Updates 2014 Financial Guidance for the Acquisition of Sheridan Healthcare

Christopher A. Holden, President and Chief Executive Officer of AmSurg Corp. (NASDAQ: AMSG), today announced financial results for the second quarter ended June 30, 2014. Revenues increased 5% for the quarter to $281.1 million from $267.1 million for the second quarter of 2013. Net earnings from continuing operations attributable to AmSurg common shareholders were $19.0 million, or $0.59 per diluted share, for the second quarter of 2014 compared with $18.4 million, or $0.58 per diluted share, for the second quarter of 2013. Results for the second quarter of 2014 included an after-tax net gain of $0.8 million, or $0.03 per diluted share, related to the deconsolidation of three surgery centers that AmSurg contributed to two joint ventures created during the quarter with new hospital system partners, as well as after-tax transaction expense of $2.1 million, or $0.07 per diluted share, related to the previously announced acquisition of Sheridan Healthcare (the “Sheridan Transaction”). Excluding these items, adjusted net earnings from continuing operations per diluted share attributable to AmSurg common shareholders for the second quarter of 2014 were $0.63, up 9% from $0.58 for the second quarter last year. Please see page 6 for a reconciliation of all GAAP and non-GAAP financial results in this news release.

For the first six months of 2014, revenues were $544.2 million, an increase of 4% from $525.3 million for the same period in 2013. Net earnings from continuing operations attributable to AmSurg common shareholders were $36.5 million, or $1.13 per diluted share, for the first half of 2014 compared with $36.2 million, or $1.13 per diluted share, for the first half last year. These results included after-tax net deconsolidation gains of $1.4 million, or $0.04 per diluted share, for 2014 and $1.3 million, or $0.04 per diluted share, for 2013. In addition, the results for the first half of 2014 include after-tax transaction expense of $2.1 million, or $0.07 per diluted share, related to the Sheridan Transaction. Excluding these items, adjusted net earnings from continuing operations per diluted share attributable to AmSurg common shareholders for the first six months of 2014 were $1.16 compared with $1.10 for the first half of 2013.

“AmSurg’s financial results met our expectations for the second quarter,” commented Mr. Holden. “We benefitted from a 1% increase in same-center revenue, despite having one less business day in the quarter compared with the second quarter last year. Average revenue per procedure increased 4% on a comparable-quarter basis, primarily due to changing procedure mix.

“During the second quarter, we continued to act on opportunities to partner with health systems in attractive markets, by agreeing with two new health systems to create ambulatory surgery center (ASC) joint ventures. We contributed our controlling interests in three centers to these joint ventures. We also acquired one center to end the quarter with 243 centers. We had six centers under letter of intent at the end of the second quarter and one de novo center under development, which we expect to open in 2015.

“In July, CMS announced proposed 2015 ASC reimbursement rates. We estimate these rates will positively impact our 2015 revenue by approximately $7 million. These proposed rates are subject to final approval in November 2014.

“Further, we launched a new era at AmSurg during the second quarter with our agreement to acquire Sheridan Healthcare, a leading national provider of outsourced physician services to hospitals, ASCs and other healthcare facilities. On July 16, 2014, we completed this transaction for approximately $2.35 billion in cash and stock. AmSurg financed the cash portion of the transaction through a combination of common and preferred stock offerings, a new senior secured credit facility and the issuance of senior unsecured notes. Through this transaction, we have effectively doubled the Company’s size, strengthened our geographic, payor and revenue diversity and accelerated expected revenue growth, greatly enlarged our addressable market, created a strongly differentiated competitive market position and substantially enhanced our organic and acquisition growth opportunities. In addition to the ample growth opportunities represented just in our respective customer bases, we believe the combination of our operations gives us a unique and scaled platform with which to strategically engage physician groups, health systems and payers as the healthcare industry shifts to greater performance and payment risk.”

AmSurg remains positioned to fund its organic and acquisition growth strategies for the post-merger company. The Company has significant net cash flows from operations, which, excluding distributions to noncontrolling interests, totaled $62 million for the first six months of 2014. In addition, AmSurg’s new senior secured credit facility includes a $300 million revolving credit facility under which the Company currently has no borrowings.

