Shares of Diplomat Pharmacy, Inc. (NYSE: DPLO), a Flint, Michigan-based independent provider of specialty pharmacy and infusion services, plummeted more than 50% Tuesday after the company warned investors it faces an existential threat.
Diplomat reported third-quarter results Tuesday that were notable for declining metrics nearly across the board.
Revenue declined year-over-year from $1.373 billion to $1.301 million, and the pharmacy benefit manager segment revenue fell from $170 million to $82 million as the segment's total volume fell from 1,931,000 to 922,000.
The company also said it ended the quarter with $8.4 million in cash and equivalents along with $105 million in borrowings, $456 million outstanding under term loans and $95 million of available borrowing capacity.
Why It's Important
Diplomat's earnings report includes a warning that it may not be able to meet its total net leverage and interest coverage ratio covenants as part of its credit agreement for the period ending Dec. 31, 2019.
A violation of the credit agreement would give lenders the right to terminate funding of the revolving line of credit or foreclose on assets, according to Diplomat.
The company said it plans on alleviating a potential violation through potential strategic alternatives or through working with lenders to renegotiate covenants.
Nevertheless, Diplomat said it "expresses substantial doubt surrounding our ability to continue as a going concern."
The concerning outlook was echoed by Baird analyst Eric Coldwell, who said in a report that what may have started as strategic alternatives is now akin to a "distressed sale," according to Reuters.
"This is a very bad update as Diplomat seems to be nearing the end of its current incarnation," the analyst said.
The stock was down 57.58% at $2.63 at the time of publication.
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Diplomat Pharmacy's Valuation Presents Value To A Strategic Buyer, Raymond James Says In Upgrade
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