Team Health Holdings, Inc. Announces First Quarter 2014 Financial Results

KNOXVILLE, Tenn., April 29, 2014 /PRNewswire/ -- 

2014 First Quarter Highlights

  • Net revenue increased to $641.7 million; 11.4% over the prior year first quarter
  • Net earnings attributable to Team Health Holdings, Inc. ("Net earnings") were $23.8 million; $38.3 million after adjustments
  • Diluted net earnings per share of $0.33; Adjusted EPS of $0.54
  • Adjusted EBITDA increased 19.2% to $71.8 million
  • Consistent with prior guidance, 2014 net revenue growth is projected to be between 11% and 12%, inclusive of Medicaid parity, but excluding other potential benefits from healthcare reform

Team Health Holdings, Inc. ("TeamHealth" or the "Company") (NYSE: TMH), one of the largest providers of outsourced physician staffing solutions for hospitals in the United States, today announced results for its first quarter of 2014.

"We are pleased with our financial performance for the first quarter of 2014 as we generated double digit revenue and earnings growth, while expanding our Adjusted EBITDA margin over the prior year," said TeamHealth Chief Executive Officer, Greg Roth.

"Similar to other healthcare providers, we saw the continuation of soft utilization trends further impacted by challenging weather conditions in several of our markets during the quarter. Despite the current operating environment, all three of our primary growth drivers contributed to an increase in net revenue of over 11% and we realized improvements in our operating margins. We continued to benefit from the Medicaid parity program and we anticipate additional opportunities from the expansion of coverage that began this quarter, primarily from an improving payor mix and support for volume growth as the newly insured begin to access the healthcare system.  While we realized some modest improvements in our payor mix in the quarter, we believe it will take additional time to fully discern the impact of healthcare reform on our 2014 financial results.  As we look ahead into the remainder of 2014, we believe that we remain well positioned to achieve continued revenue and earnings growth in 2014. We are implementing our acquisition strategy, executing on new contract sales, driving improvements in same contract performance, and delivering strong operating cash flows. We continue to project full year 2014 annual net revenue growth of between 11% and 12%.  Our first quarter performance exceeded our annual Adjusted EBITDA margin target of 10.5% as a result of the continued focus on revenue cycle performance, including Medicaid parity, and cost efficient operations.  Over the remainder of the year, we will look to drive continued revenue growth and operating efficiencies that could provide some modest upside to our annual margin target.  As we have gained additional insight into the Medicaid parity program, we now anticipate the 2014 revenue benefit will be in the range of $32 million and $34 million.  Consistent with our previous commentary, except for Medicaid parity revenue, our current guidance does not include other benefits that we may see from healthcare reform in 2014," concluded Mr. Roth.

Lynn Massingale, M.D., Executive Chairman of TeamHealth, added, "We are pleased with our start to 2014 and we look forward to delivering strong operating and financial performance for the remainder of the year.  Moving forward, we continue to utilize our national infrastructure and strong physician leadership to drive operational improvements across our growing network of high quality affiliated providers, while making investments in patient safety, risk management, operational efficiency and customer satisfaction.  Our priority is to deliver the highest quality of patient care and our proprietary information technology systems and infrastructure investments enable us to accomplish these goals."

2014 First Quarter Results

Net revenue increased 11.4% to $641.7 million from $575.9 million in the first quarter of 2013.  Acquisitions contributed 7.2%, same contract revenue contributed 2.6% and net sales growth contributed 1.6%, of the increase in quarter-over-quarter growth in net revenue. 

Same contract revenue increased $14.9 million, or 2.9%, to $526.6 million from $511.7 million in the first quarter of 2013.  An increase of 9.1% in estimated collections on fee for service visits provided a 6.2% increase in same contract revenue growth between quarters while a 3.1% decrease in same contract volumes constrained growth by 2.2%.  Contract and other revenue constrained same contract revenue growth between quarters by 1.1%. Acquisitions contributed $41.2 million of revenue growth, and net new contract revenue increased by $9.6 million between quarters.  The benefit from Medicaid parity revenue recognized in the first quarter was $8.8 million, of which $8.1 million is same contract revenue.  Medicaid parity contributed 1.5% to consolidated revenue growth and 1.6% to same contract revenue growth between quarters. 

