USON US Oncology (MM)

US Oncology Reports Fourth Quarter and Year-End Results for 2003 HOUSTON, Feb. 26 /PRNewswire-FirstCall/ -- US Oncology, Inc. today reported results for the 2003 fourth quarter and fiscal year. The company recorded year-over-year increases in net operating revenue, earnings per share and net income for 2003. The table below provides a review of fourth quarter and fiscal year results, along with applicable comparisons: ($ in millions, except per share amounts) Q4 2003 Q4 2002 Q3 2003 Net Operating Revenue(A) $657.3 $554.0 18.6% $641.8 2.4% Revenue 518.0 428.5 20.9% 509.1 1.7% Net income (loss) 18.9 (5.4) N/A 17.9 5.6% EPS 0.21 (0.06) N/A 0.20 6.5% Excluding unusual charges for 2002(B) EBITDA $54.7 $47.0 16.4% $52.9 3.4% Net income 18.9 14.2 33.1% 17.9 5.6% EPS 0.21 0.15 43.2% 0.20 6.5% YTD 2003 YTD 2002 Net Operating Revenue(A) $2,499.9 $2,126.2 17.6% Revenue 1,965.7 1,648.9 19.2% Net income (loss) 70.7 (45.9) N/A EPS 0.77 (0.47) N/A Excluding unusual charges for 2002(B) EBITDA $210.2 $186.8 12.5% Net income 70.7 58.1 21.7% EPS 0.77 0.5931.3% (A) See Key Operating Statistics for calculations. (B) Unusual charges were $33.3 million for the fourth quarter of 2002 and were $163.7 million for the year ended December 31, 2002. (C) EBITDA excludes a net gain of $(0.1) million for the fourth quarter of 2003 and a loss on sale of assets of $1.8 million for third quarter of 2003, for a net aggregated excluded charge of $1.7 million for 2003. See Reconciliation of Selected Financial Data for calculations. "2003 was a successful year for US Oncology, as evidenced by our year- over-year earnings-per-share growth," said R. Dale Ross, chairman and CEO. "We maintained our focus on improving operational efficiencies and strengthening the network, while devoting a tremendous amount of time and energy to the issue of Medicare reform." US Oncology highlights for 2003 are detailed below: -- US Oncology's EBITDA (C) for the fourth quarter was $54.7 million, compared to $47.0million for the fourth quarter of 2002 and $52.9 million for the third quarter of 2003. -- US Oncology's EBITDA (C) for fiscal year 2003 was $210.2 million, compared to $186.8 million for fiscal year 2002. -- The company's percentage of Field EBITDA (C) for the fourth quarter was 34 percent, compared to its percentage of Field EBITDA of 34 percent for the fourth quarter of 2002 and 35 percent for the third quarter of 2003. -- The company's affiliated practices' accounts receivable days outstanding were 46 at the end of the fourth quarter, compared to 48 at the end of 2002 and 44 at the end of the third quarter of 2003. -- Currently, 83 percent of US Oncology's net operating revenue is generated by non-net-revenue model practices, an increase from 73 percent at the end of 2002 and 77 percent at the end of the third quarter of 2003. This includes three practices that converted during the first quarter of 2004. -- The company's operating cash flow for fiscal year 2003 was $231.3 million, compared to $150.1 million for fiscal year 2002. As of Feb. 25, 2004, US Oncology had approximately $150.0 million in cash and cash equivalents. -- In 2003, US Oncology repurchased 10.2 million shares of its stock, including 2.7 million shares during the fourth quarter, at a cost of $87.5 million for an average price of $8.56 per share. In January of 2004, the company purchased 394,000 shares, completing the $50 million stock repurchase authorization approved by its Board of Directors in August of 2003. As of Feb. 25, 2004, 84.8 million shares were outstanding. (C) See Reconciliation of Selected Financial Data for calculations. "I have been especially pleased with the continued conversion of practices to the earnings model," said Ross. "These conversions strengthen our network by aligning the company's and affiliated practices' interests." Medical Oncology Fourth quarter medical oncology net operating revenue increased by 21.6 percent year-over-year to $566.4 million. Medical oncology net operating revenue for the year increased by 20.7 percent over 2002 results to $2.1 billion. This increase is credited to growth in pharmaceutical revenue and the addition of medical oncologists. Pharmaceutical expenses as a percentage of net operating revenues increased to 46.1 percent for the fourth quarter of 2003 from 41.8 percent for