IASIS Healthcare Announces Second Quarter 2013 Results

IASIS Healthcare Announces Second Quarter 2013 Results

FRANKLIN, Tenn.--(BUSINESS WIRE)-- IASIS Healthcare® LLC ("IASIS") today announced financial and operating results for the fiscal second quarter and six months ended March 31, 2013.

Second Quarter Fiscal 2013


Key Financial & Operating Results

Net revenue for the second quarter totaled $654.1 million, an increase of 1.0% compared to $647.6 million in the prior year quarter. Adjusted EBITDA for the second quarter totaled $65.2 million, compared to $88.8 million in the prior year quarter. A comparison of the second quarter results to the prior year quarter is impacted by the following:

  • The net favorable impact of certain prior period Medicare related adjustments, which increased net revenue by $11.1 million and adjusted EBITDA by $7.0 million in the prior year quarter;

  • Continued reimbursement pressures in Texas resulted in Medicaid rate reductions and an additional $6.1 million of changes in other related reimbursement estimates associated with the Company's Houston market in the second quarter that are not expected to recur;

  • Costs and start-up related losses associated with certain long-term strategic investments in the Company's Houston market totaled $2.9 million; and

  • Consistent with previous quarters, Arizona's budget control efforts throughout fiscal 2012 to restrict the eligibility of certain Medicaid enrollees contributed to a $3.1 million decline in adjusted EBITDA at Health Choice.

In the second quarter, admissions decreased 1.3% and adjusted admissions increased 0.8%, each compared to the prior year quarter. The second quarter included strong volume increases in January due, in part, to an earlier peak in flu related cases followed by weaker volume in February and, especially, March due to the impact of the "leap year" effect, holidays and generally weaker volume in those months.

Net patient revenue per adjusted admission in the second quarter decreased 1.0% compared to the prior year quarter. Excluding the impact of the net favorable Medicare related adjustments in the prior year quarter, net patient revenue per adjusted admission in the second quarter increased 1.2% compared to the adjusted prior year quarter.

During the second quarter, Health Choice was awarded a new three-year contract by the Arizona Health Care Cost Containment System ("AHCCCS"), the state agency that administers Arizona's Medicaid program, allowing Health Choice to continue serving Medicaid members in eight Arizona counties effective October 1, 2013. In addition, state officials have proposed Medicaid expansion efforts that, if successful, are anticipated to restore eligibility to enrollees that lost coverage during fiscal 2012 under the Medicaid program in Arizona.

"During the second quarter, we experienced an anticipated increase in expenses due to the timing of strategic investments we've been making to expand service lines and access points, to open our new 48-bed hospital in the Heights community of Houston, to renew Health Choice's contract in Arizona and continue its expansion, and to fund physician integration plans and related start-up costs," said IASIS Healthcare President and Chief Executive Officer, Carl Whitmer. "Additionally, we experienced many of the same industry dynamics as other hospital companies, to which we have reacted by implementing additional cost savings initiatives within our hospitals, physician operations and corporate infrastructure. As a result, this quarter's operating results reflect a convergence of some long-range business investments in what turned out to be a time of softer volumes across the country, especially in March; however, we believe the strategic efforts we have undertaken will bring about growth in new revenues and that the cost initiatives implemented in March and April will generate additional savings as the year plays out."

Year-to-Date Fiscal 2013

Key Financial & Operating Results

Net revenue for the first six months of fiscal 2013 totaled $1.30 billion, an increase of 1.9% compared to $1.27 billion in the prior year period. Adjusted EBITDA for the first six months of fiscal 2013 totaled $134.6 million, compared to $161.0 million in the prior year period. Results for the prior year period also include the same net favorable impact of certain prior period Medicare related adjustments impacting the prior year quarter.

For the first six months of fiscal 2013, admissions decreased 0.8% and adjusted admissions increased 1.9%, each compared to the prior year period. Net patient revenue per adjusted admission for the first six months of fiscal 2013 increased 0.4% compared to the prior year period. Excluding the impact of the net favorable Medicare related adjustments in the prior year period, net patient revenue per adjusted admission for the first six months of fiscal 2013 increased 1.6% compared to the adjusted prior year period.

