Article - March 14, 2008 - Seeking Alpha
Dialysis Corporation of America F4Q 07 Earnings Conference Call
Dialysis Corporation of America. (DCAI)
F4Q 07 Earnings Call
March 14, 2008; 10:00am ET
Executives
Andrew Jeanneret - Vice President of Finance
Steve Everett - CEO
Analysts
Darren Lehrich - Deutsche Bank
Arth Henderson - Jefferies and Company
Analyst for Nicole Viglucci – Accipiter Capital
France Tooter - Incremental Capital
Presentation
Operator
Good day every one and welcome to the Dialysis Corporation of America, 10-K Earnings Call. Today’s conference is being recorded. At this time I’d like to turn the conference over to Andrew Jeanneret, Vice President of Finance. Please go ahead sir.
Andrew Jeanneret
Thank you operator and welcome everyone to our fourth quarter conference call. I am Andrew Jeanneret, Vice President of Finance. I will become our CFO effective with following of our 2007, 10-K in the next few days. With me is Steve Everett our CEO. I would like to start the call with our forward-looking statement disclosure. During this call we may make forward-looking statements which can generally be identified by the content of such statements or the use of forward-looking terminology that includes statements that do not contain historical facts. All such forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.
For further details concerning these risks and uncertainties please refer to our SEC filing included in our most recent quarterly report on Form 10-Q and our annual report on Form 10-K. Our forward-looking statements are based on information currently available to us and we undertake no obligation to update these statements whether as a result of changes in underlying facts, information, future events or other developments.
I will now turn the call over to Steve Everett.
Steve Everett
Thanks Andrew and good morning everyone. Yesterday, we announced our results for the fourth quarter and full year of 2007. We are glad to be the point in our corporate evolution where it makes sense to host conference calls, this being our first. Before Andrew provides details behind the financial results, I would like to briefly review some of the key data points on the operating, clinical and development areas. The Company currently operates 35 free standing dialysis centers and provides in-hospital treatments for 12 hospitals treating nearly 1,800 patients chronically as well as providing 660 acute treatments on a monthly average. In total we provide approximately 241,000 dialysis treatments for the year.
In 2007 we acquired a facility in Columbus, Ohio and a facility in Selinsgrove Pennsylvania as well as entering into a management agreement for Genoa facility in Indiana which will be our first in that state. We open two Genoa facilities earlier this year that were contracted for and built here in 2007. One in Delaware County, Ohio and the other one in Barnwell, South Carolina. Finally we completed our purchase of the facility in Hawkinsville Georgia which we were managing until it closed on January 2 this year.
Our clinical outcome for the past year was some what of a mixed bag. We saw our hemoglobin results fall slightly during the year resulting in a 2007 average of 80% of our patients having hemoglobin of greater than a 11. This change is likely due to a small reduction in equal usage part positions over the past year in comparison with the latter part of 2006. In respond we believed to the new limits put upon the industry by CMS are actually case that these numbers will begin to climb back up to previous level or beyond as physicians again take control of their practice pattern. Our adequacy dialysis results or KT/V for the year was about the same as the prior with 95.25% of our patients having KT/V upgraded in 1.2.
Now we are pleased overall with the continued improvement of our Venous access in patients with 53% of patients having fistulas in place, about a 4% improvement over the prior year. 2007 was intended to be and ultimately prove to be a year of infrastructure developments for the Company as we prepare for a more aggressive growth strategy that we have enjoyed over the past several years. We have developed or acquired an average of four to five dialysis facilities per year historically. However given what we believe to be a large number of new opportunities that are in play or will be in play soon, we are convinced that adding between 30 and 40 new centers over the next two to three years is a target that should not be ignored and as such we have been developing our infrastructure preparation for such growth.
The key items that we are proud to have accomplished over the past year without compromising either the quality of care that we are providing our patients nor the financial performance that we set to achieve at the beginning of the year are as follows: The first accomplish you have to note is the addition of new key personnel. We have added a new Vice President of Operations Tom Carey who has already achieved remarkable success to the streamlining of processes in the field and developing focus attention on needed areas such as same store growth and enhance communication throughout the Company. Andrew Jeanneret who joined us last summer as previously announced is taking on the role of CFO for DCA effective with our filing of this 10-K.
For those of you that are not aware Dan Ouzts who has done a tremendous job for the Company over the years will be remaining with the Company. He operates out of our Florida offices, which has proven to be challenging at times. The need to have someone with me here in our corporate offices in Maryland involved in a day-to-day running of the Company has become a must have. We have added two directors of our corporate business development team, Paul from within the industry charged with spearheading our future growth. All of these individuals joined DCH just after the first of this year.
