PolyMedica Corporation (NASDAQ: PLMD): Fiscal 2008 First Quarter Highlights: Net revenues were $190.6 million, an increase of 22% over the prior year; Earnings per share were $0.49, an increase of 96% over the prior year; Diabetes revenues were $126.6 million, an increase of 11% over the prior year; Pharmacy revenues were $64.0 million, an increase of 52% over the prior year; and Operating cash flow was $19.1 million compared with $16.8 million in the prior year. PolyMedica Corporation (NASDAQ: PLMD) today reported revenue growth of 22% to $190.6 million in the first fiscal quarter of 2008 compared with $155.9 million for the same period last year. Net income for the quarter was $11.4 million, or $0.49 per diluted share, compared with $5.9 million, or $0.25 per diluted share, in the first quarter of fiscal 2007. In accordance with Statement of Financial Accounting Standards (SFAS) No. 123R, �Share-Based Payment,� the Company recognized $3.1 million of pre-tax stock-based compensation expense ($1.9 million after taxes, or $0.08 per diluted share) during the first quarter of fiscal 2008. Excluding the impact of stock-based compensation expense in both periods, earnings per share for the first quarter of fiscal 2008 were $0.57 compared with $0.33 in the prior year period. Commenting on the Company�s results, Chief Executive Officer Patrick Ryan said, �The Company continued to successfully execute on its strategic initiatives, reporting strong revenue growth in both the diabetes and pharmacy businesses. Earnings per share continue to grow as we reported 96% growth from a year ago. Our balance sheet remains strong as we generated over $19 million in operating cash flow and repaid $12.8 million in debt. We�re excited and encouraged by our future opportunities including the expansion of our services in fiscal 2008.� Mr. Ryan continued, �While we are pleased with the Company�s position and this quarter�s strong financial results, we are saddened by the recent passings of our Chairman, Tom Pyle, and a former Board member, Dan Bernstein, who recently retired after 12 years of service. Tom and Dan helped shape the Company�s future and were trusted advisors and friends.� Recently, the Company entered into an agreement with Blue Cross Blue Shield of Florida (�BCBSF�) that reduces reimbursement for certain medications. The agreement, which will impact the Company�s pharmacy segment, is expected to reduce revenue and operating income by approximately $9 million in fiscal 2008, and, on an annualized basis, $15 million. Commenting on the BCBSF agreement and the outlook for the remainder of the fiscal year, Mr. Ryan added, �The BCBSF contract, which we highlighted in the past as the Pharmacy FEP contract, is a legacy contract that hasn�t been a critical element of our company�s growth strategy. When we developed our financial projections and guidance for fiscal 2008, we considered, among other factors, the possibility of a price reduction in the BCBSF contract. As a result, we continue to believe that we�ll be able to achieve our earnings guidance for the year by building on the first quarter�s strong growth, leveraging our platform and reducing product and SG&A costs. Our abilities to operate efficiently, provide superior service and adapt to change are fundamental strengths. We�re well positioned strategically and focused on continuing to execute upon our growth plan.� � Results of Operations for First Quarter Net revenues: Three Months Ended June 30, March 31, June 30, Prior Year Prior Year (in thousands) 2007 2007 2006 $ Change % Change Diabetes $126,596 $123,550 $113,783 $12,813 11% Pharmacy 64,029 54,723 42,106 21,923 52% Net revenues $190,625 $178,273 $155,889 $34,736 22% Net revenues in the first quarter of fiscal 2008 increased 22% to $190.6 million compared with $155.9 million for the same period last year. Diabetes revenue increased $12.8 million, or 11%, from last year�s first quarter, primarily due to an 8% increase in diabetes patients and a 5% increase in revenue per shipment. Pharmacy revenue increased $21.9 million, or 52%, from last year�s first quarter, primarily due to the increase in patients served through the Company�s Medicare Part D drug benefit program. The Company dispensed 655,000 prescriptions in the first quarter compared with 408,000 dispensed prescriptions in the prior year period. The provision for sales returns and allowances in the first quarter of 2008 was $4.0 million, or 2.1% of gross revenues, compared with $3.4 million, or 2.1% of gross revenues, in last year�s first quarter. � Gross Margin: Three Months Ended June 30, March 31, June 30, Prior Year Prior Year (in thousands) 2007 2007 2006 $ Change % Change Diabetes $74,808 $72,174 $63,605 $11,203 18% Pharmacy 11,084 9,766 8,728 2,356 27% Gross margin $85,892 $81,940 $72,333 $13,559 19% Gross margin dollars in the first quarter increased 19% to $85.9 million from $72.3 million for the same period last year. Diabetes gross margin dollars increased $11.2 million and Pharmacy gross margin dollars increased $2.4 million from last year. Overall, the Company�s gross margin was 45.1% of net revenues in the first quarter compared with 46.4% last