Cash Flow Analysis

Cash flows provided by operations for the first six months of 2013 equaled $26.9 million, compared to cash flows used in operations of $0.6 million in the prior year period. Cash flows provided by operations in the first six months of 2013 has been negatively affected by the state of Texas' delay in funding reimbursement earned by Texas hospitals under certain supplemental reimbursement programs, including disproportionate share and uncompensated care programs, totaling $60.4 million through the end of the Company's second quarter. Currently, the Company expects to receive a majority of the funding under these supplemental reimbursement programs during the last half of fiscal 2013. Additionally, cash flows provided by operations has been negatively impacted by the expansion of managed Medicaid in Texas, which has resulted in changing payor dynamics and a slow-down in the collection of claims.

A listen-only simulcast and 30-day replay of IASIS' second quarter 2013 conference call will be available by clicking the "For Investors" link on the Company's Web site at www.iasishealthcare.com beginning at 11:00 a.m. Eastern Time on May 8, 2013. A copy of this press release will also be available on the Company's Web site.

IASIS Healthcare, located in Franklin, Tennessee, is a leading provider of high quality, affordable healthcare services in urban and suburban markets. With total annual net revenue of approximately $2.6 billion, IASIS owns and operates 19 acute care hospitals, one behavioral health hospital, several outpatient service facilities, more than 160 physician clinics, and Medicaid and Medicare managed health plans in Arizona and Utah that serve more than 174,000 members. IASIS' healthcare facilities offer a variety of access points for convenient patient care in numerous regions across the U.S., including: Salt Lake City, Utah; Phoenix, Arizona; Tampa-St. Petersburg, Florida; five cities in Texas, including Houston and San Antonio; Las Vegas, Nevada; and West Monroe, Louisiana. For more information on IASIS, please visit the Company's Web site at www.iasishealthcare.com.

Some of the statements we make in this press release are forward-looking within the meaning of the federal securities laws, which are intended to be covered by the safe harbors created thereby.Those forward-looking statements include all statements that are not historical statements of fact and those regarding our intent, belief or expectations including, but not limited to, future financial and operating results, the Company's plans, objectives, expectations and other statements that are not historical facts.Forward-looking statements involve known and unknown risks and uncertainties that may cause actual results in future periods to differ materially from those anticipated in the forward-looking statements.These risk factors and uncertainties are more fully described in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2012, and other filings with the Securities and Exchange Commission.

Although we believe that the assumptions underlying the forward-looking statements contained in this press release are reasonable, any of these assumptions could prove to be inaccurate, and, therefore, there can be no assurance that the forward-looking statements included in this press release will prove to be accurate.In light of the significant uncertainties inherent in the forward-looking statements included herein, you should not regard the inclusion of such information as a representation by the Company or any other person that our objectives and plans will be achieved.We undertake no obligation to publicly release any revisions to any forward-looking statements contained herein to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events.

Adjusted EBITDA represents net earnings from continuing operations before interest expense, income tax expense, depreciation and amortization, stock-based compensation, gain on disposal of assets and management fees.Management fees represent monitoring and advisory fees paid to TPG, the Company's majority financial sponsor, and certain other members of IASIS Investment LLC.Credit agreement adjusted EBITDA reflects adjusted EBITDA as well as certain adjustments to net earnings permitted under the Company's senior credit agreement.Pro forma adjusted EBITDA reflects credit agreement adjusted EBITDA, as well as certain non-recurring and prior period adjustments.Management routinely calculates and communicates adjusted EBITDA and believes that it is useful to investors because it is commonly used as an analytical indicator within the healthcare industry to evaluate hospital performance, allocate resources and measure leverage capacity and debt service ability.In addition, the Company uses adjusted EBITDA as a measure of performance for its business segments and for incentive compensation purposes.Management believes credit agreement adjusted EBITDA and pro forma adjusted EBITDA provide additional detail with respect to the Company's operating performance and ability to service its indebtedness.None of adjusted EBITDA, credit agreement adjusted EBITDA or pro forma adjusted EBITDA should be considered as a measure of financial performance under generally accepted accounting principles, and the items excluded from such EBITDA measures are significant components in understanding and assessing financial performance.None of such EBITDA measures should be considered in isolation or as an alternative to net earnings, cash flows generated by operating, investing, or financing activities or other financial statement data presented in the consolidated financial statements as an indicator of financial performance or liquidity.Such EBITDA measures may not be comparable to similarly titled measures of other companies.A table describing adjusted EBITDA, credit agreement adjusted EBITDA and pro forma adjusted EBITDA and reconciling net earnings from continuing operations to such EBITDA measures is included in this press release in the attached Supplemental Consolidated Statements of Operations Information.

