Amedisys Inc (AMED) 2013 Q4 法說會逐字稿

Good morning, everyone. My name is Sarah and I will be your conference operator today. At this time, I would like to welcome you all to the Amedisys Q4 2013 earnings conference call.

(Operator Instructions)

Thank you. I would now like to turn the call over to our host, Mr. David Castille. You may begin your conference.

Thank you, Sarah. Good morning and welcome to the Amedisys investor conference call to discuss the results of the fourth quarter ended December 31, 2013. 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 Ronnie LaBorde, Interim CEO and President.

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 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 securities 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 the SEC 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 now I'll turn the call over to Ronnie LaBorde.

Thank you, David. Good morning and welcome to our fourth-quarter earnings call. As you know, Bill Borne, who founded Amedisys, recently stepped down as Chairman, CEO, and a member of our Board of Directors. Coincident to but independent of Bill's departure, Tom Dolan, our SVP of Finance and Treasurer, has also decided to pursue a CFO opportunity with another Company.

I want to publicly thank Bill for his 33 years of dedication to Amedisys. His vision and boundless energy helped build the Company into one of the largest home health and hospice companies in the country. Bill will be missed, but I can assure you that the Amedisys team is committed to our future success. I am personally committed to the turnaround of this Company. We have a lot to do and it will take time and intense effort but the commitment is unwavering.

Before discussing our path forward, it is important that we review our results from last quarter. I will remind everyone that our financial and operating statistics are presented on a continuing operations basis. In our earnings release, you will find updated financial results and metrics for each quarter, back through 2012, based on what is our current, continuing operations as of December 31, 2013. The changes to prior periods are immaterial, as only one additional care center qualified for discontinued ops treatment in the fourth quarter.

During the fourth quarter, we closed or sold 26 care centers and consolidated 15. Again, only one additional care center was included in disc ops in the fourth quarter.

We incurred a loss of $0.30 per share for the quarter. This loss includes the following charges: $0.11 for the impairment of intangible assets; $0.05 for severance and lease termination costs associated with consolidations and closures; $0.04 for discontinued operations; $0.02 associated with credit facility amendment cost; and finally, $0.01 associated with a loss on the sale of our corporate aircraft.

For the fourth quarter, we lost $0.07 on an unadjusted continuing operations basis, below the low end of our guidance. Our miss from the low end of our guidance was driven by three factors: higher cost per visit in our Home Health segment; higher-than-expected employee healthcare cost throughout the Company; and an accrual of approximately $450,000 related to a disclosure we made to the OIG under the OIG's provider Self-Disclosure protocol, related to one of our care centers. This issue was previously noted in our September 30, 2013 10-Q.

My comments going forward will be on an adjusted continuing ops basis and I will focus on fourth-quarter sequential performance. During the quarter, we generated $303 million in revenue, an increase of $2 million sequentially. Adjusted EBITDA was $6.8 million with a margin of 2.2%. This is a decrease from $7.9 million, or 2.6%, in the third quarter.

We ended the year with $17 million of cash on the balance sheet, down $26 million from the $43 million at the end of the third quarter. During this fourth quarter, cash flow from operations was $8 million. Cash uses included $11 million in capital expenditures and $23 million in principal repayments during the quarter, which included the final $20 million of our Senior Notes. At quarter-end, our DSO was 32 days, flat from the end of the third quarter and a reduction of over 9 days from the end of 2012.

Turning to our segment performance, Home Health revenue was $238.4 million, a $1.6 million increase. Home Health contribution was $15.1 million, or 6.3%, down $1.4 million sequentially. The growth in revenue was mainly due to an increase in non-Medicare revenue. Medicare admissions were flat, as was our recertification rate, at 37.1%.

Increases in our cost of revenue drove down gross profit by $2 million. Our gross margin in Home Health declined 110 basis points to 39.4%. This was driven largely by higher cost per visit, which increased 3% sequentially to $90.21. The increase was mainly due to three factors of approximately equal impact.

First, while lower in total, our fixed cost did not decline proportionally with a decline in visits, resulting in increased per visit cost. Second, our utilization of contractors was higher than anticipated in the quarter. Third, we experienced higher than expected employee health insurance cost. G&A expenses in Home Health were down $600,000 for the quarter.

Hospice revenue was $65.1 million, an increase of $600,000 sequentially. Hospice contribution was $13.3 million or 20.4%, up from $13.2 million in the third quarter. This increase in revenue was due in large part to an increase in reimbursement that took effect in October.

