SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report: October 20, 1999
Express Scripts, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as specified in its Charter)
Delaware 0-20199 43-1420563
- --------------------------------------------------------------------------------
(State or other (Commission File No.) (I.R.S. Employer
jurisdiction of Identification No.)
corporation)
13900 Riverport Drive, Maryland Heights, Missouri 63043
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (314) 770-1666
------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 5. Other Events
On October 20,1999, Express Scripts, Inc. issued a press release, a copy of
which is attached hereto as Exhibit 99.1, and incorporated herein by reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(c) The following exhibit is filed as part of this report on Form 8-K:
Exhibit 99.1 Press release, dated October 20, 1999, by Express
Scripts, Inc.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EXPRESS SCRIPTS, INC.
Date: October 29, 1999 By: /s/ Barrett A. Toan
----------------------------------------
Barrett A. Toan
President and Chief
Executive Officer
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
99.1 Press release, dated October 20, 1999, by Express Scripts, Inc.
EXHIBIT 99.1
EXPRESS SCRIPTS ANNOUNCES THIRD QUARTER RESULTS
Achieves Record Net Income
ST. LOUIS, October 20, 1999--Express Scripts, Inc. (NASD: ESRX) announced
third quarter 1999 net income of $17.5 million, or 45 cents per diluted share,
excluding an after-tax extraordinary charge associated with the payoff of the
company's Term B debt of $0.5 million, or 2 cents per share. This compares with
$11.3 million, or 34 cents per diluted share in the same period of 1998. Third
quarter net income on a reported basis, including the extraordinary charge, was
$17.0 million, or 43 cents per diluted share. Earnings before interest, taxes,
depreciation and amortization (EBITDA) for the third quarter totaled $66.2
million, a 99 percent increase over the $33.3 million reported in the same
quarter of 1998.
"We implemented our business consolidation plan, enhanced our market
position and prospects for continued profitable growth, and achieved a number of
important objectives during the third quarter," said Barrett Toan, Express
Scripts' president and chief executive officer. "Our business integration
continues on plan; we're bringing in significant new business through
cross-selling additional services to existing clients; we're accelerating our
Internet strategy with the completion of the PlanetRx.com transaction; and we
improved our capital structure and reported continued strong operating results,
including record net income."
STRONG OPERATING RESULTS
In the third quarter of 1999, net revenues were $1.1 billion, a 34 percent
increase over $0.8 billion in the same period of 1998. Cost of revenues for the
third quarter of 1999 increased 30 percent to $959.0 million, compared with
$738.5 million in the same period of 1998. Revenues and cost of revenues are
recognized on a net basis for the book of business formerly associated with DPS.
This means that the ingredient cost of the drug is not included in revenues or
cost of revenues. Gross profit increased 81 percent to $124.5 million in the
third quarter of 1999 from $68.8 million for the comparable period of 1998.
Selling, general and administrative expenses (SG&A), excluding depreciation and
amortization, were $60.4 million, a 64 percent increase over the $36.9 million
reported for the comparable period of 1998. The increase in SG&A expense is
primarily due to the acquisition of DPS, which was completed on April 1, 1999,
and planned integration costs. As a result of strong operating cash flows, the
company used $50 million of cash to payoff the remaining portion of the
company's Term B debt in the third quarter of 1999. In conjunction with the
early repayment, the company recorded the write-off of certain deferred
financing fees as an extraordinary item.
For the nine months ended September 30, 1999, pro forma net income was
$47.7 million, or $1.27 per diluted share, before one-time charges and assuming
the company's equity and debt offering took place on April 1, 1999. This
compares with $30.8 million, or 91 cents per diluted share, before one-time
charges in the same period of 1998. Net income for the nine months ended
September 30, 1999 on a reported basis, before one-time charges, was $43.9
million, or $1.21 per diluted share. Including all one-time charges, reported
net income for the nine months ended September 30, 1999 was $31.0 million, or 86
cents per diluted share.
Net revenues increased 50 percent to $3.0 billion, which includes net
revenues of DPS for the second and third quarters only. Gross profit increased
to $326.7 million from $165.5 million for the nine months ended September 30,
1999, or 97 percent. SG&A expenses, excluding depreciation and amortization,
were $164.1 million, an 85 percent increase over the $88.7 million reported for
the comparable period of 1998. EBITDA increased 99 percent from $80.4 million in
the nine months ended September 30, 1998 to $159.7 million in the nine months
ended September 30, 1999.
