News Column

IPC The Hospitalist Company Reports Second Quarter 2014 Financial Results

July 23, 2014

NORTH HOLLYWOOD, Calif., July 23, 2014 (GLOBE NEWSWIRE) -- IPC The Hospitalist Company, Inc. (Nasdaq:IPCM), a leading national hospitalist physician group practice, today announced financial results for the second quarter ended June 30, 2014. All operating results referred to as "adjusted" exclude the change in fair market value of contingent consideration ("net change in fair value") for acquisitions. See "Reconciliation of Non-GAAP Financial Measures" below for explanations of these non-GAAP financial measures and reconciliation to GAAP financial measures.

Second Quarter 2014 Highlights (comparisons are to second quarter 2013):

• Net revenue increased 18% to $172.3 million, with same-market area net revenue growth of 14%.• Patient encounters increased 14% to 1,727,000.• Adjusted EBITDA increased 15% to $18.2 million.

Six Months Ended June 30, 2014 Highlights (comparisons are to six months ended June 30, 2013):

• Net revenue increased 15% to $345.0 million, with same-market area net revenue growth of 11%.• Patient encounters increased 13% to 3,491,000.• Adjusted EBITDA increased 9% to $36.1 million.

Adam D. Singer, M.D., Chief Executive Officer of IPC The Hospitalist Company, said, "We continue to deliver solid operating results and remain committed to a growth strategy that we believe creates long-term value for our patients, our physicians and the facilities we serve. Our second quarter results demonstrate the continued strength and effectiveness of our business model with double digit growth in net revenues, adjusted EBITDA and adjusted net income. This solid performance reflects a 22% increase in headcount as a result of both organic hires and acquisitions."

Dr. Singer added, "In line with our growth strategy we have completed eight acquisitions to-date in 2014, and coupled with our increased recruiting resources, we are poised to hire another record number of providers for 2014 and beyond. We continue to strive to be the employer and acquirer of choice and we remain confident that we can continue to further penetrate existing and new markets in both the acute care and post-acute care arenas."

Second Quarter 2014

Patient encounters for the three months ended June 30, 2014 increased by 214,000, or 14.1%, to 1,727,000, compared with 1,513,000 for the same period in the prior year. Net revenue for the three months ended June 30, 2014 was $172.3 million, an increase of $26.5 million, or 18.2%, from $145.8 million for the same period in the prior year. Of this $26.5 million increase, 74.0% was attributable to same-market area growth, including tuck-in acquisitions and new hires, and 26.0% was attributable to revenue generated from operations in new markets. Same-market net revenue increased 13.7% and same-market encounters increased 9.0%. The difference between revenue growth and encounter growth is attributable to an increase in hospital stipends, medical directorship revenues, meaningful use incentives and a true-up to previously estimated parity rates. 

Physician practice salaries, benefits and other expenses for the three months ended June 30, 2014 were $125.7 million, or 73.0% of net revenue, compared with $106.6 million, or 73.1% of net revenue, for the same period in the prior year. The dollar increase in cost of services is largely related to the increase in the number of hospitalists added through hiring and acquisitions during the period.

General and administrative expenses increased $5.1 million, or 21.9%, to $28.3 million, or 16.4% of net revenue, for the three months ended June 30, 2014, compared with $23.2 million, or 15.9% of net revenue, for the same period in the prior year. The 50 basis point increase as a percentage of revenue is primarily related to the Company's expansion of its corporate business development and recruiting resources. The dollar increase in expense is primarily the result of increased costs to support the continuing growth of operations and acquisitions, including new regional office costs, incremental costs of supporting the Company's post-acute business, expansion of the Company's corporate business development and recruiting resources and other expenses. Excluding stock-based compensation, general and administrative expenses were 15.3% of net revenue for the three months ended June 30, 2014, compared with 14.7% of net revenue for the same period in the prior year.

The net change in fair value of contingent consideration ("net change in fair value") for acquisitions was a reduction to expense of $0.7 million and $5.3 million for the three months ended June 30, 2014 and 2013, respectively.

