Q1 2020 Earnings Call
[music].
Greetings and welcome to the Hangers first quarter 2020 earnings conference call.
As a reminder, at this conference is being recorded.
They will have prepared remarks fall by Kunaev period.
Instructions for questions and answers will be provided after the formal presentation.
Hi, pleasure to introduce your host sets, Frank Vice President of Treasury and Investor Relations. Thank you you may begin your conference.
Good morning, Thank you and welcome to Angers first quarter 2020 earnings conference call with Us today or visit officer Hangers, President and Chief Executive Officer, Thomas Crowley, Executive Vice President and Chief Financial Officer.
The information discussed today will include forward looking statements in the meaning of the private Securities Litigation Reform Act 1995.
Statements are subject to risks and uncertainties that could cause hangers actual results to materially differ from those we discussed today. Those risks include among others matters. We have identified in the forward looking statements portion of our latest earnings release and in our filings with the FCC hangar just clay.
James any obligation to update forward looking information.
Discussed on todays call and with that I'd like to hand, the call over to visit us.
Thanks Seth.
Good morning, everyone and thank you all for joining us.
Let me start by acknowledging what we have unfortunately come to understand that life for all of US has been up ended in different ways by the global pandemic and things are and will remain different for a while.
For most people there has been real pain real loss and a sense of uncertainty. Unlike anything we've experienced in our lifetimes on behalf of hangar. Our hearts go out to all who have been impacted.
As part of today's call we want to help you understand the actions we have taken in response to the Pandemics. Our current view on how we will navigate through it and what we hope will be a better future ahead for all of us.
We do believe it is important to first ground you with our first quarter results, which were impacted by Cobot 19, and then set the stage for the remainder of the euro.
We entered Twentytwenty on a strong flooding we return to growth in 2019 renegotiated a successful acquisition program and began to see promising stabilization in our therapeutic solutions business. Indeed, the euro was off to a great start we had a successful hangar light event in Nashville in early February as we.
Shared on our Q4 earnings call.
We saw the benefits of the multiyear investments in hangers core differentiators, beginning to synergize and accelerate our position in the on pay industry.
Fortunately during the last two weeks of March typically the busiest time of the quarter. When we are delivering devices to patients we began to see rapid uptick in cancellations of patient appointments.
This was driven by the litany of social distancing measures implemented around the country to slow the spread of cobot 19 as shelter in place and related restrictions became more widespread.
As a result, our first quarter revenue and earnings were adversely impacted.
Angers first quarter net revenue of $233.7 million decreased $2.7 million or 1.1% from the first quarter of last year.
While adjusted EBITDA declined by 6.6 million in the first quarter compared to the same period of 2019.
In our patient care segment, the primary factor affecting us once the large number of appointment cancellations. During the last two weeks in March as mentioned earlier.
The resulting decline of 3.2% in same clinic revenues was primarily due to covert 19 related business disruption at a critical time in the quarter.
The business slowdown has been highly variable by region. As you would expect the New York Metro area has been dramatically impacted as was the Pacific northwest and other corporate 19 hot spots around the country.
Adjusted EBITDA decline more significantly due to our high fixed cost business model highlighting the impact revenue fluctuations have on our earnings.
Additionally, the timing of Cobot 19 related social distancing measures in March prevented us from making any meaningful adjustments to cost structure during the first quarter.
In addition to the lower revenues adjusted EBITDA was negatively impacted by an increase in bad debt expense in products and services.
Attributable to expected higher future write offs of customer accounts and due primarily to the adverse economic impact of covered 19.
Off the shelf orthotics into third certain third party channels that are non core and unprofitable.
This was an action we had shared with you during our Q4 2019 earnings call.
Therapeutic solutions results were largely as anticipated.
Let me switch gears and take you through the actions we have taken to navigate this clearly difficult period, we're all in.
Beginning in late February and into early March we we're mobilizing quickly to assess and plan for the potential impact the Corona virus could have on our people and business as the situation escalated abroad, and we began to here early warnings from us public health officials.
At that time, what was about to actually unfold in the US we're still not clear.
