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

KNOXVILLE, Tenn., May 9, 2016 /PRNewswire/ --

First Quarter 2016 Highlights:

• Net Revenue increased 35.1% to $1.14 billion over first quarter of 2015 ($192.7 million associated with IPC)
• Net earnings attributable to Team Health Holdings, Inc. were $0.7 million; $46.5 million after adjustments
• Diluted net earnings per share of $0.01; Adjusted EPS of $0.62
• Adjusted EBITDA increased 27.4% to $113.8 million ($16.7 million associated with IPC)

2016 Outlook:

• Consistent with prior guidance, projected 2016 net revenue growth of 31.0% to 33.0%; Adjusted EBITDA margin between 10.5% and 11.0%; Excludes any results from BPCI

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 first quarter of 2016.

"We are pleased with our financial results in the first quarter with double digit growth in both net revenue and Adjusted EBITDA and a significant improvement in operating cash flow.  We benefited from solid performance in our core operations in addition to benefiting from the growth associated with the IPC transaction," said TeamHealth President and Chief Executive Officer, Mike Snow.

"First quarter consolidated revenue growth was driven by positive contributions from IPC, same contract performance, acquisitions from the core TeamHealth business, and net new contract sales.  IPC provided the largest contribution to revenue growth during the quarter and its operational integration is progressing well.  We continue to focus on integrating the business to provide for future growth and realizing the synergies as initially targeted. Same contract was the second largest contributor to revenue during the quarter as we experienced an increase in patient volumes late in the quarter from the emergence of a delayed flu season and also benefited from an increase in estimated collections per visit.  In addition, the Company continued to benefit from legacy acquisitions, driven by both traditional acquisitions and hybrid acquisition opportunities while net new contracts provided a modest contribution to revenue growth during the quarter."

"As previously announced, we were pleased to reach an agreement with JANA Partners whereby we added two new Board members in the quarter and will add a third new Board member in January 2017.  We believe this outcome best serves the interests of TeamHealth and all of its shareholders and we are confident that Mr. Crawford, Mr. Ostfeld and Ms. Schlichting, with their diversified expertise and relevant experience, will add valuable perspective to TeamHealth's Board.  We remain committed to delivering the highest quality patient care, supporting our affiliated clinicians and hospital partners, achieving our operational and financial goals for 2016, and maximizing value for our shareholders," concluded Mr. Snow.

2016 First Quarter Results

Net revenue increased 35.1% to $1.14 billion from $840.5 million in the first quarter of 2015.  IPC contributed 22.9%, same contract revenue contributed 5.9%, legacy (non-IPC) acquisitions contributed 5.2%, and net new growth contributed 1.1% of the increase in quarter-over-quarter growth in net revenue.  Within the legacy acquisitions category, new hospital contracting opportunities that were initially developed by our sales and marketing process contributed 1.6% of overall net revenue growth between quarters. 

Same contract revenue increased $50.0 million, or 6.6%, to $804.3 million from $754.3 million in the first quarter of 2015.  A 4.0% increase in same contract volumes contributed 3.1% to same contract growth while an increase in estimated collections on fee for service visits provided a 2.8% increase in same contract revenue growth between quarters. An extra day in the first quarter of 2016 contributed approximately 1.0% of volume growth.  Contract and other revenue contributed 0.7% to same contract revenue growth between quarters.  IPC reported revenue of $192.7 million in the first quarter of 2016 while legacy acquisitions contributed $43.4 million of revenue growth and net new contract revenue increased by $9.0 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 $0.7 million, or $0.01 diluted net earnings per share, compared to net earnings of $28.1 million, or $0.38 diluted net earnings per share, in the first quarter of 2015.  The financial results for the first quarter of 2016 included contingent purchase and other acquisition compensation expense of $9.1 million ($8.7 million after-tax) and non-cash amortization expense of $23.5 million ($16.9 million after-tax).  In addition, during the quarter, 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).  The Company also recognized certain transaction, integration, and reorganization costs in the first quarter in the amount of $21.1 million ($11.5 million after tax).  These expenses include IPC severance and integration costs of $8.5 million, $7.9 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 $4.7 million of severance and lease impairment costs associated with a reorganization of the Company's legacy operations during the quarter.  Excluding these items, net earnings for the first quarter of 2016 would have been $46.5 million and Adjusted EPS would have been $0.62 per share.  Financial results for the first quarter of 2015 included $7.9 million of contingent purchase and other acquisition compensation expense ($6.8 million after-tax) and non-cash amortization expense of $20.3 million ($14.5 million after-tax). Excluding these items, net earnings for the first quarter of 2015 would have been $49.4 million and Adjusted EPS would have been $0.68 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 $29.1 million compared to $2.5 million in the first quarter of 2015.  There were $1.7 million of contingent purchase payments made in the first quarter of 2016 and $3.9 million contingent purchase payments in 2015 that were included in operating cash flow.  Also impacting operating cash flow in 2016 were $8.1 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 $32.5 million to $38.9 million in 2016 compared to $6.4 million in 2015.  The increase in operating cash flows between quarters reflects a reduced level of accounts receivable, accrued compensation and physician payable funding and a net income tax refund, which was offset by an increased level of interest payments.  As of March 31, 2016, net accounts receivable were $755.7 million compared to $730.5 million as of December 31, 2015.  On a consolidated basis (including the impact of the IPC transaction), net days in accounts receivable decreased to 61.4 days at March 31, 2016 compared to 69.6 days at December 31, 2015. Excluding the impact of the IPC transaction, net days in accounts receivable decreased to 61.4 days at March 31, 2016 from 62.7 at December 31, 2015.

Adjusted EBITDA for the quarter increased 27.4% to $113.8 million from $89.3 million in the first quarter of 2015.  During the first quarter of 2016, the Company recognized $16.7 million of Adjusted EBITDA from IPC while the Company's legacy operations generated Adjusted EBITDA of $97.1 million, reflecting growth of 8.7% from first quarter of 2015.  Adjusted EBITDA margin on a consolidated basis was 10.0% in 2016 compared to 10.6% in 2015.  The Adjusted EBITDA margin for IPC was 8.7% while the Company's legacy operations Adjusted EBITDA margin was 10.3% 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 March 31, 2016, the Company had cash and cash equivalents of approximately $23.5 million and total outstanding debt of $2.43 billion (excluding the impact of $51.4 million of deferred financing costs).  The March 31, 2016 outstanding debt balance reflects a reduction of $32.8 million during the first quarter of 2016.  The outstanding debt as of March 31, 2016 consists of borrowings under the Tranche A term loan facility of $570.0 million, Tranche B term loan facility of $1.31 billion, and 7.25% Senior Notes due 2023 of $545.0 million.  As of March 31, 2016 there were no amounts outstanding under the revolving credit facility and the Company had $650.0 million of available borrowings under its revolving credit facilities (without giving effect to $6.4 million of undrawn letters of credit).

 

 

 

 

 

 

 

Forward Looking StatementsThis 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 ReconciliationsIn 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 EBITDAWe 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 ShareWe 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 & TimeThe 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, May 10, 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 13634465. The replay will be available until May 17, 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 TeamHealthAt 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 3,500 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.