AmSurg today is revising its financial and operating guidance for 2014, primarily for the impact of the Sheridan Transaction, and establishing guidance for the third quarter of 2014. During the third quarter, the Company will record the transaction fees related to the Sheridan Transaction, which will be in excess of $50 million and which will result in a net loss for the third quarter. Due to this transaction, AmSurg will now provide guidance on adjusted net earnings per diluted share from continuing operations attributable to common shareholders (“Adjusted EPS”). Adjusted EPS for all periods will exclude transaction and severance costs related to the acquisition, acquisition-related amortization expense, gains or losses on deconsolidations and share-based compensation expense. The Company’s guidance is as follows:

  • Revenues in a range of $1.61 billion to $1.63 billion.
  • Same-center revenue increase of 1% to 2% for ASCs, 6% to 8% organic revenue growth in physician services.
  • Net cash flow provided by operating activities, less distributions to noncontrolling interests, in a range of $170 million to $180 million, excluding transaction costs.
  • Adjusted EPS in a range of $2.61 to $2.66.
  • For the third quarter of 2014, Adjusted EPS in a range of $0.63 to $0.65.

The information contained in the preceding paragraphs, including information regarding the Company’s acquisition plans and financial results for future periods, is forward-looking information. Forward-looking information involves known and unknown risks and uncertainties as described below. There can be no assurance that AmSurg will be successful in completing the acquisitions described above, and the attainment of the financial targets set forth in this press release is dependent on the assumptions described above. The Company’s actual results and performance could differ materially from those expressed or implied by the forward-looking information contained in this press release.

Mr. Holden concluded, “In considering the many compelling reasons for bringing together the complementary businesses of AmSurg and Sheridan Healthcare, we were struck by the foundational commitment that Sheridan has always demonstrated to adding value for its physician staff. This same commitment drives AmSurg and is the focus of our value proposition for our physician partners. We are confident that integrating our similar physician-centric cultures will strengthen both businesses and position our Company for long-term growth in earnings and shareholder value.”

AmSurg Corp. will hold a conference call to discuss this release today, July 31, 2014, at 5:00 p.m. Eastern time. Investors will have the opportunity to listen to the conference call over the Internet by going to www.amsurg.com and clicking “Investors” at least 15 minutes early to register, download, and install any necessary audio software. For those who cannot listen to the live broadcast, a replay will be available at these sites shortly after the call and continue for 30 days.

This press release contains forward-looking statements. These statements, which have been included in reliance on the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, involve risks and uncertainties. Investors are hereby cautioned that these statements may be affected by important factors, including, but not limited to, the following risks: the risk that payments from third-party payors, including government healthcare programs, may decrease or not increase as costs increase; the potential loss of collections and revenue if the Company is unable to timely enroll providers in the Medicare and Medicaid programs; the Company’s ability to acquire and develop additional surgery centers and its ability to acquire or develop additional relationships with providers for outsourced physician services on favorable terms; the Company’s ability to compete for physician partners, managed care contracts, patients and strategic relationships; adverse developments affecting the medical practices of the Company’s physician partners and affiliated practices; the Company’s ability to maintain favorable relations with its physician partners, affiliated practices and clients; the Company’s ability to grow revenues by increasing procedure volume while maintaining operating margins and profitability within its existing centers and outsourced physician services operations; the Company’s ability to manage the growth in its business, successfully integrate and operate acquired businesses and achieve expected benefits from acquisitions; the Company’s ability to obtain sufficient capital resources to complete acquisitions and develop new surgery centers or operations related to its outsourced physician services; the Company’s ability to generate sufficient cash to service all of its indebtedness; adverse weather and other factors beyond the Company’s control that may affect its surgery centers or operations of its outsourced physician services; the Company’s failure to comply with applicable laws and regulations; the Company’s failure to effectively and timely transition to the ICD-10 coding system; the risk of changes in legislation, regulations or regulatory interpretations that may negatively affect the Company; the risk of becoming subject to federal and state investigation; the risk from an unpredictable impact of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010; the risk of regulatory changes that may obligate the Company to buy out interests of physicians who are minority owners of its surgery centers; the risk that non-competition agreements in place with the Company’s physicians or other clinical employees may not be enforceable; the risk of payment delays, forfeiture of payment or civil and criminal penalties related to failing to satisfy any notification and reapplication requirements for any acquired companies to maintain licensure, certification and other authorities to operate after an acquisition; potential liabilities associated with the Company’s status as a general partner of limited partnerships; liabilities for claims brought against the Company; the risk that the Company’s reserves established with respect to its losses covered under its insurance programs are not adequate; the Company’s legal responsibility to minority owners of its surgery centers, which may conflict with its interests and prevent the Company from acting solely in its best interests; potential write-offs of the impaired portion of intangible assets; and potential liabilities relating to the tax deductibility of goodwill; and other risk factors described in AmSurg’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and other filings with the Securities and Exchange Commission. Consequently, actual results, performance or developments may differ materially from the forward-looking statements included above. AmSurg disclaims any intent or obligation to update these forward-looking statements.

