Envision Healthcare Releases 4Q and Full Year 2013 Results, Reaffirms 2014 Guidance

Envision Healthcare Holdings, Inc. ("EVHC" or the "Company") has announced results for the fourth quarter and full year 2013.

In a release on March 5, the Company noted that all comparisons included in this release are for fourth quarter or full year 2013 to fourth quarter or full year 2012 unless otherwise noted.

William A. Sanger, Chief Executive Officer, said, "In the fourth quarter, we saw continued record-setting organic growth in both segments. EmCare maintained its accelerated pace for contract starts and AMR started the largest 911 contract we have seen in several years. These combined results contributed to another remarkable year. Looking forward, we believe our differentiated product offerings, which are specifically designed to address the challenges of our customers in a changing healthcare landscape, will provide us the opportunity to continue our growth."

Results of Operations for the Fourth Quarter of 2013

For the fourth quarter of 2013, EVHC generated net revenue of $984.8 million, an increase of 13.0 percent, or 18.0 percent excluding the FEMA deployment.

Adjusted EBITDA was $117.2 million, an increase of 3.6 percent, or $126.9 million, an increase of 12.2 percent, excluding the $9.7 million impact from two recent significantly higher than expected malpractice awards on cases filed in 2009 and 2011. The increase in Adjusted EBITDA is primarily attributable to the impact of increased volume from net new contracts and increased revenue from same store contracts and acquisitions.

EVHC generated net income of $7.9 million compared to net income of $12.3 million. The decrease in net income is primarily attributable to the tax-effected impact of $38.7 million in costs related to the partial redemption of the 8.125 percent Senior Notes due 2019 ("2019 Notes") on December 30, 2013, partially offset by lower interest expense due to debt reduction from IPO proceeds in August 2013.

Segment Results for the Fourth Quarter of 2013

EVHC operates two business segments: EmCare Holdings Inc. ("EmCare"), the Company's facility-based and post-acute care physician services segment and American Medical Response, Inc. ("AMR"), the Company's healthcare transportation services segment.

EmCare

EmCare generated net revenue of $629.6 million, an increase of $118.3 million or 23.1 percent. Organic growth was 16.8 percent primarily attributable to an increase of $72.4 million, or 14.2 percent, from net new contracts, and an increase of $13.4 million, or 2.6 percent, from same store contracts. Revenue from acquisitions increased $32.5 million or 6.3 percent.

Adjusted EBITDA was $75.3 million compared to $71.4 million, an increase of $3.9 million, or 5.4 percent. Excluding the impact of the two malpractice cases, Adjusted EBITDA was $85.0 million, an increase of 19.0 percent which was primarily driven by the net impact of revenue increases from net new contracts and same store revenue growth. These were offset by higher compensation costs and other related start-up costs associated with new contract starts. Excluding the impact of the two malpractice cases, insurance trends continue to be stable as expense for the fourth quarter of 2013 included a favorable prior period insurance adjustment of $0.9 million compared to a favorable prior period adjustment of $3.0 million in 2012. Income from operations was $63.0 million, an increase of 15.0 percent.

American Medical Response (AMR)

For the fourth quarter of 2013, AMR generated net revenue of $355.2 million, a decrease of $5.3 million, or 1.5 percent. Excluding the $37.2 million of revenue in 2012 for the FEMA deployment, AMR generated a net revenue increase of $31.8 million or 9.8 percent. Organic growth was 5.2 percent driven by new 911 contract wins and increased revenue in existing markets. Acquisition growth was 4.6 percent.

Adjusted EBITDA was $41.9 million in the fourth quarter of 2013 which was equivalent to the same quarter in 2012. Excluding the impact of the FEMA deployment in 2012, Adjusted EBITDA and margins improved substantially. This was attributable to revenue increases in existing markets, new contract wins, acquisitions and lower expenses due to cost saving initiatives. Insurance expense for the fourth quarter of 2013 included a favorable prior period adjustment of $0.9 million compared to an unfavorable prior period adjustment of $0.3 million. Income from operations was $21.6 million, an increase of 4.3 percent.

Cash Flows for the Fourth Quarter of 2013

Cash provided by operating activities was $28.5 million, compared to $47.2 million. The decrease of $18.7 million was primarily driven by an increase in accounts receivable at December 31, 2013. Days Sales Outstanding ("DSO") increased by two days from the third quarter of 2013. While AMR's DSO decreased by one day, EmCare's DSO increased 5 days primarily as a result of provider enrollments previously delayed by CMS and a significant number of new contract starts.

