ALLI Allion Healthcare (MM)

Allion Healthcare (NASDAQ: ALLI):

Second Quarter Highlights

• Net sales increased 15.3% to $100 million from $86 million
• Specialty HIV net sales increased 9.4% to $75 million
• Specialty Infusion net sales increased 38.0% to $25 million
• Adjusted EBITDA grew 25.7% to $9.2 million, or 9.3% of sales
• Adjusted diluted earnings per share increased to $0.14 from $0.11

Allion Healthcare (NASDAQ: ALLI) today announced second quarter net income of $3.2 million, or $0.11 per share. Second quarter results include expenses totaling $954,000, or $0.03 per share, related to the Company’s adoption of EITF 07-05, which requires the Company to “mark to market” its outstanding stock warrants, and stock-based compensation expense from the issuance of phantom stock units. Second quarter results also include the full effect of the 2,624,990 shares issued as a result of the Biomed earn out.

Summary of Results

Consolidated net sales increased 15.3% to $99.7 million for the quarter ended June 30, 2009 when compared to the second quarter of 2008. Sales from the Company’s Specialty HIV segment grew 9.4% to $75.2 million based on an increase in the number of patients served, which resulted in a 6.8% increase in prescription volume. Net sales in the Company’s Specialty Infusion segment were up 38.0% over the second quarter of 2008 to $24.5 million. The increase in Specialty Infusion revenues is primarily due to volume growth in both the Company’s Blood Clotting Factor and IVIG therapy products, principally as a result of the addition of new patients.

Excluding the impact of charges related to the new mark to market accounting of the Company’s outstanding warrants and stock-based compensation expense from the issuance of phantom stock units, consolidated Adjusted EBITDA increased 25.7% to $9.2 million, or 9.3% of revenues, for the quarter ended June 30, 3009 when compared to the second quarter of 2008, as the Company’s lower legal expenses and increased operating efficiencies in the second quarter of 2009 were offset by the decline in Gross profit and increased bad debt expense. An explanation and reconciliation of Net income under GAAP to EBITDA and Adjusted EBITDA is provided below.

The Company incurred other expenses of $577,000 during the second quarter of 2009, related to a change in fair value of warrants as a result of the Company’s adoption of EITF 07-05 on January 1, 2009. Approximately 80% of the $577,000 charge relates to one series of warrants that expire in January 2010.

The Company’s effective tax rate for the second quarter of 2009 was 47% and reflects an increase from 39% reported for the same period in 2008. The higher tax rate is attributable to an increase in non-deductible expenses related to the new mark to market accounting of the Company’s outstanding warrants and stock-based compensation expense. Excluding the impact of the warrant and the stock-based compensation expense, the adjusted effective tax rate was 42%. An explanation and reconciliation of the effective tax rate to the adjusted effective tax rate is provided below.

Net income for the second quarter of 2009 increased to $3.2 million, compared to $2.9 million for the same period in 2008. Adjusted diluted earnings per share for the second quarter of 2009 increased to $0.14 from $0.11 for the second quarter of 2008. An explanation and reconciliation of Diluted earnings per share under GAAP to Adjusted diluted earnings per share is provided below.

“Despite economic and state budgetary pressures, we have continued our strong organic growth performance and improved our operating margins,” said Michael Moran, Chairman, President and Chief Executive Officer of Allion Healthcare. “We recently announced our partnership with Being Alive, the San Diego-based Aids Service Organization serving 6,000 clients in San Diego County. Together with our collaborations with Under One Roof in San Francisco and Lifelong in Seattle, Washington, we now have the opportunity to provide vital support and services to almost 20,000 additional west coast clients.”

Fully diluted shares outstanding for the three-month period ended June 30, 2009 includes 2,624,990 shares related to the component of the Biomed earn out payment settled in stock. Based on the Specialty Infusion operating results through April 30, 2009, the Company finalized the earn out payment to the former Biomed stockholders, with total consideration valued at $44.4 million, including $7.5 million in cash, $22.3 million in subordinated promissory notes and $14.6 million in common stock.

Guidance

The Company maintains its Net Sales and Adjusted Earnings per Diluted Share guidance for the full year 2009. Guidance of Adjusted Earnings Per Diluted Share includes the effect of the additional shares issued as a result of the Biomed earn out, but does not include charges related to the Company’s stock-based compensation expense related to the issuance of phantom stock units and the future impact of charges related to the Company’s adoption of the provisions of EITF 07-05, which requires the Company to now “mark to market” its outstanding stock warrants.

