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Express Scripts Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: July 28, 2010 04:25PM

Express Scripts Inc. (ESRX) filed Quarterly Report for the period ended 2010-06-30. Express Scripts Inc. has a market cap of $23.85 billion; its shares were traded at around $43.39 with a P/E ratio of 23.1 and P/S ratio of 1. Express Scripts Inc. had an annual average earning growth of 17.8% over the past 10 years.

ESRX is in the portfolios of Andreas Halvorsen of Viking Global Investors LP, John Griffin of Blue Ridge Capital, Chris Davis of Davis Selected Advisers, Lee Ainslie of Maverick Capital, Jeremy Grantham of GMO LLC, Jim Simons of Renaissance Technologies LLC, Jeff Auxier of Auxier Focus Fund, George Soros of Soros Fund Management LLC, Bruce Kovner of Caxton Associates, Steven Cohen of SAC Capital Advisors, John Keeley of Keeley Fund Management.

Highlight of Business Operations:

Product Revenues for the three months ended June 30, 2010: Network pharmacy revenues increased by $4,357.7 million, or 134.8%, in the three months ended June 30, 2010 over the same period of 2009. Home delivery and specialty revenues increased $1,408.3 million, or 74.6%, in the three months ended June 30, 2010 from the same period in 2009. Approximately $5,533.5 million of the total product revenue increase is due to the increase in volume due to the acquisition of NextRx and the new contract with the DoD. The new contract with the DoD results in our accounting using the gross basis, under which the ingredient cost and member co-payments are included in revenues and cost of revenues. Additionally included as revenue, is $30.0 million related to the amendment of a client contract which relieved us of certain contractual guarantees. This amount was originally accrued in the NextRx opening balance sheet and in accordance with business combination accounting guidance the reversal of the accrual was recorded in revenue upon amendment of the contract during the second quarter of 2010. The increase was partially offset by the impact of higher generic penetration. Our network generic fill rate increased to 72.5% of total network claims in the second quarter of 2010 as compared to 69.2% in the same period of 2009. Additionally, our home delivery generic fill rate increased to 60.0% of home delivery claims in the three months ended June 30, 2010 as compared to 57.2% in the same period of 2009.

Product Revenues for the six months ended June 30, 2010: Network pharmacy revenues increased by $8,622.0 million, or 133.0%, in the six months ended June 30, 2010 over the same period of 2009. Home delivery and specialty revenues increased $2,841.1 million, or 77.1%, in the six months ended June 30, 2010 from the same period in 2009. Approximately $11,046.3 million of the total product revenue increase is due to the increase in volume mostly due to the acquisition of NextRx and the new contract with the DoD. The new contract with the DoD results in our accounting using the gross basis, under which the ingredient cost and member co-payments are included in revenues and cost of revenues. Additionally included as revenue, is $30.0 million related to the amendment of a client contract which relieved us of certain contractual guarantees. The increase was partially offset by the impact of higher generic penetration. Our network generic fill rate increased to 71.9% of total network claims in the first six months of 2010 as compared to 69.1% in the same period of 2009. Additionally, our home delivery generic fill rate increased to 59.7% of home delivery claims in the six months ended June 30, 2010 as compared to 57.1% in the same period of 2009.

On December 1, 2009, we completed the purchase of NextRx PBM Business, in exchange for total consideration of $4.675 billion paid in cash. The working capital adjustment was finalized during the second quarter of 2010 and reduced the purchase price by $8.3 million, resulting in a final purchase price of $4.667 billion. The NextRx PBM Business is a national provider of PBM services, and we believe the acquisition will enhance our ability to achieve cost savings, innovations, and operational efficiencies which will benefit our customers and stockholders. The purchase price was primarily funded through a $2.5 billion underwritten public offering of senior notes completed on June 9, 2009 resulting in net proceeds of $2,478.3 million, and a public offering of 52.9 million shares (26.45 million shares unadjusted for the two-for-one stock split effective June 8, 2010) of common stock completed June 10, 2009 resulting in net proceeds of $1,569.1 million. This acquisition is reported as part of our PBM segment (see Note 3).

At June 30, 2010, our credit facility includes $180.0 million of Term A loans, $800.0 million of Term-1 loans and a $600.0 million revolving credit facility. The revolving credit facility (none of which was outstanding as of June 30, 2010) is available for general corporate purposes. During the first six months of 2010, we made scheduled payments of $360.0 million on the Term A loan. We anticipate that the current cash balances and the cash flow from operations will be sufficient to repay the principal balances when due and make our scheduled payments for those contractual obligations and capital commitments included in our Annual Report on Form 10-K for the year ended December 31, 2009. While it is our current intention to repay these loans when due, we may enter into a new loan facility to provide additional liquidity. At June 30, 2010, our remaining Term A loans and Term-1 loans obligation is $980.1 million and our cash and cash equivalents are $1,631.2 million.

On June 9, 2009, we issued $2.5 billion of senior notes, including $1.0 billion aggregate principal amount of 5.25% senior notes due 2012; $1.0 billion aggregate principal amount of 6.25% senior notes due 2014 and $500 million aggregate principal amount of 7.25% senior notes due 2019. The senior notes require interest to be paid semi-annually on June 15 and December 15. We may redeem some or all of each series of senior notes prior to maturity at a price equal to the greater of (1) 100% of the aggregate principal amount of any notes being redeemed, plus accrued and unpaid interest; or (2) the sum of the present values of the remaining scheduled payments of principal and interest on the notes being redeemed, not including unpaid interest accrued to the redemption date, discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the treasury rate plus 50 basis points with respect to any 2012 notes, 2014 notes and 2019 notes being redeemed, plus in each case, unpaid interest on the notes being redeemed accrued to the redemption date. The senior notes are jointly and severally and fully and unconditionally guaranteed on a senior basis by most of our current and future 100% owned domestic subsidiaries.

On June 10, 2009, we completed a public offering of 52.9 million shares (26.45 million shares unadjusted for the two-for-one stock split effective June 8, 2010) of common stock, which includes 6.9 million shares (3.45 million shares unadjusted) sold as a result of the underwriters’ exercise of their overallotment option in full at closing, at a price of $30.50 per share ($61.00 per share unadjusted). The sale resulted in net proceeds of $1,569.1 million after giving effect to the underwriting discount and issuance costs of $44.4 million. We used the net proceeds for the acquisition of WellPoint’s NextRx PBM Business.

Read the The complete Report



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