Team Health Holdings Inc. Announces Third Quarter 2012 Financial Results

Oct 31, 2012, 16:01 ET from Team Health Holdings Inc.

KNOXVILLE, Tenn., Oct. 31, 2012 /PRNewswire/ --

  • Net revenue increased 21.6% to $539.2 million over the prior year third quarter
  • Net earnings were $20.5 million; $30.4 million after adjustments
  • Diluted net earnings per share of $0.30; Adjusted EPS of $0.44
  • Adjusted EBITDA increased 20.1% to $58.5 million
  • Projected growth in net revenue for full year 2012 revised to an expected range of 17.0% to 18.0% from the prior 16.0% to 17.0% guidance

Team Health Holdings Inc. ("TeamHealth") (NYSE: TMH), one of the largest providers of outsourced physician staffing solutions for hospitals in the United States, today announced results for its third quarter of 2012.

"We are pleased with our third quarter results, as we delivered growth in revenue, Adjusted EBITDA, and Adjusted EPS. These results represent the strongest revenue growth we have delivered as a public company and showcase our balanced and broad based approach to meeting our revenue growth goals," said TeamHealth President and Chief Executive Officer, Greg Roth.

"Over the quarter, all of our growth drivers delivered contributions to revenue, which include same contract, acquisitions and net contract growth. Acquisition growth was the largest component of consolidated revenue growth as the recent acquisitions that closed in the second half of 2011 and through the third quarter of 2012 continue to support revenue and earnings growth. Net new contract growth continued to perform well as we benefited from the new hospital relationships added through our sales and marketing process.  Finally, same contract revenue contributed steady growth, driven by increases in volume and increases in estimated collections per visit. Moving into the final quarter 2012, we remain confident about our prospects with a strong acquisition pipeline, opportunities for additional new contract wins and continued same contract revenue growth.

"As a result of our financial performance through the first nine months of 2012, including the contribution from our recent acquisitions, and our current expectations about operating trends and growth opportunities for the fourth quarter of 2012, we have increased our estimates for net revenue growth for fiscal year 2012 to range between $2.04 billion and $2.06 billion, reflecting a growth rate of between 17.0% and 18.0%, which is an increase from the prior guidance of 16.0% to 17.0% annual growth rate in net revenue.   Historically, our fiscal fourth quarter typically is a period of reduced operating margins due to a combination of softer volume and increases in seasonal costs.  Due to this seasonal trend as well as the potential for disruptions in hospital operations, patient visits, and surgical cases in areas impacted by Hurricane Sandy, we are projecting Adjusted EBITDA margin for the full year of 2012 to range around 10.4%. 

"In addition, on October 11, 2012, we announced plans to seek a refinancing of certain components of our outstanding debt, which will extend our debt maturities and provide us with increased financial capacity and a solid capital structure to support our plans for future growth," concluded Mr. Roth.

Lynn Massingale, M.D., Executive Chairman of TeamHealth, added, "In today's dynamic healthcare environment, TeamHealth remains a premier partner for strong physician groups and hospitals.  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.  We remain fully committed to providing our affiliated clinicians the support required to deliver exceptional patient care while generating long-term shareholder value."

2012 Third Quarter Results

Net revenue increased 21.6% to $539.2 million from $443.6 million in the third quarter of 2011. Acquisitions contributed 14.3%, new contracts net of terminations contributed 4.4%, and same contracts contributed 2.9% of the increase in quarter-over-quarter growth in net revenue.

Same contract revenue increased $12.9 million, or 3.1%, to $423.4 million from $410.4 million in the third quarter of 2011.  Same contract fee-for-service volume growth of 2.5% provided a 1.9% increase in same contract revenue growth while increases in estimated collections on fee-for-service visits of 2.5% provided a 1.8% increase in same contract revenue growth between quarters.  Contract and other revenue decreased same contract revenue growth between quarters by 0.6% due primarily to conversions to fee-for-service billing arrangements and reductions in contract revenue support as a result of increases in fee-for-service revenue within the emergency medicine division and contract revenue reductions in the military and locums divisions.  Acquisitions contributed $63.3 million of revenue growth and net new contract revenue increased by $19.4 million between quarters.

