St. Louis, MO – Express Scripts Holding Company (Nasdaq: ESRX) recently announced 2013 fourth quarter and full year net income from continuing operations attributable to Express Scripts shareholders of $514.2 million and $1,898.2 million, or $0.64 and $2.31 per diluted share, respectively. Adjusted earnings per diluted share from continuing operations attributable to Express Scripts, as detailed in Table 4, were $1.12 and $4.33 for the fourth quarter and full year, respectively.
“With the industry’s broadest set of solutions now available on one technology platform, we enter 2014 with momentum and unique capabilities to address the needs of our clients,” stated George Paz, chairman and chief executive officer. “Our innovative solutions, ability to successfully manage healthcare reform, and unmatched size and scale position us for long-term organic growth as we better control client costs and improve patient outcomes.”
Fourth Quarter 2013 Review
- The expected roll-off of UnitedHealth Group (“UNH”) claims was completed by the end of 2013.
- Excluding UNH from both periods, adjusted claims from continuing operations decreased 5% from the fourth quarter of 2012. Including UNH in both periods, adjusted claims from continuing operations were 360.7 million, down 12% from the fourth quarter of 2012
- Excluding UNH from both periods, adjusted EBITDA from continuing operations attributable to Express Scripts increased 6% from the fourth quarter of 2012. Including UNH in both periods, adjusted EBITDA from continuing operations attributable to Express Scripts was $1.7 billion, up 1% from the fourth quarter of 2012
- Excluding UNH from both periods, adjusted EBITDA from continuing operations attributable to Express Scripts per adjusted claim increased 11% from the fourth quarter of 2012. Including UNH in both periods, adjusted EBITDA from continuing operations attributable to Express Scripts per adjusted claim was $4.63, up 15% from the fourth quarter of 2012
- Excluding UNH from both periods, adjusted net income from continuing operations attributable to Express Scripts increased 8% from the fourth quarter of 2012. Including UNH in both periods, adjusted net income from continuing operations attributable to Express Scripts was $896.0 million, up 3% from the fourth quarter of 2012
- Excluding UNH from both periods, adjusted earnings per share from continuing operations attributable to Express Scripts increased 12% from the fourth quarter of 2012. Including UNH in both periods, adjusted earnings per share from continuing operations attributable to Express Scripts was $1.12, an increase of 7% over the fourth quarter of 2012
- Interest income includes a contractual interest payment received from a client for $11.6 million that is excluded from adjusted earnings per diluted share
- Adjusted effective income tax rate for continuing operations attributable to Express Scripts for the quarter of 38.5%
- Net cash flow provided by operating activities from continuing operations was $2.9 billion, up 8% from the fourth quarter of 2012
- Repurchased 35.5 million shares of common stock for $2.5 billion during the quarter, including 20.1 million shares through an accelerated share repurchase program announced in December 2013.
Full year 2013 Review
- Excluding UNH from both periods, adjusted claims from continuing operations increased 9% from 2012. Including UNH in both periods, adjusted claims from continuing operations were 1,478.0 million, up 6% from 2012
- Excluding UNH from both periods, adjusted EBITDA from continuing operations attributable to Express Scripts increased 25% from 2012 – See Table 7. Including UNH in both periods, adjusted EBITDA from continuing operations attributable to Express Scripts was $6.7 billion, up 23% from 2012
- Excluding UNH from both periods, adjusted EBITDA from continuing operations attributable to Express Scripts per adjusted claim increased 15% from 2012. Including UNH in both periods, adjusted EBITDA from continuing operations attributable to Express Scripts per adjusted claim was $4.51, up 17% from 2012
- Excluding UNH from both periods, adjusted net income from continuing operations attributable to Express Scripts increased 28% from 2012. Including UNH in both periods, adjusted net income from continuing operations attributable to Express Scripts was $3,554.4 million, up 27% from the fourth quarter of 2012.
- Excluding UNH from both periods, adjusted earnings per share from continuing operations attributable to Express Scripts increased 17% from 2012. Including UNH in both periods, adjusted earnings per share from continuing operations was $4.33, up 15.5% from 2012
- Net cash flow provided by operating activities from continuing operations of $4.8 billion
- Repurchased 60.4 million shares of common stock for $4.1 billion and repaid $1.9 billion of debt
2014 Guidance
The Company anticipates achieving adjusted earnings per diluted share from continuing operations attributable to Express Scripts for 2014 in the range of $4.88 to $5.00, representing growth of 18 to 21% over 2013 excluding UNH from both periods – See table below. Including UNH in 2013, the $4.88 to $5.00 reflects growth of 13% to 15%.
Adjusted EBITDA for 2014 is projected to increase 7% to 10% over 2013 excluding UNH. The decrease in claims, excluding UNH reflects lower enrollment in public exchanges than expected and client retention slightly lower than the Company’s target range.
Adjusted earnings per diluted share from continuing operations attributable to Express Scripts for the first quarter of 2014 is expected to be between $0.98 and $1.02, up 7% to 11% from the first quarter of 2013 excluding UNH – See table 8. The decline in earnings from the fourth quarter reflects normal seasonal variations and additional expenses incurred to start up over 100 new clients and add new members enrolling in public exchanges. In addition, the first quarter will be impacted by lower prescription volume due to the severe winter weather. Consistent with 2013, the Company expects earnings related to a large client contract will be realized in the second quarter due to the structure of the contract.
Focus on Organic Growth
Since completing the merger with Medco in 2012, the Company has worked to integrate its systems, processes and solutions to provide best-in-class client service and patient care. Express Scripts now is the only PBM in the industry to have all of its clients on one technology platform. With this important work complete, the Company can pivot to a greater focus on driving organic growth.
“No one else can provide the depth and breadth of solutions we offer, and we believe that no one else can do more to drive out pharmacy waste, control client costs and improve patient outcomes,” added Tim Wentworth, president. “Our clients are faced with many significant challenges, including the rising costs of branded drugs and additional regulatory requirements. Our clients need a partner who will stand with them to overcome these challenges. Our business model of alignment has never been more critical for our clients, or for our continued organic growth.”
Longer-term Outlook
Express Scripts is uniquely positioned due to its size, scale, client mix, technology platform and differentiated solutions to gain market share, and benefit from the growth of home delivery and specialty drugs, healthcare reform, productivity improvements and capital deployment.
Based on assumptions regarding healthcare trends, industry positioning and the overall environment, the Company is targeting annual earnings per share growth of 10% to 20% for the next several years. In most years, the Company expects more than half of its annual growth to come from operations.
This strong earnings growth is expected to continue to generate significant cash flow from operations. Express Scripts’ priorities for using this cash flow remain funding internal growth, making strategic acquisitions and returning cash to its shareholders. The Company is committed to returning over half of its free cash flow (cash provided by operating activities less capital expenditures) to shareholders on an annual basis.
The complete earnings release is available here: Express Scripts 4th Quarter 2013 Results, Issues 2014 Earnings Guidance
Source: Express Scripts