Adjusted EBITDA for the three months ended June 30, 2014 increased 14.5% to $18.2 million, or an adjusted EBITDA margin of 10.6%, compared with adjusted EBITDA of $15.9 million, or an adjusted EBITDA margin of 10.9% for the same period in the prior year. The adjusted EBITDA margin decrease of 30 basis points compared with the same period in the prior year is primarily related to an increase in general and administrative expenses as a percentage of revenue.

The effective tax rate for the three months ended June 30, 2014 and 2013 was 38.3%.

Adjusted net income for the three months ended June 30, 2014 increased 12.4% to $10.2 million, or a 5.9% adjusted net income margin, compared with adjusted net income of $9.1 million, or a 6.2% adjusted net income margin, for the same period in the prior year. GAAP net income for the three months ended June 30, 2014 decreased to $10.6 million from $12.3 million for the same period in the prior year, and GAAP net income margin was 6.2% and 8.4% for the three months ended June 30, 2014 and 2013, respectively.

Adjusted diluted earnings per share for the three months ended June 30, 2014 and 2013 was $0.58 and $0.53, respectively. GAAP diluted earnings per share for the three months ended June 30, 2014 was $0.61, compared with $0.71 for the same period in the prior year.

Liquidity and Capital Resources

As of June 30, 2014, IPC had approximately $66.0 million in liquidity, which is composed of $26.3 million in cash and cash equivalents, and an available line of credit of $39.7 million. IPC had borrowings of $85.0 million from its revolving line of credit outstanding at June 30, 2014.

Net cash provided by operating activities for the six months ended June 30, 2014 was $26.1 million, compared with $20.5 million for the same period in the prior year. The change in working capital during the six months ended June 30, 2014 was largely related to an increase in accounts receivable of $9.7 million, a decrease in prepaid expenses and other current assets of $7.5 million, an increase in accounts payable and accrued liabilities of $3.4 million, and a decrease in accrued compensation of $1.2 million. Days sales outstanding (DSO), which is used to measure the effectiveness of collections, was 56 DSO as of June 30, 2014 and December 31, 2013.

Net cash used in investing activities was $24.1 million for the six months ended June 30, 2014, compared with $17.5 million for the same period in the prior year. Cash of $21.6 million was used during the six months ended June 30, 2014 for physician practice acquisitions and contingent consideration payments on prior acquisitions, compared with $15.3 million in the same period in the prior year.

For the six months ended June 30, 2014, net cash used in financing activities was $0.8 million, compared with $11.4 million for the same period in the prior year. During the six months ended June 30, 2014 and 2013, the Company repaid $5.0 million and $15.0 million, respectively, of its outstanding revolving line of credit.

2014 Guidance

The Company reaffirms its guidance for the full year 2014 and expects revenue to be in the range of $720 million to $732 million, an adjusted EBITDA range of $76 million to $79 million, and adjusted diluted earnings per share to be in the range of $2.41 to $2.51. The Company has provided this outlook based on assumptions of (i) weighted average shares outstanding of 17.6 million for the year, (ii) a 38.3% effective tax rate, (iii) $8.4 million in stock based compensation expense, and (iv) $6.0 million in depreciation and amortization expense. Not included in the assumptions are (i) new market acquisitions completed after today's date, or (ii) future gains or losses related to changes in the fair value of contingent consideration of acquired practices.

Reconciliation of Non-GAAP Financial Measures

This press release contains non-GAAP financial measures of adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA), adjusted net income and adjusted diluted earnings per share.

During the three and six months ended June 30, 2014 and 2013, the Company reported a change in fair value of contingent consideration for acquired practices as operating expense pursuant to GAAP, which is referred to in this press release as the "net change in fair value of contingent consideration" or "net change in fair value". The fair value of accrued contingent consideration is largely determined using the income approach for estimating future consideration to be paid based on projected earnings of acquired practices as of specified measurement dates. Because accrued contingent consideration is generally based on a certain multiple of earnings of the acquired practices during a specified measurement period, a relatively small or moderate change in such projected earnings may result in a material change to the fair value of such contingent consideration liability with a corresponding adjustment to income from operations.