At hangar our initial and continuing response is the hangar Cobot 19 task force, which is comprised of executives with expertise in risk management clinic operations supply chain and human resources.
In the ensuing days during the second half of March it became evident that the pandemic was beginning to impact our business and with no viable clinical treatment social distancing was the only way to mitigate viral spread.
We acted expeditiously to ensure that the company would operate with continuity and would maintain necessary liquidity in the future.
There were two clear objectives that were front and center and what we needed to do.
First ensure the safety and continuity of care for our employees and patience.
And second ensure that we had adequate liquidity to get us through the impending downturn in the business as a result over 19.
By late March we had initiated a number of cost reduction and project suspension plans for the second and third quarters of 2020.
I would summarize the primary actions as follows.
The company wide reduction of exempt employee salaries, averaging 32% for a period of up to six months.
Within these reductions our senior leadership team and I took a reduction in salaries ranging from approximately 47% to 100% for the same period of up to six months.
Also note that our board of Directors has also requested that the forego receiving their cash retainers from the company for the same period.
Other actions included a temporary elimination of any new headcount temporary furloughs and a decrease of not exempt employee hours.
We also reduced other operating expenses related to travel professional fees and other items.
On the Capex front, we suspended our supply chain and financial systems initiatives and have reduced other capital expenditures.
This has clearly been painful we do not take any of these actions likely to directly impact People's livelihoods and families. During an intensely stressful time.
However, I have to share with you that I could not be more proud of our organization and of every person at hangar who has risen to this challenge.
At the end of the day, while these are hard decisions with real near term consequences as the good news is that we intentionally chose a path that I believe leads us to a future where the company can not only survive but thrive.
So while there is pain it has shared.
Equitable and transparent.
Throughout the decision, making process and all these actions we kept the two objectives mentioned earlier clearly in front of us.
Outside of the cost containment containment measures. We have taken we're also actively monitoring elements of the cares Act, which may provide hangar some relief.
At the outset hangar determined that as a public company, we would not qualify for the PPP forgivable loans intended for small businesses and we did not apply for them.
Other elements of the carriers act that we'd likely will benefit from include the payroll tax deferrals lifting of the sequestration modifications at the end wells for federal tax purposes, and the provider relief fund payment, which was formula based allocation we receive from HHS.
Operationally communications to employees have been critically important during this process early on we began a regular cadence of communications to our employees through various channels, including weekly video messages to our entire team. We've adopted the following three clear guiding principles be safe.
Behind and be strong.
As an organization Tanger is resilient, we help our patients overcome what can be unimaginable challenges after lots of ilim or loss or degradation of their muscular skeletal function.
Challenges are what we do and hangers battle tested we rebuilt the company beginning in 2015 to go the distance focused on the long term to build scale. She expertise document medical evidence for the value of our services and ensure we brought in leadership at all levels across the organization with experience in metal.
To rebuild it successfully.
And as human capital asset is an advantage today.
And as we worked our way through these difficult times as a team during the 2015 at 2018 period, we're doing it again today and we'll do so for as long as the Cobot 19 pandemic remains.
We have made a variety of operational changes to ensure that during this period, our people and patients are safe.
And that we as health professionals ensure the continuity and quality of healthcare services, we provide.
It is important to note that our thought it can prosthetic care is designated as an essential healthcare service under the Affordable Care Act.
The only professional organizations have also highlighted this to the broader RMP industry.
In addition, the World Health organization in March of this year identify that individuals with disabilities, maybe impacted more significantly back over 19.
In a published a paper by the Whr there was a call to take action and provide protective measures for all key stakeholders, who support the disabled.
Many of our patients faced with uncertainties. During this time are anxious to obtain necessary prosthetic and orthotic care. So they can maintain the most basic life functions many of us take for granted.
Some of the steps, we as an organization have taken to ensure the safety of our patients and personnel are as follows all of our employees have been instructed to follow CDC and Whr guidelines for prevention during the pandemic.
Within our clinic operations, we also implemented mandatory training regarding prescriptive preventative safety measures and resources, including the reinforcement of facility cleaning guidelines and instructions on reporting cobot 19 exposures.
