Envision Healthcare Reports Second Quarter Results

Envision Healthcare Holdings, Inc. (Envision or Company) (NYSE: EVHC) reported results from operations for the three months and six months ended June 30, 2016. All comparisons included in this release are for the 2016 periods to the comparable 2015 periods, unless otherwise noted.

Highlights:

• Net revenue of $1.64 billion, an increase of 21.2%;
• Net income of $28.4 million compares with $52.4 million;
• Adjusted EBITDA of $172.0 million compares with $162.8 million;
• GAAP diluted earnings per share (EPS) was $0.15 and compares with $0.27; and
• Adjusted diluted EPS was $0.34 and compares with $0.37.

“Our results for the second quarter of 2016 reflect solid operating performance for our EmCare hospital-based physician services and legacy AMR operations,” said William A. Sanger, chairman, president and chief executive officer. “Our AMR financial results were impacted by investments made in certain Rural/Metro markets to meet customer service expectations and establish our position as valued partners in these communities. In addition, we experienced a delay in the expected earnings contribution from Evolution Health’s recently launched Florida health plan contract. We remain confident that we will achieve our targeted financial performance for both Rural/Metro and Evolution’s health plan contract during the first half of 2017. Our 2016 outlook is being updated to reflect the timing of expected improvements.”

Results of Operations for the Second Quarter of 2016

Envision generated net revenue of $1.64 billion, an increase of 21.2%, driven by contributions from acquisitions of 16.7%, and organic growth of 4.5%. Net income was $28.4 million and Adjusted EBITDA was $172.0 million. Envision earned $0.15 per diluted share on a GAAP basis, and Adjusted diluted EPS for the quarter was $0.34.

Segment Results for the Second Quarter of 2016

Envision operates two business segments: EmCare Holdings (EmCare), the Company’s facility-based and post-acute care physician-led services segment and American Medical Response (AMR), the Company’s medical transportation services segment.

EmCare

EmCare’s net revenue for the second quarter of 2016 was $1.05 billion, an increase of 13.1% from the prior-year period.

Revenue from acquisitions completed during the past 12 months contributed growth of 8.5%. Organic revenue growth of 4.6% consisted of same-store contributions of 4.6% while net new contract growth was flat. Revenue from net new contracts was driven by net new contract growth at Evolution Health, offset by EmCare contracts terminated during the last 12 months, and particularly during the second half of 2015.

EmCare’s same-store revenue, when calculated from the comparable contract base for both periods, increased by 5.3%. Rate grew by 2.3% from hospital-based services, driven primarily by an increase in anesthesia yield, and a positive rate impact of 2.1% from Evolution Health. Patient volume from hospital-based services grew by 0.9%.

EmCare’s income from operations was $66.3 million, or 6.3% of revenue, which compares with $77.9 million, or 8.4% of revenue, due to lower operating income from Evolution Health and restructuring costs related to EmCare’s process improvement initiatives.

Adjusted EBITDA of $103.8 million was 9.9% of revenue, which compares with $105.2 million, or 11.3% of revenue. EmCare’s results were impacted by Evolution Health’s Florida health plan contract. When excluding Evolution Health’s results, EmCare’s margins improved sequentially, and were at the same level as the prior-year period.

American Medical Response

AMR’s net revenue grew by 38.9% to $590.4 million, from $425.2 million in the prior-year period. Acquisition-related growth was 34.7%, same-market revenue growth was 2.6%, and net new contract growth was 1.6%. Same-market growth consisted of a 2.6% increase in volume and no change in rate from the prior year.

AMR’s income from operations was $22.5 million, or 3.8% of revenue, which compares with $36.4 million, or 8.6% of revenue. The change in operating margin was driven primarily by lower Adjusted EBITDA margin, higher depreciation and amortization expense and transaction costs primarily related to integration of the Rural/Metro acquisition.

Adjusted EBITDA was $68.2 million, or 11.5% of revenue, compared with $57.6 million, or 13.5% of revenue. Margins were impacted by Rural/Metro’s results during the quarter. During the first and second quarters of 2016, staffing levels were increased to improve compliance with response-time commitments within certain Rural/Metro markets. Also, during the second quarter of 2016, transport volumes in certain Rural/Metro markets were lower than anticipated, and AMR had to maintain staffing at higher levels in those markets to meet response-time commitments. Envision expects that mitigation actions and accelerated integration timelines will lead to improved financial performance and realization of targeted contributions from Rural/Metro.

Envision Cash Flows for the Second Quarter of 2016

Envision generated cash flow from operations of $69.6 million, or $95.6 million when excluding certain non-recurring payments. This compares with cash flow from operations of $115.6 million. Cash flow from operations was impacted by lower net income. Envision’s days sales outstanding declined by one day in the second quarter of 2016 on a sequential basis. Adjusted Free Cash Flow, a non-GAAP financial measure, was $62.9 million, and was impacted primarily by expected higher capital expenditures, largely related to the Rural/Metro acquisition and new contract growth at AMR. See “Non-GAAP Financial Measures Description and Reconciliation” below for the definition and reconciliation of Adjusted Free Cash Flow to Cash Flows from Operating Activities.

Results of Operations for the Six Months Ended June 30, 2016

Envision’s net revenue was $3.24 billion, net income was $55.3 million, and Adjusted EBITDA was $323.6 million. Envision generated cash flow from operations of $159.2 million, or $185.2 million when excluding certain non-recurring payments, and Adjusted Free Cash Flow was $125.7 million.

Segment Results for the Six Months ended June 30, 2016

Net revenue at EmCare was $2.06 billion, operating income was $125.3 million, and Adjusted EBITDA was $191.2 million.

