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Team Health Holdings Inc. Announces Second Quarter 2013 Financial Results

Team Health Holdings Inc. Announces Second Quarter 2013 Financial Results

2013 Second Quarter Highlights

Net revenue increased 14.5% to $579.7 million over the prior year second quarter

Net earnings attributable to Team Health Holdings Inc. ("Net earnings") were $18.4 million $31.3 million after adjustments

Diluted net earnings per share of $0.26 Adjusted EPS of $0.44

Adjusted EBITDA increased 11.0% to $61.1 million

Reiterate 2013 net revenue growth guidance of 13.0% to 14.0%, with an opportunity to achieve an additional $10.0 million to $15.0 million of revenue from Medicaid parity

Team Health Holdings Inc. one of the largest providers of outsourced physician staffing solutions for hospitals in the United States, today announced results for its second quarter of 2013.

"We delivered solid financial results, with double digit growth in net revenue, Adjusted EBITDA, Adjusted EPS and operating cash flow, despite operating in an extremely challenging utilization environment," said TeamHealth Chief Executive Officer, Greg Roth.

"Similar to many other healthcare providers, we saw softer volume trends continue into the second quarter that constrained same contract revenue growth and operating margins.  Despite this challenging headwind, all three of our primary growth drivers contributed to net revenue growth of almost 15%, led by acquisition revenue growth of 9.2%, followed by net new contract revenue growth of 3.6%, and same contract revenue, which contributed 1.7% of the increase in net revenue.  The growth in same contract revenue was a result of increases in estimated collections offsetting a volume decline of 2.5% between quarters.  

"Although volumes have been weaker than originally anticipated during 2013, we are focused on aspects of the business within our control and are confident in our ability to continue to drive revenue and earnings growth for the remainder of the year.  We are implementing our acquisition strategy, executing on net new contract sales, driving improvements in same contract pricing, and continuing to deliver strong operating cash flows.  Specifically, our M&A pipeline is robust, as evidenced by the four transactions in July.  In addition, we have been vigilant in managing our cost structure, which resulted in an improvement in SG&A margin this quarter.

"We continue to project full year 2013 annual net revenue growth of between 13% and 14%. While we expect to drive double digit revenue growth in 2013, if we continue to experience challenging volume trends, we believe we could see pressure on operating margins that could cause our 2013 Adjusted EBITDA margin to modestly trail our 10.5% target.  Our current 2013 revenue and margin projections include no benefit from the Medicaid Parity program.  Based upon our current assessment of Medicaid Parity, our 2013 projections should be enhanced as we anticipate additional revenues that could range between $10 million and $15 million in the second half of 2013."

Lynn Massingale, M.D., Executive Chairman of TeamHealth, added, "We are pleased with our operational performance in the first half of 2013 and our ability to adapt to changing market conditions, given the volume constrained environment in the second quarter.  Our results showcase the benefits TeamHealth delivers to hospitals and physicians, regardless of the macroeconomic backdrop.  Our best in class national infrastructure and physician leadership offer a proven ability to improve clinical operations and patient care.  We will continue to make investments in patient safety, risk management, operational efficiency and customer satisfaction in order to expand our network of high quality affiliated providers, with an end goal of providing the highest levels of patient care."

2013 Second Quarter Results

Net revenue increased 14.5% to $579.7 million from $506.3 million in the second quarter of 2012. Acquisitions contributed 9.2%, new contracts, net of terminations, contributed 3.6%, and same contracts contributed 1.7% of the increase in quarter-over-quarter growth in net revenue.

Same contract revenue increased $8.9 million, or 2.0%, to $454.7 million from $445.9 million in the second quarter of 2012.  An increase of 6.4% in estimated collections on fee for service visits provided a 4.6% increase in same contract revenue growth between quarters while a 2.5% decrease in same contract volumes constrained growth by 1.9%.  Contract and other revenue constrained same contract revenue growth between quarters by 0.7%.  Acquisitions contributed $46.4 million of revenue growth, and net new contract revenue increased by $18.2 million between quarters.  No revenue has been recognized from the Medicaid parity program in the second quarter of 2013.

