SOURCE: ExamWorks Group, Inc.

ExamWorks Group, Inc.

February 18, 2015 16:31 ET

ExamWorks Reports Fourth Quarter 2014 Financial Results; Revenues of $202.1 Million; Adjusted EBITDA of $33.5 Million; Announces Completion of Acquisition; Announces National Account Win; Provides 2015 Guidance

ATLANTA, GA--(Marketwired - Feb 18, 2015) - ExamWorks Group, Inc. (NYSE: EXAM), a leading provider of independent medical examinations, peer reviews, bill reviews, Medicare compliance, case management, and other related services ("IME services"), today reported financial results for the fourth quarter of 2014. 

Fourth Quarter 2014 Highlights

  • Revenues for the fourth quarter of 2014 were $202.1 million, an increase of $43.3 million, or 27.3%, over the year-ago quarter revenues of $158.8 million. Excluding the impact of acquisitions, revenues increased $22.0 million, or 13.9% during the fourth quarter of 2014 over the prior year period. On a constant currency basis and excluding the impact of acquisitions, revenues increased 16.0% during the fourth quarter of 2014. 

  • Adjusted EBITDA for the fourth quarter of 2014 was $33.5 million (16.6% of revenues), an increase of $7.9 million, or 30.9%, over the year-ago quarter adjusted EBITDA of $25.6 million. Adjusted EBITDA is a non-GAAP measure that is described and reconciled to net income (loss) below and is not a substitute for the GAAP equivalent.

Full Year 2014 Highlights

  • Revenues for the year ended 2014 were $775.6 million, an increase of $159.6 million, or 25.9%, over 2013 full year revenues. Excluding the impact of acquisitions, revenues increased $88.5 million, or 14.4% in 2014 over the prior year period. On a constant currency basis and excluding the impact of acquisitions, revenues increased 14.1% in 2014 over the prior year period. 

  • Adjusted EBITDA for the year ended 2014 was $132.1 million (17.0% of revenues), an increase of $34.6 million, or 35.5%, over 2013 adjusted EBITDA of $97.5 million. Adjusted EBITDA is a non-GAAP measure that is described and reconciled to net income (loss) below and is not a substitute for the GAAP equivalent.

Other Highlights

  • Generated $45.2 million of cash flow from operations in 2014 compared to $36.4 million in 2013.

  • Ended the year with total leverage of 3.2x, an improvement over 2013 year end total leverage of 3.4x, after using $187.4 million of cash for our 2014 acquisitions. As of the end of the quarter, our committed availability under our credit facilities was approximately $125 million, all of which was immediately available.

  • Completed the following acquisitions in 2014 for total consideration of $187.4 million:

    • Cheselden (January 13, 2014) - United Kingdom

    • Newton Medical Group (January 16, 2014) - United States

    • Gould & Lamb (February 3, 2014) - United States

    • Assess Medical (February 14, 2014) - Australia

    • Solomon Associates (May 30, 2014) - United States

    • ASN/ MedAllocators (June 6, 2014) - United States

    • Expert Medical Opinions (August 22, 2014) - United States

  • On January 2, 2015, completed the acquisition of substantially all of the assets of ReliableRS, LLC ("Reliable Review"), a provider of peer reviews based in Florida. Reliable Review generates approximately $3.0 million of annual revenues. 

  • Announces a national account win in the United States. This brings the total national accounts to six in the United States. 

Commentary
Commenting on today's earnings announcement, James K. Price, Chief Executive Officer of ExamWorks, said: "During 2014 we were excited to welcome seven new acquisitions that expanded our geographic footprint in the IME space and added two market leaders creating our new clinical solutions business. We are also excited to have started 2015 with a new national account win, which builds on our 2014 success and further solidifies our leadership position in the industry. We are very proud of our achievements in 2014 and appreciative of our exceptional employees around the world that made it happen."