Reported net earnings for the quarter were $23.8 million, or $0.33 diluted net earnings per share, compared to net earnings of $18.2 million, or $0.26 diluted net earnings per share, in the first quarter of 2013.  The financial results for the first quarter of 2014 included $10.1 million of contingent purchase and other acquisition compensation expense ($7.0 million after-tax) and non-cash amortization expense of $11.1 million ($7.5 million after tax).  Excluding these items, net earnings for the first quarter of 2014 would have been $38.3 million and Adjusted EPS would have been $0.54 per share.  The results in the first quarter of 2014 include a $1.8 million ($1.1 million after tax) net gain on the sale and disposal of assets, including the sale of certain assets related to our clinic operations.  Financial results for the first quarter of 2013 included $10.3 million of contingent purchase and other acquisition compensation expense ($6.5 million after-tax), and non-cash amortization expense of $8.9 million ($5.9 million after-tax).  Excluding these items, net earnings for the first quarter of 2013 would have been $30.5 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 was $34.2 million compared to $33.3 million in the first quarter of 2013.  There were $0.1 million of contingent purchase payments made in the first quarter of 2014 and no contingent purchase payments in 2013.  Excluding the impact of these items, operating cash flow in 2014 reflected an increase of $0.9 million between quarters. 

Adjusted EBITDA for the quarter increased 19.2% to $71.8 million from $60.2 million in the first quarter of 2013, and Adjusted EBITDA margin increased to 11.2% compared to 10.5% for the same quarter in 2013. 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 March 31, 2014, the Company had cash and cash equivalents of approximately $56.6 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 $497.5 million as of March 31, 2014.


Conference Call

As previously announced, TeamHealth will hold a conference call tomorrow, April 30, 2014, to discuss its first quarter 2014 results at 8:30 a.m. (Eastern Time).  The conference call can be accessed live over the phone by dialing 1-877-407-0784, or for international callers, 1-201-689-8560.  A replay will be available one hour after the call and can be accessed by dialing 1-877-870-5176, or for international callers, 1-858-384-5517.  The passcode for the live call and the replay is 13579991. The replay will be available until May 2, 2014.

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.

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) is one of the largest providers of outsourced physician staffing solutions for hospitals in the United States.  Through its 19 regional locations and multiple service lines, TeamHealth's more than 9,800 affiliated healthcare professionals provide emergency medicine, hospital medicine, anesthesia, urgent care, and pediatric staffing and management services to more than 860 civilian and military hospitals, clinics, and physician groups in 46 states.

Forward Looking Statements

Statements and information contained herein that are not historical facts and that reflect the current view of 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 under the caption "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's most recent annual report on Form 10-K and the most recent quarterly report on Form 10-Q filed 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 Reconciliations

In this release we refer to Adjusted EBITDA, Adjusted EBITDA margin and Adjusted EPS which are financial measures that are calculated and presented on the basis of methodologies other than in accordance with generally accepted accounting principles in the United States of America ("GAAP").   Adjusted EBITDA is defined as net earnings attributable to Team Health Holdings, Inc. before interest expense, taxes, depreciation and amortization, as further adjusted to exclude the non-cash items and the other adjustments shown in the table under "Adjusted EBITDA" below.  Adjusted EBITDA margin represents Adjusted EBITDA divided by net revenue.  Adjusted EPS is defined as diluted earnings per share attributable to Team Health Holdings, Inc. excluding non-cash and other adjustments, including the impact of contingent purchase and other acquisition compensation expense and amortization expense relating to purchase accounting for historical acquisitions and the other adjustments shown in the table under "Adjusted Earnings Per Share."  For a reconciliation of each of Adjusted EBITDA and Adjusted EPS to the most directly comparable GAAP measure, we refer you to the tables under "Adjusted EBITDA" and "Adjusted Earnings Per Share," respectively.

