LISLE, IL, Aug. 6 /PRNewswire-FirstCall/ - SXC Health Solutions Corp. ("SXC" or the "Company") (NASDAQ: SXCI, TSX: SXC), announces its financial results for the three- and six-month periods ended June 30, 2009. Financial references are in U.S. dollars unless otherwise indicated.
Advertisement
"Driven by new contract wins, strong client retention, cross-sell selling success and operational synergies, we generated record sales and profitability in the second quarter," said Mark Thierer, President and CEO of SXC. "As the Technology-Enabled PBM, we continue to benefit from our flexible and diversified business model which enables us to service a broad number of market verticals and a wide range of customers within each segment. This diversification has helped us to grow our business and expand our sales pipeline during difficult economics times. As a result of our strong financial and operational performance in the first half of the year and our positive outlook for the second half, we are once again raising our fiscal 2009 financial targets."
Advertisement
Effective with the acquisition of NMHC, the Company evaluates segment performance based on revenue and gross profit. A reconciliation of the Company's business segments to the consolidated financial statements for the three- and six-month periods ended June 30, 2009 and 2008 is as follows (in thousands):
PBM revenue was $293.9 million for Q2 2009, compared to $204.9 million for Q2 2008. PBM revenue for the year-to-date (YTD) period was $561.7 million, compared to $204.9 million in the prior year.
Q2 2009 HCIT revenue was $26.9 million, compared to $22.9 million in the same period in 2008. Recurring revenue consisted of transaction processing revenue of $15.7 million, compared to $11.9 million in Q2 2008 and maintenance revenue of $4.5 million, compared to $4.1 million in Q2 2008. Recurring revenue accounted for 75% of HCIT revenue in Q2 2009, compared to 70% in Q2 2008. Q2 2009 non-recurring revenue consisted of professional service revenue of $3.8 million, compared to $3.1 million in Q2 2008, and system sales revenue of $3.0 million, compared to $3.8 million in Q2 2008.
For the YTD period, HCIT revenue was $50.1 million, compared to $47.2 million in the prior year period. Transaction processing revenue for the YTD period was $29.4 million, compared to $26.5 million in the prior year period. Maintenance revenue for the YTD period was $9.0 million, compared to $8.3 million in the prior year period. Recurring revenue in the YTD period accounted for 77% of HCIT revenue compared to 74% in the prior year period. Professional services revenue for the YTD period was $7.4 million, compared to $6.9 million in the prior year period. System sales revenue for the YTD period was $4.3 million, compared to $5.5 million in the prior year period.
Product Development Costs
Product development costs for Q2 2009 were $3.0 million, compared to $2.5 million in Q2 2008. Product development costs for the YTD period were $6.2 million, compared to $4.9 million in the prior year period. Product development remains a key priority for SXC as the Company seeks to develop enhancements to existing products and the launch of new offerings.
Selling, General and Administration ("SG A") Costs
SG A costs for Q2 2009 were $21.9 million, compared to $19.6 million in Q2 2008. SG A for the YTD period was $42.7 million, compared to $25.4 million in the prior year period. The increase is primarily due to the acquisition of NMHC which occurred in May 2008 and other initiatives to expand the Company's sales and support capabilities.
Adjusted EBITDA(1)
Q2 2009 adjusted EBITDA was $23.7 million, compared to $9.6 million in Q2 2008. Adjusted EBITDA for the YTD period was $40.0 million, compared to $15.9 million in the prior year period. The year-over-year growth in adjusted EBITDA was due primarily to the addition of the NMHC business, new contract wins, improved purchasing efficiencies on prescription drugs, and cost synergies generated from the acquisition.
Income Taxes
The Company recognized income tax expense of $5.2 million in Q2 2009, representing an effective tax rate of 30%, compared to an income tax expense of $0.5 million in Q2 2008, representing an effective tax rate of 14%. Income tax expense for the YTD period was $8.1 million, representing an effective tax rate of 29%, compared to an income tax expense of $2.2 million in the prior year period, representing an effective tax rate of 25%. The change in the effective tax rate is due primarily to greater earnings in 2009.
