Form 8-K IPC Healthcare, Inc. For: Apr 29

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April 29, 2015 4:04 PM EDT


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 
 
 
 
 
 
Form 8-K
                     
 
 
 
 
 
        
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): April 29, 2015
 
 
 
 
 
 
IPC HEALTHCARE, INC.
(Exact name of registrant as specified in its charter)
                 
 
 
 
 
 
 
Delaware
 
001-33930
 
No. 95-4562058
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)
4605 Lankershim Boulevard, Suite 617
North Hollywood, California 91602
(Address of principal executive offices, including Zip Code)
(888) 447-2362
(Registrant’s telephone number, including area code)
             
 
 
 
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 







Item 2.02 - Results of Operations and Financial Condition
On April 29, 2015, IPC Healthcare, Inc. issued a press release reporting the results of operations for the three months ended March 31, 2015. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated by reference in its entirety.
The information contained in Exhibit 99.1 shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
Item 9.01 - Financial Statements and Exhibits
(d) Exhibits.
 
 
 
 
Exhibit
Number
  
Description

99.1
Press release dated April 29, 2015, reporting results of operations for the three months ended March 31, 2015.






SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
IPC Healthcare, INC.
 
 
 
 
 
Date:
April 29, 2015
 
 
 
By:
 
/s/ Adam D. Singer, M.D.
 
 
 
 
 
 
 
Adam D. Singer, M.D.
 
 
 
 
 
 
 
Chief Executive Officer





EXHIBIT INDEX
 
 
 
 
Exhibit
Number
  
Description

99.1
Press release dated April 29, 2015, reporting results of operations for the three months ended March 31, 2015.





Exhibit 99.1
                                        
Contacts:
  
Evan Pondel
Rick Kline
  
PondelWilkinson, Inc.
IPC Healthcare, Inc.
  
(310) 279-5980
(818) 766-3502
  
IPC Healthcare Reports First Quarter 2015 Financial Results
-- Company Achieves Record First Quarter in Acquired Headcount and Sequential Growth in Net Organic Hires --
North Hollywood, CA—April 29, 2015—IPC Healthcare, Inc. (NASDAQ: IPCM), a leading national acute hospitalist and post-acute provider group practice, today announced financial results for the first quarter ended March 31, 2015. All operating results referred to as “adjusted” exclude the change in fair market value of contingent consideration (“net change in fair value”) for acquisitions. See “Reconciliation of Non-GAAP Financial Measures” below for explanations of these non-GAAP financial measures and reconciliation to GAAP financial measures.
First Quarter 2015 Highlights (comparisons are to first quarter 2014):
 
•
Record headcount growth of 94 net providers added sequentially in the first quarter, bringing the total to 1,961 providers.
•
Net revenue increased 5% to $180.8 million, despite cessation of Medicaid parity at the end of 2014.
•
Patient encounters increased 11% to 1,963,000.
Adam D. Singer, M.D., Chief Executive Officer of IPC Healthcare, said, “We are pleased with the strong growth of our business during the quarter as indicated by the 11% increase in patient encounters, which was driven by the highest sequential headcount growth of any comparable period in prior years. The sequential headcount growth of 94 net providers compared to a reduction of 52 for the same period last year stems from an improved rate of attrition and the strongest first quarter hiring and acquisition activity in the Company’s history. We continue to be very encouraged by the level of projected organic hires, as well as our robust acquisition pipeline for the remainder of 2015 and beyond.
Dr. Singer added, “Although we are experiencing the anticipated net revenue headwind due to the cessation of Medicaid parity and the exiting of a few facility contracts during 2014, the fundamentals of our business remain strong. We also remain focused on continuing to grow our best-in-class workforce to optimize patient care, and we believe we are well positioned to benefit from our continued efforts to improve quality while reducing costs in the evolving value based purchasing healthcare environment.”
First Quarter 2015
Patient encounters for the three months ended March 31, 2015 increased by 199,000, or 11.3%, to 1,963,000, compared with 1,764,000 for the same period in the prior year. Net revenue for the three months ended March 31, 2015 was $180.8 million, an increase of $8.0 million, or 4.7%, from $172.7 million for the same period in the prior year. The difference between revenue growth and encounter growth is principally related to Medicaid parity, which largely expired at the end of 2014, and the exiting of a few facility contracts during 2014. Of this $8.0 million increase, 55.6% was attributable to same-market area growth, including new hires and tuck-in acquisitions, and 44.4% was attributable to revenue generated from operations in new markets. Same-market encounters increased 8.7% and same-market net revenue increased 2.6%. Adjusting for Medicaid parity and the exiting of certain contracted facilities in 2014, same-market encounter growth and net revenue growth would have been approximately 10.6% and 10.5%, respectively.