 


Team Health Holdings, Inc.

Consolidated Balance Sheets


December 31,
2013


March 31,

2014


(Unaudited) 
(In thousands)

Assets




Current assets:




Cash and cash equivalents

$

32,331



$

56,603


Accounts receivable, less allowance for uncollectibles of $377,644 and
$358,272 in 2013 and 2014, respectively

392,430



404,977


Prepaid expenses and other current assets

35,029



31,497


Receivables under insured programs

22,961



20,128


Total current assets

482,751



513,205


Investments of insurance subsidiary

84,081



88,638


Property and equipment, net

53,434



56,159


Other intangibles, net

173,178



164,268


Goodwill

428,311



428,750


Deferred income taxes

44,546



45,862


Receivables under insured programs

39,532



41,349


Other

55,577



52,211



$

1,361,410



$

1,390,442


Liabilities and shareholders' equity




Current liabilities:




Accounts payable

$

27,700



$

27,396


Accrued compensation and physician payable

201,998



175,279


Other accrued liabilities

128,749



134,848


Income tax payable

3,014



15,053


Current maturities of long-term debt

17,969



19,688


Deferred income taxes

39,063



38,767


Total current liabilities

418,493



411,031


Long-term debt, less current maturities

483,594



477,812


Other non-current liabilities

190,842



201,996


Shareholders' equity:






Common stock, ($0.01 par value; 100,000 shares authorized, 70,016 and
70,148 shares issued and outstanding at December 31, 2013 and March 31,
2014, respectively)

700



701


Additional paid-in capital

642,633



649,023


Accumulated deficit

(376,593)



(352,748)


Accumulated other comprehensive earnings

447



1,049


Team Health Holdings, Inc. shareholders' equity

267,187



298,025


Noncontrolling interest

1,294



1,578


Total shareholders' equity including noncontrolling interest

268,481



299,603



$

1,361,410



$

1,390,442


 

 

Team Health Holdings, Inc. 

Consolidated Statements of Comprehensive Earnings


Three Months Ended March 31,


2013


2014


(Unaudited)
(In thousands, except per share data)

Net revenues before provision for uncollectibles

$

1,006,349



$

1,104,173


Provision for uncollectibles

430,404



462,523


Net revenue

575,945



641,650


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






Professional service expenses

452,769



501,280


Professional liability costs

18,656



20,295


General and administrative expenses (includes contingent purchase and other
acquisition compensation expense of $10,258 and $10,144 in 2013 and 2014,
respectively)

58,121



62,177


Other income

(1,281)



(2,161)


Depreciation

4,086



4,571


Amortization

8,873



11,126


Interest expense, net

3,799



3,408


Transaction costs

462



1,018


 Earnings before income taxes

30,460



39,936


Provision for income taxes

12,254



16,018


    Net earnings

18,206



23,918


Net earnings attributable to noncontrolling interest

52



73


Net earnings attributable to Team Health Holdings, Inc.

$

18,154



$

23,845








Net earnings per share of Team Health Holdings, Inc.






Basic

$

0.27



$

0.34


Diluted

$

0.26



$

0.33


Weighted average shares outstanding






Basic

68,000



69,835


Diluted

70,015



71,430








Other comprehensive (loss) earnings, net of tax:






Net change in fair value of investments, net of tax of $(16) and $325 for
2013 and 2014, respectively

(30)



602


Comprehensive earnings

18,176



24,520


Comprehensive earnings attributable to noncontrolling interest

52



73


Comprehensive earnings attributable to Team Health Holdings, Inc.

