FRANKLIN, Tenn.--(BUSINESS WIRE)--IASIS Healthcare® LLC (“IASIS” or the “Company”) today announced financial and operating results for the fiscal second quarter and six months ended March 31, 2016.
Key Financial & Operating Results
Second Quarter Fiscal 2016
Revenue for the second quarter totaled $821.3 million, an increase of 17.9% compared to $696.8 million in the prior year quarter. Normalized adjusted EBITDA, which, as further described below, excludes the unfavorable development related to the settlement of a small number of prior year professional liability claims and certain other costs, totaled $66.5 million in the second quarter, compared to $72.4 million in the prior year quarter. Net loss from continuing operations before income taxes for the second quarter totaled $15.3 million, compared to net earnings from continuing operations before income taxes of $18.5 million in the prior year quarter.
“Our underlying operating results for the first half of the year remain solid as we continue to pursue our strategy of delivering high-quality, cost-effective integrated healthcare through our provider and managed care solutions,” said W. Carl Whitmer, President and Chief Executive Officer. “Increases in patient volumes and lives served through our health plan services continue to generate solid revenue growth across our acute care business and managed care risk platform. Our balance sheet and liquidity position remain strong through continued improvement in operating cash flows, as well as the extension of our revolving credit facility in February.”
Acute care revenue for the second quarter totaled $499.3 million, an increase of 6.0% compared to the prior year quarter. In the second quarter, adjusted admissions increased 2.1% and admissions increased 0.5%, each compared to the prior year quarter. Net patient revenue per adjusted admission in the second quarter increased 3.6% compared to the prior year quarter.
Premium, service and other revenue in the Company’s managed care risk platform for the second quarter totaled $322.0 million, an increase of 42.5% compared to the prior year quarter. Total lives served across all managed care division product lines increased 75.3% compared to the prior year, with 656,200 lives served as of March 31, 2016. The increase in lives reflects the Company’s managed care division’s commencement of an integrated acute and behavioral health plan joint venture in Northern Arizona on October 1, 2015, which served 226,200 lives as of March 31, 2016. Excluding this new integrated acute and behavioral health plan, lives served in the remainder of the Company’s managed care risk platform increased 14.9% in the second quarter when compared to the prior year quarter.
Year-to-Date Fiscal 2016
Revenue for the first six months of fiscal 2016 totaled $1.62 billion, an increase of 18.9% compared to $1.37 billion in the prior year period. Normalized adjusted EBITDA, which, as further described below, excludes the unfavorable development related to the settlement of a small number of prior year professional liability claims and certain other costs, totaled $130.5 million in the first six months of fiscal 2016, compared to $128.3 million in the prior year period. Net loss from continuing operations before income taxes for the first six months of fiscal 2016 totaled $19.1 million, compared to net earnings from continuing operations before income taxes of $15.5 million in the prior year period.
Acute care revenue for the first six months of fiscal 2016 totaled $988.9 million, an increase of 5.7% compared to the prior year period. In the first six months of fiscal 2016, adjusted admissions increased 1.9% and admissions decreased 0.5%, each compared to the prior year period. Net patient revenue per adjusted admission in the first six months of fiscal 2016 increased 3.6% compared to the prior year period.
Premium, service and other revenue in the Company’s managed care risk platform for the first six months of fiscal 2016 totaled $635.2 million, an increase of 47.4% compared to the prior year period.
The Company provides the following table for Normalized adjusted EBITDA, which excludes certain items that adversely affected the Company’s results for the quarter and six months ended March 31, 2016 and 2015 (in thousands):
| Quarter Ended | Six Months Ended | ||||||||||||||
| March 31, | March 31, | ||||||||||||||
| 2016 | 2015 | 2016 | 2015 | ||||||||||||
| Adjusted EBITDA | $ | 48,555 | $ | 74,602 | $ | 105,954 | $ | 130,536 | |||||||
| Unfavorable (favorable) development of prior year professional liability claims | 11,866 | (4,068 | ) | 11,866 | (4,068 | ) | |||||||||
| System improvement costs associated with operational improvement efforts in Houston | 1,958 | - | 4,764 | - | |||||||||||
| Integrated clinical and revenue cycle systems conversion costs | 1,682 | - | 2,833 | - | |||||||||||
| EHR settlements related to prior years | 951 | - | 2,324 | - | |||||||||||
| Initial public offering and other legal and regulatory costs | 1,529 | 1,865 | 2,746 | 1,880 | |||||||||||
| Normalized adjusted EBITDA | $ | 66,541 | $ | 72,399 | $ | 130,487 | $ | 128,348 | |||||||
Cash Flow Analysis
Cash flows provided by operating activities for the first six months of fiscal 2016 totaled $78.7 million, compared to $17.2 million in the prior year period. Cash flows used in investing activities for the first six months of fiscal 2016 totaled $69.7 million, compared to $19.6 million in the prior year period, which included $41.4 million in proceeds received from the sale of the Company’s Nevada operations.
