Operator
Good morning, my name is Melissa and I will be your conference operator today. At this time I would like to welcome everyone to the Health Management First Quarter 2012 Earnings Conference Call. (Operator Instructions). Thank you.
Mr. John Merriwether, Vice President of Financial Relations, you may begin your conference.
John Merriwether
Thank you, Melissa, and good morning everyone. I am John Merriwether, Vice President of Financial Relations for Health Management Associates. I would like to welcome you to Health Management's First Quarter 2012 Earnings Conference Call.
Before we get started with the call, I would like to read a disclosure statement. Statements made thought this presentation are based on current estimates of future events and the company has no obligation to update or correct these estimates. Listeners are cautioned that any such looking statements are not guarantees of future performance that involve risks and uncertainties that may and that actual results made different materially as a result of these various factors.
This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements are subject to risks, uncertainties and assumptions and are identified by word such as expects, estimate, project, anticipates, beliefs, intends, plans, may, continues, should, could, and other similar words. All statements addressing operating performance, events and development of Health Management Associates maybe expects or anticipates will occur the future including but not limited to incurrence of indebtedness, projection to revenue, income or loss, capital expenditures and earnings per share, debt structure, bad dept expense, capital structure, repayment of indebtedness, the amount and timing of funds under meaningful use measurements standard of various Health Care Information Technology incentive programs.
Other financial items and operating statistics, statements regarding the plans and objectives of management for future operations, innovations, or market service development, statements regarding acquisitions, joint ventures divestitures and other proposed or contemplated transactions, including but not limited to statements regarding the potential for future acquisitions and perceived benefits of acquisitions, statements of future economic performance, statements regarding legal proceedings and other loss contingencies, statements regarding market risk exposures, statements regarding effects and/or interpretations that recently enacted a future healthcare laws and regulations, statements of the assumptions underlying or relating to any of the foregoing statements, and other statements which are other than statements of historical fact, are considered to be forward-looking statements.
In addition, adjusted EBITDA as mentioned on this call is defined as consolidated net income before discontinued operations, net gains, losses on sales of the assets, net interest and other income, interest expense, income taxes and depreciation and amortization.
On the call with me this morning are President and Chief Executive Officer, Gary Newsome; Chief Financial Officer, Kelly Curry; Senior Vice President - Finance, Bob Farnham. Thank you for you attention. And I will turn the call over to Gary.
Gary Newsome
Thanks John. Good morning everyone. Thank you for joining us to discuss another solid quarter and strong start of 2012, as we report our result for the first quarter ending March 31st.
For the first quarter from continuing operations and compared to the same quarter a year ago, Health Management reported net revenue growth of 18.4% to $1.485 billion and an adjusted EBIDTA growth of 12.7% to $239.5 million.
Excluding the impact of approximately $36.7 million or $0.09 per diluted share per interest rate swap accounting, as well as the significant mark to marked adjustments on the swap due to interest rate conditions, diluted earnings per share from continuing operations increased 9.1% to $0.24 as compared to $0.22 per diluted share for the same period a year ago.
Contributing to these solid continuing operational financial results were an admission increase of 5.9%, adjusted admission increase of 11.8%, emergency room visit increase of 13.4% and a surgery increase of 20.6%.
For continuing operations at hospitals we have owned and operated for one year or more, referred to as same hospital continuing operations compared to the prior year's first quarter, net revenues increased 5.7%, adjusted EBIDTA increased 6.6% to $264 million resulting in a 20 basis point improvement in EBIDTA margin to 19.9% and surgeries were up 3.8%.
Our outpatient volume continued to grow in the first quarter of 2012 and we believe our inpatient volumes continue to be affected by a challenging economic environment as patients seek to limit time away from the jobs to ensure continue employment.
We continue to see declines in uninsured volumes, and we also saw significant decline in flu related admissions during the first quarter. This contributed to the same hospital admission decline for the first quarter of 4.2% compared to the same period a year ago.
Outpatient services, however, continued their positive trend as outpatient surgeries grew and, as a result, same hospital adjusted admissions were flat for the quarter.
Importantly, had uninsured and flu related volumes have been the same as last year, first quarter same hospital admissions would have decline 1.6% and same hospital adjusted admissions would have increased 2.4%.
