Team Health Holdings Inc. Announces Second Quarter 2013 Financial Results

KNOXVILLE, Tenn., July 30, 2013 /PRNewswire/ --

2013 Second Quarter Highlights

• Net revenue increased 14.5% to $579.7 million over the prior year second quarter
• Net earnings attributable to Team Health Holdings Inc. ("Net earnings") were $18.4 million; $31.3 million after adjustments
• Diluted net earnings per share of $0.26; Adjusted EPS of $0.44
• Adjusted EBITDA increased 11.0% to $61.1 million
• Reiterate 2013 net revenue growth guidance of 13.0% to 14.0%, with an opportunity to achieve an additional $10.0 million to $15.0 million of revenue from Medicaid parity

Team Health Holdings Inc. ("TeamHealth" or the "Company") (NYSE: TMH), one of the largest providers of outsourced physician staffing solutions for hospitals in the United States, today announced results for its second quarter of 2013.

"We delivered solid financial results, with double digit growth in net revenue, Adjusted EBITDA, Adjusted EPS and operating cash flow, despite operating in an extremely challenging utilization environment," said TeamHealth Chief Executive Officer, Greg Roth.

"Similar to many other healthcare providers, we saw softer volume trends continue into the second quarter that constrained same contract revenue growth and operating margins.  Despite this challenging headwind, all three of our primary growth drivers contributed to net revenue growth of almost 15%, led by acquisition revenue growth of 9.2%, followed by net new contract revenue growth of 3.6%, and same contract revenue, which contributed 1.7% of the increase in net revenue.  The growth in same contract revenue was a result of increases in estimated collections offsetting a volume decline of 2.5% between quarters.  

"Although volumes have been weaker than originally anticipated during 2013, we are focused on aspects of the business within our control and are confident in our ability to continue to drive revenue and earnings growth for the remainder of the year.  We are implementing our acquisition strategy, executing on net new contract sales, driving improvements in same contract pricing, and continuing to deliver strong operating cash flows.  Specifically, our M&A pipeline is robust, as evidenced by the four transactions in July.  In addition, we have been vigilant in managing our cost structure, which resulted in an improvement in SG&A margin this quarter.

"We continue to project full year 2013 annual net revenue growth of between 13% and 14%. While we expect to drive double digit revenue growth in 2013, if we continue to experience challenging volume trends, we believe we could see pressure on operating margins that could cause our 2013 Adjusted EBITDA margin to modestly trail our 10.5% target.  Our current 2013 revenue and margin projections include no benefit from the Medicaid Parity program.  Based upon our current assessment of Medicaid Parity, our 2013 projections should be enhanced as we anticipate additional revenues that could range between $10 million and $15 million in the second half of 2013."

Lynn Massingale, M.D., Executive Chairman of TeamHealth, added, "We are pleased with our operational performance in the first half of 2013 and our ability to adapt to changing market conditions, given the volume constrained environment in the second quarter.  Our results showcase the benefits TeamHealth delivers to hospitals and physicians, regardless of the macroeconomic backdrop.  Our best in class national infrastructure and physician leadership offer a proven ability to improve clinical operations and patient care.  We will continue to make investments in patient safety, risk management, operational efficiency and customer satisfaction in order to expand our network of high quality affiliated providers, with an end goal of providing the highest levels of patient care."

2013 Second Quarter Results

Net revenue increased 14.5% to $579.7 million from $506.3 million in the second quarter of 2012. Acquisitions contributed 9.2%, new contracts, net of terminations, contributed 3.6%, and same contracts contributed 1.7% of the increase in quarter-over-quarter growth in net revenue.

Same contract revenue increased $8.9 million, or 2.0%, to $454.7 million from $445.9 million in the second quarter of 2012.  An increase of 6.4% in estimated collections on fee for service visits provided a 4.6% increase in same contract revenue growth between quarters while a 2.5% decrease in same contract volumes constrained growth by 1.9%.  Contract and other revenue constrained same contract revenue growth between quarters by 0.7%.  Acquisitions contributed $46.4 million of revenue growth, and net new contract revenue increased by $18.2 million between quarters.  No revenue has been recognized from the Medicaid parity program in the second quarter of 2013.

Reported net earnings were $18.4 million, or $0.26 diluted net earnings per share, compared to net earnings of $14.1 million, or $0.21 diluted net earnings per share, in the second quarter of 2012.  The financial results for the second quarter of 2013 included $9.9 million ($6.7 million after-tax) of contingent purchase compensation expense and non-cash amortization expense of $9.5 million ($6.3 million after tax).  Excluding these items, net earnings for the second quarter of 2013 would have been $31.3 million and Adjusted EPS would have been $0.44 per share.  Financial results for the second quarter of 2012 included $12.2 million of contingent purchase compensation expense ($7.6 million after-tax) and non-cash amortization expense of $7.3 million ($4.7 million after-tax).  Excluding these items, net earnings for the second quarter of 2012 would have been $26.4 million and Adjusted EPS would have been $0.39 per share.  See "Non-GAAP Financial Measures Reconciliations" and "Adjusted Earnings Per Share" below for the definition of Adjusted EPS and its reconciliation to net earnings and diluted earnings per share attributable to Team Health Holdings, Inc.

Cash flow provided by operations for the quarter increased to $24.6 million from $16.3 million in the second quarter of 2012.  There were no contingent purchase payments made in the second quarter of 2013 and $2.0 million in 2012.  Excluding the second quarter 2012 contingent payment, operating cash flow increased $6.4 million between quarters principally due to an increase in profitability and a decrease in working capital funding requirements. 