Richard E. Perlman, Executive Chairman of ExamWorks, said: "2014 was an extraordinary year for ExamWorks during which our strategy and execution coalesced perfectly to create results that consistently exceeded our expectations. We enter 2015 with continuing momentum across all of our geographies and are looking forward to another year of growth."

Financial Review

Revenues - For the three months ended December 31, 2014, revenues were $202.1 million, an increase of 27.3% over the $158.8 million of revenues generated in the fourth quarter of 2013. The increase in revenues was due to organic growth of 13.9% and acquisition growth of 13.4%.

For the year ended December 31, 2014, revenues were $775.6 million, an increase of 25.9% over the $616.0 million of revenues generated in the comparable period in 2013. The increase in revenues was due to organic growth of 14.4% and acquisition growth of 11.5%. 

On a pro forma basis, for the three months ended December 31, 2014, pro forma revenues were $202.1 million, an increase of 11.4% over the $181.4 million in pro forma revenues in the fourth quarter of 2013. On a constant currency basis, our pro forma growth was 13.4% and was driven by growth across all of our geographies.

On a pro forma basis, for the year ended December 31, 2014, pro forma revenues were $798.3 million, an increase of 12.9% over the $707.1 million in pro forma revenues in the comparable period in 2013. On a constant currency basis, our pro forma growth was 12.8% and was driven by growth across all of our geographies. 

Below is a table presenting our revenues and growth rates for each of the regions we serve and, separately, pro forma revenues and growth rates for acquisitions completed from December 2013 to December 2014 (collectively, the "Recent Acquisitions"). The amounts presented below are pro forma for the effect of acquisitions completed in 2013 and 2014.

Reported and Pro Forma Revenues  
    (In thousands except %)  
    Three Months Ended December 31,     Year Ended December 31,  
    2013   2014   As
Reported
    Constant
FX (a)
    2013   2014   As
Reported
    Constant
FX (a)
 
United States   $ 94,183   $ 104,496   10.9 %   10.9 %   $ 374,817   $ 415,102   10.7 %   10.7 %
United Kingdom     39,472     48,996   24.1 %   26.9 %     143,117     182,711   27.7 %   21.2 %
Australia     16,710     18,304   9.5 %   18.8 %     66,650     73,539   10.3 %   18.1 %
Canada     8,145     8,729   7.2 %   16.0 %     31,131     32,889   5.6 %   13.3 %
  Subtotal     158,510     180,525   13.9 %   16.0 %     615,715     704,241   14.4 %   14.1 %
Recent Acquisitions     22,932     21,539   (6.1 )%   (4.6 )%     91,349     94,096   3.0 %   4.0 %
Total   $ 181,442   $ 202,064   11.4 %   13.4 %   $ 707,064   $ 798,337   12.9 %   12.8 %
                                                 

(a) The constant FX columns represent growth rates excluding the effects of currency.

Costs of revenues - For the three months ended December 31, 2014, costs of revenues were $130.6 million, an increase of 24.4% over the $105.0 million in costs of revenues in the fourth quarter of 2013. The increase was primarily due to increased revenues. Costs of revenues as a percentage of revenues for the fourth quarter of 2014 were 64.6% compared to 66.1% in the prior year quarter and the result of positive operating leverage from acquisitions and organic revenue growth. Included in costs of revenues in the fourth quarter of 2013 and 2014 are approximately $692,000 and $421,000 of share-based compensation expenses, respectively.

Selling, general and administrative expenses ("SGA") - For the three months ended December 31, 2014, SGA expenses were $44.5 million, an increase of 27.5% over the $34.9 million in SGA expenses in the fourth quarter of 2013. The increase was primarily due to acquisitions. Included in SGA expenses in the fourth quarter of 2014 are $4.9 million in share-based compensation expenses and $1.1 million in acquisition-related transaction costs and other expenses. Included in SGA expenses in the fourth quarter of 2013 are $4.2 million in share-based compensation expenses and $1.7 million in acquisition-related transaction costs and other expenses. 

