Team Health Holdings, Inc. ( TMH)

Q3 2010 Earnings Call Transcript

November 10, 2010 10:00 am ET

Executives

Tracy Young – VP, Communications

Greg Roth – President and CEO

David Jones – EVP and CFO

Analysts

Kevin Fischbeck – Bank of America/Merrill Lynch

Adam Feinstein – Barclays Capital

Shelley Gnall – Goldman Sachs

Darren Lehrich – Deutsche Bank

Rob Mains – Morgan Keegan

Dawn Brock – Kaufman Brothers

Jeff Corman [ph] – Seltale & Company [ph]

Bryan Sekino – Barclays Capital

Presentation

Operator

Good day, ladies and gentlemen, thank you for standing by. Welcome to the TeamHealth’s fiscal third quarter 2010 earnings conference call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator instructions) This conference is being recorded today, Wednesday, November 10, 2010. I would now like to turn the conference over to Tracy Young, Vice President of Communications. Please go ahead.

Tracy Young

Thank you, Alicia. And good morning, everyone. Before we begin, let me remind everyone that in accordance with the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995, the company knows that certain matters to be discussed by members of management during this call may constitute forward-looking statements, including remarks about future expectations, anticipation, beliefs, estimates, plans and prospects.

Such statements are subject to risks, uncertainties and other factors that may cause the actual performance of TeamHealth to be materially different from the performance indicated or implied by such statements. Such risks and other factors are set forth in the company’s 2009 Form 10-K and the third quarter 2010 Form 10-Q as filed with the Securities and Exchange Commission. A reconciliation of adjusted EBITDA to net earnings calculated under GAAP can be found in our earnings release, which is posted on our website at www.teamhealth.com and in our Form 10-Q.

I will now turn over the call to our President and Chief Executive Officer, Greg Roth.

Greg Roth

Thank you, Tracy. And good morning, everyone. I’d like to welcome you to TeamHealth’s third quarter 2010 earnings call. In addition to Tracy, I’m joined by Dr. Lynn Massingale, our Executive Chairman; and David Jones, our Executive Vice President and Chief Financial Officer.

I’ll start with a discussion of the drivers of our third quarter results. David will review our financial performance. I will then provide comments on our outlook for the remainder of 2010 before we open the call for Q&A. As always, I’d like to thank our physicians, other clinicians, and administrative employees for their hard work and dedication during the quarter. Our number one priority is caring for the patients of our client hospitals.

We are pleased with our third quarter results, which were highlighted by the solid growth in revenue, net earnings, operating cash flow, and adjusted EBITDA. Net revenue less provision for uncollectibles increased 6.3% with net earnings per share of $0.27. Operating cash flow has increased 30%, adjusted EBITDA increased 11%, and adjusted EBITDA margin increased 50 basis points.

This performance enabled us to continue to delever our capital structure, as we recently called for a redemption of the remaining senior subordinated notes. Our revenue less provision grew approximately 12%, excluding our military operations. Positive same contract volume growth increased estimated collections per visit, growth from acquisitions, and effective cost management were the key drivers of our revenue growth, expanded adjusted EBITDA margin and profitability during the quarter.

We achieved positive same contract revenue growth despite the challenging volume comparison to the strong patient volumes generated by a more robust flu season and the H1N1 virus in the third quarter of 2009. This increase in fee-for-service volume was further leveraged by the acceleration and growth in estimated average collections per visit. As we stated on prior calls, we expect that our acquisition growth strategy would play an enhanced role in our overall growth for 2010.

Acquisitions were the largest contributor to revenue growth during our third quarter. The six acquisitions that we completed and successfully integrated from the fourth quarter 2009 to date delivered solid contributions to revenues, earnings and cash flow. Specifically, third quarter results reflect the benefit of the Oklahoma-based Morningstar organization that was acquired effective August 1, 2010. We remain focused on expanding our current acquisition pipeline and expanding our ongoing discussions with potential M&A prospects.

The current environment continues to offer some attractive growth opportunities from those acquisitions and new contract sales. Despite challenging volume growth comparisons, we improved our margin by driving revenue cycle performance by managing our cost structure. We expect to see continued benefits for these actions and investments through the remainder of 2010.

As anticipated, our military business, which represents approximately 6% of our year-to-date net revenue, continued to inhibit our overall performance and reduced quarter-over-quarter total revenue growth by 5.5%. Our military division is experiencing revenue declines in excess of our prior full year estimate for the portion of this business associated with contracting changes. We have seen a year-to-date decline of 4.2% from contracting changes in this division.

For the full year, we originally anticipate a 3.5% decline in revenue from net contracting changes for this business, which include the results associated with the significant contract that was awarded in September 2009. We discussed this contract on our last earnings call, where we indicated that there had been a delay in the startup date due to the continuation of the appeal process.

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