Diplomat Announces 4th Quarter and 2015 Year End Financial Results; Provides Initial 2016 Guidance

4th Quarter Revenue Increased 61%, Earnings Improved from a Net Loss of $(3.1) Million to Net Income of $3.6 Million, Adjusted EBITDA Increased 168%

Full Year Revenue Increased 52%, Net Income Increased 440%, Adjusted EBITDA Increased 170%

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Diplomat Pharmacy, Inc.

Feb 29, 2016, 04:15 ET

FLINT, Mich., Feb. 29, 2016 /PRNewswire/ -- Click here for additional information on the earnings results.

Diplomat Pharmacy, Inc. (NYSE: DPLO), the nation's largest independent specialty pharmacy, announced financial results for the quarter and year ended December 31, 2015. All comparisons, unless otherwise noted, are to the quarter or year ended December 31, 2014.

Fourth Quarter 2015 Highlights include:

Revenue of $987 million, an increase of 61% or $375 million
- 35% organic revenue growth
Total prescriptions dispensed of 238,000, an increase of 14%
Gross margin of 7.8% versus 6.7%
Adjusted EBITDA of $28.1 million, an increase of 168% or $17.6 million
- Adjusted EBITDA margin of 2.8% versus 1.7%
Adjusted EPS of $0.21 versus $0.08
Operating Cash Flow of $27 million, an increase of $56 million

Full Year 2015 Highlights include:

Revenue of $3,367 million, an increase of 52% or $1,152 million
- 31% organic revenue growth
Total prescriptions dispensed of 911,000, an increase of 14%
Gross margin of 7.8% versus 6.3%
Adjusted EBITDA of $95.0 million, an increase of 170% or $59.8 million
- Adjusted EBITDA margin of 2.8% versus 1.6%
Adjusted EPS of $0.75 versus $0.51
Operating Cash Flow of $29 million, an increase of $39 million

Phil Hagerman, Chairman and CEO of Diplomat, commented, "During the fourth quarter, we delivered our strongest organic and overall revenue growth quarter of the year. At the same time, we continued to meaningfully improve margins and to deliver growth from multiple diverse areas within our business including: growing prescription volume and revenue from existing drugs, continuing to win access to nearly all meaningful specialty drug approvals, and generating additional revenue synergies from our recent acquisitions. 2015 was a record year for drug approvals from the FDA, and this recent influx of approvals, combined with the remaining rich pipeline of drugs in development, keeps us very confident in our ability to deliver solid growth for the foreseeable future."

Fourth Quarter Financial Summary:

Revenue for the fourth quarter of 2015 was $987 million, compared to $612 million in the fourth quarter of 2014, an increase of $375 million or 61%. The increase was primarily the result of organic growth, including approximately $101 million from increased volume and a richer mix of those drugs that existed a year ago, approximately $58 million of revenue from drugs that were new in the past year and approximately $57 million from the impact of manufacturer price increases. The remaining increase was the result of approximately $159 million from our acquisitions.

Gross profit in the fourth quarter of 2015 was $76.7 million, compared to $40.9 million in the fourth quarter of 2014, and generated gross margin of 7.8% compared to 6.7%. The gross margin improvement in the quarter was primarily due to drug mix changes, including the impact of recent acquisitions, as well as the impact of increased pharma dollars, and, to a lesser extent, manufacturer price increases.

Selling, general, and administrative expenses ("SG&A") for the fourth quarter of 2015 was $69.7 million, an increase of $27.5 million, compared to $42.2 million in the fourth quarter of 2014. Of this increase, $12.4 million relates to employee cost, including employee cost from our acquired entities. The increased employee expense was primarily attributable to the 23% increase in dispensed and serviced prescription volume, combined with the increased clinical and administrative complexity associated with our mix of business. We also experienced a $6.9 million increase in amortization expense from definite-lived intangible assets, and a $2.9 million increase in the fair value of contingent consideration, both of which are associated with our acquisitions. The remaining increase was in all other SG&A to support our growth, including public company requirements, consulting fees, travel, and other miscellaneous expenses. As a percentage of revenue, SG&A, excluding acquisition-related amortization and change in contingent consideration, accounted for 5.3% of total revenues for the three months ended December 31, 2015 compared to 5.7% in the prior year period. This decrease is primarily attributable to operating efficiencies and integration of acquired entities.

Adjusted EBITDA for the fourth quarter of 2015 was $28.1 million versus $10.5 million in the fourth quarter of 2014, an increase of 168%.

