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| EXAM > SEC Filings for EXAM > Form 10-K on 1-Mar-2013 | All Recent SEC Filings |
1-Mar-2013
Annual Report
The following discussion and analysis of our financial condition and results of operations should be read together with "Selected Consolidated Financial Data," and our consolidated financial statements and the related notes and the other financial information appearing elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report, particularly under "Risk Factors" and "Forward-Looking Statements." All forward-looking statements in this document are based on information available to us as of the date hereof, and we assume no obligation to update any such forward-looking statements.
Our Business
We are a leading provider of IMEs, peer and bill reviews, and related services, which include legal support services, administrative support services and medical record retrieval services. We were incorporated as a Delaware corporation on April 27, 2007. From July 14, 2008 through the date of this filing, we have acquired 40 IME businesses, including a leading provider of software solutions to the IME industry. We currently operate out of 57 service centers servicing all 50 U.S. states, Canada, the United Kingdom and Australia.
We provide our services to property and casualty insurance carriers, law firms, third-party claim administrators, government agencies, and state funds that use independent services to confirm the veracity of claims by sick or injured individuals for workers' compensation, automotive, personal injury liability and disability insurance coverage. 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.
We provide our clients with the local presence, expertise and broad geographic coverage they increasingly require. Our size and geographic reach give our clients access to our medical panel of credentialed physicians and other medical providers and our proprietary information technology infrastructure that has been specifically designed to streamline the complex process of coordinating referrals, scheduling appointments, complying with regulations and client reporting. Our primary service is to provide IMEs that give our clients authoritative and accurate answers to questions regarding the nature and permanency of medical conditions or personal injury, their cause and appropriate treatment. Additionally, we provide peer and bill reviews, which consist of medical opinions by members of our medical panel without conducting physical exams, and the review of physician and hospital bills to examine medical care rendered and its conformity to accepted standards of care. Prior to the MES acquisition in February 2011, we marketed our services primarily under the ExamWorks brand. Initially with the MES acquisition and subsequently with the Premex and MedHealth acquisitions, we began to market our services under several brands, including but not limited to, ExamWorks, MES, Premex and MedHealth.
We operate in a highly fragmented industry and have completed numerous acquisitions. A key component of our business strategy is growth through acquisitions that expand our geographic coverage, provide new or complementary lines of business, expand our portfolio of services, and increase our market share. For example, our acquisition of MedHealth in August 2012 enabled us to enter the Australian market and, expand our range of clients and services, and increase our international market presence. Another central feature of our business strategy is to grow our business organically by selling additional services to existing clients, cross-selling into additional insurance lines of business and expanding our geographic footprint with existing clients. To date, we have completed the following 40 acquisitions:
Acquisition Date Name
December 19, 2012 ?PMG
August 31, 2012 ?MedHealth
July 7, 2012 ?Makos
October 27, 2011 ?Bronshvag
October 24, 2011 ?Matrix Health Management
October 3, 2011 ?Capital Vocational Specialists
?North York Rehabilitation Centre
September 28, 2011 ?MLS Group of Companies
?Medicolegal Services
May 10, 2011 ?Premex Group
February 28, 2011 ? MES Group
February 18, 2011 ? National IME Centres
December 20, 2010 ? Royal Medical Consultants
October 1, 2010 ? BMEGateway
September 7, 2010 ? UK Independent Medical Services
September 1, 2010 ? Health Cost Management
August 6, 2010 ? Verity Medical
? Exigere
June 30, 2010 ? SOMA Medical Assessments
? Direct IME
? Network Medical Review
? Independent Medical Services
? 401 Diagnostics
March 26, 2010 ? Metro Medical Services
March 15, 2010 ? American Medical Bill Review
? Medical Evaluations
December 31, 2009 ? Abeton
? Medical Assurance Group
? MedNet I.M.S.
? QualMed
? IME Operations of Physicians' Practice
August 14, 2009 ? The Evaluation Group
August 4, 2009 ? Benchmark Medical Consultants
July 7, 2009 ? IME Software Solutions
May 21, 2009 ? Florida Medical Specialists
? Marquis Medical Administrators
April 17, 2009 ? Ricwel
July 14, 2008 ? CFO Medical Services
? Crossland Medical Review Services
? Southwest Medical
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Sources of Revenues and Expenses
Revenues
We derive revenue primarily from fees charged for independent medical examinations, peer and bill reviews and other related services, which include litigation support services, administrative support services and medical record retrieval services. Revenues are recognized at the time services have been performed and, if applicable, at the time the report is shipped to the end user. We expect revenue to continue to increase through acquisition and organic growth. Our revenue is derived from services performed in different geographic areas.
