IASIS Healthcare Announces Second Quarter 2012 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, 2012. In the first quarter of 2012, IASIS adopted accounting guidance that results in the classification of the provision for bad debts as a revenue deduction rather than an operating expense, and such guidance has been applied to the financial statements of both the current and prior year periods.

Net revenue for the second quarter totaled $647.6 million, an increase of 3.8%, compared to $624.2 million in the prior year quarter. Net revenue for the second quarter ended March 31, 2012, which includes an increase in acute care revenue of $76.2 million or 17.6% compared to the prior year quarter, has been affected by a decline in premium revenue at Health Choice, the Company’s Medicaid and Medicare managed health plan in Arizona, as a result of capitation rate reductions implemented by the Arizona Health Care Cost Containment System (“AHCCCS”) and a state mandated reduction in certain Medicaid enrollees. Adjusted EBITDA for the second quarter totaled $88.8 million, compared to $78.7 million in the prior year quarter. Net earnings from continuing operations for the second quarter, which includes additional interest costs resulting from the Company’s fiscal 2011 refinancing transaction, totaled $12.8 million, compared to $22.9 million in the prior year quarter.

Acute care results for the second quarter includes the impact of two separate adjustments to Medicare revenue related to prior periods, the net effect of which resulted in an increase to net revenue of $11.1 million and adjusted EBITDA of $7.0 million. One of these adjustments is the result of an industry-wide settlement with the Centers for Medicare and Medicaid Services (“CMS”) relating to a rural floor provision established as part of the Balanced Budget Act of 1997. This settlement resulted in an increase to acute care revenue of $15.4 million during the second quarter of fiscal 2012, as well as an increase in other operating expenses of $4.1 million for related legal and consulting fees. IASIS expects payment of this settlement by June 30, 2012. In addition, during the second quarter of fiscal 2012, new Supplemental Security Income (“SSI”) ratios, used for calculating Medicare Disproportionate Share Hospital (“DSH”) reimbursement, were published by CMS, for federal fiscal years ending September 30, 2006 through 2009. As a result of these new SSI ratios, U.S. hospitals must recalculate their Medicare DSH reimbursement for the affected years and record adjustments for any differences in estimated reimbursement as a part of their annual cost report settlement process. The cumulative impact to IASIS for these retroactive adjustments for prior periods through fiscal 2011 was a reduction in acute care revenue of $4.3 million for the second quarter of fiscal 2012.

In the second quarter, admissions and adjusted admissions increased 14.7% and 15.1%, respectively, compared to the prior year quarter. On a same-facility basis, admissions and adjusted admissions increased 0.3% and 2.1%, respectively, compared to the prior year quarter, while net patient revenue per adjusted admission increased 2.7%, compared to the prior year quarter.

Net revenue for the six months ended March 31, 2012, totaled $1.27 billion, an increase of 2.7%, compared to $1.24 billion in the prior year period. Adjusted EBITDA for the six months ended March 31, 2012, totaled $161.0 million, compared to $147.5 million in the prior year period. Net earnings from continuing operations for the six months ended March 31, 2012, which includes additional interest costs resulting from the Company’s fiscal 2011 refinancing transaction, totaled $16.4 million, compared to $40.1 million in the prior year period.

For the six months ended March 31, 2012, admissions and adjusted admissions increased 17.6% and 16.5%, respectively, compared to the prior year period. On a same-facility basis, admissions and adjusted admissions increased 2.4% and 2.7%, respectively, each compared to the prior year period, while net patient revenue per adjusted admission increased 0.8%, compared to the prior year period.

A listen-only simulcast and 30-day replay of IASIS’ second quarter 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 11, 2012. A copy of this press release will also be available on the Company’s Web site.

IASIS, located in Franklin, Tennessee, is a leading owner and operator of medium-sized acute care hospitals in high-growth urban and suburban markets. The Company operates its hospitals with a strong community focus by offering and developing healthcare services targeted to the needs of the markets it serves, promoting strong relationships with physicians and working with local managed care plans. IASIS owns or leases 18 acute care hospital facilities and one behavioral health hospital facility with a total of 4,380 licensed beds and has total annual net revenue of approximately $2.6 billion. These hospital facilities are located in seven regions: Salt Lake City, Utah; Phoenix, Arizona; Tampa-St. Petersburg, Florida; five cities in Texas, including Houston and San Antonio; Las Vegas, Nevada; West Monroe, Louisiana; and Woodland Park, Colorado. IASIS also owns and operates a Medicaid and Medicare managed health plan in Phoenix that serves more than 180,000 members. 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, 2011, 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 (loss) 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. 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. Adjusted EBITDA should not be considered as a measure of financial performance under generally accepted accounting principles, and the items excluded from adjusted EBITDA are significant components in understanding and assessing financial performance. Adjusted EBITDA should not 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, as presented, differs from what is 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 reconciling net earnings from continuing operations to 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