Depreciation and amortization expenses ("D&A") - For the three months ended December 31, 2014, D&A expenses were $15.4 million, an increase of 4.8% from the $14.7 million in D&A expenses in the fourth quarter of 2013. The increase was due to amortization of finite lived intangibles resulting from the Recent Acquisitions, offset by other intangible assets becoming fully amortized in 2013 and 2014. For the three months ended December 31, 2014, amortization expense was $13.6 million and depreciation expense was $1.8 million.

Interest and other expenses, net - For the three months ended December 31, 2014, interest and other expenses, net were $8.1 million, a 14.1% increase over the $7.1 million in interest and other expenses, net in the fourth quarter of 2013. 

Adjusted EBITDA - For the three months ended December 31, 2014, adjusted EBITDA was $33.5 million, an increase of 30.9% over the $25.6 million in adjusted EBITDA in the fourth quarter of 2013. 

For the year ended December 31, 2014, adjusted EBITDA was $132.1 million, an increase of 35.5% over the $97.5 million in adjusted EBITDA in the comparable period in 2013. 

Adjusted EBITDA is a non-GAAP measure that is described and reconciled to net income (loss) below and is not a substitute for the GAAP equivalent. 

Other financial data - We generated $45.2 million of cash flow from operations in 2014 compared to $36.4 million in the comparable prior year period. We ended the quarter with $9.8 million of cash on hand, $434.2 million of total debt and total leverage as calculated under our credit facility of approximately 3.2x. As of the end of the quarter, our committed availability under our credit facilities was approximately $125 million, all of which was immediately available. 

Business Outlook
ExamWorks is providing the following business outlook for the full year and first quarter of 2015 and excludes any acquisitions that may be completed:

  • Our full year 2015 constant currency reported revenues are expected to increase between 8% and 10% from our 2014 reported revenues of approximately $775 million. Based on recent currency rates, the reported revenue growth rates would be negatively impacted by approximately 5%, or $40 million. Organic growth, on a constant currency basis, is expected to range between 5% and 7%. 

  • Our full year 2015 adjusted EBITDA margin is expected to range between 17% and 18% of reported revenues. On a quarterly basis, our adjusted EBITDA margins as a percentage of reported revenue may fluctuate between 16% and 19%. 

  • First quarter 2015 constant currency revenues are expected to range between $198 million and $204 million before the estimated $8 million unfavorable impact due to currency as compared to prior year reported revenues. This guidance implies a constant currency growth rate ranging between 14% and 18%. Organic growth on a constant currency basis is expected to range between 8% and 10%.

  • First quarter 2015 reported adjusted EBITDA margin is expected to range between 16% and 17% of reported revenues. This adjusted EBITDA margin reflects the seasonal impact of certain expenses, such as employer taxes.

About ExamWorks Group
ExamWorks Group, Inc. is a leading provider of independent medical examinations, peer reviews, bill reviews, Medicare compliance, case management, and related services ("IME services"). We help our clients manage costs and enhance their risk management processes by verifying the validity, nature, cause and extent of claims, identifying fraud and providing fast, efficient and quality IME services. ExamWorks is focused on providing clients a national presence while maintaining the local service and capabilities they need and expect.

Non-GAAP Financial Measures

In connection with the ongoing operation of our business, our management regularly reviews Adjusted EBITDA, a non-GAAP financial measure, to assess our performance. We define Adjusted EBITDA as earnings before interest, taxes, depreciation, amortization, acquisition-related transaction costs, share-based compensation expenses, and other expenses. We believe that Adjusted EBITDA is an important measure of our operating performance because it allows management, lenders, investors and analysts to evaluate and assess our core operating results from period to period after removing the impact of changes to our capitalization structure, acquisition-related costs, income tax status, and other items of a non-operational nature that affect comparability.

We believe that various forms of the Adjusted EBITDA metric are often used by analysts, investors and other interested parties to evaluate companies such as ours for the reasons discussed above. Additionally, Adjusted EBITDA is used to measure certain financial covenants in our credit facility. Adjusted EBITDA is also used for planning purposes and in presentations to our Board of Directors as well as in our incentive compensation programs for our employees.