Our clinics are not densely populated we typically have approximately five employees and an average size clinic, so social distancing and the use of individual rooms to see patients does not generally require extensive changes to our physical locations.
They are relatively safe places for patient encounters we procured stopped and fabricated personal protective equipment. Thanks to the proactive work of our supply chain team.
We leveraged our own fabrication capabilities to make reasonable threed printed custom masks for our clinicians.
In late March we developed and implemented plans to support clinic operations. During the pandemic that included procedures to enable changes in weekly staffing and operating hours to respond to fluctuations inpatient appointment volumes, while encouraging social distancing and patient and employee health.
From a patient perspective, we conducted a proactive outreach to hangar clinic patients across the country performing thorough health and exposure risk screenings before in person appointments rescheduling natarajan appointments and shifting in person appointments to remote consultations when appropriate.
We have been taking advantage of tele medicine platforms to evaluate patients to determine whether they need to be seen in the office as well as other patient support applications.
I am proud of what we've accomplished over the last 10 weeks. It is extraordinary to say, the least and I cannot thank our team enough for their support and their efforts.
As a result of the difficult, but necessary corporate actions, we've taken to lower costs and conserve cash as well as the adjustments we have made to the operations, we feel confident in our ability to navigate through the current situation given what we know today.
In addition, and Tom will discuss this in more detail, we engaged early and regularly with our revolver lenders and recently secured the greater flexibility under our credit agreement.
Our view at this time is that the sum total of these actions puts us in a position to remain adequately liquid throughout 2020 and in subsequent periods.
Through the month of April as you would expect the decline in business. We saw in the last two weeks of March intensified with.
We delivered devices from web and work down the inventory that was part due to appointment cancellations in March during the month of April our appointment volumes were down approximately 40% driven by the shelter in place and other social distancing measures implemented around the country to slow the spread of corporate 19.
At the end of April approximately 27 of our 800 plus patient care clinics were temporarily closed and another 179 clinics were open either part time or by appointment only.
These closures and adjusted hours were necessitated in large part by the shelter in place and other social distancing actions adopted locally in various parts of the country.
We will capture three full months of our cost savings initiatives in the second quarter, but do not expect the impact of the anticipated revenue decline to be fully offset so we will likely see earnings and cash flow declines in the second quarter.
We believe the second quarter will likely be the most difficult quarter for us this year.
We currently anticipate that the impact of covert 19 will affect us for the remainder of the year and are focused on managing our liquidity through this period.
On the other side of this I am confident hangar will emerge strong and well positioned to grow picking up where we left off prior to this unfortunate situation.
The disruption in the demand for services and products hangar provides is only temporary.
We have all the necessary assets and as I hope you can see a resilient workforce and the important service, we provide will be around for a long time.
At the current time, we have paused our M&A program. The pandemic has been painful for the industry and in some parts of the country. We have received requests from referral sources to pickup patient care, where smaller independent only providers have been unable to provide patient care.
When this is over it is possible that we may see an increased interest on the part of the over 2000 independent only clinics out there to leave independent practice for the more stable platform of patient care support that hangar provides.
Now, let me turn the call over to Tom. So we can go through the financials in more detail Tom.
Good morning.
As was the case for many companies our plans and business trends were interrupted in late March and events led us to quickly redirect our attention to our wholly different set of objectives and the ones that we had intended for 2020.
In the first quarter hangar reported $5.3 million, an adjusted EBITDA on $233.7 million of revenue, which reflect the decreases from the 11.9 million on adjusted EBITDA and 236.4 million in revenue we reported for the same period last year.
Our results for the quarter would have been markedly different were it not for two key items.
Patient cancellations in late March associated with the viruses spread and resulting governmental suppression measures and an increase in bad debt expense associated with our expectation that degrading economic conditions, resulting from the virus will have an adverse effect on our bad debt write offs.
First to provide you with more insight into the effects of patient cancellations. The covered 19 viruses resulted in approximately a 40% decrease in our patient appointment volume's commencing in late March and continuing through April.