CLAIMS AND MEMBERSHIP GROWTH CONTINUES
Membership at September 30, 1999, was approximately 37.5 million members,
excluding approximately 9.5 million members from United Healthcare Corp. (UHC),
whose contract expires in May 2000. The net increase in membership from 36
million at June 30, 1999, primarily reflects the addition of the previously
announced Blue Cross and Blue Shield of Massachusetts contract which became
effective in September 1999.
"Our net growth quarter to quarter reflects sales to existing and new
clients, which has offset anticipated attrition," Toan said. "The hidden
strength in the aggregate number is the successful sale of additional services
to nearly 500,000 lives. This number represents sales of network and mail
services to clients that only had one or the other of these services prior to
the ValueRx transaction. The result is a stronger business mix that delivers
greater value to our clients and produces a higher ratio of net income per
member - two important objectives in our acquisition strategy."
INTEGRATION CONTINUES ON TRACK
Integration goals achieved in the third quarter include: o Combination of
manufacturer programs and processes; o Integration of the majority of the DPS
mail order volume into the Express Scripts mail pharmacy sites; o Substantial
consolidation of the company's Minneapolis, MN facilities; o Marketing the
strengths of the combined organization through a recently launched corporate
identity program; and o Completed reorganization of sales and client services
teams to better meet client needs.
Integration efforts for the fourth quarter include: establishing a combined
enterprise-wide data warehouse and adding enhancements to the claims processing
system; expanding Virtual Call Center connectivity to improve response time and
service among call center sites; introducing best practices for business
processes and operations; and consolidating benefit offerings for all employees
for January 1, 2000.
"Sales, service and operational integration has produced a larger and
stronger PBM with better programs that leverage the expertise contained in our
core competencies," Toan said. "The new Express Scripts -- previously three
excellent PBMs, is now one leading organization - it is a team with the talent,
capability, and desire to provide more value for our clients and to chart the
future of pharmacy.
INTERNET STRATEGY ACCELERATES
The company also accelerated its Internet strategy during the third
quarter. On October 13, the company completed its transaction with PlanetRx.com
(PlanetRx) (www.PlanetRx.com) through which the company obtained a 19.9%
ownership stake in PlanetRx.com. In addition, PlanetRx.com became the exclusive
online pharmacy for members of the company's pharmacy benefit plans, enabling
members to link directly to PlanetRx.com from yourPharmacy.com for
prescriptions, health and beauty products. The yourPharmacy.com website
(www.yourpharmacy.com), introduced this past summer, will continue to provide
members comprehensive news and benefits information. DrugDigest.org
(www.drugdigest.org) continues as a non-commercial source of information about
drugs, vitamins and herbs. In the fourth quarter of 1999, Express Scripts will
record approximately $101 million as an after-tax gain on the sale of assets as
a result of the PlanetRx transaction. In addition, the company will record
approximately $12 million as an after-tax stock compensation expense related to
employees of yourPharmacy.com. These amounts were determined using the $16 per
share PlanetRx initial offering price.
"This is a strategic investment with several benefits for Express Scripts,"
Toan said. "It makes us a more valuable partner to employers and health plans by
increasing our ability to serve their members; it strengthens our reach to
consumers; and it gives us an ownership stake in what we've determined to be the
best online pharmacy in America.
"We plan to maximize the significant long-term value of this relationship
by continuing to invest in strategies aimed at building our members' awareness
and use of our online pharmacy resources," said Toan. "Through PlanetRx.com,
yourPharmacy.com and DrugDigest.org, we offer our members confidence,
convenience, and cost savings when meeting their families' health information
and product needs."
Express Scripts, Inc., is the nation's leading independent full-service
pharmacy benefit management (PBM) company. Through facilities in seven states
and Canada, the company serves thousands of clients throughout North America,
including managed care organizations, insurance carriers, third-party
administrators, employers and union-sponsored benefit plans.
Express Scripts provides fully-integrated PBM services, including network
claims processing, mail-order pharmacy services, benefit design consultation,
drug utilization review, formulary management, disease management, medical and
drug data analysis services, medical information management services (which
include provider profiling and outcome assessments through the Practice Patterns
Science, Inc. subsidiary), and informed decision counseling services through its
Express Health Line SM division. The company also provides non-PBM services,
including infusion therapy services through its IVTx subsidiary and distribution
services through its Specialty Distribution division. Express Scripts is
headquartered in St. Louis, Missouri. More information can be found at
http://www.express-scripts.com, which includes expanded investor information and
resources.