During the three months ended June 30, 2014 and 2013, the Company recorded a reduction to expense of $695,000 and $5,262,000, respectively, and during the six months ended June 30, 2014 and 2013, the Company recorded a reduction to expense of $1,078,000 and $6,355,000, respectively, as a net change in fair value. In this press release, GAAP financial measurements of net income and diluted earnings per share, as well as a non-GAAP financial measurement of EBITDA have been adjusted to exclude the amount of the net change in fair value of contingent consideration. The Company believes that these non-GAAP financial measures are useful to management and investors reviewing financial and business trends related to its results of operations, and that when these non-GAAP financial measures are viewed with GAAP financial measures, investors are provided with a meaningful understanding of IPC's ongoing operating and financial performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for GAAP financial measures.

The following unaudited tables reconcile non-GAAP financial information to net income and diluted earnings per share, which the Company believes are the most comparable GAAP measures (dollars in thousands, except for per share data):

 Three Months Ended June 30,
 20142013
 GAAPAdjustmentNon-GAAPGAAPAdjustmentNon-GAAP
Income from operations  $ 17,576  $ (695)  $ 16,881  $ 20,032  $ (5,262)  $ 14,770
Investment income 1 1 3 3
Interest expense (382) (382) (99) (99)
Income before income taxes 17,195 (695) 16,500 19,936 (5,262) 14,674
Income tax provision (benefit) 6,586 (266) 6,320 7,635 (2,015) 5,620
Net Income  $ 10,609  $ (429)  $ 10,180  $ 12,301  $ (3,247)  $ 9,054
Earnings per share (diluted)  $ 0.61  $ (0.03)  $ 0.58  $ 0.71  $ (0.18)  $ 0.53
Weighted average shares (diluted) 17,515,938   17,515,938 17,228,173   17,228,173
             
             
 Six Months Ended June 30,
 20142013
 GAAPAdjustmentNon-GAAPGAAPAdjustmentNon-GAAP
Income from operations  $ 34,540  $ (1,078)  $ 33,462  $ 37,171  $ (6,355)  $ 30,816
Investment income 2 2 5 5
Interest expense (696) (696) (214) (214)
Income before income taxes 33,846 (1,078) 32,768 36,962 (6,355) 30,607
Income tax provision (benefit) 12,963 (413) 12,550 14,156 (2,434) 11,722
Net Income  $ 20,883  $ (665)  $ 20,218  $ 22,806  $ (3,921)  $ 18,885
Earnings per share (diluted)  $ 1.19  $ (0.04)  $ 1.15  $ 1.33  $ (0.23)  $ 1.10
Weighted average shares (diluted) 17,556,945   17,556,945 17,175,806   17,175,806


The following unaudited table reconciles the non-GAAP financial measurement of adjusted EBITDA to income from operations, which the Company believes is the most comparable GAAP measures (dollars in thousands):

 Three Months Ended June 30,Six Months Ended June 30,
 2014201320142013
Income from operations (GAAP)  $ 17,576  $ 20,032  $ 34,540  $ 37,171
Plus: Depreciation and amortization 1,366 1,160 2,631 2,314
EBITDA (non-GAAP) 18,942 21,192 37,171 39,485
Less: Net change in fair value of contingent consideration (695) (5,262) (1,078) (6,355)
Adjusted EBITDA (non-GAAP)  $ 18,247  $ 15,930  $ 36,093  $ 33,130


Conference Call Information

IPC The Hospitalist Company will host an investor conference call to review the quarterly results at 5:00 p.m. ET (2:00 p.m. PT) today. To participate in the conference call, please dial 877-225-7695 (USA) or 720-545-0027 (International). A live webcast of the call will also be available in the Investor Relations section on the corporate web site at http://www.hospitalist.com. A webcast replay can be accessed at the same site beginning July 23, 2014 at approximately 8:00 p.m. ET (5:00 p.m. PT) and will remain available until August 20, 2014 at 11:59 p.m.

