NASHVILLE, Tenn. ─ (November 1, 2016) ─ AMSURG Corp. (NASDAQ: AMSG) today announced financial results for the third quarter and nine months ended September 30, 2016. The Company’s results for the quarter, compared with the third quarter of 2015, included:
- Net revenues of $822.2 million, up 26% from $650.2 million for the third quarter of 2015;
- Net earnings attributable to AMSURG common shareholders of $37.7 million, a decline of 7%, and $0.69 per diluted share, a decline of 17%, primarily due to transaction costs related to AMSURG’s proposed merger with Envision Healthcare and to AMSURG’s deconsolidation activities;
- An increase of 22% in adjusted net earningsto $64.9 million;
- A 10% increase in adjusted net earnings per diluted share to $1.13, on a 12% increase in diluted shares outstanding, if converted, primarily due the Company’s December 2015 public offering of common stock; and
- Adjusted EBITDA of $153.0 million, an increase of 15%.
See page 6 for a reconciliation of all GAAP and non-GAAP financial results.
“AMSURG produced strong revenue growth for the third quarter of 2016, increasing more than 20% before the impact of consolidating a Physician Services joint venture,” commented Christopher A. Holden, President and Chief Executive Officer of AMSURG. “This revenue growth primarily resulted from the substantial success of our acquisition strategy, which, over the 12 months prior to the end of the third quarter, included the deployment of more than $1 billion of acquisition capital. In addition, third-quarter revenues benefitted from same contract revenue growth of 7.5% in our Physician Services division and 2.3% in our Ambulatory Services division.
“We remain on pace to complete our transformative merger with Envision Healthcare. We and Envision have received the required antitrust approvals and scheduled our respective Special Meeting of Shareholders to vote on the merger on November 28, 2016. Subject to Envision and AMSURG shareholder approval and the satisfaction or waiver of other customary closing conditions, we continue to expect to complete the merger by the end of 2016. On completion, this merger will create a national provider of a broad, unique continuum of clinical network solutions, including multiple outsourced physician specialties, such as emergency, hospitalist, anesthesia, radiology and children’s services, as well as solutions for ambulatory surgery, post-acute care and medical transportation.
“During the third quarter, Ambulatory Services acquired three ambulatory surgery centers (ASCs), including two multi-specialty centers and one gastroenterology center. Physician Services completed two acquisitions of anesthesia practices. We continue to evaluate additional potential acquisitions in our strong pipeline, including opportunities for Ambulatory Services and across all our Physician Services specialties. In the first nine months of 2016, we deployed over $350 million of capital for acquisitions, which we expect to increase to approximately $400 million for the full year.
Net revenues for the third quarter of 2016 were $314.6 million, a 1.8% increase from $309.0 million for the third quarter of 2015. While Ambulatory Services operated a total of 260 ASCs at the end of the third quarter of 2016 compared with 253 at the end of the third quarter last year, nine ASCs were deconsolidated during the 12 months ended September 30, 2016, which contributed incremental revenues of $11.4 million for the third quarter of 2015. The 2.3% increase in same center revenues for the third quarter of 2016 compared with the third quarter of 2015 was comprised of a 1.0% increase in procedures and a 1.3% increase in net revenue per procedure. Adjusted EBITDA increased 10.4% for the third quarter to $61.1 million from $55.4 million for the third quarter last year.
Ambulatory Services operated 260 ASCs and one surgical hospital at September 30, 2016. In addition to acquiring three ASCs during the quarter, Ambulatory Services disposed of one ASC. The division had two ASCs under letter of intent at the end of the quarter, and one ASC was under development, which is expected to open in the fourth quarter of 2016.
Net revenues for Physician Services were $507.6 million for the third quarter of 2016, a 48.8% increase from $341.2 million for the third quarter of 2015. This growth reflected the consolidation for accounting purposes of a joint venture into the Physician Services results of operations, due to an expansion of certain powers provided to the officers of the joint venture. This consolidation accounted for $35.0 million of the $166.4 million growth in revenues for the quarter, a portion of the growth in various operating expenses and the decline in equity in earnings of unconsolidated affiliates for the quarter. The consolidation did not affect the dollar amounts of measures of profitability, including operating income, EBITDA and net earnings attributable to AMSURG common shareholders. However, profit margins were impacted by the additional revenue. Adjusted EBITDA was $91.9 million for the quarter, up 18.1% from $77.8 million for the third quarter of 2015, and adjusted EBITDA margin was 18.1% compared with 22.8%, with a significant portion of the margin decline related to the consolidation of the joint venture.