Certain agreements with customers in the U.K. include provisions whereby collection of the amounts billed are contingent on the favorable outcome of the claim. We have deemed these provisions to preclude revenue recognition at the time of sale, as collectability is not reasonably assured and the sales are contingent, and are deferring these revenues, net of estimated costs, until the case has been settled and the contingency has been resolved and the cash has been collected.
Costs of revenues
Costs of revenues are comprised of fees paid to members of our medical panel; other direct costs including transcription, film and medical record obtainment and transportation; and other indirect costs including labor and overhead related to the generation of revenue. We expect these operationally driven costs to increase to support future revenue growth and as we continue to grow through acquisitions.
Selling, general and administrative expenses
Selling, general and administrative ("SGA") expenses consist primarily of expenses for administrative, human resource related, corporate information technology support, legal (primarily from transaction costs related to acquisitions), finance and accounting personnel, professional fees (primarily from transaction costs related to acquisitions), insurance and other corporate expenses. We expect that SGA expenses will increase as we continue to add personnel to support the growth of our business and pursue acquisition growth. In addition, we anticipate that we will incur additional personnel expenses, professional service fees, including audit and legal, investor relations, costs of compliance with securities laws and regulations, and higher director and officer insurance costs related to operating as a public company. As a result, we expect that our SGA expenses will continue to increase in the future but decrease as a percentage of revenue over time as our revenue increases.
Depreciation and amortization
Depreciation and amortization ("D&A") expense consists primarily of amortization of our finite lived intangible assets obtained through acquisitions completed to date and, to a lesser extent, depreciation of equipment and leasehold improvements. We expect that depreciation and amortization expense will increase as we continue our acquisition strategy.
Results of Operations
The following table sets forth our Consolidated Statements of Operations data for each of the periods indicated (in thousands except share and per share data):
For the years ended December 31,
2010 2011 2012
Revenues $ 163,511 $ 397,860 $ 521,237
Costs and expenses:
Costs of revenues 103,606 262,242 344,051
Selling, general and administrative expenses 37,689 84,133 113,510
Depreciation and amortization 19,505 47,439 58,551
Total costs and expenses 160,800 393,814 516,112
Income from operations 2,711 4,046 5,125
Interest and other expenses, net 11,233 16,461 28,051
Loss before income taxes (8,522 ) (12,415 ) (22,926 )
Benefit for income taxes (2,484 ) (4,082 ) (7,987 )
Net loss $ (6,038 ) $ (8,333 ) $ (14,939 )
Per share data
Net loss per share - basic and diluted $ (0.33 ) $ (0.25 ) $ (0.44 )
Weighted average number of common shares
outstanding - basic and diluted 18,500,859 33,975,658 34,141,098
Other Financial Data:
Adjusted EBITDA(1) $ 30,321 $ 63,304 $ 79,789
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(1) Adjusted EBITDA is a non-GAAP measure that is described and reconciled to net loss in the next section and is not a substitute for the GAAP equivalent.
Adjusted EBITDA
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 non-recurring costs. 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.
The following table presents a reconciliation of Adjusted EBITDA to net loss, the most comparable GAAP measure, for each of the periods indicated (in thousands):
For the years ended December 31,
2010 2011 2012
Reconciliation of Adjusted EBITDA:
Net loss $ (6,038 ) $ (8,333 ) $ (14,939 )
Share-based compensation expense (i) 1,816 7,834 13,756
Depreciation and amortization 19,505 47,439 58,551
Acquisition-related transaction costs 6,101 3,107 1,655
Other non-recurring costs(ii) 188 878 702
Interest and other expenses, net 11,233 16,461 28,051
Benefit for income taxes (2,484 ) (4,082 ) (7,987 )
Adjusted EBITDA $ 30,321 $ 63,304 $ 79,789
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(i) Share-based compensation expense of $3.0 million and $2.0 million is included in costs of revenues for the year ended December 31, 2012 and 2011, respectively, and the remainder is included in SGA expenses. For the year ended December 31, 2010, all share-based compensation expense is included in SGA expenses.
(ii) Other non-recurring costs consist primarily of severance and facility termination costs.
Comparison of the Years Ended December 31, 2012 and 2011
Revenues. Revenues were $521.2 million for the year ended December 31, 2012 compared to $397.9 million for the year ended December 31, 2011, an increase of $123.3 million, or 31%. The increase in revenues over the 2011 period was due primarily to acquisitions completed in 2011 and 2012 and to a lesser extent increased IME service volumes in our U.S. and U.K. businesses, offset by volume declines in our Canadian businesses.
On a pro forma basis, considering acquisitions through the date of this filing, revenues were $573.7 million for the year ended December 31, 2012 compared to $543.3 million for the year ended December 31, 2011, representing a 6% increase year over year. The increase in revenues over the 2011 period on a pro forma basis was due primarily to increased IME service volumes in our U.S., U.K. and Australian businesses, offset by volume declines in our Canadian businesses. Pro forma revenues for the years ended December 31, 2012 and 2011 assumes that the 2011 acquisitions were completed on January 1, 2010 and the 2012 acquisitions were completed on January 1, 2011.
