Amedisys Inc (AMED) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Amedisys first quarter 2012 earnings call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Kevin LeBlanc, Director, Investor Relations. Please go ahead, sir.

Thank you, Lydia. Good morning and welcome to the Amedisys investor conference call to discuss the results of the first quarter ended March 31, 2012. A copy of our press release is accessible on the investor relations page on our website. Speaking on today's call for Amedisys will be Bill Borne, Chairman and Chief Executive Officer, and Ronnie LaBorde, President and Chief Financial Officer.

Before we get started with our call, I would like to remind everyone that any statements made on this conference call today or in our press releases that express a belief, estimation, projection, expectation, anticipation, intent, or a similar expression, as well as those that are not limited to historical facts, are considered forward-looking statements and are protected under the Safe Harbor of the Private Securities Litigation Reform Act. These forward-looking statements are based on information available to Amedisys today, and the Company assumes no obligation to update these statements as circumstances change. These forward-looking statements may involve a number of risks and uncertainties which may cause the Company's results or actual outcomes to differ materially from such statements. These risks and uncertainties include factors detailed in our SEC filings, including our Forms 10-K, 10-Q and 8-K. The Company disclaims any obligation to update information provided during this call, other than as required under applicable security laws.

Our company website address is Amedisys.com. We use our website as a channel of distribution for important information including press releases, analyst presentations, and financial information regarding the Company. We may use our website to expedite public access to time-critical information regarding the Company in advance or in lieu of distributing a press release or a filing with Securities and Exchange Commission disclosing the same information. In addition, as required by SEC Regulation G, a reconciliation of any non-GAAP measures mentioned during our call today to the most comparable GAAP measures will be available on our website on the investor relations page, under the tab financial reports non-GAAP. Thank you, and I will turn the call over to Bill Borne.

Thanks, Kevin. Good morning, and welcome to our earnings call to discuss first quarter results. We appreciate the opportunity to update you regarding the Company's performance.

Results for the quarter met our expectations, and we are on track to meet our plans for the year. We saw improvement in Home Health admissions, with episodic admits up 5% sequentially. While on a same-store year-over-year basis episodic admissions were down 1%, this is an improvement over our previous quarters. Non-episodic Home Health volume was up significantly, 30% sequentially and 38% on a same-store year-over-year basis. Our Hospice business continues to perform well, with 6% same-store admission growth for the quarter, leading to year-over-year and sequential improvements in revenue and margins. We believe the organizational changes we implemented in the second half of 2011 have produced positive results. The closing of underperforming care centers has allowed us to better focus on continuing operations. The realignment of care centers geographically, instead of by business unit, is allowing us to better coordinate our Home Health and Hospice divisions, and field operations are responding positively to our new structure and leadership.

Regarding our managed care business, the growth we are experiencing in this area reflects the additional focus we announced last year and the management we brought in at that time to lead this effort. Earlier this quarter, we announced entering into two new contracts covering a significant number of new beneficiaries in the Southeast. This added to the numerous smaller contracts we entered into in 2011, resulting in both sequential and year-over-year growth. Expanding our managed care business has a number of benefits. We are a better partner to our referral sources when we can serve more of their patients. We are diversifying our pair mix. Serving managed care companies is furthering our operational capabilities in the areas of non-Medicare collections, co-pays in particular, and utilization management. Finally, this business helps to offset our fixed overhead costs.

As you know, we are in the midst of significant changes to the healthcare industry. Home Health experienced substantial Medicare reimbursement cuts in 2011 and 2012 and will continue to face reimbursement pressure in 2013 and beyond. Healthcare reform passed in 2010 is accelerating that change. Regardless of how the Supreme Court rules regarding this legislation, our delivery system and how we provide care needs serious reform. We see opportunities in these changes and are working to position the Company for the industry's long-term favorable trends, including patient preference for care delivered at home, the lowest cost setting for care, and significant demographic growth.

