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TMCNet:  IASIS Healthcare Announces First Quarter 2017 Results

[February 10, 2017]

IASIS Healthcare Announces First Quarter 2017 Results

IASIS Healthcare® LLC ("IASIS" or the "Company") today announced financial and operating results for the fiscal first quarter ended December 31, 2016.

Key Financial and Operating Results

Consolidated Financial and Operating Results - First Quarter Ended December 31, 2016 and 2015

Consolidated revenue for the first quarter ended December 31, 2016, totaled $839.9 million, an increase of 4.6% compared to $802.8 million in the prior year quarter. The consolidated revenue increase for the first quarter ended December 31, 2016, is comprised of 8.8% growth in premium, service and other revenue in the Company's managed care operations and 2.0% growth in acute care revenue.

Net earnings from continuing operations for the first quarter ended December 31, 2016, totaled $2.2 million, compared to a net loss from continuing operations of $3.3 million in the prior year quarter. Adjusted EBITDA for the first quarter ended December 31, 2016, totaled $61.8 million, compared to $57.4 million in the prior year quarter.

"We are pleased with our first quarter results, which reflect solid improvement in EBITDA and continued growth across our acute and managed care business lines," said IASIS Healthcare President and Chief Executive Officer W. Carl Whitmer. "In particular, our first quarter results reflect significant improvements at our managed care operations, resulting from our recent efforts to enhance clinical and cost efficiencies."

Acute Care Operations - First Quarter Ended December 31, 2016 and 2015

For the first quarter ended December 31, 2016, acute care revenue totaled $499.2 million, an increase of 2.0% compared to the prior year quarter. Admissions increased 0.3% and adjusted admissions decreased 0.5%, each compared to the prior year quarter. Net patient revenue per adjusted admission for the first quarter ended December 31, 2016, increased 2.6% compared to the prior year quarter.

Managed Care Operations - First Quarter Ended December 31, 2016 and 2015

For the first quarter ended December 31, 2016, premium, service and other revenue in the Company's managed care operations totaled $340.7 million, an increase of 8.8% compared to the prior year quarter. Total lives served across all managed care division product lines increased 8.5% compared to the prior year, with 681,300 lives served as of December 31, 2016. Excluding lives associated with the Arizona exchange plan, which the Company exited on January 1, 2017, total lives served increased 7.6%.

For the first quarter ended December 31, 2016, excluding the impact of the Arizona exchange plan, the medical loss ratio ("MLR") was 85.3%, compared to 89.5% in the prior year quarter. On a sequential basis, excluding the impact of the Arizona exchange plan, the MLR was 91.7% for the fourth quarter ended September 30, 2016.

Effective October 1, 2016, the Company's Arizona Medicaid plan received a 3.1% increase in capitation premium rates primarily as a result of recent medical cost trends, including the on-going increases in pharmacy costs. The state contract amendment, which provided for the increase in premium rates, also included certain program changes to the benefit structure for its members.

Cash Flow Analysis

Cash flows used in operating activities for the first quarter ended December 31, 2016, totaled $38.2 million, compared to $7.0 million in the prior year quarter. Operating cash flows for the first quarter ended December 31, 2016, were negatively impacted by the timing of expected funds associated with the Company's participation in Medicaid supplemental reimbursement programs. Additionally, the prior year quarter ended December 31, 2015, was positively impacted by the timing of cash associated with the annual health insurer fee and the receipt of income tax refunds.

Information Systems Conversion

The Company is currently in the process of converting to new integrated clinical and revenue cycle systems, a project in which the Company expects to make significant investments through the 2019 fiscal year. During the first quarter ended December 31, 2016, the Company spent $18.0 million in cash associated with its conversion efforts, $4.2 million of which is included in cash flows used in operating activities, $8.3 million is included in cash flows used in investing activities and $5.5 million is included in cash flows used in financing activities. During the prior year quarter ended December 31, 2015, the Company spent $7.7 million in cash associated with its conversion efforts, $2.2 million of which is included in cash flows used in operating activities, $3.4 million of which is included in cash flows used in investing activities and $2.1 million of which is included in cash flows used in financing activities.

Conference Call

A listen-only simulcast and 30-day replay of IASIS' first quarter 2017 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 February 10, 2017. 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 $3.3 billion, IASIS, headquartered in Franklin, Tennessee, owns and operates 17 acute care hospitals, one behavioral hospital and multiple other access points, including 139 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 681,300 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, 2016, 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 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 losses associated with the Company's Arizona health insurance marketplace exchange plan, IT conversion related costs, EHR settlements related to prior years, initial public offering, advisory and other legal and regulatory costs, costs associated with systems improvement efforts at the Company's Houston operations, and pre-opening and start-up losses related to the opening of a new hospital campus. 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 financial and operating performance for its business segments and on a consolidated basis 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 agreements 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 later 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
December 31,

  2016       2015  
Revenues
Acute care revenue before provision for bad debts $ 602,177 $ 581,401
Less: Provision for bad debts   (102,988 )   (91,815 )
Acute care revenue 499,189 489,586
Premium, service and other revenue   340,692     313,262  
Total revenue 839,881 802,848
 
Costs and expenses

Salaries and benefits (includes stock-based compensation of $1,055 and $1,607, respectively)

255,063 244,858
Supplies 89,529 84,851
Medical claims 276,054 266,707
Rentals and leases 21,802 21,332
Other operating expenses 137,505 129,750
Medicare and Medicaid EHR incentives (771 ) (442 )
Interest expense, net 29,745 32,610
Depreciation and amortization 26,397 26,193
Management fees   1,250     1,250  
Total costs and expenses 836,574 807,109
 

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

3,307 (4,261 )
Gain on disposal of assets, net   305     488  
 
Earnings (loss) from continuing operations before income taxes 3,612 (3,773 )
Income tax expense (benefit)   1,375     (492 )
 
Net earnings (loss) from continuing operations 2,237 (3,281 )
Loss from discontinued operations, net of income taxes   (86 )   (4,053 )
 
Net earnings (loss) 2,151 (7,334 )
Net earnings attributable to non-controlling interests   (3,901 )   (2,801 )
 
Net loss attributable to IASIS Healthcare LLC $ (1,750 ) $ (10,135 )

   

IASIS HEALTHCARE LLC

Consolidated Balance Sheets (Unaudited)

(In Thousands)

 

Dec. 31,
2016

Sept. 30,
2016

 
ASSETS
 
Current assets
Cash and cash equivalents $ 270,252 $ 345,685
Accounts receivable, net 357,504 342,368
Inventories 67,154 65,042
Prepaid expenses and other current assets   179,979     143,048  
Total current assets 874,889 896,143
 
Property and equipment, net 939,243 939,784
Goodwill 768,263 767,659
Other intangible assets, net 15,759 16,601
Other assets, net   49,399     49,283  
Total assets $ 2,647,553   $ 2,669,470  
 
LIABILITIES AND EQUITY
 
Current liabilities
Accounts payable $ 139,131 $ 143,415
Salaries and benefits payable 67,338 47,464
Accrued interest payable 10,237 27,831
Medical claims payable 181,526 167,024
Other accrued expenses and current liabilities 109,131 138,996

Current portion of long-term debt, capital leases and other long-term obligations

  12,079     18,086  

Total current liabilities

519,442 542,816
 
Long-term debt, capital leases and other long-term obligations 1,829,779 1,830,840
Deferred income taxes 92,540 91,633
Other long-term liabilities 91,232 90,295
 
Non-controlling interests with redemption rights 120,730 120,809
 
Equity
Member's deficit (24,327 ) (23,247 )
Non-controlling interests   18,157     16,324  
Total equity   (6,170 )   (6,923 )
Total liabilities and equity $ 2,647,553   $ 2,669,470  

 

IASIS HEALTHCARE LLC

Consolidated Statements of Cash Flows (Unaudited)

(In Thousands)

 
Quarter Ended

December 31,

  2016       2015  
Cash flows from operating activities
Net earnings (loss) $ 2,151 $ (7,334 )

