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Fourth Quarter 2009 Highlights (comparisons are to fourth quarter 2008):
Year Ended December 31, 2009 Highlights (comparisons are to the year ended December 31, 2008)
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Adam D. Singer, M.D., Chief Executive Officer of IPC The Hospitalist Company, stated, "Our record fourth quarter results, including a 20% increase in net revenue, reflect our continued ability to grow our top line in existing markets and through new market acquisitions. We also once again demonstrated that we can leverage our corporate overhead, which resulted in a 100 basis point improvement in our adjusted operating margin for both the quarter and the full year. We are pleased to note that our physician retention improved in 2009."
Dr. Singer added, "In line with our growth strategy, we completed eight acquisitions in 2009 and recently announced our first acquisition of 2010. There remains an abundance of acquisition opportunities in this highly fragmented industry and we continue to evaluate opportunities across the hospitalist sector. We remain confident that we will continue to execute our organic and acquisitive growth strategy in 2010."
Fourth Quarter 2009
Patient encounters for the three months ended December 31, 2009 increased 14.7% to 865,000, compared to 754,000 for the same period last year. Net revenue for the three months ended December 31, 2009 was $82.2 million, an increase of $13.9 million, or 20.3%, from $68.3 million for the three months ended December 31, 2008. Of this $13.9 million increase, $10.3 million or 74.1% was attributable to same-market area growth and $3.6 million was attributable to revenue generated from new market acquisitions. IPC entered one new market through an acquisition in the third quarter of 2008 and two new markets through acquisitions in 2009. The change in same-market area net revenue was largely the result of an 11.9% increase in patient encounters and a 2.9% increase in patient revenue per encounter.
Physician practice salaries, benefits and other expenses for the three months ended December 31, 2009 were $59.1 million, or 71.9% of net revenue, compared to $48.9 million, or 71.5% of net revenue, for the three months ended December 31, 2008.
General and administrative expenses increased $1.4 million, or 12.0%, to $13.4 million, or 16.3% of net revenue, for the three months ended December 31, 2009, as compared to $12.0 million, or 17.5% of net revenue, for the three months ended December 31, 2008.
Early in 2010, IPC reached a preliminary agreement to settle a disputed professional liability claim for a prior year that was in excess of its insurance policy limit, which is referred to herein as the "Settlement". The Settlement remains subject to definitive documentation and is contingent upon receiving applicable court approval. IPC recorded its portion of the settlement, $750,000, as a fourth quarter 2009 operating expense. The Settlement reduced net income by $457,000, net of income taxes, and earnings per share by $0.03.
Income from operations, excluding the Settlement, increased $2.2 million, or 32.1%, to $9.1 million, as compared to $6.9 million for the same period in the prior year. The adjusted operating margin, excluding the Settlement, increased to 11.0% for the three months ended December 31, 2009, compared to 10.0% for the three months ended December 31, 2008.
The effective tax rate increased in the fourth quarter of 2009 to 35.4% as compared to 32.2% for the same period last year. The 2008 fourth quarter rate of 32.2% included a full year of enterprise zone tax credits recognized in the fourth quarter, while for 2009 the credit was recognized over the four quarters. In addition, there were several items that reduced the effective tax rate in the fourth quarter of 2009 as compared to the annual effective tax rate for 2009. The most significant of these were a higher enterprise zone tax credit and a revised state transfer pricing methodology.
Net income increased to $5.4 million for the three months ended December 31, 2009, as compared to $4.6 million for the three months ended December 31, 2008, and the net income margin decreased to 6.5% from 6.8% for the same period in the prior year. Excluding the Settlement, the net income margin for the 2009 quarter was 7.1%. Diluted earnings per share for the quarter ended December 31, 2009 was $0.32, compared to diluted earnings per share of $0.28 in the fourth quarter of 2008. Excluding the Settlement, diluted earnings per share for the fourth quarter of 2009 was $0.35, an increase of 25%.
Year Ended December 31, 2009
Patient encounters for 2009 increased 18.1% to 3,294,000, compared to 2,790,000 for 2008. Net revenue for 2009 was $310.5 million, an increase of $59.3 million, or 23.6%, from $251.2 million for 2008. Of this $59.3 million increase, $45.8 million, or 77.2%, was attributable to same-market area growth and $13.5 million was attributable to revenue generated from acquisitions which enabled us to enter new markets. IPC entered one new market through an acquisition in the third quarter of 2008 and two new markets through acquisitions in 2009. Same-market area net revenue increased 18.7% primarily as the result of a 13.5% increase in patient encounters and a 3.8% increase in patient revenue per encounter, with the remainder due to an increase in hospital contract revenue. The increase in patient revenue per encounter was partially due to a 2.6% net increase in Medicare reimbursement rates effective January 1, 2009 for the codes applicable to the services performed by IPC hospitalists and the remainder is a result of improvements in billing processes and collections.
Physician practice salaries, benefits and other expenses for 2009 were $225.8 million, or 72.7% of net revenue compared to $181.9 million, or 72.4%, of net revenue for 2008.
General and administrative expenses increased $6.6 million, or 14.8%, to $51.3 million, or 16.5% of net revenue, for 2009, as compared to $44.7 million, or 17.8% of net revenue for 2008.
Income from operations increased $7.8 million, or 34.9%, to $30.3 million, as compared to $22.5 million for 2008. The operating margin increased to 9.8% for 2009 from 9.0% for 2008. Excluding the Settlement, the operating margin increased to 10.0% for 2009 as compared to 9.0% for 2008.
The effective tax rate for the year ended December 31, 2009 was 38.2% compared to 39.0% for the year ended December 31, 2008. The 2009 effective tax rate differs from 2008 primarily due to an increase in state enterprise zone tax credits.
