沃博聯公司 (WBA) 2002 Q1 法說會逐字稿

Good morning. My name is Judy, and I will be your conference facilitator. At this time, I would like to welcome everyone to the OptionCare, Incorporated first earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, press star, then the number 2 on your telephone keypad. Thank you. Ms. Wilson, you may now begin your conference?

Good morning. I'm Lisa Carlson Wilson of Inside Communications, OptionCare's investor relations firm. Thank you for joining today's conference call. By now, you should have a copy of the press release issued by the company this morning. If you have not received it, please call Michelle Peterson at 847-604-7137 and it will be faxed to you immediately.

We have with us today Rajat Rai, president and chief executive officer, and Paul Mastrapa, chief financial officer of OptionCare. The company will provide a brief overview of its first-quarter 2002 operations and results which will be followed by a question and answer session. We expect the call will last approximately 45 minutes. In conjunction with the SEC reg FD guidelines, this call may also be accessed by webcast through the OptionCare website at OptionCare.com. Any remarks that OptionCare may make about future expectations, plans and prospects of the company constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in OptionCare's annual report on Form 10-K for the year ended December 31, 2001, which is on file with the SEC.

OptionCare anticipates that subsequent events and developments may cause its estimates to change. Whale it may elect to update these forward-looking statements at some point in the future, OptionCare specifically disclaims any obligation to do so. Now I would like to turn the call over to Rajat Rai, who will discuss the operational highlights of the first quarter. Rajat?

Thank you, Lisa. Good morning everyone. I'm very pleased to announce the first-quarter results for 2001. Net income was up a record 62%. This represented a 21 cents per share on a pro forma basis before the five for four split which was effective May 1 of this year. Up 24% from last year. Also please note that the number of shares outstanding increased 33%, as a result of the secondary offering completed last year in October. Our income grew as a result of record increase in revenues of 58% to about $73 million. This -- these results reflect a successful execution of our strategy, and indicate that our business model for building value in the home infusion and specialty pharmacy space is producing results. In the first quarter, we experienced a 29% increase in revenues on a same-store basis as compared to 23% in Q1 of 2001. The acceleration in the same-store growth came as a result of tremendous increase in our specialty pharmacy services, which grew as a result of increased sales from specialty pharmaceuticals. In particular, synergies used for our suite as well as expansion of our Blue Cross/Blue Shield contract in Florida. We remain on schedule for the implementation of this contract, and we expect it to be fully implemented by middle of 2003. Additionally, we completed one acquisition in the first quarter, that of American home patients specialty pharmacy and infusion business in Providence, Rhode Island. The full impact of this acquisition will be realized in the second quarter. We also caused on the acquisition of Mount Sinai home infusion and specialty pharmacy services business in April. Both of these acquisitions give us presence in three new important strategic markets. That is Providence, Boston, and New York. These markets give us not only a geographic expansion opportunity but also additional up side to sell the OptionCare model to new peers in those markets and continue to expand our relationships with large national managed care customers. These acquisitions will be fully integrated to our operational platform by the end of second quarter. As we expand our coverage nationwide and increase our scope of services, we are gaining a tremendous amount of visibility within not only our community but are also getting attention from pharmaceutical manufacturers. We believe our dual pharmacy service capability, coupled with local reach and national touch, makes us an attractive organization to provide a lower-cost alternative to inpatient hospital care with cutting-edge, high-tech clinical services. In the first quarter, we also signed a contract with Blue Cross Blue Shield of North Carolina covering over 2 million lives for specialty pharmacy services. And we are currently in the process of implementing this contract. At this time, we are not going to issue any guidance on this relationship, as it is not mandatory for the physicians to participate in the program. We'll keep you informed as the relationship develops. We're also in the process of relocating some of our locations and creating about 6 to 8 super pharmacies nationwide. The first pharmacy which is currently operational is located in Corona, California. The next planned super pharmacies will be located in Chicago, south Florida, Dallas, and Ann Arbor. These pharmacies will not only provide home infusion services but will also function as a distribution center for our specialty pharmacy services. These pharmacies will be fully functional by the end of this year. These super pharmacies will allow us to leverage our operational efficiencies in managing both our business segments. We're also very pleased to announce this morning our acquisition of Infusion Specialties, a fast-growing specialty pharmacy focused on hemophilia, RSV and hepatitis. This acquisition will provide us with a platform to grow and expand our services in the area of hemophilia. We will invest in expanding our sales force to target our managed care customers, whom we have relationships with both on infusion and specialty. The company currently has patients in Texas, Illinois, Arkansas, and Tennessee. The company has sufficient access to inaudible products. The management will remain on board with the business and assist OptionCare to expand their hemophilia program nationwide. This acquisition will be accretive to earnings and is expected to generate about $5 million in annual revenues. I'd also like to give you an update on our technology initiatives. Our software subsidiary, Management inaudible Information, is currently in beta testing is for its new Window-based and web-enabled system emphasis, which we planned to launch at the end of second quarter. The system would replace our existing technology platform and will add tremendous operational efficiency. We will give guidance on the conversion plan in our second-quarter conference call as well as new sales opportunities. In addition, we will unveil in the third quarter our E-procurement system which we believe will enhance our purchasing and inventory management. We're very excited about the opportunities that we see for OptionCare and feel very confident about achieving the goals this year and beyond. We have a number of opportunities for acquisitions, as well as managed-care contracts, with both home infusion as well as specialty pharmacy services. We are on a track with our financial guidance issued earlier this year and we are inaudible our guidance. I will not turn the call to Paul, who will discuss the financials in detail and also explain the new financial reporting which will give us clarity to our results. Paul?

