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Investor Presentation November 2010. Safe Harbor Certain statements included herein, including those that express management's expectations or estimates.

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Presentation on theme: "Investor Presentation November 2010. Safe Harbor Certain statements included herein, including those that express management's expectations or estimates."— Presentation transcript:

1 Investor Presentation November 2010

2 Safe Harbor Certain statements included herein, including those that express management's expectations or estimates of our future performance, constitute "forward-looking statements" within the meaning of applicable securities laws. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management when made, are inherently subject to significant business, economic and competitive uncertainties and contingencies. We caution that such forward-looking statements involve known and unknown risks, uncertainties and other risks that may cause our actual financial results, performance, or achievements to be materially different from our estimated future results, performance or achievements expressed or implied by those forward-looking statements. Numerous factors could cause actual results to differ materially from those in the forward-looking statements, including without limitation, our ability to achieve increased market acceptance for our product offerings and penetrate new markets; consolidation in the healthcare industry; the existence of undetected errors or similar problems in our software products; our ability to identify and complete acquisitions, manage our growth and integrate acquisitions; our ability to compete successfully; potential liability for the use of incorrect or incomplete data; the length of the sales cycle for our healthcare software solutions; interruption of our operations due to outside sources; our dependence on key customers; maintaining our intellectual property rights and litigation involving intellectual property rights; our ability to obtain, use or successfully integrate third-party licensed technology; compliance with existing laws, regulations and industry initiatives and future change in laws or regulations in the healthcare industry; breach of our security by third parties; our dependence on the expertise of our key personnel; our access to sufficient capital to fund our future requirements; and potential write-offs of goodwill or other intangible assets. This list is not exhaustive of the factors that may affect any of our forward- looking statements. Other factors that should be considered are discussed from time to time in SXCs filings with the U.S. Securities and Exchange Commission, including the risks and uncertainties discussed under the captions Risk Factors and Managements Discussion and Analysis of Financial Condition and Results of Operations in our 2008 Annual Report on Form 10-K and subsequent Form 10-Qs, which are available at Investors are cautioned not to put undue reliance on forward-looking statements. All subsequent written and oral forward-looking statements attributable to SXC or persons acting on our behalf are expressly qualified in their entirety by this notice. We disclaim any intent or obligation to update publicly these forward-looking statements, whether as a result of new information, future events or otherwise. Certain of the assumptions made in preparing forward-looking information and managements expectations include: maintenance of our existing customers and contracts, our ability to market our products successfully to anticipated customers, the impact of increasing competition, the growth of prescription drug utilization rates at predicted levels, the retention of our key personnel, our customers continuing to process transactions at historical levels, that our systems will not be interrupted for any significant period of time, that our products will perform free of major errors, our ability to obtain financing on acceptable terms and that there will be no significant changes in the regulation of our business.

3 SXC at a Glance HeadquartersExchange SymbolsEmployees Share Price (NASDAQ: Nov 5, 2010) Shares Outstanding Market Cap (NASDAQ) Chicago NASDAQ:SXCI TSX:SXC >1000 US$38.84 ~$2.4B 62.6MM (f/d)

4 What We Do Reduce the cost of prescription drugs Deliver better healthcare to health plan members SXC provides PBM services and software to help healthcare payers: Information, Insights, Linkages: Redefining Pharmacy Benefit Management

5 Growing Market Opportunity Rx Claims (billions) Rx Spend ($ billions) Market Drivers Increased drug utilization Aging Population Growth in lifestyle & me too drugs Direct-to-Consumer advertising by pharma Healthcare Reform Rising drug prices Generic pipeline- $ 72 billion over the next 5 years Specialty pipeline- 15% increase over next two years 2009 Rx volumes and expenditures were 3.9B and $300B, respectively Source: IMS Health and CMS, Office of the Actuary Rx Claims Rx Spend

