AMED
#Thank you, <UNK>.
Welcome to the Amedisys fourth-quarter conference call.
This morning I am pleased to announce we reported fourth-quarter revenue of $301 million, adjusted EBITDA of $23 million, and earnings per share of $0.27.
For the full year we reported revenue of $1.2 billion, EBITDA of $74 million, and earnings of $0.73 per share.
As many of you know, this is my first conference call as CEO of Amedisys.
Most recently, I served as Vice Chairman of Alignment Healthcare and also as Chief Strategy, Innovations, and Corporate Development Officer at Humana, with prior stops at Tenet Healthcare, the advisory board, and McKinsey.
Throughout my career I have spent quite a bit of time focused on how to provide efficient and effective clinical care to the Medicare and Medicare Advantage population.
It has become clear to me over the years that home health and hospice are essential to serve our most complex and fragile patients.
Not only in terms of providing effective quality care at lower cost, but also because of the patients' overwhelming preference to remain at home.
That's why I am here.
In the early part of 2014, I was asked by the Amedisys Board to lead a consulting effort to perform a strategic review of the Company.
I can definitely say that Amedisys was in a much different place at the time.
The Company was losing money and had recently announced a large settlement with the Department of Justice, putting a strain on the balance sheet.
My main concern, though, was that these events would result in real deterioration and damage in employee morale.
What a difference a year makes.
2014 has seen a remarkable turnaround for Amedisys.
Operations have stabilized thanks to the great work of <UNK> <UNK>, <UNK> <UNK>, our field and corporate leadership, and the entire Amedisys team.
Difficult decisions were made to close or consolidate underperforming care centers, cut costs, and refocus internally on core operations.
Looking back, these decisions have paid off tremendously.
Since being named CEO a little over two months ago, I have taken the opportunity to visit extensively with Amedisys team members, both in the field and here at corporate.
I spent most of the last month on the road visiting and listening to all of our regional leaders and their teams.
I visited 12 states, 21 care centers, and have met with over 700 employees.
To date, what I have seen is an increasingly confident group of people, passionate and committed to delivering superior home health and hospice care.
My job, along with the rest of the management team, is to provide our people with the tools and support to deliver care effectively and distinctively.
Our team members are excited and looking forward to our next steps, a stark contrast to what I saw only a year before.
It also appears that healthcare payors and providers, including CMS, are increasingly recognizing the value of providing care in the home.
With the recent goal announced by CMS to transition towards outcome-based payment versus the traditional fee-for-service model, I truly believe that Amedisys is uniquely positioned to capitalize on these big longer-term opportunities.
All while maintaining very healthy operation under today's reimbursement models.
Much of the hard work and the low-hanging fruit of our turnaround has been harvested.
We will generate future incremental value by focusing on more efficient care delivery, new business line growth, margin preservation, and return on human capital.
The last two months have been very educational.
We are still in early stages of forming our strategic vision, but my travels around the Company have been very encouraging.
Team members from all over the country have identified large pockets of untapped value.
Over the next few months, we will be refining our plan and stress-testing these ideas to extract that value.
We will provide updates as our thinking solidifies.
In the near term, we will be focusing on top-line growth and continuing to improve the efficiencies of core operations.
We will also be looking to capitalize on tuck-in M&A opportunities that help us to capture and solidify market share and are accretive to earnings.
I am confident at this time next year our conversation will be about continuing to streamline and grow our core operational performance past the industry standard, as well as reviewing our various strategies for new growth.
Finally, I would like to thank all of the Amedisys team for the great work you are doing on a daily basis, delivering care at home to those who need it most.
Also, thank you for welcoming me as your new CEO.
I am truly excited about all of the opportunities that lie in front of us.
With that, I will turn the call over to <UNK> <UNK> for an operational update.
Thank you, <UNK>.
For the quarter, revenue was $301 million and earnings were $0.28 per share on a GAAP basis and $0.27 on an adjusted basis.
