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Leading operator of general acute care hospitals, Health Management Associates (HMA - Analyst Report) reported third quarter adjusted earnings per share of 18 cents, missing the Zacks Consensus Estimate as well as the year-ago earnings by a penny.
Net income at Health Management decreased 5.5% year over year to $41.3 million (or 16 cents per share).
Revenues (prior to provisioning for doubtful clients) increased almost 19% year over year to $1,664.2 million, easily surpassing the Zacks Consensus Estimate of $1,655 million. Net revenues improved 18.1% year over year to 1,440.1 million. Net revenues from same hospital (continuing operations) increased 4.5% to $1,274.1 million.
From a continuing operations perspective, occupancy declined to 38.9% in the reported quarter from 41.1% in the year-ago quarter. Admissions were up 4% while adjusted admissions rose 10.4% in the third quarter. Average length of stay stood at 4.2 days compared with 4.1 days in the year-ago quarter. Surgeries climbed 19.1%, patient days increased 6.5%, while emergency room visits rose 20.9%.
On same hospital basis, occupancy declined to 38.9% in the third quarter from 41.1% in the prior year quarter. Same hospital admissions and adjusted admissions also dipped 6.4% and 2.2%, respectively, while surgeries and emergency room visits increased 0.8% and 4.2%, respectively.
Same hospital adjusted EBITDA margin increased 180 basis points to 20.4% in the third quarter. Bad debt expense, as a percentage of revenues, moved up to 13.5% compared to 12.8% 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 29% in the quarter from 26.1% a year ago. This metric indicates the aggregate extent of patient care for which Health Management is not reimbursed.
Balance Sheet and Cash Flow
Health Management exited the third quarter with cash, cash equivalents and available-for-sale securities of $181.8 million, up 44.5% year over year, with a considerable long-term debt of about $3,476.5 million, up 4.1% year over year. The company generated cash flow (from continuing operations) of $167.1 million in the reported quarter compared with $175.5 million in the year-ago quarter.
For 2012, Health Management narrowed its forecast for earnings in the band of 80 cents and 85 cents per share compared with the prior guidance of 80 cents to 90 cents per share. The forecast revision is associated with higher fixed expenditure related to two new replacement hospitals.
The forecast excludes about $103 million to $107 million (or 26 cents to 27 cents per share) of effect from mark-to-market orientation and interest rate swap as well as Medicare and Medicaid HCIT incentive payments in the range of $90 million to $100 million (or 23 cents to 25 cents per share).
The company expects adjusted EBITDA for 2012 in the band of $875 million and $915 million. Health Management now expects same hospital admissions to decline in the range of 3% to 5% for 2012 whereas, the same hospital adjusted admissions growth is expected to be in the range of -1% to 1%.
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 - Snapshot Report) and LifepointHospitals (LPNT - Snapshot Report).
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. The debt burden for the company remains sizeable. Currently we are ‘Neutral’ on Health Management which carries a short-term Zacks #5 Rank (Strong Sell).