AmSurg Corp. acquires, develops and operates ambulatory surgery centers in partnership with physician practice groups throughout the U.S. and provides outsourced physician services in multiple specialties to hospitals, ASCs and other healthcare facilities, primarily in the areas of anesthesiology, children’s services, emergency medicine and radiology. AmSurg owns and operates 243 ASCs in 34 states and provides physician services in 25 states, employing more than 2,600 physicians and other healthcare professionals.

       

AMSURG CORP.

Unaudited Selected Consolidated Financial and Operating Data

(In thousands, except earnings per share)

  Three Months Ended June 30, Six Months Ended June 30,

Statement of Earnings Data:

2014     2013 2014     2013 Revenues $ 281,105 $ 267,102 $ 544,212 $ 525,291 Operating expenses: Salaries and benefits 84,866 81,085 168,060 162,043 Supply cost 41,283 38,989 80,003 76,202 Other operating expenses 60,331 53,925 115,600 106,652 Depreciation and amortization 8,550   8,125   16,924   16,133 Total operating expenses 195,030 182,124 380,587 361,030 Gain on deconsolidation 1,366 — 3,411 2,237 Equity in earnings of unconsolidated affiliates 539   696   1,303   1,098 Operating income 87,980 85,674 168,339 167,596 Interest expense 6,894   7,512   13,857   15,054 Earnings from continuing operations before income taxes 81,086 78,162 154,482 152,542 Income tax expense 12,921   12,710   25,978   24,979 Net earnings from continuing operations 68,165 65,452 128,504 127,563 Discontinued operations: Earnings from operations of discontinued interests in surgery centers, net of income tax — 384 137 546 Gain (loss) on disposal of discontinued interests in surgery centers, net of income tax 7   —   (355 ) — Net earnings (loss) from discontinued operations 7   384   (218 ) 546 Net earnings and comprehensive income 68,172 65,836 128,286 128,109 Less net earnings and comprehensive income attributable to noncontrolling interests: Net earnings from continuing operations 49,211 47,035 92,046 91,396 Net earnings from discontinued operations —   238   84   339 Total net earnings and comprehensive income attributable to noncontrolling interests 49,211   47,273   92,130   91,735 Net earnings and comprehensive income attributable to AmSurg Corp. common shareholders $ 18,961   $ 18,563   $ 36,156   $ 36,374 Amounts attributable to AmSurg Corp. common shareholders: Earnings from continuing operations, net of income tax $ 18,954 $ 18,417 $ 36,458 $ 36,167 Discontinued operations, net of income tax 7   146   (302 ) 207 Net earnings and comprehensive income attributable to AmSurg Corp. common shareholders $ 18,961   $ 18,563   $ 36,156   $ 36,374 Earnings per share-basic: Net earnings from continuing operations attributable to AmSurg Corp. common shareholders $ 0.60 $ 0.59 $ 1.15 $ 1.16 Net earnings (loss) from discontinued operations attributable to AmSurg Corp. common shareholders —   —   (0.01 ) 0.01 Net earnings attributable to AmSurg Corp. common shareholders $ 0.60   $ 0.59   $ 1.14   $ 1.17 Earnings per share-diluted: Net earnings from continuing operations attributable to AmSurg Corp. common shareholders $ 0.59 $ 0.58 $ 1.13 $ 1.13 Net earnings (loss) from discontinued operations attributable to AmSurg Corp. common shareholders —   —   (0.01 ) 0.01 Net earnings attributable to AmSurg Corp. common shareholders $ 0.59   $ 0.58   $ 1.12   $ 1.14 Weighted average number of shares and share equivalents outstanding: Basic 31,825 31,208

31,770

31,213 Diluted 32,233 31,862

32,177

31,872            

AMSURG CORP.

Unaudited Selected Consolidated Financial and Operating Data, continued

(Dollars in thousands)

  Three Months Ended June 30, Six Months Ended June 30,

Operating Data:

2014       2013 2014       2013 Continuing centers in operation at end of period (consolidated) 236 239 236 239 Continuing centers in operation at end of period (unconsolidated) 7 4 7 4 Average number of continuing centers in operation (consolidated) 238 234 238 234 New centers added during the period 1 2 2 2 Centers discontinued during the period — — 1 — Centers under development/not opened at end of period 1 — 1 — Centers under letter of intent at end of period 6 5 6 5 Average revenue per consolidated center $ 1,182 $ 1,141 $ 2,284 $ 2,245 Same center revenues increase (decrease) 1 % 0 % (1 )% (1 )% Procedures performed during the period at consolidated centers 420,575 415,786 810,562 807,489 Income tax expense attributable to noncontrolling interests $ 176 $ 182 $ 344 $ 368          

AMSURG CORP.