Net income allocable to common shareholders for the fourth quarter of 2015 was $3.6 million, or $0.06 per common share, compared to a net loss of $(3.1) million, or $(0.06) per common share for 2014. On a diluted basis, we had net income per common share of $0.05 in the fourth quarter of 2015, compared to $(0.06) per common share in the prior year. Diluted non-GAAP Adjusted EPS ("Adjusted EPS") was $0.21 in the fourth quarter of this year compared to $0.08 in the fourth quarter of 2014. Compared to the year ago period, our weighted average common shares outstanding in the fourth quarter of 2015 were significantly higher, impacted by our follow-on equity offering, the use of shares as partial consideration for our acquisitions, and stock option exercises.

Full Year 2015 Financial Summary:

Revenue for 2015 was $3,367 million, compared to $2,215 million in 2014, an increase of $1,152 million or 52%. The increase was primarily the result of organic growth, including approximately $453 million from increased volume and a richer mix of those drugs that existed a year ago, approximately $103 million of revenue from drugs that were new in the past year, and approximately $136 million from the impact of manufacturer price increases. The remaining increase was the result of approximately $460 million from our acquisitions.

Gross profit in 2015 was $263.2 million, compared to $140.1 million in 2014 and generated gross margin of 7.8% compared to 6.3%. The gross margin improvement in the year was primarily due to drug mix changes, including the impact of recent acquisitions, as well as the impact of increased pharma dollars, and, to a lesser extent, manufacturer price increases.

SG&A for 2015 was $217.3 million, an increase of $89.7 million, compared to $127.6 million in 2014. Of this increase, $44.1 million relates to employee cost, including employee cost from our acquired entities. The increased employee expense was primarily attributable to the 18% increase in dispensed and serviced prescription volume, combined with the increased clinical and administrative complexity associated with our mix of business. We also experienced a $22.0 million increase in amortization expense from definite-lived intangible assets associated with our acquisitions. The remaining increase was in all other SG&A to support our growth, including public company requirements, consulting fees, software licenses, travel, freight, and other miscellaneous expenses. As a percentage of revenue, SG&A, excluding acquisition-related amortization and change in contingent consideration, accounted for 5.5% of total revenues for 2015 compared to 5.3% in the prior year. This increase is primarily attributable to the more clinically intensive businesses we have acquired and the additional operating expense associated with servicing those patients. The increase was partially offset by operating efficiencies.

Adjusted EBITDA for 2015 was $95.0 million versus $35.2 million in 2014, an increase of 170%.

Net income allocable to common shareholders for 2015 was $25.8 million, or $0.42 per common share, compared to $4.3 million, or $0.12 per common share for 2014. On a diluted basis, we had net income per common share of $0.41 in 2015, compared to $0.11 per common share in the prior year. Adjusted EPS was $0.75 in 2015 compared to $0.51 in 2014. Compared to the prior year, our weighted average common shares outstanding in 2015 were significantly higher, impacted by our follow-on equity offering, the use of shares as partial consideration for our acquisitions, and stock option exercises.

2016 Financial Outlook

For the full-year 2016, we provide financial guidance as follows:

Revenue between $4.3 and $4.6 billion
Adjusted EBITDA between $116 and $123 million
Adjusted EPS between $0.84 and $0.89

Our Adjusted EPS expectations assume approximately 67,500,000 weighted average common shares outstanding for the full year 2016, which could differ materially.

Earnings Conference Call Information

As previously announced, the Company will hold a conference call to discuss its fourth quarter and full year 2015 performance this evening, February 29, 2016 at 5:00 p.m. Eastern Time. Shareholders and interested participants may listen to a live broadcast of the conference call by dialing 877-201-0168 (or 647-788-4901 for international callers) and referencing participant code 40398821 approximately 15 minutes prior to the call. A live webcast and transcript of the conference call will be available on the investor relations section of the Company's website.

About Diplomat

Diplomat Pharmacy, Inc. (NYSE: DPLO) serves patients and physicians in all 50 states. Headquartered in Flint, Michigan, the Company focuses on medication management programs for people with complex chronic diseases, including oncology, immunology, hepatitis, multiple sclerosis, specialized infusion therapy and many other serious and/or long-term conditions. Diplomat opened its doors in 1975 as a neighborhood pharmacy with one essential tenet: "Take good care of patients, and the rest falls into place." Today, that tradition continues – always focused on improving patient care and clinical adherence. For more information visit www.diplomat.is. Follow us on Twitter and LinkedIn and like us on Facebook.

