FLINT, Mich. — Diplomat Pharmacy announced Friday that it is postponing the release of its fourth-quarter and full-year 2018 financial results and the related conference call and webcast to March 15. The company expects to file its annual report on Form 10-K for the fiscal year ended December 31, 2018 soon afterwards.
The postponement is due primarily to the recent determination by Diplomat and its auditors that the company will need to record a non-cash impairment charge related to its PBM business. This charge is expected to be equal to a significant portion of the PBM’s Goodwill and Definite-lived intangible assets, which total approximately $630 million as of December 31, 2018, prior to impairment charges. The charge relates to the 2017 acquisitions of NPS and LDI and is driven by reduced financial forecasts for the PBM business. Despite success in improving our customer service performance to industry standard levels, previously disclosed execution challenges experienced in 2018 continue to impact customer perception and have resulted in further customer losses.
The company and its auditors require additional time to finalize the level of impairment, the allocation between Goodwill and Definite-lived intangible assets, tax implications and the total impact on Diplomat’s 2018 fourth quarter and full year financial results. Full-year 2018 revenues and Total Adjusted EBITDA are not impacted by any impairment charge and the company’s previously communicated outlook of 2018 revenues of $5.5–$5.6 billion and 2018 EBITDA of $167–$170 million remain unchanged.
However, the company has withdrawn its preliminary 2019 full-year outlook provided in January. The withdrawal is based principally on the following factors:
- January results have come in significantly below expectations,
- Diplomat has been notified of additional customer losses in its PBM business since early January, which combined with a softer outlook for client wins and other factors has led to a lower-than-previously forecasted outlook for its PBM business in 2019,
- The company is observing increased competitive pressure in the specialty market, driving a reduced outlook for script volumes in 2019,
- In its specialty business, Diplomat has observed that increasingly aggressive member channel management techniques are being implemented by its large, integrated competitors, which is reducing the volume of scripts sent to Diplomat, and
- In early 2019, the company has observed a less favorable drug mix within certain payer specialty contracts, reducing profitability.
The company expects to provide an updated 2019 outlook when it reports fourth quarter and full-year 2018 results.
Brian Griffin, chairman and chief executive officer said, “While we have made demonstrable operational and service improvements in our PBM business, we are still working through issues and headwinds, which we communicated in early January. This is an important transitional year for the PBM business. We have a clear path to stabilization and growth but, as communicated earlier this year, our patience is not unlimited.”
Griffin added, “Increased competition in the specialty market has also affected us in terms of specialty script reimbursement levels and volumes. We will provide more granularity on the impact, and outlook for 2019, when we report results in March. We are moving with urgency to execute our strategy and to deliver value for our customers and shareholders.”