Information Systems Conversion
The Company is currently in the process of converting to a new integrated clinical and revenue cycle system, a project in which the Company expects to make significant investments through the 2019 fiscal year. During the first six months of fiscal 2016, the Company spent $13.3 million in cash associated with its conversion efforts, $3.3 million of which is included in cash flows provided by operating activities, $8.2 million of which is included in cash flows used in investing activities and $1.8 million of which is included in cash flows used in financing activities.
Conference Call
A listen-only simulcast of IASIS’ second quarter fiscal 2016 conference call will be available by clicking the “Investors” link on the Company’s Web site at www.iasishealthcare.com beginning at 11:00 a.m. Eastern Time on May 13, 2016. A copy of this press release will also be available on the Company’s Web site.
IASIS Healthcare is a healthcare services company that seeks to deliver high-quality, cost-effective healthcare through a broad and differentiated set of capabilities and assets that include acute care hospitals with related patient access points and a diversified managed care risk platform. With total annual revenue of approximately $2.9 billion, IASIS, headquartered in Franklin, Tennessee, owns and operates 17 acute care hospitals, one behavioral hospital and multiple other access points, including 147 physician clinics, multiple outpatient surgical units, imaging centers, and investments in urgent care centers and on-site employer-based clinics. Health Choice, the Company’s managed care risk platform, delivers services to more than 656,200 covered lives through its multiple health plans, accountable care networks and agreements to serve as a management services organization (“MSO”) with third party insurers. 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 the Company’s 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 Part I, Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2015, as filed 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 the Company’s 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 and normalized adjusted EBITDA are each non-GAAP financial measures. Adjusted EBITDA represents net earnings (loss) from continuing operations before net interest expense, income tax expense (benefit), depreciation and amortization, stock-based compensation, gain (loss) on disposal of assets, and management fees. Management fees represent monitoring and advisory fees paid to management companies affiliated with TPG and JLL. Normalized adjusted EBITDA represents adjusted EBITDA before the unfavorable (favorable) development of prior year professional liability claims, IT conversion related costs, EHR settlements related to prior years, initial public offering and other legal and regulatory costs and costs associated with systems improvement efforts at the Company’s Houston operations. 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 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. In addition, management believes that the presentation of normalized adjusted EBITDA assists investors in evaluating the Company’s ongoing operational performance by excluding the impact of certain items that the Company believes may not be reflective of underlying business performance. Neither adjusted EBITDA nor normalized adjusted EBITDA should be considered as a measure of financial performance under generally accepted accounting principles, and the items excluded from such measures are significant components in understanding and assessing financial performance. Neither adjusted EBITDA nor normalized adjusted EBITDA 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. Adjusted EBITDA and normalized adjusted EBITDA, as presented, differ from “adjusted EBITDA” as defined under the Company’s Senior Secured Credit Facilities and may not be comparable to similarly titled measures of other companies. A table describing adjusted EBITDA and normalized adjusted EBITDA and reconciling net earnings (loss) from continuing operations to adjusted EBITDA and normalized adjusted EBITDA 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 | Six Months Ended | ||||||||||||||||
