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IASIS Healthcare Announces Second Quarter 2017 Results
[May 12, 2017]

IASIS Healthcare Announces Second Quarter 2017 Results


IASIS Healthcare® LLC ("IASIS" or the "Company") today announced financial and operating results for the fiscal second quarter and six months ended March 31, 2017.

Key Financial and Operating Results

Consolidated Financial and Operating Results - Second Quarter and Six Months Ended March 31, 2017 and 2016

Consolidated revenue for the second quarter ended March 31, 2017, totaled $843.0 million, an increase of 2.6% compared to $821.3 million in the prior year quarter. The consolidated revenue increase for the second quarter ended March 31, 2017, is comprised of 5.2% growth in premium, service and other revenue in the Company's managed care operations and 1.0% growth in acute care revenue. Excluding the Company's Arizona marketplace exchange business from both the current and prior year results, which the Company exited effective January 1, 2017, consolidated revenue increased 4.0% compared to the prior year quarter.

Net earnings from continuing operations for the second quarter ended March 31 2017, totaled $1.3 million, compared to a net loss from continuing operations of $10.4 million in the prior year period. Adjusted EBITDA for the second quarter ended March 31, 2017, totaled $62.1 million, compared to $48.6 million in the prior year quarter.

Consolidated revenue for the six months ended March 31, 2017, totaled $1.68 billion, an increase of 3.6% compared to $1.62 billion in the prior year period. The consolidated revenue increase for the six months ended March 31, 2017, is comprised of 7.0% growth in premium, service and other revenue in the Company's managed care operations and 1.5% growth in acute care revenue. Excluding the Company's Arizona marketplace exchange business from both the current and prior year results, consolidated revenue increased 4.0% compared to the prior year period.

Net earnings from continuing operations for the six months ended March 31 2017, totaled $3.5 million, compared to a net loss from continuing operations of $13.7 million in the prior year period. Adjusted EBITDA for the six months ended March 31, 2017, totaled $123.8 million, compared to $106.0 million in the prior year period.

Acute Care Operations - Second Quarter and Six Months Ended March 31, 2017 and 2016

For the second quarter ended March 31, 2017, acute care revenue totaled $504.3 million, an increase of 1.0% compared to the prior year quarter. Admissions increased 1.0% and adjusted admissions increased 1.0%, each compared to the prior year quarter.

For the six months ended March 31, 2017, acute care revenue totaled $1.0 billion, an increase of 1.5% compared to the prior year period. Admissions increased 0.7% and adjusted admissions increased 0.3%, each compared to the prior year period. Net patient revenue per adjusted admission for the six months ended March 31, 2017, increased 1.2% compared to the prior year period.

Managed Care Operations - Second Quarter and Six Months Ended March 31, 2017 and 2016

For the second quarter ended March 31, 2017, premium, service and other revenue in the Company's managed care operations totaled $338.8 million, an increase of 5.2% compared to the prior year quarter. Excluding the Company's Arizona marketplace exchange business from both the current and prior year results, premium, service and other revenue increased 8.8% compared to the prior year quarter.

For the six months ended March 31, 2017, premium, service and other revenue in the Company's managed care operations totaled $679.5 million, an increase of 7.0% compared to the prior year period. Excluding the Company's Arizona marketplace exchange business from both the current and prior year results, premium, service and other revenue increased 8.1% compared to the prior year period. Total lives served across all managed care division product lines increased 3.1% compared to the prior year, with 676,700 lives served as of March 31, 2017. Excluding lives associated with the Arizona exchange plan in the prior year, which the Company exited on January 1, 2017, total lives served increased 5.2% compared to the prior year.

For the second quarter ended March 31, 2017, excluding the impact of the Arizona exchange plan, the medical loss ratio ("MLR") was 84.1%, compared to 87.7% in the prior year quarter. For the six months ended March 31, 2017, excluding the impact of the Arizona exchange plan, the MLR was 84.6%, compared to 88.6% in the prior year period.

Cash Flow Analysis

Cash flows provided by operating activities for the first six months of fiscal 2017 totaled $50.2 million, compared to cash flows provided by operating activities of $78.7 million in the prior year. The decline in operating cash flows for the first six months ended March 31, 2017, compared to the same prior year period, is due to the timing of funds related to certain Medicaid supplemental reimbursement programs and an increase in operating expenses associated with the Company's conversion to a new clinical and revenue cycle system. Additionally, the prior year six months ended March 31, 2016, was positively impacted by the receipt of income tax refunds. Cash flows used in investing activities for the first six months of fiscal 2017 totaled $58.7 million, compared to $69.7 million in the prior year period.

