Amedisys Inc (AMED) 2005 Q1 法說會逐字稿

Good morning and welcome to the Amedisys first-quarter 2005 earnings conference call. (OPERATOR INSTRUCTIONS). It is now my pleasure to turn the floor over to Mr. Brian Ritchie of Noonan/Russo. Sir, the floor is yours.

Good morning and thank you for joining us today for Amedisys' investor conference call to discuss recent corporate developments relative to this morning's first-quarter 2005 earnings announcement. By now, you should have received a press release. If for some reason you have not received a press release or are unable to log onto the webcast, please call me Brian Ritchie of Noonan/Russo at 212-845-4269 and I will be happy to assist you.

Speaking today we have the Company's President and Chief Executive Officer Bill Borne, the Company's Chief Financial Officer Greg Browne and the Company's President and Chief Operating Officer Larry Graham. Management will give you an overview of the quarter highlights and then open the call for questions and answers.

Before we get started, we would like to remind you that this conference call may contain certain forward-looking statements regarding future events or the future financial performance of the Company including without limitation statements regarding operating results in calendar 2005, earnings per share in 2005, growth opportunities and other statements that refer to Amedisys' plans, prospects expectations, strategies, intentions, and beliefs. These forward-looking statements are based on the information available to Amedisys today, and the Company assumes no obligation to update these statements as circumstances change. For additional information, please see the cautionary statements included in Amedisys' most recent Form 10-Q or other public filings filed with the Securities and Exchange Commission.

At this time, I will turn the call over to Bill Borne. Please go ahead, Mr. Borne.

Thanks, Brian. Good morning, everyone. We would like to welcome our shareholders, and we certainly appreciate the opportunity to share the Amedisys vision with a continually expanding group of investors.

It has been less than two months since our last conference call. At that time, I provided a comprehensive review of our 2004 accomplishments. In consideration of the short timeframe between our last call, I will keep my comments this morning brief.

Management is committed to ensuring and maintaining its strategic direction and generating appropriate returns for all of our investors. This call will be reflective of the best operations and earnings quarter in the history of Amedisys. The future of home nursing is very bright, and Amedisys intends to take full advantage of future growth opportunities.

The Company continues to focus on our core strategic initiatives which have been outlined over the previous year. Primarily our effort to focus on internal growth supplemented with acquisitions that meet our stated criteria. Our success has been and will continue to be driven by our internal growth rate. Our 2004 internal growth rate of admissions is 21% over the last year's first quarter. Larry will comment in greater detail on our strong rate of internal growth, but I would like to give my thanks to the hard work of our entire staff that have made this possible.

I will now pass this call to Greg so he can provide his financial overview which will then be followed by Larry with a brief operational update. Following Larry's update, we will open the call to the Q&A session. Thank you.

Thanks, Bill. I will now discuss financial highlights for the three months ended March 31st as with respect to the income statement and the balance sheet, as well as comment on reimbursements and guidance. Our revenues of 70.4 million represent an increase of 49% from the first quarter of 2004 and reflects our strong internal growth as well as the recent acquisitions, particularly those in South Carolina and Maryland. The two recent acquisitions that I just mentioned accounted for approximately 3.2 million of this quarterly revenue.

Our gross margin reflected a percentage of approximately 59.6% revenue, which was well above the fourth-quarter number of 57.5, as well as the first quarter number from 2004 of 58.9%. Clearly the improvement in gross margin percentage was materially assisted by the market positive increase of approximately 2.3% effective January the 1st.

In addition, we also saw significantly higher margins for the recent large acquisitions, Metro and Tenet, both as a result of significant operational improvements and the right increase. These margins are now comparable with our mature locations.

It is also important to note that since the beginning of the second quarter of 2004 we have benefited from a 5% rural add-on. This expired on March the 31st, 2005. It is therefore likely that our gross margin percentage will be somewhat lower through the balance of 2005, and this is reflected in our guidance. The Company recorded revenue per episode of $2587 in the first quarter compared with the fourth quarter number of $2542. We now complete over 23,000 episodes of care each quarter and relatively small variations in revenue per episode and, of course, significant changes to revenue. These numbers will, therefore, vary from quarter to quarter.

Our general and administrative expenses at 30.5 million were higher by 3.4 million than the fourth quarter of 2004. This increase is accounted for in part by process related to the first-quarter acquisitions of approximately 1.3 million, as well as higher apparel costs normal at the beginning of the year and some increases in benefit costs. Our G&A expenses were somewhat higher from the fourth quarter on a percentage of revenue basis at 43% compared with 42%, although lower than the 44% reported for the first quarter of 2004. Our operating income of 11.5 million or 16.3% of revenue is over 45% higher than the 6.9 million reported in the first quarter of 2004.