About IPC The Hospitalist Company

IPC The Hospitalist Company, Inc. (Nasdaq:IPCM) is a leading physician group practice company focused on the delivery of hospitalist medicine and related facility-based services. IPC's physicians and affiliated providers practice exclusively in hospitals or other inpatient facilities, including acute, sub-acute and long-term care settings. The Company offers its employed providers comprehensive training, information technology, and management support systems necessary to improve the quality and reduce the cost of patient care in the facilities it serves. For more information, visit the IPC website at http://www.hospitalist.com.

Safe Harbor Statement

Certain statements and information in this press release may be deemed to be "forward-looking statements" within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Forward-looking statements in this press release may include, but are not limited to, those statements set forth under the section titled "2014 Guidance" regarding projected operating results, revenues, earnings, and IPC's growth opportunities and strategy. Forward-looking statements are often characterized by terminology such as "believe", "hope", "may", "anticipate", "should", "intend", "plan", "will", "expect", "estimate", "project", "positioned", "strategy" and similar expressions. Any forward-looking statements are necessarily based on a variety of estimates and assumptions which, though considered reasonable by the Company, may not be realized and are inherently subject to significant business, economic, competitive, industry, regulatory, market and financial uncertainties and contingencies, many of which are and will be beyond IPC's control. Important risks and uncertainties that could cause actual results, developments and business decisions to differ materially from those contemplated by any forward-looking statements are described in IPC's most recent Annual Report on Form 10-K, including the section titled "Risk Factors" and actual results could differ materially from those anticipated in forward-looking statements.

In particular the following risks and uncertainties may have such an impact:

• failure to comply with complex and intensive government regulation of the healthcare industry;• the adequacy of IPC's insurance coverage and insurance reserves;• IPC's ability to recruit and retain qualified physicians and non-physician providers;• IPC's ability to successfully identify, complete and efficiently integrate new acquisitions;• the effect of changes in rates or methods of third-party reimbursement; and• the high level of competition in IPC's industry.

IPC undertakes no obligation following the date of this press release to update or revise any such statements or projections whether as a result of new information, future events, or otherwise.

IPC The Hospitalist Company, Inc.
Consolidated Balance Sheets
(dollars in thousands, except for share data)
     
     
 June 30,December 31,
 20142013
 (unaudited)  
Assets    
Current assets:    
Cash and cash equivalents  $ 26,297  $ 25,010
Accounts receivable, net 113,295 103,585
Insurance receivable for malpractice claims - current portion 12,898 11,653
Prepaid expenses and other current assets 11,787 19,378
Total current assets 164,277 159,626
Property and equipment, net 7,018 6,343
Goodwill 370,637 357,387
Other intangible assets, net 5,306 5,857
Insurance receivable for malpractice claims - less current portion 22,786 20,599
Total assets  $ 570,024  $ 549,812
Liabilities and Stockholders' Equity    
Current liabilities:    
Accounts payable and accrued liabilities  $ 8,886  $ 5,486
Accrued compensation 34,440 35,639
Payable for practice acquisitions, current portion 20,178 32,430
Medical malpractice and self-insurance reserves, current portion 13,482 12,211
Deferred tax liabilities, current portion 969 969
Total current liabilities 77,955 86,735
Long-term debt 85,000 90,000
Medical malpractice and self-insurance reserves, less current portion 48,142 44,044
Payable for practice acquisitions, less current portion 9,182 8,289
Deferred tax liabilities, less current portion 5,762 5,762
Total liabilities 226,041 234,830
Stockholders' equity:    
Preferred stock, $0.001 par value, 15,000,000 shares authorized, none issued
Common stock, $0.001 par value, 50,000,000 shares authorized, 17,180,227 and 17,015,580 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively 17 17
Additional paid-in capital 176,044 167,926
Retained earnings 167,922 147,039
Total stockholders' equity 343,983 314,982
Total liabilities and stockholders' equity  $ 570,024  $ 549,812
 