Reported net earnings were $20.5 million, or $0.30 diluted net earnings per share, compared to net earnings of $15.3 million, or $0.23 diluted net earnings per share, in the third quarter of 2011.  The financial results for the third quarter of 2012 included $7.6 million ($4.8 million after-tax) of contingent purchase compensation expense 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.  Financial results for the third quarter of 2011 included $2.7 million of contingent purchase compensation expense ($1.7 million after-tax), non-cash amortization expense of $4.4 million ($2.8 million after-tax) and a $5.3 million increase in prior year professional liability loss reserves ($3.2 million after tax).  Excluding these items, net earnings for the third quarter of 2011 would have been $22.9 million and Adjusted EPS would have been $0.34 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.

Third quarter 2012 net earnings were impacted by transaction costs of $1.3 million compared to $1.5 million in 2011. Third quarter 2012 net earnings also reflected a realized gain of $2.5 million as a component of other income primarily associated with the sale of investments at the Company's insurance subsidiary during the quarter.

Cash flow used in operations for the quarter was $7.1 million compared to cash provided from operations of $31.0 million in the same quarter in 2011.  Included in operating cash flows were contingent purchase payments of $15.9 million in 2012 and $4.8 million in 2011. 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. The loss portfolio transfer premiums were funded by the sale of existing insurance investments during the quarter. Excluding the impact of contingent purchase and loss portfolio transfer premium payments, operating cash flows would have been $46.1 million in 2012 and $35.8 million in 2011.  The $10.3 million increase in operating cash flow (excluding the impact of contingent purchase and loss portfolio transfer premium payments) between quarters was principally the result of increased net earnings. 

Adjusted EBITDA increased 20.1% to $58.5 million from $48.7 million in the third quarter of 2011, and Adjusted EBITDA margin was 10.8% compared to 11.0% for the same quarter in 2011. 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.

As of September 30, 2012, the Company had cash and cash equivalents of approximately $7.1 million and $102.0 million of available borrowings under a revolving credit facility (without giving effect to $6.0 million of undrawn letters of credit). The Company's total outstanding debt was $510.5 million, including $123.0 million outstanding under its revolving credit facility.  The decrease in total debt in the third quarter of 2012 was $7.9 million, which reflected a $5.4 million decrease of outstanding revolver borrowings and $2.5 million of term debt payments.

On October 11, 2012, the Company announced that it plans to amend and extend its existing credit facility. If approved, the proposed amendment would increase the Company's existing Term A Loan Facility and extend its maturity until 2017 as well as extend the maturity of the Revolving Credit Facility to 2017. The use of proceeds from the increased Term A Loan will be used to repay outstanding borrowings under the Revolving Credit Facility and other general corporate purposes.  The Company expects to pay an interest rate consistent with current market conditions on the Term A Loan Facility and Revolving Credit Facility. The Company will also pay a market based fee to new lenders and existing lenders that agree to extend and amend their term loans and revolving credit commitments.  The existing $250 million Term B Loan Facility is not subject to the proposed amendment and will remain in place with current terms and conditions. The amended credit facility is expected to close on or around November 1, 2012.

2012 First Nine Months Results

Net revenue in the nine months ended September 30, 2012 increased 18.8% to $1.52 billion from $1.28 billion for the same period of 2011.  Acquisitions contributed 11.0% of the growth, and new contracts, net of terminations, contributed 4.3% of the growth.  Same contract revenue contributed 3.5% of the growth in net revenue.  Same contract revenue for the nine months ended September 30, 2012 increased $44.7 million, or 4.0%, to $1.17 billion from $1.13 billion in the same period a year ago.  Fee-for-service volume growth provided a 2.0% increase in same contract revenue growth as the number of visits increased 2.5% from the same contract volume reported in the nine months ended September 30, 2011. Increases in estimated collections on fee-for-service visits of 2.8% provided a 2.0% increase in same contract revenue growth between periods.  Contract and other revenue was unchanged between periods. Acquisitions contributed $140.6 million of growth between periods.  Net new contract revenue increased by $55.6 million.