The comparable-quarter growth in Physician Services revenues was comprised of an increase of 5.9% in same-contract revenues, 1.0% in net new contract revenues, 31.6% in acquisition revenues and 10.3% in revenues resulting from the consolidation of the joint venture. Same-contract growth in net revenues totaled 7.5% for the third quarter of 2016, which included a 2.9% increase in patient encounters per day and a 4.6% increase in net revenue per patient encounter.
At September 30, 2016, AMSURG had cash and cash equivalents of $106.1 million and availability of $100 million under its revolving credit facility. Net cash flows from operations, less distributions to noncontrolling interests, were $109.7 million, excluding transaction costs, for the third quarter. The Company’s ratio of total debt at the end of the second quarter to trailing 12 months EBITDA as calculated under the Company’s credit agreement was 4.2.
AMSURG today increased its 2016 financial guidance for net revenues based on third-quarter results, the outlook for the fourth quarter and the continuing impact of the joint venture consolidation. The Company also provided financial guidance for the fourth quarter of 2016. The Company’s guidance does not include any impact from the completion of the proposed merger with Envision. If the completion of the merger occurs before the end of 2016, actual results of operations for 2016 could differ from this guidance. The Company’s financial and operating guidance is as follows:
- Revenues of $3.15 billion to $3.17 billion for 2016 compared with $3.05 billion to $3.09 billion previously;
- A same-center revenue increase of 4% to 5% for Ambulatory Services for 2016, compared with 4% to 6% previously, and same-contract revenue growth of 6% to 8% for Physician Services, compared with 4% to 6% previously;
- Adjusted EBITDA of $592 million to $598 million for 2016, compared with $592 million to $601 million previously;
- Adjusted EPS of $4.28 to $4.33 for 2016, compared with $4.28 to $4.35 previously; and
- For the fourth quarter of 2016, adjusted EPS of $1.23 to $1.28.
Non-GAAP Adjusted EBITDA guidance for the full year of 2016 excludes interest expense, income taxes, depreciation, amortization, share-based compensation, transaction costs, changes in contingent purchase price consideration, gain or loss on deconsolidations and discontinued operations. Non-GAAP Adjusted EPS guidance for the fourth quarter and full year of 2016 exclude acquisition-related transaction costs, acquisition-related amortization expense, gains and losses on future deconsolidation transactions and share-based compensation expense, net of the tax impact thereon. The exact amount of such exclusions are not currently determinable but may be significant and may vary significantly from period to period (see page 6 for a reconciliation of all GAAP and non-GAAP financial results).
AMSURG Corp. will hold a conference call to discuss this release today, November 1, 2016, at 5:00 p.m. Eastern time. Investors will have the opportunity to listen to the conference call over the Internet by going to www.amsurg.com and clicking “Investors” at least 15 minutes early to register, download, and install any necessary audio software. For those who cannot listen to the live broadcast, a replay will be available at these sites shortly after the call and continue for 30 days.
