Despite new PBM revenues, Diplomat posts slight Q2 loss

Diplomat Pharmacy is beginning to see revenue growth from its recently launched PBM segment, but the Flint, Mich.-based company still swung to a slight loss in the second quarter, according to the company's earnings announcement Monday. Revenue increased 26% to $1.4 billion and gross profit grew to $98.4 million from $66.7 million in the prior-year period, but the company posted a net loss of $4 million for the quarter ended June 30. Adjusted EBITDA was $42.7 million, up from $25.2 million a year ago, and earnings per share were -$0.05.

“The Diplomat team delivered another great quarter with record revenue and adjusted EBITDA, driven by continued solid execution of our plan,” Diplomat CEO Brian Griffin said. “Our PBM integration is reaching its conclusion with CastiaRx demonstrating strong results in the quarter, as well as continued momentum on our growth and profitability initiatives across the entire enterprise. I am truly excited to join such a highly energized organization and look forward to exploring our growth potential for the benefit of all of our stakeholders.”

Revenue was comprised of $1.2 billion from the company’s specialty segment and $189 million from its pharmacy benefit manager segment. Specialty revenues increased from $1.13 billion in the prior-year period, and Diplomat said that the PBM segment did not exist in the prior-year period. Diplomat said there was a $6.4 million inter-company elimination of revenue, and associated cost of sales, between the segments, according to the company. It also noted that the specialty revenue increase was largely driven by $29 million from recent acquisitions, with the rest of the increase coming from price increases from manufacturers, access to new drugs and volume.

Gross profit generated a 6.9% gross margin, compared with 5.9% in the second quarter of 2017. Gross profit was comprised of $72.5 million from the specialty segment and $25.9 million from the PBM segment. The gross margin increase in the quarter was primarily due to the impact of PBM acquisitions, as well as the impact of the acquired entities in the specialty segment versus the prior-year period, according to the company.

The $4 million net loss was compared with $3.6 million worth of income in the year-ago period, but the company said that the loss was driven largely by an $8.5 million interest expense increase — the result of an outstanding debt increase related to the company's PBM acquisitions in the second quarter of 2017. “This decrease was primarily driven by an $8.5 million increase in interest expense due to a significant increase in outstanding debt to fund our PBM acquisitions. Adjusted EBITDA for the second quarter of 2018 was $42.7 million compared with $25.2 million in the second quarter of 2017, an increase of $17.5 million,” the company said.

Diplomat adjusted its full-year outlook to project revenue between $5.5 and $5.9 billion, which is consistent with its previous range, but it now projects earnings of between an $11 million loss and $500,000 of earnings. Its previous earnings range was between $4.5 million and $13 million. Its expected EBITDA range was affirmed to be between $164 million and $170 million. It now expects diluted earnings per share to be between -$0.15 and $0.01, down from a previous range of between $0.06 and $0.17.