Reported net earnings were $49.0 million in the nine months ended September 30, 2012, or $0.72 diluted net earnings per share, compared to net earnings of $52.2 million, or $0.79 diluted net earnings per share, in the same period of 2011.  The 2012 first nine months financial results included $26.1 million ($16.2 million after-tax) of contingent purchase compensation expense and non-cash amortization expense of $21.5 million ($13.6 million after-tax).  In addition, the financial results for the 2012 first nine months included an increase in prior year professional liability loss reserves of $5.2 million ($3.1 million after-tax).  Excluding these items, net earnings for the 2012 first nine months would have been $81.9 million and Adjusted EPS would have been $1.21 per share.  Financial results for the same period in 2011 included $7.8 million of contingent purchase compensation expense ($4.7 million after-tax), non-cash amortization expense of $11.6 million ($7.4 million after-tax), a loss on the refinancing of debt of $6.0 million ($3.7 million after-tax) and an increase in prior year professional liability loss reserves of $5.3 million ($3.2 million after-tax).  Excluding these adjustments, net earnings for the same period in 2011 would have been $71.2 million and Adjusted EPS would have been $1.07 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, 2012 was $23.6 million compared to $55.1 million in 2011.  Included in operating cash flows were contingent purchase payments of $17.9 million in 2012 and $12.0 million in 2011. 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 contingent purchase and the loss transfer payments, operating cash flows in 2012 would have been $78.8 million compared to $67.2 million in 2011, reflecting an increase of $11.6 million.

Adjusted EBITDA for the nine months ended September 30, 2012 increased to $164.2 million from $144.7 million for the same nine months of 2011, and Adjusted EBITDA margin was 10.8% compared to 11.3% for the same period in 2011. See "Non-GAAP Financial Measures Reconciliation" and "Adjusted EBITDA" below for the definitions of Adjusted EBITDA Margin and Adjusted EBITDA and its reconciliation to net earnings.

Conference Call

As previously announced, TeamHealth will hold a conference call tomorrow, November 1, to discuss its 2012 fiscal third quarter results at 8:30 a.m. (Eastern Time).  The conference call can be accessed live over the phone by dialing 1-877-941-8416, or for international callers, 1-480-629-9808. 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 4570059. The replay will be available until November 8, 2012.

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 17 regional locations and multiple service lines, TeamHealth's approximately 8,500 affiliated healthcare professionals provide emergency medicine, hospital medicine, anesthesia, urgent care, and pediatric staffing and management services to approximately 800 civilian and military hospitals, clinics, and physician groups in 47 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 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 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 excluding non-cash and other adjustments, including the impact of contingent purchase 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, 2011

September 30, 2012

(Unaudited)

(In thousands)

ASSETS

Current assets:

Cash and cash equivalents

$

9,855

$

7,071

Accounts receivable, less allowance for uncollectibles of $265,293 and $342,833 in 2011 and 2012, respectively

307,874

370,299

Prepaid expenses and other current assets

24,021

33,399

Receivables under insured programs

14,129

27,177

Income tax receivable

1,438

Total current assets

357,317

437,946

Investments of insurance subsidiary

94,300

66,325

Property and equipment, net

34,674

46,449

Other intangibles, net

101,910

134,294

Goodwill

232,215

322,742

Deferred income taxes

36,188

42,829

Receivables under insured programs

31,581

54,024

Other

40,082

43,799

$

928,267

$

1,148,408

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

22,356

$

20,987

Accrued compensation and physician payable

153,674

163,502

Other accrued liabilities

109,649

102,224

Income tax payable

3,281

Current maturities of long-term debt

35,000

133,938

Deferred income taxes

38,068

47,938

Total current liabilities

358,747

471,870

Long-term debt, less current maturities

385,000

376,562

Other non-current liabilities

167,120

208,786

Shareholders' equity:

Common stock, ($0.01 par value; 100,000 shares authorized, 65,589 and 67,145 shares issued and outstanding at December 31, 2011 and September 30, 2012, respectively)

656

671

Additional paid-in capital

541,216

567,414

Accumulated deficit

(527,774)

(478,779)

Accumulated other comprehensive income

3,302

1,884

Shareholders' equity

17,400

91,190

$

928,267

$

1,148,408

 

Team Health Holdings, Inc.