Costs of revenues. Costs of revenues were $344.1 million for the year ended December 31, 2012 compared to $262.2 million for the year ended December 31, 2011, an increase of $81.9 million, or 31%. The increase in costs of revenues over the 2011 period was primarily due to acquisitions completed in 2011 and 2012. Costs of revenues as a percentage of revenues were 66.0% for the years ended December 31, 2012 and 2011.
Selling, general and administrative. SGA expenses were $113.5 million for the year ended December 31, 2012 compared to $84.1 million for the year ended December 31, 2011, an increase of $29.4 million, or 35%. The increase in SGA expenses over the 2011 period was primarily due to acquisitions completed in 2011 and 2012, with personnel expenses, including share-based compensation, accounting for $14.3 million of this increase and the remainder resulting primarily from increases in referral commissions, rent, sales and marketing expenses, phone, insurance, travel, and other professional expenses, offset by a decrease in acquisition related transaction costs.
Depreciation and amortization. D&A expenses were $58.6 million for the year ended December 31, 2012 compared to $47.4 million for the year ended December 31, 2011, an increase of $11.2 million, or 23%. The increase in D&A expenses over the 2011 period was due primarily to additional amortization of finite-lived intangible and tangible assets related to acquisitions completed during 2011 and 2012.
Interest and other expenses, net. Interest and other expenses, net were $28.1 million for the year ended December 31, 2012 compared to $16.5 million for the year ended December 31, 2011, an increase of $11.6 million, or 70%. Interest and other expenses, net increased primarily due to a full year of interest expense related to the Senior Unsecured notes in 2012 as compared to a partial year in 2011 and increased interest expenses related to additional borrowings on our Senior Secured Revolving Credit Facility to fund acquisitions, deferred loan cost amortization and a realized loss on foreign currency, offset by adjustments to an interest rate swap.
Income tax benefit. Income tax benefit was $8.0 million for the year ended December 31, 2012 compared with $4.1 million for the year ended December 31, 2011, an increased benefit of $3.9 million or 96%. Our effective income tax rate was 34.8% and 32.9% for the years ended December 31, 2012 and 2011, respectively. The tax rates in the 2012 period were impacted primarily by foreign tax rate differentials and non-deductible items and the tax rates in the 2011 period were impacted by non-deductible items.
Net loss. For the foregoing reasons, net loss was $14.9 million for the year ended December 31, 2012 compared to $8.3 million for the year ended December 31, 2011.
Comparison of the Years Ended December 31, 2011 and 2010
Revenues. Revenues were $397.9 million for the year ended December 31, 2011 compared to $163.5 million for the year ended December 31, 2010, an increase of $234.4 million, or 143%. The increase in revenues over the 2010 period was due primarily to acquisitions completed in 2010 and 2011, offset by decreased IME service volumes in our ExamWorks brand.
Costs of revenues. Costs of revenues were $262.2 million for the year ended December 31, 2011 compared to $103.6 million for the year ended December 31, 2010, an increase of $158.6 million, or 153%. The increase in costs of revenues over the 2010 period was primarily due to acquisitions completed in 2010 and 2011. Costs of revenues as a percentage of revenues for the year ended December 31, 2011 increased from 63% for the year ended December 31, 2010 to 66% for year ended December 31, 2011. The change in this percentage was primarily due to the impact of decreased IME service volume in our ExamWorks brand and higher costs of revenues as a percentage of revenues for the MES acquisition, offset in part by lower costs of revenues as a percentage of revenues for the Premex acquisition.
Selling, general and administrative. SGA expenses were $84.1 million for the year ended December 31, 2011 compared to $37.7 million for the year ended December 31, 2010, an increase of $46.4 million, or 123%. The increase in SGA expenses over the 2010 period was primarily due to acquisitions completed in 2010 and 2011, with personnel expenses accounting for $27.3 million of this increase and the remainder resulting primarily from increases in rent, travel, phone, legal, insurance, sales and marketing, and other professional expenses, offset by a decrease in acquisition related transaction costs.
Depreciation and amortization. D&A expenses were $47.4 million for the year ended December 31, 2011 compared to $19.5 million for the year ended December 31, 2010, an increase of $27.9 million, or 143%. The increase in D&A expenses over the 2010 period was due primarily to additional amortization of finite-lived intangible and tangible assets related to acquisitions completed during 2010 and 2011.
Interest and other expenses, net. Interest and other expenses, net were $16.5 million for the year ended December 31, 2011 compared to $11.2 million for the year ended December 31, 2010, an increase of $5.3 million, or 47%. Interest and other expenses, net increased primarily due to increased interest expenses related to additional borrowings on our Senior Secured Revolving Credit Facility and Senior Unsecured Notes to fund acquisitions, deferred loan cost amortization and a realized loss on foreign currency, offset by adjustments to an interest rate swap.