6 Expansion of coverage through Medicaid ~35M will now receive coverage Key components of healthcare reform Healthcare Reform Opportunity Potential new treatment of generic biologics and biosimilars ~7-14 years of patent protection Reform should make e-prescribing an even more attractive market SXC uniquely positioned to capitalize on this trend

7 An Industry In Transition… New Emerging Value Drivers for PBMs Convergence of technology and PBM service Buy-side leverage commoditized Transparency driving new pricing models Channel flexibility becoming increasingly important Flexibility and customization are required

8 The SXC Tool Box Rx Prescribing Data Electronic Health Record RxEXCHANGE RxInterACT RxBUILDER RxAUTH RxPORTAL RxPROVIDER PORTAL Integrated Health Care Data

9 Flexible Model – Diversified Markets License Model ASP transaction Model Private Label PBM a La Carte PBM Services Full Service Model Range of PBM Services Health Plans Government Agencies Long-Term Care Pharmacies PBMs Workers Compensation Hospice Employers/ Union Groups/TPAs

10 The Markets We Serve Health PlansPBMsGovernment Long-term Care Employers / Unions Customized solutionsIntel inside Strong growth Strong demand for technology solution Focus on small- and mid-sized employers Transparent or traditional PBM model Market leading PBM technology Fully transparent model Contracts with largest players Customized solutions License or private label/ASP Interfaces with all MMIS systems Transparent and traditional model Workers comp is an emerging opportunity Mail order and specialty opportunity Customers Recent Wins

11 Recent Contract Wins HCIT: Prime Therapeutics multi-year contract PBM: HealthSpring - 5-years, $1B drug spend/yr PBM: Large U.S East Cost Health Plan - 3-years, $240m/yr PBM: Boston Medical Center Healthnet – 5-year renewal PBM: Spectral Solutions - 4-years, $50m drug spend/yr HCIT: Ohio Bureau of Workers Compensation – 3-years HCIT: Virginias Drug Rebate Program – 3-years

12 Why We Win Value Drivers Competition Transparent and flexible pricing Enhanced customer control Measurable cost savings Broad selection of PBM services Pathway to ownership

13 Growth Strategies Sell informedRx® Solution Cross-sell PBM products/services Target Public Sector fee-for-service opportunities Pursue large health plan technology upgrades Sell Long-Term Care offerings throughout the Institutional Pharmacy market Future opportunities: e-prescribing and technology- enabled PBM services Strategic acquisitions

14 Strategic Acquisitions Accretive Cost synergies Financial Criteria: Strong EBITDA generation High recurring revenue streams PBMs with regional or specific customer focus PBMs already on SXC platform Niche areas (specialty pharmacy) Service providers focused on data analytics, reimbursement services, audit and eligibility services Target Profile/Criteria

15 Financial Results

16 SXCs Business Model Client savings Mail Order pharmacy Specialty pharmacy Generic utilization Improved purchasing power Margin Driven By: Increase in drug spend New client wins Transitioning HCIT clients to full- service PBM Clients win new business Revenue Driven By:

17 ($ millions) As at: Dec 31, 2009Sep 30, 2010 Cash & Equivalents $304.4$379.1 Consolidated Financial Outlook* (millions, except EPS) Fiscal 2009 Q YTD 2010 Fiscal 2010 GuidanceStatus Revenue $1,438.6$489.9$1421.5$1,900-$2,000 No change Gross Profit $186.6$52.9$156.8$207-$210 Narrowed range to high end Adj EBITDA 1 $94.7$30.4$89.6$117-$119 GAAP EPS (f/d) $0.86$0.26$0.77$1.00-$1.02 ADJ EPS 1 (f/d) $0.96$0.27$0.82$1.06-$1.08 * The guidance provided herein reflects the most recent press release and does not imply a reiteration or update of guidance, historical EPS figures have been modified to reflect the 2:1 share split announced Sept. 2, non-GAAP financial measures, refer to description of non-GAAP measures and reconciliation on slides 22-23