Consolidated Statements of Comprehensive Earnings

Three Months Ended September 30,

2011

2012

(Unaudited)

(In thousands, except per share data)

Net revenue before provision for uncollectibles

$

811,927

$

984,843

Provision for uncollectibles

368,364

445,621

Net revenue

443,563

539,222

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

Professional service expenses

345,037

418,243

Professional liability costs

19,635

18,074

General and administrative expenses (includes contingent purchase compensation expense of $2,730 and $7,558 in 2011 and 2012, respectively)

40,210

55,170

Other expense (income)

1,878

(3,303)

Depreciation

2,850

3,962

Amortization

4,363

8,058

Interest expense, net

3,410

4,151

Transaction costs

1,458

1,287

Earnings before income taxes

24,722

33,580

Provision for income taxes

9,472

13,127

Net earnings

$

15,250

$

20,453

Net earnings per share

Basic

0.23

0.31

Diluted

0.23

0.30

Weighted average shares outstanding

Basic

65,302

66,712

Diluted

66,791

68,746

Other comprehensive income, net of tax:

Net change in fair value of investments, net of tax of $510 and $(781) for 2011 and 2012, respectively

949

(1,452)

Total comprehensive earnings

$

16,199

$

19,001

 

Team Health Holdings, Inc.

Consolidated Statements of Comprehensive Earnings

Nine Months Ended September 30,

2011

2012

(Unaudited)

(In thousands, except per share data)

Net revenue before provision for uncollectibles

$

2,295,043

$

2,755,486

Provision for uncollectibles

1,011,750

1,231,303

Net revenue

1,283,293

1,524,183

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

Professional service expenses

985,770

1,182,648

Professional liability costs

49,518

57,042

General and administrative expenses (includes contingent purchase compensation expense of $7,800 and $26,143 in 2011 and 2012, respectively)

121,871

160,034

Other expense (income)

1,218

(4,476)

Depreciation

9,164

10,611

Amortization

11,639

21,507

Interest expense, net

9,200

11,682

Transaction costs

2,653

3,792

Loss on refinancing of debt

6,022

Earnings before income taxes

86,238

81,343

Provision for income taxes

34,018

32,350

Net earnings

$

52,220

$

48,993

Net earnings per share

Basic

0.80

0.74

Diluted

0.79

0.72

Weighted average shares outstanding

Basic

64,912

66,037

Diluted

66,404

67,943

Other comprehensive income, net of tax:

Net change in fair value of investments, net of tax of $823 and $(763) for 2011 and 2012, respectively

1,529

(1,418)

Net change in fair value of swaps, net of tax of $359 for 2011

562

Total comprehensive earnings

$

54,311

$

47,575

 

Team Health Holdings, Inc.

Consolidated Statements of Cash Flows

Three Months Ended September 30,

2011

2012

(Unaudited)

(In thousands)

Operating Activities

Net earnings

$

15,250

$

20,453

Adjustments to reconcile net earnings:

Depreciation

2,850

3,962

Amortization

4,363

8,058

Amortization of deferred financing costs

211

197

Employee equity-based compensation expense

1,318

1,961

Provision for uncollectibles

368,364

445,621

Deferred income taxes

1,697

3,805

Loss on sale or disposal of equipment

212

1

Equity in joint venture income

(711)

(794)

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable

(380,730)

(463,243)

Prepaids and other assets

3,258

425

Income tax accounts

(1,730)

319

Accounts payable

8,586

(210)

Accrued compensation and physician payable

3,440

12,103

Other accrued liabilities

1,402

(10,056)

Contingent purchase liabilities

(2,093)

(7,817)

Professional liability reserves

5,264

(21,874)

Net cash provided by (used in) operating activities

30,951

(7,089)

Investing Activities

Purchases of property and equipment

(1,958)

(6,100)

Cash paid for acquisitions, net

(125,503)

(27,657)

Purchases of investments by insurance subsidiary

(21,324)

(94,027)

Proceeds from investments by insurance subsidiary

18,993

122,145

Net cash used in investing activities

(129,792)

(5,639)

Financing Activities

Payments on notes payable

(2,500)

(2,500)

Proceeds from revolving credit facility

114,500

222,300

Payments on revolving credit facility

(55,000)

(227,700)

Payments of financing costs

(24)

Proceeds from exercise of stock options

1,975

13,769

 Tax benefit from exercise of stock options

807

Stock issuance costs

(453)

Net cash provided by financing activities

58,951

6,223

Net decrease in cash

(39,890)

(6,505)

Cash and cash equivalents, beginning of period

48,904

13,576

Cash and cash equivalents, end of period

$

9,014

$

7,071

Interest paid

$

3,631

$

4,788

Taxes paid

$

9,548

$

8,902

 

Team Health Holdings, Inc.

