Vanguard Health Systems Reports Third Quarter Fiscal 2013 Results
Apr 30th 2013 6:05PM
Updated Apr 30th 2013 6:20PM
Vanguard Health Systems Reports Third Quarter Fiscal 2013 Results
Fiscal 2013 Outlook Updated
Third Quarter Fiscal 2013 Key Metrics (all percentage changes compare Q3 FY2013 to Q3 FY2012):
Consolidated and Same Store:
- Net income attributable to Vanguard Health Systems, Inc. stockholders was $21.3 million, or $0.26 per diluted share, compared to $44.0 million, or $0.55 per diluted share, during the prior year period. The prior year period amount was positively impacted by $22.3 million, or $0.28 per diluted share, related to reimbursement updates for the rural floor provision of the Balanced Budget Act of 1997 and revised Supplemental Security Income ratios.
- Adjusted EBITDA was $143.0 million compared to $176.6 million during the prior year period. The prior year period amount was positively impacted by $34.6 million related to the reimbursement updates.
- Discharges decreased 3.2 percent.
- Adjusted discharges decreased 1.8 percent.
- Patient revenue per adjusted discharge was flat compared to the prior year period, absent the impact of the prior year reimbursement updates.
Year to Date Fiscal 2013 Key Metrics (all percentage changes compare nine months FY2013 to nine months FY2012):
- Net income attributable to Vanguard Health Systems, Inc. stockholders was $47.4 million, or $0.57 per diluted share, compared to $38.0 million, or $0.47 per diluted share, during the prior year period.
- Adjusted EBITDA was $414.0 million compared to $434.9 million during the prior year period.
- Patient revenue per adjusted discharge increased 1.4 percent, absent the impact of the prior year reimbursement updates.
- Discharges decreased 2.3 percent.
- Adjusted discharges decreased 1.0 percent.
A reconciliation of Adjusted EBITDA, a non-GAAP financial measure, to net income attributable to Vanguard Health Systems, Inc. stockholders for the quarters and nine month periods ended March 31, 2012 and 2013 is included in this release.
Third Quarter Analysis
Consolidated total revenues decreased $84.4 million during the third quarter of fiscal 2013 compared to the prior year period. Net patient service revenues decreased $75.7 million primarily due to the $49.7 million of revenues during the prior year period related to the reimbursement updates and a 1.8 percent decrease in adjusted discharges during the current year period. Health plan premium revenues decreased slightly during the third quarter of fiscal 2013 compared to the prior year period as a result of fewer members enrolled in Phoenix Health Plan. Uncompensated care as a percentage of net patient revenues (prior to uncompensated care deductions) was 20.5 percent during the third quarter of fiscal 2013 compared to 18.5 percent during the prior year period, absent the impact of the prior year reimbursement updates. Other operating expenses were significantly lower during the third quarter of fiscal 2013 compared to the prior year period due to a reduction in professional and general liability losses.
Fiscal Year to Date Analysis
Consolidated total revenues decreased $12.3 million during the nine months ended March 31, 2013 compared to the prior year period, primarily due to the reimbursement updates during the prior year period. Same store net patient service revenues decreased $43.2 million during the nine months ended March 31, 2013 compared to the prior year period as a result of $48.6 million of reimbursement updates during the prior year period applicable to our same store facilities. Same store adjusted discharges decreased 1.0 percent, while same store patient revenue per adjusted discharge increased 1.4 percent, absent the prior year reimbursement updates, during the nine months ended March 31, 2013 compared to the prior year period. Health plan premium revenues, on a same store basis, decreased 9.9 percent during the nine months ended March 31, 2013 compared to the prior year period as a result of fewer members enrolled in Phoenix Health Plan.
Same store uncompensated care as a percentage of net patient revenues (prior to uncompensated care deductions) was 19.8 percent during the nine months ended March 31, 2013 compared to 18.2 percent during the prior year period, absent the impact of the prior year reimbursement updates.
Balance Sheet and Cash Flows
As of March 31, 2013, we had cash of $522.8 million and total debt of $2,995.3 million. These balances increased during the third quarter of fiscal 2013 as a result of the additional $300.0 million of borrowings under our term loan credit facility.
Cash flows from operating activities improved by $79.6 million during the nine months ended March 31, 2013 compared to the prior year period. Changes in net operating assets and liabilities negatively impacted operating cash flows by $186.4 million during the nine months ended March 31, 2013 compared to a negative impact of $303.1 million during the prior year period. We made $206.3 million of interest and income tax payments during the nine months ended March 31, 2013, which was $61.6 million higher than these payments during the prior year period. Interest payments were higher due to the additional senior notes issued in March 2012, while income tax payments increased as a result of the utilization of significantly all of our federal net operating loss carryforwards during 2012.
