Amedisys Inc (AMED) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Amedisys second-quarter 2012 earnings call. As a reminder, this call is being recorded. For opening remarks and introductions, it is my pleasure to turn the call over to Mr. Kevin LeBlanc. Please go ahead, sir.

Good morning, and welcome to the Amedisys investor conference call, and financial results for the second quarter dated June 30, 2012. A copy of our press release is accessible on the Investor Relations page on our website. Speaking on today's call from 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 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's 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 SEC disclosing the same information.

In addition, as required by as the 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 now I will turn the conference call over to Bill Borne.

Thanks, Kevin. Good morning, and welcome to our second-quarter earnings call. Results for the quarter met our expectations, and we are on pace to meet our plans for the year. We were pleased with organic admission growth for the quarter, and in both our home health and hospice businesses. On a same-store basis, hospice admissions increased 5%. Home Health non-episodic admissions increased 46%, and importantly, our home health episodic business return to positive growth, with same-store admissions up 3%.

As a result of this organic growth and our Beacon Hospice acquisition, we were able to show revenue growth, both sequentially and on a year-over-year basis. With sequential revenue growth and stabilizing costs, we were able to increased earnings for the quarter to $0.27 per share on continuing operations versus $0.22 in the first quarter.

We also continue to make progress in preparing the Company for the future. We gained traction during the quarter from the leadership changes we made in 2011, and with senior field positions we filled during the first half of the year. Our managed care strategy is generating positive contributions, and top line revenue. We continue to deliver quality care, validated by the generating good results in both home health clinical outcomes and patient satisfaction scores.

We believe we have the best operating IT system in the industry, and are making investments to further improve our lead in this area. We still have a lot of work to do over the remainder of the year, particularly in the area of cost management. However, we are encouraged by our results for the quarter. Before commenting further on our operations and taking questions, I would like to turn the call over to Ronnie, who will discuss our second-quarter financial results in more detail.

Thank you, Bill. First, I will start with a summary of our operating results. During the quarter, we generated revenue from continuing operations of $378 million, compared to $368 million in the second quarter of 2011. Net income for the quarter was $8 million or $0.27 per share, compared to $23 million or $0.79 per share last year. Sequentially, revenue and earnings per share were up $8 million and $0.05, respectively.

Operating income for the quarter was $15 million, compared to $40 million last year, or a decline of $25 million. This was composed of a $9 million increase from our hospice operations, a $26 million decrease from our home health operations, and $8 million in higher corporate expenses.

Now I will provide more detail around these results. Hospice revenue was up $27 million. Same-store accounted for $10 million of the increase, and acquisitions the remainder. Same-store revenue grew 21%, comprised of a 17% increase in average daily census, and a 3% increase in revenue per day. Sequentially, hospice revenue was up $4 million on higher average daily census. Home health revenue declined $17 million. We experienced a $27 million decline in episodic revenue, offset by a $10 million increase in non-episodic revenue.

The decline in episodic revenue resulted from the following, $15 million associated with the decline in our reimbursement rate, $8 million from lower episodic volume, and $4 million due to a CMS bonus payment we received in last year's second quarter. Regarding the episodic volume, on a same-store basis we experienced a 3% increase in admissions during the quarter, but a 6% decline in recertifications. Our re-cert rate for the quarter was 42%, slightly lower than our rate in previous quarters. Sequentially, our home health revenue was up $3 million, mainly on growth in our managed care business.

Turning to margins, we generated a 43.9% gross margin for the quarter, a decrease of 470 basis points from last year, and essentially flat sequentially. The decrease from last year was due to our home health operations, including the decline of -- in our reimbursement rate, the one-time bonus earned in the second quarter of 2011, and a 3% increase in our cost per visit. This decrease was partially offset by improved gross margins in our hospice business.

General and administrative expenses increased $9 million. Hospice G&A increased $4 million on the Beacon acquisition, and in support of organic growth. The balance was in corporate expenses, mainly attributable to meetings and travel-related costs. Sequentially, G&A costs increased $2 million.

Our provision for doubtful accounts was $4.7 million, up $2.4 million on growth in our managed care business. Sequentially, our provision was down $1 million, due to improved collection trends. EBITDA for the quarter was $26 million or 6.8% of revenue, compared to $50 million or 13% of revenue last year. The decline in EBITDA was driven by our home health operations, offset by improvement in hospice. Sequentially, EBITDA increased $2.4 million, mainly due to continued growth in hospice revenue and margins.