For the year, we generated $1.2 billion in revenue and earned $0.40 per share on a GAAP basis from continuing operations.
There were numerous adjustments detailed in our press release, the majority of which related to our restructuring efforts in the first half of the year.
Adjusting for these items, we earned $0.73 per share.
EBITDA for the quarter was $23 million with a margin of 7.6%, compared to $7 million, or 2.2%, for the fourth quarter of 2013.
In our segment results, we will be focusing on year-over-year comparisons.
In home health, revenue was $240 million.
Same-store Medicare admissions and re-certifications were 2%, and revenue per episode was up $10.
Same-store non-Medicare revenue was up 26%, while admissions were up 22%.
Home health gross margin of 42.1%, an improvement from 39.4%.
Cost per visit was $86, down $4.
Most of this decrease was due to a shift in clinicians from salaried to pay per visit at the beginning of the year.
And hospice revenue was $61 million, same-store ADC fell 3%, and admissions were up 2%.
Revenue per day was up 1%, roughly in line with the rate increase for Medicare effective in the fourth quarter.
Hospice gross margin was 46.4% and flat relative to last year.
We saw an increase in cost of service per day, driven mainly by increased pharmacy costs.
Consolidated G&A expenses decreased $13 million year-over-year on an adjusted basis.
A majority of these savings were achieved through restructuring of our portfolio and other G&A efficiency initiatives announced earlier in the year.
Total capital expenditures came in at $12 million for 2014, significantly below our expectations at the beginning of the year.
We ended the quarter with $8 million in cash on the balance sheet.
Cash flow from operations for the quarter was $41 million, excluding the second DOJ payment of $36 million.
This compares to $8 million at the same period last year.
For the year, cash flow from operations, excluding the DOJ settlement and related fees, was $90 million, compared to $102 million in 2013.
It is important to note that 2014 cash flow includes negative cash flow from operations in the first quarter followed by three strong quarters of cash generation.
Additionally, 2013 benefited from a $42 million reduction in accounts receivable, causing DSO to fall 10 days.
At the end of 2014, DSO was down again to 29.4 days.
This is an all-time low for our company and down three days since the beginning of the year.
Outstandings under our revolving credit facility at the end of the quarter were $15 million.
While we drew on the revolver in order to make our second DOJ payment, we were able to reduce our debt balance by $33 million during the quarter and $79 million during the course of 2014.
Our total leverage ratio is 1.5 times, down from a high of 3.2 times at the end of the first quarter.
Our operational and working capital improvements have driven significant free cash flow, resulting in a stronger balance sheet and additional flexibility to operate our business.
While we are not providing guidance at this time, we are optimistic about the core operations run rate in 2015.
However, the first-quarter run rate will be impacted by a number of factors.
As <UNK> mentioned, there are going to be some turbulence from the weather impacts across the country.
We have an estimated $2 million increase in payroll taxes that will hit the first quarter.
Merit raises that we gave in December of 2014 will impact the first quarter by about $1.6 million, and two less hospice days of revenue in the first quarter will have an impact of $1 million; and some typical seasonality.
With all that being said, we are optimistic about the rest of the year.
This concludes our prepared remarks.
Operator, please open the call for questions.
Well, there's several parts of that question.
Let me take the first part.
What we are really telling you is that while we are optimistic about the core operations run rate in 2015, there is some things that are essentially nonrecurring or they are unique to the first quarter that is going to impact the run rate as you look at it coming into 2015.
And we mentioned those.
It is weather; it is payroll taxes; it is merit raises.
It is hospice having two less days in the quarter and the typical seasonality that comes out of the fourth quarter into the first quarter related to [lupus] and things like that.
So that is one part of the equation and that is we are optimistic about 2015, but the first quarter probably not going to be the run rate for the rest of the year.
Now from an organic growth standpoint, maybe, <UNK>, you want to address that issue, or <UNK>.
Sure.
I think we are feeling quite good about the year in terms of what we have seen initially in the first couple months minus the weather.
We feel that the core operations are performing very well.