| March 31, | March 31, | ||||||||||||||||
| 2016 | 2015 | 2016 | 2015 | ||||||||||||||
| Revenues | |||||||||||||||||
|
Acute care revenue before provision for bad debts
|
$ | 598,194 | $ | 551,590 | $ | 1,179,595 | $ | 1,105,506 | |||||||||
| Less: Provision for bad debts | (98,881 | ) | (80,726 | ) | (190,696 | ) | (170,078 | ) | |||||||||
| Acute care revenue | 499,313 | 470,864 | 988,899 | 935,428 | |||||||||||||
| Premium, service and other revenue | 321,974 | 225,963 | 635,236 | 430,937 | |||||||||||||
| Total revenue | 821,287 | 696,827 | 1,624,135 | 1,366,365 | |||||||||||||
| Costs and expenses | |||||||||||||||||
| Salaries and benefits (includes stock-based compensation of $1,737, 1,841, $3,344, and $3,706, respectively) | 252,269 | 237,268 | 497,127 | 468,199 | |||||||||||||
| Supplies | 84,113 | 80,140 | 168,964 | 160,191 | |||||||||||||
| Medical claims | 268,030 | 176,059 | 534,737 | 352,031 | |||||||||||||
| Rentals and leases | 21,968 | 19,088 | 43,300 | 37,797 | |||||||||||||
| Other operating expenses | 148,137 | 113,746 | 277,887 | 226,967 | |||||||||||||
| Medicare and Medicaid EHR incentives | (48 | ) | (2,235 | ) | (490 | ) | (5,650 | ) | |||||||||
| Interest expense, net | 34,033 | 31,854 | 66,643 | 64,217 | |||||||||||||
| Depreciation and amortization | 27,057 | 21,555 | 53,250 | 44,186 | |||||||||||||
| Management fees | 1,250 | 1,250 | 2,500 | 2,500 | |||||||||||||
| Total costs and expenses | 836,809 | 678,725 | 1,643,918 | 1,350,438 | |||||||||||||
| Earnings (loss) from continuing operations before gain (loss) on disposal of assets and income taxes | (15,522 | ) | 18,102 | (19,783 | ) | 15,927 | |||||||||||
| Gain (loss) on disposal of assets, net | 237 | 394 | 725 | (454 | ) | ||||||||||||
|
Earnings (loss) from continuing operations before income taxes
|
(15,285 | ) | 18,496 | (19,058 | ) | 15,473 | |||||||||||
| Income tax expense (benefit) | (4,885 | ) | 9,747 | (5,377 | ) | 7,093 | |||||||||||
| Net earnings (loss) from continuing operations | (10,400 | ) | 8,749 | (13,681 | ) | 8,380 | |||||||||||
|
Earnings (loss) from discontinued operations, net of income taxes
|
167 | (1,806 | ) | (3,886 | ) | (3,306 | ) | ||||||||||
| Net earnings (loss) | (10,233 | ) | 6,943 | (17,567 | ) | 5,074 | |||||||||||
|
Net earnings attributable to non-controlling interests
|
(2,602 | ) | (2,763 | ) | (5,403 | ) | (5,050 | ) | |||||||||
|
Net earnings (loss) attributable to IASIS Healthcare LLC
|
$ | (12,835 | ) | $ | 4,180 | $ | (22,970 | ) | $ | 24 | |||||||
| IASIS HEALTHCARE LLC | |||||||
| Consolidated Balance Sheets (Unaudited) | |||||||
|
(in thousands) |
|||||||
| March 31, | Sept. 30, | ||||||
| 2016 | 2015 | ||||||
| ASSETS | |||||||
| Current assets | |||||||
| Cash and cash equivalents | $ | 367,547 | $ | 378,513 | |||
| Accounts receivable, net | 342,413 | 317,729 | |||||
| Inventories | 63,609 | 62,593 | |||||
| Deferred income taxes | - | 2,645 | |||||
| Prepaid expenses and other current assets | 167,268 | 200,555 | |||||
| Total current assets | 940,837 | 962,035 | |||||
| Property and equipment, net | 930,918 | 894,766 | |||||
| Goodwill | 821,339 | 821,339 | |||||
| Other intangible assets, net | 18,211 | 19,896 | |||||
| Other assets, net | 60,706 | 55,596 | |||||
| Total assets | $ | 2,772,011 | $ | 2,753,632 | |||
| LIABILITIES AND EQUITY | |||||||
| Current liabilities | |||||||
| Accounts payable | $ | 132,394 | $ | 131,152 | |||
| Salaries and benefits payable | 76,891 | 80,833 | |||||
| Accrued interest payable | 27,715 | 26,896 | |||||
| Medical claims payable | 132,504 | 104,296 | |||||
