Diplomat finishes off fiscal year strong

Diplomat closed 2017 in a strong position as it moves to position itself as a broader-based healthcare company, according to its full-year and fourth-quarter results released Tuesday. The Flint, Mich.-based independent provider of specialty pharmacy services brought in $1.15 billion in revenue for the quarter ended December 31, 2017, and $4.49 billion in revenue for the full year ended the same date. The earnings report caps a full year for Diplomat, during which its rejiggered business strategy also was  by the retirement of longtime CEO and co-founder Phil Hagerman.

Diplomat’s quarterly revenue represents a 1% increase over the previous-year quarter, which it said was driven by completed acquisitions — which included the nearly $600 million cash-and-stock purchase of pharmacy benefit manager LDI Integrated Pharmacy Services, as well as the $45 million cash-and-stock acquisition of PBM National Pharmaceutical Services. It also acquired specialty and infusion pharmacy Focus Rx. The quarter’s gross margin grew to 8.1% from 7.3% in the year-ago period, with gross profit per prescription dispensed rising $11 to $353. Net income for the quarter was $6.5 million, compared with a $1.1. million loss a year ago.

Offsetting the company’s quarterly revenue was its decision to exit less profitable contracts at the end of 2016 and lower demand for hepatitis C drugs. The company’s selling, general and administrative expenses for the quarter were $90.6 million, a $13.6 million increase over the prior-year period that Diplomat said was due to employee cost, mostly form acquisitions. As a percentage of revenue, SG&A expenses grew 1%. Its increase in net income was attributed to a $10 million improvement in income taxes driven by a new lower tax rate reduction, as well as a one-time $4.7 million impairment expense from the prior-year period.

For the full-year, Diplomat’s revenue marked a 2% increase over full-year 2016. The company attributed this increase to its acquisitions and offset by the same factors as its quarterly results. The company’s gross profit was $348.7 million, marking a 7.8% margin — an improvement of $24.1 million and 0.4 percentage points over 2016. SG&A for the year were $330.1 million, up $52.3 million over 2016, which the company said was largely due to an increased, acquisition-driven employee cost. Net income dropped to $15.5 million from $28.3 million in the previous year, which Diplomat attributed to a $28.5 million drop in operating income and a $4.1 million increase in interest expenses related to its new financing arrangement that began in Q4. Adjusted earnings per share hit $0.84, up nine cents per share over 2016.

“Our strong performance for the fourth quarter and full year reflects the successful execution of our strategy, as well as the actions we took to position Diplomat for long-term growth, including entering the PBM market and bolstering our bench of talent,” interim CEO Jeff Park said.

For 2018, Diplomat said it expects to see revenue of between $5.3 billion and $5.6 billion, with expected net income of between $4.5 million and $13 million. It expects adjusted EPS to be between $0.87 and $0.97.

“As evidenced by our 2018 outlook, we are confident in our ability to build on this momentum and capture the growth opportunities ahead,” Park said. “As we execute on our go-to-market strategies across specialty, infusion and PBM, we are focused on continuing to accelerate growth and profitability, and enhance value for our shareholders while keeping our patients at the center of everything that we do.”