year and 46.0% in the fourth quarter of fiscal 2007. Diabetes gross margin was 59.1% in the first quarter compared with 55.9% last year and 58.4% in the fourth quarter of fiscal 2007. The increase in Diabetes gross margin from last year and last quarter was primarily attributable to a decrease in diabetes product costs. Pharmacy gross margin was 17.3% in the first quarter ended June 30, 2007, compared with 20.7% in the prior year and 17.9% in the fourth quarter of fiscal 2007. The decrease in Pharmacy gross margin from last year and last quarter was due to the growth in net revenues attributable to the Liberty Part D drug benefit program, which generates a lower product gross margin than the historical Pharmacy business. In addition, the decrease in Pharmacy gross margins from last quarter also related to an increase in brand prescription revenue that generates lower gross margins than generic prescription revenue. � Selling, general and administrative expenses: Three Months Ended June 30, March 31, June 30, (in thousands) 2007 2007 2006 Employee compensation and benefits $26,079 $24,160 $24,359 Direct-response advertising amortization 13,194 13,154 11,642 Depreciation expense 2,724 2,781 2,456 Amortization of intangible assets 4,659 3,800 2,425 Provision for doubtful accounts 6,326 5,157 5,397 Stock-based compensation 3,077 2,814 3,014 Other 10,291 12,682 10,971 Selling, general and administrative expenses $66,350 $64,548 $60,264 � As a percentage of net revenues 34.8% 36.2% 38.7% The $6.1 million increase in selling, general and administrative expense from last year related primarily to increases in the amortization of direct-response advertising and intangible assets related to higher spending in these areas during the past year. In addition, employee compensation and benefits and provision for doubtful accounts increased as a result of growth in the Company�s diabetes and pharmacy businesses. Other SG&A expense primarily includes legal, accounting, communications cost and marketing expense. SG&A expense, in dollars, increased from the fourth quarter of fiscal 2007 by $1.8 million. As a percentage of revenue, SG&A expense in the first quarter of fiscal 2008 was 34.8% compared with 38.7% last year and 36.2% in the fourth quarter of fiscal 2007. Other income and expense: Other income and expense of $1.5 million decreased $1.3 million from last year due to a reduction in the overall interest rate as a result of the Company�s issuance of 1% coupon convertible notes in the second quarter of fiscal 2007. Other income and expense was $1.7 million in the fourth quarter of fiscal 2007. The overall weighted average interest rate on all debt was 3.1% in the first quarter compared with 2.6% in the fourth quarter and 6.5% in last year�s first quarter. Balance Sheet and Cash Flow Highlights The Company's cash flows for the three months ended June 30, 2007 and 2006, included the following: � Three Months Ended June 30, June 30, $ 2007 � 2006 � Change Summary Cash Flow Data: Cash flows from operating activities $19,053 $16,769 $2,284 Cash flows used for investing activities (3,066 ) (11,613 ) 8,547 Cash flows used for financing activities (14,111 ) (11,669 ) (2,442 ) Net change in cash and cash equivalents 1,876 (6,513 ) 8,389 Beginning cash and cash equivalents 2,093 � 9,101 � (7,008 ) Ending cash and cash equivalents $3,969 � $2,588 � $1,381 � � Three Months Ended June 30, June 30, $ 2007 � 2006 � Change Additional Cash Flow/Balance Sheet Data: Purchase of property, plant and equipment $(2,458 ) $(444 ) $(2,014 ) Purchase of patient lists and other contracts (608 ) (11,169 ) 10,561 Direct response advertising expenditures (15,579 ) (15,396 ) (183 ) Repayment of debt (12,800 ) (10,000 ) (2,800 ) A/R days sales outstanding 54 58 Inventory days on hand 29 36 Three Twelve Months Months Ended Ended June 30, June 30, � 2007 � � 2007 � Diabetes Patients: Diabetes patients, beginning of period 943,000 888,000 New diabetes patients from marketing programs 55,000 198,000 New diabetes patients from acquisitions 6,000 52,000 Patient attrition � (47,000 ) � (181,000 ) Diabetes patients as of June 30, 2007 � 957,000 � � 957,000 � � Other Key Operating Metrics: Three Months Ended June 30, March 31, June 30, � 2007 � � 2007 � � 2006 � Diabetes: Diabetes shipments 661,000 653,000 619,000 Revenue per shipment $ 179 $ 175 $ 170 Quarterly reorder rate 91.7 % 93.1 % 93.2 % Patient retention 95.0 % 95.3 % 95.3 % Acquisition cost per patient - multi-channel marketing $ 282 $ 298 $ 336 Other revenue included in Diabetes segment (000s) $ 8,543 $ 9,156 $ 8,185 � Pharmacy: Dispensed prescriptions 655,000 572,000 408,000 Patients receiving prescriptions during quarter 115,000 100,000 83,000 Average prescriptions shipped to each patient in quarter 5.69 5.72 4.90 Revenue per dispensed prescription $ 98 $ 96 $ 103 Gross margin per dispensed prescription $ 17 $ 17 $ 21 Brand revenue dollars as % of total Pharmacy revenue 81.7 % 81.0 % 83.0 % Brand prescriptions as % of total Pharmacy prescriptions 52.6 % 49.1 % 54.2 % Conference Call and Replay PolyMedica management will host a conference call and live webcast tomorrow, Wednesday, August�1, 