Tennessee-based healthcare provider AmSurg Corp. AMSG reported a strong second-quarter 2015 with adjusted earnings per share (EPS) of 92 cents from continuing operations, reflecting a solid 48.4% rise from the year-ago quarter. Adjusted earnings also exceeded the Zacks Consensus Estimate by 15% and the company’s guidance of 81−84 cents. Solid revenue growth in the quarter was primarily responsible for the year-over-year earnings improvement.
Including one-time items, the company reported second-quarter net earnings per share from continuing operations of 65 cents, up 12.1% from the year-ago quarter.
Quarter in Details
In the third full quarter of consolidation post combination with Sheridan, AmSurg’s net revenue shot up 131% year over year to $642 million, significantly ahead of the Zacks Consensus Estimate of $611 million.
In the reported quarter, net revenue from Ambulatory Services increased 12% year over year to $311 million with a 5.1% improvement in same-center revenues. In this quarter, Ambulatory Services added 2 ambulatory surgery centers (ASC) to its base of operations and ended the quarter with 250 centers.
At the end of the second quarter, six centers remained under the letter of intent while two were under development, one of which is expected to open in late 2015.
Physician Services net revenue in the second quarter reached $331 million, up 24.3% year over year on 10.9% growth in same contract revenues, 1.6% growth in new contract revenues and 11.8% growth in acquisition revenues. Same contract revenue growth of 14.3% included a 3.8% increase in patient encounters and a 10.5% rise in net revenue per patient encounter.
In the reported quarter, this segment of AmSurg acquired one anesthesiology practice. Moreover, it has acquired two additional anesthesiology practices since the end of the second quarter.
Adjusted operating expenses spiked 160% year over year to $471.1 million due to higher salaries and benefits (up 281.1% to $320.4 million), supply cost (up 12% to $45.8 million) and other operating expenses (up 88.1% to $105 million). Consequently, adjusted operating margin contracted 1214 basis points to 42.9% in the quarter.
AmSurg exited the quarter with $126.3 million in cash and cash equivalents versus $208.1 million at the end of 2014, and had $300 million borrowing capacity available under its revolving credit facility. Net cash flow from operating activities was $152.6 million, up 82.1% from the year-ago period.
Upgraded 2015 Outlook
AmSurg raised its 2015 financial guidance. The company now expects revenues in the range of $2.50–$2.52 billion, up from the previous range of $2.46–$2.49 billion. Adjusted EPS is projected in the range of $3.52–$3.59, up from the previously guided $3.31–$3.39.
Further, the company has increased its 2015 same-center revenue growth expectation to 3–4% compared with the prior guided 2–3% for Ambulatory Services. Contract organic revenue growth guidance has been increased to the band of 8% to 10% in Physician Services (from earlier 6% to 8%).
Additionally, AmSurg provided its EPS guidance for the third quarter of 2015. The company expects adjusted EPS in the range of 92−95 cents. The current Zacks Consensus Estimate of 85 cents for third-quarter earnings falls below the guided range.
Our Take
AmSurg delivered solid second-quarter 2015 results beating the Zacks Consensus Estimate for both earnings and revenues. Strong growth in the second quarter was driven by successful execution of the company’s organic growth and acquisition strategies in both the Ambulatory and Physicians Services businesses.
During the earnings release, AmSurg announced the acquisition of Bay Area Anesthesia, LLC, which delivers both inpatient and outpatient anesthesiaservices at seven healthcare facilities in the Tampa market. Solid growth in the second quarter and the pace of acquisition encouraged management to raise AmSurg’s financial outlook for 2015. The optimistic outlook indicates the presence of some near-term catalyst that will likely aid financials in the near future.
We are also optimistic about the fact that government agencies have undertaken initiatives to curtail healthcare expenditure, which had propelled a shift toward ambulatory surgery centers from admissions to traditional hospitals. This, in turn, should benefit healthcare providers like Amsurg.
Zacks Rank
Currently, AmSurg retains a Zacks Rank #3 (Hold). Some better-ranked Medical-Outpatient/Home Care stocks are Amedisys Inc. AMED, AAC Holdings, Inc. AAC and DaVita HealthCare Partners Inc. DVA. While AAC and Amedisys sport a Zacks Rank #1 (Strong Buy), DaVita holds a Zacks Rank #2 (Buy).
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