December 17, 2017

Catamaran Announces 2014 Financial Results, Acquisition of Healthcare Solutions

Schaumburg, IL – Catamaran Corporation (NASDAQ: CTRX) (TSX: CCT), a provider of pharmacy benefit management services and technology, recently announced its financial results for the three-month and twelve-month periods ended December 31, 2014, and provided guidance for 2015. Catamaran also announced it has entered into a definitive agreement to acquire Healthcare Solutions, Inc., a current PBM client that services the workers’ compensation market, for $405 million in cash, subject to certain customary post-closing adjustments. Healthcare Solutions is expected to generate approximately $35 million in annual EBITDA prior to any synergies.

Catamaran expects to realize approximately $10 million in annualized synergies once Healthcare Solutions is fully integrated, which is expected to take 12 to 18 months post-closing. Catamaran expects to close the transaction in the second quarter of 2015, subject to satisfaction of customary closing conditions.

2014 Financial Highlights

  • Revenue increased 46% on a year over year basis to $21.6 billion during 2014, compared to $14.8 billion in 2013
  • Gross profit increased 21% to $1.4 billion during 2014, compared to $1.1 billion in 2013
  • Net income attributable to the Company increased 21% to $317.3 million, or $1.53 per share (fully-diluted), in 2014, compared to $262.2 million, or $1.27 per share (fully-diluted), in 2013
  • EBITDA¹ increased 21% to $786.9 million during 2014, compared to $651.1 million in 2013
  • Adjusted EPS¹ (fully-diluted), increased 14% to $2.28 in 2014, compared to $2.00 in 2013
  • Cash flow from operations increased 24% to $590.2 million during 2014, compared to $475.4 million in 2013, and exited 2014 with over $1 billion in cash
  • Adjusted prescription claim volume¹ for the PBM segment increased 37% to 404.1 million in 2014, compared to 296.0 million in 2013
  • Generic dispensing rate increased to 86% for 2014, compared to 84% for 2013
  • Entered into a definitive agre
  • ement to acquire Salveo Specialty Pharmacy (“Salveo”), which was completed in January 2015.

2014 Corporate Highlights

  • Introduced its newest clinical service offering, the Safe & Effective Compound Use Reassurance Effort (SECURE), to help clients better monitor and manage the safety and cost-effectiveness of compound medications
  • Recognized as one of the Top 100 Fastest-Growing Companies for the fifth consecutive year by Fortune magazine.

“I am proud of our many accomplishments in 2014, exceeding $20 billion in revenue and delivering record financial results, while concurrently investing in our technology and service capabilities. We are confident our financial and operational momentum will carry into 2015 and beyond,” said Mark Thierer, Chairman and CEO of Catamaran. “The acquisition of Healthcare Solutions provides a complementary business platform to further expand our strong presence in the workers’ compensation market. In addition, Healthcare Solutions’long-standing and established relationships with insurance carriers and TPAs provide an opportunity
to bring Catamaran’s full suite of technology and services to Healthcare Solutions’ clients.”

Financial Review

Revenue and Gross Profit segmented by PBM and HCIT:
Catamaran evaluates segment performance based on revenue and gross profit. Reconciliations of the Company’s business segments, PBM and Health Care Information Technology (“HCIT”), to the consolidated financial statements for the three-month and twelvemonth periods ended December 31, 2014 are as follows:

PBM Revenue
PBM revenue increased by $6.8 billion, or 46% to $21.4 billion for the year ended December 31, 2014, compared to $14.6 billion for the same period in 2013. PBM revenue increased by $1.2 billion, or 27% to $5.7 billion in Q4 2014, compared to $4.5 billion in Q4 2013. The increase in revenue in both periods is primarily due to an increase in the prescription claim volume as a result of organic growth added through new customer implementations as well as additional specialty claim volume. Revenue for 2014 also increased compared to the prior year as a result of claim volume related to a full year contribution from the Restat book of
business.

HCIT Revenue
Total HCIT revenue increased $3.9 million, or 3% to $151.9 million for the year ended December 31, 2014, compared to $148.0 million for the same period in 2013. HCIT revenue increased $5.1 million, or 13% to $44.3 million in Q4 2014, compared to $39.2 million in Q4 2013. The increase in both periods was primarily due to an increase in revenues earned from transaction processing .

Consolidated Gross Profit
Gross profit increased $234.4 million, or 21% to $1.4 billion for the year ended December 31, 2014, compared to $1.1 billion for the same period in 2013. Gross profit increased $39.1 million or 12% to $364.0 million in Q4 2014, compared to $324.9 million in Q4 2013. The increase in both periods is mainly attributed to higher PBM revenues as a result of new customer contract implementations as discussed above. Consolidated gross profit percentage for the full year decreased from 7.6% of revenue in 2013 to 6.3% of revenue in 2014 mainly due to Cigna transactions which contributed to the Company’s revenue increase, carrying a significantly lower gross profit percentage as compared to the historical PBM business. This decrease was offset by positive impact from increased generic utilization and increased mail and specialty penetration during 2014.