We have also built up and retooled our administrative talent in the areas of human resources billing and collections, information technology and clinical services.
The second accomplishment in the area of marketing. We will be participating this year in at least four national industry specific conferences or conventions as well as increasing our print media advertising throughout 2008. The intent here is to both aid in the business development arena as well to enhance the name recognition or branding about this corporation of America.
A third noted accomplishment is the conclusion of the process to add a clinical information system. We have not purchased a Company-wide clinical information system today simply because we have not found a product available that we would be comfortable with throughout our organization. We have completed a new round of system reviews last year and are at the later stages of negotiations with the vendor that we believe has developed a product that will meet our needs with the capabilities of keeping up with the change demand in the reimbursement and clinical reporting arena. It’s our intent to roll out this system over the next two years.
The fourth noteworthy accomplishment is the remapping of our payer contracting collection protocols. We have implemented new procedures in the Company and intend to ensure that we capture changes in the areas of payer reimbursement for both in-network and out-of-network claims. Additionally our billing and collections functions have been retooled to provide both enhanced active senior billing which in of itself will aid in the collections process as well as capturing out-of-network payments earlier.
That being said we will continue to look at the total dollars anticipated when determining if this is in the best interest of contract with third-party payer understanding the potential impact on DSOs.
At this time I will turn the call back over to Andrew to go over some of the financial highlights for the past quarter and year.
Andrew Jeanneret
Thanks Steve. I would like to discuss our 2007 fourth quarter and annual results. Our operating revenue for the fourth quarter was $20 million, a 10% increase over the $18.2 million for the fourth quarter of 2006. For the year, operating revenue was $74.5 million, a 19% increase over the $62.5 million for 2006.
Our total treatments were 62,817 for the 2007 quarter and 57,143 for the 2006 quarter, a 10% increase quarter-over-quarter. Both periods exclude about 11,000 and 14,000 of treatments for the managed facility in Georgia. Our total treatments were slightly more than 241,000 for the 2007 period compared to approximately 206,000 for 2006, a 17% increase from 2006 to 2007. Again both periods exclude about 2,000 of treatments which we did not consolidate for our managed facility in Georgia. We will consolidate this facility in 2008 as Steve mentioned earlier.
Average revenue per treatment was $313 per treatment for the fourth quarter of 2007 which was about the same for the fourth quarter of 2006. For the year we averaged $303 per treatment for 2007 and $297 per treatment for 2006, a 2% increase year-over-year.
Our EPO revenue was about 27% of our medical services revenue, down from 29% of our medical services revenue for the fourth quarter of 2006. For the entire year our EPO revenue was 27.5% of our medical services revenue for 2007 compared to 27.9% for 2006. EPO utilization was about the same for 2007 and 2006. As mentioned earlier, we believe this decrease is mostly related to a small shift in consultation practice pattern during 2007.
Results for the fourth quarter of 2007 also include 209,000 of start up losses associated with new facilities and 608,000 for the entire year. Net income for the fourth quarter of 2007 was 1 million versus 1.1 million in the fourth quarter of 2006 and 3.1 million for the year up slightly from the $3 million for 2006. Diluted EPS was $0.11 for the fourth quarter of 2007 and $0.12 for the same period in 2006. Both 2007 and 2006 had diluted EPS of $0.32. While our revenues increased by 19% during the year, our pretax earnings were flat. This is primarily due to an increase of $1.1 million in corporate SG&A cost for 2007 relating to the investments Steve outlined earlier.
Our cash flow from operating activities were strong in 2007. We generated $5.6 million in cash up from $3 million in 2006 due to better working capital management. We used about $2.5 million of our cash for normal or maintenance CapEx. We also used $2.5 million for acquisition. We ended 2007 with $2.4 million in cash and about $7.1 million in debt drawn on our credit line of $15 million. As Steve mentioned we have made progress since mid 2007 reducing our AR balance in DSO. We ended 2007 with a DSO of 93 down from a high of 99 in June. We still believe we can lower DSO’s further in 2008 into the mid 80 day range and we continue to make progress on this front. Given our 2007 revenues, 1 DSO day represents slightly more than 200,000 of cash.
I will now turn the call back over to Steve.
Steve Everett
Thank you, a couple of closing remarks. At this time we are not providing guidance as we continue to consider ourselves a developing Company and need to be careful not to misrepresent our plans of the Company as well as insisting on the ability to be flexible when business opportunities present themselves.
Finally I would like to take this opportunity to extend our appreciation to all the fantastic care givers that are part of the DCA team providing unparallel care to the patients that we are responsible for. We are grateful to our shareholders based in our Company and promise to continue working to maximize the value of every dollar invested in Dialysis Corporation of America. That concludes our formal remarks and we will gladly take your questions.