SAFE HARBOR STATEMENT
This press release contains forward-looking statements, including, but not
limited to, statements related the Company's plans, objectives, expectations
(financial and otherwise) or intentions. Actual results may differ significantly
from those projected or suggested in any forward-looking statements. Factors
that may impact these forward-looking statements include but are not limited to:
(i) risks associated with successfully integrating the PlanetRx.com Internet
site with the company's system, and competition in the Internet pharmacy
business; (ii) risks associated with the consummation and financing of
acquisitions, including the ability to successfully integrate the operations of
acquired businesses with our existing operations, client retention issues, and
risks inherent in the acquired entities operations; (iii) risks associated with
obtaining financing and capital; (iv) risks associated with our ability to
manage growth; (v) competition, including price competition, competition in the
bidding and proposal process and our ability to consummate contract negotiations
with prospective clients; (vi) the possible termination of contracts with
certain key clients or providers; (vii) the possible termination of contracts
with certain pharmaceutical manufacturers, changes in pricing, discount, rebate
or other practices of pharmaceutical manufacturers; (viii) adverse results in
litigation; (ix) adverse results in regulatory matters, the adoption of adverse
legislation or regulations, more aggressive enforcement of existing legislation
or regulations, or a change in the interpretation of existing legislation or
regulations; (x) developments in the healthcare industry, including the impact
of increases in healthcare costs, changes in drug utilization patterns and
introductions of new drugs; (xi) risks associated with the "Year 2000" issue;
(xii) dependence on key members of management; (xiii) our relationship with New
York Life Insurance Company, which possesses voting control of the company;
(xiv) other risks described from time to time in our filings with the Securities
and Exchange Commission. The company does not undertake any obligation to
release publicly any revisions to such forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
FINANCIAL TABLES FOLLOW
<TABLE>
EXPRESS SCRIPTS, INC.
Unaudited Statement of Operations
(in thousands, except per share and percentage data)
<CAPTION>
Three Months Ended
Sept. 30,
Pro Forma to
Actual Pro Forma Actual Actual
1999 1999 (1) 1998 % Change % Change
---------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Net revenues $1,083,496 $1,083,496 $807,319 34.2% 34.2%
---------- ---------- ----------
Cost and expenses:
Cost of revenues (2) 958,987 958,987 738,544 29.8% 29.8%
Selling, general and administrative (3) 78,761 78,761 43,153 82.5% 82.5%
Corporate restructuring - - - nm nm
----------- ---------- ---------
1,037,748 1,037,748 781,697 32.8% 32.8%
----------- ---------- ---------
Operating income 45,748 45,748 25,622 78.5% 78.5%
----------- ---------- ---------
Interest income (expense):
Interest icome 1,065 1,065 1,794 (40.6%) (40.6%)
Interest expense (15,794) (15,794) (6,912) 128.5% 128.5%
----------- ----------- ----------
(14,729) (14,729) (5,118) 187.8% 187.8%
- ----------- ----------- ----------
Income before income taxes 31,019 31,019 20,504 51.3% 51.3%
Provision for income taxes 13,471 13,471 9,201 46.4% 46.4%
----------- ----------- ----------
Income before extraordinary item 17,548 17,548 11,303 55.3% 55.3%
Extraordinary loss on early retirement
of debt, net of taxes of $348 553 - - nm nm
----------- ----------- ----------
Net income $16,995 $17,548 $11,303 50.4% 55.3%
=========== =========== ==========
Basic earnings per share:
Before extraordinary item $0.46 $0.46 $0.34 35.3% 35.3%
Extraordinary loss on early retirement
of debt 0.02 - - nm -
----------- ----------- ----------
Net income $0.44 $0.46 $0.34 29.4% 35.3
=========== =========== ==========
Weighted average number of common shares
outstanding during the period - basic 38,480 38,480 33,122 16.2% 16.2%
=========== =========== ==========
Diluted earnings per share:
Before extraordinary item $0.45 $0.45 $0.34 32.4% 32.4%
Extraordinary loss on early retirement
of debt 0.02 - - nm -
----------- ----------- ----------
Net income $0.43 $0.45 $0.34 26.5% 32.4%
=========== =========== ==========
Weighted average number of common shares
outstanding during the period - diluted 39,354 39,354 33,682 16.8% 16.8%
=========== =========== ==========
EBITDA (4) $66,202 $66,202 $33,332 98.6% 98.6%
=========== =========== ==========
nm - not meaningful
<FN>
(1) Pro Forma excludes non-recurring charges for the extraordinary loss on
early retirement of debt.