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

Depreciation and amortization 26,397 26,193
Amortization of loan costs 1,934 1,971
Amortization of deferred gain from sale-leaseback (624 ) (624 )
Change in physician minimum revenue guarantees 846 949
Stock-based compensation 1,055 1,607
Deferred income taxes 888 (3,088 )
Gain on disposal of assets, net (305 ) (488 )
Loss from discontinued operations, net 86 4,053

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

Accounts receivable, net (14,851 ) (22,431 )
Inventories, prepaid expenses and other current assets (39,496 ) 27,469

Accounts payable, other accrued expenses and other accrued liabilities

  (16,171 )   (35,644 )
Net cash used in operating activities - continuing operations (38,090 ) (7,367 )
Net cash provided by (used in) operating activities - discontinued operations   (86 )   329  
Net cash used in operating activities   (38,176 )   (7,038 )
 
Cash flows from investing activities
Purchases of property and equipment (24,809 ) (35,844 )
Cash paid for acquisitions, net (733 ) (8,180 )
Proceeds from sale of assets 5 157
Change in other assets, net   (573 )   (1,082 )
Net cash used in investing activities   (26,110 )   (44,949 )
 
Cash flows from financing activities
Payment of long-term debt, capital leases and other long-term obligations (8,770 ) (5,526 )
Payment of debt financing costs - (245 )
Cash paid for the repurchase of non-controlling interests (79 ) (860 )
Distributions to non-controlling interests   (2,298 )   (3,283 )
Net cash used in financing activities   (11,147 )   (9,914 )
 
Change in cash and cash equivalents (75,433 ) (61,901 )
Cash and cash equivalents at beginning of period   345,685     378,513  
Cash and cash equivalents at end of period $ 270,252   $ 316,612  
 
Supplemental disclosure of cash flow information
Cash paid for interest $ 48,198   $ 48,038  
Cash received from income taxes, net $ 2   $ 11,488  

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
December 31,

 

2016   2015
Acute care operations (1)
Number of hospital facilities at end of period 18 18
Licensed beds at end of period 3,581 3,581
Average length of stay (days) 5.0 4.9
Occupancy rates (average beds in service) 47.7% 46.4%
Admissions 25,545 25,460
Percentage change 0.3%
Adjusted admissions 48,489 48,718
Percentage change (0.5)%
Patient days 127,318 123,888
Adjusted patient days 241,670 237,061
Surgeries 18,210 18,111
Emergency room visits 103,947 105,347

Outpatient revenue as a percentage of gross patient revenue

47.3% 47.7%
 
Managed care operations
Health plan lives (2) 524,000 503,500
MSO lives 95,900 91,100
Accountable care network lives 61,400 33,400
Total lives 681,300 628,000
 
Medical loss ratio (3) 85.2% 89.6%

 

(1) Includes St. Luke's Behavioral Health Center in Phoenix, Arizona.

(2) Includes approximately 62,300 Health Choice Integrated Care Navajo Nation plan members who also receive health plan services through a state of Arizona Tribal Regional Behavioral Health Authority.

(3) Represents medical claims expense as a percentage of premium revenue, including claims paid to the Company's hospitals. Includes the Company's Arizona health insurance marketplace exchange plan business which the Company exited effective January 1, 2017.

 

IASIS HEALTHCARE LLC

Supplemental Consolidated Statements of Operations Information (Unaudited)

(In Thousands)

 

Quarter Ended
December 31,

 

2016   2015
Consolidated Results
Net earnings (loss) from continuing operations $ 2,237 $ (3,281)
Add:
Interest expense, net 29,745 32,610
Income tax expense (benefit) 1,375 (492)
Depreciation and amortization 26,397 26,193
Stock-based compensation 1,055 1,607
Gain on disposal of assets, net (305) (488)
Management fees 1,250 1,250
Adjusted EBITDA 61,754 57,399
 
Arizona exchange plan losses - 476
Systems improvement costs associated with operation improvement efforts in Houston 1,091 3,104
Integrated clinical and revenue cycle systems conversion costs 2,392 916
EHR settlements related to prior years - 1,373
Initial public offering, advisory and other legal and regulatory costs 324 946
Pre-opening and start-up costs related to opening of a new hospital campus - 549
Normalized adjusted EBITDA $ 65,561 $ 64,763


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