March 31,

Six Months Ended

March 31,

2012   2011 2012   2011
Net revenue
Acute care revenue $ 588,641 $ 489,027 $ 1,131,855 $ 960,715
Less: Provision for bad debts   (78,173 )   (54,801 )   (148,452 )   (114,415 )
Acute care revenue, net 510,468 434,226 983,403 846,300
Premium revenue   137,168     189,960     287,906     392,152  
Net revenue 647,636 624,186 1,271,309 1,238,452
 
Costs and expenses
Salaries and benefits (includes stock-based compensation of $1,442, $538, $1,942 and $1,034, respectively) 234,092 196,036 458,056 385,949
Supplies 86,969 77,924 171,139 154,360
Medical claims 108,679 157,416 232,924 328,750
Rentals and leases 12,276 11,289 24,542 22,455
Other operating expenses 120,276 103,350 234,259 200,476
Medicaid EHR incentive payments (2,009 ) (8,686 )
Interest expense, net 35,556 16,510 70,496 33,387
Depreciation and amortization 28,976 24,584 57,510 48,630
Management fees   1,250     1,250     2,500     2,500  
Total costs and expenses 626,065 588,359 1,242,740 1,176,507
 
Earnings from continuing operations before gain on disposal of assets and income taxes 21,571 35,827 28,569 61,945
Gain on disposal of assets, net   438     540     678     885  
 
Earnings from continuing operations before income taxes 22,009 36,367 29,247 62,830
Income tax expense   9,205     13,500     12,810     22,689  
 
Net earnings from continuing operations 12,804 22,867 16,437 40,141
Earnings (loss) from discontinued operations,

net of income taxes

  363     (2,846 )   315     (6,054 )
 
Net earnings 13,167 20,021 16,752 34,087
Net earnings attributable to non-controlling interests   (2,010 )   (2,995 )   (4,242 )   (5,315 )
 
Net earnings attributable to

IASIS Healthcare LLC

$ 11,157   $ 17,026   $ 12,510   $ 28,772  
     

IASIS HEALTHCARE LLC

Consolidated Balance Sheets (Unaudited)

(in thousands)

 
March 31,

2012

Sept. 30,

2011

 
ASSETS
 
Current assets
Cash and cash equivalents $ 81,661 $ 147,327
Accounts receivable, net 355,374 277,932
Inventories 68,179 68,330
Deferred income taxes 33,763 40,415
Prepaid expenses and other current assets   69,518   72,914
Total current assets 608,495 606,918
 
Property and equipment, net 1,165,128 1,167,920
Goodwill 808,191 808,651
Other intangible assets, net 30,727 32,779
Other assets, net   75,373   63,509
Total assets $ 2,687,914 $ 2,679,777
 
LIABILITIES AND EQUITY
 
Current liabilities
Accounts payable $ 94,759 $ 92,805
Salaries and benefits payable 60,319 58,379
Accrued interest payable 28,051 30,045
Medical claims payable 65,569 85,723
Other accrued expenses and other current liabilities 99,154 100,830
Current portion of long-term debt and capital lease obligations   13,787   14,020
Total current liabilities 361,639 381,802
 
Long-term debt and capital lease obligations 1,858,734 1,864,749
Deferred income taxes 131,163 131,018
Other long-term liabilities 102,671 78,441
 
Non-controlling interests with redemption rights 97,132 95,977
 
Equity
Member’s equity 126,825 118,000
Non-controlling interests   9,750   9,790
Total equity   136,575   127,790
Total liabilities and equity $ 2,687,914 $ 2,679,777
   

IASIS HEALTHCARE LLC

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 
Six Months Ended

March 31,

2012   2011
Cash flows from operating activities
Net earnings $ 16,752 $ 34,087

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

Depreciation and amortization 57,510 48,630
Amortization of loan costs 3,803 1,636
Stock-based compensation 1,942 1,034
Deferred income taxes 11,835 2,278
Income tax benefit from stock-based compensation 6
Income tax benefit from parent company interest 4,440
Fair value change in interest rate hedges (1,410 )
Amortization of other comprehensive loss 2,057
Gain on disposal of assets, net (678 ) (885 )
Loss (earnings) from discontinued operations, net (315 ) 6,054

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

Accounts receivable, net (78,621 ) (23,461 )
Inventories, prepaid expenses and other current assets 1,840 4,461
Accounts payable, other accrued expenses and other accrued liabilities   (15,143 )   19,435  
Net cash provided by (used in) operating activities – continuing operations (422 ) 97,709
Net cash used in operating activities – discontinued operations   (214 )   (231 )
Net cash provided by (used in) operating activities   (636 )   97,478  
 