Reported net earnings were $18.4 million, or $0.26 diluted net earnings per share, compared to net earnings of $14.1 million, or $0.21 diluted net earnings per share, in the second quarter of 2012.  The financial results for the second quarter of 2013 included $9.9 million ($6.7 million after-tax) of contingent purchase compensation expense and non-cash amortization expense of $9.5 million ($6.3 million after tax).  Excluding these items, net earnings for the second quarter of 2013 would have been $31.3 million and Adjusted EPS would have been $0.44 per share.  Financial results for the second quarter of 2012 included $12.2 million of contingent purchase compensation expense ($7.6 million after-tax) and non-cash amortization expense of $7.3 million ($4.7 million after-tax).  Excluding these items, net earnings for the second quarter of 2012 would have been $26.4 million and Adjusted EPS would have been $0.39 per share.  See "Non-GAAP Financial Measures Reconciliations" and "Adjusted Earnings Per Share" below for the definition of Adjusted EPS and its reconciliation to net earnings and diluted earnings per share attributable to Team Health Holdings, Inc.

Cash flow provided by operations for the quarter increased to $24.6 million from $16.3 million in the second quarter of 2012.  There were no contingent purchase payments made in the second quarter of 2013 and $2.0 million in 2012.  Excluding the second quarter 2012 contingent payment, operating cash flow increased $6.4 million between quarters principally due to an increase in profitability and a decrease in working capital funding requirements. 

Adjusted EBITDA increased 11.0% to $61.1 million from $55.1 million in the second quarter of 2012, and Adjusted EBITDA margin was 10.5% compared to 10.9% for the same quarter in 2012. See "Non-GAAP Financial Measures Reconciliations" and "Adjusted EBITDA" below for the definitions of Adjusted EBITDA Margin and Adjusted EBITDA and its reconciliation to net earnings attributable to Team Health Holdings, Inc.

As of June 30, 2013, the Company had cash and cash equivalents of approximately $93.9 million and $250.0 million of available borrowings under its revolving credit facility (without giving effect to $6.1 million of undrawn letters of credit). The Company's total outstanding debt was $509.7 million as of June 30, 2013.

2013 First Six Months Results

Net revenue in the six months ended June 30, 2013 increased 17.3% to $1.16 billion from $985.0 million for the same period of 2012.  Acquisitions contributed 11.0% of the growth, and new contracts, net of terminations, contributed 4.1% of the growth.  Same contract revenue contributed 2.2% of the growth in net revenue.  Same contract revenue for the six months ended June 30, 2013 increased  $21.7 million, or 2.5%, to $898.9 million from $877.2 million in the same period a year ago.  Increases in estimated collections on fee for service visits of 4.4% provided a 3.3% increase in same contract revenue growth between periods.  Fee for service volume constrained growth in same contract revenue by 0.5% as the number of visits decreased 0.7% from the same contract volume reported in the six months ended June 30, 2012.  Contract and other revenue constrained growth 0.3% between periods. Acquisitions contributed $108.1 million of growth between periods.  Net new contract revenue increased by $40.8 million.

Reported net earnings were $36.5 million in the six months ended June 30, 2013, or $0.52 diluted net earnings per share, compared to net earnings of $28.5 million, or $0.42 diluted net earnings per share, in the same period of 2012.  The 2013 first six months financial results included $20.2 million ($13.2 million after-tax) of contingent purchase compensation expense and non-cash amortization expense of $18.4 million ($12.1 million after-tax).  Excluding these items, net earnings for the 2013 first six months would have been $61.8 million and Adjusted EPS would have been $0.88 per share.  Financial results for the same period in 2012 included $18.6 million of contingent purchase compensation expense ($11.4 million after-tax), non-cash amortization expense of $13.4 million ($8.5 million after-tax), and an increase in prior year professional liability loss reserves of $5.2 million ($3.1 million after-tax).  Excluding these adjustments, net earnings for the same period in 2012 would have been $51.5 million and Adjusted EPS would have been $0.76 per share.  See "Non-GAAP Financial Measures Reconciliations" and "Adjusted Earnings Per Share" below for the definition of Adjusted EPS and its reconciliation to net earnings and diluted earnings per share.

Cash flow provided by operations for the six months ended June 30, 2013 was $62.3 million compared to $30.7 million in 2012.  There were no contingent purchase payments in 2013 and $2.0 million were included in the 2012 operating cash flows.  Excluding the impact of the 2012 contingent purchase payments, operating cash flows increased $29.7 million between periods.

Adjusted EBITDA increased 14.8% to $121.3 million from $105.7 million in the six months ended June 30, 2012, and Adjusted EBITDA margin was 10.5% compared to 10.7% for the same period in 2012. See "Non-GAAP Financial Measures Reconciliations" and "Adjusted EBITDA" below for the definitions of Adjusted EBITDA Margin and Adjusted EBITDA and its reconciliation to net earnings attributable to Team Health Holdings, Inc.

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