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 six months of fiscal 2017, the Company spent $32.1 million in cash associated with its conversion efforts, $8.5 million of which is included in cash flows provided by operating activities, $18.6 million is included in cash flows used in investing activities and $5.0 million is included in cash flows used in financing activities. During the same six months period in the prior year, 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 and 30-day replay of IASIS' second 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 May 12, 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 141 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 676,700 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 cost 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 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
March 31,

Six Months Ended
March 31,

  2017       2016     2017       2016  
Revenues

Acute care revenue before provision for bad debts

$ 600,080 $ 598,194 $ 1,202,257 $ 1,179,595
Less: Provision for bad debts   (95,825 )   (98,881 )   (198,813 )   (190,696 )
Acute care revenue 504,255 499,313 1,003,444 988,899
Premium, service and other revenue   338,791     321,974     679,483     635,236  
Total revenue 843,046 821,287 1,682,927 1,624,135
 
Costs and expenses
Salaries and benefits (includes stock-based compensation of $1,286, $1,737, $2,341 and $3,344, respectively) 256,018 252,269 511,081 497,127
Supplies 86,850 84,113 176,379 168,964
Medical claims 275,335 268,030 551,389 534,737
Rentals and leases 22,234 21,968 44,036 43,300
Other operating expenses 141,835 148,137 279,340 277,887
Medicare and Medicaid EHR incentives (34 ) (48 ) (805 ) (490 )
Interest expense, net 31,915 34,033 61,660 66,643
Depreciation and amortization 26,100 27,057 52,497 53,250
Management fees   1,250     1,250     2,500     2,500  
Total costs and expenses 841,503 836,809 1,678,077 1,643,918
 
Earnings (loss) from continuing operations before gain on disposal of assets and income taxes 1,543 (15,522 ) 4,850 (19,783 )
Gain on disposal of assets, net   628     237     933     725  
 

Earnings (loss) from continuing operations before income taxes

2,171 (15,285 ) 5,783 (19,058 )
Income tax expense (benefit)   897     (4,885 )   2,272     (5,377 )
 
Net earnings (loss) from continuing operations 1,274 (10,400 ) 3,511 (13,681 )

Earnings (loss) from discontinued operations, net of income taxes

  (762 )   167     (848 )   (3,886 )
 
Net earnings (loss) 512 (10,233 ) 2,663 (17,567 )

Net earnings attributable to non-controlling interests

  (3,725 )   (2,602 )   (7,626 )   (5,403 )
 

Net loss attributable to IASIS Healthcare LLC

$ (3,213 ) $ (12,835 ) $ (4,963 ) $ (22,970 )

   

IASIS HEALTHCARE LLC

Consolidated Balance Sheets (Unaudited)

(In Thousands)

 

March 31,
2017

Sept. 30,
2016

 
ASSETS
 
Current assets
Cash and cash equivalents $ 320,916 $ 345,685
Accounts receivable, net 368,613 342,368
Inventories 68,467 65,042
Prepaid expenses and other current assets   151,996     143,048  
Total current assets 909,992 896,143
 
Property and equipment, net 938,121 939,784
Goodwill 777,344 767,659
Other intangible assets, net 14,916 16,601
Other assets, net   48,561     49,283  
Total assets $ 2,688,934   $ 2,669,470  
 
LIABILITIES AND EQUITY
 
Current liabilities
Accounts payable $ 142,056 $ 143,415
Salaries and benefits payable 54,561 47,464
Accrued interest payable 27,046 27,831
Medical claims payable 195,525 167,024
Other accrued expenses and current liabilities 129,784 138,996
Current portion of long-term debt, capital leases and other

long-term obligations

  17,556     18,086  

Total current liabilities

566,528 542,816
 
Long-term debt, capital leases and other long-term obligations 1,823,468 1,830,840
Deferred income taxes 92,362 91,633
Other long-term liabilities 93,507 90,295
 
Non-controlling interests with redemption rights 120,777 120,809
 
Equity
Member's deficit (27,407 ) (23,247 )
Non-controlling interests   19,699     16,324  
Total equity   (7,708 )   (6,923 )
Total liabilities and equity $ 2,688,934   $ 2,669,470  

   

IASIS HEALTHCARE LLC

Consolidated Statements of Cash Flows (Unaudited)

(In Thousands)

 

Six Months Ended
March 31,

  2017         2016  
Cash flows from operating activities
Net earnings (loss) $ 2,663 $ (17,567 )

