Health Management Announces 3rd Quarter 2012 Results

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Health Management Announces 3rdQuarter 2012 Results

Diluted EPS from continuing operations increased 5.9% to $0.18, excluding impact of interest rate swap accounting, mark-to-market adjustments and HCIT payments, net of Medicaid rate adjustments.Overall diluted EPS from continuing operations of $0.17

NAPLES, Fla.--(BUSINESS WIRE)-- Health Management Associates, Inc. (NYSE: HMA) today announced its consolidated financial results for the third quarter and nine months ended September 30, 2012.


Key metrics from continuing operations for the third quarter (all percentage changes compare the third quarter of 2012 to the third quarter of 2011) include:

  • As shown in the tables accompanying this press release, excluding the impact of approximately $23.9 million, or $0.06 per diluted share, of interest rate swap accounting as well as a mark-to-market adjustments on the swap due to interest rate conditions, and excluding approximately $20.3 million, or $0.05 per diluted share, of Medicare and Medicaid Healthcare Information Technology ("HCIT") incentive payments, net of Medicaid rate adjustments, diluted earnings per share from continuing operations increased 5.9% to $0.18 as compared to $0.17 per diluted share for the same quarter a year ago;
  • Net revenue increased 18.1% to $1.440 billion;
  • Adjusted EBITDA increased 26.9% to $236.4 million;
  • Admissions increased 4.0% while adjusted admissions increased 10.4%;
  • Same hospital net revenue increased 4.5% to $1.274 billion;
  • Same hospital net revenue per adjusted admission increased 6.9%;
  • Same hospital Adjusted EBITDA increased 14.2% to $259.6 million, resulting in a 180 basis point improvement in margin to 20.4%. Excluding HCIT incentive payments of approximately $24.2 million and $1.7 million for the third quarter 2012 and 2011, respectively, same hospital Adjusted EBITDA increased 4.3% to $235.4 million; and
  • Same hospital surgeries and emergency room visits increased 0.8% and 4.2%, respectively.

The tables accompanying this press release include reconciliations of consolidated net income to all presentations of Adjusted EBITDA (which is not a GAAP measure) contained in this press release. Those tables also reconcile earnings per share on a GAAP basis to those amounts presented in this press release and contain disclaimers and other important information regarding how Health Management defines and uses Adjusted EBITDA.

For continuing operations at hospitals operated by Health Management for one year or more, referred to as same hospital operations, net revenue in the third quarter increased $54.4 million, or 4.5%, to $1.274 billion compared to the same quarter in the prior year. Adjusted EBITDA from same hospital operations grew 14.2% to $259.6 million, representing 20.4% of net revenue, as compared to $227.3 million and 18.6%, respectively, for the same quarter a year ago. Same hospital Adjusted EBITDA includes approximately $24.2 million of HCIT incentive payments, which were offset by approximately $3.9 million of Medicaid program payment reductions.

The effects of Hurricane Isaac on Health Management hospitals in Mississippi and Florida coupled with declines in uninsured admissions and increases in observation stays greater than 24-hours contributed to a 6.4% decline in third quarter same hospital admissions while same hospital adjusted admissions declined 2.2%.

"Through the efforts of our more than 45,000 associates and 10,000 physicians, we continued to deliver consistent quality performance and EBITDA growth in the third quarter, despite a very challenging and unpredictable economy," said Gary D. Newsome, Health Management's President and Chief Executive Officer. "We are pleased with these results and continue to see growth in outpatient services. By focusing on our patient-centered approach, managing our costs, and investing our resources where they can generate the most value, we are creating a culture and environment that is attractive to patients, physicians and associates. This culture and track record of solid operating performance is also attracting a significant number of hospitals and hospital systems that are seeking a strategic partner capable of investing the necessary capital to enhance and expand services, and provide the operating expertise to leverage future opportunities."

For the third quarter, Health Management's provision for doubtful accounts was $224.1 million, or 13.5% of net revenue before the provision for doubtful accounts, compared to $178.9 million, or 12.8% of net revenue before the provision of doubtful accounts, for the same quarter a year ago.

Uninsured self-pay patient discounts for the third quarter were $334.7 million, compared to $227.0 million for the same quarter a year ago. Charity/indigent care write-offs were $28.1 million for the third quarter, compared to $24.0 million for the same quarter a year ago.

The sum of uninsured discounts, charity/indigent write-offs and the provision for doubtful accounts, as a percent of the sum of net revenue before the provision for doubtful accounts, uninsured discounts and charity/indigent write-offs (which Health Management refers to as its Uncompensated Patient Care Percentage) was 29.0% for the third quarter, compared to 26.1% for the third quarter a year ago, and 27.2% for the quarter ended June 30, 2012. Health Management believes that its Uncompensated Patient Care Percentage provides key information regarding the aggregate level of patient care for which it does not receive payment.

Cash flow from continuing operating activities for the third quarter was $167.1 million, after cash interest and cash tax payments aggregating $119.8 million. Health Management's cash flows in the third quarter reflect the negative impact of the INTEGRIS Oklahoma receivables, as not all post-acquisition government tie-in notices were received as of September 30, 2012. The Company expects to receive the government tie-in notices during the fourth quarter. Health Management's total leverage ratio was 3.6 and interest coverage ratio was 4.2 at September 30, 2012, both ratios being well within debt covenant requirements.

For the nine months ended September 30, 2012, Health Management reported an 18.9% growth in net revenue to $4.397 billion and a 17.7% increase in Adjusted EBITDA to $709.2 million. Excluding approximately $31.7 million and $1.7 million of HCIT incentive payments for 2012 and 2011 respectively, Adjusted EBITDA increased 12.8% to $677.5 million. As shown in the tables accompanying this press release, excluding the impact of approximately $82.9 million, or $0.20 per diluted share, for interest rate swap accounting as well as mark-to-market adjustments on the swap due to interest rate conditions, and the impact of approximately $18.6 million, or $0.05 per diluted share, of HCIT incentive payments, net of Medicaid rate adjustments, for the nine months ended September 30, 2012, diluted earnings per share from continuing operations increased 6.8% to $0.63 as compared to $0.59 per diluted share for the same nine month period a year ago. Consolidated diluted earnings per share from continuing operations were $0.48 for the nine months ended September 30, 2012.

Health Management hospitals recognized approximately $24.2 million and $31.7 million of HCIT incentive payments in the three and nine months ended September 30, 2012, respectively, and approximately $1.7 million of HCIT incentive payments for both the three and nine month ended September 30, 2011. Health Management expects to recognize approximately $90 to $100 million of HCIT incentive payments during the year ending December 31, 2012.

Health Management is updating its 2012 Adjusted EBITDA objective range for the year ending December 31, 2012 to be between $875 and $915 million. The Company is also updating its diluted EPS from continuing operations objective range for the year ending December 31, 2012 to be between $0.80 and $0.85. This diluted EPS range for 2012 does not include approximately $103 to $107 million, or $0.26 to $0.27 per diluted share, of impact expected from interest rate swap accounting and mark-to-market adjustments nor does it include approximately $90 to $100 million, or $0.23 to $0.25 per diluted share, of anticipated HCIT incentive payments. Health Management is also updating its 2012 annual same hospital admissions objective range. The Company now expects same hospital admissions for 2012 to decline between 3.0% and 5.0%. In addition, the Company is affirming its 2012 annual same hospital adjusted admissions objective range. The Company continues to expect same hospital adjusted admissions growth for 2012 to be between 1.0% and (1.0%).

Health Management's executive team will hold a conference call and webcast to discuss the contents of this press release and Health Management's consolidated financial results for the three and nine months ended September 30, 2012 on Tuesday, October 23, 2012 at 11:00 a.m. EDT. Investors are invited to access the webcast via Health Management's website at www.HMA.com or via www.streetevents.com. Alternatively, investors may join the conference call by dialing 877-476-3476.

Health Management will archive a copy of the audio webcast of the conference call, along with any related information that Health Management may be required to provide pursuant to Securities and Exchange Commission rules, on its website under the heading "Investor Relations" for a period of 60 days following the conference call.

Health Management enables America's best local health care by providing the people, processes, capital and expertise necessary for its hospital and physician partners to fulfill their local missions of delivering superior health care services. Health Management, through its subsidiaries, operates 70 hospitals with approximately 10,500 licensed beds in non-urban communities located throughout the United States.

All references to "Health Management," "HMA" or the "Company" used in this release refer to Health Management Associates, Inc. and its affiliates.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are subject to risks, uncertainties and assumptions and are identified by words such as "expects," "estimates," "projects," "anticipates," "believes," "intends," "plans," "may," "continues," "should," "could" and other similar words. All statements addressing operating performance, events or developments that Health Management Associates, Inc. expects or anticipates will occur in the future, including but not limited to incurrence of indebtedness, projections of revenue, income or loss, capital expenditures, earnings per share, debt structure, the provision for doubtful accounts, capital structure, repayment of indebtedness, the amount and timing of funds under the meaningful use measurement standard of various HCIT incentive programs, other financial items and operating statistics, statements regarding the plans and objectives of management for future operations, innovations, or market service development, statements regarding acquisitions, joint ventures, divestitures and other proposed or contemplated transactions (including but not limited to statements regarding the potential for future acquisitions and perceived benefits of acquisitions), statements of future economic performance, statements regarding legal proceedings and other loss contingencies, statements regarding market risk exposures, statements regarding the effects and/or interpretations of recently enacted or future health care laws and regulations, statements of the assumptions underlying or relating to any of the foregoing statements, and other statements which are other than statements of historical fact, are considered to be "forward-looking statements."