Net cash used in investing activities was $28.6 million, compared to $187.5 million. Acquisitions were $7.7 million, compared to $172.4 million. Net capital expenditures increased $4.3 million primarily due to timing differences.

Net cash used in financing activities was $371.0 million compared to net cash provided by financing activities of $69.7 million. During the quarter, a payment of $354.3 million was made to partially redeem the 2019 Notes, which included a $27.0 million redemption premium. At December 31, 2013, there were no amounts outstanding under the revolving credit facility.

Adjusted Free Cash Flow was $7.7 million, compared to $32.2 million. The difference is primarily attributable to aforementioned changes in accounts receivable at EmCare.

Results of Operations for the Full Year 2013

EVHC net revenue was $3.73 billion, an increase of 13.0 percent, or 14.5 percent excluding FEMA deployment revenue in 2012 of $44.1 million.

Adjusted EBITDA was $445.7 million, an increase of 10.2 percent. Excluding the impact of the two malpractice cases, Adjusted EBITDA was $455.4 million. This increase is primarily attributable to the impact of increased volume from net new contracts, increased revenue from existing contracts and acquisitions.

Net income of $6.0 million was affected by $88.4 million from the IPO-Related Costs in the third quarter, along with the early redemption costs for the PIK Notes and 2019 Notes. Net income for the year ended 2012 was $41.2 million.

Segment Results for the Full Year 2013

EmCare's net revenue was $2.36 billion, an increase of 23.2 percent. Adjusted EBITDA was $294.0 million, an increase of 12.8 percent. Excluding the impact of the two malpractice cases, Adjusted EBITDA was $303.7 million. Income from operations was $219.8 million, an increase of 10.3 percent.

AMR's net revenue was $1.37 billion, a decrease of 1.1 percent. Excluding 2012 FEMA deployment revenue, net revenue increased 2.1 percent. Adjusted EBITDA was $151.7 million, an increase of 5.4 percent. Income from operations was $57.0 million, a decrease of 1.1 percent.

Cash Flows for the Full Year 2013

Cash provided by operating activities was $112.3 million, excluding $58.2 million in non-recurring outflows, compared to $216.4 million. The non-recurring operating outflows included the IPO-Related Costs outflows of $20 million, a $13.7 million operating cash flow payment to settle a prior shareholder lawsuit, and $24.5 million of payments related to a 2012 AMR contract termination and the 2012 FEMA deployment. The remaining difference of $104.1 million primarily relates to an income tax refund of $43.0 million received in the third quarter of 2012 and an increase in accounts receivable in 2013. While AMR's DSO decreased 5 days, EmCare's DSO increased 17 days primarily as a result of provider enrollments previously delayed by CMS and a significant number of new contract starts as previously noted.

Net cash used in investing activities was $98.6 million, compared to net cash used in investing activities of $154.0 million. The change is primarily due to a return of insurance collateral of approximately $100 million in 2012. Acquisitions of businesses totaled $35.1 million compared to $193.0 million. Net cash capital expenditures increased $12.1 million primarily due to new AMR 911 contract wins.

Net cash provided by financing activities was $191.4 million, compared to net cash used in financing activities of $138.6 million. The increase in cash provided by financing activities is primarily related to proceeds from the IPO offset by redemption of the PIK Notes, partial redemption of the 2019 Notes and payment to settle a prior shareholder lawsuit.

Adjusted Free Cash Flow was $48.8 million compared to $255.4 million. The decrease is primarily attributable to the aforementioned return of insurance collateral, income tax refund received in 2012 and the increase in EmCare accounts receivable.

2014 Guidance

The Company reaffirms previously announced 2014 Adjusted EPS guidance of $1.10 to $1.15, and Adjusted EBITDA guidance of $538 million to $545 million. This guidance includes an estimated Adjusted EBITDA benefit from Medicaid parity ranging from $17 million to $20 million, but does not include other benefits from healthcare reform.

Envision Healthcare Holdings, Inc. and its more than 30,000 employees and affiliated clinicians offer an array of healthcare- related services to consumers, hospitals, healthcare systems, health plans and local, state and national government entities.

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