Team Health Holdings, Inc. Announces Second Quarter 2016 Financial Results

KNOXVILLE, Tenn., Aug. 2, 2016 /PRNewswire/ --

Second Quarter 2016 Highlights:

• Net Revenue increased 27.9% to $1.12 billion over second quarter of 2015 ($185.7 million associated with IPC)
• Net earnings attributable to Team Health Holdings, Inc. were $18.8 million; $49.7 million after adjustments
• Diluted net earnings per share of $0.25; Adjusted EPS of $0.66
• Adjusted EBITDA increased 19.9% to $119.2 million ($15.8 million associated with IPC)
• Updated 2016 financial guidance

Team Health Holdings, Inc. ("TeamHealth" or the "Company") (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 second quarter of 2016.

"We delivered another quarter of double digit growth in net revenue and adjusted EBITDA, coupled with solid growth in operating cash flows, although results were slightly constrained compared to our expectations due to a reduced benefit from same contract pricing and timing on potential transactions in our acquisition pipeline," said TeamHealth President and Chief Executive Officer, Mike Snow.

"In the second quarter, the largest contributor to revenue growth was the impact of the IPC acquisition. We continue to focus on integrating IPC to provide for future growth and remain on target to achieve the cost and revenue synergies as initially targeted. Our legacy acquisitions, same contract, and net new contract sales also contributed to positive revenue growth between quarters although at a lower rate than we have realized in prior quarters. Same contract revenue was impacted by a reduced contribution from same contract pricing, and while our acquisition pipeline remains active and robust, the contribution from acquisitions in our second quarter results was slightly lower than expected due to the timing of a few near term opportunities. However, as we look ahead, we continue to see significant growth opportunities in the market and remain enthusiastic about our prospects, strategic plan and the ability to drive long term value for our shareholders."

"As a result of our financial performance in the first half of 2016, and our current expectations about operating trends and growth opportunities for the remainder of the year, we have revised our estimate for net revenue growth for fiscal year 2016 to range between $4.64 billion and $4.71 billion, reflecting an annual growth rate of 29% to 31% with an Adjusted EBITDA margin revised towards the lower end of the range previously provided.  This guidance excludes any benefit from the BPCI program for the 2015 measurement period, which we believe could be recognized at some point in 2016.  We remain confident in our ability to execute in this environment and maintain committed to delivering the highest quality patient care, supporting our affiliated clinicians and hospital partners, and achieving our operational and financial goals for 2016," concluded Mr. Snow.

2016 Second Quarter Results

Net revenue increased 27.9% to $1.12 billion from $878.0 million in the second quarter of 2015.  IPC contributed 21.1%, legacy (non-IPC) acquisitions contributed 3.1%, same contract revenue contributed 2.4%, and net new growth contributed 1.2% of the increase in quarter-over-quarter growth in net revenue.

Same contract revenue increased $21.0 million, or 2.6%, to $826.9 million from $805.9 million in the second quarter of 2015.  A 2.5% increase in same contract volumes contributed 1.9% to same contract growth while an increase in estimated collections on fee for service visits provided a 0.1% increase in same contract revenue growth between quarters. Same contract pricing growth was constrained by a  decline in unbilled revenue between periods and a reduction in prior year revenue estimates in the second quarter of 2016 compared to a favorable change in prior year revenue estimates in the second quarter of 2015.  The negative change in prior year revenue estimates recognized in 2016 is due in part to an elevated level of claims writeoffs realized in the quarter associated with provider credentialing and claims adjudication on an increased level of new and acquired contract relationships that commenced in 2014 and 2015.  In addition, same contract pricing was impacted by changes in payor mix and a reduced contribution from managed care revenue offset by an increase in average acuity between periods.  Contract and other revenue contributed 0.6% to same contract revenue growth between quarters.  IPC reported revenue of $185.7 million in the second quarter of 2016 while legacy acquisitions contributed $27.5 million of revenue growth and net new contract revenue increased by $10.4 million between quarters.

