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IPC Healthcare Reports First Quarter 2015 Financial Results

NORTH HOLLYWOOD, Calif., April 29, 2015 (GLOBE NEWSWIRE) -- IPC Healthcare, Inc. (Nasdaq:IPCM), a leading national acute hospitalist and post-acute provider group practice, today announced financial results for the first quarter ended March 31, 2015. 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.

First Quarter 2015 Highlights (comparisons are to first quarter 2014):

  • Record headcount growth of 94 net providers added sequentially in the first quarter, bringing the total to 1,961 providers.
  • Net revenue increased 5% to $180.8 million, despite cessation of Medicaid parity at the end of 2014.
  • Patient encounters increased 11% to 1,963,000.

Adam D. Singer, M.D., Chief Executive Officer of IPC Healthcare, said, "We are pleased with the strong growth of our business during the quarter as indicated by the 11% increase in patient encounters, which was driven by the highest sequential headcount growth of any comparable period in prior years. The sequential headcount growth of 94 net providers compared to a reduction of 52 for the same period last year stems from an improved rate of attrition and the strongest first quarter hiring and acquisition activity in the Company's history. We continue to be very encouraged by the level of projected organic hires, as well as our robust acquisition pipeline for the remainder of 2015 and beyond.

Dr. Singer added, "Although we are experiencing the anticipated net revenue headwind due to the cessation of Medicaid parity and the exiting of a few facility contracts during 2014, the fundamentals of our business remain strong. We also remain focused on continuing to grow our best-in-class workforce to optimize patient care, and we believe we are well positioned to benefit from our continued efforts to improve quality while reducing costs in the evolving value based purchasing healthcare environment."

First Quarter 2015

Patient encounters for the three months ended March 31, 2015 increased by 199,000, or 11.3%, to 1,963,000, compared with 1,764,000 for the same period in the prior year. Net revenue for the three months ended March 31, 2015 was $180.8 million, an increase of $8.0 million, or 4.7%, from $172.7 million for the same period in the prior year. The difference between revenue growth and encounter growth is principally related to Medicaid parity, which largely expired at the end of 2014, and the exiting of a few facility contracts during 2014. Of this $8.0 million increase, 55.6% was attributable to same-market area growth, including new hires and tuck-in acquisitions, and 44.4% was attributable to revenue generated from operations in new markets. Same-market encounters increased 8.7% and same-market net revenue increased 2.6%. Adjusting for Medicaid parity and the exiting of certain contracted facilities in 2014, same-market encounter growth and net revenue growth would have been approximately 10.6% and 10.5%, respectively.

Physician practice salaries, benefits and other expenses for the three months ended March 31, 2015 were $134.2 million, or 74.2% of net revenue, compared with $127.3 million, or 73.7% of net revenue, for the same period in the prior year. The 50 basis point increase in costs as a percentage of revenue is due to the acquisition of certain practices that are operating below the Company's average gross margin.

General and administrative expenses increased $2.2 million, or 7.9%, to $29.8 million, or 16.5% of net revenue, for the three months ended March 31, 2015, compared with $27.6 million, or 16.0% of net revenue, for the same period in the prior year. Adjusting for the cessation of Medicaid parity, general and administrative expenses would have been 16.0% of net revenue for the three months ended March 31, 2015. The dollar increase in expense is primarily the result of increased costs to support the continuing growth of operations. Excluding stock-based compensation, general and administrative expenses were 15.4% of net revenue for the three months ended March 31, 2015, compared with 14.8% 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 an increase to expense of $4.7 million and a reduction to expense of $0.4 million for the three months ended March 31, 2015 and 2014, respectively. The $4.7 million increase was largely associated with a practice acquired in 2013 in the post-acute setting in New York. Because the fair value of contingent consideration for this practice is based on a certain multiple of operating results, the recent moderate improvement in projected earnings resulted in a large increase to expense.

Adjusted EBITDA for the three months ended March 31, 2015 decreased 5.8% to $16.8 million, or an adjusted EBITDA margin of 9.3%, compared with adjusted EBITDA of $17.8 million, or an adjusted EBITDA margin of 10.3% for the same period in the prior year.

The effective tax rate for the three months ended March 31, 2015 and 2014 was 38.0% and 38.3%, respectively.

Adjusted net income for the three months ended March 31, 2015 decreased 7.2% to $9.3 million, or a 5.2% adjusted net income margin, compared with adjusted net income of $10.0 million, or a 5.8% adjusted net income margin, for the same period in the prior year. GAAP net income was $6.4 million for the three months ended March 31, 2015, compared with $10.3 million for the same period in the prior year, and GAAP net income margin was 3.5% and 5.9% for the three months ended March 31, 2015 and 2014, respectively.