Question-and-Answer Session
Operator
We will go to Darren Lehrich with Deutsche Bank.
Darren Lehrich - Deutsche Bank
Thanks for hosting this call. Good morning everyone. Couple of things here; I guess, at first it just sounds like you are really ramping up quite a bit on the development side. Can you talk a bit more about where you think the pipeline is today versus six or nine months ago and also just touch on with your current capital here to support in terms of the number of facilities. Obviously you’ve laid out a big number for the next two years. I just want to square that with where you are with your capital.
Steve Everett
Sure, to the first part Darren, the pipeline is -- I’m not going to say that it is robust at this point. We have added two individuals as I mentioned earlier at the beginning of the year. One of those individuals actually was with the organization some time ago and as we turned to the fall if you will and with her is actually an existing pipeline another individual -- the other individual who joined us actually comes out of the ranks from Baxter previously and actually has a pretty similar approach. Also we are very excited to have him on board. Prior to the two of them we do have a pipeline both on the de novo side, a few of which are very far long and actually also on the acquisition side of which we are in the process of negotiating. I can't get into -- obviously at this point as to how many we believe that are going to come to conclusion in this quarter or if any -- but that’s kind of where we are at. We are very satisfied, we think that the target numbers that we have established for this year as well as the next three years are realistic or we wouldn’t be putting them out there. As for the capital, as you know we have got a $15 million revolver, we are less than a half way drawn through that. We have verbal commitments from KeyBanc to extend that tomorrow if you wanted up to $30 million and well beyond as opportunities arise. We have let them know that we are going to be looking for anywhere from $50 million to $70 million in total capital infusion in order to accomplish both of the assets of the next few years. Dan and I believe that’s going to be a challenge at all and at the same time as we approach those needs, we are also planning on taking a look at some other institutions to see what we can do from a competitive perspective although we are satisfied with the rates and numbers that we have currently.
Darren Lehrich - Deutsche Bank
Okay, that’s helpful. I guess just secondly here your same center treatment growth for the year was above the industry trend but it did really kind of dropped off from the fourth quarter. Can you give us a feel for how that’s trending now in the first quarter and do you think it will grow more in line with the industry in ’08? Just give us a feel for what’s going on with your volume growth?
Andrew Jeanneret
Hi Darren, this is Andrew. I will comment on a couple of things there. Just in way of definition, our same center calculation if you will for the two periods we present we include centers that were opened -- only if they were open in that prior period. It’s probably a little bit different than some other places that will add the de novos in there. We don’t add those in. So as you mentioned, you will see a 6% year-over-year increase in the treatment growth rate, a little bit lower, I think a 4% drop in the fourth quarter of 2007 and that’s really too reasons to look out, some loss of patients in the fourth quarter as well as we had I think two units that are in some real markets where the ESRD population is shrinking a little bit but when we look to the first quarter of this year, the -- for January and February, we see ourselves actually exceeding our budget or estimate so far. So we think the fourth quarter was just a blip.
Steve Everett
I think on top of that -- just to add one piece to that. That’s one of the issues that -- one of the areas that we monitor closely, but at the same time we are cognizant of the fact we are a small Company and when we have these types of -- on a quarter-over-quarter basis we are going to have these kinds of ups and downs. We could end up having a 20% in quarter growth or we can have actually a loss and that’s what we experienced in the fourth quarter. But again if you take a look at the year-over-year numbers, a 6% growth given some of the different things that have been going on within the industry we are actually pretty satisfied, we are well above what that the industry average is on a overall same store growth and again as Andrew just said we are quite pleased with where we are for the beginning of ’08.
Darren Lehrich - Deutsche Bank
And just to understand what you said the loss of patients is that loss to competition or is that patients expiring and you weren’t able to replace them -- a few patients, what do you mean?
Steve Everett
It’s more on the ladder, fourth quarter can be challenging from the patients health perspective. Just if we see and consider we typically do see a higher level of patients expiring than you were in other times for the year and we certainly had our own fill of that. In addition we did have -- there are a couple of areas where we experienced a new competition and that’s actually one of the areas we are happy about that we have seen a reverse in that. In the first quarter, already of ’08; so have not recaptured the sanitations, but we have recaptured a small loss of patients that we have from the competitive perspective in the called for facilities.
Darren Lehrich - Deutsche Bank
Okay and the last thing here just your view in pricing with managed care, do you expect revenue for treatment to increased in 2008 over the 2007 levels just want to get a sense for what you should be dealing with on where you are with price?
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