Selling, General and Administrative (“SG&A”) Costs
SG&Acosts increased $77.6 million, or 18% to $518.4 million for the year ended December 31, 2014, compared to $440.8 million for the same period in 2013.SG&A costs for Q4 2014 were $129.3 million, compared to $129.9 million in Q4 2013. SG&A costs have increased for the year ended December 31, 2014 due to having a full year of costs to support and integrate the business acquired from Restat that were only present for one quarter of the year in 2013. Additionally, operating costs increased as a result of organic increases in SG&A in order to support the growth of the PBM segment. SG&A costs were relatively flat in Q4 2014 compared to Q4 2013.

Amortization
Total amortization expense increased $10.0 million or 5% to $213.2 million for the year ended December 31, 2014, compared to $203.2 million for the same period in 2013 as a result of having a full year of Restat amortization as compared to one quarter of Restat amortization in 2013. Amortization expense decreased $4.8 million or 9% to $51.0 million in Q4 2014, compared to $55.8 million in Q4 2013 primarily due to changes in amortization of previous acquisitions, which decrease over time.

Interest and other expense, net
Interest and other expense, net increased $19.5 million to $61.1 million for the year ended December 31, 2014, from $41.6 million in 2013. Interest and other expense, net, was $16.2 million in Q4 2014, compared to $10.7 million in Q4 2013. These increases are mainly due to higher average principal amount of long-term debt outstanding resulted from the issuance in March 2014 of $500.0 million aggregate principal amount of senior notes, offset by a repayment of $300.0 million of the Company’s outstanding borrowings under the revolving facility in March 2014.

Income Taxes
The Company recognized income tax expense of $134.2 million for the year ended December 31, 2014, representing an effective tax rate of 26.4%, compared to $103.4 million, or 25.7% in 2013. The Company recognized income tax expense of $39.1 million in Q4 2014, representing an effective tax rate of 25.6%, compared to $27.8 million, or 24.1% in Q4 2013. The increase in tax expense during both periods was due to higher taxable income in 2014, offset by tax benefits related to cross jurisdictional financing.

Net Income and EPS attributable to the Company
The Company reported full year 2014 net income attributable to the Company of $317.3 million, or $1.53 per share (fully-diluted), compared to $262.2 million, or $1.27 per share (fully-diluted) in 2013. The Company reported net income attributable to the Company of $100.4 million, or $0.48 per share (fully-diluted) in Q4 2014, compared to $74.4 million, or $0.36 per share (fullydiluted) in Q4 2013. Net income and EPS attributable to the Company increased during both periods due to increased revenue as a result of new customer implementations and additional income generated as a result of the Restat acquisition. These positive impacts to net income attributable to the Company were offset by an increase in operating expenses as discussed above, plus an increase in interest expense.

Adjusted EPS¹ (fully-diluted), which excludes all amortization of intangible assets of $213.2 million, net of tax, increased 14% to $2.28 per share (fully-diluted) for the year ended December 31, 2014, compared to $2.00 per share (fully-diluted) for the same period in 2013. Adjusted EPS increased 20% to $0.67 per share (fully-diluted) in Q4 2014, compared to $0.56 per share (fullydiluted) in Q4 2013.

EBITDA¹
EBITDA for the year ended December 31, 2014 increased $135.8 million, or 21% to $786.9 million, compared to $651.1 million for the same period in 2013. EBITDA for Q4 2014 increased $39.8 million or 22% to $221.8 million, compared to $182.0 million for Q4 2013. The EBITDA growth was primarily due to increased net income attributable to the Company as a result of increased revenue, as noted previously. This was partially offset by increased costs incurred to support the Company’s business growth.

Cash Flow from Operations
For the full year 2014, the Company generated $590.2 million of cash from operations, compared to $475.4 million of cash from operations during the same period in 2013. The Company generated $163.0 million of cash flow from operations in Q4 2014, compared to $139.5 million during Q4 2013. Cash from operating activities increased during both periods mainly due to an increase in net income as discussed above.

2015 Full Year Financial Guidance
Catamaran has set the following 2015 full year financial targets, which do not include any impact from the proposed acquisition of Healthcare Solutions.

  • Revenue of $23.5 to $24.5 billion
  • EBITDA1 of $905 to $930 million
  • GAAP EPS (fully-diluted) of $1.77 to $1.92
  • Adjusted EPS1 (fully-diluted) of $2.45 to $2.60 (excluding all amortization of intangible assets)

The complete earnings release is available here: Catamaran Announces 2014 Financial Results, Acquisition of Healthcare Solutions (PDF)

Source: Catamaran

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