Reconciliations of Non-GAAP Measures to GAAP Measures

(In thousands)

  Three Months Ended June 30, Six Months Ended June 30, 2014     2013 2014     2013 Reconciliation of net earnings to Adjusted EBITDA (1): Net earnings from continuing operations attributable to AmSurg Corp. common shareholders $ 18,954 $ 18,417 $ 36,458 $ 36,167 Income tax expense 12,921 12,710 25,978 24,979 Interest expense, net 6,894 7,512 13,857 15,054 Depreciation and amortization 8,550 8,125 16,924 16,133 Share-based compensation 2,506 1,916 4,964 3,966 Acquisition costs 3,572 140 3,579 175 Gain on deconsolidation (1,366 ) —   (3,411 ) (2,237 ) Adjusted EBITDA $ 52,031   $ 48,820   $ 98,349   $ 94,237     Three Months Ended June 30, Six Months Ended June 30, 2014 2013 2014 2013 Reconciliation of net earnings per share-diluted to adjusted net earnings per share-diluted (2): Net earnings from continuing operations attributable to AmSurg Corp. common shareholders $ 0.59 $ 0.58 $ 1.13 $ 1.13 Gain on deconsolidation, net of tax (0.03 ) — (0.04 ) (0.04 ) Acquisition costs, net of tax 0.07   —   0.07   —   Adjusted net earnings from continuing operations attributable to AmSurg Corp. common stockholders $ 0.63   $ 0.58   $ 1.16   $ 1.10  

 

 

(1)

We define Adjusted EBITDA of AmSurg as earnings before interest, income taxes, depreciation, amortization, share-based compensation, acquisition costs and gains or losses on deconsolidations. Adjusted EBITDA should not be considered a measure of financial performance under generally accepted accounting principles. Items excluded from Adjusted EBITDA are significant components in understanding and assessing financial performance. Adjusted EBITDA is an analytical indicator used by management and the health care industry to evaluate company performance, allocate resources and measure leverage and debt service capacity. Adjusted EBITDA should not be considered in isolation or as an alternative to net income, cash flows generated by operations, investing or financing activities, or other financial statement data presented in the consolidated financial statements as indicators of financial performance or liquidity. Because Adjusted EBITDA is not a measurement determined in accordance with generally accepted accounting principles and is thus susceptible to varying calculations, Adjusted EBITDA as presented may not be comparable to other similarly titled measures of other companies. Net earnings from continuing operations attributable to AmSurg Corp. common shareholders is the financial measure calculated and presented in accordance with generally accepted accounting principles that is most comparable to Adjusted EBITDA as defined.

 

(2)

We believe the calculation of adjusted net earnings from continuing operations per diluted share attributable to AmSurg Corp. common shareholders provides a better measure of our ongoing performance and provides better comparability to prior periods because it excludes the gains or loss from deconsolidations, which are non-cash in nature, and acquisition costs (the majority of which relate to the Sheridan Transaction), which are of a nature and significance not generally associated with our historical individual center acquisition activity. Adjusted net earnings from continuing operations per diluted share attributable to AmSurg Corp. common shareholders should not be considered as a measure of financial performance under accounting principles generally accepted in the United States, and the item excluded from it is a significant component in understanding and assessing financial performance. Because adjusted net earnings from continuing operations per diluted share attributable to AmSurg Corp. common shareholders is not a measurement determined in accordance with accounting principles generally accepted in the United States and is thus susceptible to varying calculations, it may not be comparable as presented to other similarly titled measures of other companies.

       

AMSURG CORP.