Capital expenditures increased 47.6 percent to $289.4 million during the nine months ended March 31, 2013 compared to the prior year period due to increased spending related to The Detroit Medical Center specified capital project commitments and the start of construction of a new hospital in New Braunfels, Texas.
Revised Outlook for Fiscal Year 2013
We are revising our previously issued fiscal year 2013 outlook for ranges of projected net income attributable to Vanguard Health Systems, Inc. stockholders, projected Adjusted EBITDA, projected diluted earnings per share and projected capital expenditures as follows.
|Previous Outlook||Revised Outlook|
|Projected net income attributable to Vanguard Health Systems, Inc. stockholders||$62 - $77 million||$59 - $65 million|
|Projected Adjusted EBITDA||$550 - $575 million||$550 - $560 million|
|Projected diluted earnings per share||$0.74 - $0.93||$0.71 - $0.78|
|Projected capital expenditures||$510 - $530 million||$400 - $430 million|
We have included reconciliations in this release for the high-end and low-end estimates for certain of these projected fiscal year ending June 30, 2013 measures. The outlook projections are based upon management's current expectations and should be read in conjunction with the cautionary statement about forward-looking information below.
Earnings Conference Call
We will host a conference call at 11:00 a.m. EDT on May 1, 2013. All interested parties are invited to access a live webcast of the conference call on the Investor Relations Section of our website at http://vanguardhealth.com.If you are unable to participate during the live webcast, the webcast will be available on a replay basis for 90 days.
We own and operate 28 acute care and specialty hospitals and complementary facilities and services in metropolitan Chicago, Illinois; metropolitan Detroit, Michigan; metropolitan Phoenix, Arizona; San Antonio, Texas; Harlingen and Brownsville, Texas; and Worcester and metropolitan Boston, Massachusetts. Our strategy is to develop locally branded, comprehensive health care delivery networks in urban and suburban markets.
Cautionary Statement about Forward-Looking Information
This press release contains "forward-looking statements" within the meaning of the federal securities laws that are intended to be covered by safe harbors created thereby. Forward-looking statements are those statements that are based upon management's plans, objectives, goals, strategies, future events, future revenue or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, business trends and other information that is not historical information. These statements are based upon estimates and assumptions made by our management that, although believed to be reasonable, are subject to numerous factors, risks and uncertainties that could cause actual outcomes and results to be materially different from those projected. When used in this press release, the words "estimates," "expects," "anticipates," "projects," "plans," "intends," "believes," "forecasts," "continues" or future or conditional verbs, such as "will," "should," "could" or "may," and variations of such words or similar expressions are intended to identify forward-looking statements. These factors, risks and uncertainties include, among others, the following: our high degree of leverage and interest rate risk; our ability to incur substantially more debt; operating and financial restrictions in our debt agreements; our ability to generate cash necessary to service our debt; weakened economic conditions and volatile capital markets; our ability to grow our business and successfully implement our business strategies, including growing our ambulatory care services platform; governmental regulation of the health care industry, including Medicare and Medicaid reimbursement levels in general and with respect to the impact of the Budget Control Act of 2011 and other future deficit reduction plans; our ability to successfully integrate hospitals or ambulatory care facilities acquired in the future or to recognize expected synergies from such acquisitions; potential acquisitions could be costly, unsuccessful or subject us to unexpected liabilities; a reduction or elimination of supplemental Medicare and Medicaid payments on which we depend, including disproportionate share payments, indirect medical education/graduate medical education payments, upper payment limit programs and other similar payments; the highly competitive nature of the health care industry; the geographic concentration of our operations; the impact of a natural disaster or other catastrophic event in one of our geographic markets and our ability to recover from such disaster or event; potential adverse impact of pre-payment and post-payment claims reviews by governmental agencies; conflicts of interest that may arise as a result of our control by a small number of stockholders; pressures to contain costs by managed care organizations and other insurers and our ability to negotiate acceptable terms with these third party payers; our ability to attract and retain qualified management and health care professionals, including physicians and nurses; the currently unknown effect on us of the major federal health care reforms enacted by Congress in March 2010, including the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or other potential additional federal or state health care reforms, including that states may opt out of the Medicaid expansion; whether our efforts to reduce the cost of providing health care services while increasing the quality of care are successful; potential adverse impact of known and unknown governmental investigations and audits; increased compliance costs from further government