Now let me comment on our balance sheet and liquidity. Our cash at the end of the quarter was $37 million, a decrease of $4 million during the quarter. We generated $23 million in cash flow from operations, spent $10 million on capital expenditures, $8 million on acquisitions, and made debt repayments of $8 million. Our DSOs stayed flat, at 38 days sequentially. We ended the quarter with $128 million in debt, a leverage ratio of 1.2, and $230 million in availability under our revolving credit facility. Our credit facility matures into March 2013, and we plan to replace this facility prior to it's expiration.

And finally, I will turn to guidance. This morning we are adjusting our revenue guidance, and reaffirming our earnings guidance for 2012. We anticipate revenues to be in the range of $1.490 billion to $1.525 billion. This increases the bottom of our revenue guidance range, reflecting the growth in our managed care volumes. We continue to expect our 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 will turn the call back over to Bill.

Thanks, Ronnie. As you are all are well aware, our nation's entire healthcare system is undergoing significant change. The home health and hospice industries are not immune to these dynamics. Certain changes will be adverse to our business, such as the recent reimbursement cuts and regulatory changes in home health. However, other changes will create opportunities, such as the recognition by the government, managed care, and health systems that home care and hospice is a way to lower healthcare expenditures, while providing quality care and the patient preference.

Amedisys is focused on two areas as we navigate these changes. First, we are focusing on our base businesses of delivering high-quality and efficient home health in hospice. Second, we are preparing the Company to take a lead position in post-acute care management, in relationships ranging from bundles to accountable care organizations.

Our number one business fundamental is to deliver clinical excellence. We do very well versus our competition in the key metrics reported by CMS. In the latest CMS outcome's scores, we again achieved good results, exceeding the average outcomes of our competitors in our footprints, in all of the 8 categories currently being reported.

CMS also reports patient satisfaction surveys for home health providers. We are pleased to report that compared to our competitors in our footprint, we exceeded the average survey scores in each of the five satisfaction domains. The rollout of our point-of-care technology to our hospice business continues to progress. It should be fully implemented by the end of the year, automating how we manage documentation, compliance, and clinical management in our hospice business.

Turning to business efficiency. Our focus in this area has been moderate, given the moderate results for the quarter, as indicated by a 50% basis point sequential improvement in our EBITDA margin. We believe there are opportunities to generate more savings, and this will be our focus during the remainder of the year. Growth is imperative to the long-term success of the Company, and we are pleased to report that we have achieved positive episodic admission growth for the quarter.

While we have gained traction in our managed care business, it is a contract-driven business. As case in point, we are currently in contract renegotiations with Humana. As part of those negotiations Humana has notified us at the beginning of July that they are canceling our current contract. As a reminder, we entered into a national episodic-based contract with Humana in the beginning of 2010. We have strong leadership in our managed care group, and we are in a dialogue to reach a new contract. These types of negotiations will be an ongoing process.

We completed two acquisitions during the quarter. In May, we acquired a home health and hospice business for $6.4 million. Most of the operations overlap with and were consolidated into our current existing care centers. In June, we acquired a physician house call practice for $2 million. This practice offers services in the same area as a number of Amedisys' home health centers. We believe this business provides unique opportunities to develop a better, integrated continuum of care model, as we look to expand our managed care capabilities.

We will continue to invest in our longer-term vision for the Company. We believe that our proprietary IT infrastructure will be a differentiator, and we will continue to make key investments in our operating system. In addition, we are exploring new care delivery models via CMS' Innovation Challenge Grant, and bundled payment applications.

Turning to Washington. CMS recently released its 2013 proposed rule for home health. The change proposed will result in essentially flat reimbursement next year. This is before adding in the impact of sequestration, which would decrease reimbursement in 2013 by 2%. CMS also proposed changes associated with face-to-face and functional assessments that are intended to provide some needed flexibility to those regulations.

CMS also recently released the final notice for 2013 hospice reimbursement. The net impact of the industry will be a positive 90 basis points, which is again prior to the 2% sequestration impact. While positive compared to earlier expectations, reimbursement remains a challenge for the industry. We will continue to be active in Washington, with a positive voice focused on ensuring patient access to care, and in support of fighting fraud in our sector.