When reviewing the effect of these March cancellations on our prosthetic deliveries.
Is important to bear in mind that it typically takes roughly 45 to 60 days between a patient receiving their initial evaluation and our ultimate delivery to them of a fabricated prosthetic device.
Normally the last two weeks of March are important days as we delivered devices. We have fabricated for patients seen during January and February but.
Because of patient appointment cancellations in late March we experienced a significant increase center clinic work in process balance web reflects the capitalize amount of componentry direct labor and overheads amounts that relate to devices that are being fabricated or have been fabricated but remain on.
Deliver.
Total were increased to 14.4 million for the first quarter, which was approximately 3 million over what we would consider a normal level.
Within these were balances as of March 30, Onest of this year, we had completed but undelivered prosthetic devices with a gross billing value of 9.6 million in our work in process.
It's important to note that we usually have some number of completed prosthetic devices and web at the end of a quarter, but believe that a billing value of approximately 4 million to 5 million would have been deliberate in March were it not for the canceled patient appointments.
Likewise, we had similar delays and revenue associated with cancellations of appointment spire participations and carried in unbilled value of 9.1 million and completed on products.
Which we believe we would have recognized a meaningful portion had we been able to conduct a normal level of patient appointments.
This was the key factor that resulted in our reporting of a decrease in same clinic revenue of 3.2% during the quarter.
As you know our business does benefit from the fact that patients do ultimately need their prosthetic orthotic devices. So we view these declines and patient appointments and deliveries is being temporary and the direct result of their personal caution incoming guar clinics as result of these shelter in place policies.
In a similar fashion, we also experienced a 4.5% decrease in revenue of our distribution services business during the quarter.
We believe the majority of this decrease was the result of independent providers worth products and prosthetics slowing their purchases of componentry, but to a lesser extent. These revenue decreases also related to our planned discontinuance of sales of low and that weren't products to podiatrist.
Revenue at our therapeutic solutions business was 11.9 million and reflected a 757000 or 6% decline was compared with the first quarter 2019.
Well this area of our business has been affected by changes in limitations imposed at skilled nursing facilities associated with Akovaz 19.
The majority of this decrease does relate to the past business trends we've discussed on prior calls.
In addition to the significant effects that the cobot 19 pandemic had on our first quarter revenues from related gross earnings contributions.
Also played a key role in our significant increase in bad debt expense during the quarter.
Bad debt expense of our products and services segment increased by 1.9 million in the quarter and the majority of this increase related to our assessment of the likelihood that we will incur increased write offs of customer receivables in this segment of our business due to the nation's worsening employment and economic conditions.
In addition to the impact of the pandemic. The extended this increase was also related to our implementation effective during the first quarter of AMC 326 financial instruments credit losses also known as Cecil.
This accounting literature requires that we directly consider changes and current credit information in the establishment of our bad debt reserves.
Between the substantial effect, which the Kogut 19 pandemic had on our revenues and the effects. It had on our credit condition of our distribution services customers. This virus has caused a clear change in the course of our financial performance and our management focus during 2020.
As Bennett discussed throughout March we undertook extensive planning and implemented broad cost reduction and liquidity enhancement measures with the aim of ensuring that hangar would be proactively positioned to contend with the adverse effects. This pandemic was likely to have on our business.
As we shared this involved implementing a media and comprehensive changes to our component repurchases.
Compensation staffing levels other operating expenses capital projects and overall liquidity management.
Excluding decreases in componentry costs, which you should very in a corresponding fashion with decreases in revenue. We currently estimate that these cost reductions will provide operating cost savings and the approximate range of 75 million to 80 million over the second and third quarters.
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We're glad that we chose to take these actions proactively and decisively in the last week some march as they positioned as well as the full effects from the pandemic unfolded.
Additionally, due to the on certain effect that we believe the crisis could possibly have on the viability of our nation's financial institutions and our access to borrowings under or involving credit facility, we drew 79 million under or evolving credit facility and continue to carry these relatively higher revolver borrowings.
And the corresponding cash balance at this time.
