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Team Health Holdings announces Q3 net revenue of $712.2m

2014 Third Quarter Highlights:

•             Net Revenue increased to $712.2 million 17.5% over the Prior Year

•             Net earnings attributable to Team Health Holdings, Inc. ("Net earnings") were $27.6 million                  $43.2 million after adjustments

•             Diluted net earnings per share of $0.38 Adjusted EPS of $0.60

•             Adjusted EBITDA increased 30.8% to $89.0 million

•             Projected growth in net revenue for full year 2014 increased to between 16.0% and 17.0%                  Adjusted EBITDA margin to be approximately 11.5%

"We are pleased with our financial results for the third quarter of 2014.  We achieved another quarter of double digit revenue and Adjusted EPS growth and expanded our Adjusted EBITDA margin over the prior year. TeamHealth continues to be an attractive solution for hospitals and physician groups that want to enhance their services in a rapidly changing healthcare environment," said TeamHealth President and Chief Executive Officer, Mike Snow.

"All three of our primary drivers contributed to revenue growth. Our strategy has always been to take a balanced and integrated approach to growth and this continues to be the case going forward.  Over the quarter, we believe that an improving economic environment and the support of healthcare reform led to the strengthening of volume, year over year improvements in payor mix, and an increase in estimated collections per visit.  We continue to be very active on the acquisition front and, since September, we have grown through the addition of eight high quality organizations."

"We believe that we remain well positioned to achieve revenue and earnings growth through the remainder of 2014 and have great momentum going into next year. As a result of our financial performance through the first three quarters of 2014 and our current expectations about operating trends and contributions from recent acquisitions over the remainder of the year, we have increased our estimate for net revenue growth for fiscal year 2014. Our revised net revenue range is now between$2.77 billion and $2.79 billion, reflecting an annual growth rate of between 16.0% and 17.0%, which is an increase from the prior guidance of 13.0% to 14.0%.   We typically experience a seasonal reduction in operating margins in the fourth quarter and we also anticipate some transitional costs on our recently completed acquisitions.  As a result of these expectations, we project Adjusted EBITDA margin for the full year of 2014 to be approximately 11.5%.  We have continued to see growth in Medicaid parity revenue and now anticipate parity revenue will be in the range of $34.0 million to $36.0 million for 2014.  We are engaged in advocacy efforts towards an extension of the Medicaid parity program in its current form into 2015, but at this time, the federal program is scheduled to expire at the end of 2014.  There are a limited number of states that have indicated an intent to continue with a Medicaid parity program into 2015, but we do not believe these state initiatives will be a significant benefit to us," concluded Mr. Snow.

2014 Third Quarter Results

Net revenue increased 17.5% to $712.2 million from $606.1 million in the third quarter of 2013.  Acquisitions contributed 10.1%, same contract revenue contributed 7.1%, and net sales growth contributed 0.3% of the increase in quarter-over-quarter growth in net revenue.  Within the acquisitions category,  new hospital contacting opportunities that were initially developed by our sales and marketing process contributed 2.9% of overall net revenue growth between quarters.     

Same contract revenue increased $43.2 million, or 7.9%, to $589.7 million from $546.5 million in the third quarter of 2013.  An increase of 5.3% in estimated collections on fee for service visits provided a 4.3% increase in same contract revenue growth between quarters while a 5.6% increase in same contract volumes contributed 3.9% to the growth.  Contract and other revenue constrained same contract revenue growth between quarters by 0.3%. Acquisitions contributed $61.1 million of revenue growth and net new contract revenue increased by $1.8 million between quarters.  The benefit from Medicaid parity revenue recognized in the third quarter of 2014 was $10.4 million, of which $8.5 million is same contract revenue.  Because of the deferred recognition of parity revenue in 2013, the third quarter of 2013 reflects a year to date cumulative estimate of Medicaid parity revenue of $12.9 million, of which $12.2 million is same contract.  The decline in total parity revenue between periods of $2.6 million constrained consolidated revenue growth by 0.4% while the decline in same contract Medicaid parity revenue of $3.7 millionconstrained same contract revenue growth by 0.7% between quarters.

Reported net earnings for the quarter were $27.6 million, or $0.38 diluted net earnings per share, compared to net earnings of $29.4 million, or $0.41 diluted net earnings per share, in the third quarter of 2013.  The financial results for the third quarter of 2014 included $3.1 million of contingent purchase and other acquisition compensation expense ($2.4 million after-tax), non-cash amortization expense of $13.0 million ($8.8 million after tax), and a $7.1 million increase in prior year professional liability loss reserves ($4.4 million million after tax).  Excluding these items, net earnings for the third quarter of 2014 would have been $43.2 million and Adjusted EPS would have been $0.60 per share.  Financial results for the third quarter of 2013 included a credit of $1.6 million of contingent purchase and other acquisition compensation expense ($0.7 million after-tax), 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.

The $7.1 million increase in prior year professional liability loss reserves recorded in the third quarter of 2014 is a result of the settlement of an excess medical malpractice verdict, a decline in the discount factor applied to professional liability reserves due to the lower interest rate environment, and an increase in revised loss estimates for certain older years as reflected in the most recent biannual actuarial report.

As a result of the recent increased pace of acquisition closings, the Company also incurred an elevated level of transaction costs in the third quarter of 2014 in the amount of $3.1 million, which constrained Adjusted Earnings Per Share by approximately $0.04 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.

2014 First Nine Months Results

Net revenue in the nine months ended September 30, 2014 increased 15.2% to $2.03 billion from $1.76 billion for the same period of 2013.  Acquisitions contributed 8.9%, same contract revenue contributed 4.9%,  and net sales growth contributed 1.4% of the increase in year over year growth in net revenue.  Within the acquisitions category, new hospital contracting opportunities that were initially developed by our sales and marketing process contributed 2.1% of overall net revenue growth between years.

Same contract revenue for the nine months ended September 30, 2014 increased  $86.3 million, or 5.8%, to $1.58 billion from $1.49 billion in the same period a year ago.  Increases in estimated collections on fee for service visits of 7.1% provided a 5.2% increase in same contract revenue growth between periods while a 1.5% increase in same contract volumes contributed 1.1% to growth. Contract and other revenue constrained same contract revenue growth 0.5% between periods. Acquisitions contributed $156.7 millionof growth between periods and net new contract revenue increased by $24.2 million.  The benefit fromMedicaid parity revenue recognized in the nine months ended September 30, 2014 was $27.7 million, of which $22.8 million is same contract revenue compared to $12.9 million in 2013, of which $11.8 millionwas same contract revenue.  The increase in Medicaid parity revenue contributed 0.8% to consolidated revenue growth and 0.7% to same contract revenue growth between years.

Reported net earnings were $81.6 million in the nine months ended September 30, 2014, or $1.13 diluted net earnings per share, compared to net earnings of $65.9 million, or $0.93 diluted net earnings per share, in the same period of 2013.  The 2014 first nine months financial results included $22.5 million($15.7 million after-tax) of contingent purchase and other acquisition compensation expense, non-cash amortization expense of $35.2 million ($23.9 million after-tax), and a $7.1 million increase in prior year professional liability loss reserves ($4.4 million after tax).  Excluding these items, net earnings for the first nine months of 2014 would have been $125.6 million and Adjusted EPS would have been $1.75 per share.  Financial results for the same period in 2013 included $18.6 million of contingent purchase and other acquisition compensation expense ($12.5 million after-tax), and non-cash amortization expense of$27.0 million ($17.9 million after-tax).  Excluding these adjustments, net earnings for the same period in 2013 would have been $96.4 million and Adjusted EPS would have been $1.36 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.

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