Team Health Announces Second Quarter 2004 Results

KNOXVILLE, Tenn., Aug. 10 /PRNewswire/ -- Team Health, Inc. today announced results for its second quarter ended June 30, 2004.

For the second quarter of 2004, net revenue less provision for uncollectibles ("revenue less provision") increased 2.3% to $256.0 million from $250.1 million in the second quarter of 2003. Same contract revenue less provision increased $5.1 million, or 2.2%, to $229.6 million in the second quarter of 2004 from $224.6 million for the same period of 2003. The Company reported a net loss of $55.9 million in the second quarter of 2004 versus net earnings of $7.7 million in the second quarter of 2003. During the second quarter of 2004, the Company recorded an estimated impairment loss of $65.8 million to reduce the carrying value of the goodwill related to its military staffing business due to contracting changes in the military's TRICARE program. The estimated goodwill impairment charge is based upon the interim results of the TRICARE re-bidding process along with projections of estimated results of the remaining business subject to re-bidding. A final determination of the impairment loss will be known at the end of the re-bidding process which is scheduled to be completed by November 1, 2004.

Net revenue less provision for the six months ended June 30, 2004 increased 5.9% to $517.4 million from $488.5 million in the prior year. For the first six months of 2004, same contract revenue less provision increased $23.7 million, or 5.6%, to $447.6 million in 2004 from $423.9 million in the same period of 2003.

During the first quarter of 2004, the Company completed a financial restructuring. As a result of a total of $16.0 million of refinancing costs and compensatory bonus expense paid in conjunction with the refinancing, along with the estimated impairment loss in the amount of $65.8 million, the Company reported a net loss of $59.6 million in the six months ended June 30, 2004 compared to a net loss of $17.1 million in the six months ended June 30, 2003.

As of June 30, 2004, Team Health had cash of $55.0 million and $76.1 million of available capacity under its revolving credit facility. During the second quarter 2004, Team Health repaid $8.9 million of outstanding debt, including $8.3 million of the 12% Senior Subordinated Notes redeemed in conjunction with the March 2004 refinancing transactions. Total indebtedness as of June 30, 2004 is $429.4 million. Cash flow provided by operations (after interest, taxes and changes in working capital) for the first six months ended June 30, 2004 was $21.4 million compared to $11.7 million in 2003. The increase between periods was principally due to an increase in cash collections on accounts receivable as well as net cash retained under the Company's self-insured professional liability program.

Lynn Massingale, M.D., President and CEO of Team Health said, "Our management team is heavily engaged in the military's TRICARE contract re-bidding process which commenced during the second quarter and is scheduled to be completed by November 1, 2004. During this process, the majority of our revenue derived as a subcontractor under the TRICARE program is being subjected to direct contract re-bidding. Despite a very high level of satisfaction with the quality of our civilian healthcare providers, the Department of Defense has subjected its outsourced healthcare staffing contracts held by us and other companies to a re-bidding process. The potential for disruption to the existing healthcare services of military dependents is significant as physician and other providers are subject to replacement on very short notice in many instances. Management is focused on retaining its existing business as well as winning new staffing contracts. In certain cases, the opportunity to submit bids has been limited to restricted vendor lists or small business or minority qualified businesses. Under these circumstances, the Company is not eligible to bid on such contracts. Despite these challenges, through mid-July we have been able to retain existing contracts and obtain new business equal to approximately 71% of our annual revenue that has been re-bid and awarded to date. The contracts re-bid to date represent approximately 63% of the Company's military staffing revenues that are subject to re-bidding. The remaining balance of the contracts will be re-bid over the balance of the year and we are committed to making every effort to ensure that all opportunities to retain and add new business during this period of transition are maximized.

"We anticipate that the changes to our military staffing business derived from the TRICARE program will result in a decline in revenues and earnings associated with military staffing. The total impact of the TRICARE changes still remains unknown due to the volume of contracts still subject to re-bidding over the balance of the year. However, based upon the known results of the re-bidding process as well as an estimate of the future results of contracts yet to be awarded, we have concluded that a portion of the goodwill related to the military staffing business is impaired and we recorded an estimated goodwill impairment loss during the second quarter.