Good morning. As Raj just mentioned, we achieved another quarter of record revenue and earnings. Revenue grew to almost 73 million, a 58% increase from the 46 million reported in the first quarter of 2001. That income grew 62% to 3.5 million from the 2.1 million for the prior year. And earnings per share grew 14% to 16 cents for the quarter, and on a pro forma basis, prior to the five-for-four stock split, we earned 21 cents a share. Beginning this year, we're making a change to how we report our revenues in order to provide greater clarity on the financial performance of our business. Historically, we reported revenues in two segments: Local pharmacy and regional specialty pharmacy. Our local pharmacy segment had included specialty pharmaceuticals that we distributed on a local basis. As our specialty business has rapidly grown, it has shifted our mix and lowered our overall gross margins. Our historical segments have made it difficult to understand this trend. The financial reporting beginning this year will be in a single segment, and include financial results on the following three service lines. First, specialty pharmacy services, second infusion pharmacy and related services such as respiratory therapy and home healthcare and lastly, other that includes royalties, software sales and support fees, and administrative fees from group purchasing contracts. As presented in our earnings release, we expect that this new reporting will help clarify our revenue trends, changes in service mix and gross margins. In regards to cash flow for the quarter, same-store basis operations provided 1.6 million of positive cash flow. This included a $1 million increase in inventory as a result of purchasing Hemophilia Factor and IVIG Pharmaceuticals to take advantage of improved product supply. Our acquisitions consumed 3.6 million of working capital primarily due to the funding of A/R as it historically has not been part of the purchase. As a result, on a combined basis, operations consumed 1.9 million during the first quarter. The Houston acquisition Raj announced today does include the purchase of A/R and we expect it to be immediately cash flow positive. We also continue to see further improvement in our DSO for the quarter, which totaled 79 days for the entire company and 65 days on a same-store basis. This is a reduction of one and five days respectively from the end of December. Our goal by the end of the year is to reduce our total DSOs to the mid-70s. Lastly, during Q1, we also secured a new $60 million credit facility led by J. P. Morgan, Chase Bank and LaSalle Bank to fund working capital requirements and acquisitions. At the end of the quarter, we had 3.3 million in cash and were essentially debt-free. Now I'd like ask the operator to open the call to your questions.

At this time, I would like to remind everyone if you would like to ask a question, please press star, then the number 1 on your telephone keypad. We'll pause for just a moment to compile the Q and A roster. Your first question comes from David McDonald with lyric swan.

Good morning, guys. I have a handful of questions. Raj, can you talk a little bit about the northeast, just, you know, with some of the presence that you've added up there? Can we expect to see you guys potentially add some regional managed care contracts in that area? And also, just, you know, on a national basis, how much -- how much of a positive is it for you guys to have a northeast presence?

David, hi, it's Raj. There are two big managed care peers in that region and we have a relationship with both the -- with both the peers nationally.

Okay.

And we're going to take advantage of those relationships and those markets.

Okay. On the acquisition front, guys, I know that you've spoken a little bit in the past about maybe looking at some more sizable acquisitions as you move forward. Can you just give me a quick snapshot of the landscape in terms of, you know, should we expect to continue to see you guys go after, you know, the size acquisitions you've looked at historically? Are there some sizable opportunities out there? Just kind of the lay of the land there.