We recently held our annual management retreat with our hospital CEOs recognizing their successes of the past year and sharing best practices and ideas for 2012.
Sticking to our patient-centered operating strategy with a focus on the emergency room operations, physician recruitment and market service development while we maintain a discipline cost environment continue to be the central theme. And we believe there continues to be an opportunity in the same hospital and newly acquired or partner facilities who employed these initiatives to improve results.
As I mentioned, outpatient activity remains a bright spot as our technology investment and the attractiveness of outpatient services for patients continues to be a draw. Less invasive procedures, fewer consultations, often times lower out pocket dollars, and the ever important less time out of work continue to make outpatient services desirable for a patient. While we are seeing improvements in outpatient services across the broad range of our hospitals, we also are seeing considerable opportunity to expand enhanced outpatient services in the hospitals we have acquired over the last 36 months.
Speaking of acquisitions shortly after the end of the first quarter subsidiaries of Health Management completed a transaction to joint venture five INTEGRIS Health Oklahoma hospitals. Under the joint venture Health Management owns an 80% controlling interest in the five hospitals and manages the day-to-day operations.
The transaction was effective April 1, 2012, and combined these five hospitals represent 226 licensed beds and generate approximately $95 million of bed revenue before the provision of doubtful accounts over the last 12 months.
We are very excited to expand our presence in Oklahoma through our partnership with such a well-known and respected organization like Integris. They have an excellent reputation and are widely known throughout Oklahoma with 1 in 6 Oklahomans living within 30 miles within Integris facility.
I believe our similar patient focused culture combined with our expertise in non-urban hospital operations and previous partnership success with similar organizations like the Stance Healthcare here in Florida were the deciding factors in choosing Health Management as a partner. As a result of these developing relationships we are seeing similar interests from other well-known and respected organizations for future partnerships.
Our pipeline continues to be very attractive as potential partners are seeking us out for operational expertise assistance, capital resources and even more importantly our patient-centered approach and cultural fit. It is the combination of these operational attributes with our flexible partnership structures of an asset purchase, long-term lease or joint venture, that positions us as a partner of choice.
Thank you again for your attention. At this point, I turn the call to Kelly for a review of the first quarter results in a little further detail.
Kelly Curry
Thanks Gary. Good morning to each of you. My comments will as usual will be brief following Gary’s explanation for the first quarter.
As you've seen from the press release last night, our first quarter net revenue grew 18.4%, adjusted EBITDA grew 12.7% and excluding interest rates swap accounting and the significant mark-to-market adjustment, diluted earnings per share from continuing operations increased 9.1% to 24 % after nearly 1% increase in the number of fully diluted shares outstanding.
Same hospital operations continued to perform well compared to the prior year's first quarter, net revenue increased 5.7% and net revenue per adjusted admissions grew a strong 5.9%.
For the seventh quarter in a row, we have seen a decline in uninsured patients taken care at our same hospital facility. Unemployment rates in our markets have improved about a 100 basis points since last year, but are still 67 basis points above the national average. We believe the improvement in our markets are less from people finding work and more from the unemployed having left the market to seek employment elsewhere.
Continued same hospital uninsured admissions for the first quarter totaled 6.2% of the total admissions, which is a 20 basis point decrease from the same quarter a year ago. As you know, there are three components that comprise our accounts for uninsured and under insured patients, bad debt expense, uninsured discounts, and charity indigent write-offs. These figures are consolidated and includes acquisitions.
Bad debt expense for the quarter was $201.3 million or 11.9% of net revenues before the provision for doubtful accounts, which is the same comparable metric we have always used, compared to $172.1 million or 12.1% of net revenues for the same period a year ago.
Uninsured discounts for the quarter were $299.7 million, compared to $225.7 million a year ago. Health Management's charity and indigent care write-offs for the first quarter were $22.7 million compared to $21.4 million for the prior year.
The sum of bad debt expense, uninsured discounts, and charity indigent write-offs, as a percent of the sum of net revenues before the provision for doubtful accounts, uninsured discounts, and charity indigent write-offs, which Health Management refers to as our uncompensated patient care percentage was 26.1% for the first quarter compared to 25% for the same quarter a year ago, and 25.4% for the fourth quarter ended December 31. This increase is reflective of our acquisitions and our annual charge adjustment.