Physician practice salaries, benefits and other expenses for the three months ended March 31, 2015 were $134.2 million, or 74.2% of net revenue, compared with $127.3 million, or 73.7% of net revenue, for the same period in the prior year. The 50 basis point increase in costs as a percentage of revenue is due to the acquisition of certain practices that are operating below the Company’s average gross margin.

General and administrative expenses increased $2.2 million, or 7.9%, to $29.8 million, or 16.5% of net revenue, for the three months ended March 31, 2015, compared with $27.6 million, or 16.0% of net revenue, for the same period in the prior year. Adjusting for the cessation of Medicaid parity, general and administrative expenses would have been 16.0% of net revenue for the three months ended March 31, 2015. The dollar increase in expense is primarily the result of increased costs to support the continuing growth of operations. Excluding stock-based compensation, general and administrative expenses were 15.4% of net revenue for the three months ended March 31, 2015, compared with 14.8% of net revenue for the same period in the prior year.
The net change in fair value of contingent consideration (“net change in fair value”) for acquisitions was an increase to expense of $4.7 million and a reduction to expense of $0.4 million for the three months ended March 31, 2015 and 2014, respectively. The $4.7 million increase was largely associated with a practice acquired in 2013 in the post-acute setting in New York. Because the fair value of contingent consideration for this practice is based on a certain multiple of operating results, the recent moderate improvement in projected earnings resulted in a large increase to expense.
Adjusted EBITDA for the three months ended March 31, 2015 decreased 5.8% to $16.8 million, or an adjusted EBITDA margin of 9.3%, compared with adjusted EBITDA of $17.8 million, or an adjusted EBITDA margin of 10.3% for the same period in the prior year.
The effective tax rate for the three months ended March 31, 2015 and 2014 was 38.0% and 38.3%, respectively.
Adjusted net income for the three months ended March 31, 2015 decreased 7.2% to $9.3 million, or a 5.2% adjusted net income margin, compared with adjusted net income of $10.0 million, or a 5.8% adjusted net income margin, for the same period in the prior year. GAAP net income was $6.4 million for the three months ended March 31, 2015, compared with $10.3 million for the same period in the prior year, and GAAP net income margin was 3.5% and 5.9% for the three months ended March 31, 2015 and 2014, respectively.
Adjusted diluted earnings per share for the three months ended March 31, 2015 and 2014 was $0.53 and $0.57, respectively. GAAP diluted earnings per share was $0.36 and $0.58 for the three months ended March 31, 2015 and 2014, respectively.
Liquidity and Capital Resources
As of March 31, 2015, IPC had approximately $59.7 million in liquidity, which is composed of $10.0 million in cash and cash equivalents, and an available line of credit of $49.7 million. IPC had borrowings of $75.0 million from its revolving line of credit outstanding at March 31, 2015.
Net cash provided by operating activities for the three months ended March 31, 2015 was $14.1 million, compared with $10.2 million for the same period in the prior year. The change in working capital during the three months ended March 31, 2015 was largely related to an increase in accounts receivable of $11.6 million, a decrease in prepaid expenses and other current assets of $5.1 million, an increase in accounts payable and accrued liabilities of $1.9 million, and an increase in accrued compensation of $3.9 million. Days sales outstanding (DSO), which is used to measure the effectiveness of collections, was 64 DSO and 60 DSO as of March 31, 2015 and December 31, 2014, respectively. The four day increase in DSO was largely related the recent level of practice acquisitions.
Net cash used in investing activities was $15.8 million for the three months ended March 31, 2015, compared with $9.5 million for the same period in the prior year. Cash of $13.9 million was used during the three months ended March 31, 2015 for physician practice acquisitions and contingent consideration payments on prior acquisitions, compared with $8.7 million for the same period in the prior year.

For the three months ended March 31, 2015, net cash used in financing activities was $3.3 million, compared with $2.4 million for the same period in the prior year. During the three months ended March 31, 2015, the Company repaid $20.0 million of its outstanding revolving line of credit and borrowed $15.0 million under the revolving line of credit to fund its practice acquisitions. During the three months ended March 31, 2014, the Company repaid $5.0 million of its outstanding revolving line of credit.