Well, we believe these and other axes, we've taken in positioned our operating structure is effectively as possible for decreases in our business volumes we were experiencing.
We do nevertheless expect that are earnings in the coming quarters will be adversely affected by the pandemic.
From a cash flow and the quantity perspective, we had a strong first quarter. The company's collections improved over those are the first quarter of 2019, and our days sales outstanding decrease from 52 days to 50 days.
This was the primary contributing factor to our 10.8 million dollar increase in first quarter operating cash flows as compared to those of the first quarter of last year.
As of March 31st we had 131.8 million and total liquidity as compared to 115.3 million at the end of the first quarter of 2019.
In early April we did use 20 million and cash for the purposes of closing an important acquisition for which we had a definitive agreement signed in early March.
Nevertheless, after considering these outlays cost on liquidity measures, we implemented in the late March when coupled with collections and first quarter receivables.
Benefits from certain aspects of the cares that haven't been able to us to continue to maintain a satisfactory level of liquidity.
Well, we do anticipate that the adverse effects of the <unk> 19 pandemic will result in decreases in our overall liquidity incoming orders.
Currently believe the operational and financial measures, we've tank and well enable us to maintain adequate liquidity balances throughout the prices.
Permanent data Ness perspective, due to the likely near term effects, which this pandemic will have on our business volumes and adjusted even five results. We do expect to report and increase in our leverage incoming corners.
As a result in addition to the cost reduction measures. We implemented in late March. We also comments discussions regarding an amendment of our credit agreement with her evolving lenders during the first weeks of April.
Earlier. This week this process was successfully concluded.
And the resulting amendment has increased the allowable levels of leverage that hangar can carry under it's a crowd an agreement.
And it's also incorporate into other computational changes to leverage in one position the company to maintain its covenant compliance. Despite the currently anticipated disruptions that the cover at 19 pandemic will likely have on near term results.
In closing.
Well the code that 19 pandemic has had and will continue to have an adverse effect on her 2020 results.
We believe hangers, well positioned to manage through this public health crisis.
We believe the operational costs reduction liquidity and indebtedness measures we put in place during the late March in early April when coupled with the underlying essential nature. The health care services, we provide our patients has put us in a position where these near term business volume pressures will be manageable.
Once this crisis some signs we look forward to restoring the positive strategic in business momentum than we were clearly demonstrating as we enter the year.
<unk> that I'll turn the call back over to the operator open it up for any questions you may have.
Yes. Thank you.
Yeah, and the question and answer period to ask a question you may oppressed star than one on your Touchtone phone.
If you're you're speaker phone pick up your hands that before pressing the case.
Well tell your question. Please press Star then too.
At this time, we will pause voluntarily to assemble the roster.
And the first question <unk> C.G.S. Securities.
The morning, guys. Good to hear your voice and I Hope your your families are hanging in there doing doing relatively well.
Perhaps a couple of questions obviously it.
You know I'm President times, and you guys are clear reacting doing that you can and preserving cash and and cost cuts <unk> can you speak to you know a lot of a there is only like hang are there for yet chasing.
Finches and have it and a lot of programs that you.
Had ongoing data you know obviously helped the long term had a lot of this stuff the process get impacted in a short run and and that question also goes along the line with the supply chain improvement that you guys are putting through now that some of that stuff also get blow it are impacted.
[noise], yeah, thanks or anything so the question. Appreciate you appreciate it and also hope you all are safe.
Up there in the northeast.
So in terms of the programs that we put in place you over the last few years you know, we I think it's time alluded to.
We were feeling terrific about the impact of those programs as we began the or you know it already January late December January early February because we could just sends the momentum that our business had and you know a lot of those programs combining the use of.
Patient evaluation clinics, social media campaigns outreach page to patients to bring them into our clinics and clearly that has slowed down because you know it says I'd mentioned in my comments were using a little more to tell it helps platforms et cetera to screen patients earlier some of the patient evaluation clinics that we had planned you know for this year, but.
