American CareSource Holdings Inc. (NASDAQ: ANCI) today reported second quarter 2011 net revenue of $11.3 million compared to $16.0 million for the second quarter of 2010. In addition, the Company reported a loss of $645,000, or $0.04 per diluted share, compared to net income of $299,000, or $0.02 per diluted share reported in 2010.

“During the first half of 2011, revenues continued to be negatively impacted by competitive factors that have significantly extended the sales cycle. In addition, we have seen accelerated attrition in our key legacy accounts,” said Kenn S. George, Chairman and Chief Executive Officer of American CareSource Holdings. “The goal of new management is to identify ways to overcome the revenue challenges we face, develop new revenue sources, make selective investments and manage costs during the remainder of the year. We will analyze our alternatives and seek profitable revenue enhancements with a sense of urgency that is required under the circumstances.”

Net Revenue

Net revenue for the second quarter of 2011 was $11.3 million compared to $16.0 million reported during the second quarter of 2010. Revenue from the Company’s two key legacy accounts declined $7.4 million, or 57%. Claims volume from the two accounts decreased 28,000 claims, or 47% during the quarter compared to the corresponding prior year period. The loss of a significant employer group by one of the Company's two key clients accounted for approximately $3.0 million of the decline, while the remainder of the decline was the result of various competitive factors and the transition status of one of the accounts related to a business combination. The decline was partially offset by $1.7 million of incremental revenue generated in the second quarter from 13 new clients implemented in 2010 and $300,000 of incremental revenue from two new clients added in 2011.

Second quarter 2011 revenues decreased 14% sequentially from $13.1 million reported during the first quarter of 2011.

Claims Volumes

The Company billed 67,000 claims during the second quarter of 2011, a decrease from the 85,000 claims it billed during the same period last year. The lower claims volume was primarily the result of decreased claims flow from the Company’s two largest client accounts.

Following are claims volumes for the periods presented:
     
(Claim amounts in 000’s)   Q2 2011   Q1 2011   Q2 2010
Claims:
Processed 82 85 100
Billed 67 68 85
 

Contribution Margin

Contribution margin for the second quarter of 2011 decreased to 7.5%, compared to 13.2% reported during the second quarter of 2010. The decline in contribution margin was primarily the result of a shift in mix away from clients that generate higher margins, relative to other clients, primarily as a result of the loss of a significant employer group by one of our key legacy clients. In addition, during the second quarter the Company experienced a shift in mix from higher margin service categories, such as laboratory and infusion services, to lower margin categories, such as dialysis compared to the second quarter of 2010.

Following is a comparison of statement of operations components as a percent of net revenue:

     
 
    Q2 2011   Q1 2011   Q2 2010
Provider payments 78.0% 75.0% 73.2%
Administrative fees 4.4% 5.1% 6.2%
Claims administration and provider development   10.1%   8.5%   7.4%
Total cost of revenues   92.5%   88.6%   86.8%
 

Selling, General and Administrative Expenses (SG&A)

SG&A for the second quarter of 2011 increased approximately $147,000, to $1.6 million, compared the same period last year, primarily due to the reclassification of personnel expenses associated with an internal strategic realignment. SG&A as a percentage of total net revenues is a reflection of lower net revenues for the period.

Adjusted EBITDA

Adjusted EBITDA for the second quarter of 2011 was a loss of $551,000, which compares to $998,000 million reported in the corresponding prior year period.

Adjusted EBITDA is defined as operating income or loss before depreciation and amortization and excludes non-cash stock-based compensation expense and warrant amortization. Adjusted EBITDA should be considered in addition to, but not in lieu of, income or loss from operations reported under generally accepted accounting principles (GAAP).

A reconciliation of adjusted EBITDA to operating income (loss) is provided in the tables accompanying this release.

Financial Liquidity

Total cash and cash equivalents at June 30, 2011 was $11.4 million, compared to $14.5 million reported at December 31, 2010. The Company had no outstanding debt as of December 31, 2010.

About American CareSource Holdings, Inc.

American CareSource Holdings is the first national, publicly traded ancillary care network services company. The Company offers a comprehensive national network of over 4,900 ancillary service providers at more than 36,000 sites through its subsidiary, Ancillary Care Services. Ancillary Care Services provides ancillary health care services through its network that offers cost effective alternatives to physician and hospital-based services. This market is estimated at $574 billion and has grown to 30% of total national health expenditures (as derived from 2006 data published by the Center for Medicare and Medicaid Services, National Health Statistics Group, U.S. Department of Commerce and Bureau of Economic Analysis and Census). These providers offer services in 30 categories including laboratories, dialysis centers, free-standing diagnostic imaging centers, non-hospital surgery centers, as well as durable medical equipment such as orthotics and prosthetics and others. The Company's ancillary network and management provides a complete outsourced solution for a wide variety of health care payors and plan sponsors including self-insured employers, indemnity insurers, PPOs, HMOs, third party administrators and both federal and local governments. For additional information, please visit www.anci-care.com.

