PLMD Polymedica Corp (MM)

PolyMedica Corporation (NASDAQ: PLMD): Highlights: Earnings per share in the fiscal fourth quarter increased 9% from last quarter to $0.47; including a $0.04 charge for litigation, GAAP EPS was $0.43; Adjusted earnings per share for fiscal 2007 increased 22% from last year to $1.80; including the effects in fiscal 2007 of stock-based compensation expense of $0.32 per diluted share and including a $0.04 per share charge for litigation, GAAP EPS was $1.44; Revenues for fiscal 2007 were $675 million, a 37% increase over the prior year; Diabetes revenue for fiscal 2007 increased 19% year over year; Pharmacy revenue for fiscal 2007 increased 117% year over year; and The Company generated operating cash flow of $55 million in fiscal 2007 compared with $11 million last year. PolyMedica Corporation (NASDAQ: PLMD) today reported revenue growth of 27% to $178.3 million in the fourth fiscal quarter of 2007 compared with $140.6 million for the same period last year. Income from continuing operations, excluding a $1.4 million litigation charge, net of taxes, for the quarter was $10.9 million, or $0.47 per diluted share, compared sequentially with $9.8 million, or $0.43 per diluted share, in the third quarter. In accordance with Statement of Financial Accounting Standards (SFAS) No. 123R, �Share-Based Payment,� the Company recognized $2.8 million of pre-tax stock-based compensation expense ($1.8 million after taxes, or $0.08 per diluted share) during the fourth quarter of fiscal 2007. Excluding the impact of stock-based compensation expense and the litigation charge, earnings per share from continuing operations for the quarter were $0.54. Earnings per share from continuing operations in the fourth quarter of fiscal 2006 were $0.33. Commenting on the Company�s results, Chief Executive Officer Patrick Ryan said, �We are pleased with our Fiscal 2007 results. The Company invested a significant amount of human and financial capital as we expanded our patient-centric model to ensure we were meeting the growing needs of our patients. Our programs were well received by our patients. Enrollment in the Liberty Part D drug benefit program resulted in year over year pharmacy revenue growth of 117%. The expansion of our marketing and acquisition programs, sales channels and service offerings in our core diabetes business resulted in 19% year over year revenue growth. Our focus on leveraging the efficiencies in our business model allowed the Company to decrease selling, general and administrative expenses as a percentage of net revenues by 380 basis points. The combination of all these efforts contributed to our 22% growth in earnings per share over last year.� Mr. Ryan continued, �Our team did an outstanding job in fiscal 2007 in a dynamic and evolving marketplace. Our efforts to date have provided a strong foundation for fiscal 2008. The Liberty brand is trusted by our patients, and they continue to look to Liberty to meet more of their healthcare needs. As we eclipse one million active patients in fiscal 2008, our strategy remains clear; we will leverage the strength of the Liberty brand and our unique direct-to-consumer model to meet the comprehensive healthcare needs of our patients.� Guidance for Fiscal Year Ending March 31, 2008 The Company also announced guidance for the fiscal year ending March 31, 2008: Full Year: Revenue growth of 18% - 21% to $800 - $815 million. Gross margin of 45% � 47% of revenue. Selling, general and administrative expense of 34% - 36% of revenue. GAAP earnings per share growth of 46% - 53% to $2.10 - $2.20, on 23.6 million shares outstanding. Earnings per share, excluding stock-based compensation, of $2.40 - $2.52. Operating cash flow of $80 to $90 million. Capital expenditures of $10 to $15 million. Effective tax rate of 37%. � � Results of Operations for the Fourth Quarter Net revenues: Three Months Ended March 31, March 31, $ % (in thousands) � 2007� � 2006� Change Change � Diabetes $ 123,550� $ 110,463� $ 13,087� 12% Pharmacy � 54,723� � 30,166� � 24,557� 81% Net revenues $ 178,273� $ 140,629� $ 37,644� 27% Net revenues in the fourth quarter of fiscal 2007 increased 27% to $178.3 million compared with $140.6 million for the same