$

18,124



$

24,447


 

 

Team Health Holdings, Inc. 
Consolidated Statements of Cash Flows


Three Months Ended March 31,


2013


2014


(Unaudited)

(In thousands)

Operating Activities




Net earnings

$

18,206



$

23,918


Adjustments to reconcile net earnings:




Depreciation

4,086



4,571


Amortization

8,873



11,126


Amortization of deferred financing costs

255



253


Equity based compensation expense

1,538



2,974


Provision for uncollectibles

430,404



462,523


Deferred income taxes

(6,650)



(1,937)


Loss (gain) on disposal or sale of assets

79



(1,842)


Equity in joint venture income

(699)



(927)


Changes in operating assets and liabilities, net of acquisitions:




Accounts receivable

(440,075)



(475,070)


Prepaids and other assets

7,395



7,357


Income tax accounts

12,137



12,039


Accounts payable

(4,577)



(59)


Accrued compensation and physician payable

(14,643)



(27,648)


Contingent purchase liabilities

8,888



8,724


Other accrued liabilities

(1,932)



2,192


Professional liability reserves

10,040



5,979


Net cash provided by operating activities

33,325



34,173


Investing Activities




Purchases of property and equipment

(3,370)



(5,919)


Sale of property and equipment

125



2,776


Cash paid for acquisitions, net

(12,000)



(2,454)


Purchases of investments by insurance subsidiary

(26,812)



(11,975)


Proceeds from investments by insurance subsidiary

19,727



8,344


Net cash used in investing activities

(22,330)



(9,228)


Financing Activities




Payments on notes payable

(4,063)



(4,063)


Proceeds from revolving credit facility



27,500


Payments on revolving credit facility



(27,500)


Stock issuance costs

(476)




Payments of financing costs

(1)




Proceeds from exercise of stock options

12,228



1,949


Tax benefit from exercise of stock options

5,215



1,441


Net cash provided by (used in) financing activities

12,903



(673)


Net increase in cash and cash equivalents

23,898



24,272


Cash and cash equivalents, beginning of period

41,240



32,331


Cash and cash equivalents, end of period

$

65,138



$

56,603


Supplemental cash flow information:






Interest paid

$

3,827



$

3,659


Taxes paid

$

1,514



$

4,437


 

 

Team Health Holdings, Inc.

Adjusted EBITDA

We present Adjusted EBITDA as a supplemental measure of our performance.  We define Adjusted EBITDA as net earnings attributable to Team Health Holdings, Inc. before interest expense, taxes, depreciation and amortization, as further adjusted to exclude the non-cash items and the other adjustments shown in the table below.  We present Adjusted EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance.

Adjusted EBITDA is not a measurement of financial performance or liquidity under generally accepted accounting principles.  In evaluating our performance as measured by Adjusted EBITDA, management recognizes and considers the limitations of this measure.  Adjusted EBITDA does not reflect certain cash expenses that we are obligated to make, and although depreciation and amortization are non-cash charges, assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements.  In addition, other companies in our industry may calculate Adjusted EBITDA differently than we do or may not calculate it at all, limiting its usefulness as a comparative measure.  Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for net earnings, operating income, cash flows from operating, investing or financing activities, or any other measure calculated in accordance with generally accepted accounting principles.

The following table sets forth a reconciliation of net earnings attributable to Team Health Holdings, Inc. to Adjusted EBITDA.



Three Months Ended March 31,


2013


2014


(In thousands)

Net earnings attributable to Team Health Holdings, Inc.

$

18,154



$

23,845


Interest expense, net

3,799



3,408


Provision for income taxes

12,254



16,018


Depreciation

4,086



4,571


Amortization

8,873



11,126


Other income(a)

(1,281)



(2,161)


Contingent purchase and other acquisition compensation
expense(b)

10,258



10,144


Transaction costs(c)

462



1,018


Equity based compensation expense(d)

1,538



2,974


Insurance subsidiary interest income

422



500


Severance and other charges

1,661



348


Adjusted EBITDA

$

60,226



$

71,791



(a) Reflects gain or loss on sale of assets, realized gains on investments, and changes in fair value of investments associated with the Company's non-qualified retirement plan.