Our adjusted EBITDA from continuing operations for the first quarter was $239.5 million or 16.1% of net revenues an increase of $27 million or 12.7% over the prior year's $212.5 million.
Our same hospital prices for adjusted EBITDA from continuing operations for the first quarter was $254 million or a 19.9% margin, compared to $247.7 million or 19.7% margin for the same period a year ago. This represents 20 basis points $16.3 million, 6.6% increase over for the first quarter of this prior year.
As with consolidated adjusted EBITDA, same hospital EBITDA in 2012 includes approximately $4.6 million incentive paying an HCIT incentive payments, which is offsetting government payments program reductions in the first quarter.
Moving over to the balance sheet and cash flow statement. Total assets at March 31, again exceeded $6 billion. The balance in accounts receivable net, as of March 31, was $994.7 million. And the balance in the allowance for doubtful accounts was $600.9 million. Health Management's days sales are outstanding or DSO's as of March 31, were 52 days. About three days are related to our Tennova acquisitions, as we had not yet received a Medicare tie-in notices as of March 31. We have sent received those tie-in notices and expect to build and collect the backlog of AR during the second quarter.
Our cash collections continue to be strong and we are achieving our internal targets. For the first quarter, cash flow from continuing operating activities was $62.1 million, after cash interest and tax payments aggregate $52.8 million. Again, cash flow from acquisitions, I mean from operations, does not reflect our Tennova health acquisition, as we did not have the Medicare tie-in notice until April. We are now billing this backlog and we will receive these payments in the second quarter.
Also, of note, probably the cash balances. We completed the five hospital Integris joint venture effective April 1st, by utilizing cash on hand. So we have no borrowings in the first quarter, despite not having received the tie-in notice in completing the Integris acquisition.
Capital expenditure for the first quarter were $80.8 million. With regard to our debt covenant as of March 31, Health Management's total leverage ratio is 4.1 and our interest coverage expense was 4.0. These ratios compared to the total leverage ratio maximum of 5.5, and an interest coverage ratio minimum of 3.25, as of March 31. We are well within these requirements.
Before I wrap up and hand the call back over to Gary, I also want to mention the accounting for the interest rate swap. When we provided our 2012 objectives early this year, we expected to incur $20 million or $0.05 per diluted share per quarter of additional interest expense related to these outstanding swaps. And we did in fact incur that expense in the first quarter. In addition to that expense we were required to mark the swap market and record the impact as an additional interest expense. Because of the yield curve change with the short-term rate falling and long-term rate steeping, we recorded an additional $16 million of interest expense or $0.04 per share.
As a result, we will continue to mark the swap to market each quarter and expect that interest rate rise or interest rate expense could be mitigated in the future.
To review the first quarter results, excluding the impact of approximately $36.7 million or $0.09 per diluted share for the interest rate swap accounting in the significant mark-to-market adjustment on the swap.
Diluted earnings per share from continuing operations increased 9.1% to $0.24, as compared to $0.22 per diluted share for the same quarter a year ago after a nearly 1% increase in the number of fully diluted shares outstanding.
Same hospital adjusted admissions were flat and would have grown 2.4% and uninsured and flu-related admission levels were the same as the prior year. Same hospital surgeries were up 3.8%. Same hospital net revenue increased 5.7% and same hospital net revenue for adjusted admissions increased 5.9%. And same hospital adjusted admissions increased -- adjusted EBITDA increased 6.6% to $264 million. And same hospital adjusted EBITDA margins increased 20 basis points to 19.9%.
Thanks again for your attention. And now, I will turn the call back over to Gary.
Gary Newsome
Thanks, Kelly. We are very pleased with the results for the first quarter ended March 31st. We are reaffirming our 2012 objectives, and we continue to believe our objectives are achievable by maintaining our focus and discipline on cost containment and our three operating initiatives. The emergency room operations and truly the front door to our hospitals; physician recruitment that continue to grow and tie nicely into our market service development strategies as we can continue to expand our footprint in all of our market places. Health Management provides the people, processes, capital, and expertise necessary for a hospital, and decision partners to fulfill their local mission in delivering superior healthcare services. Our strategy of ensuring that the most moderate, high quality care remains close to the citizens of our community, is gaining ever increasing importance. Health Management stands ready to enable America's best local healthcare.
Thank you again for you attention this morning. And I'll now open the call for Q&A.
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