| Other accrued expenses and current liabilities | 111,090 | 98,324 | |||||
|
Current portion of long-term debt, capital leases and other long-term obligations |
23,957 | 11,816 | |||||
| Total current liabilities | 504,551 | 453,317 | |||||
| Long-term debt, capital leases and other long-term obligations | 1,846,440 | 1,842,714 | |||||
| Deferred income taxes | 105,632 | 118,477 | |||||
| Other long-term liabilities | 93,373 | 95,553 | |||||
| Non-controlling interests with redemption rights | 113,962 | 114,922 | |||||
| Equity | |||||||
| Member’s equity | 94,487 | 117,847 | |||||
| Non-controlling interests | 13,566 | 10,802 | |||||
| Total equity | 108,053 | 128,649 | |||||
| Total liabilities and equity | $ | 2,772,011 | $ | 2,753,632 | |||
| IASIS HEALTHCARE LLC | |||||||||
| Consolidated Statements of Cash Flows (Unaudited) | |||||||||
|
(in thousands) |
|||||||||
| Six Months Ended | |||||||||
| March 31, | |||||||||
| 2016 | 2015 | ||||||||
| Cash flows from operating activities | |||||||||
| Net earnings (loss) | $ | (17,567 | ) | $ | 5,074 | ||||
|
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: |
|||||||||
| Depreciation and amortization | 53,250 | 44,186 | |||||||
| Amortization of loan costs | 4,012 | 3,942 | |||||||
| Amortization of deferred gain from sale-leaseback | (1,248 | ) | (1,248 | ) | |||||
| Change in physician minimum revenue guarantees | 2,050 | 1,871 | |||||||
| Stock-based compensation | 3,344 | 3,706 | |||||||
| Deferred income taxes | (8,512 | ) | 7,967 | ||||||
| Loss (gain) on disposal of assets, net | (725 | ) | 454 | ||||||
| Loss from discontinued operations, net | 3,886 | 3,306 | |||||||
|
Changes in operating assets and liabilities, net of the effect of acquisitions and dispositions: |
|||||||||
| Accounts receivable, net | (24,684 | ) | (27,323 | ) | |||||
| Inventories, prepaid expenses and other current assets | 30,091 | (42,615 | ) | ||||||
|
Accounts payable, other accrued expenses and other accrued liabilities |
34,155 | 18,623 | |||||||
|
Net cash provided by operating activities – continuing operations |
78,052 | 17,943 | |||||||
|
Net cash provided by (used in) operating activities – discontinued operations |
637 | (755 | ) | ||||||
|
Net cash provided by operating activities |
78,689 | 17,188 | |||||||
| Cash flows from investing activities | |||||||||
| Purchases of property and equipment | (62,050 | ) | (56,281 | ) | |||||
| Cash paid for acquisitions, net | (8,180 | ) | (3,900 | ) | |||||
| Cash received from divestiture | - | 41,364 | |||||||
| Proceeds from sale of assets | 166 | 337 | |||||||
|
Change in other assets, net |
399 | (797 | ) | ||||||
| Net cash used in investing activities – continuing operations | (69,665 | ) | (19,277 | ) | |||||
| Net cash used in investing activities – discontinued operations | - | (341 | ) | ||||||
| Net cash used in investing activities | (69,665 | ) | (19,618 | ) | |||||
| Cash flows from financing activities | |||||||||
| Payment of long-term debt, capital leases and other long-term obligations | (8,288 | ) | (6,708 | ) | |||||
| Payment of debt financing costs | (5,179 | ) | - | ||||||
| Distributions to non-controlling interests | (5,563 | ) | (4,438 | ) | |||||
| Cash paid for the repurchase of non-controlling interests | (960 | ) | (1,018 | ) | |||||
| Net cash used in financing activities – continuing operations | (19,990 | ) | (12,164 | ) | |||||
|
Net cash used in financing activities – discontinued operations |
- | (6 | ) | ||||||
|
Net cash used in financing activities |
(19,990 | ) | (12,170 | ) | |||||
| Change in cash and cash equivalents | (10,966 | ) | (14,600 | ) | |||||
| Cash and cash equivalents at beginning of period | 378,513 | 341,180 | |||||||
| Cash and cash equivalents at end of period | $ | 367,547 | $ | 326,580 | |||||
| Supplemental disclosure of cash flow information | |||||||||
| Cash paid for interest | $ | 60,258 | $ | 61,991 | |||||
|
