On August 6, 2018 Diplomat Pharmacy, Inc. (NYSE: DPLO), the nation’s largest independent provider of specialty pharmacy services, reported financial results for the quarter ended June 30, 2018 (Press release, Diplomat Speciality Pharmacy, AUG 6, 2018, View Source [SID1234528481]). All comparisons, unless otherwise noted, are to the quarter ended June 30, 2017. Prior period financials have been recast to include certain direct expenses as part of cost of sales instead of selling, general and administrative expense ("SG&A") for our specialty segment. This change is a reclassification only and has no impact on overall results.

Schedule your 30 min Free 1stOncology Demo!
Discover why more than 1,500 members use 1stOncology™ to excel in:

Early/Late Stage Pipeline Development - Target Scouting - Clinical Biomarkers - Indication Selection & Expansion - BD&L Contacts - Conference Reports - Combinatorial Drug Settings - Companion Diagnostics - Drug Repositioning - First-in-class Analysis - Competitive Analysis - Deals & Licensing

                  Schedule Your 30 min Free Demo!

Second Quarter 2018 Highlights include:

Revenue of $1,416 million, compared to $1,126 million, an increase of 26%
Specialty segment revenue of $1,234 million, compared to $1,126 million
PBM segment revenue of $189 million, which was not part of the business in the prior year period
Specialty segment total prescriptions dispensed of 236,000, compared to 220,000
PBM segment total volume, adjusted to 30-day equivalent, of 2,123,000
Gross margin of 6.9% versus 5.9%
Specialty segment gross margin of 5.9% versus 5.9%
PBM segment gross margin of 13.7%
EPS of $(0.05) per diluted common share versus $0.05
Adjusted EPS of $0.17 versus $0.25
Adjusted EBITDA of $42.7 million, compared to $25.2 million
Adjusted EBITDA margin of 3.0% versus 2.2%
Net cash provided by operating activities was $18.1 million, compared to $23.0 million
Net debt, including contingent consideration, reduced to $609.2 million, from $618.2 million at March 31, 2018
Brian Griffin, Chairman and CEO of Diplomat, commented "The Diplomat team delivered another great quarter with record revenue and adjusted EBITDA, driven by continued solid execution of our plan. 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."

Second Quarter Financial Summary:

Revenue for the second quarter of 2018 was $1,416 million, compared to $1,126 million in the second quarter of 2017, an increase of $290 million or 26%. Revenue was comprised of $1,234 million and $189 million from our Specialty segment and our Pharmacy Benefit Management ("PBM") segment, respectively. There was a $6.4 million inter-company elimination of revenue, and associated cost of sales, between the segments. The increase in our Specialty segment revenue was primarily driven by $29 million of revenue from our acquisitions. The remaining increase in our Specialty segment was driven by manufacturer price increases, access to dispense drugs that were new in the past year and increased volume due to both payor and physician relationships.

Gross profit in the second quarter of 2018 was $98.4 million and generated an 6.9% gross margin, compared to $66.7 million gross profit and 5.9% gross margin in the second quarter of 2017. Gross profit was comprised of $72.5 million and $25.9 million from our Specialty segment and PBM segment, respectively. The gross margin increase in the quarter was primarily due to the impact of our PBM acquisitions, as well as the impact of the acquired entities in our Specialty segment versus the prior year period.

SG&A for the second quarter of 2018 were $90.6 million, an increase of $28.8 million, compared to $61.9 million in the second quarter of 2017. This increase is primarily driven by approximately $12.7 million related to employee cost, including employee cost for our acquired entities, a $4.1 million increase in share-based compensation, and approximately $0.6 million of non-recurring severance expense. Also contributing to the SG&A expense increase was a $7.3 million increase in amortization expense from definite-lived intangible assets, including capitalized software for internal use, and a $2.3 million increase in the fair value of contingent consideration, both of which are associated with our acquired entities. We also experienced increases in other SG&A; including, building and equipment with the addition of our Chandler, Arizona facility, recruiting primarily related to our CEO search, travel, and other miscellaneous expenses.

Net (loss) income attributable to Diplomat for the second quarter of 2018 was $(4.0) million compared to $3.6 million 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 to $25.2 million in the second quarter of 2017, an increase of $17.5 million.

Earnings per share for the second quarter of 2018 was $(0.05) per basic/diluted common share, compared to $0.05 per basic/diluted common share for the second quarter of 2017. Diluted non-GAAP adjusted earnings per share ("Adjusted EPS") was $0.17 in the second quarter of this year compared to $0.25 in the second quarter of 2017.

2018 Financial Outlook

For the full-year 2018, we are updating our previous financial guidance:

Revenue between $5.5 and $5.9 billion, no change to previous range
Net (loss) income attributable to Diplomat between $(11.0) and $0.5 million, versus the previous range of $4.5 and $13.0 million
Adjusted EBITDA between $164 and $170 million, no change to previous range
Diluted EPS between $(0.15) and $0.01, versus the previous range of $0.06 and $0.17
Our EPS expectations assume approximately 74,300,000 weighted average common shares outstanding on a diluted basis and a tax rate of (5)% and 32%, for the low- and high-end of the range, respectively, for the full year 2018, each of which could differ materially.

Earnings Conference Call Information

As previously announced, the Company will hold a conference call to discuss its second quarter performance this evening, August 6, 2018, at 5:00 p.m. Eastern Time. Shareholders and interested participants may listen to a live broadcast of the conference call by dialing 833-286-5805 (647-689-4450 for international callers) and referencing participant code 1842529 approximately 15 minutes prior to the call. A live webcast of the conference call and associated slide presentation will be available on the investor relations section of the Company’s website for approximately 90 days at ir.diplomat.is.