period last year. Diabetes revenue increased $13.1 million, or 12%, from last year, primarily due to the 8% increase in diabetes patients and the 4% increase in revenue per shipment. Pharmacy revenue increased $24.6 million, or 81%, from last year, primarily due to the increase in patients served through the Company�s Medicare Part D drug benefit program. The Company dispensed 572,000 prescriptions in the fourth quarter compared with 262,000 dispensed prescriptions in the prior year period. The provision for sales returns and allowances in the fourth quarter of 2007 was $3.2 million, or 1.8% of gross revenues, compared with $3.6 million, or 2.5% of gross revenues, in last year�s fourth quarter. The decrease in the amount and the percentage of sales returns and allowances to gross revenues in the fourth quarter ended March 31, 2007, was attributable to the revenue growth of the Pharmacy segment, which generates a lower rate of sales returns and allowances and a reduction in sales returns of diabetes products during the quarter. � � Gross Margin: Three Months Ended March 31, March 31, $ % (in thousands) � 2007� � 2006� Change Change Diabetes $ 72,174� $ 62,724� $ 9,450� 15% Pharmacy � 9,766� � 7,564� � 2,202� 29% Gross margin $ 81,940� $ 70,288� $ 11,652� 17% Gross margin dollars in the fourth quarter increased 17% to $81.9 million from $70.3 million for the same period last year. Diabetes gross margin dollars increased $9.5 million and Pharmacy gross margin dollars increased $2.2 million from last year. Overall, the Company�s gross margin was 46.0% of net revenues in the fourth quarter compared with 50.0% last year and 44.2% in the third quarter of fiscal 2007. Diabetes gross margin was 58.4% in the fourth quarter compared with 56.8% last year and 56.5% in the third quarter. The increase in Diabetes gross margin from last year was primarily attributable to a decrease in diabetes strip pricing and related product costs. The increase in Diabetes gross margin from the third quarter was due to a decrease in the Diabetes commercial business, which generates lower gross margin rates. Pharmacy gross margin was 17.9% in the fourth quarter ended March 31, 2007, compared with 25.1% in the prior year and 17.0% in the third quarter. The decrease in Pharmacy gross margin from last year was due to the growth in net revenues attributable to the Liberty Part D drug benefit program, which generates a lower product gross margin than the historical Pharmacy business. � � Selling, general and administrative expenses: Three Months Ended March 31, March 31, (in thousands) � 2007� � 2006� Employee compensation and benefits $ 24,160� $ 25,198� Direct-response advertising amortization 13,154� 11,163� Depreciation expense 2,781� 2,124� Amortization of intangible assets 3,800� 2,268� Provision for doubtful accounts 5,157� 5,607� Stock-based compensation 2,814� 275� Other � 12,682� � 10,080� Selling, general and administrative expenses $ 64,548� $ 56,715� � As a percentage of net revenues � 36.2% � 40.3% The $7.8 million increase in selling, general and administrative expense from last year related primarily to a $2.5 million increase in stock-based compensation as a result of the implementation of SFAS 123R in fiscal 2007 and increases in the amortization of direct-response advertising and intangible assets. Other SG&A expense primarily includes legal, accounting, communications cost and marketing expense. SG&A expense, in dollars, increased from the third quarter by $3.5 million and included a $1.4 million litigation charge recorded during the quarter. As a percentage of revenue, SG&A expense in the fourth quarter was 36.2% compared with 40.3% last year and 34.4% in the third quarter. Other income and expense: Other income and expense of $1.7 million decreased $169,000 from last year due to a reduction in the overall interest rate as a result of the Company�s issuance of 1% coupon convertible notes in the second quarter of fiscal 2007. Other income and expense was comparable to the third quarter of fiscal 2007. The overall weighted average interest rate on all debt was 2.6% in the fourth quarter compared with 2.7% in the third quarter and 5.8% in last year�s fourth quarter. � � Results of