Consolidated Statements of Cash Flows

Nine Months Ended September 30,

2011

2012

(Unaudited)

(In thousands)

Operating Activities

Net earnings

$

52,220

$

48,993

Adjustments to reconcile net earnings:

Depreciation

9,164

10,611

Amortization

11,639

21,507

Amortization of deferred financing costs

1,114

596

Employee equity-based compensation expense

2,706

4,822

Provision for uncollectibles

1,011,750

1,231,303

Deferred income taxes

7,876

3,992

Loss on refinancing of debt

1,654

Loss (gain) on sale of equipment

252

(61)

Equity in joint venture income

(2,231)

(2,201)

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable

(1,055,228)

(1,278,193)

Prepaids and other assets

(401)

(5,951)

Income tax accounts

(64)

(2,161)

Accounts payable

(3,328)

(3,275)

Accrued compensation and physician payable

8,920

8,853

Contingent purchase compensation expense liability

3,873

8,773

Other accrued liabilities

(4,214)

(15,114)

Professional liability reserves

9,442

(8,890)

Net cash provided by operating activities

55,144

23,604

Investing Activities

Purchases of property and equipment

(6,052)

(15,695)

Sale of property and equipment

90

171

Cash paid for acquisitions, net

(125,828)

(146,529)

Purchases of investments by insurance subsidiary

(61,718)

(138,913)

Proceeds from investments by insurance subsidiary

59,308

164,707

Other investing activities

(2,000)

Net cash used in investing activities

(134,200)

(138,259)

Financing Activities

Payments on notes payable

(406,250)

(7,500)

Proceeds from notes payable

400,000

Proceeds from revolving credit facility

114,500

683,600

Payments on revolving credit facility

(55,000)

(585,600)

Proceeds from the issuance of common stock under stock purchase plans

872

1,054

Proceeds from exercise of stock options

11,885

20,635

Tax benefit from exercise of stock options

807

Stock issuance costs

(491)

(1,106)

Payments of financing costs

(7,783)

(19)

Net cash provided by financing activities

57,733

111,871

Decrease in cash and cash equivalents

(21,323)

(2,784)

Cash and cash equivalents, beginning of period

30,337

9,855

Cash and cash equivalents, end of period

$

9,014

$

7,071

Interest paid

$

10,634

$

12,842

Taxes paid

$

25,910

$

30,552

 

Team Health Holdings, Inc.

Adjusted EBITDA

We present Adjusted EBITDA as a supplemental measure of our performance. We define Adjusted EBITDA as net earnings 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 amortizations 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 income, 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 to Adjusted EBITDA.

 

Three Months Ended September 30,

Nine Months Ended September 30,

2011

2012

2011

2012

(in thousands)

Net earnings

$

15,250

$

20,453

$

52,220

$

48,993

Interest expense, net

3,410

4,151

9,200

11,682

Provision for income taxes

9,472

13,127

34,018

32,350

Depreciation

2,850

3,962

9,164

10,611

Amortization

4,363

8,058

11,639

21,507

Other expense (income)(a)

1,878

(3,303)

1,218

(4,476)

Contingent purchase compensation expense(b)

2,730

7,558

7,800

26,143

Loss on refinancing of debt(c)

6,022

Transaction costs(d)

1,458

1,287

2,653

3,792

Employee equity-based compensation expense(e)

1,318

1,961

2,706

4,822

Insurance subsidiary interest income

588

429

1,753

1,541

Professional liability loss reserve adjustments associated with prior years

5,345

5,345

5,165

Severance and other charges

2

768

930

2,062

Adjusted EBITDA

$

48,664

$

58,451

$

144,668

$

164,192

(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 contingent purchase compensation expense associated with earnout arrangements on acquisition transactions.