Unaudited Selected Consolidated Financial and Operating Data, continued

(In thousands)

  June 30, December 31,

Balance Sheet Data:

2014 2013 Assets Current assets: Cash and cash equivalents $ 44,911 $ 50,840 Accounts receivable, net of allowance of $30,414 and $27,862, respectively 110,538 105,072 Supplies inventory 18,808 18,414 Deferred income taxes 3,386 3,097 Prepaid and other current assets 34,658   33,602 Total current assets 212,301 211,025 Property and equipment, net 168,839 169,895 Investments in unconsolidated affiliates and other 26,546 16,392 Goodwill 1,794,493 1,758,970 Intangible assets, net 20,829   21,662 Total assets $ 2,223,008   $ 2,177,944 Liabilities and Equity Current liabilities: Current portion of long-term debt $ 20,208 $ 20,844 Accounts payable 26,353 27,501 Accrued salaries and benefits 29,849 32,294 Other accrued liabilities 9,771   9,231 Total current liabilities 86,181 89,870 Long-term debt 556,793 583,298 Deferred income taxes 194,181 176,020 Other long-term liabilities 25,695 25,503 Commitments and contingencies Noncontrolling interests – redeemable 177,063 177,697 Equity: Preferred stock, no par value, 5,000 shares authorized, no shares issued or outstanding — — Common stock, no par value, 70,000 shares authorized, 32,572 and 32,353 shares outstanding, respectively 189,822 185,873 Retained earnings 614,480   578,324 Total AmSurg Corp. equity 804,302 764,197 Noncontrolling interests – non-redeemable 378,793   361,359 Total equity 1,183,095   1,125,556 Total liabilities and equity $ 2,223,008   $ 2,177,944      

AMSURG CORP.

Unaudited Selected Consolidated Financial and Operating Data, continued

(In thousands)

  Three Months Ended June 30, Six Months Ended June 30,

Statement of Cash Flow Data:

2014     2013 2014     2013 Cash flows from operating activities: Net earnings $ 68,172 $ 65,836 $ 128,286 $ 128,109 Adjustments to reconcile net earnings to net cash flows provided by operating activities: Depreciation and amortization 8,550 8,125 16,924 16,133 Net loss on sale of long-lived assets 7 — 611 — Gain on deconsolidation (1,366 ) — (3,411 ) (2,237 ) Share-based compensation 2,506 1,916 4,964 3,966 Excess tax benefit from share-based compensation (363 ) (922 ) (2,090 ) (1,210 ) Deferred income taxes 5,939 6,400 17,872 19,329 Equity in earnings of unconsolidated affiliates (539 ) (696 ) (1,303 ) (1,098 ) Increases (decreases) in cash and cash equivalents, net of effects of acquisitions and dispositions, due to changes in: Accounts receivable, net (4,328 ) (3,516 ) (5,979 ) (5,221 ) Supplies inventory 238 (119 ) (7 ) (320 ) Prepaid and other current assets 1,328 (2,074 ) (2,310 ) (2,057 ) Accounts payable 1,181 689 (2,397 ) (2,351 ) Accrued expenses and other liabilities 1,375 1,946 769 (2,155 ) Other, net 1,062   1,100   1,652   1,662   Net cash flows provided by operating activities 83,762 78,685 153,581 152,550 Cash flows from investing activities: Acquisition of interests in surgery centers and related transactions (19,399 ) (18,094 ) (24,437 ) (18,346 ) Acquisition of property and equipment (9,037 ) (6,362 ) (16,075 ) (12,472 ) Proceeds from sale of interests in surgery centers 981 55 2,092 — Other (963 ) —   (1,381 ) 55   Net cash flows used in investing activities (28,418 ) (24,401 ) (39,801 ) (30,763 ) Cash flows from financing activities: Proceeds from long-term borrowings 42,301 40,052 74,246 70,922 Repayment on long-term borrowings (51,473 ) (48,011 ) (102,326 ) (96,222 ) Distributions to noncontrolling interests (48,816 ) (47,612 ) (92,010 ) (91,526 ) Proceeds from issuance of common stock upon exercise of stock options 1,158 8,037 1,646 13,728 Repurchase of common stock — (9,406 ) (2,857 ) (26,164 ) Capital contributions and ownership transactions by noncontrolling interests (1,082 ) 377 (498 ) 936 Excess tax benefit from share-based compensation 363 922 2,090 1,210 Financing cost incurred —   (1,133 ) —   (1,146 ) Net cash flows used in financing activities (57,549 ) (56,774 ) (119,709 ) (128,262 ) Net decrease in cash and cash equivalents (2,205 ) (2,490 ) (5,929 ) (6,475 ) Cash and cash equivalents, beginning of period 47,116   42,413   50,840   46,398   Cash and cash equivalents, end of period $ 44,911   $ 39,923   $ 44,911   $ 39,923    

AmSurg Corp.Claire M. Gulmi, 615-665-1283Executive Vice President andChief Financial Officer

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