Non-GAAP information should not be construed as an alternative to GAAP information, as the items excluded from the non-GAAP measures often have a material impact on our financial results. Management uses, and investors should use, non-GAAP measures in conjunction with our GAAP results.

Below is a table presenting a reconciliation to Adjusted EBITDA from net income (loss), the most comparable GAAP measure, for each of the periods indicated.

Forward Looking Statements
Statements made in this press release that express ExamWorks' or management's intentions, plans, beliefs, expectations or predictions of future events are forward-looking statements, which ExamWorks intends to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. These statements often include words such as "may," "will," "should," "believe," "expect," "anticipate," "intend," "plan," "estimate," or the negative of these terms or other similar expressions that convey uncertainty of future events or outcomes. Forward-looking statements may include information concerning ExamWorks' possible or assumed future results of operations, including descriptions of ExamWorks' revenues, profitability, outlook and overall business strategy. You should not place undue reliance on these statements because they are subject to numerous uncertainties and factors relating to ExamWorks' operations and business environment, all of which are difficult to predict and many of which are beyond ExamWorks' control. Although ExamWorks believes that these forward-looking statements are based on reasonable assumptions, you should be aware that many uncertainties and factors could affect ExamWorks' actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements, including but not limited to: our ability to implement our growth strategy and acquisition program; our ability to integrate completed acquisitions; our expansion into international markets; our increasing reliance on national account clients; our ability to secure additional financing; regulation of our industry; our information technology systems and the risk of security and data breaches; our ability to protect our intellectual property rights and other information; our ability to compete successfully with our competitors; our ability to monitor and retain qualified physicians and other medical providers; our ability to obtain, retain and grow customer relationships; our ability to provide accurate health-related risk assessment analyses of data; our ability to comply with existing and future regulation; our ability to retain key management personnel; and restrictions in our credit facility, senior notes indenture and future indebtedness. In addition, the risks discussed in our periodic reports, registration statements and other filings with the Securities and Exchange Commission could cause actual results to differ materially from the results anticipated by forward-looking statements.

You should keep in mind that any forward-looking statement made by ExamWorks herein, or elsewhere, speaks only as of the date on which made. ExamWorks expressly disclaims any intent, obligation or undertaking to update or revise any forward-looking statements made herein to reflect any change in ExamWorks' expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based.

ExamWorks will host a conference call to discuss the results and other matters at 5:00 p.m. Eastern Time. Please log in at least 10 minutes prior to the conference call in order to download the applicable audio software. Interested parties may participate live via telephone by dialing (888) 455-1227 in the U.S. or (773) 799-3336 internationally with access code 1941106. A live webcast of the call is also accessible through the Investor Relations section of the company's web site at http://investorrelations.examworks.com/.

Following the conclusion of the call, a replay of the webcast will be available at the Company's web site within two hours. Alternatively, a telephonic replay of the call will be available at 7:00 p.m. Eastern Time, and can be accessed until February 25, 2015 at midnight Eastern Time, by calling (888) 293-8936 in the U.S. or (402) 998-0528 internationally, with access code 562014.

EXAMWORKS GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
                     
    For the three months ended
December 31,
  For the year ended
December 31,
    2013     2014   2013     2014
                             
Revenues   $ 158,811     $ 202,064   $ 616,016     $ 775,615
Costs and expenses:                            
  Costs of revenues     104,996       130,555     405,329       497,038
  Selling, general and administrative expenses     34,917       44,545     133,870       171,197
  Depreciation and amortization     14,690       15,375     62,748       60,280
    Total costs and expenses     154,603       190,475     601,947       728,515
    Income from operations     4,208       11,589     14,069       47,100
Interest and other expenses, net:                            
  Interest expense, net     7,092       8,135     29,531       31,977
  Other expense, net     3       9     211       194
  Gain on interest rate swap     --       --     (101 )     --
    Total interest and other expenses, net     7,095       8,144     29,641       32,171
    Income (loss) before income taxes     (2,887 )     3,445     (15,572 )     14,929
Provision (benefit) for income taxes     (1,297 )     (391)     (5,356 )     4,435
    Net income (loss)   $ (1,590 )   $ 3,836   $ (10,216 )   $ 10,494
                             
