Tennessee-based healthcare provider Amsurg Corp. (AMSG) reported a solid fourth-quarter 2014 with adjusted earnings per share (EPS) of 72 cents from continuing operations, reflecting a decent 28.6% rise from the year-ago quarter. Adjusted earnings also exceeded the Zacks Consensus Estimate of 70 cents while remaining close to the upper-end of the company’s guidance range of 70−73 cents. Despite a 60% increase in the company’s shares outstanding, solid revenue growth in the quarter was primarily responsible forthe year-over-year earnings improvement.
Including one-time items, the company reported fourth-quarter 2014 net earnings per share from continuing operations of 53 cents, a 13.1% slash from the year-ago number.
Full year 2014 EPS was $2.51, up 20.7% from 2013. However, full year EPS failed to meet the company’s guidance of $2.66−$2.71.
With a significant contribution from Sheridan Healthcare, which recorded its first full quarter as a part of AmSurg’s business, net revenues in the fourth quarter (after deducting Provision for uncollectibles) shot up 108% year over year to $581.8 million, well ahead of the Zacks Consensus Estimate of $564 million. Net revenues for 2014 surged 53% to $1.62 billion, ahead of the Zacks Consensus Estimate of $1.61 billion.
We remind investors that Sheridan was acquired by Amsurg in Jul 2014. According to the company, the combination of Sheridan’s expertise in outsourced physician services and AmSurg’s leadership in ambulatory services has been received well in the niche markets and has been generating a strong pipeline of cross-selling opportunities.
Quarter in Details
In the fourth quarter, net revenues from Ambulatory Services increased 6% year over year to $295.7 million with a 1.1% improvement in same-center revenues. In this quarter, Ambulatory Services took over four ambulatory surgery centers (one center acquired as part of the Sheridan transaction) and disposed one.
For the full year, Ambulatory Services acquired 10 centers and had 246 centers in operation at year-end. Five centers remained under the letter of intent at year-end while two were under development.
Physician Services net revenues in the fourth quarter reached $286.1 million, up 17.4% year over year on 7.2% growth in same contract revenues, 2.3% growth in new contract revenues and 7.9% growth in acquisition revenues.
Adjusted operating expenses spiked 133.8% year over year to $430.7 million due to higher salaries and benefits (up 240.2% to $288.0 million), supply cost (up 5.5% to $43.7 million), other operating expenses (up 61.4% to $93.7 million) and transaction costs ($5.2 million as against year-ago $0.15 million). Consequently, adjusted operating margin contracted 803 basis points to 25.9% in the quarter.
AmSurg exited 2014 with $208.1 million in cash and cash equivalents versus $50.8 million at the end of 2013, and had $300 million available borrowing capacity under its revolving credit facility. For the full year, net cash flow from operating activities was $412.4 million, up 23.9% from the year-ago period.
Outlook Initiated
AmSurg provided its 2015 financial guidance. The company expects revenues in the range of $2.44−$2.47 billion. The current Zacks Consensus Estimate of $2.39 billion remains below the guidance range. Adjusted EPS is projected in the range of $3.24−$3.32. The current Zacks Consensus Estimate of $3.23 also falls short of the company’s guidance.
Further, the company’s 2015 same-center revenue growth is projected at 1%–3% for Ambulatory Services and 5% to 7% organic revenue growth in Physician Services.
Additionally, AmSurg provided its EPS guidance for the first quarter of 2015. The company expects adjusted EPS in the range of 55−58 cents affected by higher salary-related expenses historically experienced in Physician Services. The current Zacks Consensus Estimate of 71 cents for first-quarter earnings remains well ahead of the guided range.
Our Take
AmSurg delivered strong fourth-quarter 2014 results beating the Zacks Consensus Estimate for earnings and revenues. We are encouraged by the impressive year-over-year sales growth, achieved primarily on the back of the Sheridan acquisition completed last July. AmSurg has achieved its targeted cost synergies and remains confident of its plan to achieve the $5 million of revenue synergies through a combination of acquisition, new contracts and health system ASC joint ventures. Moreover, the company has provided an optimistic 2015 earnings and revenue outlook which indicates the presence of some near-term catalyst that will aid its financials further 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), HEALTHSOUTH Corp. (HLS) and Quest Diagnostics Inc. (DGX). All these stocks hold a Zacks Rank #2 (Buy).
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