the fourth quarter of 2002. This increase is mainly attributable to pharmaceutical revenue increasing as a percentage of total revenue. In the fourth quarter, US Oncology's physician practice management (PPM) network experienced growth in same practice medical oncology visits of 8.8 percent over the fourth quarter of 2002 and 1.9 percent over the third quarter of 2003. Medical oncology EBITDA increased 12.4 percent from fiscal year 2002 to fiscal year 2003. This increase is primarily attributedto growth in medical oncology revenue. In 2003, US Oncology recruited 79 new physicians for its managed practices and added 45 affiliated physicians in the pharmaceutical service line segment of the business, including two new practices, representing 14 oncologists, during the fourth quarter. In addition, during the first quarter of 2004, the company affiliated with two practices under its pharmaceutical service line model. These affiliations reflect new market entries for the company in Montana and Tennessee. Cancer Center Services The Cancer Center Services segment of the company also experienced growth in the fourth quarter. The segment's net operating revenue for the fourth quarter increased 1.7 percent over the fourth quarter of 2002 andfor the year increased by 4.3 percent over 2002 results. The segment's EBITDA increased from $63.8 million in fiscal year 2002 to $70.6 million in fiscal year 2003, an 11 percent growth rate. The EBITDA increase is due to many of the company's affiliated practices expanding patient-care options, including the use of intensity modulated radiation therapy (IMRT) and positron emission tomography (PET) with patients requiring specialized treatments, combined with exiting certain markets and centers. For the year, radiation treatments per day decreased from 2,592 to 2,538 due to the closure or sale of facilities, while same facility radiation treatments per day increased from 2,496 to 2,502. PET scans increased from 12,777 in 2002 to 20,052 in 2003,an increase of 56.9 percent, which was attributable to an increase in same-facility PET scans per day of 29.1 percent and the addition of four PET systems during 2002 and five during 2003. Currently, 33 US Oncology facilities have IMRT as part of the comprehensive services available to patients treated by affiliated physicians. During 2003, the company invested $62.4 million in its network of affiliated practices, including implementing new diagnostic and treatment technologies, opening four integrated cancer centers and installing five PET systems, and realized the benefits of increased community use of existing facilities and resources. The company currently has six cancer centers and two PET systems in various stages of development for network practices. Reimbursement and Business Outlook Provisions to reduce reimbursement for cancer care were included in the Medicare Modernization Act (MMA), signed into law by President Bush in December of 2003. It is anticipated that the Medicare reduction in reimbursement will largely impact oncology practices in 2005 and beyond. Medicare is the largest payor for the company's affiliated PPM practices, representing approximately 41 percent of their net patient revenue. Applying the 2005 provisions to US Oncology's 2003 financial results would produce a pro forma revenue and EBITDA reduction of approximately $40 to $45 million. To arrive at those results, the company mathematically applied those 2005 rates to its net revenue for 2003 and made no other adjustment to its historical results. The pro forma financial information is for illustrative purposes only, and the company does not believe the information is indicative of future results. "While this reduction in reimbursement represents a challenge for US Oncology, it is also a tremendous opportunity," said Ross. "We believe that US Oncology's services best position practices to mitigate the impact of reduced Medicare reimbursement by enhancing management efficiency and enabling them to diversify service offerings and improve their market position." US Oncology, along with the entire cancer-care community, also remains engaged on the issue of cancer-care reimbursement in Washington. The focus is on educating lawmakers about the need for further reform, raising the profile of community cancer care and the potential threat