Adjusted diluted earnings per share for the three months ended March 31, 2015 and 2014 was $0.53 and $0.57, respectively. GAAP diluted earnings per share was $0.36 and $0.58 for the three months ended March 31, 2015 and 2014, respectively.

Liquidity and Capital Resources

As of March 31, 2015, IPC had approximately $59.7 million in liquidity, which is composed of $10.0 million in cash and cash equivalents, and an available line of credit of $49.7 million. IPC had borrowings of $75.0 million from its revolving line of credit outstanding at March 31, 2015.

Net cash provided by operating activities for the three months ended March 31, 2015 was $14.1 million, compared with $10.2 million for the same period in the prior year. The change in working capital during the three months ended March 31, 2015 was largely related to an increase in accounts receivable of $11.6 million, a decrease in prepaid expenses and other current assets of $5.1 million, an increase in accounts payable and accrued liabilities of $1.9 million, and an increase in accrued compensation of $3.9 million. Days sales outstanding (DSO), which is used to measure the effectiveness of collections, was 64 DSO and 60 DSO as of March 31, 2015 and December 31, 2014, respectively. The four day increase in DSO was largely related the recent level of practice acquisitions.

Net cash used in investing activities was $15.8 million for the three months ended March 31, 2015, compared with $9.5 million for the same period in the prior year. Cash of $13.9 million was used during the three months ended March 31, 2015 for physician practice acquisitions and contingent consideration payments on prior acquisitions, compared with $8.7 million for the same period in the prior year.

For the three months ended March 31, 2015, net cash used in financing activities was $3.3 million, compared with $2.4 million for the same period in the prior year. During the three months ended March 31, 2015, the Company repaid $20.0 million of its outstanding revolving line of credit and borrowed $15.0 million under the revolving line of credit to fund its practice acquisitions. During the three months ended March 31, 2014, the Company repaid $5.0 million of its outstanding revolving line of credit.

2015 Guidance

The Company reaffirms its guidance for the full year 2015 and expects revenue to be in the range of $752.0 million to $766.0 million based on 8.3 million to 8.5 million encounters, adjusted EBITDA in the range of $71.0 million to $74.0 million, and adjusted diluted earnings per share in the range of $2.14 to $2.27. The Company has provided this outlook based on the following assumptions: (i) weighted average shares outstanding of 17.7 million for the year; (ii) a 38.3% effective tax rate, (iii) $7.9 million in stock-based compensation expense, and (iv) $7.2 million in depreciation and amortization expense. Not included in the assumptions are (i) new market practice acquisitions completed after today's date, and (ii) future gains or losses related to changes in estimates of earn-outs attributable to practice acquisitions.

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 months ended March 31, 2015 and 2014, 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 March 31, 2015 and 2014, the Company recorded an increase to expense of $4,684,000 and a reduction to expense of $383,000, 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 March 31,
2015 2014
GAAP Adjustment Non-GAAP GAAP Adjustment Non-GAAP
Income from operations $10,613 $4,684 $15,297 $16,964 $(383) $16,581
Investment income 1 1 1 1
Interest expense (277) (277) (314) (314)
Income before income taxes 10,337 4,684 15,021 16,651 (383) 16,268
Income tax provision 3,927 1,779 5,706 6,377 (147) 6,230
Net income $6,410 $2,905 $9,315 $10,274 $(236) $10,038
Earnings per share (diluted) $0.36 $0.17 $0.53 $0.58 $(0.01) $0.57
Weighted average shares (diluted) 17,715,413 17,715,413 17,567,583 17,567,583

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 March 31,
2015 2014
Income from operations (GAAP) $10,613 $16,964
Plus: Depreciation and amortization 1,515 1,265
EBITDA (non-GAAP) 12,128 18,229
Less: Net change in fair value of contingent consideration 4,684 (383)
Adjusted EBITDA (non-GAAP) $16,812 $17,846

Conference Call Information

IPC Healthcare 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.ipchealthcare.com. A webcast replay can be accessed at the same site beginning April 29, 2015 at approximately 8:00 p.m. ET (5:00 p.m. PT) and will remain available until May 29, 2015 at 11:59 p.m.

