NovaMed Reports a 14% Increase in Earnings Per Diluted Share from Continuing Operations for the Third Quarter and Year-to-Date Cash Flow from Operations of $19.2 Million or $0.83 Per Diluted Share
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CHICAGO--(BUSINESS WIRE)-- NovaMed, Inc. (Nasdaq: NOVA), a leading operator of ambulatory surgery centers in partnership with physicians, today announced results for the third quarter ended September 30, 2009. Total net revenue grew to $38,768,000, up 8% from $36,050,000 in the prior year third quarter.
Net income from continuing operations attributable to NovaMed in the third quarter of 2009 increased 4% to $1,862,000 from $1,798,000 in the prior year third quarter. Diluted earnings from continuing operations per common share attributable to NovaMed increased 14% to $0.08 in the third quarter of 2009 from $0.07 in the third quarter of 2008. Net cash provided by operations increased 15% to $7,133,000, or $0.30 per diluted share, in the third quarter of 2009 from $6,196,000, or $0.25 per diluted share, in the prior year third quarter. Interest expense in the third quarter of 2009 included non-cash, imputed interest of $1,075,000, or $0.03 per diluted share, recorded in accordance with NovaMed's adoption of Accounting Standards Codification ("ASC") 470-20 (formerly FASB Staff Position APB 14-1). Third quarter 2008 results have been recast to include imputed interest of $985,000, or $0.02 per diluted share. Same-facility revenue declined 1% in the third quarter of 2009.
"We are pleased with our third quarter results," commented Thomas S. Hall, Chairman, President and Chief Executive Officer of NovaMed, Inc. "Although the economy continues to present us with challenges, we are encouraged by the improvement in same-facility revenue growth over the prior two quarters. Keep in mind that our second quarter is generally our strongest quarter. Our strong cash flow from operations of $7.1 million was 3.8 times net income from continuing operations attributable to NovaMed. With capital expenditures of just over $700,000 in the quarter, our free cash flow was over $6.4 million which continued to allow us to deleverage our balance sheet in the third quarter."
Highlights of third quarter continuing operations include:
-- Earnings per diluted share from continuing operations increased 14% to
$0.08
-- Cash flow from operations increased 15% to $7,133,000
-- Total net revenue increased 8% to $38,768,000
-- EBITDA increased 9% to $7,217,000
-- Diluted shares outstanding decreased 7% to 23,409,000
For the nine months ended September 30, 2009, total net revenue grew to $116,634,000, up 11% from $105,043,000 for the first nine months last year, despite a 2% decline in same-facility net revenue. Net income from continuing operations attributable to NovaMed increased 10% to $5,713,000 in the first nine months of 2009 compared to $5,177,000 in the first nine months of 2008. Diluted earnings from continuing operations per common share attributable to NovaMed increased 19% to $0.25 in the first nine months of 2009 from $0.21 in the first nine months of 2008. Net cash provided by operations increased 13% to $19,225,000, or $0.83 per diluted share, in the first nine months of 2009 from $16,998,000, or $0.68 per diluted share, in the first nine months of 2008. Interest expense in the first nine months of 2009 included non-cash, imputed interest of $3,125,000, or $0.08 per diluted share, recorded in accordance with NovaMed's adoption of ASC 470-20. The results for the first nine months of 2008 have been recast to include imputed interest of $2,861,000, or $0.07 per diluted share.
"As we announced on September 1, 2009, we completed the amendment to our credit agreement which provides us with an $80 million senior secured credit facility with reasonable terms in light of today's credit markets," added Mr. Hall. "At the end of the third quarter we had $44 million borrowed under this credit facility. With $19.2 million in cash flow from operations for the first nine months of 2009 and capital expenditures of $3.3 million, this left us with just over $15.9 million of free cash flow. From an acquisition perspective, we are pursuing several opportunities and we intend to use our free cash flow and credit facility to fund these transactions. However, until we close a deal we will continue to use our free cash flow to pay down debt and deleverage our balance sheet."
Impact of Adoption of ASC 470-20
Effective January 1, 2009, NovaMed adopted ASC 470-20, Debt with Conversion and Other Options. ASC 470-20 impacts the accounting treatment of our 1.0% convertible senior subordinated notes due June 15, 2012. As required by ASC 470-20, prior period results are recast to conform with the new pronouncement. As noted above, the adoption of ASC 470-20 added non-cash, imputed interest expense of $3,125,000 and $2,861,000 to the first nine months of 2009 and 2008, respectively. We estimate that the adoption of ASC 470-20 will add approximately $4.2 million and $3.9 million of imputed interest expense to our 2009 and 2008 results of operations, respectively. This will result in a reduction to net income of approximately $2.6 million ($0.11 per diluted share) and $2.4 million ($0.10 per diluted share) in 2009 and 2008, respectively. However, the adoption of ASC 470-20 will not have an impact on our cash flows.