Admission volume was flat and average daily census declined by 1%. Gross profit was $30.2 million, an increase of $200,000 on a 10 basis point drop in gross margin. G&A expenses were also flat. Finally, corporate G&A expenses, exclusive of depreciation and amortization, were up slightly.

Turning to our preliminary DOJ settlement, we hope to finalize our settlement agreement in the near term. As a reminder, we will pay $115 million plus accrued interest at the time that the settlement agreement is executed and the remaining $35 million with interest will be paid six months later. Our current plan will allow us to fund these payments with cash on hand and draws under our revolving credit facility.

With the amendment of our credit facility, certain addbacks were provided for. Even with those addbacks, we anticipate our covenants will be tight on a go-forward basis. As our year progresses, we will continue to evaluate our capital structure and future capital needs of the Company.

We have missed Street guidance -- we have missed guidance and Street estimates over the last several quarters and that has to change. I am working closely with our Board of Directors, Management team, and others to develop a plan that will transform our Company and return our performance to a level consistent with our peers. While it may take several quarters to achieve our goal,

I am confident we will make progress and see results in the near term. In fact, initiatives already are underway that will positively impact our operating margins, and they include the rationalization of underperforming care centers and the reduction of G&A expenses.

Without defining specific strategies today, I can tell you that our plan will include the following: a focusing of our efforts, including a portfolio review; a better defined and standardized clinical quality model; organic growth in our core business; and a focus on core operating excellence. This will result in continued high-quality care for our patients, revenue growth, increased EBITDA margins, and consistent and predictable gross margins. I anticipate providing more specific comments on 2014 during our first quarter call, which is a little over a month away.

I want to reiterate that we are focused on transforming this Company. We do not think it will happen overnight; much work is to be done. However, I can assure you that we will have unwavering commitment to growing our business, achieving operational excellence, and increasing value for our shareholders.

In closing, 2013 was a challenging year, but I remain optimistic about the future. The Amedisys team is up to the challenge. I'd like to thank our dedicated workforce of employees who are making real differences in the lives of over 55,000 patients every day. Throughout recent challenges, they have remained focused on our top priority -- to provide superior, quality care to those patients in their preferred setting, their own homes.

This concludes my prepared remarks. I have time for a couple of questions so, Sarah, would you please open up the call for questions?

(Operator Instructions)

Kevin Ellich, Piper Jaffray.

Hello, Ronnie. Thanks for taking the questions; got a couple here. Starting off with the lower gross margins in Home Health, you gave us three reasons why it was down. One, I had a question about the use of contractors. Do you think you've cut too much? What was the need and what was the -- can you quantify how much use of contractors impacted gross margins?

Thanks for the question, Kevin.

There was a little bit of an uptick in the use of contractors. I don't think we have cut too much. Just generally, we are trying to be more consistent in our cost of revenue on the Home Health side certainly, and so the three items that we talked about, it's up about a little over $3 sequentially, just about $3 sequentially, and they are about equal impact and make up the lion's share of the difference, the items that I mentioned.

It's just part of the equation. We have work to do. We certainly are in a position that going forward, we will get to a point where we're more consistent and predictable, and it's just part of the management of cost of revenue that we before us.

Got it. Then with the healthcare cost, was there anything one time in nature about that, or was related to changes with healthcare reform?

No. Just we had fairly good results going into the fourth quarter and then, while we always anticipate the seasonality of that, it was really quite an uptick from that point. So it was a bit of a surprise to us in the fourth quarter. Even though we anticipated some increase, it was beyond that, and -- it was a case of a broad base of increase in claims plus some large claims that came in at the end of the year.

Okay, got it. Then, as for guidance, you didn't provide anything in the press release. Wondering if you guys plan on providing guidance this year? And to that point, with your EBITDA this quarter of $6.8 million, not adding back the legal expense, can we use that as a run rate for 2014? We've seen the trajectory coming down; just wondering how we should think about that for 2014?

Sure. I did not -- obviously, did not provide 2014 guidance and I would look to the end of -- or the first-quarter call about a month away to update you on that. I would say -- and part of that is we're here in transition, so I'm sitting in the seat now for a couple of weeks and so we have a little work to do and a couple of big initiatives are underway right now, as I mentioned.

That's the review of care centers that will bring to some level of definition here by the end of the first quarter, as well as the reduction of G&A expenses. Those two items that are underway now, combined with some of the planning that's going on, as we said, will help frame 2014 a little bit more precisely and I look forward to updating you in about a month

Okay and then lastly, on the capital needs for the Company, when you look out over 2014, and as you guys look to make another transformation for Amedisys, what are your requirements or needs as you think about 2014 and beyond?

