Accendra Health (ACH) Q4 2014 earnings summary

Executive summary

• FY14 net revenue rose 4.1% YoY to $9.44B; reported net income fell to $66.5M from $110.9M, while adjusted EPS was $1.76 versus $1.90.

• Growth reflected larger provider accounts, International fee-for-service activity and Q4 acquisitions; lower Domestic contract margins, higher expenses and International customer losses weighed on earnings.

Financial highlights

• Revenue increased 4.1% to $9.44B; gross margin rose 4.7% to $1.17B, with gross margin rate up to 12.39% from 12.31%.

• Operating earnings were $159.5M versus $198.1M; Adjusted Operating Earnings were $202.5M versus $210.5M, with adjusted margin of 2.15% versus 2.32%.

• Net income was $66.5M versus $110.9M; diluted EPS was $1.06 versus $1.76; adjusted net income was $110.1M versus $119.7M and adjusted EPS $1.76 versus $1.90.

• SG&A increased 7.3% to $927.0M and rose to 9.82% of revenue from 9.52%; interest expense increased 38.7% to $18.2M.

• Operating cash flow was negative $3.8M versus positive $140.6M, driven by working-capital needs and vendor-payment timing; cash ended at $56.8M.

Outlook and guidance

• Expected approximately $9.5M of 2015 exit and realignment charges for initiatives begun through year-end, including Domestic facility closures and International system replacement costs.

• Financing sources were expected to cover working capital, capex, growth, debt and lease payments, dividends, repurchases and other cash needs; quarterly dividend payments were anticipated to continue.

• Quarterly dividend increased 1.0% to $0.2525 per share, approved in February 2015.