NovaMed operates, develops and acquires ambulatory surgery centers in partnership with physicians and holds majority ownership interests in 37 surgery centers located in 19 states.
As previously announced, NovaMed will hold a conference call to discuss this release at 10:00 a.m. Eastern Time on Thursday, October 29, 2009. All interested parties can join the call by dialing (866) 202-4367 or (617) 213-8845 for international callers. Please dial in 10 minutes prior to the call to secure a line and use the passcode: NOVAMED Q3 EARNINGS. Investors can also listen to the call over the Internet by visiting www.earnings.com or NovaMed's website at www.novamed.com. For those who cannot listen to the live broadcast, a replay will be available at these sites through November 29, 2009.
NovaMed measures same-facility results using only those facilities that it has owned and operated for the entire current and prior year periods reported. This press release contains forward-looking statements that relate to possible future events. These statements are based on management's current expectations and are subject to risks and uncertainties, which could cause our actual results to differ materially from those expressed or implied in this press release. These risks and uncertainties include: the current economic recession and disruption in the financial markets; our current and future debt levels; our ability to access capital on a cost-effective basis to continue to successfully implement our growth strategy; reduced prices and reimbursement rates for surgical procedures; our ability to acquire, develop or manage a sufficient number of profitable surgical facilities; our ability to maintain successful relationships with the physicians who use our surgical facilities; our ability to grow and manage effectively our increasing number of surgical facilities; competition from other companies in the acquisition, development and operation of surgical facilities; and the application of existing or proposed government regulations, or the adoption of new laws and regulations, that could limit our business operations, require us to incur significant expenditures or limit our ability to relocate our facilities if necessary. Readers are encouraged to review a more complete discussion of the factors affecting NovaMed's business and prospects in its filings with the Securities and Exchange Commission, including the company's 2008 Form 10-K filed on March 16, 2009. Readers should not place undue reliance on any forward-looking statements. Except as required by the federal securities laws, NovaMed undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changing circumstances or any other reason after the date of this press release.
NovaMed, Inc.
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except per share data, ASCs operated and procedures performed)
Three months ended September Nine months ended September
30, 30,
2009 2008 (1) 2009 2008 (1)
Net revenue:
Surgical $ 32,446 $ 29,680 $ 97,361 $ 86,167
facilities
Product sales 6,322 6,370 19,273 18,876
and other
Total net 38,768 36,050 116,634 105,043
revenue
Operating expenses:
Salaries, wages 11,849 10,808 35,707 31,773
and benefits
Cost of sales
and medical 8,919 8,328 26,402 24,510
supplies
Selling,
general and 7,019 6,649 21,189 18,973
administrative
Depreciation
and 1,495 1,080 4,421 3,127
amortization
Total
operating 29,282 26,865 87,719 78,383
expenses
Operating income 9,486 9,185 28,915 26,660
Interest (income) 2,149 2,042 6,414 5,983
expense, net
Other (income) 47 5 49 20
expense, net
Income before 7,290 7,138 22,452 20,657
income taxes
Income tax 1,191 1,150 3,653 3,310
provision
Net income from
continuing 6,099 5,988 18,799 17,347
operations
Net loss from
discontinued - (2 ) - (91 )
operations
Gain on disposal of
discontinued - 248 - 343
operations
Net income $ 6,099 $ 6,234 $ 18,799 $ 17,599
Net income
attributable to 4,237 4,190 13,086 12,170
noncontrolling
interests
Net income
attributable to $ 1,862 $ 2,044 $ 5,713 $ 5,429
NovaMed, Inc.
Amounts
attributable to
NovaMed, Inc.:
Net income from
continuing $ 1,862 $ 1,798 $ 5,713 $ 5,177
operations
Net income from
discontinued - 246 - 252
operations
Net income
attributable to $ 1,862 $ 2,044 $ 5,713 $ 5,429
NovaMed, Inc.
Diluted earnings
per common share
attributable to
NovaMed, Inc.:
Earnings from
continuing $ 0.08 $ 0.07 $ 0.25 $ 0.21
operations
Earnings from
discontinued - $ 0.01 - $ 0.01
operations
Net $ 0.08 $ 0.08 $ 0.25 $ 0.22
earnings
Shares used in
computing diluted 23,409 25,216 23,251 25,157
earnings per share
On January 1, 2009, NovaMed, Inc. adopted ASC 470-20 (formerly FSP APB
(1) 14-1). As required by ASC 470-20, prior period results have been recast to
conform with the new pronouncement.
Three months ended September Nine months ended September
30, 30,
2009 2008 2009 2008
Selected Operating
Data:
ASCs operated at 37 35 37 35
end of period
Procedures
performed during 39,545 36,656 119,100 103,691
the period
Reconciliation of
net income from
continuing
operations
attributable to
NovaMed, Inc. to
EBITDA (1)(2)(3):
Net income from
continuing
operations $ 1,862 $ 1,798 $ 5,713 $ 5,177
attributable to
NovaMed, Inc.
