Health Management Associates (HMA), a leading operator of general acute care hospitals, reported first quarter earnings per share of 24 cents beating the Zacks Consensus Estimate of 22 cents and surpassing the year-ago earnings per share also of 22 cents. Adjusted earnings exclude 9 cents per share for a swap arrangement and mark-to-market orientation.
Net income from continuing operations dropped 29.4% year over year to $39.1 million. Consolidated net income dropped 32.1% to $37.7 million (or 15 cents per share).
Revenues (prior to provisioning for doubtful clients) increased 18.2% year over year to $1,686.5 million, beating the Zacks Consensus Estimate of $1,618 million. The top line was driven by higher hospital admissions (on a continuing operations basis). Net sales from same hospital (continuing operations), operated for at least a year, rose 5.7% to $1,326 million.
Operational Statistics
From a continuing operations perspective, occupancy dipped to 45.2% from 48.2% in the year-ago quarter. Admissions increased 5.9% while adjusted admissions were up 11.8% in the quarter. Average length of stay dropped marginally to about 4.9 days. Surgeries were up 20.6%, patient days rose 5.4%, while emergency room visits moved up 13.4%.
On a same hospital basis, occupancy dropped to 45.3% in the quarter from 48.2% a year ago. Same hospital admissions and adjusted admissions fell 4.2% and 0.2%, respectively.
Margins
Same hospital adjusted EBITDA margin moved up to 19.9% from 19.7% in the year-ago quarter. Bad debt expense, as a percentage of revenues, dropped to 11.9% from 12.1% in the year-ago period.
The total of uninsured discounts, indigent/charity write-offs and bad debt expense as a percentage of the sum of net sales before provisioning, uninsured discounts and indigent/charity write-offs rose to 26.1% in the reported quarter from 25.4% a year ago. This metric indicates the aggregate extent of patient care for which the company is not reimbursed.
Balance Sheet and Cash Flow
Health Management finished the quarter with cash (and cash equivalents) and available-for-sale securities of $51.4 million, down 77.4% year over year, with a sizeable long-term debt of about $3,476.5 million, up 16.8% year over year. The company produced operating cash flow (from continuing operations) of $62.1 million during the quarter (compared with $116.8 million in the year-ago quarter).
Acquisitions
As reported earlier, a subsidiary of the company concluded a definitive agreement with Integris Health for a joint venture relationship with 5 hospitals in Oklahoma. These facilities have a total of 226 beds and produced revenues of about $95 million over the preceding year. As per the agreement, which went into effect from April 1, 2012, Health Management is slated to hold an 80% stake in the 5 facilities.
Outlook
The company continues to forecast earnings between 80 cents and 90 cents per share for fiscal 2012. The forecast does not consider about $96 million (or 24 cents per share) of effect from mark-to-market orientation and interest rate swap and $90 million to $120 million of Medicare and Medicaid HCIT incentive payments.
Health Management is engaged in the ownership and operation of general acute care hospitals in non-urban communities across the U.S. The company is an active acquirer of underperforming hospitals with a turnaround potential in high-growth markets. Health Management’s competitors, in niche markets, include Community Health Systems (CYH) and LifepointHospitals (LPNT).
Health Management benefits from a gradual growth in admissions largely due to improvements in Emergency Room, sustained physician recruitment and service development. Moreover, it is well placed to expand margins from continuing operations and drive above-industry average earnings growth. While the debt burden remains sizeable, we are somewhat comforted that bad debt is no longer an area of looming concern. Currently we are Neutral on Health Management which is backed by a Zacks #3 Rank (“Hold”).
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