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Team Finance LLC Announces Second Quarter 2006 Results
KNOXVILLE, Tenn., Aug. 9 /PRNewswire/ -- Team Health Inc.'s parent company, Team Finance LLC (the "Company") today announced results for its quarter ended June 30, 2006. On November 23, 2005, affiliates of The Blackstone Group ("Blackstone") acquired a majority interest in Team Health Holdings, LLC, the parent of the Company, in a merger that was accounted for as a recapitalization (the "Transaction"). Team Health, Inc. ("Team Health") is a wholly-owned subsidiary of the Company. The historical financial results of the Company and Team Health have been restated to give effect to the Transaction. Net revenue less provision for uncollectibles ("revenue less provision") in the second quarter of 2006 increased 3.9% to $267.8 million from $257.7 million in the corresponding period of 2005. Same contract revenue less provision for the quarter increased by 1.6% to $225.8 million from $222.3 million in the same period a year ago. Acquisitions and new sales, net of contracts that terminated in the period, contributed $4.2 million and $2.4 million of growth between periods, respectively. Net earnings were $2.2 million in the second quarter of 2006, compared to $10.0 million in the second quarter of 2005. The decline in net earnings between periods is due in part to increased net interest expense associated with an increased level of debt incurred during the Transaction. Net revenue less provision for the six months ended June 30, 2006 increased 4.6% to $531.7 million from $508.3 million in 2005. Same contract revenue less provision for the six months ended June 30, 2006 increased 3.4% to $447.1 million from $432.3 million in 2005. New sales, net of contracts that terminated in the period, contributed $4.4 million of growth between periods. Acquisitions contributed $4.2 million of the year over year growth. Net earnings were $7.1 million for the six months ended June 30, 2006 compared to $25.7 million in the corresponding period of 2005. The financial results for the first six months of 2006 reflect an impairment loss, recorded in the first quarter of 2006, of $9.5 million to reduce the carrying value of goodwill and contract intangibles related to the Company's anesthesia management business. Also included in the financial results for the six months ended June 20, 2006 and 2005 was a reduction of professional liability reserves related to prior years of $12.1 million and $7.6 million, respectively, resulting from the Company's annual actuarial study completed in the first quarter of each calendar year. As of June 30, 2006, the Company had cash and cash equivalents of approximately $6.3 million and revolving credit facility borrowing availability of $119.3 million (without giving effect to $7.4 million of undrawn letters of credit). During the second quarter 2006, the Company made a scheduled debt payment of $1.1 million and utilized net borrowings under the revolving credit facility for working capital purposes. As a result of these activities, the Company's total outstanding debt as of June 30, 2006 was $643.6 million, including $5.7 million outstanding under the revolving credit facility. Cash flow provided by operations (after interest, taxes and changes in working capital) for the six months ended June 30, 2006 was $16.4 million compared to $28.0 million in 2005. The reduction in operating cash flow between periods is primarily due to decreased net earnings between periods and higher levels of interest expense offset by a reduction in taxes paid and a reduced level of accounts receivable funding. Lynn Massingale, M.D., Chief Executive Officer of Team Health, said, "During the first six months of 2006, we experienced growth in patient volume at rates below our historical trends in our core Emergency Department (ED) business. Same contract ED volume increased 2.3% in the second quarter of 2006 and 2.2% in the first six months of 2006 compared to the same periods in 2005. We believe that a portion of this lower growth rate in same contract ED patient billing volume was due to the limited flu season during the first half of 2006, as most of the country experienced a relatively mild winter. We also believe our volumes were impacted by changes in the Tenncare program, the State of Tennessee's Medicaid program, which significantly reduced eligibility and therefore the number of covered participants beginning in the later part of 2005. "Increases from managed care programs, fee schedules and higher patient acuity offset certain payer mix and Medicare factors which allowed for a modest year over year increase in fee for service pricing. During the first six months of 2006, we experienced a slight shift in our payer mix as self-pay visits as a percentage of our total billing volume increased by 1.0%, while Medicare and Medicaid volume declined by 1.2%. The increase in the self-pay patient visits resulted in an increased level of bad debt