Diplomat posts Q4 loss, names new CFO
Diplomat Pharmacy is seeing revenue growth from its recently launched PBM segment, but the Flint, Mich.-based company swung to a loss in the fourth quarter, according to the company’s earnings announcement Friday.
Revenue increased 18% to $1.4 billion and gross profit grew to $93.9 million from $76.2 million in the prior-year period, but the company posted a net loss of $298 million for the quarter ended Dec. 31, 2018. Adjusted EBITDA was $43.5 million, up 63% from $26.6 million a year ago, and earnings per share were $4.
For the fiscal year, Diplomat’s revenue was $5.5 billion compared with $4.5 billion in 2017, an increase of $1 billion, or 22%. Specialty segment revenue amounted to $4.8 billion compared with $4.5 billion in 2017, while revenue from its PBM segment amounted to $729 million compared with $12 million in 2017.
"While our 2018 financial results were strong, market conditions in 2019 are significantly more challenging than expected in our specialty and PBM businesses," Diplomat CEO Brian Griffin said, 2019 is a rebuilding year, and we continue to focus on driving additional volumes to Diplomat by creating partnerships with health plans and hospital systems to meet the demand for better clinical outcomes and management of specialty spend. We are also committed to rebuilding our PBM business."
Griffin also said, "The company's cost structure is no longer supported by the current business environment, and we are accelerating operational efficiency initiatives. I remain confident that Diplomat is making the right investments and executing the right strategy and operational initiatives to leverage our competitive strengths and position Diplomat for future growth and profitability.”
In the fourth quarter, revenue was comprised of $1.2 billion from the company’s specialty segment and $179 million from its pharmacy benefit manager segment. Specialty revenues increased from $1.1 billion in the prior-year period.
Diplomat said the increase in its specialty segment was driven by manufacturer price increases and an increase in its oncology and infusion volumes, partially offset by reimbursement compression to maintain contractual relationships with certain payers and a volume decrease in certain therapy classes, including immunology and multiple sclerosis. “The increase in its PBM segment is due to timing of our PBM acquisitions late in the fourth quarter of 2017 versus a full quarter impact in the fourth quarter of 2018,” the company said.
Gross profit generated a 6.9% gross margin compared with 6.3% in the quarter of 2018. Gross profit was comprised of $68.2 million from the specialty segment and $25.6 million from the PBM segment. The gross margin increase in the quarter was primarily due to the impact of PBM acquisitions, partially offset by reimbursement compression in Diplomat’s specialty segment, the company said.
The $298 million net loss was compared with $6.5 million worth of income in the year-ago period, but the company said the loss was driven largely by a $262 million noncash impairment charge related to goodwill and definite lived intangible assets associated with the company’s PBM segment due to the effects of client losses and a reduced financial forecast on its annual impairment analysis, as well as a $46 million noncash goodwill impairment charge related to its specialty segment due to the effects of a reduced financial forecast on its annual impairment analysis.
Diplomat adjusted its full-year outlook to project revenue between $4.7 and $5 billion versus the previous range of $5.6 to $5.8 billion. It now projects earnings of between $37 and $26 million. Its expected EBITDA range was affirmed to be ”flat to low single-digit percent year-over-year growth. It now expects EBITDA between $110 and $116 million. It expects diluted earnings per share to be between 50 cents and 34 cents.
Alongside its results, Diplomat Pharmacy announced the appointment of Dan Davison to the role of CFO and treasurer, effective April 8, succeeding Atul Kavthekar. Davison will report to Griffin and will lead the company's finance function, which is expected to be streamlined under Davison's direction. Kavthekar will remain with the company through a brief period to ensure a smooth transition of responsibilities.
"I want to thank Atul for his many contributions to Diplomat and wish him all the best in his future endeavors," Griffin said. "Today's announcement is part of a natural progression of our business. It represents another step forward in positioning Diplomat to execute on our health plan and hospital systems payer sales strategy, and drive future revenue growth and profitability. Dan's extensive finance experience, deep knowledge of our industry and strong operating experience in the PBM space make him the ideal person to lead our finance organization in this rapidly evolving healthcare environment."
Davison is a PBM and specialty pharmacy industry expert with deep expertise in pricing and business strategy; trade analytics; business development; financial planning and analysis; accounting and financial reporting; and risk management, the company said. Most recently, he served as senior vice president of PBM finance at CVS Health ,where he ran the finance, planning and accounting functions for the more than $130 billion revenue CVS Pharmacy services segment, including the CVS Caremark and CVS specialty groups. Before CVS, Davison held leadership roles at Medco Health Solutions as senior vice president of financial and strategic planning and chief financial officer of the health plan division.