regulation of the health care industry and our failure to comply, or allegations of our failure to comply, with applicable laws and regulations; our failure to adequately enhance our facilities with technologically advanced equipment; the availability of capital to fund our corporate growth strategy and improvements to our existing facilities; potential lawsuits or other claims asserted against us; failure of the Arizona Health Care Cost Containment System ("AHCCCS") to renew its contract with, or award future contracts with similar terms and scope to, Phoenix Health Plan ("PHP"); PHP's ability to comply with the terms of its contract with AHCCCS or the capped contract recently awarded to PHP for the three year period starting October 1, 2013; our inability to accurately estimate and manage health plan claims expense within our health plans; our inability to accurately estimate and manage employee medical benefits expense; reductions in or our inability to grow the enrollment of our health plans; changes in general economic conditions nationally and regionally in our markets; our exposure to the increased amounts of and collection risks associated with uninsured accounts and the co-pay and deductible portions of insured accounts; dependence on our senior management team and local management personnel; volatility of professional and general liability insurance for us and the physicians who practice at our hospitals and increases in the quantity and severity of professional liability claims; our ability to achieve operating and financial targets and to maintain and increase patient volumes and control the costs of providing services, including salaries and benefits, supplies and other operating expenses; technological and pharmaceutical improvements that increase the cost of providing, or reduce the demand for, health care services and shift demand for inpatient services to outpatient settings; a failure of our information systems; delays in receiving payments for services provided, especially from governmental payers; changes in payer mix, service mix and surgical volumes, including changes in Medicaid eligibility criteria and more patients covered under managed Medicare and Medicaid programs rather than traditional Medicare and Medicaid programs, potential declines in the population covered under managed care agreements and physician utilization trends and practices; costs and compliance risks associated with Section 404 of the Sarbanes-Oxley Act of 2002; material non-cash charges to earnings from impairment of goodwill associated with declines in the fair market value of our reporting units; cash payments that may be necessary to fund an underfunded defined benefit pension plan of The Detroit Medical Center; volatility of materials and labor costs for, or state efforts to regulate, potential construction projects that may be necessary for future growth; our reliance on payments from our subsidiaries, which may be restricted by our credit agreement and the indentures governing our senior notes; changes in accounting practices; our ability to demonstrate meaningful use of certified electronic health record technology and to receive the related Medicare or Medicaid incentive payments; and other risk factors described in our Annual Report on Form 10-K and other filings with the Securities and Exchange Commission.
Our forward-looking statements speak only as of the date made. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements contained herein, whether as a result of new information, future events or otherwise. You are cautioned not to rely on such forward-looking statements when evaluating the information contained in this press release. In light of significant uncertainties inherent in the forward-looking statements included in this press release, you should not regard the inclusion of such information as a representation by us that the objectives and plans anticipated by the forward-looking statements will occur or be achieved or, if any of them do, what impact they will have on our financial condition, results of operations or cash flows.
We use our company website to provide important information to investors about the company, including the posting of important announcements regarding financial performance and corporate developments.
|VANGUARD HEALTH SYSTEMS, INC.|
|Condensed Consolidated Income Statements (Unaudited)|
|(In millions, except share and per share amounts)|
|Quarter ended March 31,|
|Patient service revenues||$||1,525.5||96.4||%||$||1,467.2||97.9||%|
|Less: Provision for doubtful accounts||(133.8||)||(8.5||)||(151.2||)||(10.1||)|
|Patient service revenues, net||1,391.7||87.9||1,316.0||87.8|
|Salaries and benefits (includes stock compensation)||721.8||45.6||695.3||46.4|
|Health plan claims expense||146.6||9.3||137.3||9.2|
|Rents and leases||19.0||1.2||19.4||1.3|
|Other operating expenses||142.7||9.0||124.4||8.3|
|Medicare and Medicaid EHR incentives||(2.4||)||(0.2||)||(5.4||)||(0.4||)|
|Depreciation and amortization||62.9||4.0||60.7||4.1|
|Debt extinguishment costs||—||—||1.3||0.1|
|Acquisition related expenses||1.2||0.1||0.1||—|
Income from continuing operations before income taxes
|Income tax expense||(24.3||)||(1.5||)||(12.4||)||(0.8||)|
|Income from continuing operations||45.1||2.8||24.0||1.6|
|Loss from discontinued operations, net of taxes||(0.1||)||—||—||—|
|Net income attributable to non-controlling interests||(1.0||)||(0.1||)||(2.7||)||(0.2||)|
Net income attributable to Vanguard Health Systems, Inc. stockholders
|Earnings per share attributable to Vanguard Health Systems, Inc. stockholders|
|Basic earnings per share||$||0.58||$||0.27|
|Diluted earnings per share||$||0.55||$||0.26|
|Weighted average shares outstanding (in thousands):|