2015 Guidance
The Company reaffirms its guidance for the full year 2015 and expects revenue to be in the range of $752.0 million to $766.0 million based on 8.3 million to 8.5 million encounters, adjusted EBITDA in the range of $71.0 million to $74.0 million, and adjusted diluted earnings per share in the range of $2.14 to $2.27. The Company has provided this outlook based on the following assumptions: (i) weighted average shares outstanding of 17.7 million for the year; (ii) a 38.3% effective tax rate, (iii) $7.9 million in stock-based compensation expense, and (iv) $7.2 million in depreciation and amortization expense. Not included in the assumptions are (i) new market practice acquisitions completed after today’s date, and (ii) future gains or losses related to changes in estimates of earn-outs attributable to practice acquisitions.

Reconciliation of Non-GAAP Financial Measures
This press release contains non-GAAP financial measures of adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA), adjusted net income and adjusted diluted earnings per share.
During the three months ended March 31, 2015 and 2014, the Company reported a change in fair value of contingent consideration for acquired practices as operating expense pursuant to GAAP, which is referred to in this press release as the “net change in fair value of contingent consideration,” or “net change in fair value”. The fair value of accrued contingent consideration is largely determined using the income approach for estimating future consideration to be paid based on projected earnings of acquired practices as of specified measurement dates. Because accrued contingent consideration is generally based on a certain multiple of earnings of the acquired practices during a specified measurement period, a relatively small or moderate change in such projected earnings may result in a material change to the fair value of such contingent consideration liability with a corresponding adjustment to income from operations.
During the three months ended March 31, 2015 and 2014, the Company recorded an increase to expense of $4,684,000 and a reduction to expense of $383,000, respectively, as a net change in fair value. In this press release, GAAP financial measurements of net income and diluted earnings per share, as well as a non-GAAP financial measurement of EBITDA have been adjusted to exclude the amount of the net change in fair value of contingent consideration. The Company believes that these non-GAAP financial measures are useful to management and investors reviewing financial and business trends related to its results of operations, and that when these non-GAAP financial measures are viewed with GAAP financial measures, investors are provided with a meaningful understanding of IPC’s ongoing operating and financial performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for GAAP financial measures.
The following unaudited tables reconcile non-GAAP financial information to net income and diluted earnings per share, which the Company believes are the most comparable GAAP measures (dollars in thousands, except for per share data):
 
 
 
Three Months Ended March 31,
 
 
2015
 
2014
 
 
GAAP
 
Adjustment
 
Non-GAAP
 
GAAP
 
Adjustment
 
Non-GAAP
Income from operations
 
$
10,613

 
$
4,684

 
$
15,297

 
$
16,964

 
$
(383
)
 
$
16,581

Investment income
 
1

 
—

 
1

 
1

 
—

 
1

Interest expense
 
(277
)
 
—

 
(277
)
 
(314
)
 
—

 
(314
)
Income before income taxes
 
10,337

 
4,684

 
15,021

 
16,651

 
(383
)
 
16,268

Income tax provision
 
3,927

 
1,779

 
5,706

 
6,377

 
(147
)
 
6,230

Net income
 
$
6,410

 
$
2,905

 
$
9,315

 
$
10,274

 
$
(236
)
 
$
10,038

Earnings per share (diluted)
 
$
0.36

 
$
0.17

 
$
0.53

 
$
0.58

 
$
(0.01
)
 
$
0.57

Weighted average shares (diluted)
 
17,715,413

 
 
 
17,715,413

 
17,567,583

 
 
 
17,567,583





The following unaudited table reconciles the non-GAAP financial measurement of adjusted EBITDA to income from operations, which the Company believes is the most comparable GAAP measures (dollars in thousands):
 
 
Three Months Ended March 31,
 
 
2015
 
2014
Income from operations (GAAP)
 
$
10,613

 
$
16,964

Plus: Depreciation and amortization
 
1,515

 
1,265

EBITDA (non-GAAP)
 
12,128

 
18,229

Less: Net change in fair value of contingent consideration
 
4,684

 
(383
)
Adjusted EBITDA (non-GAAP)
 
$
16,812

 
$
17,846

Conference Call Information
IPC Healthcare will host an investor conference call to review the quarterly results at 5:00 p.m. ET (2:00 p.m. PT) today. To participate in the conference call, please dial 877-225-7695 (USA) or 720-545-0027 (International). A live webcast of the call will also be available in the Investor Relations section on the corporate web site at http://www.ipchealthcare.com. A webcast replay can be accessed at the same site beginning April 29, 2015 at approximately 8:00 p.m. ET (5:00 p.m. PT) and will remain available until May 29, 2015 at 11:59 p.m.