18 Financial Growth Story Adj. EBITDA & Gross Profit (millions) Adjusted EBITDA as % of Gross Profit NMHC Acquisition 1 non-GAAP financial measures, refer to description of non-GAAP measures and reconciliation on slides Adj EBITDA 1 Gross Profit Adj EBITDA 1 as % of Gross Profit Q3 07Q1 08Q3 08Q1 09Q3 09Q1 10Q3 10

19 Profitable Growth 1 non-GAAP financial measures, refer to description of non-GAAP measures and reconciliation on slides Net IncomeAdjusted EBITDA 1 $(millions) CAGR: 72%

20 Investment Highlights Strong financial profile SXC is broadly diversified by market and clients Economic and political environment are driving change - focus on transparency and outcomes Opportunities to increase mail, specialty and sell PBM services to HCIT clients Track record in executing and integrating acquisitions

21 +Amortization of deal-related intangibles (net of tax) =Adjusted net income ÷Weighted ave diluted shares =Adjusted EPS (diluted) Net income Adjusted EPS 1 Non-GAAP Financial Measures +/-Income tax expense (recovery) +/-Interest income (exp) +/-Other income (exp) +Stock-based compensation +Depreciation & amortization +Amortization of deal- related intangibles =Adjusted EBITDA Net income Adjusted EBITDA

22 1 Summary Non-GAAP Financial Measures Non-GAAP Financial Measures SXC reports its financial results in accordance with generally accepted accounting principles in the United States (GAAP). SXCs management also evaluates and makes operating decisions using various other measures. Two such measures are adjusted earnings per share and adjusted EBITDA, which are non-GAAP financial measures. SXCs management believes that these measures provide useful supplemental information regarding the performance of SXCs business operations. Adjusted earnings per share is a non-GAAP measure which takes earnings per share and adds back the impact of acquisition-related amortization expense, net of tax. Acquisition-related amortization expense is a non-cash expense arising from the acquisition of intangible assets in connection with the acquisition. SXC excludes acquisition-related amortization expense from non-GAAP adjusted earnings per share because it believes (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of SXC business operations and (ii) such expenses can vary significantly between periods as a result of new acquisitions and full amortization of previously acquired intangible assets. Investors should note that the use of these intangible assets will contribute to revenue in the future period presented and periods beyond that and should also note that such expense will recur in future periods. Adjusted EBITDA is a non-GAAP measure that management believes is a useful supplemental measure of operating performance prior to net interest income (expense), income taxes, depreciation, amortization, stock-based compensation, debt service, and certain other one-time charges. Management believes it is useful to exclude depreciation, amortization and net interest income (expense) as these are essentially fixed amounts that cannot be influenced by management in the short term. In addition, management believes it is useful to exclude stock-based compensation as this is not a cash expense. Lastly, debt service and certain other one-time charges (including lease termination charges and losses on disposals of capital assets) are excluded as these are not recurring items. Management believes that adjusted earnings per share and adjusted EBITDA provide useful supplemental information to management and investors regarding the performance of the Companys business operations and facilitate comparisons to its historical operating results. Management also uses this information internally for forecasting and budgeting as it believes that the measures are indicative of the Companys core operating results. Note however, that both items are performance measures only, and do not provide any measure of the Companys cash flow or liquidity. Non-GAAP financial measures should not be considered as a substitute for measures of financial performance in accordance with GAAP, and investors and potential investors are encouraged to review the reconciliation of adjusted earnings per share adjusted EBITDA. Adjusted earnings per share and adjusted EBITDA do not have standardized meanings prescribed by GAAP. The Company's method of calculating adjusted earnings per share and adjusted EBITDA may differ from the methods used by other companies and, accordingly, it may not be comparable to similarly titled measures used by other companies. Reconciliation of adjusted EBITDA to net income is shown below (in thousands):

23 Investor Presentation November 2010

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