) BEFORE INCOME TAXES (370) 231 PROVISION (BENEFIT) FOR INCOME TAXES (148) 428 NET INCOME (LOSS) $(222) $(197) Pro Forma Adjusted Adjusted Non-GAAP EBITDA EBITDA NET INCOME (LOSS) $(222) $(197) PROVISION (BENEFIT) FOR INCOME TAXES (148) 428 INTEREST INCOME (8) (18) INTEREST EXPENSE 3,739 3,387 DEPRECIATION & AMORTIZATION 2,346 2,372 LOSS ON FIXED ASSET DISPOSALS -- 24 NON-CASH STOCK COMPENSATION -- 141 (a) NON-GAAP MEASURE ADJUSTMENTS 253 -- (b) $5,960 $6,137 (a) Reflects the addition of non-cash charges associated with the grant of restricted shares, warrants and employee stock options. (b) Reflects non-recurring expenses related to the operations of Chem Rx Corporation prior to the acquisition of B.J.K. Inc. Chem Rx Corporation Unaudited Pro Forma Consolidated Statement of Operations For the Three Months Ended September 30, 2007 (in thousands) Chem Rx Chem Rx Corporation Corporation B.J.K. Inc. Non-GAAP (U.S.GAAP) (U.S.GAAP) Pro Forma Three Months Three Months Three Months Ended Ended Ended Sept. 30, Sept. 30, Non-GAAP Sept. 30, 2007 2007 Adjustments 2007 NET SALES $-- $80,805 $-- $80,805 COST OF SALES -- 61,175 -- 61,175 GROSS PROFIT -- 19,630 -- 19,630 SELLING, GENERAL & ADMINISTRATIVE EXPENSES 253 14,248 1,972 (a) 16,473 OPERATING INCOME (LOSS) (253) 5,382 (1,972) 3,157 OTHER INCOME (EXPENSE) Interest income 504 8 (504)(b) 8 Interest expense -- (834) (2,905)(c) (3,739) Other income, net -- 204 -- 204 TOTAL OTHER INCOME (EXPENSE) 504 (622) (3,409) (3,527) INCOME (LOSS) BEFORE MINORITY INTEREST & INCOME TAXES 251 4,760 (5,381) (370) MINORITY INTEREST -- (266) 266 (d) -- INCOME (LOSS) BEFORE INCOME TAXES 251 4,494 (5,115) (370) PROVISION (BENEFIT) FOR INCOME TAXES -- 87 (235)(e) (148) NET INCOME (LOSS) $251 $4,407 $(4,880) $(222) Notes to Unaudited Pro Forma Consolidated Statement of Operations (a) Reflects deconsolidation of 750 Park Place and increased rent expense paid to 750 Park Place, which is an affiliate that was not acquired in the transaction. In addition, the adjustment reflects excess salaries paid over senior management's pro forma contractual levels and an estimated increase of $1.8 million of additional amortization expense for three months related to intangible assets created by Chem Rx Corporation's acquisition of B.J.K. Inc. (b) Reflects exclusion of interest income unrelated to B.J.K. Inc. prior to the acquisition. (c) Reflects estimated pro forma interest expense resulting from our new capital structure after the close of the acquisition, using an assumed 3-month LIBOR rate of 5.00% and inclusive of deferred financing amortization expense. (d) Reflects exclusion of the minority interest related to 750 Park Place, an affiliate not acquired in the transaction. (e) Reflects adjustment for assumed corporate tax rate of 40%. Chem Rx Corporation U.S. GAAP to Non-GAAP Financial Measure Reconciliation Unaudited Pro Forma Adjusted EBITDA and Adjusted EBITDA (in thousands) Chem Rx Corporation Unaudited Pro Forma Actual Nine Months Nine Months Ended Ended September 30, September 30, U.S. GAAP 2007 2008 NET SALES $233,051 $267,206 COST OF SALES 175,321 198,217 GROSS PROFIT 57,730 68,989 SELLING, GENERAL & ADMINISTRATIVE EXPENSES 46,860 60,613 OPERATING INCOME 10,870 8,376 OTHER INCOME (EXPENSE) Interest income 19 66 Interest expense (11,218) (10,554) Other income 594 1,171 TOTAL OTHER EXPENSE (10,605) (9,317) INCOME (LOSS) BEFORE INCOME TAXES 265 (941) PROVISION (BENEFIT) FOR INCOME TAXES 122 (88) NET INCOME (LOSS) $143 $(853) Pro Forma Adjusted Adjusted Non-GAAP EBITDA EBITDA NET INCOME (LOSS) $143 $(853) PROVISION (BENEFIT) FOR INCOME TAXES 122 (88) INTEREST INCOME (19) (66) INTEREST EXPENSE 11,218 10,554 DEPRECIATION & AMORTIZATION 6,837 6,891 LOSS ON FIXED ASSET DISPOSALS -- 24 NON-CASH