Well, first we are looking at a reduced level of capital expenditures from prior periods. We have the development of AMS3 is substantially done and we're looking to scale back and we will provide more guidance on that, again, at the -- in about a month.

But with that, we knew in our amended credit facility, accommodating the DOJ settlement, we knew it would be tight. We don't have a lot of room in this structure to do many things but it's okay, because we're focused on improving performance.

When that performance improves, which we're confident that it will, that will allow us to better respond to any future needs and have an appropriate facility that's consistent with that. So in the near term, we're certainly in a position to have the capital -- access to the capital that we need. That will develop going forward and our performance will help drive that.

Okay, sounds good. Thank you.

Thank you, Kevin.

Ralph Giacobbe, Credit Suisse.

Thanks, good morning. I was wondering if -- any updated thoughts on or timeline in terms of the CEO search? And maybe can you discuss turnover at the Corporate Management level below CEO? And maybe even within field operations and whether that had an influence on you having to use temp staffing?

No. Ralph, thanks for the question.

The CEO search -- it's obviously just started and so that is underway now, and the Board will undertake that, and it will be a vigorous and something that they all hope will move along at an accelerated pace. But, it's just getting started. Beyond that, we are trying to be efficient with our G&A expenses, both Corporate and in the field. We're working and have been working through that to make sure that is a consistent fit with our current size, our current volumes.

Tom's departure, which you all knew, was completely independent of anything that's going on here, any other changes. Tom was just -- came about this opportunity, and it was a great opportunity for Tom and we certainly wish him well; it is a good step for him. But those are completely independent.

Beyond that, it's relatively stable. The team -- obviously, it goes without saying what we've been through in these changes, but the team is focused and committed and no other executive turnover and field leadership turnover to speak to. It's really pretty stable.

Okay. Then when you presented the numbers, you talk more in sequential terms as opposed to year-over-year so I'm just trying to get a sense exactly why you did it that way. Do you think that's a better way to think about the Business in terms of a stabilization point, at this stage of the game versus year-over-year, because there obviously is some level of seasonality in the Business. So just your presentation of looking at sequential, do you think we've stabilized and should look at the quarterly results from a total aggregate level as a jumping off point as we start to think about 2014?

Exactly. The shift to or the focus on sequential just changed the dialogue, certainly is the way I look at it, because of the changes that have happened over the last two years -- or, excuse me the last year -- that made year-over-year a big -- with some big gaps. Primarily as we work through, and will now, getting close to anniversary, as we all remember the change of our Humana contract, as we talked about a year ago. So we're cycling through that and we've anniversaried now and we'll cycle through that.

The other piece that happened, began in the fourth quarter, that we're getting to the end of the anniversary -- beyond the anniversary, but getting beyond the year-over-year effect of that is the drop in our recert rate. Those two things made year-over-year -- we are talking about big differences, which we all knew about -- and if we look at the reset with that, it just sequentially quickly gave a better visibility in how we're performing.

The difference then from that point that I would say beyond that has been really in our cost per visit. That's been the big change probably in the second half of 2013 in our performance -- the uptick in our cost per visit.

Okay, that's helpful. And then just the one in terms of some of the things you're going to focus on going forward, can you give us a sense at all in terms of the magnitude of what's still left? Because a lot of the things that you talked about, whether it's portfolio rationalization, focus on core, G&A cost cuts, are themes that we've heard over the last several years and we've seen essentially come out of the Business.

I'm just struggling a little bit with the incremental opportunity to take away a lot of what's already been done over the last several years now and trying to think about that on a go-forward basis, from a standpoint of what the magnitude is there, to help us frame that aspect?

Portfolio is a meaningful piece of this. If I had to frame it and I'll give more visibility into this, certainly, on the first-quarter call. But as a general comment, we have stated publicly that we have a good number of care centers that either are low volume or underperforming. Part of that is a response to that and we have to deal with that and make some decisions around that and we're doing that here as we sit.

The second thing is just right-sizing G&A, doing a better job of that. The third piece is then how do we really get back to our core business and operate in a fashion that's consistent with our peers, that is more at a level consistent with our peers, and that we perform more consistently. As we get to our 2014 plan and look to what we will share about guidance for 2014 on the first-quarter call, some of that will frame up -- hopefully, we can do a good job of framing up that better for you and for our shareholders and investors.