It's just we are seeing some traditional lumpiness that we normally see in the first quarter when we back in ---+.
When we went back and looked at this, we said okay, we think things are going to trend very well, but I think we were a little concerned about the straight division that was being done out there by the analyst community.
This is <UNK>.
I think what we are seeing, we are ---+ anxiously every week we look at the numbers and what we have been seeing, I think, is some very positive trends in terms of admissions.
Starting to see more positive trends in terms of ADC, but ---+ so we are cautiously very positive about this.
We like ---+ Jim Robinson has taken control of this.
He has built a new team; the team is performing.
There has been some trimming and consolidating that is just being finished up, so we feel very good about it.
They've got a clear vision; it's a very focused team.
And so we are monitoring it very, very closely, but we like what we are seeing thus far.
Although I think what is important is, when we get updates from our managed care folks, we are asking them to aggressively still move forward and to get as many contracts as possible.
And I think they have been getting positive contracts in terms of our contracting ability, so we have a good team there.
There still is more to do there, but I think a lot of the big stuff has come in.
And it's an area we like, so we want to be the choice for managed care.
I came out of that background and we have good relationships there.
And we want to be the solution there, particularly as Medicare Advantage outpaces traditional Medicare growth we want to be there.
No.
What we are doing is we have actually been working quite hard.
We've implemented AMS3 at 15 care sites and the schedule ---+ when I first came in and looked at the schedule, it was very, very aggressive in terms of getting it rolled out in a two-year timeframe.
We started to look at the difficulty with implementing AMS3 plus preparing for ICD-10.
We can control our implementation on AMS3 and we can't control when ICD-10 is going to go.
So our feeling is we want to make sure we get that right.
We also want to see ---+ we have some fixes to do in terms of AMS3 and we also want to see what the impact has been in the 15 centers we rolled out.
This is <UNK>.
A couple things I can mention.
If you look at Q3 and Q4, we had an adjustment to the cap in Q3 of about $1.5 million and that had an impact on the gross margin.
That is probably not recurring, so we are sitting at $2.8 million in cap liability at this point.
Second initiative that I think you mentioned was pharma costs and that's primarily related to the change that CMS made almost a year ago in Part D, partly to adjust for those kinds of issues and working toward national contracts, etc.
, that will probably help with that issue.
So those are the two pieces that you were thinking about from that standpoint.
I think it was minimal because the cap liability didn't change from Q3 to Q4.
It was $2.8 million in Q3 and $2.8 million in Q4, and the accrual between ---+ the accrual for the quarter is simply the change in that cap liability.
The only real significant change that has occurred over the last year or so was the two care centers that we had that dramatically improved their operations through additional admissions and, therefore, reduced their cap liability in Q3.
And that benefited us from about $4.3 million down to about $2.8 million and it stayed there in the fourth quarter.
So long-winded way of saying no accrual in the fourth quarter.
Sure.
That's a great question and I am going to give you a strategic answer versus a specific answer.
We have been studying that.
Obviously, when you see a new segment of business coming in that is growing at the rate this is ---+ and we look at the traditional margins compared to traditional Medicare ---+ we have been spending quite a bit of time understanding what the drivers would be so that we could get the margins equal to traditional Medicare.
Now, we are working through a lot of this strategy.
Currently, as you know, that is not the case, but we have been working on a strategy ---+ on a managed care strategy that fundamentally looks at the needs of managed care in terms of utilization, in terms of staffing mix that we think can get us competitive from a margin perspective.
So it will mean some changes to operations in a certain way.
We're going to have to do things a little differently in managed care, but we know they are driven largely by outcomes and costs, so we think we can participate there largely being very aggressive on utilization and then staffing mix.
So that's what our thinking is and we also are going to be looking at other lines that way.
We think there's a big play potentially in the senior living space and then we've got to go take another look at Medicaid, considering the growth, particularly managed Medicaid.
Sure.
So I came out of an M&A background, obviously Humana, running corporate development, so we did a tremendous amount deals there.