Cash flows from investing activities
Purchases of property and equipment, net (53,248 ) (42,234 )
Cash paid for acquisitions, net 228 (12,804 )
Proceeds from sale of assets 62 150
Change in other assets, net   1,542     1,639  
Net cash used in investing activities   (51,416 )   (53,249 )
 
Cash flows from financing activities
Payment of debt and capital lease obligations (7,267 ) (3,810 )
Debt financing costs incurred (998 )
Distributions to non-controlling interests (4,887 ) (5,689 )
Costs paid for the repurchase of non-controlling interests, net   (462 )   (625 )
Net cash used in financing activities   (13,614 )   (10,124 )
 
Change in cash and cash equivalents (65,666 ) 34,105
Cash and cash equivalents at beginning of period   147,327     144,511  
Cash and cash equivalents at end of period $ 81,661   $ 178,616  
 
Supplemental disclosure of cash flow information
Cash paid for interest $ 66,647   $ 31,846  
Cash received for income taxes, net $ (12,102 ) $ (241 )
   

IASIS HEALTHCARE LLC

Segment Information (Unaudited)

(in thousands)

 
For the Quarter Ended March 31, 2012
Acute Care   Health Choice   Eliminations   Consolidated
Acute care revenue $ 588,641 $ $ $ 588,641
Less: Provision for bad debts   (78,173 )         (78,173 )
Acute care revenue, net 510,468 510,468
Premium revenue 137,168 137,168
Revenue between segments   1,820       (1,820 )    
Net revenue 512,288 137,168 (1,820 ) 647,636
 

Salaries and benefits (excludes stock-based compensation)

226,693 5,957 232,650
Supplies 86,907 62 86,969
Medical claims 110,499 (1,820 ) 108,679
Rentals and leases 11,875 401 12,276
Other operating expenses 114,115 6,161 120,276
Medicaid EHR incentive payments   (2,009 )         (2,009 )
Adjusted EBITDA 74,707 14,088 88,795
 
Interest expense, net 35,556 35,556
Depreciation and amortization 28,054 922 28,976
Stock-based compensation 1,442 1,442
Management fees   1,250           1,250  
Earnings from continuing operations before gain on disposal of assets and income taxes 8,405 13,166 21,571
Gain on disposal of assets, net   438           438  

Earnings from continuing operations before income taxes

$ 8,843   $ 13,166 $   $ 22,009  
 
For the Quarter Ended March 31, 2011
Acute Care Health Choice Eliminations Consolidated
Acute care revenue $ 489,027 $ $ $ 489,027
Less: Provision for bad debts   (54,801 )         (54,801 )
Acute care revenue, net 434,226 434,226
Premium revenue 189,960 189,960
Revenue between segments   2,807       (2,807 )    
Net revenue 437,033 189,960 (2,807 ) 624,186
 

Salaries and benefits (excludes stock-based compensation)

190,325 5,173 195,498
Supplies 77,872 52 77,924
Medical claims 160,223 (2,807 ) 157,416
Rentals and leases 10,891 398 11,289
Other operating expenses   96,425     6,925       103,350  
Adjusted EBITDA 61,520 17,189 78,709
 
Interest expense, net 16,510 16,510
Depreciation and amortization 23,697 887 24,584
Stock-based compensation 538 538
Management fees   1,250           1,250  
Earnings from continuing operations before gain on disposal of assets and income taxes 19,525 16,302 35,827
Gain on disposal of assets, net   540           540  

Earnings from continuing operations before income taxes

$ 20,065   $ 16,302 $   $ 36,367  
   

IASIS HEALTHCARE LLC

Segment Information (Unaudited)

(in thousands)

 
For the Six Months Ended March 31, 2012
Acute Care   Health Choice   Eliminations   Consolidated
Acute care revenue $ 1,131,855 $ $ $ 1,131,855
Less: Provision for bad debts   (148,452 )         (148,452 )
Acute care revenue, net 983,403 983,403
Premium revenue 287,906 287,906
Revenue between segments   3,449       (3,449 )    
Net revenue 986,852 287,906 (3,449 ) 1,271,309
 

Salaries and benefits (excludes stock-based compensation)

445,030 11,084 456,114
Supplies 171,026 113 171,139
Medical claims 236,373 (3,449 ) 232,924
Rentals and leases 23,761 781 24,542
Other operating expenses 222,412 11,847 234,259
Medicaid EHR incentive payments   (8,686 )         (8,686 )
Adjusted EBITDA 133,309 27,708 161,017
 