Net Income
The Company reported Q2 2009 net income of $12.0 million, or $0.47 per share (fully-diluted), which included $2.4 million of intangible amortization, compared to $3.3 million, or $0.14 per share (fully-diluted), which included $2.4 million of intangible amortization, in Q2 2008. Net income for the YTD period was $19.7 million, or $0.79 per share (fully-diluted), which also included $5.2 million of intangible amortization, compared to net income in the prior year period of $6.6 million, or $0.29 per share (fully-diluted), which included $2.8 million of intangible amortization.
Cash from Operations
SXC continues to generate strong cash from operations. For Q2 2009, the Company generated $19.8 million of cash through its operations, compared to $9.0 million during Q2 2008. The Company's quarterly cash flows can be impacted by the timing of pharmacy deposit and rebate payments it receives for certain customers. For the YTD period, SXC generated cash from operations of $31.7 million, compared to $17.0 million in the prior year period.
At June 30, 2009 and December 31, 2008, SXC had cash and cash equivalents totalling $96.6 million and $67.7 million, respectively. The Company believes that its cash on hand, together with cash generated from operating activities and amounts available under its existing credit facility, will be sufficient to support planned operations through the foreseeable future.
Notice of Conference Call
SXC will host a conference call on Thursday, August 6, 2009 at 8:30 a.m. ET to discuss its financial results. Mark Thierer, President and CEO, and Jeff Park, EVP and CFO will co-chair the call. All interested parties can join the call by dialing 1-866-250-4909 or 416-646-3095. Please dial in 15 minutes prior to the call to secure a line. The conference call will be archived for replay until Thursday, August 13, 2009 at midnight. To access the archived conference call, please dial 1-877-289-8525 or 416-640-1917 and enter the reservation code 21311296 followed by the number sign.
A live audio webcast of the conference call will be available www.sxc.com and www.newswire.ca. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast. An archived replay of the webcast will be available for 365 days.
(1) Non-GAAP Financial Measures
SXC reports its financial results in accordance with generally accepted accounting principles in the United States ("GAAP"). SXC's management also evaluates and makes operating decisions using various other measures. Two such measures are adjusted earnings per share, and adjusted EBITDA, which are non-GAAP financial measures. SXC's management believes that these measures provide useful supplemental information regarding the performance of SXC's business operations.
Adjusted earnings per share is a non-GAAP measure which takes earnings per share and adds back the impact of amortization expense related to the acquisition of NMHC, net of tax. Acquisition-related amortization expense is a non-cash expense arising from the acquisition of intangible assets in connection with the acquisition. SXC excludes acquisition-related amortization expense from non-GAAP adjusted earnings per share because it believes (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of SXC business operations and (ii) such expenses can vary significantly between periods as a result of new acquisitions and full amortization of previously acquired intangible assets. Investors should note that the use of these intangible assets will contribute to revenue in the future period presented and periods beyond that and should also note that such expense will recur in future periods. The 2009 guidance of adjusted earnings per share was computed by taking the Company's GAAP earnings per share guidance and adding back the expected impact of acquisition-related amortization expense, net of tax.
Adjusted EBITDA is a non-GAAP measure that management believes is a useful supplemental measure of operating performance prior to net interest income (expense), income taxes, depreciation, amortization, stock-based compensation, and certain other one-time charges. Management believes it is useful to exclude depreciation, amortization and net interest income (expense) as these are essentially fixed amounts that cannot be influenced by management in the short term. In addition, management believes it is useful to exclude stock-based compensation as this is not a cash expense. Lastly, certain other one-time charges (including losses on disposals of capital assets) are excluded as these are not considered to be recurring items.
Adjusted prescription volume equals SXC's Mail Service prescriptions multiplied by three, plus its retail and specialty prescriptions. The Mail Service prescriptions are multiplied by three to adjust for the fact that they typically include approximately three times the amount of product days supplied compared with retail prescriptions.
Management believes that adjusted earnings per share, adjusted EBITDA and adjusted prescription volume provide useful supplemental information to management and investors regarding the performance of the Company's business operations and facilitate comparisons to its historical operating results. Management also uses this information internally for forecasting and budgeting as it believes that the measures are indicative of the Company's core operating results. Note however, that these items are performance measures only, and do not provide any measure of the Company's cash flow or liquidity. Non-GAAP financial measures should not be considered as a substitute for measures of financial performance in accordance with GAAP, and investors and potential investors are encouraged to review the reconciliation of adjusted earnings per share and adjusted EBITDA.
