Diplomat Pharmacy (DPLO) reported earnings on Tue 12 Nov 19 (b/o)

• Nov 13: DPLO downgraded to Equal Weight from Overweight at Barclays

** charts after earnings **

Diplomat Pharmacy misses by $2.16, beats on revs; raises FY19 revs guidance, slashes EPS outlook; comments on liquidity and going concern, says continues to conduct strategic alternatives process

Reports Q3 (Sep) GAAP loss of $2.35 per share, $2.16 worse than the S&P Capital IQ GAAP Consensus of ($0.19); revenues fell 5.3% year/year to $1.3 bln vs the $1.17 bln S&P Capital IQ Consensus.

Net loss was primarily driven by a $156 million non-cash impairment charge related to goodwill and definite-lived intangible assets associated with the co's PBM segment due to a lower anticipated win rate, a lower expected rate of renewals, and the reduction in rebate value in 2019, all of which have contributed to a reduced outlook for the financial performance of their PBM segment.

Co issues mixed guidance for FY19, sees GAAP EPS of ($4.91-4.81) (Prior ($2.69-2.55)) vs. ($2.66) S&P Capital IQ Consensus; sees FY19 revs of $4.9-5.1 bln (Prior $4.7-5 bln) vs. $4.87 bln S&P Capital IQ Consensus.

• As of November 28, 2019, we will no longer participate in a significant group of specialty and retail networks with one of our largest payers. We were unable to reach an agreement to renew network participation rates. While this group of networks is not the only network group that we participate in for this payer, it does comprise the vast majority of the specialty pharmacy business that we do with this payer. We will continue to support the patients in the networks where we retain access, as well as the patients of their clients with whom we have direct contracts. For the full year 2019, this group of networks is expected to contribute approximately $700 million in revenue and while the loss of this business is not expected to have a material impact on 2019 results, our updated guidance does include the impact of this volume loss effective November 28, 2019.

Liquidity and Going Concern:

• As of September 30, 2019, we had $8.4 million in cash and equivalents, $105 million in borrowings under our revolving line of credit, $456 million outstanding under our term loans, and $95 million of available borrowing capacity under our revolving line of credit. For the nine months ended September 30, 2019, we generated $108 million of cash from operations. Notwithstanding the foregoing, we believe that we may not be able to meet the total net leverage and interest coverage ratio covenants in our credit agreement for the period ending December 31, 2019, which violation would give the lenders the right to terminate funding of our revolving line of credit, accelerate our debt (including amounts under our term loans), or foreclose on our assets, if our mitigating plans are not executed prior to December 31, 2019. The Company intends to alleviate any potential violation of such financial covenants through the execution of potential strategic alternatives, as discussed above. In addition, the Company intends to actively work with its lenders to renegotiate its covenants or amend its credit agreement. However, our mitigation plans are reliant on third parties and beyond our control, and therefore accounting rules do not permit us to conclude that it is probable that any of these alternatives will be effectively implemented prior to any such covenant violation. Accordingly, the notes to our consolidated financial statements presented in the Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 will include management's assessment that expresses substantial doubt surrounding our ability to continue as a going concern.

"Our third quarter results and updated outlook for the year reflect the challenges we continue to face in our business, including the ongoing pressures on our PBM business. In addition, we are disappointed we were unable to come to an agreement with one of our large payers to renew network participation in their specialty pharmacy network. We continue to pursue a comprehensive strategic alternatives process. There has been interest in both the whole company and its businesses, and we are engaged in advanced discussions. At the same time, we are focused on executing our strategy and continuing to put measures in place to help mitigate the impact of industry headwinds. The Board, management and I are committed to doing what is in the best interest of shareholders, employees and other Diplomat stakeholders."