Non-GAAP Information

Adjusted EPS adds back, net of income taxes, the impact of all merger and acquisition related expenses, including amortization of intangible assets, the change in contingent consideration related to our acquisitions, as well as transaction-related costs. We exclude merger and acquisition related expenses from Adjusted EPS because we believe the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations and such expenses can vary significantly between periods as a result of new acquisitions, full amortization of previously acquired intangible assets or ultimate realization of contingent consideration. Investors should note that acquisitions, once consummated, contribute to revenue in the periods presented as well as future periods and should also note that amortization and contingent consideration expenses will recur in future periods. A reconciliation of Adjusted EPS, a non-GAAP measure, to EPS as prepared in accordance with accounting principles generally accepted in the United States ("GAAP") can be found in the appendix.

We define Adjusted EBITDA as net income (loss) before interest expense, income taxes, depreciation and amortization, share-based compensation, restructuring and impairment charges, equity loss and impairment of non-consolidated entities, and certain other items that we do not consider indicative of our ongoing operating performance (which are itemized below in the reconciliation to net income). Adjusted EBITDA is not in accordance with, or an alternative to, GAAP. In addition, this non‑GAAP measure is not based on any comprehensive set of accounting rules or principles. You should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in the presentation, and we do not infer that our future results will be unaffected by unusual or non-recurring items.

We consider Adjusted EBITDA and Adjusted EPS to be supplemental measures of our operating performance. We present Adjusted EBITDA and Adjusted EPS because they are used by our Board of Directors and management to evaluate our operating performance. They are also used as a factor in determining incentive compensation, for budgetary planning and forecasting overall financial and operational expectations, for identifying underlying trends and for evaluating the effectiveness of our business strategies. Further, we believe they assist us, as well as investors, in comparing performance from period to period on a consistent basis. Other companies in our industry may calculate Adjusted EBITDA and Adjusted EPS differently than we do and these calculations may not be comparable to our Adjusted EBITDA and Adjusted EPS metrics. A reconciliation of Adjusted EBITDA, a non-GAAP measure, to net income can be found in the appendix.

Forward Looking Statements

This press release contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give current expectations or forecasts of future events or our future financial or operating performance, and include Diplomat's expectations regarding revenues, Adjusted EBITDA, net income (loss), Adjusted EPS, market share, the performance of acquisitions and growth strategies. The forward-looking statements contained in this press release are based on management's good-faith belief and reasonable judgment based on current information, and these statements are qualified by important risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from those forecasted or indicated by such forward-looking statements. These risks and uncertainties include: our ability to adapt to changes or trends within the specialty pharmacy industry; significant and increasing pricing pressure from third-party payors; our relationships with key pharmaceutical manufacturers; bad publicity about, or market withdrawal of, specialty drugs we dispense; a significant increase in competition from a variety of companies in the health care industry; our ability to expand the number of specialty drugs we dispense and related services; maintaining existing patients; revenue concentration of the top specialty drugs we dispense; our ability to maintain relationships with a specified wholesaler and pharmaceutical manufacturer; increasing consolidation in the healthcare industry; managing our growth effectively; limited experience with acquisitions and our ability to recognize the expected benefits therefrom on a timely basis or at all; and the additional factors set forth in "Risk Factors" in Diplomat's Annual Report on Form 10-K for the year ended December 31, 2015 and in subsequent reports filed with or furnished to the Securities and Exchange Commission. Except as may be required by any applicable laws, Diplomat assumes no obligation to publicly update such forward-looking statements, which are made as of the date hereof or the earlier date specified herein, whether as a result of new information, future developments or otherwise.

INVESTOR CONTACT:
Bob East, Westwicke Partners
443-213-0500 | [email protected]

DIPLOMAT PHARMACY, INC.
Consolidated Balance Sheets
(dollars in thousands)

			December 31,		December 31,
ASSETS			2015		2014
Current assets:
	Cash and equivalents	$	27,600	$	17,957
	Accounts receivable, net		254,682		155,273
	Inventories		165,950		110,683
	Deferred income taxes		5,311		1,813
	Prepaid expenses and other current assets		7,427		5,360
	Total current assets		460,970		291,086
Property and equipment, net			16,538		13,150
Capitalized software for internal use, net			37,250		13,236
Goodwill			256,318		23,148
Definite-lived intangible assets, net			224,644		44,973
Investment in non-consolidated entity			4,959		3,500
Deferred debt issuance costs			5,013		921
Other noncurrent assets			181		72
	Total assets	$	1,005,873	$	390,086