Twelve Months Ending December 31, 2009 Guidance Net Sales (millions) $400 - $415 Adjusted Earnings Per Diluted Share $0.50 - $0.52

Operating Data

Specialty HIV

(In thousands, except patient months and prescription data)

  Three Months Ended June 30, 2009   2008 Distribution Region   Net Sales   Prescriptions Patient Months   Net Sales   Prescriptions   Patient Months California $ 48,694 188,777 37,357 $ 46,026 179,008 36,810 New York 23,547 79,489 11,715 21,071 75,505 11,141 Washington 2,386 9,461 1,738 1,132 5,331 979 Florida   547 2,227 323   464 2,180 302 Total $ 75,174 279,954 51,133 $ 68,693 262,024 49,232  

(1) “Patient months” represents a count of the number of months during a period that a patient received at least one prescription. If an individual patient received multiple medications during each month of a three month period, a count of three would be included in patient months irrespective of the number of medications filled in each month.

Conference Call Information

The conference call to discuss the results will be held at 5:00 p.m. ET on Thursday, August 6, 2009. To access the call, please dial (888) 279–0822. International participants may dial (706) 902-0355. The conference call will also be webcast on Allion Healthcare’s website at www.allionhealthcare.com. To join the webcast, please go to Allion Healthcare’s web site at least 15 minutes prior to the start of the conference call to register, download, and install any necessary audio software.

An audio replay of the conference call will be available from 6:00 p.m. ET on Thursday, August 6, 2009, through 11:59 p.m. ET on Thursday, August 20, 2009 by dialing (800) 642-1687 from the U.S. or (706) 645-9291 from abroad and entering confirmation code 22072043. The audio webcast will also be available on the company's website, www.allionhealthcare.com, for one year.

Questions during the live call will be taken from investment professionals only.

About Allion Healthcare

Allion Healthcare, Inc. is a national provider of specialty pharmacy and disease management services focused on HIV/AIDS patients, as well as specialized biopharmaceutical medications and services to chronically ill patients. Allion Healthcare sells HIV/AIDS medications, ancillary drugs and nutritional supplies under the trade name MOMS Pharmacy. Allion Healthcare provides services for the intravenous immunoglobulin, Blood Clotting Factor and other therapies through its Specialty Infusion division. Allion Healthcare works closely with physicians, nurses, clinics, AIDS Service Organizations, and with government and private payors to improve clinical outcomes and reduce treatment costs.

Safe Harbor Statement

This press release contains certain “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements about the Company’s future financial performance and growth. Words such as "continue," "will," "believe," “estimate,” and similar expressions identify forward-looking statements. Such forward-looking statements represent Allion Healthcare’s expectations and beliefs and involve a number of known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied by such forward-looking statements. These factors include, but are not limited to, competitive pressures, demand for the Company’s products and services and its ability to effectively market its services, declining general economic conditions and restrictions in the credit market, changes in third party reimbursement rates or the Company’s qualification for preferred reimbursement rates in California and New York, changes in government regulations or the interpretation of these regulations, the Company’s ability to manage growth successfully, maintenance of licensing and regulatory approvals, successful identification of strategic alliances and satellite facilities, and other risks set forth in Item 1A. Risk Factors in Allion Healthcare’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. Except to the extent required by applicable securities laws, Allion Healthcare undertakes no obligation to update any forward-looking statement contained herein, whether as a result of new information, future events, or otherwise.

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands) At June 30,

2009

(Unaudited)

  At December 31, 2008 Assets Current assets: Cash and cash equivalents $ 14,739 $ 18,385 Short term investments 259 259 Accounts receivable (net of allowance for doubtful accounts of $3,135 in 2009 and $2,248 in 2008) 49,428 44,706 Inventories 13,118 12,897 Prepaid expenses and other current assets 1,074 655 Deferred tax asset 1,528 1,305 Total current assets 80,146 78,207   Property and equipment, net 1,775 1,647 Goodwill 178,713 134,298 Intangible assets, net 51,043 53,655 Marketable securities, non-current 2,125 2,155 Other assets 966 1,027 Total assets $ 314,768 $ 270,989   Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 23,660 $ 24,617 Accrued expenses 3,012 2,822 Income taxes payable — 1,648 Current maturities of long term debt 1,872 1,698 Total current liabilities 28,544 30,785   Long term liabilities: Long-term debt 31,181 32,204 Revolving credit facility 20,000 17,821 Notes payable - affiliates 25,936 3,644 Deferred tax liability 16,675 17,085 Other 2,599 41 Total liabilities 124,935 101,580   Commitments and Contingencies   Stockholders’ Equity: Convertible preferred stock, $.001 par value, shares authorized 20,000; issued and outstanding -0- in 2009 and 2008 — — Common stock, $.001 par value, shares authorized 80,000; issued and outstanding 28,669 in 2009 and 25,946 in 2008 29 26 Additional paid-in capital 182,307 168,386 Accumulated earnings 7,544 1,033 Accumulated other comprehensive loss (47) (36) Total stockholders’ equity 189,833 169,409 Total liabilities and stockholders’ equity $ 314,768 $ 270,989