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

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

Net earnings attributable to Team Health Holdings, Inc. for the quarter were $18.8 million, or $0.25 diluted net earnings per share, compared to net earnings of $28.9 million, or $0.39 diluted net earnings per share, in the second quarter of 2015.  The financial results for the second quarter of 2016 included contingent purchase and other acquisition compensation expense of $9.8 million ($9.4 million after-tax), non-cash amortization expense of $24.1 million ($17.4 million after-tax) and a loss on debt refinancing of $1.1 million ($0.7 million after-tax).  The Company also recognized certain transaction, integration, and reorganization costs in the second quarter in the amount of $5.6 million ($3.4 million after tax).  These expenses include ongoing IPC severance and integration costs of $4.1 million and $1.4 million of severance and other costs associated with TeamHealth's ongoing operational restructuring during the quarter.  Excluding these items, net earnings for the second quarter of 2016 would have been $49.7 million and Adjusted EPS would have been $0.66 per share.  Financial results for the second quarter of 2015 included $7.9 million of contingent purchase and other acquisition compensation expense ($7.0 million after-tax) and non-cash amortization expense of $21.2 million ($15.3 million after-tax). Excluding these items, net earnings for the second quarter of 2015 would have been $51.2 million and Adjusted EPS would have been $0.70 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.

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

Cash flow provided by operations for the quarter was $25.3 million compared to $15.6 million in the second quarter of 2015.  There were $1.0 million of contingent purchase payments made in the second quarter of 2016 and $5.0 million contingent purchase payments in 2015 that were included in operating cash flow.  Also impacting operating cash flow in 2016 were $5.9 million of cash transaction and integration costs associated with the IPC transaction.  Excluding the impact of the contingent purchase payments and the IPC transaction and integration costs in 2016 and 2015, operating cash flows increased by $11.5 million to $32.2 million in 2016 compared to $20.6 million in 2015.  The increase in operating cash flows between quarters reflects a reduced level of accounts receivable funding and  income tax payments, which was offset by an increased level of interest payments.  As of June 30, 2016, net accounts receivable were $787.2 million compared to $730.5 million as of December 31, 2015.  On a consolidated basis (including the impact of the IPC operations), net days in accounts receivable decreased to 64.0 days at June 30, 2016 compared to 69.6 days at December 31, 2015. Excluding the impact of the IPC operations, net days in accounts receivable increased to 64.2 days at June 30, 2016 from 62.7 at December 31, 2015.

Adjusted EBITDA for the quarter increased 19.9% to $119.2 million from $99.4 million in the second quarter of 2015.  During the second quarter of 2016, the Company recognized $15.8 million of Adjusted EBITDA from IPC while the Company's legacy operations generated Adjusted EBITDA of $103.4 million.  Adjusted EBITDA margin on a consolidated basis was 10.6% in 2016 compared to 11.3% in 2015.  The Adjusted EBITDA margin for IPC was 8.5% while the Company's legacy operations Adjusted EBITDA margin was 11.0% in 2016.  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.

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

As of June 30, 2016, the Company had cash and cash equivalents of approximately $16.3 million and total outstanding debt of $2.42 billion (excluding the impact of $50.3 million of deferred financing costs).  In June 2016, the Company completed the repricing of its Tranche B term loan facility.  The repricing amendment reduced the interest rate applicable to the Tranche B Loans by 75 basis points to LIBOR plus 3.00% from LIBOR plus 3.75% (in each case subject to a minimum LIBOR floor of 75 basis points).  The outstanding debt as of June 30, 2016 consists of borrowings under the Tranche A term loan facility of $562.5 million, Tranche B term loan facility of $1.31 billion, and 7.25% Senior Notes due 2023 of $545.0 million.  As of June 30, 2016 there was $7.5 million outstanding under the revolving credit facility and the Company had $642.5 million of available borrowings under its revolving credit facilities (without giving effect to $6.8 million of undrawn letters of credit).