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Accounts payable	$	296,587	$	202,495
	Short-term debt, including current portion of long-term debt		6,000		-
	Accrued expenses:
	Contingent consideration		52,665		6,282
	Compensation and benefits		5,563		2,257
	Other		11,087		4,394
	Total current liabilities		371,902		215,428
Long-term debt, less current portion			111,000		-
Contingent consideration, less current portion			-		5,409
Deferred income taxes			7,425		518
Other noncurrent liabilities			-		4
	Total liabilities		490,327		221,359
Commitments and contingencies
Shareholders' equity:
	Preferred stock (10,000,000 shares authorized; none issued and outstanding)		-		-
	Common stock (no par value, 590,000,000 shares authorized; 64,523,864 and 51,457,023 shares
	issued and outstanding at December 31, 2015 and 2014, respectively)		451,620		148,901
	Additional paid-in capital		29,221		9,893
	Retained earnings		31,130		5,354
	Total Diplomat Pharmacy shareholders' equity		511,971		164,148
Noncontrolling interests			3,575		4,579
	Total shareholders' equity		515,546		168,727
	Total liabilities and shareholders' equity	$	1,005,873	$	390,086

DIPLOMAT PHARMACY, INC.
Consolidated Statements of Operations
(dollars in thousands, except per share amounts)



			Three Months Ended				Year Ended
			December 31,				December 31,
			2015		2014		2015		2014
Net sales		$	986,823	$	612,075	$	3,366,631	$	2,214,956
Cost of goods sold			(910,158)		(571,178)		(3,103,392)		(2,074,817)
	Gross profit		76,665		40,897		263,239		140,139
Selling, general and administrative expenses			(69,666)		(42,226)		(217,302)		(127,556)
	Income from operations		6,999		(1,329)		45,937		12,583
Other (expense) income:
	Interest expense		(1,473)		(899)		(5,239)		(2,528)
	Change in fair value of redeemable common shares		-		1,200		-		9,073
	Equity loss and impairment of non-consolidated entity		-		(5,121)		-		(6,208)
	Termination of existing stock redemption agreement		-		-		-		(4,842)
	Other		38		465		308		1,128
Total other expense			(1,435)		(4,355)		(4,931)		(3,377)
	Income (loss) before income taxes		5,564		(5,684)		41,006		9,206
Income tax (expense) benefit			(2,260)		2,329		(16,234)		(4,655)
	Net income (loss)		3,304		(3,355)		24,772		4,551
Less: net loss attributable to noncontrolling interest			(262)		(225)		(1,004)		(225)
Net income (loss) attributable to Diplomat Pharmacy, Inc.			3,566		(3,130)		25,776		4,776
Net income (loss) allocable to preferred shareholders			-		(39)		-		458
Net income (loss) allocable to common shareholders		$	3,566	$	(3,091)	$	25,776	$	4,318

Net income (loss) per common share:
Basic		$	0.06	$	(0.06)	$	0.42	$	0.12
Diluted		$	0.05	$	(0.06)	$	0.41	$	0.11

Weighted average common shares outstanding:
Basic			64,358,618		49,462,715		60,730,133		36,012,592
Diluted			67,070,994		49,462,715		63,096,951		38,553,995

DIPLOMAT PHARMACY, INC.
Consolidated Statements of Cash Flows
(dollars in thousands)


			Year Ended December 31,
			2015		2014
Cash flows from operating activities:
	Net income	$	24,772	$	4,551
	Adjustments to reconcile net income to net cash provided by (used in) operating activities:
	Depreciation and amortization		30,841		8,139
	Changes in fair values of contingent consideration		6,724		6,121
	Contingent consideration payments		(3,738)		-
	Net provision for doubtful accounts		5,990		4,045
	Share-based compensation expense		3,936		2,871
	Excess tax benefits related to share-based awards		(20,805)		(3,689)
	Deferred income tax benefit		(4,615)		(1,295)
	Amortization of debt issuance costs		963		366
	Impairment of capitalized software for internal use		150		-
	Loss on sale or disposal of property and equipment		85		132
	Change in fair value of redeemable common shares		-		(9,073)
	Equity loss and impairment of non-consolidated entity		-		6,208
	Termination of existing stock redemption agreement		-		4,842
	Changes in operating assets and liabilities, net of business acquisitions:
	Accounts receivable		(50,771)		(43,130)
	Inventories		(41,657)		(50,334)
	Accounts payable		43,202		56,505
	Other assets and liabilities		34,370		4,173
	Net cash provided by (used in) operating activities		29,447		(9,568)
Cash flows from investing activities:
	Payments to acquire businesses, net of cash acquired		(293,496)		(51,599)
	Expenditures for capitalized software for internal use		(12,021)		(9,470)
	Expenditures for property and equipment		(4,624)		(1,487)
	Capital investments in and loans to non-consolidated entities		(1,459)		(4,000)
	Other		27		472
	Net cash used in investing activities		(311,573)		(66,084)
Cash flows from financing activities:
	Net payments on line of credit		-		(62,622)
	Proceeds from long-term debt		120,000		-
	Payments on long-term debt		(3,000)		(25,542)
	Proceeds from public offering, net of transaction costs		187,988		130,440
	Proceeds from sale of preferred stock, net of transaction costs		-		101,815
	Payments made to repurchase common stock		-		(53,400)
	Payments made to repurchase stock options		(36,298)		(9,400)
	Proceeds from issuance of stock upon stock option exercises		10,341		-
	Excess tax benefits related to share-based awards		20,805		3,689
	Payments of debt issuance costs		(5,055)		(480)
	Contingent consideration payments		(3,012)		-
	Net cash provided by financing activities		291,769		84,500
	Net increase in cash and equivalents		9,643		8,848
Cash and equivalents at beginning of year			17,957		9,109
Cash and equivalents at end of year		$	27,600	$	17,957
Supplemental disclosures of cash flow information:
	Cash paid for interest	$	3,949	$	2,248
	Cash paid for income taxes		351		5,924