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

  (in thousands, except per share data) Three Months Ended   Six Months Ended June 30, June 30, 2009   2008 (1) 2009   2008 (1)   Net sales $ 99,658 $ 86,430 $ 196,242 $ 151,687 Cost of goods sold 81,009 69,344 159,351 124,948 Gross profit 18,649 17,086 36,891 26,739   Operating expenses: Selling, general and administrative expenses 9,805 9,752 19,476 16,811 Depreciation and amortization 1,502 1,710 2,991 2,585 Litigation settlement — — — 3,950 Operating income 7,342 5,624 14,424 3,393   Interest expense (income), net 725 836 1,425 621 Other expense – Change in fair value of warrants 577 — 784 — Income before taxes 6,040 4,788 12,215 2,772   Provision for taxes 2,858 1,875 5,514 1,129 Net income $ 3,182 $ 2,913 $ 6,701 $ 1,643   Basic earnings per common share $ 0.11 $ 0.15 $ 0.25 $ 0.09   Diluted earnings per common share $ 0.11 $ 0.11 $ 0.23 $ 0.08   Basic weighted average of common shares outstanding 27,832 19,899 26,928 18,052 Diluted weighted average of common shares outstanding 29,089 26,333 29,050 21,664  

(1) The Company has adjusted its basic and diluted weighted average shares for the three and six month periods ended June 30, 2008 and its basic and diluted earnings per common share for the six months ended June 30, 2008. The effect of this adjustment is not material, either quantitatively or qualitatively, to the Company’s 2008 consolidated financial statements taken as a whole.

ALLION HEALTHCARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

  (in thousands) Six Months Ended June 30, CASH FLOWS FROM OPERATING ACTIVITIES 2009 2008 Net Income $ 6,701 $ 1,643 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,991 2,585 Deferred rent 7 (14) Amortization of deferred financing costs 93 45 Amortization of debt discount on acquisition notes 26 13 Change in fair value of warrants 784 — Change in fair value of interest rate cap contract (8) 5 Provision for doubtful accounts 1,445 550 Non-cash stock compensation expense 702 94 Deferred income taxes (554) (22) Changes in operating assets and liabilities: Accounts receivable (6,167) (1,000) Inventories (221) (2,619) Prepaid expenses and other assets (407) 165 Accounts payable, accrued expenses and income taxes payable (2,413) (887) Net cash provided by operating activities 2,979 558   CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (507) (226) Purchases of short term investments — (300) Sales of short term investments and non-current marketable securities 19 7,398 Payment for investment in Biomed, net of cash acquired (7,502) (50,143) Net cash used in investing activities (7,990) (43,271)   CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from exercise of employee stock options 9 — Proceeds from CIT revolver note 2,179 12,821 Net proceeds from CIT term loan — 34,738 Payment for CIT interest rate cap contract — (112) Payment for deferred financing costs (35) (907) Payment for Biomed loans assumed — (14,925) Tax benefit from exercise of employee stock options 89 960 Repayment of CIT term loan and capital leases (877) (24) Net cash provided by financing activities 1,365 32,551   NET DECREASE IN CASH AND CASH EQUIVALENTS (3,646) (10,162) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 18,385 19,557 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 14,739 $ 9,395   SUPPLEMENTAL DISCLOSURE Income taxes paid 7,948 297 Interest paid 1,070 121

Allion Healthcare, Inc.