In closing, we are encouraged with the results for the quarter, both in our performance and the development of our longer-term vision. Our terms -- our teams deliver this care with passion and integrity. With their dedication, I am very optimistic about the future. Now we will open the call for questions.

Thank you.

(Operator Instructions)

And we will hear first from Kevin Campbell with Avondale Partners.

Thanks for taking my question. I hope you could start little more detail on the Humana contract. Maybe give us some sense for the non-episodic revenue quarterly that you have with Humana, and how this might impact that -- relative to maybe a run rate going forward ex Humana?

Thanks, Kevin. We are not going to get into too much detail, obviously we are in negotiations. It's a $65 million to $70 million revenue potential impact. It is episodic. It is not non-episodic. We have great coverage in the areas that Humana is strong with. We are hopeful that we can reach a negotiated agreement to move forward.

Okay. That's helpful. And --

Kevin, this is Ron. Just for a little clarity there to make sure, you asked quarterly, and Bill's number there were annual amounts.

Okay. That's helpful. Just in general we think about home health and changes throughout the course of the year. Obviously, that you saw a nice sequential growth from Q1 to Q2. Whereas some others folks, we have talked to, have not seen that. So, A, you are to be congratulated for that. But secondly, maybe help us think about how those volumes should change sequentially going into third quarter, fourth quarter? Should we expect more sequential growth, should we expect slight decline in 3Q before a rebound in fourth quarter? Any color you can give there, would be helpful.

Kevin, this is Ronnie. Thanks for the comments there. We still think that we are on plan, which is we will see consistent admission growth for the year. We plan to be in low single-digits. And, of course, we understand the comparisons are easier in the third and fourth quarter, and so we have to perform. But we are -- we feel good about the path we are on, and we should be able to realize those results.

Do you think sequentially going from Q2 to Q3 we should expect growth, or will it be relatively flat, just given seasonality in the business?

I would not look for sequentially a big uptick at this point.

Okay. That's helpful. On the cost side, the cost of service per patient visit is how we look at that for the home health side, and that was relatively flat sequentially. Is that -- should we expect much increase there? If you don't look at it like that, maybe if you could just talk in general about wage inflation.

The wage inflation -- we had -- which is customary for us -- we had our April 1, we will look at those adjustments, so that is in now. So we had the effect of that, and we will see that for the next three quarters. And the only thing I would say, in a sensitivity of that is, as we look forward to the second half of the year, the holidays that we pay our back-loaded. So there are two holidays in the third quarter, and four in the fourth. So that will have a little pressure on the cost per if you will -- wage cost per visit.

Okay, that's helpful. And then turning to hospice, you had a nice sequential margin improvement there, about 100 basis points. A, what was driving that? And then B, how should we think about hospice margins going forward? Should we expect continued improvement there? Is the number we saw in the second quarter more normalized run rate we should see?

I would say it's a more normalized run rate. With the gains we achieve there, just the continued integration of probably of the Beacon acquisition, and getting our whole hospice operations, at a point we think is sustainable. I will say that, with this backdrop, that overall and really aspects of our business, we are still looking at opportunities to be more efficient, both in gross margin and in G&A.

Okay. That's helpful. Thank you very much.

You are welcome.

Our next question comes from Kevin Ellich with Piper Jaffray.

Good morning. Thanks for taking the questions. Just want to go back to hospice, average length of stay increased somewhat noticeably. Can you explain what is going on with your average length of stay?

Kevin, this is Bill. How you doing. Thanks for the question. I mean, average length of stay basically is a result of I think patients coming into the system a little earlier. I think of benefit is actually being received socially a little better. I think integrating our hospice and home care division has helped. But again we provide care, where as needed. We think that the patients are actually coming into the systems slightly more, and the increase we feel is actually positive from the social aspects of both the patients and their families.

Could you talk about what types of patients you are seeing coming into the system a little earlier. I guess, just want to get more color behind -- outside of the integration between the two and patients coming in sooner? Are you seeing any changes in the patient base?