Now net income is 7.1 million after a tax provision of 39.4%, represents an increase of over 68% when compared with the 4.2 million in the first quarter of 2004. Earnings per share of $0.45 per diluted share for the most recent quarter compared with $0.34 per share last year, an increase of 32%.

With reference to the balance sheet, our cash balances totaled almost 79 million after making 16 million in cash payments for the acquisitions during the first quarter. The Company also made total debt payments of 800,000 during the quarter and expects an amount of approximately 2.3 million for the whole of 2005. Total debt was only 5.9 million at March the 31st, including debt incurred in the most recent acquisitions.

Our Medicare liabilities remain materially unchanged. Our days sales outstanding decreased significantly to approximately 37 days from the 40 days we reported at December, although this number is likely to increase again as a result of the recent acquisition of Winyah. The Company paid approximately 1.4 million in cash taxes during the March quarter, although we expect that cash tax payments will be significantly higher in the second quarter and will approximate the tax expense thereafter.

Our routine capital expenditure for the quarter totaled 1.7 million, approximately the same as in the previous quarter. Our current estimate for routine capital expenditure for fiscal 2005 remains at approximately 7 million, which includes amounts for startups, asset upgrades for acquisitions and particularly IT spending and an increasing productivity. Our cash flow was strong with EBITDA at 13.2 million and cash flow from operations for the quarter at 10.6 million.

To recap the current reimbursement environment, as stated previously, Amedisys expects that our current weighted average reimbursement for 2005 will be approximately 1.95% higher than it was in 2004. This is after taking into account the elimination of the rural add-on effective March 31st.

Guidance. We're raising our annual earnings per share guidance for 2005 to $1.75 to $1.81 per diluted share on revenues which are expected to exceed 300 million, and the diluted shares will total approximately 15.9 million for the full 2005 year. This guidance includes all announced acquisitions.

Larry will now comment on operations.

Thank you, Greg. Our operational strategic plan continues to center around our internal and external growth strategies. Due in part to our strict adherence to these strategies, our first-quarter internal growth rate over last year in Medicare admissions is 21%. We are certainly pleased with this number and, based on a market growing at least 7 to 9% annually, are confident in our long-term ability to deliver 15 to 20% growth in Medicare admissions. We see this industry growth trend continuing as CMS' recently published home health expenditure projections estimate that the Medicare home health expenditures are expected to double in nine years.

Our total growth rate over the first quarter of last year in Medicare admissions is 44%. We continue to focus on growing our business through the implementation of a dual strategy centered on internal growth initiatives via same-store sales, startups and external growth opportunities via acquisition that meet our strategic criteria. Year-to-date we have opened eight new locations. For 2005 we plan on opening at least 20 new offices. Our plan is to continue with our strategic brand expansion based upon local market opportunities.

On the acquisition front, in the first quarter we acquired 10 locations in South Carolina from Winyah Health Care and one location in Maryland from North Arundel Hospital. We are pleased with these acquisitions as they are all in certificate of need states.

With regards to system conversions, the Winyah site and the North Arundel locations have completed post implementation follow-up and are in Phase II of transitioning with direct leadership oversight. As previously stated, we will continue to evaluate new acquisitions that meet our strategic goals on a go forward basis.

In summary, we are pleased with our first-quarter results. We continue to focus on being the premier low-cost, high-quality provider in home health. We believe that focus, execution and commitment to clinical outcomes will separate us from our competition. I would like to express our appreciation for the continued support of our shareholders, customers, employees and vendors.

At this time, we will open the call up to your questions. Please limit yourself to two questions so that we may allow question time for everyone. Time permitting we will allow follow-up questions. Thank you.

(OPERATOR INSTRUCTIONS). Art Henderson, Jefferies & Co.

Good morning. Very nice quarter. I was wondering if you could comment on the competitive landscape out there within your markets, not only just sort of an organic basis but also for acquisitions as well, and has there been any sort of change? Are you seeing new competitors coming into your markets?

Thanks for your questions. On the acquisition front, on larger acquisitions we have seen some increased competitiveness with acquisitions. But the overall purchase price has been between four to five times trailing EBITDA. On the certificate of needs basis, a little bit on the north end of the four to five range.

On the local competitive advantage, as evidenced by our 21% internal growth rate, while it is competitive, we have not seen any unusual competitive increases this quarter.