About IPC Healthcare

IPC Healthcare, Inc. (Nasdaq:IPCM) is a leading national acute hospitalist and post-acute provider group practice company. IPC Healthcare's affiliated physicians and other clinical providers practice in over 390 hospitals and 1,660 post-acute care facilities. The Company offers its more than 1,960 employed clinicians comprehensive training, information technology, and management support systems 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.ipchealthcare.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 "2015 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 Healthcare, Inc.
Consolidated Balance Sheets
(dollars in thousands, except for share data)
March 31, December 31,
2015 2014
(unaudited)
Assets
Current assets:
Cash and cash equivalents $10,020 $14,913
Accounts receivable, net 133,710 122,092
Insurance receivable for malpractice claims, current portion 13,038 12,564
Prepaid expenses and other current assets 15,702 20,876
Total current assets 172,470 170,445
Property and equipment, net 9,038 8,798
Goodwill 429,793 408,988
Other intangible assets, net 4,725 4,957
Insurance receivable for malpractice claims, less current portion 22,409 21,574
Total assets $638,435 $614,762
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $9,864 $8,388
Accrued compensation 44,757 40,907
Payable for practice acquisitions, current portion 44,636 35,411
Medical malpractice and self-insurance reserves, current portion 13,618 13,079
Deferred tax liabilities, current portion 584 584
Total current liabilities 113,459 98,369
Long-term debt 75,000 80,000
Medical malpractice and self-insurance reserves, less current portion 48,659 47,239
Payable for practice acquisitions, less current portion 11,672 9,500
Deferred tax liabilities, less current portion 11,737 11,737
Total liabilities 260,527 246,845
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, 17,384,739 and 17,242,209
shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively
17 17
Additional paid-in capital 185,422 181,841
Retained earnings 192,469 186,059
Total stockholders' equity 377,908 367,917
Total liabilities and stockholders' equity $638,435 $614,762
IPC Healthcare, Inc.
Consolidated Statements of Income
(dollars in thousands, except for per share data)
Three Months Ended March 31, 2015
2015 2014
Net revenue $180,771 $172,726
Operating expenses:
Cost of services—physician practice salaries, benefits and other 134,167 127,273
General and administrative 29,792 27,607
Net change in fair value of contingent consideration 4,684 (383)
Depreciation and amortization 1,515 1,265
Total operating expenses 170,158 155,762
Income from operations 10,613 16,964
Investment income 1 1
Interest expense (277) (314)
Income before income taxes 10,337 16,651
Income tax provision 3,927 6,377
Net income $6,410 $10,274
Net income per share:
Basic $0.37 $0.60
Diluted $0.36 $0.58
Weighted average shares:
Basic 17,302,522 17,054,598
Diluted 17,715,413 17,567,583
IPC Healthcare, Inc.
Consolidated Statements of Cash Flows
(dollars in thousands)
Three Months Ended March 31,
2015 2014
Operating activities
Net income $6,410 $10,274
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 1,515 1,265
Stock-based compensation expense 1,904 1,965
Changes in assets and liabilities:
Accounts receivable (11,618) (14,064)
Prepaid expenses and other current assets 5,104 4,270
Accounts payable and accrued expenses 1,939 4,260
Accrued compensation 3,850 2,770
Medical malpractice and self-insurance reserves, net 650 623
Accrued contingent consideration 4,379 (1,189)
Net cash provided by operating activities 14,133 10,174
Investing activities
Acquisitions of physician practices (13,908) (8,740)
Purchase of property and equipment (1,865) (750)
Net cash used in investing activities (15,773) (9,490)
Financing activities
Proceeds from long-term debt 15,000
Repayments of long-term debt (20,000) (5,000)
Net proceeds from issuance of common stock 1,580 2,160
Excess tax benefits from stock-based compensation 167 420
Net cash used in financing activities (3,253) (2,420)
Net decrease in cash and cash equivalents (4,893) (1,736)
Cash and cash equivalents, beginning of period 14,913 25,010
Cash and cash equivalents, end of period $10,020 $23,274
IPC Healthcare, Inc.
Operating Data
(unaudited)
Patient Encounter Data:
The following is a summary of the Company's patient encounters for the six consecutive quarters ended March 31, 2015 (in thousands):
Quarter Ended
Dec 31
2013
Mar 31
2014
Jun 30
2014
Sep 30
2014
Dec 31
2014
Mar 31
2015
Patient encounters 1,613 1,764 1,727 1,749 1,828 1,963
Employee Data:
The following is a summary of the Company's affiliated clinicians employed at the end of the six consecutive quarters ended March 31, 2015:
Quarter Ended
Dec 31
2013
Mar 31
2014
Jun 30
2014
Sep 30
2014
Dec 31
2014
Mar 31
2015
Employed physicians 1,257 1,212 1,184 1,251 1,259 1,300
Nurse practitioners and physician assistants 508 501 560 587 608 661
Total 1,765 1,713 1,744 1,838 1,867 1,961

CONTACT: Rick Kline IPC Healthcare, Inc. (818) 766-3502 Evan Pondel PondelWilkinson, Inc. (310) 279-5980 epondel@pondel.com

Source:IPC Healthcare, Inc.