Diplomat Pharmacy (DPLO) to be acquired by UnitedHealth's (UNH) OptumRx for $4.00/share

 

 

Agreed to be acquired by OptumRx, UnitedHealth Group's (NYSE:UNH) pharmacy-care services division for $4.00/share through a cash tender offer, following a careful review of strategic options by co's Board of Directors. The stock had established new record lows below $3 in mid-November following co's issuance of Q3 results, at which time co's pursuit of a comprehensive strategic alternatives process remained ongoing; by Friday's close, the stock had improved by circa +139% from those lows.
Shares have run up over the last month or so as investors hoped that management could find a buyer at a higher price.

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."

Earnings this week : Nov 11 - 15, 19 (wk 46)

Monday (Nov 11)

• Morning: FOLD CRR QRTEA
• Afternoon: APYX DXC FGEN FLNT FNV FTK GO HBM ICUI TDW TERP TME UGI

Tuesday (Nov 12)

• Morning: AAP ACM AEIS BPMP CBS CNNE CRON CVET DF DHI DPLO DSKE EBIX EDIT EGRX EPC ERJ GTT IAA IIVI INFN KEM MPAA OSTK PSN RDNT ROK SAGE SE TSN XON
• Afternoon: ADPT ADT APEI BREW CBPX CDLX CPRX DDOG DOX HALO HCAT HIIQ HTHT HUYA KWR MCRN MTSI OMER PTE RUN SCSC SDC SENS SSTI SWKS TLRY TVTY TWOU VRAY VREX YY

Wednesday (Nov 13)

• Morning: BEST CAE CMCM ENR FVRR GOOS LK MTOR SPB SSYS TSEM VIPS
• Afternoon: BZH CHNG CBPO CSCO CPA HI HOLI NTAP PSNL PRSP TGP TNK TTEK TCOM

Thursday (Nov 14)

• Morning: BAM CHC CTRA GDS IGT NBEV NICE RUBY SINA TUFN VIAB WMT WB WIX ZEAL
• Afternoon: AMAT AXNX DLB FTCH FSM GLOB HP KLIC NVDA VFF WPM

Friday (Nov 15) 

• Morning: JCP JD

Diplomat Pharmacy (DPLO) reported earnings on Fri 15 March 19 (b/o)

** charts before earnings **

 

** charts after earnings **

Diplomat Pharmacy reports Q4 (Dec) results, misses on revs; slashes previously withdrawn FY19 outlook, calls 2019 a rebuilding year

• Reports Q4 (Dec) GAAP loss of $4.00 per share, may not be comparable to the S&P Capital IQ GAAP Consensus of $0.02; revenues rose 17.8% year/year to $1.36 bln vs the $1.41 bln S&P Capital IQ Consensus.
  • Net (loss) income attributable to Diplomat for the fourth quarter of 2018 was $(298.0) million compared to $6.5 million in the fourth quarter of 2017. This decrease was primarily driven by a $262 million non-cash impairment charge related to goodwill and definite-lived intangible assets associated with the co's PBM segment due to the effects of client losses and a reduced financial forecast, on the co's annual impairment analysis, as well as a $46 million non-cash goodwill impairment charge related to co's Specialty segment due to the effects of a reduced financial forecast, on the co's annual impairment analysis.
  • Income from operations for the fourth quarter of 2018, excluding the non-cash impairment charges, was $13.9 million, compared to $2.9 million in the fourth quarter of 2017.
• Brian Griffin, Chairman and CEO of Diplomat, commented "While our 2018 financial results were strong, market conditions in 2019 are significantly more challenging than expected in our specialty and PBM businesses. 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...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,"
• Co issues downside guidance for FY19, sees EPS of ($0.50-0.34) vs. ($0.18) S&P Capital IQ GAAP Consensus; sees FY19 revs of $4.7-5.0 bln vs. $5.51 bln S&P Capital IQ Consensus; sees Adjusted EBITDA between $110 and $116 million (vs. $167.8 mln for FY18)
  • The company previously issued a preliminary FY19 outlook in January, which it later withdrew. That preliminary guidance called for revs of $5.6-5.8 bln & flat to low-single-digit percent year-over-year adjusted EBITDA growth compared to the mid-point of updated 2018 guidance.