2016 First Six Month Results

Net revenue in the six months ended June 30, 2016 increased 31.4% to $2.26 billion from $1.72 billion for the same period of 2015. IPC contributed 22.0%, non-IPC (legacy) acquisitions contributed 4.7%, same contract revenue contributed 3.7%, and net new growth contributed 1.1% 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 1.2% of overall net revenue growth between years.

Same contract revenue for the six months ended June 30, 2016 increased  $62.7 million, or 4.2%, to $1.57 billion from $1.50 billion in the same period a year ago.  Same contract volumes increased 3.4% contributing 2.6% to growth, while estimated collections on fee for service visits increased 1.1% providing a 0.9% increase in same contract revenue growth between periods.  Contract and other revenue contributed same contract revenue growth of 0.7% between periods. IPC reported revenue of $378.4 million while legacy acquisitions contributed $79.9 million of revenue growth and net new contract revenue increased by $18.7 million between periods.

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:

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

Net earnings attributable to Team Health Holdings, Inc. were $19.5 million in the six months ended June 30, 2016, or $0.26 diluted net earnings per share, compared to net earnings of $57.0 million, or $0.78 diluted net earnings per share, in the same period of 2015.  The 2016 financial results included $18.9 million ($18.1 million after-tax) of contingent purchase and other acquisition compensation expense, non-cash amortization expense of $47.7 million ($34.3 million after-tax), and a $1.1 million  ($0.7 million after-tax) loss on the refinancing of debt. The Company also recognized certain transaction, integration, and reorganization costs in the six months ended June 30, 2016 in the amount of $26.8 million ($14.9 million after-tax).  These expenses during the period include IPC severance and integration costs of $12.7 million, $9.2 million of professional, advisory, and legal costs associated with the activities of (i) the Board's special advisory committee (which is responsible for reviewing and evaluating possible strategic alternatives available to the Company) and (ii) the JANA agreement, and $4.9 million of severance and lease impairment costs associated with a restructuring of the Company's legacy operations.  In addition, during the six months ended June 30, 2016, the Company (along with other third party healthcare providers) was involved in two separate professional liability legal settlements originating in prior years that required payments that were in excess of existing limits of coverage on its insurance program in the aggregate amount of $14.3 million ($8.8 million after-tax).  Excluding these items, net earnings for the six months of 2016 would have been $96.3 million and Adjusted EPS would have been $1.28 per share.  Financial results for the same period in 2015 included $15.8 million of contingent purchase and other acquisition compensation expense ($13.8 million after-tax), and non-cash amortization expense of $41.5 million ($29.8 million after-tax).  Excluding these adjustments, net earnings for the same period in 2015 would have been $100.6 million and Adjusted EPS would have been $1.38 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.

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).

Cash flow provided by operations for the six months ended June 30, 2016 was $54.4 million compared to $18.2 million in 2015.  There were $2.6 million contingent purchase payments in 2016 and $8.9 million contingent purchase payments in 2015 that were included in operating cash flow. Also impacting operating cash flow in 2016 were $14.0 million of cash transaction and integration costs associated with the IPC transaction.  Excluding the impact of the contingent purchase payments and the IPC transaction and integration costs in 2016 and 2015, operating cash flows increased $44.0 million to $71.1 million in 2016 compared to $27.1 million in 2015.

Adjusted EBITDA  for the six months ended June 30, 2016 increased 23.5% to $233.0 million from $188.7 million in the six months ended June 30, 2015.  During the six months ended June 30, 2016, the Company recognized $32.5 million of Adjusted EBITDA from IPC while the Company's legacy operations generated Adjusted EBITDA of $200.5 million. 

Adjusted EBITDA margin on a consolidated basis was 10.3% in 2016 compared to 11.0% in 2015.  Excluding the impact of Medicaid parity in both years, Adjusted EBITDA margin would have been 10.9% in 2015. The Adjusted EBITDA margin for IPC was 8.6% while the Company's legacy operations Adjusted EBITDA margin was 10.7% in 2016.