Selected Operating Segment Information (Unaudited)

  (in thousands) Three Months Ended Six Months Ended June 30, June 30,   2009     2008     2009     2008   Net Sales: Specialty HIV $ 75,174 $ 68,693 $ 146,193 $ 133,950 Specialty Infusion   24,484   17,737   50,049   17,737 Total Net Sales $ 99,658 $ 86,430 $ 196,242 $ 151,687   Operating Income: Specialty HIV (1) $ 2,757 $ 2,337 $ 4,814 $ 106 Specialty Infusion   4,585   3,287   9,610   3,287 Total Operating Income $ 7,342 $ 5,624 $ 14,424 $ 3,393   Depreciation & Amortization Expense: Specialty HIV $ 703 $ 823 $ 1,401 $ 1,698 Specialty Infusion   799   887   1,590   887 Total Depreciation & Amortization Expense $ 1,502 $ 1,710 $ 2,991 $ 2,585  

(1) Includes a $3,950 charge related to the Company’s litigation settlement with Oris Medical Systems, Inc. for the six months ended June 30, 2008.

Allion Healthcare, Inc. Reconciliation of Effective Tax Rate to Adjusted Effective Tax Rate   ($ in thousands) Income Before Provision for Effective Taxes Income Taxes Tax Rate   As reported $ 6,040 $ 2,858 47 %     Change in fair value of warrants 577 —   Phantom stock units 377 46       As adjusted $ 6,994 $ 2,904 42 %  

The adjusted Effective Tax Rate excludes the effect of the change in fair value of warrants and stock-based compensation expense from the issuance of phantom stock units to provide investors with supplemental information to assess the effective tax rate without regard to these items.

Allion Healthcare, Inc.

Reconciliation of Net Income to EBITDA and Adjusted EBITDA  (UNAUDITED)

  (in thousands) Three Months Ended Six Months Ended June 30, June 30,   2009     2008     2009     2008   Net income $ 3,182 $ 2,913 $ 6,701 $ 1,643 Income tax provision 2,858 1,875 5,514 1,129 Interest expense (income) 725 836 1,425 621 Depreciation and amortization   1,502   1,710   2,991   2,585 EBITDA $ 8,267 $ 7,334 $ 16,631 $ 5,978   Change in fair value of warrants 577 — 784 — Phantom stock units 377 — 545 — Oris litigation settlement   —   —   —   3,950 Adjusted EBITDA $ 9,221 $ 7,334 $ 17,960 $ 9,928  

EBITDA refers to net income before interest, income tax expense, and depreciation and amortization. Allion considers EBITDA to be a good indication of the Company's ability to generate cash flow in order to liquidate liabilities and reinvest in the Company. Adjusted EBITDA excludes the change in fair value of warrants, stock-based compensation expense from phantom stock units and the litigation settlement related to the Company’s litigation with Oris Medical Systems, Inc., to reflect comparable year over year EBITDA performance and provide investors with supplemental information to assess operating performance without regard to these items. EBITDA and Adjusted EBITDA are not measurements of financial performance under GAAP and should not be considered a substitute for net income as a measure of performance.

Allion Healthcare, Inc. Reconciliation of Diluted EPS and Adjusted Diluted EPS

(UNAUDITED)

  (in thousands, except per share data) Three Months Ended Six Months Ended June 30, June 30,   2009     2008 (1 )     2009     2008 (1 )   Diluted earnings per common share $ 0.11 $ 0.11 $ 0.23 $ 0.08   Net income $ 3,182 $ 2,913 $ 6,701 $ 1,643 Adjustments (net of tax): Change in fair value of warrants 577 — 784 — Phantom stock units 331 — 479 — Oris litigation settlement   —   —     —   2,327     Adjusted net income $ 4,090 $ 2,913   $ 7,964 $ 3,970     Adjusted diluted earnings per common share $ 0.14 $ 0.11   $ 0.27 $ 0.18   Diluted weighted average of common shares outstanding 29,089 26,333 29,050 21,664  

Adjusted Diluted EPS excludes the change in fair value of warrants, stock-based compensation expense from the issuance of phantom stock units (net of tax) and the litigation settlement with Oris Medical Systems, Inc. (net of tax) to reflect comparable year over year Diluted EPS and to provide investors with supplemental information to assess Diluted EPS performance without regard to these items.

 

(1) The Company has adjusted its basic and diluted weighted average shares for the three and six month periods ended June 30, 2008 and its basic earnings per common share for the six months ended June 30, 2008. The adjustments were made to correct an error in the calculation of weighted average shares outstanding and its related impact on basic earnings per share for the six months ended June 30, 2008. The effect of this adjustment is not material, either quantitatively or qualitatively, to the Company’s 2008 consolidated financial statements.