Okay. A quick question for you, Greg. SG&A, how should we look at that for the year? Where do you expect that to fallout in terms of total SG&A?

We would expect as I mentioned in my comments that our gross margin percentage might decline a little bit during the year as a result of the elimination of rural add-on. But I would also expect that we will start to see some more efficiencies on the G&A site as the year goes on and that we would expect that number to drop below 43% through for the year as a whole. (multiple speakers) -- just slightly.

Okay. And then lastly, one of the things I have been concerned about is the fact that your valuation looks incredibly cheap at these levels, even despite the run we have seen today. I was wondering have you given any thought maybe to doing a share buyback plan or something that might relay to the investment community that you feel the same way?

We are always open to evaluate the best opportunities to use our cash, and we have not made a commitment one way or the other. We will balance that with use of proceeds against potential acquisitions, and we will do what is right that makes sense at the time.

John Ransom, Raymond James.

More of a macro question for anybody who wants to jump in there and take a slug at it. Obviously there is some noise volume in DC OIG report potential case mix adjustments, etc. I just wanted to open this up to management to comment on the latest and greatest on what you might be hearing on those fronts? And you know what your crystal ball might call for a couple of years out?

The OIG historically has done studies on different industries, and they put out a report. They actually have a booklet that prints out everything that they have put out that CMS has not acted on. But just because they put out a study, we don't know what the ultimate results would be. But our industry experts say that any case mix adjustment you will not see any impact of that until the earliest '07.

And I also want to rearticulate that as comments come out, they give a gray period and a time for the industry to respond, so there will be plenty of telegraphing in relation to that. So they are looking at a multitude of things in case mix. But again, we don't see anything happening until the earliest of '07.

And is there anything you can do preemptively without knowing exactly what might happen? Is there anything that you might do preemptively to be able to perhaps even increase your potential flexibility a couple of years down the road should it call for that?

Basically there are a couple of things that we continually focus on. One is internal growth through organic growth in same-store sales. So growth always helps in those environments. The second thing is become more efficient, and we will do that through technology, through point of care systems and those type of things. So we already have a plan in place to become more efficient over the next 12 to 18 months and for seeing any potential reductions and reimbursements.

Okay. And secondly, I guess this would also be for Larry, could you break down the 21% growth through organic, market share and de novos approximately? Thanks.

All of our startups whether they be a startup in a new location that we previously had not serviced or what we call a spinoff from existing locations that we open a new branch, then we have a pocket of patients that maybe 30 or 40 miles outside from a parent, they made up about 6% of our internal growth rate. So we grew at 21%, and about 15% of that is organic.

I just want to reiterate, we do both types of startups where we will leapfrog, if you will, do a spinoff or go into a new location we have not serviced before. We did a total of 8 startups in the first quarter.

Okay. And finally, as you benchmark Tenet and Metro, let's look at those because you have had them in the fold for awhile. Obviously the gross margin numbers look like they are now at Company average. What other sort of benchmarkings do you look at for those acquisitions, and could you comment just overall how acquisitions are performing organic revenue growth, margin and other benchmarking as hurdles that you might use relative to your budget or relative to your expectations? Thanks.

Let me answer the first part of it, John. We look at, as you say, a range of benchmark measures for the acquisitions once they become -- we have been onboard for 12 months. They start to get measured like our other locations, and we look for internal growth numbers that are consistent with our other locations, and we look for contribution numbers that are consistent with our other locations. We give them a little growth period over the first 12 months as you know.

So we are looking for internal growth from a Medicare admission standpoint, which would be consistent with our other locations, and we're looking for a contribution number which is consistent with the other locations. You know, the gross margin falls in between those that we have already discussed. So I would think that they would be the three major benchmarks.

And are all these acquisitions tracking within your expectations at this point?

Well, they are tracking within our expectations. Obviously when you do something like Tenet you're going to have some of the 10 locations which are better than others. And when you look back over the series of acquisitions, if you like, that the Company has done in the last three years, particularly there are some that are performing better than others and some that are not performing quite as well. But overall we're very pleased with the returns we're getting on them, and we are excited to continue that. As you know, we have done eight acquisitions since the beginning of 2004, and we learned from each one and we continue to focus on acquisitions that continue to be a part of our strategic plan.

And John, if I could just add both for those two acquisitions the first quarter, both of those individually did more Medicare admissions than any quarter since we have had them. And as a reminder, we did Tenet over March, April and May last year, so June will be the first full month that the Tenet acquisition will be all internal growth. It will be staggered based on when we close these locations March, April, or May.

