Team Health Holdings, Inc. Announces First Quarter 2010 Financial Results -- Net Revenue less provision for uncollectibles grows 4.3% to $364.5 million over the prior year first quarter

-- Net Earnings of $10.9 million; $16.3 million, after adjustment for debt redemption related costs and a favorable prior year loss reserve adjustment

-- Diluted Net Earnings per share of $0.17; $0.25 after adjustment for debt redemption related costs and a favorable prior year loss reserve adjustment

-- Adjusted EBITDA (excluding the effects of prior year loss reserve adjustment) of $38.6 million and Adjusted EBITDA margin of 10.6%

KNOXVILLE, Tenn., May 11 /PRNewswire-FirstCall/ --Team Health Holdings, Inc. ("TeamHealth") (NYSE: TMH), one of the largest suppliers of outsourced healthcare professional staffing and administrative services to hospitals and other healthcare providers in the United States, today announced results for its first quarter 2010.

"Our first quarter results reflect strong growth from our recent acquisition activities, but total net revenue growth was constrained by declines in same contract fee-for-service volumes.  Similar to many other healthcare services companies, we experienced significantly softer patient volume compared to 2009, driven by a benign seasonal flu period, significant declines in H1/N1 flu volume when compared to prior sequential quarters, and weather-related issues within the current quarter. The four acquisitions that we completed last year made a solid contribution to revenue and earnings and we expect that the two recently announced transactions will make contributions to our financial performance in the second quarter and beyond. In light of patient volumes that ran below our historical trend line during the quarter, we have focused on managing our cost structure in line with the potential for soft fee-for-service volumes over the remainder of the year.  Our expense controls, combined with continued improvement in revenue cycle processes and execution, and our ongoing focus on professional liability cost management, enabled us to grow net revenue while maintaining our targeted Adjusted EBITDA margin," said TeamHealth President and Chief Executive Officer Greg Roth.

2010 First Quarter Results

  • Net Revenue less provision for uncollectibles increased 4.3% to $364.5 million over the same period in the prior year.
  • Reported net earnings of $10.9 million or $0.17 diluted net earnings per share. Net earnings were $16.3 million, or $0.25 diluted net earnings per share, after excluding costs associated with the redemption of the 11.25% Senior Subordinated Notes totaling $16.2 million on a pre-tax basis ($9.9 million after-tax) and a favorable prior year professional liability loss reserve adjustment of $7.2 million on a pre-tax basis ($4.4 million after-tax)
  • Adjusted EBITDA (excluding the effects of professional liability loss reserve adjustments) declined 5.2% to $38.6 million over the same period in the prior year.

Net revenue less provision for uncollectibles ("revenue less provision") in the first quarter of 2010 increased 4.3% to $364.5 million from $349.6 million in the first quarter of 2009. Revenue less provision from acquisitions and new contracts, net of terminations (excluding the military division), contributed 6.1% and 1.3%, respectively, of the growth between quarters.  Due to declines in both same contract fee-for-service volumes and in contract and other revenue, same contract revenue contributed 0.2% towards overall growth.  Net contract changes within the military division reduced quarter over quarter net revenue growth by 3.3%.  

Same contract revenue less provision for the first quarter of 2010 increased 0.2% to $315.1 million from $314.6 million in the same period a year ago. Increases in estimated collections on fee-for-service visits of 2.8% contributed approximately 2.0% of same contract revenue growth between quarters.  Due, in part, to the effects of extremely low seasonal flu incidents on a nationwide basis and weather-related issues in certain geographic areas during the first quarter of 2010, fee-for-service visits declined by 0.8%, which contributed a 0.6% decline in same contract revenue growth between periods.  Declines in contract and other revenue, primarily associated with the locum tenens and military divisions, constrained same contract revenue growth by 1.2%.  Acquisitions contributed $21.4 million of growth between periods.  Excluding the impact of contracting changes within the military division, net new contract revenue increased by $4.6 million while changes within military staffing contracts resulted in a decline of $11.6 million between periods.

Reported net earnings were $10.9 million in the first quarter of 2010, or $0.17 diluted net earnings per share, compared to net earnings of $25.9 million, or $0.52 pro forma diluted net earnings per share in the same quarter of 2009.  Included in the first quarter 2010 results were costs associated with the Company's bond redemption of $16.2 million.  Financial results for the first quarter of 2010 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 first quarter of 2009.  Following these adjustments, diluted net earnings per share were $0.25 for first quarter 2010, compared to $0.29 for 2009.

Adjusted EBITDA for the first quarter of 2010 was $45.8 million compared to $59.5 million in the same quarter of 2009.  Excluding the impact of the prior year professional liability reserve adjustments, Adjusted EBITDA was $38.6 million and $40.7 million, respectfully, in each period.

As of March 31, 2010, the Company had cash and cash equivalents of approximately $15.7 million and a revolving credit facility of $125.0 million (without giving effect to $7.2 million of undrawn letters of credit).  As previously announced, during the quarter ended March 31, 2010, the Company redeemed $157.5 million of the 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 current quarter.  The Company also made scheduled debt payments of $1.1 million. As a result, the Company's total outstanding debt as of March 31, 2010 was $452.5 million and there were no amounts outstanding under the revolving credit facility.

Cash flow used in operations for the quarter ended March 31, 2010 was $10.7 million compared to cash provided by operations of $30.3 million for the first quarter 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.  In addition to the first quarter 2010 bond redemption, other elements contributing to the change in operating cash flow between quarters were increased levels of accounts receivable funding, and increases in the funding of current liabilities, including prior year incentive plan liabilities, during the first quarter of 2010 compared to 2009.  

"Despite the constrained level of revenue growth in the first quarter associated with reduced patient volumes, our organization continues to be excited about the strength of our strategic position and the opportunities for profitable growth organically, by acquisition, and through opportunities in adjacent service markets over the remainder of 2010 and into subsequent years. We have a strong M&A pipeline and the current environment is yielding some very attractive growth opportunities. We have strengthened our capital structure to increase our financial flexibility and to accelerate our future cash flow and earnings growth. The strength and flexibility of our business model will continue to enable us to respond effectively to a rapidly changing and more complex competitive and regulatory environment to continue to generate consistently profitable operating results," concluded Mr. Roth.

Lynn Massingale, M.D., Executive Chairman of TeamHealth, added, "Our organization continues to be distinguished by its focus on operational excellence to ensure that we consistently provide the highest quality of care. The significant investment that we have made in proprietary IT systems supports the consistently high quality of execution while helping drive ongoing improvements in our support costs. Our recent acquisition track record shows that we are viewed as a stable and attractive partner and our continued infrastructure investments provide our hospital clients with programs to drive their achievement of patient safety, operational efficiency, and customer satisfaction goals."  

Conference Call

As previously announced, TeamHealth will hold a conference call tomorrow, May 12, to discuss its fiscal first quarter 2010 results at 10:00 a.m. (Eastern Daylight Time).  The conference call can be accessed live over the phone by dialing 1-877-941-2069, or for international callers, 1-480-629-9713. A replay will be available one hour after the call and can be accessed by dialing 1-800-406-7325, or for international callers, 1-303-590-3030. The passcode for the live call and the replay is 4285120. The replay will be available until May 19, 2010.

Interested investors and other parties may also listen to a simultaneous webcast of the conference call by logging onto the Investor Relations section of the Company's website at www.teamhealth.com. The on-line replay will remain available for a limited time beginning immediately following the call in the Investor Relations section of the Company's website at www.teamhealth.com.

To learn more about TeamHealth, please visit the company's Web site at www.teamhealth.com. TeamHealth uses its Web site as a channel of distribution for material Company information. Financial and other material information regarding TeamHealth is routinely posted on the Company's Web site and is readily accessible.

About TeamHealth  

TeamHealth (Knoxville, Tenn.) (NYSE: TMH) was founded in 1979 and has become one of the largest suppliers of outsourced healthcare professional staffing and administrative services to hospitals and other healthcare providers in the United States. Through its seven principal service lines located in 13 regional sites, TeamHealth's approximately 5,600 affiliated healthcare professionals provide emergency medicine, hospital medicine, anesthesia, teleradiology, and pediatric staffing and management services to approximately 520 civilian and military hospitals, clinics, and physician groups in 48 states. For more information about TeamHealth, visit www.teamhealth.com.

Forward Looking Statements

Statements and information contained herein that are not historical facts and that reflect the current view of Team Health Holdings, Inc.  (the "Company") about future events and financial performance are hereby identified as "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  Some of these statements can be identified by terms and phrases such as "anticipate," "believe," "intend," "estimate," "expect," "continue," "could," "should," "may," "plan," "project," "predict" and similar expressions.  The Company cautions  that such "forward looking statements," including without limitation, those relating to the Company's future business prospects, revenue, working capital, professional liability expense, liquidity, capital needs, interest costs and income, wherever they occur in this or in other statements attributable to the Company, are necessarily estimates reflecting the judgment of the Company's senior management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the "forward looking statements."  Factors that could cause our actual results to differ materially from those expressed or implied in such forward-looking statements include but are not limited to current or future government regulation of the healthcare industry, exposure to professional liability lawsuits and governmental agency investigations, the adequacy of insurance coverage and insurance reserves, as well as those factors detailed from time to time in the Company's filings with the Securities and Exchange Commission. The Company's "forward looking statements" speak only as of the date hereof and the Company disclaims any intent or obligation to update "forward looking statements" herein to reflect changed assumptions, the occurrence of unanticipated events, or changes to future operating results over time.

Non-GAAP Financial Measures Reconciliation

This release includes a table that sets forth a reconciliation of net earnings to Adjusted EBITDA. Adjusted EBITDA under the indenture governing the 11.25% Senior Subordinated Notes is defined as net earnings before interest expense, taxes, depreciation and amortization, as further adjusted to exclude unusual items, non-cash items and the other adjustments shown in the table below.   We believe that the disclosure of the calculation of Adjusted EBITDA provides information that is useful to an investor's understanding of our liquidity and financial flexibility.  Adjusted EBITDA is not a measurement of financial performance or liquidity under generally accepted accounting principles.  It should not be considered in isolation or as a substitute for net income, operating income, cash flows from operating, investing or financing activities, or any other measure calculated in accordance with generally accepted accounting principles.

Since Adjusted EBITDA is not a measure determined in accordance with GAAP and is susceptible to varying calculations, Adjusted EBITDA, as presented, may not be comparable to other similarly titled measures of other companies.

Team Health Holdings, Inc.


Consolidated Balance Sheets


December 31, 2009

March 31, 2010


(Unaudited)

(In thousands)

                                          ASSETS



Current assets:



  Cash and cash equivalents

$  170,331

$  15,680

  Accounts receivable, less allowance for uncollectibles of $178,712 and $176,290 in 2009 and 2010, respectively

237,703

250,319

  Prepaid expenses and other current assets

17,040

15,951

  Receivables under insured programs

17,615

13,621




Total current assets

442,689

295,571

Investments of insurance subsidiary

86,975

88,663

Property and equipment, net

28,850

29,374

Other intangibles, net

59,505

58,660

Goodwill

213,978

217,682

Deferred income taxes

44,880

42,354

Receivables under insured programs

24,708

26,239

Other

39,361

38,881





$  940,946

$  797,424




                   LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)



Current liabilities:



  Accounts payable

$  17,472

$  12,611

  Accrued compensation and physician payable

124,380

105,858

  Other accrued liabilities

83,955

79,006

  Income tax payable

2,979

2,892

  Current maturities of long-term debt

161,752

4,250

  Deferred income taxes

34,764

38,814




Total current liabilities

425,302

243,431

Long-term debt, less current maturities

449,273

448,211

Other non-current liabilities

158,703

164,427

Shareholders' equity (deficit):



  Common stock, 100,000 shares authorized, 62,401 and 64,396 shares issued and outstanding at December 31, 2009 and March 31, 2010, respectively

624

644

  Additional paid in capital

490,989

513,574

  Accumulated deficit

(582,708)

(571,809)

  Accumulated other comprehensive loss

(1,237)

(1,054)




Total shareholders' deficit

(92,332)

(58,645)





$  940,946

$  797,424








Team Health Holdings, Inc.


Consolidated Statements of Operations



Three Months Ended

March 31,


2009

2010


(Unaudited)


(In thousands, except per share data)

Net revenue

$  594,792

$  631,966

Provision for uncollectibles

245,206

267,501




  Net revenue less provision for uncollectibles

349,586

364,465

Cost of services rendered (exclusive of depreciation and amortization shown separately below)



  Professional service expenses

268,932

282,824

  Professional liability (benefit) costs

(6,733)

5,937

General and administrative expenses

29,220

30,801

Management fee and other expenses (income)

939

(62)

Depreciation and amortization

4,625

6,415

Interest expense, net

10,096

5,763

Transaction costs

81

65

Loss on extinguishment of debt

14,862




  Earnings before income taxes

42,426

17,860

Provision for income taxes

16,529

6,962




  Net earnings

$  25,897

$  10,898





Three Months Ended

March 31,


2009

Pro forma

2010

Net earnings per share



      Basic

$               .52

$               .17

      Diluted

$               .52

$               .17

Weighted average shares outstanding



      Basic

48,960

63,920

      Diluted

49,066

64,529




Team Health Holdings, Inc.


Consolidated Statements of Cash Flows





Three Months Ended
March 31,



2009

2010


(Unaudited)


(In thousands)

Operating Activities



Net earnings

$  25,897

$  10,898

Adjustments to reconcile net earnings:



  Depreciation and amortization

4,625

6,415

  Amortization of deferred financing costs

517

537

  Employee equity based compensation expense

186

204

  Provision for uncollectibles

245,206

267,501

  Deferred income taxes

4,717

6,449

  Loss on extinguishment of debt

3,837

  Loss on disposal of equipment

30

3

  Equity in joint venture income

(383)

(525)

Changes in operating assets and liabilities, net of acquisitions:



  Accounts receivable

(243,713)

(280,117)

  Prepaids and other assets

(2,728)

(1,771)

  Income tax accounts

11,445

(24)

  Accounts payable

(3,174)

(4,643)

  Accrued compensation and physician payable

(6,609)

(18,306)

  Other accrued liabilities

5,476

1,534

  Professional liability reserves

(11,225)

(2,676)




Net cash provided by (used in) operating activities

30,267

(10,684)

Investing Activities



Purchases of property and equipment

(1,476)

(1,189)

Cash paid for acquisitions, net

(2,699)

(4,159)

Purchases of investments by insurance subsidiary

(17,898)

(9,876)

Proceeds from investments by insurance subsidiary

12,800

8,052




Net cash used in investing activities

(9,273)

(7,172)

Financing Activities



Payments on notes payable

(1,062)

(1,062)

Payments on 11.25% senior subordinated notes

(157,502)

Proceeds from revolving credit facility

56,000

Payments on revolving credit facility

(56,000)

Proceeds from sale of common shares

21,769

Redemption of common units

(6)




Net cash used in financing activities

(1,068)

(136,795)




Net increase (decrease) in cash

19,926

(154,651)

Cash and cash equivalents, beginning of period

46,398

170,331




Cash and cash equivalents, end of period

$  66,324

$  15,680




Interest paid

$  4,490

$  6,551




Taxes paid

$  332

$  593







Team Health Holdings, Inc.


Adjusted EBITDA


The following table sets forth a reconciliation of net earnings to Adjusted EBITDA. Adjusted EBITDA under the indenture governing the senior subordinated notes is defined as net earnings before interest expense, taxes, depreciation and amortization, as further adjusted to exclude unusual items, non-cash items and the other adjustments shown in the table below. We believe that the disclosure of the calculation of Adjusted EBITDA provides information that is useful to an investor's understanding of our financial flexibility under our indenture covenants. Adjusted EBITDA is not a measurement of financial performance or liquidity under generally accepted accounting principles. It should not be considered in isolation or as a substitute for net income, operating income, cash flows from operating, investing or financing activities, or any other measure calculated in accordance with generally accepted accounting principles.


Three Months Ended

March 31,


2009

2010


  (in thousands)

Net earnings

$  25,897

$  10,898

Interest expense, net

10,096

5,763

Provision for income taxes

16,529

6,962

Depreciation and amortization

4,625

6,415

Management fee and other expenses (income)(a)

939

(62)

Loss on extinguishment of debt(b)

14,862

Transaction costs(c)

81

65

Stock based compensation expense(d)

186

204

Insurance subsidiary interest income

860

684

Severance and other charges

312

12




Adjusted EBITDA*

$  59,525

$  45,803





* Adjusted EBITDA totals are not adjusted for the favorable effects of professional liability loss reserve adjustments associated with prior years of $18,824 and $7,219 for the three months ended March 31, 2009 and 2010, respectively. Adjusting for the effects of professional liability loss reserve adjustments associated with prior years, Adjusted EBITDA would have been reduced to $40,701 and $38,584 for the three months ended March 31, 2009 and 2010, respectively.


(a) Reflects sponsor management fee and loss on disposal of assets in 2009 and loss on disposal of assets and realized gain on investments in 2010.


(b) Reflects the loss on the redemption of a portion of the 11.25% Senior Subordinated Notes, including the write-off of deferred financing costs of $3,837.


(c) Reflects expenses associated with acquisition transaction fees.


(d) Reflects, for 2009, costs related to the recognition of expense in connection with the issuance of restricted units under the Team Health, Inc. 2005 Unit Plan and, for 2010, reflects costs related to options and restricted shares granted under the Team Holdings, Inc. 2009 Stock Incentive Plan.




Team Health Holdings, Inc.


Revenue Analysis


The components of net revenue less provision for uncollectibles includes revenue from contracts that have been in effect for prior periods (same contracts) and from new and acquired contracts during the periods, as set forth in the table below:  


Three Months Ended
March 31,


2009

2010


(In thousands)

Same contracts:



  Fee-for-service revenue

$  217,065

$  221,392

  Contract and other revenue

97,497

93,706




     Total same contracts

314,562

315,098

New contracts, net of terminations:



  Fee-for-service revenue

13,231

15,558

  Contract and other revenue

21,286

11,881




     Total new contracts, net of terminations

34,517

27,439

Acquired contracts:



  Fee-for-service revenue

507

13,356

  Contract and other revenue

8,572




     Total acquired contracts

507

21,928

Consolidated:



  Fee-for-service revenue

230,803

250,306

  Contract and other revenue

118,783

114,159




     Total net revenue less provision for uncollectibles

$  349,586

$  364,465







The following table reflects the visits and procedures included within fee-for-service revenues described in the table above:


Three Months Ended
March 31,


2009

2010


(In thousands)

Fee-for-service visits and procedures:



  Same contract

1,745

1,731

  New and acquired contracts, net of terminations

128

185




     Total fee-for-service visits and procedures

1,873

1,916







SOURCE Team Health Holdings, Inc.



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