Add: income tax 1,191 1,150 3,653 3,310
provision
Add: interest 2,149 2,042 6,414 5,983
expense, net
Add:
depreciation 1,495 1,080 4,421 3,127
and
amortization
Add: stock
compensation 520 544 1,633 1,689
expense
EBITDA $ 7,217 $ 6,614 $ 21,834 $ 19,286
Reconciliation of
net income from
continuing
operations
attributable to
NovaMed, Inc. to
non-GAAP net income
from continuing
operations
attributable to
NovaMed, Inc. (1)
(2)(4):
Net income from
continuing
operations $ 1,862 $ 1,798 $ 5,713 $ 5,177
attributable to
NovaMed, Inc.
After-tax
imputed
interest 656 601 1,906 1,745
expense
required by ASC
470-20
Non-GAAP net
income from
continuing $ 2,518 $ 2,399 $ 7,619 $ 6,922
operations
attributable to
NovaMed, Inc.
Reconciliation of
diluted earnings
per common share
from continuing
operations
attributable to
NovaMed, Inc. to
non-GAAP diluted
earnings per common
share from
continuing
operations
attributable to
NovaMed, Inc. (1)
(2)(4):
Diluted
earnings per
common share
from continuing $ 0.08 $ 0.07 $ 0.25 $ 0.21
operations
attributable to
NovaMed, Inc.
After-tax
imputed
interest 0.03 0.02 0.08 $ 0.07
expense
required by ASC
470-20
Non-GAAP
diluted
earnings per
common share
from continuing $ 0.11 $ 0.10 $ 0.33 $ 0.28
operations
attributable to
NovaMed, Inc.
(5)
Computation of cash
flow provided by
operating
activities per
diluted share (2):
Cash flow
provided by $ 7,133 $ 6,196 $ 19,225 $ 16,998
operating
activities
Diluted shares 23,409 25,216 23,251 25,157
outstanding
Cash flow
provided by
operating $ 0.30 $ 0.25 $ 0.83 $ 0.68
activities per
diluted share
September 30, December 31,
Balance Sheet Data: 2009 2008 (1)
Cash and cash $ 2,876 $ 4,875
equivalents
Accounts 20,300 20,329
receivable, net
Working 5,667 12,136
capital
Total assets 248,928 251,421
Long-term 107,914 124,566
debt
Total NovaMed, Inc.
stockholders' 89,602 82,476
equity
Noncontrolling 14,495 15,282
interests
Statement of Cash Three months ended September Nine months ended September
Flow Data: 30, 30,
2009 2008 2009 2008
Cash flow provided
by operating $ 7,133 $ 6,196 $ 19,225 $ 16,998
activities
Cash flow used in
investing $ (1,467 ) $ (12,292 ) $ (3,733 ) $ (16,106 )
activities
Cash flow used in
financing $ (5,786 ) $ (3,962 ) $ (17,491 ) $ (2,427 )
activities
Notes:
(1) As required by ASC 470-20, prior period results have been recast to conform
with the new pronouncement.
NovaMed uses certain non-GAAP financial measures which are adjusted from
the most directly comparable GAAP financial measures as shown in the
reconciliations provided in this press release. NovaMed believes that
providing these non-GAAP financial measures, in addition to the GAAP
financial results, is useful to investors for the reasons noted below.
There are limitations in using non-GAAP financial measures because they are
(2) not prepared in accordance with GAAP and may be different from non-GAAP
financial measures used by other companies. In addition, non-GAAP financial
measures may be limited in value because they exclude certain items that
may have a material impact upon NovaMed's reported financial results. The
non-GAAP financial measures supplement, and should be viewed in conjunction
with, GAAP financial measures. Investors should review the reconciliations
of the non-GAAP financial measures to their most directly comparable GAAP
financial measures as provided in this press release.
NovaMed defines EBITDA as earnings before interest, income taxes,
depreciation and amortization, and stock compensation expense. EBITDA is a
non-GAAP financial measure used by management, the health care industry and
(3) the financial community to evaluate company performance, allocate resources
and measure leverage and debt service capacity. Other companies may
calculate EBITDA differently than NovaMed, limiting its usefulness as a
comparative measure.
NovaMed adopted ASC 470-20 effective January 1, 2009. This new accounting
rule resulted in the addition of $656,000 and $601,000 in non-cash,
after-tax interest expense for the three months ending September 30, 2009
and 2008, respectively and $1,906,000 and $1,745,000 in non-cash, after-tax
(4) interest expense for the nine months ending September 30, 2009 and 2008,
respectively. NovaMed is providing this non-GAAP financial measure to
highlight to the long-term readers of its financial statements the cause of
the significant reduction in its earnings from what was reported in prior
years.
(5) Discrepancies between the totals and the sums of the amounts listed are due
to rounding.
Source: NovaMed, Inc.
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