(2) Includes depreciation and amortization expense of $2,060, $2,060 and
$1,486, respectively.
(3) Includes depreciation and amortization expense of $18,394, $18,394 and
$6,224, respectively.
(4) EBITDA is earnings before interest, taxes, depreciation and
amortization (operating income plus depreciation and amortization). EBITDA is
presented because it is a widely accepted indicator of a Company's ability to
incur and service indebtedness. EBITDA, however, should not be considered as an
alternative to net income as a measure of operating performance or an
alternative to cash flow as a measure of liquidity. In addition, our definition
of EBITDA may not be comparable to that reported by other companies.
</FN>
</TABLE>
<TABLE>
EXPRESS SCRIPTS, INC.
Unaudited Statement of Operations
(in thousands, except per share and percentage data)
<CAPTION>
Nine Months Ended
Sept. 30,
----------------- Pro Forma to
Actual Pro Forma Actual Actual
1999 1999 (1) 1998 % Change % Change
---------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Net revenues $2,979,332 $2,979,332 $1,986,087 50.0% 50.0%
---------- ---------- ----------
Cost and expenses:
Cost of revenues (2) 2,652,623 2,652,623 1,820,593 45.7% 45.7%
Selling, general and administrative (3) 207,098 207,098 101,245 104.6% 104.6%
Corporate restructuring 9,400 - 1,651 469.4% nm
---------- ---------- ---------- ----------
2,869,121 2,859,721 1,923,489 49.2% 48.7%
---------- ---------- ----------
Operating income 110,211 119,611 62,598 76.1% 91.1%
---------- ---------- ----------
Interest income (expense):
Interest income 3,902 3,902 5,683 (31.3%) (31.3%)
Interest expense (45,247) (39,086) (13,793) 228.0% 183.4%
---------- ---------- ----------
(41,345) (35,184) (8,110) 409.8% 333.8%
---------- ---------- ----------
Income before income taxes 68,866 84,427 54,488 26.4% 54.9%
Provision for income taxes 30,757 36,738 23,738 29.6% 54.8%
---------- ---------- ----------
Income before extraordinary item 38,109 47,689 30,750 23.9% 55.1%
Extraordinary loss on early retirement
of debt, net of taxes of $4,492 7,150 - - nm -
------------ ----------- -----------
Net income $30,959 $47,689 $30,750 0.7% 55.1%
============ =========== ===========
Basic earnings per share:
Before extraordinary item $1.08 $1.30 $0.93 16.1% 39.8%
Extraordinary loss on early retirement
of debt 0.20 - - nm -
------------- ------------- ------------
Net income $0.88 $1.30 $0.93 (5.4%) 39.8%
============= ============= ============
Weighted average number of common shares
outstanding during the period - basic 35,274 36,734 33,092 6.6% 11.0%
============= ============= ============
Diluted earnings per share:
Before extraordinary item $1.06 $1.27 $0.91 16.5% 39.6%
Extraordinary loss on early retirement
of debt 0.20 - - nm -
-------------- ------------- -------------
Net income $0.86 $1.27 $0.91 (5.5%) 39.6%
============== ============= =============
Weighted average number of common shares
outstanding during the period - diluted 36,148 37,608 33,634 7.5% 11.8%
============== ============= =============
EBITDA (4) $159,726 $169,126 $80,446 98.6% 110.2%
============== ============= ============
nm - not meaningful
<FN>
(1) Pro Forma excludes non-recurring charges for the corporate
restructuring and the extraordinary loss on early retirement of debt. Also, the
Pro Forma assumes the Company's 5,175 common stock offering and $250,000 Senior
Notes offering occurred on April 1, 1999.
(2) Includes depreciation and amortization expense of $6,541, $6,541 and
$5,337, respectively.