Net income increased to $18.6 million for 2009, as compared to $13.6 million for 2008, and the net income margin increased to 6.0% from 5.4% for the same period in the prior year. Diluted earnings per share for 2009 was $1.14 compared to $0.88 for 2008, an increase of 29.2%. Excluding the Settlement, diluted earnings per share for 2009 was $1.17, or an increase of 33%.
Net cash provided by operating activities for the year ended December 31, 2009 increased to $23.5 million, compared to $14.4 million for 2008. Days sales outstanding (DSO) decreased to 54 DSO at the end of the period, compared to 60 DSO as of December 31, 2008. During 2009, $20.2 million was used for physician practice acquisitions and earn-out payments attributable to prior acquisitions, compared to $29.9 million in the prior year. In addition, in late June 2009, the Company paid off all remaining debt of $7.3 million under its term loan and equipment financing loans.
2010 Guidance Update
The Company is providing guidance for the full year 2010 and expects revenue to be in the range of $352 million to $361 million and earnings per diluted share to be in the range of $1.34 to $1.43. The Company has provided this outlook based on the following assumptions: (i) weighted average shares outstanding of 16.6 million for the year; (ii) a 39.0% effective tax rate, and (iii) Congress passes legislation to prevent the scheduled March 1, 2010 reduction in the Medicare Physician Fee Schedule. Not included in the assumptions are (i) practice acquisitions completed after today's date, or (ii) gains or losses related to changes in estimates of earn-outs related to practice acquisitions that close subsequent to December 31, 2009.
Reconciliation of Non-GAAP Financial Measures
This press release contains non-GAAP financial measures related to income from operations, operating margin, net income and earnings per share. During the first quarter of 2010, IPC reached a preliminary agreement to settle a disputed professional liability claim for a prior year in excess of its insurance policy limit in the amount of $750,000, which is referred to in this press release as the "Settlement." The Settlement remains subject to definitive documentation and is contingent upon receiving applicable court approval. IPC recorded the $0.8 million in the fourth quarter of 2009, and where indicated in this press release, income from operations, operating margin, net income and earnings per share have been adjusted to exclude the amount of the Settlement. IPC believes that these non-GAAP financial measures are useful to management and investors reviewing financial and business trends related to its results of operations, and that when these non-GAAP financial measures are viewed with GAAP financial measures, investors are provided with a meaningful understanding of IPC's ongoing operating and financial performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for GAAP financial measures. The following unaudited table reconciles non-GAAP financial information to net income per share, which IPC believes are the most comparable GAAP measures (dollars in thousands, except for per share data):
Conference Call Information
IPC The Hospitalist Company will host an investor conference call to review the quarterly results at 5:00 p.m. ET (2:00 p.m. PT) today. To participate in the conference call, please dial 877-225-7695 (USA) or 720-545-0027 (International). In addition, a dial-up replay of the conference call will be available beginning February 22, 2010 at 8:00 p.m. ET (5:00 p.m. PT) and ending on March 9, 2010 at 11:59 p.m. The replay telephone number is 800-642-1687 (USA) or 706-645-9291 (International). A live webcast of the call will also be available from the Investor Relations section on the corporate web site at http://www.hospitalist.com. A webcast replay can be accessed on the corporate web site beginning February 22, 2010 at approximately 8:00 p.m. ET (5:00 p.m. PT) and will remain available until March 9, 2010 at 11:59 p.m.
About IPC The Hospitalist Company
IPC The Hospitalist Company, Inc. (Nasdaq: IPCM) is a leading national hospitalist physician group practice focused on the delivery of hospitalist medicine services. IPC's physicians and affiliated providers manage the care of hospitalized patients in coordination with primary care physicians and specialists. The Company provides its hospitalists with the comprehensive training, information technology, and management support systems necessary to improve the quality and reduce the cost of inpatient care in the facilities it serves. For more information, visit the IPC website at www.hospitalist.com.
Safe Harbor Statement
Certain statements and information in this press release may be deemed to be "forward-looking statements" within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Forward-looking statements in this press release may include, but are not limited to, those statements set forth under the section titled "Guidance" regarding projected operating results, revenues, earnings, and IPC's growth opportunities and strategy. Forward-looking statements are often characterized by terminology such as "believe", "hope", "may", "anticipate", "should", "intend", "plan", "will", "expect", "estimate", "project", "positioned", "strategy" and similar expressions. Any forward-looking statements are necessarily based on a variety of estimates and assumptions which, though considered reasonable by the Company, may not be realized and are inherently subject to significant business, economic, competitive, industry, regulatory, market and financial uncertainties and contingencies, many of which are and will be beyond IPC's control. Important risks and uncertainties that could cause actual results, developments and business decisions to differ materially from those contemplated by any forward-looking statements are described in IPC's most recent Annual Report on Form 10-K, including the section titled "Risk Factors" and actual results could differ materially from those anticipated in forward-looking statements.
In particular the following risks and uncertainties may have such an impact:
IPC undertakes no obligation following the date of this press release to update or revise any such statements or projections whether as a result of new information, future events, or otherwise.
-- Net revenue increased 20% to $82.2 million, with same-market area net revenue growth of 16% -- Patient encounters increased 15% to 865,000 -- Adjusted income from operations rose 32% to $9.1 million, excluding a professional liability settlement in excess of third party coverage in the amount of $750,000, which is referred to herein as the "Settlement" -- Adjusted operating margin improved 100 basis points to 11%, excluding the Settlement -- Adjusted net income increased 26% to $5.8 million, or $0.35 per diluted share, excluding the Settlement -- GAAP net income increased 16% to $5.4 million, or $0.32 per diluted share
SOURCE IPC The Hospitalist Company, Inc.