Net revenue at AMR was $1.18 billion, operating income was $51.0 million, and Adjusted EBITDA was $132.4 million.

Merger Update

Envision expects that the preliminary joint proxy statement/prospectus related to its previously announced merger with AMSURG Corp. (NASDAQ: AMSG) will be filed with the U.S. Securities and Exchange Commission on Thursday, August 4, 2016, by the new registrant “New Amethyst Corp.,” which will be renamed Envision Healthcare Corporation upon completion of the merger.

2016 Outlook

Envision Healthcare is updating its financial outlook for 2016. Envision now expects to generate Adjusted EBITDA of $715 million to $730 million and Adjusted EPS of $1.42 to $1.47. Envision’s outlook assumes third quarter Adjusted EBITDA will be approximately 25% to 26% of its updated outlook.

Envision is not providing reconciliation of its forward-looking 2016 Adjusted EBITDA and Adjusted EPS because the Company is not able to accurately estimate the variables and individual adjustments for these items, including normal variability in income tax expense, equity compensation and transaction costs related to acquisition activities. Envision believes that the variability of these items could have an impact on its GAAP financial results.

Conference Call

Envision management will host a conference call today, Wednesday, August 3, 2016, at 5 p.m. Eastern Time, to discuss the Company’s financial results. Interested participants may listen to the call by dialing 800-857-6175, or 517-623-4852 for international callers, and referencing participant code 909712. A replay will be available one hour after the call ends through September 3, 2016. To access the replay, dial 800-284-7027, or 402-220-9738 for international callers. An audio file will also be archived for 30 days on the investor relations section of the Company’s website: investor.evhc.net.

About Envision Healthcare Holdings, Inc.

Envision Healthcare Holdings, Inc., offers an array of physician-led healthcare-related services to consumers, hospitals, healthcare systems, health plans and local, state and national government entities. The organization provides care across a broad patient continuum via American Medical Response, Inc. (AMR), EmCare Holdings, Inc. (EmCare) and Evolution Health, LLC (Evolution Health). AMR provides community-based medical transportation services, including emergency (‘911’), non-emergency, managed transportation, air ambulance and disaster response. EmCare’s integrated facility-based physician services include emergency, anesthesiology, hospitalist/inpatient care, radiology, tele-radiology and surgery. Evolution Health’s innovative and comprehensive care coordination solutions result in improved patient care delivery across a number of healthcare settings. Envision Healthcare is headquartered in Greenwood Village, Colorado. For additional information, visit www.evhc.net.

Forward-Looking Statements

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 may include, but are not limited to, statements relating to our 2016 Adjusted EBITDA and Adjusted EPS guidance, objectives, plans and strategies, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future. Important factors that could cause actual results, developments and business decisions to differ materially from forward-looking statements are described in our filings with the Securities and Exchange Commission from time to time, including in the section entitled “Risk Factors” in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Factors that could cause future results to differ materially from those provided in this press release include, but are not limited to: decreases in our revenue and profit margin under our fee-for-service contracts; failure to implement our business strategies, the loss of existing contracts; failure to accurately assess costs under new contracts; our ability to integrate acquisitions; competition in markets we serve; the cost of required capital expenditures; retention of our senior management; our ability to maintain or implement information systems; the impact of labor union representation; failure to comply with extensive and complex government regulation of our industry; the impact of changes in the healthcare sector; our ability to service our debt obligations; risks associated with the ability to consummate the previously announced business combination between Envision and AMSURG Corp. (“AMSURG”) and the timing of the closing of the business combination; the ability to successfully integrate Envision’s and AMSURG’s operations and employees; the ability to realize anticipated benefits and synergies of the business combination; the potential impact of announcement of the business combination or consummation of the transaction on relationships, including with employees, customers and competitors, and other factors discussed in our filings with the Securities and Exchange Commission. Any forward-looking statements herein are made as of the date of this press release, and we undertake no duty to update or revise any such statements. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties.

Non-GAAP Financial Measures Description and Reconciliation

This press release includes presentations of Adjusted EBITDA, Adjusted Free Cash Flow and Adjusted EPS. These are financial measures that are not calculated and presented in accordance with generally accepted accounting principles in the United States of America (GAAP). These non-GAAP measures may not be comparable to similarly titled measures of other companies.

Adjusted EBITDA is defined as net income (loss) before equity in earnings of unconsolidated subsidiary, income tax benefit (expense), loss on early debt extinguishment, other income (expense), net, realized gains (losses) on investments, interest expense, net, equity-based compensation expense, transaction costs related to acquisition activities, restructuring and other charges, adjustment to net loss (income) attributable to non-controlling interest due to deferred taxes, and depreciation and amortization expense. Adjusted Free Cash Flow is defined as cash flow from operations adjusted for cash used in non-acquisition related investing activities and certain out-of-period or non-recurring cash payments. Adjusted EPS is defined as diluted earnings per share adjusted for expenses related to the Company’s secondary offerings, amortization expense, equity-based compensation expense, restructuring and other charges, severance and related costs, loss on early debt extinguishment, and transaction costs related to acquisition activities, net of an estimated tax benefit.

Adjusted Free Cash Flow is a non-GAAP measures used by management as a liquidity indicator. Adjusted EBITDA and Adjusted EPS are non-GAAP measures used by management solely as performance measures. The items excluded from these non-GAAP measures are important in understanding the Company’s financial performance, and should not be considered in isolation of, or as an alternative to, GAAP financial measures. Reconciliations of non-GAAP financial measures are provided in the tables included in this press release.

Note: Certain prior period balances in the consolidated balance sheets have been reclassified to conform to the current year
presentation. Such reclassifications had no impact on the results of operations or cash flows previously reported.

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