Adjusted earnings per share and adjusted EBITDA do not have standardized meanings prescribed by GAAP. The Company's method of calculating these items may differ from the methods used by other companies and, accordingly, it may not be comparable to similarly titled measures used by other companies. Reconciliation of adjusted EBITDA to net income and adjusted net income to net income is shown below:
The net effect is that SXC's year-over-year revenues have increased dramatically while gross profit margin and adjusted EBITDA have increased in absolute dollar terms, but have declined as a percentage of total sales. These changes do not affect profitability on an absolute dollar or per share basis.
About SXC Health Solutions Corp.
SXC Health Solutions Corp. is a leading provider of pharmacy benefit management (PBM) services and Healthcare Information Technology (HCIT) solutions to the healthcare benefits management industry. As the industry's "Technology-Enabled PBM"(TM), SXC's product offerings and solutions combine a wide range of advanced PBM services, software applications, application service provider (ASP) processing services, and professional services to help healthcare organizations reduce the cost of prescription drugs and deliver better healthcare to their members. SXC serves many of the largest organizations in the pharmaceutical supply chain, such as health plans; employers; Federal, provincial, and state governments; institutional pharmacies; pharmacy benefit managers; and retail pharmacy chains. SXC is headquartered in Lisle, Illinois with multiple locations in North America. Learn more at www.sxc.com.
Forward-Looking Statements
Certain statements included herein, including those that express management's expectations or estimates of our future performance, constitute "forward-looking statements" within the meaning of applicable securities laws. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management at this time, are inherently subject to significant business, economic and competitive uncertainties and contingencies. We caution that such forward-looking statements involve known and unknown risks, uncertainties and other risks that may cause our actual financial results, performance, or achievements to be materially different from our estimated future results, performance or achievements expressed or implied by those forward-looking statements. Numerous factors could cause actual results to differ materially from those in the forward-looking statements, including without limitation, our ability to achieve increased market acceptance for our product offerings and penetrate new markets; consolidation in the healthcare industry; the existence of undetected errors or similar problems in our software products; our ability to identify and complete acquisitions, manage our growth and integrate acquisitions; our ability to compete successfully; potential liability for the use of incorrect or incomplete data; the length of the sales cycle for our healthcare software solutions; interruption of our operations due to outside sources; our dependence on key customers; maintaining our intellectual property rights and litigation involving intellectual property rights; our ability to obtain, use or successfully integrate third-party licensed technology; compliance with existing laws, regulations and industry initiatives and future change in laws or regulations in the healthcare industry; breach of our security by third parties; our dependence on the expertise of our key personnel; our access to sufficient capital to fund our future requirements; and potential write-offs of goodwill or other intangible assets. This list is not exhaustive of the factors that may affect any of our forward-looking statements. Other factors that should be considered are discussed from time to time in SXC's filings with the U.S. Securities and Exchange Commission, including the risks and uncertainties discussed under that captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2008 Annual Report on Form 10-K and subsequent Form 10-Qs, which are available at www.sec.gov. Investors are cautioned not to put undue reliance on forward-looking statements. All subsequent written and oral forward-looking statements attributable to SXC or persons acting on our behalf are expressly qualified in their entirety by this notice. We disclaim any intent or obligation to update publicly these forward-looking statements, whether as a result of new information, future events or otherwise.
Certain of the assumptions made in preparing forward-looking information and management's expectations include: maintenance of our existing customers and contracts, our ability to market our products successfully to anticipated customers, the impact of increasing competition, the growth of prescription drug utilization rates at predicted levels, the retention of our key personnel, our customers continuing to process transactions at historical levels, that our systems will not be interrupted for any significant period of time, that our products will perform free of major errors, our ability to obtain financing on acceptable terms and that there will be no significant changes in the regulation of our business.
2009 guidance revised higher based on solid year-to-date performance and positive outlook for the remainder of the year
SOURCE SXC Health Solutions Corp.