IPC The Hospitalist Company, Inc.
Consolidated Statements of Income
(dollars in thousands, except for per share data)
(unaudited)
         
         
 Three Months Ended June 30,Six Months Ended June 30,
 2014201320142013
Net revenue  $ 172,268  $ 145,753  $ 344,994  $ 298,844
Operating expenses:        
Cost of services—physician practice salaries, benefits and other 125,687 106,584 252,960 218,652
General and administrative 28,334 23,239 55,941 47,062
Net change in fair value of contingent consideration (695) (5,262) (1,078) (6,355)
Depreciation and amortization 1,366 1,160 2,631 2,314
Total operating expenses 154,692 125,721 310,454 261,673
Income from operations 17,576 20,032 34,540 37,171
Investment income 1 3 2 5
Interest expense (382) (99) (696) (214)
Income before income taxes 17,195 19,936 33,846 36,962
Income tax provision 6,586 7,635 12,963 14,156
Net income  $ 10,609  $ 12,301  $ 20,883  $ 22,806
Net income per share:        
Basic  $ 0.62  $ 0.73  $ 1.22  $ 1.36
Diluted  $ 0.61  $ 0.71  $ 1.19  $ 1.33
Weighted average shares:        
Basic 17,123,840 16,763,325 17,089,410 16,733,513
Diluted 17,515,938 17,228,173 17,556,945 17,175,806
 
IPC The Hospitalist Company, Inc.
Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
     
     
 Six Months Ended June 30,
 20142013
Operating activities    
Net income  $ 20,883  $ 22,806
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 2,631 2,314
Stock-based compensation expense 4,024 3,598
Changes in assets and liabilities:    
Accounts receivable (9,710) (8,955)
Prepaid expenses and other current assets 7,452 7,009
Accounts payable and accrued expenses 3,400 348
Accrued compensation (1,199) (1,531)
Medical malpractice and self-insurance reserves, net 1,937 1,297
Accrued contingent consideration (3,304) (6,355)
Net cash provided by operating activities 26,114 20,531
Investing activities    
Acquisitions of physician practices (21,575) (15,319)
Purchase of property and equipment (2,485) (2,136)
Net cash used in investing activities (24,060) (17,455)
Financing activities    
Repayments of long-term debt (5,000) (15,000)
Net proceeds from issuance of common stock 3,648 2,519
Excess tax benefits from stock-based compensation 585 1,069
Net cash used in financing activities (767) (11,412)
Net increase (decrease) in cash and cash equivalents 1,287 (8,336)
Cash and cash equivalents, beginning of period 25,010 16,214
Cash and cash equivalents, end of period  $ 26,297  $ 7,878
 
IPC The Hospitalist Company, Inc.
Operating Data
(unaudited)
Patient Encounter Data:            
The following is a summary of the Company's patient encounters for the six consecutive quarters ended June 30, 2014:
             
             
 Quarter Ended
 Mar 31Jun 30Sep 30Dec 31Mar 31Jun 30
 201320132013201320142014
Patient encounters 1,576 1,513 1,509 1,613 1,764 1,727
             
Employee Data:            
The following is a summary of the Company's affiliated hospitalists employed at the end of the six consecutive quarters ended June 30, 2014:
             
             
 Quarter Ended
 Mar 31Jun 30Sep 30Dec 31Mar 31Jun 30
 201320132013201320142014
Employed physicians 1,096 1,062 1,175 1,257 1,212 1,184
Nurse practitioners and physician assistants 360 372 395 508 501 560
Total 1,456 1,434 1,570 1,765 1,713 1,744

CONTACT: Rick KlineIPC The Hospitalist Company, Inc. (818) 766-3502 Evan PondelPondelWilkinson, Inc. (310) 279-5980 epondel@pondel.com



IPC The Hospitalist Company, Inc. Logo

Source: IPC The Hospitalist Company, Inc.


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: GlobeNewswire


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters