AmSurg Beats, Margin Down - Analyst Blog

AmSurg Corp. ( AMSG ) reported EPS of 42 cents in the fourth quarter of fiscal 2011. However, excluding 2 cents related to the National Surgical Care ("NSC") transaction, adjusted EPS came in at 46 cents, in line with the Zacks Consensus Estimate but ahead of the year-ago quarter EPS of 43 cents. Quarterly result includes a negative impact of one cent related to the revision of the Medicare payment system for ambulatory surgical centers (ASCs). Moreover, operations of the acquired NSC centers contributed 4 cents to net earnings for the quarter. For fiscal 2011, adjusted EPS stood at $1.71 and compared favorably with the Zacks Consensus Estimate as well as the prior-year EPS of $1.67.

AmSurg reported a 22% growth in revenues to $223.3 million during the quarter, surpassing the Zacks Consensus Estimate of $216 million. For the full year, revenues stood at $786.8 million, up 12% and ahead of the Zacks Consensus Estimate of $777 million.

The upside in revenues during the quarter was primarily attributable to a 15% rise in procedures and a 6% increase in revenue per procedure, which reflected higher multi-specialty components in procedure mix. Same-center revenues in the quarter budged up 1% year over year, representing the third consecutive quarterly increase. The growth in procedures for the quarter was primarily driven by the NSC acquisition in September last year that added 14 multi-specialty centers to the company's fourth-quarter revenue. Also with this acquisition, AmSurg gained 2 gastroenterology centers in the US.

Operating expenses increased 28.3% year over year due to higher salaries and benefits (up 23.0% to $69.2 million), supply cost (up 32.5% to $31.5 million) and other operating expenses (up 35.7% to $49.7 million). As a result, operating margin declined 341 basis points to 29.5% during the quarter.

AmSurg exited fiscal 2011 with $40.7 million in cash and cash equivalents versus $34.1 million at the end of 2010, and had $99 million available under its revolving credit facility. For the full-year 2011, net cash flows from operating activities were $104.7 million compared with $98.5 million in 2010.

In the reported quarter, AmSurg also acquired 3 additional centers, one of which is a multi-specialty center and is the largest single-center acquisition of the company. This center generates annualized operating income of approximately 7 times more than its average center operating income.

Considering these fourth-quarter acquisitions, the company added 11 non-NSC centers last year, consisting of 10 acquired centers and 1 de novo. The non-NSC centers acquired in 2011 generate annualized operating income of approximately $29 million.


AmSurg provided its financial outlook for 2012. The company expects adjusted EPS in the range of $1.95−$1.99 (the current Zacks Consensus Estimate is $1.96) from revenues of $900−$920 million ($909 million) for 2012. The company also expects 0%−2% growth in its same-center revenue in 2012. Net cash flow provided by operating activities, less distribution to non-controlling interests is expected to be in a range of $115 million to $120 million for 2012.

We are encouraged by AmSurg's strong fourth quarter result and expect the company to benefit over the long term from favorable industry dynamics. For the past few years, government programs, private insurance companies and managed care organizations have implemented various cost-cutting measures to limit healthcare expenditure. Demand for lower-risk, high-volume surgical procedures performed by ASCs continue to grow, consistent with the demographics of an aging US population. Government agencies have been undertaking initiatives to curtail healthcare expenditure resulting in a shift toward ASCs from traditional hospitals.

Presently, AmSurg holds a Zacks #2 Rank (short-term 'Buy' rating). However, over the longer term, we have a 'Neutral' recommendation on the stock.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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