Income tax benefit. Income tax benefit was $4.1 million for the year ended December 31, 2011 compared with $2.5 million for the year ended December 31, 2010, an increased benefit of $1.6 million or 64%. Our effective income tax rate was 32.9% and 29.1% for the years ended December 31, 2011 and 2010, respectively. The tax rates in the 2011 period were impacted primarily by non-deductible items and the tax rates in the 2010 period were impacted by state operating losses and non-deductible items.
Net loss. For the foregoing reasons, net loss was $8.3 million for the year ended December 31, 2011 compared to $6.0 million for the year ended December 31, 2010.
Selected Quarterly Financial Data (Unaudited) 2012 - Quarter Ended March 31 June 30 September 30 December 31 (In thousands, except share and per share data) Revenues $ 123,738 $ 127,777 $ 130,085 $ 139,637 Costs and expenses: Costs of revenues 81,173 84,223 86,080 92,575 Selling, general and administrative expenses 28,632 27,729 28,281 28,868 Depreciation and amortization 14,025 13,762 14,458 16,306 Total costs and expenses 123,830 125,714 128,819 137,749 Income (loss) from operations (92 ) 2,063 1,266 1,888 Interest and other expenses, net 6,573 6,174 7,546 7,758 Loss before income taxes (6,665 ) (4,111 ) (6,280 ) (5,870 ) Benefit for income taxes (2,342 ) (804 ) (1,654 ) (3,187 ) Net loss $ (4,323 ) $ (3,307 ) $ (4,626 ) $ (2,683 ) Per share data Net loss per share - basic and diluted $ (0.13 ) $ (0.10 ) $ (0.14 ) $ (0.08 ) Weighted average number of common shares outstanding - basic and diluted 34,085,761 34,074,137 34,116,062 34,287,093 Other Financial Data: Adjusted EBITDA(1) $ 18,829 $ 20,446 $ 20,182 $ 20,332 2011 - Quarter Ended March 31 June 30 September 30 December 31 (In thousands, except share and per share data) Revenues $ 66,588 $ 106,742 $ 109,218 $ 115,312 Costs and expenses: Costs of revenues 43,569 70,508 72,148 76,017 Selling, general and administrative expenses 14,328 21,654 22,803 25,348 Depreciation and amortization 8,609 11,475 13,069 14,286 Total costs and expenses 66,506 103,637 108,020 115,651 Income (loss) from operations 82 3,105 1,198 (339 ) Interest and other expenses, net 1,012 3,214 5,287 6,948 Loss before income taxes (930 ) (109 ) (4,089 ) (7,287 ) Benefit for income taxes (371 ) (37 ) (1,412 ) (2,262 ) Net loss $ (559 ) $ (72 ) $ (2,677 ) $ (5,025 ) Per share data Net loss per share - basic and diluted $ (0.02 ) $ - $ (0.08 ) $ (0.15 ) Weighted average number of common shares outstanding - basic and diluted 32,739,428 34,222,475 34,732,028 34,223,906 Other Financial Data: Adjusted EBITDA(1) $ 10,902 $ 18,465 $ 17,128 $ 16,809 |
(1) 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. We define Adjusted EBITDA as earnings before interest, taxes, depreciation, amortization, acquisition -related transaction costs, share-based compensation expenses and other non-recurring costs. 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 our comparability. The following table presents a reconciliation of Adjusted EBITDA to net loss, the most comparable GAAP measure, for each of the periods indicated. See also "Results of Operations - Adjusted EBITDA."
2012 - Quarter Ended March 31 June 30 September 30 December 31 (In thousands) Net loss $ (4,323 ) $ (3,307 ) $ (4,626 ) $ (2,683 ) Share-based compensation expense (i) 4,696 4,849 3,018 1,194 Depreciation and amortization expense 14,025 13,762 14,458 16,306 Acquisition-related transaction costs 145 (254 ) 1,378 385 Other non-recurring costs(ii) 55 26 62 559 Interest and other expenses, net 6,573 6,174 7,546 7,758 Benefit for income taxes (2,342 ) (804 ) (1,654 ) (3,187 ) Adjusted EBITDA: $ 18,829 $ 20,446 $ 20,182 $ 20,332 2011 - Quarter Ended March 31 June 30 September 30 December 31 (In thousands) Net loss $ (559 ) $ (72 ) $ (2,677 ) $ (5,025 ) Share-based compensation expense (i) 977 2,045 2,363 2,449 Depreciation and amortization expense 8,609 11,475 13,069 14,286 Acquisition-related transaction costs 767 1,460 477 403 . . . |
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