Because they are forward-looking, such statements should be evaluated in light of important risk factors and uncertainties. These risk factors and uncertainties are more fully described in Health Management Associates, Inc.'s most recent Annual Report on Form 10-K, and most recent Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2012, including under the heading entitled "Risk Factors." Should one or more of these risks or uncertainties materialize, or should any of Health Management Associates, Inc.'s underlying assumptions prove incorrect, actual results could vary materially from those currently anticipated. In addition, undue reliance should not be placed on Health Management Associates, Inc.'s forward-looking statements. Except as required by law, Health Management Associates, Inc. disclaims any obligation to update its risk factors or to publicly announce updates to the forward-looking statements contained in this press release to reflect new information, future events or other developments.

HEALTH MANAGEMENT ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands, except per share amounts)
 
Three Months Ended Nine Months Ended
September 30,September 30,
 2012   2011  2012   2011 
 
 
Net revenue before the provision for doubtful accounts$1,664,187$1,398,495$5,037,246$4,220,677
Provision for doubtful accounts (224,078) (178,873) (639,902) (521,729)
 
Net revenue 1,440,109  1,219,622  4,397,344  3,698,948 
 
 
Salaries and benefits637,305549,8571,942,3221,665,093
Supplies216,819179,993677,416560,248
Rent expense41,88238,117130,746110,738
Other operating expenses331,935267,140969,350762,115
Medicare and Medicaid HCIT incentive payments(24,224)(1,749)(31,685)(1,749)
Depreciation and amortization91,61065,605255,716194,434
Interest expense76,81450,018240,743152,088
Other (2,363) (1,450) (1,745) (1,783)
 
 1,369,778  1,147,531  4,182,863  3,441,184 
 
Income from continuing operations before income taxes70,33172,091214,481257,764
Provision for income taxes (20,913) (22,387) (70,931) (89,178)
 
Income from continuing operations49,41849,704143,550168,586
Income (loss) from discontinued operations, net of income taxes (1,389) 255  (5,805) (1,182)
 
Consolidated net income48,02949,959137,745167,404
Net income attributable to noncontrolling interests (6,685) (6,231) (21,757) (19,541)
 
Net income attributable to Health Management Associates, Inc.$41,344 $43,728 $115,988 $147,863 
 
Earnings (loss) per share attributable to Heath Management
Associates, Inc. common stockholders:
Basic and Diluted:
Continuing operations$0.17$0.17$0.48$0.59
Discontinued operations (0.01) -  (0.03) (0.01)
 
Net income$0.16 $0.17 $0.45 $0.58 
 
Weighted average number of shares outstanding:
Basic 254,516  252,157  254,111  251,327 
 
Diluted 256,784  255,124  256,172  254,703 
 
Net income attributable to Health Management Associates, Inc.
Income from continuing operations, net of income taxes$42,733$43,473$121,793$149,045
Income (loss) from discontinued operations, net of income taxes (1,389) 255  (5,805) (1,182)
 
Net income attributable to Health Management Associates, Inc.$41,344 $43,728 $115,988 $147,863 
 
HEALTH MANAGEMENT ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
    
Nine Months Ended September 30,
 2012   2011 
 
Cash flows from operating activities:
Consolidated net income$137,745$167,404
Adjustments to reconcile consolidated net income to net cash
provided by continuing operating activities:
Depreciation and amortization263,960199,428
Amortization related to interest rate swap contract59,937-
Fair value adjustment related to interest rate swap contract22,965-
Provision for doubtful accounts639,902521,729
Stock-based compensation expense19,49219,301
Losses on sales of assets, net2,1141,096
Gains on sales of available-for-sale securities, net(2,350)(706)
Deferred income tax (benefit) expense(20,156)48,375
Changes in assets and liabilities of continuing operations,
net of the effects of acquisitions:
Accounts receivable(719,495)(573,902)
Supplies, prepaid expenses and other current assets(1,962)(12,251)
Prepaid and recoverable income taxes52,641(8)
Deferred charges and other long-term assets(1,839)(1,584)
Accounts payable, accrued expenses and other liabilities83179,806
Equity compensation excess income tax benefits(1,444)(2,919)
Loss from discontinued operations, net of income taxes 5,805  1,182 
 
Net cash provided by continuing operating activities 458,146  446,951 
 
Cash flows from investing activities:
Additions to property, plant and equipment(282,424)(202,819)
Acquisitions of hospitals and other(71,475)(573,439)
Proceeds from sales of assets and insurance recoveries1,9321,792
Proceeds from sales of discontinued operations1,3924,851
Purchases of available-for-sale securities(1,431,548)(1,153,492)
Proceeds from sales of available-for-sale securities1,412,5801,173,348
Increase in restricted funds (18,723) (28,260)
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