Not significant to be able to comment about, so it is not remarkable. I still think that we have seen some of the cancer patients too early towards the end. We will get patients that come in five days and sometimes less. But we would like to see that move up. We think patients probably should come into the system earlier. But there is no remarkable change between the type of patients we are seeing.

Understood. Okay. Thanks, Bill. And then going back to your guidance and the Humana revenues, does your guidance include all of the Humana [revenues] are kept? Or have you modified it for any changes on that front?

It does contemplate the 2012 impact. Again, the contract will unwind as it exists at least. It unwinds over latter half of the year, and it will be more of a fourth-quarter impact specifically to the contract. And, of course, we have continued discussions to see ultimately where the relationship goes. So it does contemplate that.

Okay. So basically, Ronnie, just so -- I want to make sure that I understand this. Of the $55 million to $70 million that Bill cited as annual revenue, if we break that out quarterly, using the midpoint of $62.5 million, basically $15 -- around $15 million or so would be excluded out of Q4 in your guidance?

Well, and not all of that would impact the quarter. I think Bill's number, Kevin, was $65 million to $70 million on an annual basis.

Okay.

Then we will transition off the existing contract. And so just -- it will be a partial impact in the fourth quarter.

Got it. Understood. Are you confident that you will be able to renegotiate and keep the contract?

Kevin, as I mentioned earlier ongoing contracts are, and contract negotiations -- we literally have hundreds of contracts we are currently negotiating, and we have been very successful in our managed care business, this is a long-term strategy for us. And we think this one offers an opportunity, and we have a good team that are negotiating. I believe that the results hopefully will be positive, for both Amedisys and Humana.

Understood. Are they any other significant or meaningful managed care contracts that are coming due, or that you are in negotiations with?

Not that are coming due, but we are in negotiations with many significant management contracts.

Okay. Got it. And then, I believe your guidance -- I know you give the revenue and the EPS guidance. But I remember I think on the last call, you also talked about home health episodic admissions growth in the low single-digit range. Is that what you are still expecting for every year?

Yes. It is.

Okay. Sounds good. Thanks.

Thank you much.

Our next question comes from Nick Leventis with CRT Capital.

Good morning. Thanks for taking my questions.

Good morning, Nick.

How are you?

Good.

First question for you is, can you give us a sense of -- with the home health admissions being up, what the contribution there was from managed care?

It was -- we don't generally break that out. I think we saw the overall improvement, and on the episodic basis as we disclosed that was up, on a same-store basis about 3%, 3.4% for the quarter. And then non-episodic, which is where the managed care would be or at least a piece of that was up obviously significantly.

Understood. Going back to Humana just for a minute, can you give us any more color there. Are they looking to contract with other home health providers? Are you being undercut on price? Is it some type of -- pushback on their end? Are you the ones who are pushing back with them? What's -- can you just give us a more color there?

Nick, we are in negotiations -- and that doesn't make any sense. We have literally hundreds of contracts that we are negotiating currently. One of them is Humana. Humana is a significant one. But we are not going to disclose any specifics.

Sure. One other question if I may.

Sure.

Since you took -- undertook the initiative to have more managed care contracts as a way to drive the top line, can you give us an overall sense of -- overall contract value. How much it is increased in the last year or so since you started that initiative?

Well in my opening, I talked about non-episodic admissions increasing 46%. And going forward, with CMS and reimbursement changes and being able to move towards bundles and ACOs, which may have some risk component at some point in time. We think that working with managed care, and understanding what they are looking for is very important. So it does add to, incrementally to our overhead, and we think there a lot of opportunities to move forward. So we have gotten some good growth, and we are expecting growth throughout the years to come.

Understood. And one last question. When -- the average length of the managed care contracts -- are those one-year lengths, are they two-year lengths? Do most roll on at the end of the year or -- can you give us any color there?

Nick, they are all over the board. When you have seen one managed contract, you have seen one managed care contract.

Fair enough. Thank you very much.

Thank you, Nick.

Ladies and gentlemen, that is all the time we have for questions. I will now turn the call back over to Mr. Bill Borne for any additional remarks.

Well, thanks. We certainly appreciate everyone for calling in this morning. We look forward to sharing our third quarter results with the market, and everybody, have a great day.

Thank you. Ladies and gentlemen, that will conclude today's presentation. We appreciate your attendance. You may now disconnect.