Operations for the Fiscal Year Ended March 31, 2007 Net revenues: Fiscal Year Ended March 31, March 31, $ % (in thousands) � 2007� � 2006� Change Change Diabetes $ 476,077� $ 399,460� $ 76,617� 19% Pharmacy � 199,410� � 92,055� � 107,355� 117% Net revenues $ 675,487� $ 491,515� $ 183,972� 37% Net revenues for the fiscal year ended March 31, 2007, increased 37% to $675.5 million compared with $491.5 million for the same period last year. Diabetes revenue increased $76.6 million, or 19%, from last year, due to the increase in patients and the fiscal 2006 acquisitions of NDP and IntelliCare. Pharmacy revenue increased $107.4 million, or 117%, from last year due to the growth of dispensed prescriptions resulting from patients enrolling in the Company�s Medicare Part D drug benefit program. � � Gross Margin: Fiscal Year Ended March 31, March 31, $ % (in thousands) � 2007� � 2006� Change Change Diabetes $ 271,566� $ 230,282� $ 41,284� 18% Pharmacy � 36,946� � 29,366� � 7,580� 26% Gross margin $ 308,512� $ 259,648� $ 48,864� 19% Gross margin dollars for the fiscal year ended March 31, 2007, increased 19% to $308.5 million from $259.6 million for the same period last year due to revenue growth in both the Diabetes and Pharmacy segments this year. Diabetes gross margin dollars increased $41.3 million and Pharmacy gross margin dollars increased $7.6 million from last year. Overall, the Company�s gross margin decreased to 45.7% of net revenues compared with 52.8% last year due to a higher percentage of revenues derived from the Pharmacy segment which generates lower gross margins than the Company�s historical business. Diabetes gross margin was 57.0% and consistent with 57.6% last year. Pharmacy gross margin decreased to 18.5% compared with 31.9% last year due to the growth in net revenue attributable to the Liberty Part D drug benefit program, which generates a lower gross margin than the historical pharmacy business. � � Selling, general and administrative expenses: Fiscal Year Ended March 31, March 31, (in thousands) � 2007� � 2006� Employee compensation and benefits $ 94,567� $ 85,010� Direct-response advertising amortization 49,389� 42,409� Depreciation expense 10,348� 7,881� Amortization of intangible assets 13,999� 7,521� Provision for doubtful accounts 20,981� 20,084� Stock-based compensation 11,768� 1,419� Other � 45,015� � 33,041� Selling, general and administrative expenses $ 246,067� $ 197,365� � As a percentage of net revenues � 36.4% � 40.2% The $48.7 million increase in selling, general and administrative expense from last year related primarily to increased headcount to support the growth of the Diabetes and Pharmacy businesses, amortization expense and other general costs associated with the fiscal 2006 acquisitions of NDP and IntelliCare, the acquisitions of certain assets of 15 diabetes companies acquired since September 30, 2005, the inclusion of stock-based compensation in the financial statements in fiscal 2007 and an increase in direct-response advertising amortization. Other SG&A expense primarily includes legal, accounting, communications costs and marketing expense. As a percentage of revenue, SG&A expense for the fiscal year ended March 31, 2007, was 36.4% compared with 40.2% in the year earlier period. Other income and expense: Other income and expense of $9.4 million increased $5.5 million from last year due to the higher level of average debt outstanding during the period. The Company�s average debt balance increased primarily due to the fiscal 2006 acquisitions of NDP and IntelliCare, combined with the acquisitions of certain assets of 15 diabetes companies acquired since September 30, 2005. � � Balance Sheet and Cash Flow Highlights The Company�s cash flows for the fiscal year ended March 31, 2007 and 2006, included the following: � � Fiscal Year Ended March 31, March 31, $ � 2007� � 2006� Change Summary Cash Flow Data: � Cash flows from operating activities $ 55,317� $ 11,407� $ 43,910� Cash flows used for investing activities (44,890) (53,586) 8,696� Cash flows used for financing activities � (17,435) � (20,966) � 3,531� Net change in cash and cash equivalents (7,008) (63,145) 56,137� Beginning cash and cash equivalents � 9,101� � 72,246� � (63,145) Ending