Cash paid for (received from) income taxes, net |
$ | (11,411 | ) | $ | 12,366 | ||||
| Supplemental disclosure of non-cash information | |||||||||
| Financing obligation related to integrated clinical and revenue cycle systems conversion | $ | 23,409 | $ | – | |||||
| IASIS HEALTHCARE LLC | |||||||||||||
| Consolidated Financial and Operating Data (Unaudited) | |||||||||||||
| Quarter Ended | Six Months Ended | ||||||||||||
| March 31, | March 31, | ||||||||||||
| 2016 | 2015 | 2016 | 2015 | ||||||||||
|
Acute care operations (1) |
|||||||||||||
| Number of hospital facilities at end of period | 17 | 15 | 17 | 15 | |||||||||
| Licensed beds at end of period | 3,661 | 3,604 | 3,661 | 3,604 | |||||||||
| Average length of stay (days) | 5.0 | 5.1 | 4.9 | 5.1 | |||||||||
| Occupancy rates (average beds in service) | 49.2 | % | 51.3 | % | 47.8 | % | 50.4 | % | |||||
| Admissions | 25,948 | 25,814 | 51,408 | 51,682 | |||||||||
| Percentage change | 0.5 | % | (0.5 | %) | |||||||||
| Adjusted admissions | 48,606 | 47,601 | 97,304 | 95,508 | |||||||||
| Percentage change | 2.1 | % | 1.9 | % | |||||||||
| Patient days | 130,108 | 131,347 | 253,996 | 261,190 | |||||||||
| Adjusted patient days | 243,722 | 242,204 | 480,760 | 482,679 | |||||||||
| Surgeries | 16,413 | 15,771 | 34,524 | 32,582 | |||||||||
| Emergency room visits | 111,012 | 109,605 | 216,359 | 215,945 | |||||||||
| Outpatient revenue as a percentage of gross patient revenue | 46.6 | % | 45.8 | % | 47.2 | % | 45.9 | % | |||||
| Managed care operations | |||||||||||||
| Health plan lives | 512,600 | 247,400 | 512,600 | 247,400 | |||||||||
| MSO lives | 96,600 | 93,700 | 96,600 | 93,700 | |||||||||
| Accountable care network lives | 47,000 | 33,200 | 47,000 | 33,200 | |||||||||
| Total lives | 656,200 | 374,300 | 656,200 | 374,300 | |||||||||
|
Medical loss ratio (2) |
87.2 | % | 83.9 | % | 88.4 | % | 87.4 | % | |||||
|
(1) |
Excludes the impact of the Company’s Nevada operations, which are reflected in discontinued operations. Includes St. Luke’s Behavioral Hospital in Phoenix, Arizona. | |
|
(2) |
Represents medical claims expense as a percentage of premium revenue, including claims paid to the Company’s hospitals. | |
| IASIS HEALTHCARE LLC | |||||||||||||||||
| Supplemental Consolidated Statements of Operations Information (Unaudited) | |||||||||||||||||
|
(in thousands) |
|||||||||||||||||
| Quarter Ended | Six Months Ended | ||||||||||||||||
| March 31, | March 31, | ||||||||||||||||
| 2016 | 2015 | 2016 | 2015 | ||||||||||||||
| Consolidated Results | |||||||||||||||||
| Net earnings (loss) from continuing operations | $ | (10,400 | ) | $ | 8,749 | $ | (13,681 | ) | $ | 8,380 | |||||||
| Add: | |||||||||||||||||
| Interest expense, net | 34,033 | 31,854 | 66,643 | 64,217 | |||||||||||||
| Income tax expense (benefit) | (4,885 | ) | 9,747 | (5,377 | ) | 7,093 | |||||||||||
| Depreciation and amortization | 27,057 | 21,555 | 53,250 | 44,186 | |||||||||||||
| Stock-based compensation | 1,737 | 1,841 | 3,344 | 3,706 | |||||||||||||
| Loss (gain) on disposal of assets, net | (237 | ) | (394 | ) | (725 | ) | 454 | ||||||||||
| Management fees | 1,250 | 1,250 | 2,500 | 2,500 | |||||||||||||
| Adjusted EBITDA | $ | 48,555 | $ | 74,602 | $ | 105,954 | $ | 130,536 | |||||||||
| Unfavorable (favorable) development of prior year professional liability claims | 11,866 | (4,068 | ) | 11,866 | (4,068 | ) | |||||||||||
| System improvement costs associated with operation improvement efforts in Houston | 1,958 | - | 4,764 | - | |||||||||||||
| Integrated clinical and revenue cycle systems conversion costs | 1,682 | - | 2,833 | - | |||||||||||||
| EHR settlements related prior years | 951 | - | 2,324 | - | |||||||||||||
|
Initial public offering and other legal and regulatory costs
|
1,529 | 1,865 | 2,746 | 1,880 | |||||||||||||
| Normalized adjusted EBITDA | $ | 66,541 | $ | 72,399 | $ | 130,487 | $ | 128,348 | |||||||||