expense in the period and unfavorably impacted growth in fee for service pricing. In addition, 2006 physician fee schedules under the Medicare program were flat compared to 2005 rates. "Despite the current challenges in the ED operation, we continue to be successful in adding significant value to our hospital customers and affiliated physician relationships. Our ongoing investment in risk management, physician education, and patient safety initiatives continue to generate positive results which can be seen in the improvement in our year over year professional liability costs. In addition, we are realizing favorable results from our efforts to add new hospital customer relationships, resulting in a net increase in contracts and positive net gains in revenue from new customers in 2006. "Our other clinical staffing operations, including our military, radiology, pediatric, and locum tenen operating areas, are performing well so far in 2006. Our military staffing operation has successfully weathered the disruption of the military's decision to re-bid all of its contracts starting in 2004. During the first six months of 2006, the military staffing operation has increased revenues by 8.9% and improved operating margins. In 2005, we restructured our radiology staffing operation by divesting our imaging center business and terminating certain hospital staffing contracts. As a result of these changes, our radiology operation has realized improved operating margins so far in 2006. "We are pleased to report that we have successfully completed two recent acquisitions. In the second quarter of 2006, we acquired the operations of an ED staffing company with eight hospital clients in Ohio. We are very excited about this opportunity to partner with these high quality clinicians as they complement our existing customer base and strategic objectives in this key market. In July, we acquired the operations of a hospital medicine company which primarily conducts business in approximately 50 Florida hospitals. This acquisition fits very well into our existing hospital medicine operation which is a leader is this fast growing specialty. "Finally, the proposed Medicare physician fee schedule for 2007 was recently announced and several of the procedure codes used extensively in emergency medicine are proposed to be increased. However, the current pricing formula also reflects an overall decline in the physician payment conversion factor of approximately 5.1%, which will offset a portion of the proposed increase in procedure codes. This decline in the physician payment conversion factor results from the methodology that is required under the present statutory formula. During the past several years, such a scheduled reduction in the conversion factor has been reversed by Congressional action late in the year. We will continue to monitor and support existing legislative initiations to reduce or eliminate this formulaic reduction in the Medicare fee schedule for the upcoming year. We estimate the net impact of these changes will increase our Medicare and certain managed care revenues tied to the Medicare fee schedule in the amount of $1.6 million. With no decrease in the conversion factor, we estimate the increase in such revenues to be approximately $9.4 million." About Team Health Founded in 1979, Team Health is headquartered in Knoxville, Tennessee. Team Health is affiliated with over 5,600 healthcare professionals who provide emergency medicine, radiology, anesthesia, hospitalist, urgent care and pediatric staffing and management services to over 500 civilian and military hospitals, surgical centers and clinics in 43 states. For more information about Team Health, visit http://www.teamhealth.com/. As previously announced, Team Health will hold an investor conference call at 11:00 a.m. Eastern Time on August 10, 2006. All interested parties may listen to the call by calling (888) 290-3292. A taped replay of the call will be available after 1:00 p.m. Eastern Time Thursday, August 10, 2006, through midnight on Thursday, August 17, 2006, by calling (800) 642-1687, access code 2476300. Statements made in this communication that are not historical facts and that reflect the current view of Team Health, Inc. (the "Company") about future events and financial performance are hereby identified as "forward looking statements." Some of these statements can be identified by terms and phrases such as "anticipate," "believe," "intend," "estimate," "expect," "continue," "could," "may," "plan," "project," "predict" and similar expressions and include references to assumptions that we believe are reasonable and relate to our future prospects, developments and business strategies. The Company cautions readers of this communication that such "forward looking statements", including without limitation, those relating to the Company's future business prospects, revenue, working capital, professional liability expense, liquidity, capital needs, interest costs and income, wherever