Interest expense, net 70,496 70,496
Depreciation and amortization 55,710 1,800 57,510
Stock-based compensation 1,942 1,942
Management fees   2,500           2,500  
Earnings from continuing operations before gain on disposal of assets and income taxes 2,661 25,908 28,569
Gain on disposal of assets, net   678           678  

Earnings from continuing operations before income taxes

$ 3,339   $ 25,908 $   $ 29,247  
 
For the Six Months Ended March 31, 2011
Acute Care Health Choice Eliminations Consolidated
Acute care revenue $ 960,715 $ $ $ 960,715
Less: Provision for bad debts   (114,415 )         (114,415 )
Acute care revenue, net 846,300 846,300
Premium revenue 392,152 392,152
Revenue between segments   5,467       (5,467 )    
Net revenue 851,767 392,152 (5,467 ) 1,238,452
 

Salaries and benefits (excludes stock-based compensation)

374,719 10,196 384,915
Supplies 154,264 96 154,360
Medical claims 334,217 (5,467 ) 328,750
Rentals and leases 21,613 842

22,455

Other operating expenses   187,255     13,221       200,476  
Adjusted EBITDA 113,916 33,580 147,496
 
Interest expense, net 33,387 33,387
Depreciation and amortization 46,848 1,782 48,630
Stock-based compensation 1,034 1,034
Management fees   2,500           2,500  
Earnings from continuing operations before gain on disposal of assets and income taxes 30,147 31,798 61,945
Gain on disposal of assets, net   885           885  

Earnings from continuing operations before income taxes

$ 31,032   $ 31,798 $   $ 62,830  
     

IASIS HEALTHCARE LLC

Consolidated Financial and Operating Data (Unaudited)

 
Quarter Ended

March 31,

Six Months Ended

March 31,

2012     2011   2012     2011  
Consolidated Hospital Facilities

Number of acute care hospital facilities at end of period

18 17 18 17
Licensed beds at end of period 4,380 3,578 4,380 3,578
Average length of stay (days) 5.0 5.0 5.0 4.9
Occupancy rates (average beds in service) 52.1 % 51.3 % 50.5 % 48.2 %
Admissions 32,461 28,311 64,095 54,513
Percentage change 14.7 % 17.6 %
Adjusted admissions 54,791 47,583 108,212 92,895
Percentage change 15.1 % 16.5 %
Patient days 162,677 141,670 317,487 269,477
Adjusted patient days 264,807 229,147 516,970 440,843
Outpatient revenue as a percentage of gross patient revenue 40.3 % 40.0 % 40.5 % 40.5 %
 
Same-Facility Hospitals (1)

Number of acute care hospital facilities at end of period

17 17 17 17
Licensed beds at end of period 3,588 3,578 3,588 3,578
Average length of stay (days) 5.0 5.0 4.9 4.9
Occupancy rates (average beds in service) 51.0 % 51.3 % 49.4 % 48.2 %
Admissions 28,395 28,311 55,817 54,513
Percentage change 0.3 % 2.4 %
Adjusted admissions 48,586 47,583 95,439 92,895
Percentage change 2.1 % 2.7 %
Patient days 140,990 141,670 274,759 269,477
Adjusted patient days 231,686 229,147 451,041 440,843
Outpatient revenue as a percentage of gross patient revenue 41.1 % 40.0 % 41.2 % 40.5 %
 

(1) Excludes the impact of the St. Joseph Medical Center acquisition, which was effective May 1, 2011.

     

IASIS HEALTHCARE LLC

Supplemental Consolidated Statements of Operations Information (Unaudited)

(in thousands)

 
Quarter Ended

March 31,

Six Months Ended

March 31,

2012   2011 2012   2011
Consolidated Results
Net earnings from continuing operations $ 12,804 $ 22,867 $ 16,437 $ 40,141
Add:
Interest expense, net 35,556 16,510 70,496 33,387
Income tax expense 9,205 13,500 12,810 22,689
Depreciation and amortization 28,976 24,584 57,510 48,630
Stock-based compensation 1,442 538 1,942 1,034
Gain on disposal of assets, net (438 ) (540 ) (678 ) (885 )
Management fees   1,250     1,250     2,500     2,500  
Adjusted EBITDA $ 88,795   $ 78,709   $ 161,017   $ 147,496  



CONTACT:

IASIS Healthcare LLC
Investor Contact:
W. Carl Whitmer, 615-844-2747
President and Chief Executive Officer
or
John M. Doyle, 615-844-2747
Chief Financial Officer
or
Media Contact:
Michele M. Peden, 615-467-1255
VP, Corporate Communications

KEYWORDS:   United States  North America  Tennessee

INDUSTRY KEYWORDS:   Health  Hospitals  General Health

MEDIA:

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