We have an ongoing effort to enhance our technology, which will drive clinical innovation and efficiency. This multi-year plan began in the fourth quarter of 2010 with the upgrade or replacement of all of our Point of Care equipment with new wireless and enhanced capabilities. In the third quarter of 2011, we began rolling out to our home care centers an automated direct-to-home medical supply module. All care centers will have this functionality by the end of the month. We have just started the rollout of our Point of Care technology to our Hospice care centers, which we expect to be complete by the end of this year. Going forward, our focus will be on completing our new AMS3 operations system, which is an addition, and many other enhancements will upgrade our billing processes and clinical management architecture. We plan to begin implementing this upgrade towards the end of next year.

As we continue to evolve into a more robust care management company, we are developing partnerships with other providers, hospital systems, and managed care companies. We are exploring numerous clinical care delivery models through innovation challenge grants, the bundled payments for care improvement initiatives, and the Innovation Advisors project. We expect to successfully demonstrate the value of our clinical capabilities as we work through these opportunities. As our Company transitions, we need to have a voice in Washington. We do this independently and through our participation with the National Association of Home Care and Hospice, the Alliance of Quality Healthcare and Innovation, and the Partnership for Home Health Quality. Through the partnership efforts, we have drafted proposed legislation which targets fraud and abuse as a major component, and we are very supportive of these types of efforts. Before commenting further on our operations and taking questions, I would like to turn the call over to Ronnie, who will discuss more specifically our quarter financial results.

Thanks, Bill. As we discussed on our fourth quarter call, in accordance with the accounting guidance, we are now separating into discontinued operations those care centers that have been identified for closure, including 29 care centers in the fourth quarter of 2011 and 3 more this quarter. For my comments on this call, my discussion will be based on continuing operations.

During the first quarter, we generated revenue of $371 million, compared to $359 million in the first quarter of 2011 and net income of $7 million or $0.22 per share compared to net income of $17 million or $0.59 per share last year. Sequentially, our revenue was essentially flat, and earnings per share decreased $0.03. Our Home Health division experienced a year-over-year decline in revenue of $19 million or 6% and was essentially flat on a sequential basis. For episodic revenue, we experienced a $25 million decline year over year or 8%. This reflects a 4% reimbursement cut we experienced from the 2012 Medicare reimbursement changes and a 4% volume reduction. The volume decline is attributable to a 2% reduction in episodic admissions and a 6% reduction in re-certs. Our re-cert rates for the quarter of 43% was down approximately one percentage point on both a year-over-year and sequential basis.

In contrast, non-episodic revenue increased $6 million or 33% to $24 million. As Bill mentioned, this increase was driven by the new managed care contracts we have entered into over the last year. Our Hospice division experienced an increase in revenue of $31 million or 80% versus last year and up slightly on a sequential basis. The acquisition of Beacon Hospice, which closed in the second quarter of last year, contributed $22 million to the year-over-year growth. The remainder was organic, driven by a 6% growth in same-store admissions. Our gross margin was 43.8% for the quarter, a 410 basis point decrease from the first quarter of 2011. Our Hospice gross margin was relatively flat at 47.5%, while our Home Health gross margin declined by 500 basis points to 42.9%. A number of factors contribute to this gross margin decline in Home Health, including the reimbursement cut, a slight increase in cost per visit, and face-to-face write-offs.

Sequentially, our gross margin fell by 170 basis points, largely due to the reimbursement cut in our Home Health business. During the quarter, we had a favorable impact of $600,000, due to functional assessment. This occurred as our current run rate of negative $1 million was offset by a $1.6 million increase to revenue, as system changes we implemented in the first quarter allowed us to bill visits we considered non-billable in previous quarters. General and administrative expenses increased $4 million year over year, which is largely a result of the Beacon acquisition. Sequentially, general and administrative costs were flat.