We've got a very good core team here in the finance area and we've got a great guy in Kris Novak, who is running this process right now.
I think the key thing is we are back looking at deals and we are looking at really interesting deals.
What we are going to try to do is be very conservative, I think, initially.
So what we want to do is we want to make sure that there's tuck-ins that are accretive, that are in the market, that are additive, that come under good management teams, and are in home health or in hospice, so that we can get these under our belt, understand how these things are working.
I think that is where we are going to focus.
As we get better at this, we will start to look more expansively and look at some of these other deals that are out there that can take us into new geographies where we feel we need to be playing.
And then the other thing is we need to start ---+ the third bucket we are looking at is capabilities.
I am quite convinced there is going to be a post-acute world where we are going to have to have more tools as we want to take on risk in bundling, which I think will come back.
There will be a 2.0 version of this.
So I think we will want to think about that as well.
But initially we have got our folks digging in, knocking on doors, being as proactive as possible within our own geographic market structure.
And obviously, looking at our balance sheet, it is in the right kind of shape to be back in the acquisition game.
We have a leverage ratio, as we mentioned, of 1.5 times and that will probably come down with cash flow this year.
So we're going to be prudent about how we spend that capital, but we are in a great position to be a player back in that arena again as we go forward.
(multiple speakers) Just let me add, we will have to bulk up our team and Kris knows that.
He is working too hard already.
Yes, this is <UNK>.
We haven't because we talked a little bit about the first quarter and also I just arrived.
So I have been here for about 2.5 months and I am, frankly, not comfortable at this point; gotten my hands around what's going on with 2015.
I feel very, very good about the core operations and the wind we have at our back in terms of the core operations.
There is a little bit of lumpiness in this first quarter, as we alluded to, and so ---+ I do want to get a plan put together.
Clearly, we will articulate this plan to you all, but I do want to make sure that we get the plan right, get our employees' heads around it, get buy in, start to do the math in terms of where we think we are going to need to go from the plan, particularly for the new businesses we are starting to look at.
So I want to make sure we have an ability to do that and structure the organization properly to implement the plan well.
So that is where we are and that is why we aren't issuing guidance.
I think as we work through 2015 and we get comfortable with the circumstances, we will take another look at that issue, but no prognostication at this point as to when we may or may not do that.
I think that's not.
I think we ---+ as I said in my statement, I think we took advantage of a lot of the low-hanging fruit from a G&A perspective.
I think there's more there, so we are going to go back in and we see some pockets where we can potentially create some more efficiencies.
But we do have to grow and we are putting a lot of effort into that.
There are new business lines that are very exciting, so we want to make sure we participate there.
And there's some things that I think we need to do on the people side, which I mentioned to my comments, in terms of strengthening our people and our clinicians.
And then our processes, which we are dealing with; I think we can take some things out of our processes that are currently a little wasteful.
At this point we're looking at everything, so I think there is ---+ if the plans, which obviously on capitated plans, managed care plans, and Medicare Advantage, some of our partners out there do like to work in narrow networks.
And for those folks that do, we will obviously work with their designated provider, so that is quite clear.
We understand how to do that.
I think the key for us is to be as flexible as possible.
Some of them aren't there yet in terms of ultra-narrow networks, but this is an area that ---+ once again I was at Humana for five years so I understand how that's done.
And I think we want to be prepared.
Also, I think ACOs are going to start to emerge in a serious way where we are going to want to have much more conversations with ACOs who will be very narrow networks.
We have got some plans around it, so we understand the importance of it.
Right.
I think the one thing we have to do, as we look towards building a managed care strategy, is what can we do that differentiates ourself from the rest of the industry.
Right now I think it's relatively undifferentiated, so I think there is a big opportunity here for us.
Great.
Thank you, operator, and I want to thank everyone who joined us on our call today.
We appreciate your interest in our company.
I want to thank our employees for what has been an incredible year and we look forward to updating you on our next quarterly earnings call.
Thanks, again.
Take care.