ANCI-F

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995:

Any statements that are not historical facts contained in this release, including with respect to the Company’s plans, objectives and expectations for future operations, projections of the Company’s future operating results or financial condition, and expectations regarding the health care industry and economic conditions, are forward-looking statements. Substantial risks and uncertainties could cause actual results to differ materially from those indicated by such forward-looking statements, including, but not limited to, the Company’s inability to attract or maintain providers or clients or achieve its financial results, changes in national health care policy, federal or state regulation, and/or rates of reimbursement including without limitation the impact of the newly-enacted Patient Protection and Affordable Care Act, Health Care and Educational Affordability Reconciliation Act and medical loss ratio regulations, general economic conditions (including the recent economic downturns and increases in unemployment), lower than anticipated demand for ancillary services, pricing, market acceptance/preference, the Company’s ability to integrate with its clients, consolidation in the industry that may affect the Company’s key clients, the loss of additional employer groups or payors by our two key clients, changes in the business decisions by significant clients, increased competition, the Company’s inability to manage growth, implementation and performance difficulties, and other risk factors detailed from time to time in the Company’s periodic filings with the Securities and Exchange Commission. Except as otherwise required by law, the Company undertakes no obligation to update or revise these forward-looking statements.
         
AMERICAN CARESOURCE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(amounts in thousands except per share data)
 
 
Three months ended Six months ended
June 30, June 30,
2011 2010 2011 2010
 
Net Revenues $ 11,308 $ 15,958 $ 24,385 $ 30,329
 
Cost of revenues:
Provider payments 8,815 11,688 18,624 22,102
Administrative fees 503 984 1,175 1,753
Claims administration and provider development   1,146     1,188   2,253     2,408
Total cost of revenues   10,464     13,860   22,052     26,263
 
Contribution margin 844 2,098 2,333 4,066
 
Selling, general and administrative expenses 1,628 1,481 3,165 3,276
Depreciation and amortization   191     192   381     374
Total operating expenses   1,819     1,673   3,546     3,650
 
Operating income (loss) (975 ) 425 (1,213 ) 416
 
Other Income 10 25 24 61
 
Income (loss) before income taxes (965 ) 450 (1,189 ) 477
Income tax provision (benefit)   (320 )   151   (322 )   177
Net Income (loss) $ (645 ) $ 299 $ (867 ) $ 300
 
 
Earnings (loss) per common share:
Basic $ (0.04 ) $ 0.02 $ (0.05 ) $ 0.02
Diluted $ (0.04 ) $ 0.02 $ (0.05 ) $ 0.02
 
Basic weighted average common shares outstanding   16,962     16,393   16,962     16,299
Diluted weighted average common shares outstanding   16,962     17,120   16,962     17,082
 
 
Reconciliation of non-GAAP financial measures to reported GAAP financial measures:
 
Three months ended Six months ended
June 30, June 30,
2011 2010 2011 2010
 
Operating income (loss) $ (975 ) $ 425 $ (1,213 ) $ 416
Depreciation and amortization   191     192   381     374
EBITDA (784 ) 617 (832 ) 790
Non-cash stock-based compensation expense 216 188 445 375
Other non-cash charges 17 50 67 100
Severance costs   -     143   -     143
EBITDA, as adjusted $ (551 ) $ 998 $ (320 ) $ 1,408
     
AMERICAN CARESOURCE HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
(unaudited)
June 30, 2011 December 31, 2010
ASSETS
 
Current assets:
Cash and cash equivalents $ 11,353 $ 14,512
Accounts receivable, net 5,297 5,510
Prepaid expenses and other current assets   788     769  
Total current assets 17,438 20,791
 
Property and equipment, net 1,879 1,824
 
Other assets:
Other non-current assets 1,193 949
Intangible assets, net 960 1,025
Goodwill   4,361     4,361  
 
TOTAL ASSETS $ 25,831   $ 28,950  
 
LIABILITIES and SHAREHOLDERS' EQUITY
 
Current Liabilities:
Due to service providers $ 4,259 $ 6,718
Accounts payable and accrued liabilities   1,224     1,446  
Total current liabilities 5,483 8,164
 
Other Liabilities - -
 
SHAREHOLDERS' EQUITY
Common stock 170 169
Additional paid-in capital 22,030 21,602
Accumulated deficit   (1,852 )   (985 )
  20,348     20,786  
 
TOTAL LIABILITIES AND EQUITY $ 25,831   $ 28,950  
 
     
AMERICAN CARESOURCE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(amounts in thousands)
 
 
Six months ended
June 30,
2011 2010
Cash flows from operating activities:
Net income (loss) $ (867 ) $ 300

Adjustments to reconcile net income (loss) to net cash used by operations:
Stock-based compensation expense 445 375
Depreciation and amortization 381 374
Unrealized gain on warrant derivative - (16 )
Amortization of long-term client agreement 125 125
Client administration fee expense related to warrants 67 100
Deferred income taxes (330 ) 164
Changes in operating assets and liabilities:
Accounts receivable 213 856
Prepaid expenses and other assets (130 ) (89 )
Accounts payable and accrued liabilities (232 ) (496 )
Due to service providers   (2,459 )   (1,773 )
Net cash used by operating activities   (2,787 )   (80 )
 
Cash flows from investing activities:
Investment in software development costs (353 ) (182 )
Investment in property and equipment   (19 )   (262 )
Net cash used in investing activities   (372 )   (444 )
 
Net decrease in cash and cash equivalents (3,159 ) (524 )
Cash and cash equivalents at beginning of period   14,512     11,868  
 
Cash and cash equivalents at end of period $ 11,353   $ 11,344  
 
Supplemental cash flow information:
 
Cash paid for taxes $ -   $ 122  
 
Supplemental non-cash financing activity:
 
Income tax withholdings on exercise of equity incentives $ 16   $ 19  

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