Per share data:                            
Net income (loss) per share:                            
  Basic   $ (0.04 )   $ 0.10   $ (0.29 )   $ 0.27
  Diluted   $ (0.04 )   $ 0.09   $ (0.29 )   $ 0.25
                             
Weighted average number of common shares outstanding:                            
  Basic     36,319       39,827     35,315       38,656
  Diluted     36,319       42,216     35,315       41,232
                             
Adjusted EBITDA   $ 25,565     $ 33,468   $ 97,461     $ 132,140
                             
                             
EXAMWORKS GROUP, INC. AND SUBSIDIARIES  
Consolidated Balance Sheets  
(In thousands, except share and per share amounts)  
(Unaudited)  
         
  December 31,   December 31,  
Assets 2013   2014  
Current assets:            
  Cash and cash equivalents $ 12,829   $ 9,751  
  Accounts receivable, net   169,905     203,189  
  Prepaid expenses   5,785     13,805  
  Deferred tax assets   433     3,776  
  Other current assets   1,298     1,437  
             
          Total current assets   190,250     231,958  
             
Property, equipment and leasehold improvements, net   10,950     15,726  
Goodwill   369,312     495,679  
Intangible assets, net   94,864     102,583  
Long-term accounts receivable, less current portion   35,952     46,401  
Deferred tax assets, noncurrent   21,491     29,682  
Deferred financing costs, net   8,193     6,169  
Other assets   1,501     1,946  
          Total assets $ 732,513   $ 930,144  
Liabilities and Stockholders' Equity            
Current liabilities:            
  Accounts payable $ 52,672   $ 57,033  
  Accrued expenses   38,448     53,978  
  Accrued interest expense   10,431     10,667  
  Deferred revenue   5,795     6,402  
  Subordinated unsecured notes payable   318     --  
  Current portion of contingent earnout obligation   2,032     4,473  
  Current portion of working capital facilities   --     40,396  
  Other current liabilities   6,438     6,950  
          Total current liabilities   116,134     179,899  
Senior unsecured notes payable   250,000     250,000  
Senior secured revolving credit facility and working capital facilities, less current portion   82,970     143,853  
             
Long-term contingent earnout obligation, less current portion   2,373     2,114  
Other long-term liabilities   8,165     9,403  
          Total liabilities   459,642     585,269  
Commitments and contingencies            
Stockholders' equity:            
  Preferred stock, $0.0001 par value; Authorized 50,000,000 shares; no shares issued and outstanding at December 31, 2013 and December 31, 2014   --     --  
  Common stock, $0.0001 par value; Authorized 250,000,000 shares; issued and outstanding 36,928,212 and 40,370,588 shares at December 31, 2013 and December 31, 2014, respectively   4     4  
  Additional paid-in capital   333,996     403,945  
  Accumulated other comprehensive loss   (5,937 )   (14,376 )
  Accumulated deficit   (46,704 )   (36,210 )
  Treasury stock, at cost; Outstanding 905,349 shares at December 31, 2013 and December 31, 2014   (8,488 )   (8,488 )
          Total stockholders' equity   272,871     344,875  
          Total liabilities and stockholders' equity $ 732,513   $ 930,144  
                       
                       
EXAMWORKS GROUP, INC. AND SUBSIDIARIES  
Consolidated Statements of Cash Flows  
(In thousands)  
(Unaudited)  
             
