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Team Health Holdings, Inc. Announces Second Quarter

Team Health Holdings, Inc. Announces Second Quarter 2010 Financial Results 
n       Net Revenue less provision for uncollectibles grew 3.7% to $375.5 million over the prior year second quarter
n       Net Earnings of $18.6 million $20.2 million after adjustment for a contract intangible impairment charge
n       Diluted Net Earnings per share of $0.29 $0.31 excluding the contract intangible impairment charge
n       Adjusted EBITDA of $46.9 million
KNOXVILLE, Tenn., Team Health Holdings, Inc. one of the largest providers of outsourced healthcare professional staffing and administrative services to hospitals and other healthcare providers in the United States, today announced results for its second quarter 2010.
"We are very pleased with our second quarter results that are highlighted by our strong quality of earnings.  Our top line growth was led by our M&A platform, and the flexibility of our business model enabled us to effectively manage our cost structure in response to a softer volume growth environment," said TeamHealth President and Chief Executive Officer Greg Roth.  "Despite a difficult same contract volume comparison from the second quarter of 2009, we reported solid Adjusted EBITDA growth and margin improvement and believe the company is well-positioned for continued success in the second half of the year."
2010 Second Quarter Results
In the second quarter of 2010, net revenue less provision for uncollectibles ("revenue less provision") increased 3.7% to $375.5 million from $362.1 million in the second quarter of 2009.  Acquisitions and same contract revenue contributed 5.5% and 2.5%, respectively, of the growth in net revenue less provision between the quarters.  New contracts, net of terminations (excluding the military division) contributed 0.4% of the growth.  Net contract changes within the military division reduced quarter-over-quarter net revenue growth by 4.6%.  
Same contract revenue less provision for the second quarter of 2010, increased 2.8% to $332.4 million from $323.4 million in the same quarter a year ago. Increases in estimated collections on fee-for-service visits of 5.6% contributed approximately 4.0% of same contract revenue growth between quarters.  In light of the very strong same contract volume growth reported in the second quarter of 2009, during the second quarter of 2010, fee-for-service visits realized a modest increase of 0.9%, which contributed a 0.6% increase in same contract revenue growth between quarters.  Declines in contract and other revenue, primarily associated with our locum tenens and military divisions, constrained same contract revenue growth by 1.8%.  Acquisitions contributed $19.8 million of growth between quarters.  Excluding the impact of contracting changes within the military division, net new contract revenue increased by $1.5 million, while changes within military staffing contracts resulted in a decline of $16.8 million between quarters.
Included in the second quarter 2010 financial results was an impairment charge of $2.5 million ($1.5 million after tax) to write off the remaining contract intangible value associated with a contractual relationship acquired in prior years whose expected term is now anticipated to be less than initially estimated.  
Reported net earnings were $18.6 million in the second quarter of 2010, or $0.29 diluted net earnings per share, compared to net earnings of $15.8 million, or $0.32 pro forma diluted net earnings per share in the same quarter of 2009.  Excluding the impact of the impairment charge, net earnings for the second quarter of 2010 were $20.2 million, and diluted net earnings per share were $0.31.  
Adjusted EBITDA for the second quarter of 2010 was $46.9 million compared to $40.8 million in the same quarter of 2009.  Adjusted EBITDA margin increased to 12.5% in the second quarter of 2010 from 11.3% in 2009. See "Non-GAAP Financial Measures Reconciliation" and "Adjusted EBITDA" below for the definitions of Adjusted EBITDA Margin and Adjusted EBITDA and its reconciliation to net earnings.
During the second quarter of 2010, cash flow provided by operations was $25.2 million compared to $19.1 million for the same quarter in 2009.  Contributing to the $6.1 million increase in operating cash flow were reductions in interest payments between quarters.  
2010 First Half Results
Revenue less provision in the six months ended June 30, 2010, increased 4.0% to $740.0 million from $711.7 million in the six months ended June 30, 2009. Revenue less provision from acquisitions and same contract revenue contributed 5.8% and 1.3%, respectively, of the growth between periods.  New contracts, net of terminations (excluding the military division) contributed 1.0% of the growth.  Net contract changes within the military division reduced period-over-period net revenue growth by 4.1%.  