facing patient access. Regarding its business outlook for 2004, the company expects year-over- year growth in net income of approximately 15 to 20 percent and EBITDA growth of approximately 8 to 12 percent. In 2005, the company anticipates a decline in profitability from 2004 results due to the full implementation of Medicare reform. These estimates are forward-looking statements, subject to uncertainty. Investors should refer to the company's cautionary advice regarding forward- looking statements appearing elsewhere in this news release and in the company's filings with the Securities and Exchange Commission. Financial Exhibits Exhibits -- including key operating statistics, financial statements, reconciliation of selected financial data and financial discussion -- are included in this news release. Conference Call US Oncology will host a conference call for investors Thursday, Feb. 26 at 9 a.m., CST.Investors are invited to access the call at 1-877-615-1716 and reference password "US Oncology." The conference call also can be accessed via Web cast. Details of the Web cast are available at http://www.usoncology.com/ under the Investor Relations link. A replay of the conference call will be available through March 11 at 1-800-642-1687. The access code for the replay is 5237118. About US Oncology, Inc. US Oncology, headquartered in Houston, Texas, is America's premier cancer- care services company. The company provides comprehensive services to a network of affiliated practices comprising more than 875 affiliated physicians in over 470 sites, including 78 integrated cancer centers, in 32 states. These practices care for approximately 15 percent of the country's new cancer cases each year. US Oncology's mission is to enhance access to high-quality cancer care in America. The company's strategies to accomplish this mission include: (a) helping practices lower their pharmaceutical and administration costs, (b) providing the capital and expertise to expand and diversify into radiation oncology and diagnostic radiology, (c) providing sophisticated management services to enhance profitability, and (d) providing access to and managing clinical research trials. In addition, the company assists practices in negotiations with private payors, in implementing programs to enhance efficiencies with respect to drugs and in expanding service offerings such as positron emission tomography and intensity modulated radiation therapy. This news release contains forward-looking statements, including statements that include the words "believes," "expects," "anticipates," "estimates," "intends," "plans," "projects," or similar expressions and statements regarding our prospects. All statements concerning business outlook, reimbursement outlook, expected financial results, business development activities and all other statements other than statements of historical fact included in this news release are forward-looking statements. Although the company believes that the expectations reflected in such statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Matters that could impact future results and financial condition or otherwise affect expectations include recent legislation relating to prescription drug reimbursement under Medicare, including the way in which such legislation is implemented with respect to modifications in practice expense reimbursement, calculation of average sales price, implementation of third-party vendor programs and other matters, the impact of the recent legislation on other aspects of our business (such as private payor reimbursement, the company's ability to obtain favorable pharmaceutical pricing, the ability of practices to continue offering chemotherapy services to Medicare patients or maintaining existing practice sites, physician response to the legislation, including with respect to retirement or choice ofpractice setting, development activities, and the possibility of additional impairments of assets, including management services agreements), reimbursement for pharmaceutical products generally, our ability to maintain good relationships with existing practices, expansion into new markets and development of existing markets, our ability to complete cancer centers and PET facilities currently in development, our ability to recover the costs of our investments in cancer