they occur in this communication or in other statements attributable to the Company, are necessarily estimates reflecting the judgment of the Company's senior management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the "forward looking statements". Factors that could cause our actual results to differ materially from those expressed or implied in such forward-looking statements, include, but are not limited to those factors detailed from time to time in the Company's filings with the Securities and Exchange Commission, including filings on Forms 10-Q and 10-K. The Company disclaims any intent or obligation to update "forward looking statements" made in this communication to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time. Team Finance LLC
Financial Highlights
Three Months Ended
June 30,
2006 2005
(Unaudited)
(In thousands)
Net revenue $453,760 $401,605
Provision for uncollectibles 185,956 143,888
Net revenue less provision for uncollectibles 267,804 257,717
Cost of services rendered
Professional service expenses 203,319 186,315
Professional liability costs 12,147 13,149
Gross profit 52,338 58,253
General and administrative expenses 27,016 25,877
Management fee and other expenses 938 1,916
Depreciation and amortization 7,106 6,659
Interest expense, net 14,110 6,722
Loss on extinguishment of debt - 1,402
Earnings before income taxes 3,168 15,677
Provision for income taxes 965 5,714
Net earnings $2,203 $9,963
Team Finance LLC
Financial Highlights
Six Months Ended
June 30,
2006 2005
(Unaudited)
(In thousands)
Net revenue $871,918 $799,672
Provision for uncollectibles 340,232 291,364
Net revenue less provision for uncollectibles 531,686 508,308
Cost of services rendered
Professional service expenses 399,344 366,643
Professional liability costs 11,671 18,392
Gross profit 120,671 123,273
General and administrative expenses 53,150 50,765
Management fee and other expenses 1,815 2,320
Impairment of intangibles 9,523 -
Depreciation and amortization 14,241 13,317
Interest expense, net 27,895 13,913
Loss on extinguishment of debt - 1,402
Earnings before income taxes 14,047 41,556
Provision for income taxes 6,913 15,851
Net earnings $7,134 $25,705
Team Finance LLC
Financial Highlights
Under the indenture governing the senior subordinated notes, the Company's ability to engage in certain activities such as incurring certain additional indebtedness, making certain investments, and paying certain dividends is tied to ratios based on Adjusted EBITDA (which is defined as "EBITDA" in the indenture). Adjusted EBITDA under the indenture is defined as net earnings as further adjusted to exclude unusual items, non-cash items and the other adjustments shown in the table below. We believe that the disclosure of the calculation of Adjusted EBITDA provides information that is useful to an investor's understanding of the Company's liquidity and financial flexibility. EBITDA is not a measurement of financial performance or liquidity under generally accepted accounting principles. It should not be considered in isolation or as a substitute for net income, operating income, cash flows from operating, investing or financing activities, or any other measure calculated in accordance with generally accepted accounting principles. Adjusted EBITDA as calculated under the indenture is as follows: Three Months Ended Six Months Ended
June 30, June 30,
2006 2005 2006 2005
Net earnings $2,203 $9,963 $7,134 $25,705
Interest expense, net 14,110 6,722 27,895 13,913
Provision for income taxes 965 5,714 6,913 15,851
Depreciation and amortization 7,106 6,659 14,241 13,317
EBITDA 24,384 29,058 56,183 68,786
Impairment of intangibles (a) - - 9,523 -
Loss on extinguishment
of debt (b) - 1,402 - 1,402
Management fee and other
expenses (c) 938 1,916 1,815 2,320
Stock option expense (d) - 252 - 313
Restricted unit expense (e) 140 - 337 -
Insurance subsidiary
interest income 437 204 933 356
Severance and other charges (23) 265 494 432
Adjusted EBITDA* $25,876 $33,097 $69,285 $73,609
* Adjusted EBITDA totals include the effects of professional liability
loss reserve adjustments of $7,578 and $12,068 for the six months
ended June 30, 2005 and 2006, respectively.
(a) Includes impairment of goodwill as well as contract intangibles.
(b) Reflects the recognition of deferred financing costs and bond
repayment premiums on previously outstanding bank and bond
borrowings.
(c) Reflects management sponsor fees and loss on disposal of assets.
(d) Reflects costs related to the recognition of expense in connection
with previously outstanding stock options.
(e) Reflects costs related to the recognition of expense in connection
with the issuance of restricted units under the 2005 unit plan.
Team Finance LLC
Financial Highlights
June 30, December 31,
Balance Sheet Data 2006 2005
(In thousands)
Cash and cash equivalents $6,261 $10,644
Accounts receivable, net 180,808 180,407
Long-term debt, including current portion 643,575 645,300
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