cash and cash equivalents $ 2,093� $ 9,101� $ (7,008) � � � Fiscal Year Ended March 31, March 31, $ � 2007� � 2006� Change Additional Cash Flow/Balance Sheet Data: Purchase of property, plant and equipment $ (10,135) $ (12,747) $ 2,612� Purchase of businesses, net of cash received �� (75,373) 75,373� Proceeds from sale of businesses �� 44,503� (44,503) Purchase of patient lists and other contracts (33,640) (7,242) (26,398) Direct response advertising expenditures (59,558) (55,945) (3,613) Proceeds from convertible note offering 180,000� �� 180,000� Net purchase of derivative instruments (26,268) �� (26,268) Repurchase of common stock (29,624) (198,596) 168,972� Net cash flow from credit facility (131,300) 190,000� (321,300) A/R days sales outstanding 59� 67� Inventory days on hand 35� 44� � � � Diabetes Patients: Three Months Ended Twelve Months Ended March 31, March 31, 2007� 2007� Diabetes patients, beginning of period 925,000� 875,000� New diabetes patients from marketing programs 52,000� 189,000� New diabetes patients from acquisitions 9,000� 54,000� Patient attrition (43,000) (175,000) Diabetes patients as of March 31, 2007 943,000� 943,000� � � � Other Key Operating Metrics: Three Months Ended March 31, Dec. 31, March 31, � 2007� � 2006� � 2006� Diabetes: Diabetes shipments 653,000� 633,000� 608,000� Revenue per shipment $ 175� $ 180� $ 169� Quarterly reorder rate 93.1% 91.3% 87.9% Patient retention 95.3% 94.7% 94.9% Acquisition cost per patient - Marketing $ 298� $ 338� $ 281� Other revenue included in Diabetes segment (000s) $ 9,156� $ 8,097� $ 7,996� � Pharmacy: Dispensed prescriptions 572,000� 566,000� 262,000� Patients receiving prescriptions during quarter 100,000� 91,000� 73,000� Average prescriptions shipped to each patient in quarter 5.72� 6.22� 3.59� Revenue per dispensed prescription $ 96� $ 97� $ 115� Gross margin per dispensed prescription $ 17� $ 17� $ 29� Brand revenue dollars as % of total Pharmacy revenue 81.0% 80.4% 80.8% Brand prescriptions as % of total Pharmacy prescriptions 49.1% 50.3% 52.8% Conference Call and Replay PolyMedica management will host a conference call and live webcast tomorrow, Thursday, May 24, 2007, at 9:00 a.m. Eastern time to discuss the Company�s financial results. The number to call for this interactive conference call is 1-800-728-2167. A 90-day online replay will be available beginning approximately one hour following the conclusion of the live broadcast. A link to these events can be found on the Company�s website at www.polymedica.com or at www.earnings.com. About PolyMedica For more than a decade, PolyMedica Corporation has been the nation�s largest provider of blood glucose testing supplies and related services to people with diabetes and today serves more than 943,000 active diabetes patients. The Company also offers a full service pharmacy to meet patients� medication needs and provides patient education to help its patients better manage their health conditions. Through proactive patient outreach, convenient home delivery and administrative support, PolyMedica makes it simple for patients to obtain the supplies and medications they need, while encouraging compliance with physicians� orders. More information about PolyMedica can be found on the Company�s website at www.polymedica.com. This press release contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those anticipated. Such risks and uncertainties include, but are not limited to, rules and regulations promulgated under the Act, unanticipated changes in Medicare reimbursement, successful participation in new reimbursement programs, outcomes of government reviews, inquiries, investigations and related litigation, continued compliance with government regulations, fluctuations in customer demand, management of rapid growth, competition from other healthcare product vendors, timing and acceptance of new product introductions, general economic conditions, geopolitical events and regulatory changes, as well as other especially relevant risks detailed in the Company�s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the period ended March 31, 2006, and Quarterly Reports on Form 10-Q for the periods ended June 30, 2006, September 30, 2006 and