centers, our ability to completenegotiations and enter into agreements with practices currently negotiating with us, reimbursement for health-care services, continued efforts by payors to lower their costs, government regulation and enforcement, continued relationships with pharmaceutical companies and other vendors, changes in cancer therapy or the manner in which care is delivered, drug utilization, increases in the cost of providing cancer treatment services and the operations of the company's affiliated physician practices. Please refer to the company's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for 2002 and subsequent SEC filings, for a more extensive discussion of factors that could cause actual results to differ materially from the company's expectations. US ONCOLOGY, INC. Exhibit 1 Key Operating Statistics ($ in millions) (unaudited) Q4 2003 Q4 2002 % Change Net operating revenue $657.3 $554.0 18.6% Physician compensation 139.3 125.5 11.0% Revenue $518.0 $428.5 20.9% Physician Summary: Physician Practice Management (PPM) physicians 793 837 -5.3% Service Line physicians 104 47 121.3% Total physicians 897 884 1.5% Medical Oncology/Hematology: Medical oncologists 743 685 8.5% Medical oncology visits (A) 614,352 580,166 5.9% Other oncologists 37 40 -7.5% Radiation Oncology: Radiation oncologists 117 120 -2.5% Radiation treatments per day (A) 2,443 2,606 -6.3% Total cancer centers 78 79 -1.3% Imaging/Diagnostics: Diagnostic radiologists --- 39 -100.0% PET installations --- 2 -100.0% Total PET installations 21 16 31.3% PET scans 5,636 3,681 53.1% New patients enrolled in research studies 859767 12.0% Days sales outstanding 46 48 -4.2% FY 2003 FY 2002 % Change Net operating revenue $2,499.9 $2,126.2 17.6% Physician compensation 534.2 477.3 11.9% Revenue $1,965.7 $1,648.9 19.2% Physician Summary: Physician Practice Management (PPM) physicians 793 837 -5.3% Service Line physicians 104 47 121.3% Total physicians 897 884 1.5% Medical Oncology/Hematology: Medical oncologists 743 685 8.5% Medical oncology visits (A) 2,415,212 2,405,377 0.4% Other oncologists 37 40 -7.5% Radiation Oncology: Radiation oncologists 117 120 -2.5% Radiation treatments per day (A) 2,538 2,592 -2.1% Total cancer centers 78 79 -1.3% Imaging/Diagnostics: Diagnostic radiologists --- 39 -100.0% PET installations 5 4 25.0% Total PET installations 21 16 31.3% PET scans 20,052 12,777 56.9% New patients enrolled in research studies 3,388 3,202 5.8% Days sales outstanding 46 48 -4.2% (A) Visits and treatments only include information for practices affiliated under the practice management model and do not include results of service line practices. US ONCOLOGY, INC. Exhibit 2 Consolidated Income Statement (in thousands, except per share data) (unaudited) Three Months Ended Year Ended December 31, December 31, 2003 2002 2003 2002 Revenue (A) $518,003 $428,504 $1,965,725 $1,648,901 Operating expenses: Pharmaceuticals and supplies 303,039 231,414 1,128,537 866,378 Field compensation and benefits 91,309 83,901 358,809 340,302 Other field costs 51,641 48,857 199,766 192,145 General and administrative 17,279 17,336 68,442 63,229 Depreciation and amortization 19,112 18,529 74,078 71,859 Impairment, restructuring and other charges, net (100) 33,256 1,652 150,060 482,280 433,293 1,831,284 1,683,973 Income(loss) from operations 35,723 (4,789) 134,441 (35,072) Other income (expense): Interest expense, net (A) (4,757) (5,539) (19,508) (21,291) Loss on early extinguishment of debt (A) --- --- --- (13,633) Income(loss) before income taxes 30,966 (10,328) 114,933 (69,996) Income taxes (12,077) 4,898 (44,277) 24,067 Net income(loss) $18,889 $(5,430) $70,656 $(45,929) Net income(loss) per share - basic $0.22 ($0.06) $0.79 ($0.47) Net income(loss) per share - diluted $0.21 ($0.06) $0.77 ($0.47) Net income per share, excluding unusual charges (B) - diluted $0.21 $0.15 $0.78 $0.59 Shares used in per share calculations - basic 86,541 94,098 89,836 97,658 Shares used in per share calculations - diluted 88,783 94,098 91,605 97,658 (A) Certain previously reported financial information for 2002 has been reclassified to conform to the current presentation. Interest income of $311 for the three months ended December 31, 2002 and $2,415 in 2002 has been reclassified from revenue to interest expense, net and extraordinary loss on