麥卡遜 (MCK) 2005 Q3 法說會逐字稿

Good morning, and welcome to the Per-Se Technologies third quarter earnings conference call. (Operator Instructions). I will now turn the call over to Mr. Philip Pead, Chairman, President and Chief Executive Officer. Sir, you may begin.

Thank you, operator. Good morning and thank you for joining us on this call to discuss our third quarter 2005 earnings. I have with me today Chris Perkins, our Chief Financial Officer.

Before we begin, I'd like to read the following Safe Harbor Statement. Please be aware that certain statements made in this call will be forward-looking in nature within the meaning of the Private Securities Litigation Reform Act of 1995. These statements will include expectations with respect to future results and the assumptions on which such expectations are based.

As with all things, actual results may differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to differ from those in the forward-looking statements is found in our press release issued this morning and in our SEC filings, including the Form 10K for the year ended December 31st, 2004 and the Form 10Q for the quarter ended June 30th, 2005.

Also, in accordance with the Regulation G, please refer to our press release issued this morning for a discussion and reconciliation of non-GAAP financial measures discussed in this call to their most directly comparable GAAP financial measure.

Our third quarter earnings per share were $0.29, which exceeded our guidance for the quarter of $0.25 to $0.27. With this strong performance, I am confident in meeting our full-year earnings per share guidance for 2005 of $1.08 to $1.10, which represents the 26% to 28% increase over our comparable 2004 performance.

Year-to-date, we have had strong cash flow generation from operations of $36 million, and we are reiterating our full-year cash flow outlook of $47 million or greater. As we have discussed before, approximately 95% of our consolidated revenue is recurring, which drives strong, sustainable cash flow.

In the release this morning, we also gave earnings per share and cash flow guidance for 2006. We are projecting full-year earnings per share of $1.28 to $1.38 for 2006, which, at the low-end, represents an approximately 20% increase over our projected 2005 results. Last year, we projected to grow our earnings per share by 20% per year. Both our projected 2005 results and our 2006 guidance will deliver on this commitment. In our release this morning, we also said we expect 2006 cash flow from operations to be in excess of $52 million.

Turning to our Physicians Services division, we had an exceptionally strong quarter in our outsourcing business with revenue growth and operating margin expansion that was greater than the reported numbers of the division as a whole.

This performance was driven by the record level of net new business sold by the division in 2004, as well as the strong first half of 2005 sales in the division. For the third quarter, the division had net new business sold of $2 million compared to $1 million in the prior year quarter. Our retention in the quarter was on track. And through the end of the third quarter, we have achieved 90% of last year's entire net new business sold performance.

In the release this morning, we narrowed our net new business sold range for 2005 to $23 million to $27 million. We have strong momentum in our sales organization and with the new business signed year-to-date, I am confident in achieving our 2005 target, which will represent another record for the division and an increase of 20 to 40% over our record 2004 performance.

In our hospital services division, we achieved new business sold of $4 million in the third quarter compared to $5 million in the third quarter of last year. New sales of our resource management products were generally in line with our expectations for the third quarter. However, new sales of our revenue cycle management products, with the exception of our print-to-mail offering, were generally lower than we had originally expected during the third quarter. We expected several transaction opportunities to close in the third quarter that would have contributed positively to revenue in the third and fourth quarters.

We continue to work these opportunities and believe we will have better visibility regarding the success of these deals once our transaction with NDCHealth closes. We've modified our full year new business sold target for the division to $15 million to $20 million versus our previous expectations of $20 million to $25 million and have lowered revenue guidance for the division for 2005.

As you know on August 29th, we announced our planned acquisition of NDCHealth Corporation. The transaction must be approved by our shareholders as well as the shareholders of NDCHealth and is subject to customary and other closing conditions. On September the 27th, we filed a joint proxy prospectus on Form S4 with the SEC. We're currently responding to the SEC's comments on the documents.

On September 29th, we received early termination of the rating period under the Hart-Scott-Rodino Antitrust Improvements Act for the acquisition. And we continue to expect the transaction will close between December 2005 and February 2006.

This acquisition brings together two companies with complementary operations and a shared strategic focus -- to help healthcare providers be financially successful. The added breadth and debts that we will gain through the acquisition will not only make healthcare reimbursement more efficient, but also will improve our competitive position in the industry. As we have previously stated, we are confident that the transaction will be accretive to earnings per share and cash flow per share in year one.

I'd like turn it over to Chris Perkins to discuss our financial results for the third quarter. Chris?

Thank you, Phil. First, reviewing our consolidated results. Revenue was $94 million, this compared to $90.6 million in the third quarter of 2004. Operating income was $11 million or 11.7% of revenue as compared to third quarter 2004 adjusted operating income of $9.6 million or 10.6% of revenue. Income from continuing operations for the third quarter was $9.8 million or $0.29 per share on a diluted basis, compared to third quarter 2004 adjusted income from continuing operations of $8.2 million or $0.25 per share on a diluted basis.

On a year-to-date basis, we had consolidated revenue growth of 6%, operating margins of 11% compared to 9.9% in the first nine months of 2004, and income from continuing operations of 26.8 million, or $0.81 per diluted share, compared to 20.8 million or $0.62 per diluted share in 2004.

Third quarter 2004 operating income and income from continuing operation exclude expenses related to the gain on a litigation settlement of $1.5 million and expenses related to our corporate office relocation of $1 million. Year-to-date, 2004 operating income and income from continuing operations also exclude expenses related to debt refinancing of approximately $5.9 million and expenses related to the additional accounting procedures in 2004 of approximately $6.3 million.