(c) Reflects the write-off of deferred financing costs of $1,654 from the previous term loan, as well as certain fees and expenses associated with the debt refinancing.

(d) Reflects expenses associated with acquisition transaction fees.

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

 

Team Health Holdings, Inc.

Adjusted Earnings Per Share

(in thousands, except per share data)

We present Adjusted earnings per share ("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 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 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 income, 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 September 30,

2011

2012

Diluted weighted average shares outstanding

66,791

68,746

Net earnings and diluted net earnings per share, as reported

$

15,250

$

0.23

$

20,453

$

0.30

Adjustments:

Professional liability loss reserve adjustments associated with prior years, net of tax of $(2,101) for 2011

3,244

0.05

Contingent purchase compensation expense, net of tax of $(1,073) and $(2,765) for 2011 and 2012, respectively

1,657

0.02

4,793

0.07

Amortization expense, net of tax of $(1,580) and $(2,916) for 2011 and 2012, respectively

2,783

0.04

5,142

0.07

Net earnings and diluted earnings per share, as adjusted

$

22,934

$

0.34

$

30,388

$

0.44

 

Nine Months Ended September 30,

2011

2012

Diluted weighted average shares outstanding

66,404

67,943

Net earnings and diluted net earnings per share, as reported

$

52,220

0.79

$

48,993

0.72

Adjustments:

Professional liability loss reserve adjustments associated with prior years, net of tax of $(2,101)  and $(2,051) for 2011 and 2012, respectively

3,244

0.05

3,114

0.05

Loss on refinancing of debt, net of tax of $(2,367) for 2011

3,655

0.06

Contingent purchase compensation expense, net of tax of $(3,066) and $(9,960) for 2011 and 2012, respectively

4,734

0.07

16,183

0.24

Amortization expense, net of tax of $(4,283) and $(7,898) for 2011 and 2012, respectively

7,356

0.11

13,609

0.20

Net earnings and diluted earnings per share, as adjusted

$

71,209

$

1.07

$

81,899

$

1.21

 

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 September 30,

2011

2012

(in thousands)

Same contracts:

Fee-for-service revenue

$

302,444

$

317,744

Contract and other revenue

107,991

105,613

Total same contracts

410,435

423,357

New contracts, net of terminations:

Fee-for-service revenue

18,984

20,188

Contract and other revenue

10,817

29,009

Total new contracts, net of terminations

29,801

49,197

Acquired contracts:

Fee-for-service revenue

2,643

48,293

Contract and other revenue

684

18,375

Total acquired contracts

3,327

66,668

Consolidated:

Fee-for-service revenue

324,071

386,225

Contract and other revenue

119,492

152,997

Total net revenue

$

443,563

$

539,222

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

Three Months Ended September 30,

2011

2012

(in thousands)

Fee-for-service visits and procedures:

Same contract

2,142

2,196

New and acquired contracts, net of terminations

176

425

Total fee-for-service visits and procedures

$

2,318

$

2,621

 

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:

Nine Months Ended September 30,

2011

2012

(in thousands)

Same contracts:

Fee-for-service revenue

$

835,298

$

880,018

Contract and other revenue

291,271

291,235

Total same contracts

1,126,569

1,171,253

New contracts, net of terminations:

Fee-for-service revenue

91,760

111,904

Contract and other revenue

58,434

93,894

Total new contracts, net of terminations

150,194

205,798

Acquired contracts:

Fee-for-service revenue

5,846

115,529

Contract and other revenue

684

31,603

Total acquired contracts

6,530

147,132

Consolidated:

Fee-for-service revenue

932,904

1,107,451

Contract and other revenue

350,389

416,732

Total net revenue

$

1,283,293

$

1,524,183

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

Nine Months Ended September 30,

2011

2012

(in thousands)

Fee-for-service visits and procedures:

Same contract

$

5,933

$

6,083

New and acquired contracts, net of terminations

826

1,578

Total fee-for-service visits and procedures

$

6,759

$

7,661

 

SOURCE Team Health Holdings Inc.



RELATED LINKS

http://www.teamhealth.com