"The military staffing operation is expected to remain profitable at the conclusion of the re-bidding process although at levels below its current level of profitability. We believe our proven ability to provide the military with high quality healthcare professionals in a timely manner will ultimately be rewarded in the form of future growth. The near term reduction expected in the profitability of our military business is not expected to impact compliance with our debt covenant provisions regarding maintenance of required financial ratios.

"As a whole, Team Health has achieved growth in revenue and profitability due to pricing increases and control over our service costs.

"All our resources remain committed to the day to day operations of providing ongoing value to our customers and physicians. Despite the challenges in the current environment, an ongoing focus on serving our customers and managing the details of the business will provide opportunities for the continued long term financial growth of the Company."

About Team Health

Founded in 1979, Team Health is headquartered in Knoxville, Tennessee. Team Health is affiliated with over 7,000 healthcare professionals who provide emergency medicine, radiology, anesthesia, hospitalist, urgent care and pediatric staffing and management services to over 450 civilian and military hospitals, surgical centers, imaging centers and clinics in 42 states. For more information about Team Health, visit http://www.teamhealth.com/.

As previously announced, Team Health will hold an investor conference call at 9:00 a.m. Eastern Time on August 11, 2004. All interested parties may listen to the call by calling (877) 234-1830. A taped replay of the call will be available after 12:00 p.m. Eastern Time Wednesday, August 11, 2004, through midnight on August 18, 2004, by calling (800) 642-1687, access code 8948249.

Statements in this document that are not historical facts are hereby identified as "forward looking statements" for purposes of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act") and Section 27A of the Securities Act of 1933 (the "Securities Act"). Team Health, Inc. (the "Company") cautions readers 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 document 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." Moreover, the Company, through its senior management, may from time to time make "forward looking statements" about matters described herein or other matters concerning the Company. The Company disclaims any intent or obligation to update "forward looking statements" to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.

Team Health, Inc. Financial Highlights (in thousands) (unaudited) Three Months Ended June 30, 2004 2003 (Unaudited) (In thousands) Net revenue $388,730 $358,979 Provision for uncollectibles 132,736 108,848 Net revenue less provision for uncollectibles 255,994 250,131 Cost of services rendered Professional service expenses 191,237 187,001 Professional liability costs 13,617 14,535 Gross profit 51,140 48,595 General and administrative expenses 24,124 24,460 Management fee and other expenses 457 128 Depreciation and amortization 3,459 5,598 Interest expense, net 7,008 6,178 Estimated impairment loss 65,819 -- Earnings (loss) before income taxes (49,727) 12,231 Provision for income taxes 6,190 4,553 Net earnings (loss) (55,917) 7,678 Dividends on preferred stock -- 3,600 Net earnings (loss) attributable to common stockholders $(55,917) $4,078 Team Health, Inc. Financial Highlights (in thousands) (unaudited) Six Months Ended June 30, 2004 2003 (Unaudited) (In thousands) Net revenue $786,032 $709,118 Provision for uncollectibles 268,628 220,573 Net revenue less provision for uncollectibles 517,404 488,545 Cost of services rendered Professional service expenses 385,948 368,997 Professional liability costs 29,891 76,078 Gross profit 101,565 43,470 General and administrative expenses 48,819 45,923 Management fee and other expenses 613 253 Depreciation and amortization 6,944 11,121 Interest expense, net 14,326 12,393 Refinancing costs 14,731 -- Estimated impairment loss 65,819 -- Loss before income taxes (49,687) (26,220) Provision (benefit) for income taxes 6,266 (9,089) Net loss (55,953) (17,131) Dividends on preferred stock 3,602 7,161 Net loss attributable to common stockholders $(59,555) $(24,292) Team Health, Inc. Supplemental Information (in thousands) (unaudited) June 30, December 31, 2004 2003 Cash and cash equivalents $54,971 $100,964 Long-term debt, including current portion 429,375 299,415 Accounts receivable, net 152,002 167,957 Capital expenditures, year to date 2,557 8,972

Team Health, Inc.

CONTACT: David Jones, CFO of Team Health, Inc., +1-865-693-1000

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