Revenue increased 18% to $1.4 billion and gross profit grew to $93.9 million from $76.2 million in the prior-year period, but the company posted a net loss of $298 million for the quarter ended Dec. 31, 2018. Adjusted EBITDA was $43.5 million, up 63% from $26.6 million a year ago, and earnings per share were $4.
For the fiscal year, Diplomat’s revenue was $5.5 billion compared with $4.5 billion in 2017, an increase of $1 billion, or 22%. Specialty segment revenue amounted to $4.8 billion compared with $4.5 billion in 2017, while revenue from its PBM segment amounted to $729 million compared with $12 million in 2017.
"While our 2018 financial results were strong, market conditions in 2019 are significantly more challenging than expected in our specialty and PBM businesses," Diplomat CEO Brian Griffin said, 2019 is a rebuilding year, and we continue to focus on driving additional volumes to Diplomat by creating partnerships with health plans and hospital systems to meet the demand for better clinical outcomes and management of specialty spend. We are also committed to rebuilding our PBM business."
Griffin also said, "The company's cost structure is no longer supported by the current business environment, and we are accelerating operational efficiency initiatives. I remain confident that Diplomat is making the right investments and executing the right strategy and operational initiatives to leverage our competitive strengths and position Diplomat for future growth and profitability.”
In the fourth quarter, revenue was comprised of $1.2 billion from the company’s specialty segment and $179 million from its pharmacy benefit manager segment. Specialty revenues increased from $1.1 billion in the prior-year period.
Diplomat said the increase in its specialty segment was driven by manufacturer price increases and an increase in its oncology and infusion volumes, partially offset by reimbursement compression to maintain contractual relationships with certain payers and a volume decrease in certain therapy classes, including immunology and multiple sclerosis. “The increase in its PBM segment is due to timing of our PBM acquisitions late in the fourth quarter of 2017 versus a full quarter impact in the fourth quarter of 2018,” the company said.
Gross profit generated a 6.9% gross margin compared with 6.3% in the quarter of 2018. Gross profit was comprised of $68.2 million from the specialty segment and $25.6 million from the PBM segment. The gross margin increase in the quarter was primarily due to the impact of PBM acquisitions, partially offset by reimbursement compression in Diplomat’s specialty segment, the company said.
The $298 million net loss was compared with $6.5 million worth of income in the year-ago period, but the company said the loss was driven largely by a $262 million noncash impairment charge related to goodwill and definite lived intangible assets associated with the company’s PBM segment due to the effects of client losses and a reduced financial forecast on its annual impairment analysis, as well as a $46 million noncash goodwill impairment charge related to its specialty segment due to the effects of a reduced financial forecast on its annual impairment analysis.
Diplomat adjusted its full-year outlook to project revenue between $4.7 and $5 billion versus the previous range of $5.6 to $5.8 billion. It now projects earnings of between $37 and $26 million. Its expected EBITDA range was affirmed to be ”flat to low single-digit percent year-over-year growth. It now expects EBITDA between $110 and $116 million. It expects diluted earnings per share to be between 50 cents and 34 cents.
Alongside its results, Diplomat Pharmacy announced the appointment of Dan Davison to the role of CFO and treasurer, effective April 8, succeeding Atul Kavthekar. Davison will report to Griffin and will lead the company's finance function, which is expected to be streamlined under Davison's direction. Kavthekar will remain with the company through a brief period to ensure a smooth transition of responsibilities.
"I want to thank Atul for his many contributions to Diplomat and wish him all the best in his future endeavors," Griffin said. "Today's announcement is part of a natural progression of our business. It represents another step forward in positioning Diplomat to execute on our health plan and hospital systems payer sales strategy, and drive future revenue growth and profitability. Dan's extensive finance experience, deep knowledge of our industry and strong operating experience in the PBM space make him the ideal person to lead our finance organization in this rapidly evolving healthcare environment."
Davison is a PBM and specialty pharmacy industry expert with deep expertise in pricing and business strategy; trade analytics; business development; financial planning and analysis; accounting and financial reporting; and risk management, the company said. Most recently, he served as senior vice president of PBM finance at CVS Health ,where he ran the finance, planning and accounting functions for the more than $130 billion revenue CVS Pharmacy services segment, including the CVS Caremark and CVS specialty groups. Before CVS, Davison held leadership roles at Medco Health Solutions as senior vice president of financial and strategic planning and chief financial officer of the health plan division.