early extinguishment of debt of $13,633 in 2002 has been reclassified to other income (expense). (B) See Reconciliation of Selected Financial Data on Exhibit 5 for calculations. US ONCOLOGY, INC. Exhibit 3 Condensed Consolidated Statement of Cash Flows ($ in thousands) (unaudited) Year Ended December 31, 2003 2002 Net cash provided by operating activities $231,274 $150,099 Cash flows from investing activities: Acquisition of property and equipment (89,198) (59,146) Net payments in affiliation transactions --- (1,146) Net proceeds on sale of assets 1,581 --- Proceeds from contract separations --- 4,296 Net cash used in investing activities (87,617) (55,996) Cash flows from financing activities: Proceeds from Credit Facility --- 24,500 Repayment of Credit Facility --- (24,500) Proceeds from senior subordinated notes --- 175,000 Repayment of senior secured notes --- (100,000) Repayment of other indebtedness (18,987) (32,086) Purchase of treasury shares (87,512) (42,754) Deferred financing costs --- (7,449) Cash payments in lieu of stock issuance (1,067) (3,481) Premium payment upon early extinguishment of debt --- (11,731) Proceeds from exercise of stock options 13,394 3,427 Net cash used in financing activities (94,172) (19,074) Increase in cash and equivalents 49,485 75,029 Cash and equivalents: Beginning of period 75,029 --- End of period $124,514 $75,029 Certain reclassifications have been made to the previously reported 2002 amounts to conform to the current year presentation. US ONCOLOGY, INC. Exhibit 4 Condensed Consolidated Balance Sheet ($ in thousands) (unaudited) December 31, December 31, 2003 2002 ASSETS Current assets: Cash and equivalents $124,514 $75,029 Accounts receivable 304,507 281,560 Other receivables 47,738 42,363 Prepaids and other current assets 18,451 20,134 Inventories 7,481 31,371 Due from affiliates 43,629 47,583 Total current assets 546,320 498,040 Property and equipment, net 356,125 327,558 Service agreements, net 239,108 252,720 Due from affiliates, long-term --- 7,708 Deferred income taxes 10,915 43,214 Other assets 22,551 25,166 Total assets $1,175,019 $1,154,406 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $79,748 $15,363 Accounts payable 160,628 163,009 Due to affiliates 64,052 32,877 Accrued compensation costs 26,316 25,417 Income taxes payable 19,810 20,441 Other accrued liabilities 47,196 36,379 Total current liabilities 397,750 293,486 Long-term indebtedness 188,412 272,042 Total liabilities 586,162 565,528 Minority interests 10,497 10,338 Stockholders' equity 578,360 578,540 Total liabilities and stockholders' equity $1,175,019 $1,154,406 Certain reclassifications have been made to the previously reported 2002 amounts to conform to the current year presentation. US ONCOLOGY, INC. Exhibit 5 Reconciliation of Selected Financial Data (in thousands, except per share data) (unaudited) Three Months Ended Year Ended December 31, December 31, 2003 2002 2003 2002 Net Income / EPS excluding unusual charges (A) Income(loss) before income taxes $30,966 $(10,328) $114,933 $(69,996) Unusual charges (A) --- 33,256 --- 163,693 Income before income taxes and excluding unusual charges 30,966 22,928 114,933 93,697 Tax rate 39.0% 38.0% 38.5% 38.0% Net income excluding unusual charges $18,889 $14,215 $70,656 $58,092 Weighted average shares outstanding - diluted 88,783 96,318 91,605 98,911 EPS before unusual charges $0.21 $0.15 $0.77 $0.59 EBITDA / Field EBITDA excluding unusual charges (A) Income before income taxes and excluding unusual charges $30,966 $22,928 $114,933 $93,697 Other excluded charges (B) (100) 0 1,652 0 Depreciation expense 14,374 14,178 56,609 50,867 Amortization expense 4,738 4,351 17,469 20,992 Interest expense, net 4,757 5,539 19,508 21,291 EBITDA excluding unusual charges 54,735 46,996 210,171 186,847 General & administrative expenses 17,279 17,336 68,442 63,229 Physician compensation 139,332 125,453 534,217 477,345 Field EBITDA excluding unusual charges $211,346 $189,785 $812,830 $727,421 (A) Unusual charges include impairment and restructuring and other costs of $33,256 for the fourth quarter of 2002 and $150,060 for FY 2002 and loss on early extinguishment of debt of $13,633 in FY 2002. (B) EBITDA excludes a net gain of $(0.1) million for the fourth quarter 2003, consisting of $0.9 million in restructuring-related severance costs