2007, at 9:00 a.m. Eastern time to discuss the Company�s financial results. The number to call for this interactive conference call is 1-800-728-2167. A 90-day online replay will be available beginning approximately one hour following the conclusion of the live broadcast. A link to these events can be found on the Company�s website at www.polymedica.com or at www.earnings.com. About PolyMedica For more than a decade, PolyMedica Corporation has been the nation�s largest provider of blood glucose testing supplies and related services to people with diabetes and today serves more than 957,000 active diabetes patients. The Company also offers a full service pharmacy to meet patients� medication needs and provides patient education to help its patients better manage their health conditions. Through proactive patient outreach, convenient home delivery and administrative support, PolyMedica makes it simple for patients to obtain the supplies and medications they need, while encouraging compliance with physicians� orders. More information about PolyMedica can be found on the Company�s website at www.polymedica.com. This press release contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those anticipated. Such risks and uncertainties include, but are not limited to, rules and regulations promulgated under the Act, unanticipated changes in Medicare reimbursement, successful participation in new reimbursement programs, outcomes of government reviews, inquiries, investigations and related litigation, continued compliance with government regulations, fluctuations in customer demand, management of rapid growth, competition from other healthcare product vendors, timing and acceptance of new product introductions, general economic conditions, geopolitical events and regulatory changes, as well as other especially relevant risks detailed in the Company�s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the period ended March 31, 2007, and Quarterly Reports on Form 10-Q for the periods ended December 31, September 30, and June 30, 2006. The information set forth herein should be read in light of such risks. The Company assumes no obligation to update the information contained in this press release. � POLYMEDICA CORPORATION Consolidated Statements of Operations (In thousands, except per share amounts) � Three Months Ended June 30, June 30, $ % � 2007 � � 2006 � Change Change � Net revenues $ 190,625 $ 155,889 $ 34,736 22.3 % Cost of sales � 104,733 � � 83,556 � � 21,177 � 25.3 % � Gross margin 85,892 72,333 13,559 18.7 % Selling, general and administrative expenses � 66,350 � � 60,264 � � 6,086 � 10.1 % � Income from operations 19,542 12,069 7,473 61.9 % Other income and expense � (1,464 ) � (2,757 ) � 1,293 � 46.9 % � Income before income taxes 18,078 9,312 8,766 94.1 % � Income tax provision � 6,689 � � 3,399 � � 3,290 � 96.8 % � Net income $ 11,389 � $ 5,913 � $ 5,476 � 92.6 % � Diluted earnings per share $ 0.49 � $ 0.25 � $ 0.24 � 96.0 % � Weighted average shares, diluted 23,414 23,538 (124 ) (0.5 %) � POLYMEDICA CORPORATION Consolidated Balance Sheets (In thousands) � June 30, March 31, 2007 2007 ASSETS � Current assets Cash and cash equivalents $ 3,969 $ 2,093 Accounts receivable, net 114,714 117,309 Inventories 34,061 37,554 Deferred income taxes 4,787 4,787 Prepaid expenses and other current assets � 22,550 � 18,344 � Total current assets 180,081 180,087 � Property, plant and equipment, net 60,831 61,098 Goodwill 64,598 64,598 Intangible assets, net 42,819 46,870 Direct response advertising, net 103,815 101,487 Notes receivable 14,657 14,433 Other assets � 8,181 � 8,873 � Total assets $ 474,982 $ 477,446 � LIABILITIES AND SHAREHOLDERS' EQUITY � Current liabilities: Accounts payable and accrued expenses $ 57,825 $ 61,423 Current portion, capital lease obligations � 664 � 804 � Total current liabilities 58,489 62,227 � Capital lease and other obligations 5,221 2,252 Convertible notes 180,000 180,000 Credit facility 45,900 58,700 Deferred income taxes � 11,994 � 12,351 � Total liabilities 301,604 315,530 Total shareholders' equity � 173,378 � 161,916 � Total liabilities and shareholders' equity $ 474,982 $ 477,446 � � POLYMEDICA CORPORATION Statement of Operations � Reconciliation of Non-GAAP Financial Measures (In thousands, except per share amounts) � Three Months Ended June 30, 2007 Reported Stock- Adjusted GAAP Based Non-GAAP Totals Compensation Totals Income before income taxes $ 18,078 $ 3,077 $ 21,155 Income tax provision � 6,689 � 1,138 � 7,827 Net income $ 11,389 $ 1,939 $ 13,328 � Diluted earnings per share $ 0.49 $ 0.08 $ 0.57 � Weighted average shares, diluted 23,414 23,414 23,414 � Three Months Ended June 30, 2006 Reported Stock- Adjusted GAAP Based Non-GAAP Totals Compensation Totals Income before income taxes $ 9,312 $ 3,014 $ 12,326 Income tax provision � 3,399 � 1,100 � 4,499 Net income $ 5,913 $ 1,914 $ 7,827 � Diluted earnings per share $ 0.25 $ 0.08 $ 0.33 � Weighted average shares, diluted 23,538 23,538 23,538 The Company believes that referring to these non-GAAP totals facilitates a better understanding of its annual operating results.
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