The -- we are actually going to raise the notch up on the size of the acquisitions, going forward, and there are some regional companies that we are pursuing in terms of doing due diligence on those companies. There are some hospital-based pharmacies that are on the target list, and they're larger in size and scope of the services that they provide.

Okay. With regards to the new super pharmacies, would you guys anticipate closing any of the facilities you have now to kind of channel some of that volume into these super pharmacies, or will you be taking existing locations in those markets and just expanding them?

We actually are not going to close any pharmacies. We are just merely going to relocate our pharmacies to larger facilities to accommodate the growth coming, especially from the specialty pharmacy side, and that side of the business we're going to consolidate from our existing locations.

Okay. And Paul, just a couple of housekeeping questions. First of all, looks like the tax rate creeped up a little bit. What is kind of the sustainable tax rate for '02 and beyond as we go forward?

We're projecting it to stay relatively stable at just north of 39% that it was in Q1.

Okay. And one other question. On the revenues, if you had reported revenues the way that you previously had, could you just give me a breakdown of revenue by division for the quarter?

Sure. On a previous basis, we would have reported -- just a minute, David.

Okay.

About 54.4 million in local pharmacy revenue.

Right.

And 18.2 in regional specialty.

Okay. Thanks, guys. Good quarter.

Thank you.

Your next question comes from John Ransom with Raymond James.

Hi. Good morning. The 56% of the revenues that you now report as specialty pharmacy, could you please give us the breakout of approximate product mix there? And also, could you talk about if there's anything going on with respect to reimbursement, either AWP changes or perhaps major medical converting to drug card, and what's your outlook as for sort of the sustainable gross Marge anyone that business? Thanks.

John, we have about 18 to 20 drugs that are classified in the -- in the specialty side that were -- we were distributing out of our infusion pharmacies that were moved into the specialty side. They represent different therapies. We don't have a particular breakdown -- any particular breakdown for each therapy but I can give you the type of different therapies that we are providing, such as RSV, arthritis, inaudible disease, growth hormone disorders, and some oncology drugs related to anemia, as well as hepatitis C drugs.

Raj, if you were just to look globally at your now specialty pharmacy, the 56%, do you have any sort of approximate percentages of each therapy category?

Right now, for the call, we don't, but we'll be more than happy to provide that detail later.

And could you also -- as a follow-up, could you just comment generally on reimbursement trends? Some of the larger healthcare service companies are starting to see some managed care price increasing. Are you seeing any managed care increase on your infusion business? And could you just talk globally about AWP changes and if, perhaps, you're seeing any shift toward pricing off WAC or any other such thing as that? Thanks.

From a managed care perspective, our pricing is pretty stable. We're not really seeing a huge increase or decline in the -- in the pricing structure with our contracts. As well as the shifted concern of major medical to the pharmacy benefits side, we have not really seen a tremendous amount of shift. It's been pretty stagnant. As well as the issue on AWP at this point, we have no knowledge of any AWP changes that we see in the horizon this year. I understand there has been talk about getting the AWPs changed in the future, but we'll just have to wait and see where we -- you know, what we hear from the government in terms of the guidance.

That actually is a good alternative, and I think that could be the trend going forward with certain -- certainly with some large managed care peers.

And just finally, could you just give us your kind of global payer mix for the quarter.

Yeah we are about 88% managed care and 12% government.

Okay. Thank you.

Once again, if you would like to ask a question at this time, please press star, then the number 1 on your telephone keypad. Your next question comes from Mitra Ramglobal with Sedota.

Yes, hi, good morning, guys. I just wanted to see if you can provide us with a sense in terms of the heme a feel yeah market you're going into from a competitive standpoint. How do you see yourselves positioning yourselves going forward?

Well, we -- we ourselves are going to be a niche hemophilia provider. Obviously it's a new initiative in the company. We have studied the market. There is room for a lot of competitors in the marketplace. As you probably have heard in the past, there has been some consolidations, you know, some providers have inaudible hemophilia providers. We wanted to get in the market without investing heavily in terms of making an acquisition, so we started with a smaller platform and I think there is a tremendous growth opportunity. And again, I go back to our model, where we have relationships with various different managed care customers, and I think in expanding our service into new products and therapies, it will make it easier for us to go back to those customers and get them contracts for the new therapies and services.

Thanks.

At this time, there are no further questions.

Okay. Thank you very much for joining us in the call. We look forward to the next conference call. Thank you.

This concludes the conference call. You may disconnect at this time.