We would bring in groups of patients together and show them that technology and show them a different aspects orthotic and prosthetic care are on hold because of social distancing measure. So a lot of those programs are certainly on hold but we are you know using social media and outreach has to patients you know during the.
So we'll see how that precedes but certainly it is a different sort of approach.
To patient outreach than we had planned no time, you want to talk about the supply chain.
Larry from a standpoint of a supply chain, we did pause.
No the supply chain systems and financial systems project that involve the warehouse management system as well the underlying financial systems.
Where we were though and construction of our new distribution facility and Alfa Reta was we were well underway and Q1 and I'm already you know committed and cute too. So when you look at the 30 to 35 million of capital expenditures, there's approximately 8 million in that number that really relates to the build out of that facility.
So the company's actual underlined capital expenditures.
More of the routine capital expenditures have been cut into the low twenties. So we're proceeding with that we won't be able to operated [noise] in the same efficient way as we will ultimately would that new system.
But we're we are at a point, where we feel that that part of this will go when we are also going to benefit this year from an earlier.
Savings you know from the freight it's not going to be all of the savings because again, we don't have the system, but some of the pricing in some of the practice as we've had on consignment.
We're starting to pay back earlier than we anticipated. So some savings are coming into the numbers.
Buy it they will probably be consumed by these overall code that variances, but we'll see some of that some of the other savings those associated with the system, probably will be pushed out at least for a year given that we've pause the underlying technology. So a pause there and see if there's any follow one question Hey, Larry one thing.
One thing I would add is you know during this period. What we are seeing is because of the network of clinics that we have.
We are seeing some inbound calls from referrals sources that in the past you know we may not have had business with but because some of the smaller o. and pay providers may not be able to deliver the care. We are seeing inbound calls from hospitals and referrals sources. During this period, because we do have operations either fully open or open.
By appointment only and we're letting everybody know that we are available for care.
Yeah.
Thank you.
And the next question comes from Brian Tank work with Jeffrey's.
They can wind guy.
Okay through all of it.
I guess that at my first questions for you so wary and today, obviously, there's a lot of disruption in the business, but as we think about 2021, yeah. If you think about cogan.
Or like me nor lies over the course you're <unk>.
<unk> for 2021 versus where you were sitting let's say sometime in February when you did the higher life out here in Nashville.
Yeah, Great question, Brian and it's almost like we've kind of lost a year I think is how we're thinking about it you know because if you think about it we are putting a lot of our investments in 2020 on hold on you know and we're focusing on liquidity and employees safety and patient.
You know the continue to continuity of care. This year. So it's almost like will pick up assuming there is no resurgence independent make assuming there's no second or third wave. That's you know that substantially affects the country. Later this year early next year, which again is a big assumption then it's likely almost skip 2020, and we begin our group.
Plans and 21 as if we were back in early 20, if that makes sense.
Now that that does they I guess, that's the other point right I mean, it sounded like you guys were tracking pretty well in January and February and I know, we've had a lot that's something to pass without reigniting grocery business or salaried and grow.
Walking it through what you saw <unk>. So you know the trends yet and the growth rate that you were seeing and the different product lines are thought expresses prosthetics.
[noise] Yeah, Brian So first of all I think if you go back to the comments about with and you where to go back into you know a number terms of the and build.
You'd find a pretty healthy same clinic growth rate you know for the first quarter, you know certainly well within the target range that we had thought as an attractive one for the year.
Subtly when you look at the actual decline that occurred the 3.2% we had a very modest decline and prosthetics only about 0.6%.
So when you consider the fact that we probably had about 500 devices that did not get delivered in the quarter because of the the cancellation of patient appointments.
Prosthetics were growing at a pretty robust fashion.
So it was really confirming for us, but all of the things that then it described all the things that are people were doing really working on a pretty profound way you know our goal will be as then it's described as we emerged from this to get back to business as quickly as we can to resume what we really see as an indication that hangar hands.
Positioned itself successfully as it wanted to in terms of the medicine that it provides.
Let me a lot. So I guess just to that point, if we think about you know a lot of state or allowing the reopening.
Probably within the next week.