(3) Includes depreciation and amortization expense of $42,974, $42,974 and
$12,511, respectively.
(4) EBITDA is earnings before interest, taxes, depreciation and
amortization (operating income plus depreciation and amortization). EBITDA is
presented because it is a widely accepted indicator of a Company's ability to
incur and service indebtedness. EBITDA, however, should not be considered as an
alternative to net income as a measure of operating performance or an
alternative to cash flow as a measure of liquidity. In addition, our definition
of EBITDA may not be comparable to that reported by other companies.
</FN>
</TABLE>
<TABLE>
EXPRESS SCRIPTS, INC.
Unaudited Balance Sheet
(in thousands)
<CAPTION>
September 30, December 31, September 30,
1999 1998 1998
------------------- ------------------- -------------------
ASSETS
Current assets
<S> <C> <C> <C>
Cash and cash equivalents $ 60,454 $122,589 $101,100
Receivables, net 656,146 433,006 391,299
Inventories 55,367 55,634 42,344
Deferred taxes 41,376 41,011 45,029
Prepaid expenses 3,537 4,667 5,274
------------- --------------- -----------
Total current assets 816,880 656,907 585,046
Property and equipment, net 95,912 77,499 75,392
Goodwill, net 981,194 282,163 307,781
Other intangible assets, net 173,798 61,761 63,577
Other assets 37,252 17,131 23,882
---------- ---------- ----------
Total assets $2,105,036 $1,095,461 $1,055,678
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ - $54,000 $27,000
Claims and rebate payable 635,696 338,251 238,767
Accounts payable 72,335 60,247 52,253
Accrued expenses 134,157 86,798 166,536
------------ ------------ ------------
Total current liabilities 842,188 539,296 484,556
Long-term debt 673,836 306,000 333,000
Other long-term liabilities 460 471 1,199
------------ ------------ -----------
Total liabilities 1,516,484 845,767 818,755
Total stockholders' equity 588,552 249,694 236,923
------------ ------------ ------------
Total liabilities and stockholders' equity $2,105,036 $1,095,461 $1,055,678
============ ============ ============
</TABLE>
<TABLE>
EXPRESS SCRIPTS, INC.
Unaudited Non-Financial Data
(in thousands, except percentage data)
<CAPTION>
Three Months Ended
Sept. 30,
----------------------------------------
1999 (1) 1998 % Change
-------------------- ---------------- ----------
<S> <C> <C> <C>
Drug spending $2,321,556 $1,261,364 84.1%
Pharmacy network claims processed 56,113 30,556 83.6%
Mail pharmacy prescriptions filled 2,845 2,091 36.1%
Nine Months Ended
Sept 30,
----------------------------------------
1999 (1) 1998 % Change
------------------- ---------------- ----------
Drug spending $6,074,795 $3,137,264 93.6%
Pharmacy network claims processed 148,049 80,226 84.5%
Mail pharmacy prescriptions filled 7,428 5,267 41.0%
</TABLE>
<TABLE>
<CAPTION>
Selected Ratio Analysis
Actual Pro Forma (7)
-------- -------------
<S> <C> <C>
Net debt to EBITDA ratio (2) 2.5x 2.3x
Interest coverage ratio (2) (4) 3.1x 4.0x
Debt to enterprise value (3) 18.3% 18.3%
Net debt to net capitalization (3) 51% 51%
Cash value per share (5) $1.57 $1.57
Book value per share (6) $15.28 $15.28
<FN>
(1) Drug spending and pharmacy network claims processed excludes UHC. For
the three months and nine months ended Sept. 30, 1999, drug spending and
pharmacy network claims processed for UHC was $776,968 and $1,555,736,
respectively, and 19,977 and 40,555, respectively.
(2) Annualized using financial information for the six months ended
September 30, 1999.
(3) Based on financial information as of September 30, 1999.
(4) Represent EBITDA divided by interest expense.
(5) Represents cash divided by 38,507,344 shares outstanding at September
30, 1999
(6) Represents stockholders' equity divided by 38,507,344 shares
outstanding at September 30, 1999.
(7) Pro Forma excludes non-recurring charges for the corporate
restructuring and the extraordinary loss on early retirement of debt. Also, the
Pro Forma assumes the Company's 5,175 common stock offering and $250,000 Senior
Notes offering occurred on April 1, 1999.
</FN>
</TABLE>