December 31, 2006. The information set forth herein should be read in light of such risks. The Company assumes no obligation to update the information contained in this press release. � � � POLYMEDICA CORPORATION Consolidated Statements of Operations (In thousands, except per share amounts) � � Three Months Ended Fiscal Year Ended March 31, March 31, March 31, March 31, � 2007� � 2006� � 2007� � 2006� � Net revenues $ 178,273� $ 140,629� $ 675,487� $ 491,515� Cost of sales � 96,333� � 70,341� � 366,975� � 231,867� � Gross margin 81,940� 70,288� 308,512� 259,648� � Selling, general and administrative expenses � 64,548� � 56,715� � 246,067� � 197,365� � Income from operations 17,392� 13,573� 62,445� 62,283� Other income and expense � (1,701) � (1,870) � (9,418) � (3,909) � � Income from continuing operations before income taxes 15,691� 11,703� 53,027� 58,374� Income tax provision � 5,727� � 3,950� � 19,355� � 20,992� � Income from continuing operations, net of income taxes 9,964� 7,753� 33,672� 37,382� � Income from discontinued operations, net of income taxes � �� � (888) � �� � 23,016� � Net income $ 9,964� $ 6,865� $ 33,672� $ 60,398� � Income from continuing operations, net of income taxes, per weighted average share, diluted $ 0.43� $ 0.33� $ 1.44� $ 1.47� � Income from discontinued operations, net of income taxes, per weighted average share, diluted � �� � (0.04) � �� � 0.91� � Net income per weighted average share, diluted $ 0.43� $ 0.29� $ 1.44� $ 2.38� � Weighted average shares, diluted 23,289� 23,730� 23,376� 25,370� � � � POLYMEDICA CORPORATIONConsolidated Balance Sheets(In thousands) � March 31, March 31, � 2007� � 2006� ASSETS � Current assets Cash and cash equivalents $ 2,093� $ 9,101� Accounts receivable, net 117,309� 104,013� Inventories 37,554� 34,467� Deferred income taxes 4,787� 4,334� Income tax receivable �� 6,662� Prepaid expenses and other current assets � 18,344� � 9,896� � Total current assets 180,087� 168,473� � Property, plant and equipment, net 61,098� 64,678� Goodwill 64,598� 64,488� Intangible assets, net 46,870� 27,228� Direct response advertising, net 101,487� 91,653� Notes receivable 14,433� 9,548� Other assets � 8,873� � 3,249� � Total assets $ 477,446� $ 429,317� � � � LIABILITIES AND SHAREHOLDERS� EQUITY � � Current liabilities: Accounts payable and accrued expenses $ 61,423� $ 47,015� Current portion, capital lease obligations � 804� � 596� � Total current liabilities 62,227� 47,611� � Capital lease and other obligations 2,252� 1,144� Convertible notes 180,000� �� Credit facility 58,700� 190,000� Deferred income taxes � 12,351� � 31,411� � Total liabilities 315,530� 270,166� Total shareholders� equity � 161,916� � 159,151� � Total liabilities and shareholders� equity $ 477,446� $ 429,317� � � � POLYMEDICA CORPORATION Statement of Operations � Reconciliation of Non-GAAP Financial Measures (In thousands, except per share amounts) � � Three Months Ended March 31, 2007 Reported Adjusted GAAP Litigation Non-GAAP Totals Charge Totals Income before income taxes $ 15,691� $ 1,433� $ 17,124� Income tax provision � 5,727� � 523� � 6,250� Net income $ 9,964� $ 910� $ 10,874� � Diluted earnings per share $ 0.43� $ 0.04� $ 0.47� � Weighted average shares, diluted 23,289� 23,289� 23,289� � � Three Months Ended March 31, 2007 Reported Stock- Adjusted GAAP Litigation Based Non-GAAP Totals Charge Compensation Totals Income before income taxes $ 15,691� $ 1,433� $ 2,814� $ 19,938� Income tax provision � 5,727� � 523� � 1,027� � 7,277� Net income $ 9,964� $ 910� $ 1,787� $ 12,661� � Diluted earnings per share $ 0.43� $ 0.04� $ 0.08� $ 0.54� � Weighted average shares, diluted 23,289� 23,289� 23,289� 23,289� � � Fiscal Year Ended March 31, 2007 Reported Stock- Adjusted GAAP Litigation Based Non-GAAP Totals Charge Compensation Totals Income before income taxes $ 53,027� $ 1,533� $ 11,768� $ 66,328� Income tax provision � 19,355� � 560� � 4,295� � 24,210� Net income $ 33,672� $ 973� $ 7,473� $ 42,118� � Diluted earnings per share $ 1.44� $ 0.04� $ 0.32� $ 1.80� � Weighted average shares, diluted 23,376� 23,376� 23,376� 23,376� � � The Company believes that referring to these non-GAAP totals facilitates a better understanding of its annual operating results.