A n n u a l R e p o r t

Transcription

1 2002 Annual Report

2 HealthExtras, Inc. is a provider of pharmacy benefit management services and supplemental benefits. The Company s clients include managed-care organizations, self-insured employers, and third party administrators, who contract with HealthExtras to cost-effectively administer the prescription drug component of their overall health benefit programs. HealthExtras provides access to a national network of over 50,000 pharmacies and maintains an electronic point-of-sale system of eligibility verification and H plan design, while also offering access to rebate arrangements for certain branded pharmaceuticals. These services provide our clients members with timely and accurate benefit adjudication while controlling pharmacy spending trends through innovative plan designs, physician orientation programs and member education. Our common stock is listed on the NASDAQ under the symbol HLEX.

3 Financial Highlights As of and for the years ended December 31, (In Thousands) Revenues $43,924 $118,226 $248,407 Working Capital 21,205 15,788 20,084 Shareholders Equity 36,239 45,237 59,525 PBM Claims Processed 724 1,576 4,617 Total Assets 52,044 88, ,002 Shareholders Equity (in millions) Total Revenues (in millions) PBM Claims Processed (in millions) $60 $250 5 $55 $200 4 $50 $150 3 $45 $40 $100 2 $35 $50 1 $ one

4 Dear Shareholders DI am pleased to report that throughout 2002 HealthExtras aggressively grew its pharmacy benefit management (PBM) business, produced strong financial results and positioned itself to deliver consistent earnings growth in 2003 and beyond. For the third consecutive year since our initial public offering, our revenues more than doubled from the prior year. Revenues for 2002 were $248 million up from $118 million in More importantly, the Company earned $5.8 million or $.18 per share excluding a net non-cash gain described in our financial release. On a GAAP basis, net income for 2002 was $13.5 million or $.42 per share. Additionally, the Company ended the year with $59.5 million of shareholders equity, $17.5 million in cash and positive operating cash flow. Our rapid growth reflects our ability to target local markets and provide mid-size employer groups and regional managed-care organizations with superior pharmacy benefit management services. Throughout the year, we added clients in our existing markets and opened clinical offices to support customers in new markets, including Dallas and Oklahoma City. Today we have a significant presence in cities across Nevada, Texas, New Mexico, Oklahoma and the Carolinas. Maintaining a local presence improves our level of service, particularly for employer groups and managed-care organizations which are not looking for a one-size-fits-all approach. Our ability to provide a higher level of service and control drug expenditures for our customers is fueling revenue and profit growth. We enjoy client retention rates in excess of 95% and as of January 1, 2003 HealthExtras had a backlog of $375 million in contracted business. Also, because we operate in local markets, word of exceeding expectations and doing a good job spreads quickly. HealthExtras has an expanding list of client references and endorsements which serves to generate new sales. While we have been successful in growing our business through internal sales, strategic acquisitions have also contributed. Our most recent acquisition in December 2002 was Pharmacy Network National Corporation (PNNC) based in Raleigh, NC. PNNC provides benefits to a diverse client base of mid-size employer groups and third party administrators in the Carolinas and Tennessee. The integration of PNNC is proceeding smoothly and will result in administrative efficiencies. Consistent with our strategy of delivering a local solution to employer groups and managed-care organizations, the PNNC Raleigh office will retain account management and customer service activities. We feel fortunate that PNNC, an organization with a sterling reputation in the pharmacy benefit management business, elected to join with HealthExtras. two

5 Our growth over the past several years has required continued investment to expand our capabilities and capacity. During 2002 we added depth to the senior management team with the hiring of our new Chief Operating Officer, General Counsel and Vice President of Information Technology, in addition to several new regional sales managers. We opened a new customer service center in Las Vegas, and expanded our Rockville, Maryland customer service center. These two state-of-the-art call centers will accommodate our continued growth and provide our clients the high level of service they have come to expect. As you may know, the overall environment for PBMs is changing, as the business press and government agencies have raised doubts about some business practices of PBMs; specifically, their general unwillingness to disclose their financial arrangements with drug manufacturers. The high level of media exposure surrounding the industry during the past year and the consistent rise in drug trend has resulted in PBM customers becoming more educated and more involved in the process of choosing a PBM. We are pleased to say that this dynamic is working to the advantage of HealthExtras, as a result of our decision not to align ourselves with the pharmaceutical manufacturers; but rather only serve the best interests of our clients. As we look forward to 2003, our objectives are rather straightforward. We will maintain our focus. HealthExtras will continue to target local markets and customize pharmacy benefit management services for mid-size employer groups and regional managedcare organizations. We expect our revenues to increase by 50% over 2002 levels reaching $375 million in Additionally, management forecasts earnings of $.30 per share, fully taxed for the year. SClearly, I appreciate your continued support and I look forward to keeping you apprised of our progress. Sincerely David T. Blair Chief Executive Officer three

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75 Corporate Information Designed by Curran & Connors, Inc. / Annual Meeting The Company s annual meeting will be held at 10:00 a.m. local time on Tuesday, June 3, 2003, at the Bethesda Marriott Hotel, 5151 Pooks Hill Road, Bethesda, MD Transfer Agent and Registrar American Stock Transfer & Trust Company 40 Wall Street New York, NY Independent Accountants PricewaterhouseCoopers LLP 1751 Pinnacle Drive McLean, VA Contact HealthExtras Corporate, product, program, financial and shareholder information, including press releases and quarterly earnings announcements, can be found on HealthExtras web site. Customer Information HealthExtras customer care team provides information on the Company s products, programs and services. Call or info@healthextras.com. Financial Information Requests HealthExtras Annual Report, SEC filings, earnings announcements and other financial information are available online in the Company s Investor Relations area at Individuals may also subscribe to alerts that are issued concurrently with all Company announcements. Copies of the Company s Annual Report on Form 10-K and other financial materials can be obtained from HealthExtras by calling or ing the Company at info@healthextras.com. Investor Relations HealthExtras, Inc Research Boulevard Rockville, MD Board of Directors Bette B. Anderson Thomas L. Blair David T. Blair William E. Brock Edward S. Civera Frederick H. Graefe Thomas J. Graf Carey G. Jury Deanna D. Strable-Soethout Statement on Forward-Looking Information This report may contain forward-looking information. The forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of Forward-looking statements may be significantly impacted by certain risks and uncertainties described in HealthExtras filings with the Securities and Exchange Commission.

76 HealthExtras, Inc Research Boulevard Rockville, MD