Our provision for doubtful accounts was $5.9 million, up from $3.1 million year over year and up $2 million sequentially. The increased provision is caused by a combination of growth in our managed care business and favorable adjustments to doubtful accounts we booked in the first and fourth quarters of 2011 due to better than anticipated collections. EBITDA for the quarter totaled $23 million or 6% of revenue, compared to $39 million or 11% for the same period last year. The majority of this decline is attributable to the 2012 rate cut.

Turning to our balance sheet, we ended the quarter with $41 million in cash, $137 million in debt, a leverage ratio of 1.1, and $230 million in availability under our revolving credit facility. We generated $12 million in cash flow from operations during the quarter. However, after capital expenditures of $10 million and debt principal payments of $9 million, we saw our cash balance decrease by $7 million. We experienced an increase in DSOs during the quarter of 3 days to 38 days. The increase was primarily the result of required system changes some of our payers experienced with the adoption of new billing standards mandated by the government as of the first of the year. These issues have been resolved, and we are experiencing a pick-up in cash collection during the current quarter.

This morning we are reaffirming revenue and earnings guidance for 2012. We anticipate revenue to be in the range of $1.475 billion and $1 billion -- to $1.525 billion and earnings to be in the range of $0.95 to $1.10 per share from continuing operations on an estimated 30.2 million fully diluted shares outstanding. And now I'll turn the call back over to Bill.

Thanks, Ronnie. Before opening the call to questions, I would like to briefly discuss our operations as it relates to our business fundamentals, clinical excellence, operational efficiency, and growth. I'll start with clinical excellence. During the quarter, our clinical teams provided more than two million patient visits to over 125,000 patients. As a reminder, on average, our Medicare patients are 81 years of age and on 13 medications. The clinical services and care coordination we provide to these patients are critical to their ongoing well-being, and we are passionate about delivering excellent clinical care.

In the latest CMS outcome score, we again achieved very good results, meeting or exceeding the average outcomes of our competitors in our footprint in each of the eight categories currently being reported. Starting this quarter, CMS is publishing the results of patient satisfaction surveys for home health providers. The results cover a 12-month period and include 19 questions that are grouped into five domains. Like outcomes, this information is reported on CMS's home health compare website. We are pleased to report that compared to competitors in our footprint, we exceeded the average survey scores in each of these five domains for the 12-months reporting period ending September of 2011.

As I mentioned earlier, during the current quarter, we began rolling out our Point of Care to Hospice business. There are a number of benefits this technology will bring to our Hospice operations, including improved documentation and compliance, improved clinical management, as visit and patient data will exist electronically, a significant enhancement, given the importance of sharing patient information 24 hours a day and 7 days a week. Our Point of Care technology facilitates adding Hospice to our MercuryDoc physician portal, which is scheduled for implementation in 2013. Future plans for enhanced care management solution requires more intensive clinical oversight and data sharing, both internally and with external caregivers. Point of care for all of our clinicians is a key component to this care.

Turning to business efficiencies, as discussed earlier, we closed three care centers this quarter. These locations clearly were not progressing according to plan and are not in key markets for us. We continue to have underperforming care centers and will make ongoing operational adjustments to improve performance. In addition, we will maintain efforts to reduce operating costs Company-wide.

Turning to growth, we continue to expect low single-digit same-store growth for the year. As mentioned earlier, we are pleased with the growth in our managed care business. We continue to have discussions with managed care companies and expect to further expand this business over the year. We have a strong focus on growing our Medicare business. We are enhancing sales accountability and outreach.

We are cross-training between Home Health and Hospice and are seeing positive results. We are focused on developing client relationships with hospitals and health systems. Medicare will start penalizing hospitals for diagnosis-specific readmissions starting in the fourth quarter. Of note for the quarter, our Company-wide 30-day readmission rate, as measured by OCS, was 16%. This compares to hospitals' historical 30-day readmission rate on Medicare patients of approximately 20%.