About IPC Healthcare
IPC Healthcare, Inc. (NASDAQ: IPCM) is a leading national acute hospitalist and post-acute provider group practice company. IPC Healthcare's affiliated physicians and other clinical providers practice in over 390 hospitals and 1,660 post-acute care facilities. The Company offers its more than 1,960 employed clinicians comprehensive training, information technology, and management support systems to improve the quality and reduce the cost of patient care in the facilities it serves. For more information, visit the IPC website at http://www.ipchealthcare.com.
Safe Harbor Statement
Certain statements and information in this press release may be deemed to be “forward-looking statements” within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Forward-looking statements in this press release may include, but are not limited to, those statements set forth under the section titled “2015 Guidance” regarding projected operating results, revenues, earnings, and IPC’s growth opportunities and strategy. Forward-looking statements are often characterized by terminology such as “believe”, “hope”, “may”, “anticipate”, “should”, “intend”, “plan”, “will”, “expect”, “estimate”, “project”, “positioned”, “strategy” and similar expressions. Any forward-looking statements are necessarily based on a variety of estimates and assumptions which, though considered reasonable by the Company, may not be realized and are inherently subject to significant business, economic, competitive, industry, regulatory, market and financial uncertainties and contingencies, many of which are and will be beyond IPC’s control. Important risks and uncertainties that could cause actual results, developments and business decisions to differ materially from those contemplated by any forward-looking statements are described in IPC’s most recent Annual Report on Form 10-K, including the section titled “Risk Factors” and actual results could differ materially from those anticipated in forward-looking statements.
In particular the following risks and uncertainties may have such an impact:
 
•
failure to comply with complex and intensive government regulation of the healthcare industry;
•
the adequacy of IPC’s insurance coverage and insurance reserves;
•
IPC’s ability to recruit and retain qualified physicians and non-physician providers;
•
IPC’s ability to successfully identify, complete and efficiently integrate new acquisitions;
•
the effect of changes in rates or methods of third-party reimbursement; and
•
the high level of competition in IPC’s industry.
IPC undertakes no obligation following the date of this press release to update or revise any such statements or projections whether as a result of new information, future events, or otherwise.




IPC Healthcare, Inc.
Consolidated Balance Sheets
(dollars in thousands, except for share data)
 
 
 
March 31,
 
December 31,
 
 
2015
 
2014
 
 
(unaudited)
 
 
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
10,020

 
$
14,913

Accounts receivable, net
 
133,710

 
122,092

Insurance receivable for malpractice claims, current portion
 
13,038

 
12,564

Prepaid expenses and other current assets
 
15,702

 
20,876

Total current assets
 
172,470

 
170,445

Property and equipment, net
 
9,038

 
8,798

Goodwill
 
429,793

 
408,988

Other intangible assets, net
 
4,725

 
4,957

Insurance receivable for malpractice claims, less current portion
 
22,409

 
21,574

Total assets
 
$
638,435

 
$
614,762

Liabilities and Stockholders’ Equity
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable and accrued liabilities
 
$
9,864

 
$
8,388

Accrued compensation
 
44,757

 
40,907

Payable for practice acquisitions, current portion
 
44,636

 
35,411

Medical malpractice and self-insurance reserves, current portion
 
13,618

 
13,079

Deferred tax liabilities, current portion
 
584

 
584

Total current liabilities
 
113,459

 
98,369

Long-term debt
 
75,000

 
80,000

Medical malpractice and self-insurance reserves, less current portion
 
48,659

 
47,239

Payable for practice acquisitions, less current portion
 
11,672

 
9,500

Deferred tax liabilities, less current portion
 
11,737

 
11,737

Total liabilities
 
260,527

 
246,845

Stockholders’ equity:
 
 
 
 
Preferred stock, $0.001 par value, 15,000,000 shares authorized, none issued
 
—

 
—

Common stock, $0.001 par value, 50,000,000 shares authorized, 17,384,739 and 17,242,209 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively
 