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.

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

Updated 2016 Financial Guidance

Based on information known as of today, the Company has updated its financial guidance for the year ending December 31, 2016, previously provided on May 9, 2016.

The Company projects 2016 net revenue growth of 29.0% to 31.0% versus previously reported net revenue growth of 31.0% to 33.0% with an Adjusted EBITDA margin of around 10.5%, versus previously projected margin of between 10.5% and 11.0%.  The current and previous financial guidance excludes any results from the BPCI program.

With respect to our expectations above, for Adjusted EBITDA margin, a reconciliation to the closest corresponding GAAP financial measures is not available without unreasonable efforts on a forward-looking basis due to the high variability, complexity and low visibility with respect to contingent purchase and other acquisition compensation expense and amortization expense that are excluded from this non-GAAP financial measure. The variability of these charges and related tax treatment is unpredictable due to the timing and amount of future acquisitions and may have an impact on our future GAAP financial results.

Forward Looking Statements

This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations and businesses of the Company.  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 realization of the expected benefits of the IPC transaction, the Company's future business prospects, revenue, working capital, professional liability expense, liquidity, capital needs, interest costs and income, wherever they occur in this press release 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 date they are made. The Company disclaims any intent or obligation to update "forward looking statements" made in this press release 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 Earnings per Share ("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" in the release.  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" in the release.  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, contained in the release.

Adjusted EBITDA

We present Adjusted EBITDA as a supplemental measure of our performance.  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.  We believe that the presentation of Adjusted EBITDA is appropriate to provide additional information to investors about the calculation of, and compliance with, our debt agreements. Adjusted EBITDA is a material component of these covenants.

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.

Adjusted Earnings Per Share

We present Adjusted earnings per share attributable to Team Health Holdings, Inc. ("Adjusted EPS") as a supplemental measure of our performance.  We present Adjusted EPS because we believe that it assists investors in understanding the impact of acquisition-related and other 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.  In presenting Adjusted EPS, we attempt to calculate the after-tax impact of such acquisition-related and other costs using our estimated effective tax rate applied to the deductible portion of such costs with no tax adjustment applied to any non-deductible cost elements.   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.

Financial Supplement and Conference Call Date & Time

The information in this press release should be read in conjunction with a financial supplement that is available on our website at www.teamhealth.com. TeamHealth will hold a conference call tomorrow, August 3, 2016 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 two hours 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 13640687. The replay will be available until August 10, 2016.

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 

At TeamHealth (NYSE: TMH), our purpose is to perfect our physicians' ability to practice medicine, every day, in everything we do. Through our more than 19,000 affiliated physicians and advanced practice clinicians, TeamHealth offers outsourced emergency medicine, hospital medicine, critical care, anesthesiology, orthopedic hospitalist, acute care surgery, obstetrics and gynecology hospitalist, ambulatory care, post-acute care and medical call center solutions to approximately 3,400 acute and post-acute facilities and physician groups nationwide. Our philosophy is as simple as our goal is singular: we believe better experiences for physicians lead to better outcomes-for patients, hospital partners and physicians alike. Join our team; we value and empower clinicians. Partner with us; we deliver on our promises. Learn more at http://www.teamhealth.com.

The term "TeamHealth" as used throughout this release includes Team Health Holdings, Inc., its subsidiaries, affiliates, affiliated medical groups and providers, all of which are part of the TeamHealth organization. "Providers" are physicians, advanced practice clinicians and other healthcare providers who are employed by or contract with subsidiaries or affiliated entities of Team Health Holdings, Inc. All such providers exercise independent clinical judgment when providing patient care. Team Health Holdings, Inc. does not have any employees, does not contract with providers and does not practice medicine.

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SOURCE Team Health Holdings, Inc.

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