In closing, we are encouraged by our first quarter results. We are turning the corner on growth and operational performance, while investing for the changes that are undoubtedly coming to our industry. We have passionate employees who are understanding the importance of providing great care to our patients and do so with integrity. Given that this week is National Nurses' Week, I would like to recognize our 6,500 nurses, who provide excellent clinical care to our patients, and thank them for their service. With the spirit for caring of all of our employees, I can't help but be positive about the future for Amedisys. I will now open up the call to questions. Thank you.

Thank you. Ladies and gentlemen, today's question-and-answer session will be conducted electronically. (Operator instructions). Our first question comes from Kevin Ellich with Piper Jaffray.

This is Brad in for Kevin. A quick question on the hospital readmission penalties going into effect pretty soon here, do you guys have a preference for JVs or hospital partnerships, or do you have more of a preference for kind of a peer acquisition strategy?

Kevin, this is Bill. It is really hard to hear your question, but I thought I heard you ask if there was a preference in relationships we have with hospitals. What we've done is we have taken a look at hospitals across our service area and identified what hospitals have readmissions -- or higher readmissions in the three categories of concern, which are pneumonia, CHF, and MIs. And we have a reporting mechanism we share with hospitals to give a comparative in reference to our readmission for those particular patients. And we think that, initially, it's a relationship -- as I mentioned, we are trying to move from a customer to client relationship and move them into preferred partnerships with hospitals over a period of time. But we are early in that stage. We see all hospitals in general right now really getting interested and looking at these metrics and finding a way to manage this population. So I think it is going to start slowly and evolve into -- overall eventually into partnerships and deeper relationships.

Thanks.

And then, next question, in terms of evaluations, have those changed at all recently for Home Health or Hospice?

I think Hospice is about the same. But we've seen several opportunities in the home health area that has really lowered valuations for home health. At one time, we were paying 1 time to 1.2 times revenue for Home Health. The deals that we saw that have come across the tables recently, and there have been several of them that range from $10 million to couple of hundred million, we feel are in the value range of about 50%, although the sellers of revenue -- the sellers are expecting more than that in some cases. We think about 50% is a good target going forward.

Okay. And then, a quick question on the provision. As you guys mentioned, that ticked up in first quarter. Looks like about 1.6% of revenues. Is that a good run rate? Or could that possibly tick up even further here throughout 2012?

Kevin, ask again that provision you are speaking to?

Right.

I'm sorry, which one? You are talking about for doubtful accounts?

Yes.

Okay. What you see is, it's a pretty good run rate, we think, going forward. It compares favorably -- or not as favorably to the prior year and to the sequential, because of some positive adjustments from collections in those two periods. But we think the first quarter here is a pretty good run rate going forward, reflecting higher managed care, higher non-episodic business.

Great, Thanks, guys.

Okay.

Thank you. Our next question comes from Kevin Campbell with Avondale Partners.

Good morning. Excuse me -- thanks for taking my questions.

Good morning.

Good morning. Can you hear me all right?

Yes.

Okay, great. Bill, excuse me -- it sounded like you said that the sellers were still expecting sort of more. So do you have a sense -- is that gap at least narrowing at all, or is there still a pretty decent discrepancy between buyers' and sellers' expectations on the M&A side?

Kevin, the gap is narrowing very quickly in some circumstances. We have seen several distressed agencies over the -- probably over the quarter. And the seller expectations for our distressed agencies has come down to in that 50%, and even lower in some cases, range. Some of the businesses, I understand, are going out of business. So, the expectations get put in the check pretty quickly.

The larger agencies are probably not there yet. I would think the expectations are between 50% and 100% of revenue. But I think over the next coming quarter is that we are going to see expectations come down for sellers, just as more of them have distress and start realizing the impact of the 2012 reimbursement cuts. So we are looking forward toward the middle and the end of the year of really seeing activity again in the Home Health division.