This will be my last question. I guess Tenet in particular, is there any reason to expect any material impact on your organic growth rate rolling in Tenet? In other words, is Tenet growing -- do you think Tenet is growing organically as fast as the rest of the Company, or is there any impact there?

I don't have the exact percentages, but I know that it is growing at double-digit. We have a plan in place now that we have had all our salespeople, so I don't think it's going to materially impact our internal growth rate.

Eric Gommel, Legg Mason.

Can you give me what your depreciation and amortization for the quarter was?

It is Greg Browne here. Thank you. I will. The depreciation and amortization for the first quarter is about 1.34 million, and it will be approximately that number each quarter for the balance of the year.

Great. I would be interested in your thoughts on opportunities related to Medicaid reimbursed home nursing. Companies have been typically pulling out of this business because of the poor margins, but given some of the comments by Secretary Leavitt and the CMS Administrator Mark McClellan supporting community-based care, what do you think the opportunities for Amedisys are? What would it take for you to get involved if anything in that business? And then if you could also talk a little bit about what opportunities you might see in the Medicare and managed care side and also with disease management opportunities going forward? Thanks.

That is a lot of questions, Eric.

Yes, it is.

First of all, we are seeing a pretty big trend in all states as well as federal to push more of the long-term care into the community-based care, which is what we do. We think there will be positive legislation that will impact Medicaid reimbursement for home nursing. At this point in time, we are just cautiously monitoring it.

We are enjoying a lot of growth right now. We are adding new programs to our current product line, and we think there is still a lot of opportunity on the Medicare side. But as we see more development in the Medicaid side, we will cautiously follow that.

In our own state here in Louisiana, we see a pretty big trend for that push as well, and the state also needs some help with the Medicare managed care program. We monitor that in the states that we are in. Georgia has some initiatives. Of course, Tennessee is going through its own issues. But the bottom line is that when we see that there is an opportunity to make a difference that will be accretive to our overall activities, we will explore that, and we are wide-open to managed care.

We have mentioned in previous calls that we feel that Amedisys is a disease management company. And in every episode of care, we provide disease management services. So we do want to sort of parlay that into other opportunities with Medicaid and the state initiatives. So we are open to it, and when it makes sense to us, we will probably explore some of that opportunity.

(OPERATOR INSTRUCTIONS). Ben Grady (ph), Presidio Management.

A question for I guess Greg or whoever wants to take this. The OIG report suggested there was both over and under utilization by agencies and suggested there obviously that some agencies added visits and others may have restricted visits after the threshold was reached.

Could you kind of describe just in terms of the number of visits that any patient gets just what the role of a physician is and then what leeway the independent -- the individual agency, the manager of that agency has in deciding just how many visits a patient gets? Could you kind of elaborate on how that whole thing works on the ground?

Thank you for your question. This is Larry. The local managers do not have autonomy in determining utilization. We have a clinical system that based on the clinical needs of the patient we determine by diagnoses the amount of visits that historically it would take to get an appropriate outcome, and each visit is mapped out on specifically what you're going to do.

In your case, as a therapy patient depending on the condition, just to give you some stats -- probably about 50% of our therapy patients do less than 10 visits, and 50% of our therapy patients do greater than 10 visits. On the greater than 10 visits, we have patients that do 30, and 40, 50 therapy visits depending on the medical needs. Some people may have co-morbid activities as well as a stroke, and you're going to do a lot of therapy business. So it's based on the clinical condition.

It is also important to note that our system, all of our offices are connected via wide area networks, and we can monitor clinical utilization and give expert backup advice to the individual office. Every week we do a case conference and discuss the patients that are under our care and talk about the clinical protocols. So it is not an independent autonomy. And also, the physician has to sign off on plans of care and agree that we are doing what is clinically appropriate with the patients.

Well, the clinical plan you know has to be evaluated depending on what kind of results are being given. Let's say, your example of 30 or 40 visits, that probably was not prescribed at the outset. One would think that it is a result of the patient not responding and yet doctors or somebody's opinion that more visits would be beneficial.

By the same token, if you get up to -- what is the threshold, 9 or 10? I guess it is 10, isn't it? It seems to me there would be a great impetus if you got to nine visits to go one more. I mean what would prevent this kind of seeping into the culture of, not the Company, of course, I know you would not allow that, but individual agencies where the manager once wants to look as good as he can? That is the kind of thing that probably is happening around the country.