In the Physician Services division, revenue was 59.8 million in the quarter as compared to 66.1 million in the third quarter of last year. Operating income for the division was $8.4 million, or 12% of revenue for the quarter, compared to $7.2 million, or 10.9% of revenue in the prior year quarter. Our Physicians Services division is comprised of two lines of business -- Business Process Outsourcing, which represents more than 95% of the division's revenue, and our Physician Practice Management System, MedAxxis.

Our outsourcing business experienced revenue growth of 7% in the quarter with margins increasing approximately 230 basis points compared to the third quarter of 2004. As we have stated in the past, the outsourcing business produces strong operating margin on incremental revenue and this leverage is reflected in the margin expansion. Please bear in mind that our fourth quarter guidance for the Physicians Services division reflects a three-day decline in the number of business days on a sequential basis. Revenue per business day is projected to increase on a sequential basis in the fourth quarter, but three less business days is expected to result in a slight decrease sequentially in divisional revenue.

As we discussed last quarter, the conversion process for our Physicians Practice Management product is in its final stages and is expected to be completed by the end of 2005. Even though the conversion to our new product continued to dampen the results of the division, both in terms of revenue growth and operating margin expansion, we expect that this business will provide positive contribution in 2006 after this conversion is completed.

In our Hospital Services division, revenue for the third quarter was $27.9 million as compared to $28.1 million in the prior year period. Operating income in the division was $6.1 million or 22% of revenue compared -- for the quarter, compared to operating income of $6.4 million or 22.9% of revenue in the third quarter of 2004.

The current year quarter included approximately $400,000 of expenses related to our project to enhance our physician claims clearinghouse infrastructure, which is managed and accounted for with our entire clearinghouse infrastructure in the Hospital Services division. The project is going well. And year-to-date project expenses were approximately $1.1 million or $0.03 per diluted share. And year-to-date project capital expenditures and capitalized development were $1.6 million. Cash flow related to the project for the first nine months of 2005 was a use of approximately $2.3 million.

Moving to our balance sheet. Our cash position at September 30th, 2005 is approximately $56.2 million versus $46.2 million at the end of the second quarter. Cash flow from continuing operations for the first nine months of 2005 was $35.5 million or $1.08 per diluted share compared to $41.4 million or $1.24 per diluted share in the first nine months of last year. Cash flow in the prior year period included one-time items that met to a positive cash flow of approximately $10 million or $0.30 per diluted share, which includes cash received from a litigation settlement of positive $16.2 million offset by a use of cash or approximately $6.3 million related to the additional accounting procedures.

Cash flow per share is calculated by dividing cash flow from continuing operations by the weighted average shares outstanding. For accounts receivable, our day sales outstanding by division at the end of the third quarter were 50 days outstanding for physician services and 65 days outstanding for hospital services.

Thank you, Chris. For the first nine months of 2005, we have achieved revenue growth of 6%, earnings per share growth of 30%, and have generated $36 million in operating cash flow. We have positioned our operations well to execute in our business plan and on our core strategies. With the increasing pressures and complexity of reimbursement, Healthcare providers are seeking effective solutions to improve their income and cash flow.

Our business model continues to demonstrate that we can meet the needs of our customers and achieve sustainable profitable growth for our shareholders. Our pending acquisition of NDCHealth will help us further expand on our growth strategy. That concludes my comments, operator. I'd like to open it up now for questions.

Thank you. (Operator Instructions). Our first question comes from Steven Halper of Thomas Weisel. Your line is open.

Hi, good morning. Could you elaborate on the softer sales and hospital services? It kind of sounded like you were implying that perhaps the pending acquisition of the NDC assets resulted in some slowdown?

Yes, sure, Steve. I think the -- if you look at the -- if you look at the acquisition in terms of where the greatest overlap is, it's clearly in the hospital services division and particularly, in the areas of our revenue cycle management products and solutions. As I mentioned, the resource one and our print and mail solutions were generally in line with our expectations. And we project a good pipeline for new business in the fourth quarter. But the areas that see the greatest overlap are the areas that seem to kind of cause the market to pause. As we -- I guess as our customers are waiting for some kind of product direction which we haven't given at this point.

Right. So, again, I think what is it the -- your application is called Fast Track?

It's actually Claim Track.

Claim Track. And why NDC is --

Yes.

-- sort of claim.

Yes, that's one of the products that we have. But clearly overlap with the NDC e-premise.

E-premise. Right. Okay.

Yes. I guess the point here is that the transaction is fairly close to closure and I just see this as really as a temporary situation as we line out for our customers with our product strategy.

Right. How soon after the acquisition closes will you outline that product direction?

Well, we're really in that process now, Steve. So it will be very close to after we announce the transaction close that we'll be able to give some direction and guidance.

Okay. And has the sales force been -- on both sides has been relatively stable? Or have you had some attrition?

Well, I can only speak for ours and it has been stable. We have not seen an attrition in our sales organization. And this is always the most difficult period, Steve, as you know, for both our companies, as we continue to try to motivate and drive forward on closing new business and keeping people motivated. But so far, I think we're in good shape.

Sure. And last question, relative to 2006 guidance, what level of net new business did you assume in Physician Services?

The level of net new business for 2005 is in line with the guidance range --

Right, but what about 2006?

We haven't disclosed any assumptions on the net new business sales for 2006. I think I would say that our sales force is continuing to perform well. Pipeline is continuing to grow. And we expect that we will perform well again in 2006.

But at some point, you will provide that level of detail, correct?

Yes. I think I what we certainly anticipate and expect to do is, as we've done in the past, is give more detailed metrics related to our 2006 guidance with our year-end earnings call.

Great. Thanks.

(Operator Instructions). At this time, we are showing no further questions.

Okay, operator. Thank you very much. I appreciate everybody's participation and look forward to talking to you again soon.