Okay. Thank you.

Thank you, Ralph.

Darren Lehrich, Deutsche Bank

Good morning. This is Josh Kalenderian in for Darren. First question was what type of operational analysis is The Boston Consulting Group focused on in its review of your Business?

The Boston Consulting Group is working with the team, with me and the team, and it is a comprehensive review, and it all -- the goal line is to really get deeper insight and to help us transform this Company. It's a broad-based approach that we will focus on and develop really some tight strategies and initiatives that will help us achieve the desired results.

Okay, great, that's helpful. And then can you talk about what you're seeing in Hospice trends in terms of adult failure-to-thrive admits, any cap exposure, and any investigation developments on the Hospice side?

The big disruption with respect to failure-to-thrive and debility unspecified, that really happened for us when we stopped using those or allowing those diagnoses as primary diagnosis for admits in May of 2013. So in the third and fourth quarter, we've had zero admits with those as primary diagnosis.

We've been through it -- we've absorbed that change in dealing with the change. Overall, our Hospice operations have been pretty stable. If we look at the contribution from Hospice -- relatively stable over the last -- over the four quarters of the year. We have, in looking at Hospice with respect to cap, we have now three years open, 2012, 2013, 2014, about $4 million of cap reserves established; 75% of that is probably related to 2013 at this point.

Okay, thank you.

You're welcome. Operator -- Sarah, we have time for one more question, if you will.

Brian Tanquilut, Jefferies.

Hello, good morning, Ronnie.

You've been with Amedisys for a while, first, as a member of the Board and then CFO and President and now Interim CEO. So taking a step back and just thinking about what the big things are where you could potentially put your stamp on Amedisys, or where you've always thought there was room for improvement, whether on care delivery, cost side, or the revenue side, or how you did things market to physicians or referral sources, what would you do now that you're running Amedisys?

Good morning, Brian, and great question. My view would be this. First, we would look to sustain and we would like to achieve, certainly, low single-digit growth on all business lines in all segments -- both Home Health and Hospice. Our peers are doing it; the marketplace is growing at that rate; we'll see the change in providers now the rebase has been established. We certainly believe -- I believe that we can achieve sustained growth.

So that's the first step. We have to continue to work on that and really optimize our sales force and our efforts to achieve that. That's the first part. The second part is -- that impacts gross margin is -- look, we, in this year, in 2013, which we had a 2% rate cut through sequestration, we had a 5.5% increase in our cost per visit. So while we are always working on utilization and being the most efficient in the providing of care, we certainly want to make sure that our unit cost, our operating costs on a cost-per-visit basis, is -- we're achieving the outcomes that we want.

We have had some slippage in the second half of the year of this year that we crept above $84 per visit. We had the dynamic of lower visits and lower volume and fixed costs that are embedded in our cost of revenue, but we need to be able to and we'll certainly endeavor to achieve sustained and predictable gross margins. That's very much what we can do.

The rest is how we structure ourselves, how we -- we're most efficient with our G&A cost and get consistent performance on an EBITDA margin. It's, to summarize, some level of growth and more consistent gross margin.

Then Ronnie, just to follow-up on that, on the G&A side, how much of the AMS development or just the IT side is running through the P&L right now? Because I'm looking at what the opportunity is for the G&A to decline over time?

Sure. We're into -- again I will provide a little bit more visibility into that, think about doing that in the first-quarter call, when we talk about 2014 in general, but a comment would be, yes. We have -- we're about a pivot -- we're about to go into our first beta site with AMS3, plan to start rolling that out this year.

So there's going to be a shift in our expenditure from a heavy dose of capitalization call -- capitalized cost from development and that will shift to some level of cost we'll have to roll out and implement AMS3 over the next couple of years. And I'll give, again, on the April -- first-quarter call in April, we'll given some more visibility into that.

Last question for you, Ronnie. The weather, is that an impact to you guys or is the demand for your services too acute that the weather should not have an impact in Q1?

No. Unfortunately, we had a weather impact also. The last half of February, first week of March, most significantly, a lot of closed care centers. Just a tough, tough winter. I'd say, at this point, we're looking at a $0.03 to $0.04 per share impact from that.

Got it. All right. Thank you.

Brian, thank you. Sarah, that's all the time we have this morning. I appreciate all the questions. Thanks to everyone who joined us on the call today. I sincerely appreciate your interest in our Company. We look forward to updating you on our next quarterly earnings call. Have a good day.

This concludes today's conference call. You may now disconnect.