That may be happening around the country, but it is not happening on an individualized basis with Amedisys. Again, we are tied via wide area network, and we can review real-time all episodes in progress. We go over therapy as well as diabetic patients, cardiac patients, wound care patients, and your example on the front end, there are some patients that will require a lot of discipline on the front end that is in the plan of care. There are certain situations that in the middle of an episode, maybe they change medications or they have had an instance where they fell at home or something and you would change the prognosis over the extended length of time.

I am very confident in Amedisys' clinical outcomes and the compliance program that we have in place and the fact that we look at patients on an individualized basis in case conference every week. And again, the industry has 11 quality indicators that they monitor on a provider basis, and we monitor as well as hold people accountable, and their incentives are based on clinical outcomes.

Just one other question, Larry. I don't want to beat this to death. But it seems to me that CMS might work out -- not have a graduated scale of payments depending more upon the actual number of visits made in each case as opposed to either being over or under the threshold, thereby eliminating some of the incentives for gaining the system, which obviously is taking place, or OIG would not have come out and said that there was both underutilization and overutilization. What would you expect to come out of this?

I think really at this stage is that there are so many alternatives open to CMS in terms of altering the system, if in fact they do alter the system, because I think it is important to bear in mind that they have put in place the additional payment, the therapy because they wanted to encourage in the first instance with (inaudible), they wanted to encourage home-based therapy. And so assuming for a moment that they do want to alter the way it is done, there are, as you know, a variety of ways it could be done, and until I think they put out some discussion paper on that, it is somewhat difficult to speculate on how that might work.

Art Henderson, Jefferies & Co.

Just a couple of follow-up questions back on this OIG thing, not to beat this to death. But are your lobbyists or anybody giving you any indication of what they are hearing, any kind of discussions from the OIG? Does it appear that it would be sort of budget neutral or benign or anything along those lines?

The feedback we are getting is that the OIG report will pose a series of questions or options if you like for CMS to consider, and that the most likely scenario is that CMS will consider those at the time they do the case mix review, which is scheduled to take effect in 2007. Other than that, I don't think we have anything more that we can usefully say on the subject.

Okay. One other question. Bill, how are you looking at hospice these days? Is it becoming more of an interesting opportunity now that you have made a couple of acquisitions that have a hospice or two?

Well, basically, Arthur, we think that the hospices are a good business, but we're still very guarded on it. Obviously we acquired two of them with the acquisition of Tenet, and we have actually did two startups, two small startups since that time just exploring the opportunity in hospice as a whole. It is a good blended service. It ties well with home nursing, but besides the similar referral sources that we get, it is a pretty different business. So we're still guarded on it, but if there are opportunities out there that makes sense, we will take a hard look at it as we move forward.

(OPERATOR INSTRUCTIONS). Andrew Comstock (ph), Alpine Atlantic Asset Management.

Congratulations on another good quarter. I have a quick question in regards to the NCFE effect from a few years ago. You guys seemed confident at one point in time that you may be able to recover some of the $7 million in cash they owed you from the receivable sales. Do you have an update on that for us?

Yes, we do, Andrew. Basically it has been turned over to litigation. I still feel relatively confident that we will get our money back. We feel that there was a lot of impropriety that went on in reference to that whole ordeal, and our recourse may not be directly from NCFE or the bankrupt entity. We're still moving forward. It may be a year or two before we get full resolution on it.

David Stackler (ph), OSS Capital.

Good morning, guys. I was wondering if you could tell me the visits per episode for the quarter? Hello?

Yes, this is Larry. They are running right around 16 visits per episode.

16, down from 16.5 as of fourth quarter 2004?

I believe so. That is correct.

And is it also reasonable to use revenue per episode as kind of a stalking horse for the acuity mix?

Will you state your question one more time?

Is it reasonable to use revenue per episode as a stalking horse for the acuity mix? Meaning if revenues per episode is constant from quarter to quarter, should we assume that the acuity mix is also constant?

Approximately, but you have to take into account as Greg mentioned on January 1st, we had a price increase of 2.3%.

Right. Okay. Thanks, guys.

Thank you. At this time, I am showing no further questions. I would now like to turn the floor back over to management for any closing comments.

All right. We appreciate it, and we appreciate all the investors' interest and all the great questions. We think we had a great quarter. We are looking forward to the opportunities that the year ahead will bring, and likewise we look forward to our next conference call. Thanks, everyone, for calling in. Have a great day.

Thank you. This does conclude today's conference. You may disconnect your lines at this time and have a wonderful day.