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

Depreciation and amortization 52,497 53,250
Amortization of loan costs 3,869 4,012
Amortization of deferred gain from sale-leaseback (1,248 ) (1,248 )
Change in physician minimum revenue guarantees 1,724 2,050
Stock-based compensation 2,341 3,344
Deferred income taxes 1,149 (8,512 )
Gain on disposal of assets, net (933 ) (725 )
Loss from discontinued operations, net 848 3,886
Changes in operating assets and liabilities, net of the effect of

acquisitions and dispositions:

Accounts receivable, net (26,334 ) (24,684 )
Inventories, prepaid expenses and other current assets (13,254 ) 30,091
Accounts payable, other accrued expenses and other accrued liabilities   27,776     34,155  
Net cash provided by operating activities - continuing operations 51,098 78,052
Net cash provided by (used in) operating activities - discontinued operations   (855 )   637  
Net cash provided by operating activities   50,243     78,689  
 
Cash flows from investing activities
Purchases of property and equipment (44,798 ) (62,050 )
Cash paid for acquisitions, net (14,318 ) (8,180 )
Proceeds from sale of assets 68 166
Change in other assets, net   381     399  
Net cash used in investing activities   (58,667 )   (69,665 )
 
Cash flows from financing activities
Payment of long-term debt, capital leases and other long-term obligations (11,268 ) (8,288 )
Payment of debt financing costs - (5,179 )
Cash paid for the repurchase of non-controlling interests (169 ) (960 )
Distributions to non-controlling interests   (4,908 )   (5,563 )
Net cash used in financing activities   (16,345 )   (19,990 )
 
Change in cash and cash equivalents (24,769 ) (10,966 )
Cash and cash equivalents at beginning of period   345,685     378,513  
Cash and cash equivalents at end of period $ 320,916   $ 367,547  
 
Supplemental disclosure of cash flow information
Cash paid for interest $ 61,949   $ 60,258  
Cash received from income taxes, net $ (477 ) $ (11,411 )
 
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
March 31,

Six Months Ended
March 31,

2017   2016 2017   2016
Acute care operations (1)
Number of hospital facilities at end of period 18 18 18 18
Licensed beds at end of period 3,600 3,600 3,600 3,600
Average length of stay (days) 5.0 5.0 5.0 4.9
Occupancy rates (average beds in service) 49.3% 49.2% 48.3% 47.8%
Admissions 26,206 25,948 51,751 51,408
Percentage change 1.0% 0.7%
Adjusted admissions 49,075 48,606 97,560 97,304
Percentage change 1.0% 0.3%
Patient days 129,753 130,108 257,071 253,996
Adjusted patient days 242,982 243,722 484,623 480,760
Surgeries 17,511 16,413 36,171 34,524
Emergency room visits 109,969 111,012 213,916 216,359
Outpatient revenue as a percentage of gross patient revenue 46.6% 46.6% 47.0% 47.2%
 
Managed care operations
Health plan lives (2) 520,600 512,600 520,600 512,600
MSO lives 97,600 96,600 97,600 96,600
Accountable care network lives 58,500 47,000 58,500 47,000
Total lives 676,700 656,200 676,700 656,200
 
Medical loss ratio (3) 84.0% 87.2% 84.6% 88.4%
 
(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
March 31,

Six Months Ended
March 31,

  2017       2016     2017       2016  
Consolidated Results
Net earnings (loss) from continuing operations $ 1,274 $ (10,400 ) $ 3,511 $ (13,681 )
Add:
Interest expense, net 31,915 34,033 61,660 66,643
Income tax expense (benefit) 897 (4,885 ) 2,272 (5,377 )
Depreciation and amortization 26,100 27,057 52,497 53,250
Stock-based compensation 1,286 1,737 2,341 3,344
Gain on disposal of assets, net (628 ) (237 ) (933 ) (725 )
Management fees   1,250     1,250     2,500     2,500  
Adjusted EBITDA 62,094 48,555 123,848 105,954
 
Arizona exchange plan earnings - (1,128 ) - (652 )
Unfavorable development of prior year professional liability claims 5,367 11,866 5,367 11,866
System improvement costs associated with operation improvement efforts in Houston 1,780 1,958 2,984 4,764
Integrated clinical and revenue cycle systems conversion costs 5,941 1,682 7,759 2,833
EHR settlements related to prior years - 951 - 2,324

Initial public offering, advisory and other legal and regulatory costs

  2,635     1,529     2,959     2,746  
Normalized adjusted EBITDA $ 77,817   $ 65,413   $ 142,917   $ 129,835  


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