(b) Reflects expense recognized for historical and estimated future contingent payments and other compensation expense associated with acquisitions.

(c) Reflects expenses associated with accounting, legal, due diligence and other transaction fees related to acquisition activity.

(d) Reflects costs related to options and restricted shares granted under the Team Health Holdings, Inc. 2009 Amended and Restated Stock Incentive Plan.

 

 

Team Health Holdings, Inc.

Adjusted Earnings Per Share

(in thousands, except per share data)

We present Adjusted earnings per share attributable to Team Health Holdings, Inc. ("Adjusted EPS") as a supplemental measure of our performance.  We define Adjusted EPS as diluted earnings per share excluding non-cash and other adjustments, including the impact of contingent purchase and other acquisition compensation expense and amortization expense relating to purchase accounting for historical acquisitions.  We present Adjusted EPS because we believe that it assists investors in understanding the impact of acquisition-related costs on our earnings per share and comparing our performance across operating periods on a consistent basis and provides additional insight into our core earnings performance.  Adjusted EPS is not a measurement of financial performance or liquidity under generally accepted accounting principles.  In evaluating our performance as measured by Adjusted EPS, management recognizes and considers the limitations of this measure.  Adjusted EPS does not reflect certain cash expenses that we are obligated to make, and although contingent purchase  and other acquisition compensation expense and amortization expense are non-cash charges in the period reported, such charges reflect historical or future cash payments in conjunction with our acquisition transactions.  In addition, other companies in our industry may calculate Adjusted EPS differently than we do or may not calculate it at all, limiting its usefulness as a comparative measure.  Because of these limitations, Adjusted EPS should not be considered in isolation or as a substitute for net earnings, operating income, basic and diluted earnings per share, cash flows from operating, investing or financing activities, or any other measure calculated in accordance with generally accepted accounting principles.

The following tables set forth a reconciliation of diluted earnings per share to Adjusted EPS (note that some totals may not add due to rounding).

 


Three Months Ended March 31,


2013


2014

Diluted weighted average shares outstanding

70,015






71,430





Net earnings and diluted net earnings per share
attributable to Team Health Holdings, Inc., as reported

$

18,154



$

0.26



$

23,845



$

0.33


Adjustments:












Contingent purchase and other acquisition compensation
expense, net of tax of $(3,766) and $(3,181) for 2013 and
2014, respectively

6,492



0.09



6,963



0.10


Amortization expense, net of tax of $(3,001) and $(3,588)
for 2013 and 2014, respectively

5,872



0.08



7,538



0.11


Net earnings and diluted earnings per share attributable to
Team Health Holdings, Inc., as adjusted

$

30,518



$

0.44



$

38,346



$

0.54


 

Team Health Holdings, Inc.

Revenue Analysis

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


Three Months Ended March 31,


2013


2014


(in thousands)

Same contracts:




Fee for service revenue

$

361,337



$

382,048


Contract and other revenue

150,384



144,562


Total same contracts

511,721



526,610


New contracts, net of terminations:




Fee for service revenue

41,672



46,015


Contract and other revenue

16,550



21,807


Total new contracts, net of terminations

58,222



67,822


Acquired contracts:




Fee for service revenue

5,922



39,283


Contract and other revenue

80



7,935


Total acquired contracts

6,002



47,218


Consolidated:




Fee for service revenue

408,931



467,346


Contract and other revenue

167,014



174,304


Total net revenue

$

575,945



$

641,650


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


Three Months Ended March 31,


2013


2014


(in thousands)

Fee for service visits and procedures:




Same contract

2,348



2,276


New and acquired contracts, net of terminations

322



521


Total fee for service visits and procedures

2,670



2,797


 

SOURCE Team Health Holdings Inc.



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