This press release contains forward-looking statements, including the Company’s financial and operating guidance for the fourth quarter and full year of 2016. These statements, which have been included in reliance on the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, involve risks and uncertainties. Investors are hereby cautioned that these statements may be affected by important factors, including, but not limited to, the following risks: we may face challenges managing our Physician Services Division as a new business and may not realize anticipated benefits; we may become subject to investigations by federal and state entities and unpredictable impacts of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010; there may be governmental or commercial health changes designed to reduce the number of surgical procedures; we may fail to comply with applicable laws and regulations including the federal Anti-Kickback statue and similar state laws; we may not be able to successfully maintain effective internal controls over financial reporting; we may not be able to implement our business strategy, manage the growth in our business, and integrate acquired businesses; the attention of management may be diverted by the process of making new acquisitions; the risks associated with our ability to consummate the business combination with Envision and the timing of the closing of the business combination; the ability to successfully integrate our and Envision’s operations and employees; the ability to realize the anticipated benefits and synergies of the business combination with Envision; the potential impact of the announcement of the business combination or consummation of the transaction on relationships, including with our employees, customers and competitors; our substantial indebtedness and restrictions in our debt instruments could adversely affect our business or our ability to implement our growth strategy, or limit our ability to react to changes in the economy or our industry; we may not generate sufficient cash to service our indebtedness, including any future indebtedness; restricted covenants in our indenture documents may restrict our business strategies or could result in an acceleration of our debt; regulatory changes may obligate us to buy out interests of physicians who are minority owners of our surgery centers; we may not be able to successfully maintain our information systems and processes, implement new systems and processes, and maintain the security of those systems and processes; we may fail to effectively and timely transition to the ICD-10 coding system; we may fail to effectively manage and implement security measures protecting our information technology systems to protect confidential data; our disaster recovery systems or management continuity plans may be disrupted; we may face shortages or quality control issues of products, equipment, and medical supplies that could adversely affect our operations and profitability; enforcement authorities may conclude that our market share in any particular market is too concentrated or our clients’ commercial payor contract negotiating practices are illegal; we may be subject to litigation and investigations and liability claims for damages and other expenses not covered by insurance; we may be required to write-off a portion of our intangible assets; payments from third-party payors, including government healthcare programs, may decrease or not increase as our costs increase; there may be adverse developments affecting the medical practices of our physician partners; we may not be able to maintain favorable relations with our physician partners; our physician partners may fail to perform on their pro rata share of any indebtedness or lease agreements; we may not be able to grow our ambulatory services revenue by increasing procedure volume while maintaining operating margins and profitability at our existing surgery centers; we may not be able to compete for physician partners, managed care contracts, patients and strategic relationships; adverse weather and other factors beyond our control may affect our business; our legal responsibility to minority owners of our surgery centers may conflict with our interests and prevent us from acting solely in our best interests; we may be adversely impacted by changes in patient volume and patient mix; several client relationships generate a significant portion of our physician services revenues; our physician services contracts may be cancelled or not renewed or we may not be able to enter into additional contracts under terms acceptable to us; reimbursement rates, revenue and profit margin under our fee-for-service physician services payor contracts may decrease; we may not be able to timely or accurately bill for services; laws and regulations that regulate payments for medical services made by government healthcare programs could cause our revenues to decrease; we may not be able to enroll our physician services providers in the Medicare and Medicaid programs on a timely basis; our strategic partnerships with healthcare providers may not be successful; our segments of the market for medical services have a high level of competition; we may not be able to successfully recruit and retain physicians, nurses and other clinical providers; we may not be able to accurately assess the costs we will incur under new contracts; our margins may be negatively impacted by cross-selling to existing clients or selling bundled services to new clients; we may not be able to enforce non-compete agreements with our physicians and other clinical employees in some jurisdictions; there may be unfavorable changes in regulatory, economic and other conditions in the states where we operate; legislative or regulatory action may make our captive insurance company arrangement less feasible or otherwise reduce our profitability; our reserves with respect to our losses covered under our insurance programs may not be sufficient; and the other risk factors are described in AMSURG’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, and Current Report on Form 8-K dated August 4, 2016, each as updated by other filings with the Securities and Exchange Commission. Consequently, actual results, performance or developments may differ materially from the forward-looking statements included above. AMSURG disclaims any intent or obligation to update these forward-looking statements.
AMSURG’s Ambulatory Services Division acquires, develops and operates ambulatory surgery centers in partnership with physicians throughout the U.S. AMSURG’s Physician Services Division, Sheridan, provides outsourced physician services in multiple specialties to hospitals, ASCs and other healthcare facilities throughout the U.S., primarily in the areas of anesthesiology, children’s services, emergency medicine and radiology. Through these businesses as of September 30, 2016, AMSURG owned and operated 260 ASCs and one surgical hospital in 35 states and the District of Columbia and provided physician services to more than 550 healthcare facilities in 32 states. AMSURG has partnerships with, or employs, over 6,500 physicians and other healthcare professionals in 40 states and the District of Columbia.