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Team Health Holdings, Inc. Announces Third Quarter 2013 Financial Results

Team Health Holdings, Inc. Announces Third Quarter 2013 Financial Results

Net revenue increased to $606.1 million 12.4% over the prior year third quarter

Net earnings attributable to Team Health Holdings, Inc. ("Net earnings") were $29.4 million $34.6 million after adjustments

Diluted net earnings per share of $0.41 Adjusted EPS of $0.49

Adjusted EBITDA increased 16.4% to $68.1 million

2013 net revenue growth guidance of 14.0% to 15.0%, including the benefit from Medicaid parity

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

"We delivered another quarter of solid financial results, with double digit growth in net revenue, Adjusted EBITDA, Adjusted EPS and operating cash flow, despite the continuation of a challenging volume environment," said TeamHealth Chief Executive Officer, Greg Roth. 

"This was the first quarter that we have recognized revenue from the Medicaid parity program, which has allowed us to offset some of the effects we are seeing from lower patient volume growth.  In addition, we continue to focus on implementing our acquisition strategy, executing on net new contract sales, driving improvements in same contract pricing, and continuing to deliver strong operating cash flows.  Our M&A pipeline remains active, as demonstrated by the recent acquisition of the MESA Medical Group.  This transaction expands our presence within 23 emergency departments and 10 hospital medicine programs and represents one of the largest acquisitions in the Company's history. 

"Based upon our current assessment of the status of eligible states and providers, we anticipate total revenue from the Medicaid parity program could range between $17 million and $19 million for 2013.  We now project full year 2013 annual net revenue growth of between 14% and 15%, including the benefit from parity.  However, if the challenging volume trend continues, we believe we could see pressure on operating margins that could cause our 2013 Adjusted EBITDA margin to modestly trail our 10.5% target." 

Lynn Massingale, M.D., Executive Chairman of TeamHealth, added, "We are pleased with our operational performance through the first three quarters of the year.  Our operating results during this challenging volume environment demonstrate the adaptability and resilience of TeamHealth's business model.  Additionally, we continue to make investments in areas such as patient safety, administrative support, and information technology.  We believe these investments will contribute to our top priority, which is providing support to our affiliated clinicians who provide a high level of quality patient care." 

2013 Third Quarter Results

Net revenue increased 12.4% to $606.1 million from $539.2 million in the third quarter of 2012.  Acquisitions contributed 6.0%, same contract revenue contributed 4.2%, and net sales growth contributed 2.2% of the increase in quarter-over-quarter growth in net revenue.  

Same contract revenue increased $22.6 million, or 4.7%, to $498.2 million from $475.6 million in the third quarter of 2012.  An increase of 8.2% in estimated collections on fee for service visits provided a 6.0% increase in same contract revenue growth between quarters while a 2.3% decrease in same contract volumes constrained growth by 1.7%.  Contract and other revenue contributed same contract revenue growth between quarters of 0.4%. Acquisitions contributed $32.5 million of revenue growth, and net new contract revenue increased by $11.8 million between quarters.  The year to date benefit for Medicaid parity revenue recognized in the third quarter is $12.9 million, of which $12.3 million is same contract revenue.  Medicaid parity contributed 2.4% of consolidated revenue growth and 2.6% of same contract revenue growth between quarters. 

Reported net earnings were $29.4 million, or $0.41 diluted net earnings per share, compared to net earnings of $20.5 million, or $0.30 diluted net earnings per share, in the third quarter of 2012.  The financial results for the third quarter of 2013 included a credit of $1.6 million ($0.7 million after-tax) to contingent purchase compensation expense and non-cash amortization expense of $8.7 million ($5.8 million after tax).  Excluding these items, net earnings for the third quarter of 2013 would have been $34.6 million and Adjusted EPS would have been $0.49 per share.  Financial results for the third quarter of 2012 included $7.6 million of contingent purchase compensation expense ($4.8 million after-tax) and non-cash amortization expense of $8.1 million ($5.1 million after-tax).  Excluding these items, net earnings for the third quarter of 2012 would have been $30.4 million and Adjusted EPS would have been $0.44 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 $52.3 million from a use of cash of $7.1 million in the third quarter of 2012.  There were $0.5 million of contingent purchase payments made in the third quarter of 2013 and $15.9 million in 2012.  Also included in operating cash flow in 2012 were $37.3 million in premium payments to a commercial insurance carrier in connection with a loss portfolio transfer by the Company's insurance subsidiary.  Excluding the impact of these items, operating cash flows in 2013 were $52.9 million compared to $46.1 million, reflecting an increase of $6.8 million between quarters principally due to an increase in profitability and a reduced level of account receivable funding. 

Adjusted EBITDA increased 16.4% to $68.1 million from $58.5 million in the third quarter of 2012, and Adjusted EBITDA margin increased to 11.2% compared to 10.8% 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 September 30, 2013, the Company had cash and cash equivalents of approximately $132.0 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 $505.6 million as of September 30, 2013.

2013 First Nine Months Results

Net revenue in the nine months ended September 30, 2013 increased 15.6% to $1.76 billion from $1.52 billion for the same period of 2012.  Acquisitions contributed 9.1%, net sales growth contributed 3.6%, and same contract revenue contributed 2.9% of the increase in year-over-year growth in net revenue. 

Same contract revenue for the nine months ended September 30, 2013 increased  $44.3 million, or 3.4%, to $1.34 billion from $1.29 billion in the same period a year ago.  Increases in estimated collections on fee for service visits of 6.0% provided a 4.4% increase in same contract revenue growth between periods.  Fee for service volume growth constrained growth in same contract revenue growth by 1.0% as the number of visits decreased 1.3% from the same contract volume reported in the nine months ended September 30, 2012.  Acquisitions contributed $138.6 million of growth, and net new contract revenue increased by $54.7 million between periods.  Medicaid parity revenue contributed 0.8% of consolidated revenue growth between periods and 0.9% of same contract revenue growth. 

Reported net earnings were $65.9 million in the nine months ended September 30, 2013, or $0.93 diluted net earnings per share, compared to net earnings of $49.0 million, or $0.72 diluted net earnings per share, in the same period of 2012.  The 2013 first nine months financial results included $18.6 million ($12.5 million after-tax) of contingent purchase compensation expense and non-cash amortization expense of $27.0 million ($17.9 million after-tax).  Excluding these items, net earnings for the 2013 first nine months would have been $96.4 million and Adjusted EPS would have been $1.36 per share.  Financial results for the same period in 2012 included $26.1 million of contingent purchase compensation expense ($16.2 million after-tax), non-cash amortization expense of $21.5 million ($13.6 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 $81.9 million and Adjusted EPS would have been $1.21 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 nine months ended September 30, 2013 was $114.7 million compared to $23.6 million in 2012.  Included in operating cash flows were contingent purchase payments of $0.5 million in 2013 and $17.9 million in 2012.  Also included in operating cash flows in 2012 were $37.3 million in premium payments related to the loss portfolio transfer.  Excluding the impact of the  contingent purchase and loss transfer payments, operating cash flows in 2013 would have been $115.2 million compared to $78.8 million in 2012, reflecting an increase of $36.4 million between years.

Adjusted EBITDA increased 15.4% to $189.4 million from $164.2 million in the nine months ended September 30, 2012, and Adjusted EBITDA margin was 10.8% in both 2013 and 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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