Same contract revenue less provision for the six months ended June 30, 2010, increased 1.5% to $633.0 million from $623.9 million in the same period a year ago. Increases in estimated collections on fee-for-service visits of 4.0% contributed approximately 2.9% of same contract revenue growth between periods.  Fee-for-service visits were flat between periods, while declines in contract and other revenue associated with the locum tenens and military divisions constrained same contract revenue growth by 1.4%.  Acquisitions contributed $41.3 million of growth between periods.  Excluding the impact of contracting changes within the military division, net new contract revenue increased by $7.5 million.  Changes within military staffing contracts resulted in a decline in revenue of $29.5 million between periods.
Reported net earnings were $29.5 million in the six months ended June 30, 2010, or $0.46 diluted net earnings per share, compared to net earnings of $41.7 million, or $0.85 pro forma diluted net earnings per share in the same period of 2009.  Included in the six months ended June 30, 2010, results were costs associated with the Company's bond redemption of $16.2 million and the impairment charge of $2.5 million. Financial results for the six months ended June 30, 2010, also reflected a reduction of professional liability reserves related to prior years of $7.2 million compared to a prior year professional liability reserve adjustment of $18.8 million in the six months ended June 30, 2009, resulting from favorable changes in actuarial loss estimates during each period.  Following these adjustments, diluted net earnings per share were $0.56 for the six months ended June 30, 2010, compared to $0.62 for the six months ended June 30, 2009.
Adjusted EBITDA for the six months ended June 30, 2010, was $92.7 million compared to $100.3 million in the same period of 2009.  Excluding the impact of the prior year professional liability reserve adjustments, Adjusted EBITDA was $85.5 million and $81.5 million, respectively, in each period.  See "Non-GAAP Financial Measures Reconciliation" and "Adjusted EBITDA" below for the definition of Adjusted EBITDA and its reconciliation to net earnings.
Cash flow provided by operations for the six months ended June 30, 2010, was $14.5 million compared to cash provided by operations of $49.4 million for the same period of 2009. Included within operating cash flow in 2010 were $13.8 million of cash costs associated with the bond redemption, including $2.8 million of accrued interest payments on bonds that were redeemed.  
As of June 30, 2010, the Company had cash and cash equivalents of $33.3 million and a revolving credit facility of $125.0 million (without giving effect to $7.3 million of undrawn letters of credit). During the six months ended June 30, 2010, the Company redeemed $157.5 million of its 11.25% Senior Subordinated Notes, which resulted in a charge of $14.9 million consisting of the payment of bond premiums in the amount of $11.0 million and the write off of $3.9 million of previously deferred financing costs.  In addition, interest expense of $1.3 million was recognized on the bonds that were redeemed during the six months ended June 30, 2010. The Company also made scheduled debt payments of $2.1 million during the first six months of 2010. As a result, the Company's total outstanding debt as of June 30, 2010, was $451.4 million, and there were no amounts outstanding under the revolving credit facility.
"Our M&A pipeline remains strong, and the current environment continues to yield some very attractive growth opportunities," continued Mr. Roth.  "We previously announced the acquisition of Morningstar Emergency Physicians, an ED group headquartered in Oklahoma City with approximately 500,000 annual patient visits.  We are very excited by this opportunity to add such an established, high-quality ED platform to significantly expand our presence in Oklahoma, Kansas and surrounding states. We expect this business to have a favorable impact to revenue for the remainder of 2010, while being immediately accretive to earnings," concluded Mr. Roth.
Lynn Massingale, M.D., Executive Chairman of TeamHealth, added, "Our organization remains focused on providing the highest quality of care to our patients.  Our recent agreement with the Morningstar Emergency Physicians provides further evidence that our model is attractive to strong physician groups serving hospital clients with high expectations.  Our proprietary information technology systems and infrastructure investments enable hospitals to drive patient safety, operational efficiency and customer satisfaction goals.  With the recent passage of healthcare reform legislation, we continue to believe TeamHealth's services and infrastructure will be in increasingly greater demand."  

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