    For the year ended December 31,  
    2013     2014  
Operating activities:                
  Net income (loss)   $ (10,216 )   $ 10,494  
  Adjustments to reconcile net income (loss) to net cash provided by operating activities:                
      Gain on interest rate swap     (101 )     --  
      Depreciation and amortization     62,748       60,280  
      Amortization of deferred rent     (370 )     (112 )
      Share-based compensation     17,157       20,024  
      Excess tax benefit related to share-based compensation     (6,610 )     (9,287 )
      Provision for doubtful accounts     4,751       5,727  
      Amortization of deferred financing costs     2,191       2,317  
      Deferred income taxes     (18,021 )     (19,546 )
      Changes in operating assets and liabilities, net of effects of acquisitions:                
          Accounts receivable     (31,112 )     (49,437 )
          Prepaid expenses and other current assets     (552 )     (7,505 )
          Accounts payable and accrued expenses     15,625       31,642  
          Accrued interest expense     (487 )     236  
          Deferred revenue and customer deposits     1,676       226  
          Other liabilities     (324 )     140  
            Net cash provided by operating activities     36,355       45,199  
Investing activities:                
  Cash paid for acquisitions, net     (3,318 )     (187,402 )
  Purchases of building, equipment and leasehold improvements, net     (6,544 )     (10,894 )
  Working capital and other settlements for acquisitions     (569 )     (2,331 )
  Proceeds from foreign currency net investment hedges     1,421       4,006  
  Other     (1,144 )     (1,542 )
            Net cash used in investing activities     (10,154 )     (198,163 )
Financing activities:                
  Net borrowings (repayments) under senior secured revolving credit facility     (54,273 )     98,826  
  Proceeds from the exercise of options and warrants     24,261       42,437  
  Excess tax benefit related to share-based compensation     6,610       9,287  
  Net borrowings under working capital facilities     2,772       4,939  
  Payment of deferred financing costs     (172 )     (263 )
  Repayment of subordinated unsecured notes payable     (270 )     (333 )
  Payment of contingent earnout obligation     --       (4,362 )
  Other     --       (53 )
            Net cash provided by (used in) financing activities     (21,072 )     150,478  
Exchange rate impact on cash and cash equivalents     (927 )     (592 )
            Net increase (decrease) in cash and cash equivalents     4,202       (3,078 )
Cash and cash equivalents, beginning of year     8,627       12,829  
Cash and cash equivalents, end of year   $ 12,829     $ 9,751  
 
 
EXAMWORKS GROUP, INC. AND SUBSIDIARIES
Reconciliation to Adjusted EBITDA
(In thousands)
(Unaudited)
                       
    For the three months
ended December 31,
    For the year
ended December 31,
    2013     2014     2013     2014
Reconciliation to Adjusted EBITDA:                              
Net income (loss)   $ (1,590 )   $ 3,836     $ (10,216 )   $ 10,494
  Share-based compensation expense (1)     4,923       5,364       17,157       20,024
  Depreciation and amortization     14,690       15,375       62,748       60,280
  Acquisition-related transaction costs     1,041       710       2,134       3,535
  Other expenses (2)     703       430       1,353       1,201
  Interest and other expenses, net     7,095       8,144       29,641       32,171
  Provision (benefit) for income taxes     (1,297 )     (391 )     (5,356 )     4,435
Adjusted EBITDA   $ 25,565     $ 33,468     $ 97,461     $ 132,140
(1) Share based compensation expense of $692,000 and $421,000 is included in costs of revenues for the three months ended December 31, 2013 and 2014, respectively, and the remainder is included in SGA expenses. Share-based compensation expense of $2.9 million and $2.0 million is included in costs of revenues for the years ended December 31, 2013 and 2014, respectively, and the remainder is included in SGA expenses.
(2) Other expenses consist principally of integration related expenses, such as facility termination costs, severance and relocation costs associated with our acquisition strategy.

Contact Information

  • CONTACT:
    ExamWorks Group, Inc.
    J. Miguel Fernandez de Castro
    404-952-2400
    Senior Executive Vice President and Chief Financial Officer
    investorrelations@examworks.com