Okay, great. On the Hospice side, your gross margins look like they improved sequentially. And last year, there was a lot of sort of moving parts with the Beacon acquisition, and gross margins, I think, contracted from Q1 to Q2. Going forward, as we think about Hospice margins, should we think that they will improve from this Q1 level? Or if not, how might they change on a sort of sequential basis or quarterly basis over the course of the year?

This is Ronnie. I think we are in a pretty good spot. I would not be looking for -- we are not looking for any material improvement going forward, so we think a lot of the noise is gone and this is a pretty good run rate for us to go forward.

Okay, great. And just a last question on the salaries and benefits line for G&A. Should we expect a lot of leverage there and also on I guess the other expenses line? Or are those going to sort of as a percentage of revenue stay relatively flat from where they are today?

Well, if we accomplish plan, we hope to see some leverage there. So, we wouldn't expect that to go up as a percentage if we achieve our growth that we are talking about, low single-digit growth for the year that we'd experience some kind of leverage there we would get and not have that track proportionally.

Can you give us a sense in terms of magnitude of do you expect 20 basis points, 30 basis points, 100 basis points of leverage, or some sort of range?

I don't have that. I don't have that range for you.

Okay. Thank you very much.

Sure.

Thank you. Our next question comes from Whit Mayo with Robert Baird.

Thanks. There are several moving pieces in the AR and the revenue this quarter. I wanted to go back and maybe take one at a time. Ronnie, you mentioned that there was, I guess, a pick-up from rebilling some prior unbillable visits. Can you comment on maybe how much revenue and corresponding EBITDA that that contributed in the quarter?

The -- we think we have -- we've gotten to on the functional assessment, we think that we have a good run rate going forward that really was present in this quarter. It is about $1 million per quarter. Of course, we are still working on that to improve performance there as we try to better operationalize the requirements of functional assessments. But $1 million is a good run rate. In this quarter, we had about $1.6 million -- right at $1.6 million of positive impact. And that came from prior clarification of the 30-day logic surrounding that requirement. We finally got that into our system, and the effect of that was a $1.6 million benefit, so we are able to go back and bill visits previously thought to be non-billable.

Got it. So the $1.6 million is prior period, and then you said $1 million is a good run rate to go forward on -- I guess I didn't follow what the $1 million represents.

Yes, it's the run rate.

The run rate for what you expect to book on prior-year revenue?

No, no. From this quarter on, we think we are operating now at kind of with a $1 million per quarter impact.

Okay. Okay. All right. I follow you now. And then, on face-to-face, I think you mentioned that you wrote off some AR. Can we go back over that for a second?

Well, on the face-to-face, again, we are right at -- we will be just shy -- again, we think our current operations, the run rate will be about $900,000 a quarter. So right at -- just below $1 million. So between the two, actually, functional assessment and face-to-face, we are looking at $2 million a quarter or $1.9 million. In this quarter, we also had a little bit more expense in there, an additional $900,000. That resulted from yet further changes we implemented in the fourth quarter, due to audits of files of episodes. So we added to that provision in the fourth quarter, and we picked up a little bit more here in the first quarter, due to those audits. We think that is now fully reflected and the $900,000 is a good run rate going forward.

Got it. Maybe just backing into the corporate G&A, it looks like it was a little higher than our model. Can you kind of talk about what a normalized run rate it looks like if I take corporate overhead plus the D&A, you are maybe $57 million or so in the quarter. Is that a reasonable run rate to expect as we progress over the balance of the year? And I guess let me ask the question a different way too. Were there any legal costs that were unusual in the quarter or any reserves that were added that may have impacted that as well?

Let me address the latter first. Yes, we did have legal costs in the quarter. As we stated, we have a -- we estimate an expenditure this year of approximately $7 million, consistent with last year. We have spent some of that projection here in the first quarter, but it wasn't unusual.

Okay.

Yes, it's -- so we did that. Overall, I think the first quarter gives us a pretty good run rate going forward.