How are you thinking about the seasonality factor, writing because you've got with.
Sitting there you go I only a device that presumably you will be installing sometime in the second quarter, but obviously, you're backlog, yeah delayed a little bit with patience I coming in the door. So <unk> you drop and then you know that salary you three or how are you thinking about it either now you factor for the the <unk>.
Yeah without numbers, obviously, the picked up in business over the course of this year.
[noise] Yeah. So I think then it alluded to it you know we've been modeling a number of models and were the model. We're currently following does.
Poor see more of an extended attack to the virus. We've we've set up our plans and our liquidity really for a one year period, you know per so assuming covert affects us primarily cue to to a lesser extent you three into even a lesser extent to four.
And when you look at that I think that overrides, that's going to override the natural seasonality that the business had you know where Q2 is obviously going to be the most difficult quarter with patient appointments down 40 per cent in April.
But are you know our plans are in our belief is that we should start to see that subside as some of the.
Patients return to more of a normal view and resumed their normal trust you know that they can conduct their lives we'd like to believe that our business winds improve after that.
Yeah data and then I I really hate the the extensive discussion you put in the 10 q. on over it and liquidity, but it's me think about the bad debt reserves reserves adjustment that you put in the corridor. I mean, do you think that will be a lasting adjustments more structure old and not or is that a temporary.
Thing that we should re adjusted point.
Well I think what it I think it when it came on we had a number of customers we had customer receivables than the distribution business from Q1 in Q. for.
We responded in in the distribution business with major changes in Q1 to how we're staffing and how we're operating our credit policy.
Primarily in response to cover.
Then it'll probably speak in a moment to how we think about our customers and distribution because we're we're certainly sensitive and want to help them through this without putting the company and financial risk.
<unk>, we'd like to believe that the key one number is a bit of a high point and it through about the reduce volume that we have in that business as well as the improved procedures.
There could be some further risk and bad debt expense that it won't be as extensive as you saw on Q1, then it yeah, Brian I just add a little bit you know our distribution business. You know, we've a lot of confidence in that business to leadership is terrific and and and the way they were approaching their customers. It's it's it's a balance their priority for the distribution businesses to make sure we protect.
The A.R. that we have any comes from people that we have but the balance also is you know they're looking for those customers that have a strong you know have strong business and have longevity. So we're trying to be flexible with some customers as well that we know will make it through this and will be long lasting customers for us as well so that.
The balance the team is putting in.
But it big focus on you know, making sure that the E.R. is protected.
Gosh, It and then I guess in the last question isn't it you are here in the company back during the last recession.
Are you thinking about the you know just the defensibility of the business Cross your different service line.
Sure Yeah, I think I joined at the tail end of that last recession and in in one way. This is a very different sort of.
You know sort of a myriad that the company will go through or the country will go through as well, but back in the 2789 period, even before I joined as <unk> as a country was going through the recession. It appeared that the you know that the business is somewhat recession proof in a sense that people do need their care and they will come in the difference now though.
Is that there are more patients more customers is that have these high deductible plans that have more out of pocket payments today than in 2008 nine period. So that's the one thing we're watching for so it may not be in apples to apples comparison, but in terms of managing through a recession.
No our services and products will still be in demand.
Got it alright, yeah.
<unk>. Thank you think he right. Thanks, Brian.
And as I. That's that's the question answer session I would like Turnabout call back over event, all softening closing comments.
Great. Thank you know as you can all see you know we're focused on two things as the country navigate. This this spend demick you know first as we mentioned the safety and continuity continuity of care for employees in patients and second.
No we're focused on ensuring we have the adequate liquidity to get us through the downturn of the business as a result of covert 19, and finally as you heard of even on this call. You know we believe we have the right strategy in place we have the right people in place we have the right business model for when you know when this does settle you know we'll pick up where we left off in terms of the growth trajectory we believe it.
Ahead of us so close by saying the same thing I say to on our employees and calls during this time, you know I say be safe be kind and be strong. So thank you all.
Thank you. Thank conferences I'll concluded. Thank you if I tend to today's presentation not us centralize.
[noise].