STOCK COMPENSATION -- 338 (a) NON-GAAP MEASURE ADJUSTMENTS 529 -- (b) $18,830 $16,800 (a) Reflects the addition of non-cash charges associated with the grant of restricted shares, warrants and employee stock options. (b) Reflects non-recurring expenses related to the operations of Chem Rx Corporation prior to the acquisition of B.J.K. Inc. Chem Rx Corporation Unaudited Pro Forma Consolidated Statement of Operations For the Nine Months Ended September 30, 2007 (in thousands) Chem Rx Chem Rx Corporation Corporation B.J.K. Inc. Non-GAAP (U.S.GAAP) (U.S.GAAP) Pro Forma Nine Months Nine Months Nine Months Ended Ended Ended Sept. 30, Sept. 30, Non-GAAP Sept. 30, 2007 2007 Adjustments 2007 NET SALES $-- $233,051 $-- $233,051 COST OF SALES -- 175,321 -- 175,321 GROSS PROFIT -- 57,730 -- 57,730 SELLING, GENERAL & ADMINISTRATIVE EXPENSES 529 40,754 5,577 (a) 46,860 OPERATING INCOME (LOSS) (529) 16,976 (5,577) 10,870 OTHER INCOME (EXPENSE) Interest income 1,475 19 (1,475)(b) 19 Interest expense -- (2,120) (9,098)(c) (11,218) Other income, net -- 594 -- 594 TOTAL OTHER INCOME (EXPENSE) 1,475 (1,507) (10,573) (10,605) INCOME (LOSS) BEFORE MINORITY INTEREST & INCOME TAXES 946 15,469 (16,150) 265 MINORITY INTEREST -- (808) 808 (d) -- INCOME (LOSS) BEFORE INCOME TAXES 946 14,661 (15,342) 265 PROVISION (BENEFIT) FOR INCOME TAXES 1 267 (146)(e) 122 NET INCOME (LOSS) $945 $14,394 $(15,196) $143 Notes to Unaudited Pro Forma Consolidated Statement of Operations (a) Reflects deconsolidation of 750 Park Place and increased rent expense paid to 750 Park Place, which is an affiliate that was not acquired in the transaction. In addition, the adjustment reflects salaries paid over senior management's pro forma contractual levels and an estimated increase of $5.3 million of additional amortization expense for six months related to intangible assets created by Chem Rx Corporation's acquisition of B.J.K. Inc. (b) Reflects exclusion of interest income unrelated to B.J.K. Inc. prior to the acquisition. (c) Reflects estimated pro forma interest expense resulting from our new capital structure after the close of the acquisition, using an assumed 3-month LIBOR rate of 5.00% and inclusive of deferred financing amortization expense. (d) Reflects exclusion of the minority interest related to 750 Park Place, an affiliate not acquired in the transaction. (e) Reflects adjustment for assumed corporate tax rate of 40%. CHEM RX CORPORATION CONSOLIDATED BALANCE SHEETS September 30, 2008 and DECEMBER 31, 2007 (In thousands) September 30, December 31, 2008 2007 ASSETS (unaudited) CURRENT ASSETS Cash $1,068 $3,740 Accounts receivable, net 75,513 65,038 Inventory 17,084 22,354 Prepaid expenses and other current assets 6,654 4,562 Deferred tax asset 555 Total Current Assets 100,874 95,694 Property and equipment, net 9,904 8,806 Intangible assets, net 76,735 82,033 Goodwill 38,826 38,626 Deferred financing costs, net 4,409 4,779 Other assets 951 2,562 Deferred tax asset - 544 TOTAL ASSETS $231,699 $233,044 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $35,501 $24,280 Accrued expenses and other current liabilities 2,697 3,284 Current portion of notes payable 2,000 2,000 Total Current Liabilities 40,198 29,564 Deferred tax liability 62 Long-term debt 116,500 129,000 Subordinated notes payable-related parties 9,059 8,408 TOTAL LIABILITIES 165,819 166,972 STOCKHOLDERS' EQUITY Preferred stock - - Common stock 1 1 Treasury stock (3,654) (3,654) Additional paid-in-capital 67,710 67,372 Accumulated other comprehensive income 323 Retained earnings 1,500 2,353 TOTAL STOCKHOLDERS' EQUITY 65,880 66,072 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $231,699 $233,044

SOURCE Chem Rx Corporation
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