17

 
17

Additional paid-in capital
 
185,422

 
181,841

Retained earnings
 
192,469

 
186,059

Total stockholders’ equity
 
377,908

 
367,917

Total liabilities and stockholders’ equity
 
$
638,435

 
$
614,762





IPC Healthcare, Inc.
Consolidated Statements of Income
(dollars in thousands, except for per share data)
 
 
 
Three Months Ended March 31, 2015
 
 
2015
 
2014
Net revenue
 
$
180,771

 
$
172,726

Operating expenses:
 
 
 
 
Cost of services—physician practice salaries, benefits and other
 
134,167

 
127,273

General and administrative
 
29,792

 
27,607

Net change in fair value of contingent consideration
 
4,684

 
(383
)
Depreciation and amortization
 
1,515

 
1,265

Total operating expenses
 
170,158

 
155,762

Income from operations
 
10,613

 
16,964

Investment income
 
1

 
1

Interest expense
 
(277
)
 
(314
)
Income before income taxes
 
10,337

 
16,651

Income tax provision
 
3,927

 
6,377

Net income
 
$
6,410

 
$
10,274

Net income per share:
 
 
 
 
Basic
 
$
0.37

 
$
0.60

Diluted
 
$
0.36

 
$
0.58

Weighted average shares:
 
 
 
 
Basic
 
17,302,522

 
17,054,598

Diluted
 
17,715,413

 
17,567,583





IPC Healthcare, Inc.
Consolidated Statements of Cash Flows
(dollars in thousands)

 
 
 
Three Months Ended March 31,
 
 
2015
 
2014
Operating activities
 
 
 
 
Net income
 
$
6,410

 
$
10,274

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
1,515

 
1,265

Stock-based compensation expense
 
1,904

 
1,965

Changes in assets and liabilities:
 
 
 
 
Accounts receivable
 
(11,618
)
 
(14,064
)
Prepaid expenses and other current assets
 
5,104

 
4,270

Accounts payable and accrued expenses
 
1,939

 
4,260

Accrued compensation
 
3,850

 
2,770

Medical malpractice and self-insurance reserves, net
 
650

 
623

Accrued contingent consideration
 
4,379

 
(1,189
)
Net cash provided by operating activities
 
14,133

 
10,174

Investing activities
 
 
 
 
Acquisitions of physician practices
 
(13,908
)
 
(8,740
)
Purchase of property and equipment
 
(1,865
)
 
(750
)
Net cash used in investing activities
 
(15,773
)
 
(9,490
)
Financing activities
 
 
 
 
Proceeds from long-term debt
 
15,000

 
—

Repayments of long-term debt
 
(20,000
)
 
(5,000
)
Net proceeds from issuance of common stock
 
1,580

 
2,160

Excess tax benefits from stock-based compensation
 
167

 
420

Net cash used in financing activities
 
(3,253
)
 
(2,420
)
Net decrease in cash and cash equivalents
 
(4,893
)
 
(1,736
)
Cash and cash equivalents, beginning of period
 
14,913

 
25,010

Cash and cash equivalents, end of period
 
$
10,020

 
$
23,274





IPC Healthcare, Inc.
Operating Data
(unaudited)
Patient Encounter Data:
The following is a summary of the Company's patient encounters for the six consecutive quarters ended March 31, 2015 (in thousands):
 
 
 
 
 
Quarter Ended
 
 
Dec 31
2013
 
Mar 31
2014
 
Jun 30
2014
 
Sep 30
2014
 
Dec 31
2014
 
Mar 31
2015
Patient encounters
 
1,613

 
1,764

 
1,727

 
1,749

 
1,828

 
1,963

Employee Data:
The following is a summary of the Company's affiliated clinicians employed at the end of the six consecutive quarters ended March 31, 2015:
 
 
 
 
 
Quarter Ended
 
 
Dec 31
2013
 
Mar 31
2014
 
Jun 30
2014
 
Sep 30
2014
 
Dec 31
2014
 
Mar 31
2015
Employed physicians
 
1,257

 
1,212

 
1,184

 
1,251

 
1,259

 
1,300

Nurse practitioners and physician assistants
 
508

 
501

 
560

 
587

 
608

 
661

Total
 
1,765

 
1,713

 
1,744

 
1,838

 
1,867

 
1,961




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