Adjusted EBITDA increased 11.0% to $61.1 million from $55.1 million in the second quarter of 2012, and Adjusted EBITDA margin was 10.5% compared to 10.9% for the same quarter in 2012. See "Non-GAAP Financial Measures Reconciliations" and "Adjusted EBITDA" below for the definitions of Adjusted EBITDA Margin and Adjusted EBITDA and its reconciliation to net earnings attributable to Team Health Holdings, Inc.

As of June 30, 2013, the Company had cash and cash equivalents of approximately $93.9 million and $250.0 million of available borrowings under its revolving credit facility (without giving effect to $6.1 million of undrawn letters of credit). The Company's total outstanding debt was $509.7 million as of June 30, 2013.

2013 First Six Months Results

Net revenue in the six months ended June 30, 2013 increased 17.3% to $1.16 billion from $985.0 million for the same period of 2012.  Acquisitions contributed 11.0% of the growth, and new contracts, net of terminations, contributed 4.1% of the growth.  Same contract revenue contributed 2.2% of the growth in net revenue.  Same contract revenue for the six months ended June 30, 2013 increased  $21.7 million, or 2.5%, to $898.9 million from $877.2 million in the same period a year ago.  Increases in estimated collections on fee for service visits of 4.4% provided a 3.3% increase in same contract revenue growth between periods.  Fee for service volume constrained growth in same contract revenue by 0.5% as the number of visits decreased 0.7% from the same contract volume reported in the six months ended June 30, 2012.  Contract and other revenue constrained growth 0.3% between periods. Acquisitions contributed $108.1 million of growth between periods.  Net new contract revenue increased by $40.8 million.

Reported net earnings were $36.5 million in the six months ended June 30, 2013, or $0.52 diluted net earnings per share, compared to net earnings of $28.5 million, or $0.42 diluted net earnings per share, in the same period of 2012.  The 2013 first six months financial results included $20.2 million ($13.2 million after-tax) of contingent purchase compensation expense and non-cash amortization expense of $18.4 million ($12.1 million after-tax).  Excluding these items, net earnings for the 2013 first six months would have been $61.8 million and Adjusted EPS would have been $0.88 per share.  Financial results for the same period in 2012 included $18.6 million of contingent purchase compensation expense ($11.4 million after-tax), non-cash amortization expense of $13.4 million ($8.5 million after-tax), and an increase in prior year professional liability loss reserves of $5.2 million ($3.1 million after-tax).  Excluding these adjustments, net earnings for the same period in 2012 would have been $51.5 million and Adjusted EPS would have been $0.76 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 six months ended June 30, 2013 was $62.3 million compared to $30.7 million in 2012.  There were no contingent purchase payments in 2013 and $2.0 million were included in the 2012 operating cash flows.  Excluding the impact of the 2012 contingent purchase payments, operating cash flows increased $29.7 million between periods.

Adjusted EBITDA increased 14.8% to $121.3 million from $105.7 million in the six months ended June 30, 2012, and Adjusted EBITDA margin was 10.5% compared to 10.7% for the same period in 2012. 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.

Conference Call

As previously announced, TeamHealth will hold a conference call tomorrow, July 31, 2013, to discuss its second quarter 2013 results at 8:30 a.m. (Eastern Time).  The conference call can be accessed live over the phone by dialing 1-877-407-0784, or for international callers, 1-201-689-8560. A replay will be available one hour after the call and can be accessed by dialing 1-877-870-5176, or for international callers, 1-858-384-5517. The passcode for the live call and the replay is 417251. The replay will be available until August 7, 2013.

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 18 regional locations and multiple service lines, TeamHealth's more than 8,900 affiliated healthcare professionals provide emergency medicine, hospital medicine, anesthesia, urgent care, and pediatric staffing and management services to more than 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 the Company about future events and financial performance are hereby identified as "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  Some of these statements can be identified by terms and phrases such as "anticipate," "believe," "intend," "estimate," "expect," "continue," "could," "should," "may," "plan," "project," "predict" and similar expressions.  The Company cautions  that such "forward looking statements," including without limitation, those relating to the Company's future business prospects, revenue, working capital, professional liability expense, liquidity, capital needs, interest costs and income, wherever they occur in this or in other statements attributable to the Company, are necessarily estimates reflecting the judgment of the Company's senior management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the "forward looking statements."  Factors that could cause our actual results to differ materially from those expressed or implied in such forward-looking statements include but are not limited to current or future government regulation of the healthcare industry, exposure to professional liability lawsuits and governmental agency investigations, the adequacy of insurance coverage and insurance reserves, as well as those factors detailed under the caption "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's most recent annual report on Form 10-K and the most recent quarterly report on Form 10-Q filed with the Securities and Exchange Commission.  The Company's "forward looking statements" speak only as of the date hereof and the Company disclaims any intent or obligation to update "forward looking statements" herein to reflect changed assumptions, the occurrence of unanticipated events, or changes to future operating results over time.

Non-GAAP Financial Measures Reconciliations

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

Adjusted EBITDA

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

Adjusted EBITDA is not a measurement of financial performance or liquidity under generally accepted accounting principles. In evaluating our performance as measured by Adjusted EBITDA, management recognizes and considers the limitations of this measure. Adjusted EBITDA does not reflect certain cash expenses that we are obligated to make, and although depreciation and 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 earnings, operating income, cash flows from operating, investing or financing activities, or any other measure calculated in accordance with generally accepted accounting principles.

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

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

(b) Reflects expense recognized for estimated future contingent payments associated with acquisitions.

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

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

Team Health Holdings, Inc.

Adjusted Earnings Per Share

(in thousands, except per share data)

We present Adjusted earnings per share attributable to Team Health Holdings, Inc. ("Adjusted EPS") as a supplemental measure of our performance.  We define Adjusted EPS as diluted earnings per share excluding non-cash and other adjustments, including the impact of contingent purchase 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).

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:

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

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:

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

SOURCE Team Health Holdings Inc.