Adjusted EBITDA

The table below presents a reconciliation of net income (loss) attributable to Diplomat Pharmacy, Inc. to Adjusted EBITDA for the periods indicated:

	For the three months ended December 31,		For the year ended December 31,
	2015	2014	2015	2014
	(dollars in thousands) (Unaudited)
Net income (loss) attributable to Diplomat Pharmacy, Inc.	$ 3,566	$ (3,130)	$ 25,776	$ 4,776
Depreciation and amortization	10,018	2,809	30,841	8,139
Interest expense	1,473	899	5,239	2,528
Income tax expense (benefit)	2,260	(2,329)	16,234	4,655
EBITDA	$ 17,317	$ (1,751)	$ 78,090	$ 20,098

Contingent consideration and other merger and acquisition expense	$ 8,774	$ 5,464	$ 9,249	$ 7,238
Share-based compensation expense	1,434	1,043	3,936	2,871
Employer payroll taxes - option repurchases and exercises	106	-	1,589	-
Other items	405	388	1,509	1,430
Severance and related fees	60	-	487	364
Restructuring and impairment charges	-	-	150	-
2014 Adjustments (1)	-	5,345	-	3,162
Adjusted EBITDA	$ 28,096	$ 10,489	$ 95,010	$ 35,163

(1)

Includes change in fair value of redeemable common shares, termination of existing stock redemption agreement, equity loss and impairment of non-consolidated entity, private company expenses including philanthropic activities, other taxes and credits

Adjusted EPS (diluted)

Below is a reconciliation of the Company's diluted net income (loss) attributable to Diplomat Pharmacy, Inc. per common share to Adjusted EPS for the three months and year ended December 31, 2015 and 2014.

	For the three months ended December 31,		For the year ended December 31,
	2015	2014 (1)	2015	2014 (1)
	(dollars in thousands, except per share amounts) (unaudited)
Net income (loss) attributable to Diplomat Pharmacy, Inc. (2)	$ 3,566	$ (3,028)	$ 25,776	$ 7,242
Amortization of acquisition-related intangible assets	8,694	1,789	26,071	4,030
Contingent consideration and other merger and acquisition expense	8,774	5,464	9,249	7,238
Impairment of non-consolidated entity	-	4,869	-	4,869
Income tax impact of adjustments (2)	(7,091)	(5,183)	(13,983)	(3,836)
Adjusted non-GAAP net income	$ 13,943	$ 3,911	$ 47,113	$ 19,543

Net income (loss) attributable to Diplomat Pharmacy, Inc. (2)	$ 0.05	$ (0.06)	$ 0.41	$ 0.19
Amortization of acquisition-related intangible assets	0.13	0.04	0.41	0.10
Contingent consideration and other merger and acquisition expense	0.13	0.11	0.15	0.19
Impairment of non-consolidated entity	-	0.10	-	0.13
Income tax impact of adjustments (2)	(0.10)	(0.11)	(0.22)	(0.10)
Adjusted EPS	$ 0.21	$ 0.08	$ 0.75	$ 0.51

	(1)	Different than reported in March 2, 2015 press release, but calculated consistent with 2015 methodology
	(2)	2014 presented on a pro forma basis solely related to our change in income tax status in early 2014 from an S corporation to a C corporation, and gives effect to our election to be a C corporation as if this decision was made effective January 1, 2014.