Okay. That's helpful. Maybe one last one here, Ronnie. Just -- your term note is due over the next year. I think it matures March of 2013. Can you maybe talk about plans for refinancing or rolling that debt and if there are any events or what we could just sort of expect you to come to market with that re-fi?

Well, it is our revolving facility that expires in March of next year. We think that, from a liquidity standpoint, we are in good shape to execute on our plan. But of course, it is prudent to have that facility available. And we are and will continue to have our discussions with our bank group and prepare for that -- to deal with that expiration.

Okay. All right. Thanks a lot.

Okay. Thank you, Whit.

(Operator instructions). We'll move next to Ralph Giacobbe with Credit Suisse.

Thanks. Good morning. Can you maybe talk a little about where you stand on the specialty programs? Are you still marking them? Is that still part of the strategy? And any details there.

We are. It is part of the strategy. We are actually looking to consolidate the specialty programs. As a reminder, we have the wound care program -- excuse me -- the cardiovascular program, behavior health. We have the respiratory, diabetes, med surgeon, and rehab. And we are taking a hard look at programs, making sure that the clinical profiles are all refreshed and we use evidence-based care. We have a new clinical strategy team, which includes Dr. Fleming, Dr. Henning, Bridget Montana, and Kate Jones, that are working very diligently on updating all of our programs. And likewise, we are taking these programs and doing targeted marketings for our demographics that make sense.

So, we are excited about the offerings. It dovetails into the new clinical architecture we talked about in AMS3 and just allows us to take a fresh look at how we manage those patients with the expectation to get the best possible outcomes to each individual patient and to give us flexibility for the caregivers to design personal care plans as well. So, we'll be coming out with those. We are having a lot of activity right now in our behavior health program. We are making a lot of headway there, and we're excited about that. And then, of course, we are focusing on the three diagnoses that are going to create hospitals' concern on readmissions, which is the CHF and MI, which falls under our cardiovascular piece, and then pneumonia, which falls under our respiratory piece.

Okay. And just to be clear, when you say consolidate them, what exactly does that mean? Are you going to give statistics in terms of consolidated sort of specialty programs? Or what does that mean?

As a reminder, we had 13 programs. And so what we are doing is taking some of the smaller pieces and rolling them up into like COPD and pneumonia, we're rolling them up into respiratory. So, we are creating broader categories versus specific categories to move forward to make it a little simpler to implement and oversee the patient care.

Will you be reporting on sort of the growth in that, or is that not something you are going to be doing going forward?

Again, we are refreshing everything. At some point in time, we may consider reporting the growth, but we probably are not going to move forward and set a precedent to report growth on particular care management programs going forward.

Okay. And then, can you help us -- what percentage of volumes would you say now come from the physician office today maybe versus a year ago, before the face-to-face rules? Is there a meaningful difference?

I don't think there is anything significant worth commenting on that's different. We are seeing -- again, I think when face-to-face first came out, we saw a little pull back in general. I think the whole market was a little shocked. But physicians are moving forward understanding that home health is a critical part of the care continuum, and we are starting to see that normalize, as evidenced by the adjustments that Ronnie talked about earlier. So I think, given a little more time and continued education, we'll see the resources and the references in reference to admissions come in about the same percentages.

Okay. Then just my last one. In terms of the Hospice on the length of stay side, it was up a little bit and drove the days higher in kind of a same-store basis. When I look sequentially, it is actually lower, and that number has kind of bounced around a bit. Is there anything to note there? Or is that the volatility we should expect, just given the sort of relatively smaller base?

Just what you said. Nothing really of note there. It moves around a little bit, but it is just a result of that base.

Okay. All right. Thank you.

I would now like to turn the call back to Mr. Borne for any additional remarks.

Well, we thank everyone for calling in this morning. I want to again thank all the caregivers for the excellent care they give. And I want to thank our shareholders for their continued support. And I look forward to sharing the results of our second quarter results to the shareholders. And everybody have a great day.

Thank you. Ladies and gentlemen, that will conclude today's presentation.