and a $(1.0) million gain related to lower than expected exposure from the bankruptcy of one of our insurance carriers, and a loss on sale of assets of $1.8 million for third quarter of 2003, for a net total of $1.7 million for 2003. US ONCOLOGY, INC. Reconciliation of Selected Financial Data (unaudited) (continued) In this release, we use certain measurements of our performance that are not calculated in accordance with GAAP. These non-GAAP measures are derived from relevant items in our GAAP financials. A reconciliation of each non-GAAP measure to our income statement is included in this report. Management believes that the non-GAAP measures we use are useful to investors, since they can provide investors with additional information that is not directly available in a GAAP presentation. In all events, these non-GAAP measures are not intended to be a substitute for GAAP measures, and investors are advised to review such non-GAAP measures in conjunction with GAAP information provided by us. The following is a discussion of these non-GAAP measures. "Net Operating Revenue" is our revenue, plus amounts retained by our affiliated physicians. We believe net operating revenue is useful to investors as an indicator of the overall performance of our network, since it includes the total revenue of all of our PPM practices and other business lines, without taking into account what portion of that is retained as physician compensation. In addition, by comparing trends in net operating revenue to trends in our revenue, investors are able to assess the impact of trends in physician compensation on our overall performance. "Net Patient Revenue" is the net revenue of our affiliated practices under the PPM model for services renderedto patients by those affiliated practices. Net patient revenue is the largest component (92.1% in 2003) of net operating revenue. It is a useful measure because it gives investors a sense of the overall operations of our PPM network in which we are responsible for billing and collecting such amounts. "EBITDA" is earnings before interest, taxes, depreciation and amortization, loss on early extinguishment of debt, and impairment, restructuring and other charges. EBITDA also excludes a loss on sale of assets during 2003. We believe EBITDA is a commonly applied measurement of financial performance. We believe EBITDA is useful to investors because it gives a measure of operational performance without taking into account items that we do not believerelate directly to operations -- such as depreciation and amortization, which are typically based on predetermined asset lives, and thus not indicative of operational performance, or that are subject to variations that are not caused by operational performance -- such as tax rates or interest rates. We exclude impairment charges during 2002 because they are non-cash charges, which relate primarily to our repositioning during the last several years and to net-revenue model practices, which we do not believe are indicative of the ongoing performance of the business. Likewise, the loss on sale of assets during 2003 is a non-cash item, incurred as part of our overall repositioning strategy. Restructuring and other charges are excluded from EBITDA because we do not believe they reflect ongoing business performance. EBITDA is a key tool used by management in assessing our business performance both as a whole and with respect to individual sites or product lines. "Field EBITDA" is EBITDA plus physician compensation and corporate and administrative expenses. Like net operating revenue, Field EBITDA provides an indication of our overall network operation performance, without taking into account the effect of physician compensation. Corporate general and administrative expenses are included because they are not indicative of field performance. The remaining exclusions are discussed above in the definition of EBITDA. Field EBITDA percentage is calculated by dividing Field EBITDA by Net OperatingRevenue. FIRST AND FINAL ADD -- ADDITIONAL TEXT AND TABLES -- TO FOLLOW DATASOURCE: US Oncology, Inc. CONTACT: Bruce Broussard, Investor Relations, +1-832-601-6103, or , or Steve Sievert, Public Relations, +1-832-601-6193, or , both of US Oncology, Inc. Web site: http://www.usoncology.com/

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