IASIS HEALTHCARE LLC

Consolidated Statements of Operations (Unaudited)

(in thousands)

Quarter Ended

March 31,

Six Months Ended

March 31,

2013

2012

2013

2012

Net revenue

Acute care revenue before provision for bad debts

$

606,301

$

588,641

$

1,203,075

$

1,131,855

Less: Provision for bad debts

(95,625

)

(78,173

)

(190,281

)

(148,452

)

Acute care revenue

510,676

510,468

1,012,794

983,403

Premium revenue

143,401

137,168

282,255

287,906

Net revenue

654,077

647,636

1,295,049

1,271,309

Costs and expenses

Salaries and benefits (includes stock-based compensation of $862, $1,442, $1,999 and $1,942, respectively)

259,452

234,092

505,740

458,056

Supplies

91,085

86,969

180,984

171,139

Medical claims

118,573

108,679

231,916

232,924

Rentals and leases

15,101

12,276

29,066

24,542

Other operating expenses

110,696

120,276

225,789

234,259

Medicare and Medicaid EHR incentives

(5,217

)

(2,009

)

(11,080

)

(8,686

)

Interest expense, net

33,407

35,556

67,252

70,496

Depreciation and amortization

26,449

28,976

53,301

57,510

Management fees

1,250

1,250

2,500

2,500

Total costs and expenses

650,796

626,065

1,285,468

1,242,740

Earnings from continuing operations before gain on disposal of assets and income taxes

3,281

21,571

9,581

28,569

Gain on disposal of assets, net

75

438

163

678

Earnings from continuing operations before income taxes

3,356

22,009

9,744

29,247

Income tax expense

2,389

9,205

5,124

12,810

Net earnings from continuing operations

967

12,804

4,620

16,437

Earnings (loss) from discontinued operations, net of income taxes

(90

)

363

325

315

Net earnings

877

13,167

4,945

16,752

Net (earnings) loss attributable to non-controlling interests

351

(2,010

)

(1,248

)

(4,242

)

Net earnings attributable to

IASIS Healthcare LLC

$

1,228

$

11,157

$

3,697

$

12,510

IASIS HEALTHCARE LLC

Consolidated Balance Sheets (Unaudited)

(in thousands)

March 31,

2013

Sept. 30,

2012

ASSETS

Current assets

Cash and cash equivalents

$

-

$

48,882

Accounts receivable, net

383,452

356,618

Inventories

64,094

67,650

Deferred income taxes

26,295

19,744

Prepaid expenses and other current assets

123,720

117,851

Total current assets

597,561

610,745

Property and equipment, net

1,180,471

1,171,657

Goodwill

815,546

818,424

Other intangible assets, net

27,521

29,161

Other assets, net

69,718

68,498

Total assets

$

2,690,817

$

2,698,485

LIABILITIES AND EQUITY

Current liabilities

Accounts payable

$

121,473

$

111,928

Salaries and benefits payable

64,364

65,390

Accrued interest payable

28,021

28,034

Medical claims payable

56,396

61,142

Other accrued expenses and other current liabilities

73,801

89,890

Current portion of long-term debt and capital lease obligations

12,867

13,387

Total current liabilities

356,922

369,771

Long-term debt and capital lease obligations

1,847,889

1,853,107

Deferred income taxes

136,007

120,961

Other long-term liabilities

98,113

104,110

Non-controlling interests with redemption rights

105,869

99,164

Equity

Member's equity

136,267

141,589

Non-controlling interests

9,750

9,783

Total equity

146,017

151,372

Total liabilities and equity

$

2,690,817

$

2,698,485

IASIS HEALTHCARE LLC

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

Six Months Ended

March 31,

2013

2012

Cash flows from operating activities

Net earnings

$

4,945

$

16,752

Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:

Depreciation and amortization

53,301

57,510

Amortization of loan costs

3,907

3,803

Stock-based compensation

1,999

1,942

Deferred income taxes

4,420

11,835

Income tax benefit from stock-based compensation

16

6

Fair value change in interest rate hedges

-

(1,410

)

Amortization of other comprehensive loss

-

2,057

Gain on disposal of assets, net

(163

)

(678

)

Earnings from discontinued operations, net

(325

)

(315

)

Changes in operating assets and liabilities, net of the effect of acquisitions and dispositions:

Accounts receivable, net

(26,944

)

(57,170

)

Inventories, prepaid expenses and other current assets

928

(19,779

)

Accounts payable, other accrued expenses and other accrued liabilities

(15,654

)

(14,975

)

Net cash provided by (used in) operating activities - continuing operations

26,430

(422

)

Net cash provided by (used in) operating activities - discontinued operations

454

(214

)

Net cash provided by (used in) operating activities

26,884