Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the bed next 20 20 first quarter conference call at this time. All participants are in a listen-only mode later. We will conduct a question-and-answer session. If you should require assistance during the call Press * 0 as a reminder this conference is being recorded now like to turn the conference over to Charles Lynch, please God thank you operator and good morning everyone our first quarter earnings conference call. I'll read our forward-looking statements and with us today are also Rodger Medellin Stephen Farber certain statements and information during this conference call may be deemed to be forward-looking statements within the meaning of the federal private Securities litigation Reform Act in nineteen, ninety five dollars before we're looking statements are based on the fact that made by men active management in light of their experience and assessment of historical Trends current conditions expected future developments and other factors. They believed to be appropriate.
Any forward-looking statements made during this call or made as a day and then tax undertakes no duty to update or revise any such statement whether as a result of new information future events, or otherwise important factors that could cause actual results developments and business decisions to differ materially from forward-looking statements or described in the company's most recent annual report on form 10-K. It's off reports on form 10-q as current reports on form 8-k including the sections entitled risk factors in today's remarks by management. We will be discussing non-gaap Financial metrics cancellation of those non-gaap financial measures to the most profitable Gap measures can be found in this morning's earnings, press release our annual report on form 10-K in the investors section of our website at home without turning the call over to our CEO that derive Adele.
Thank you Charlie. Good morning. Thanks for joining our call. This has been an unprecedented period in the history of our companies are affiliated practices across many of our service life significantly impacted by the coronavirus pandemic from whatever standpoint is businesses as conditions are as individuals. We have all been affected and in a very short period of time we have taken significant actions to respond to the needs of both our patients and our business.
Our challenge is a political organization has been twofold first to care for our patients and ensure that our conditions are able to do so and second to address the fact that Gap cancellations and deferrals of Health Care Services across the country have severely impacted our patient volumes and revenues with additional uncertainties still ahead of us.
We are first and foremost a national group of Physicians and clinicians and that such our first commitment is always to our page since March. We have undertaken a number of efforts to respond to the pandemic on behalf of both patients and our HealthCare Partners anesthesiology conditions that moved to the front line and I am providing intensive and critical care rather than covering surgical cases. In fact a significant number of them have volunteered to relocate from other parts of the country less affected by the covid-19 pandemic to those areas that are heavily affected. Our pediatric clinicians have worked to ensure that those events may be interrupted labor and childbirth can be provided in the safest way possible for both the baby and the parents.
And they have done so in close coordination with our Hospital Partners pediatric intensivist have taken all the necessary steps to make sure they're prepared to shift their focus to Iraq intensive care in the event of a certain cases in their facilities. Our office-based physicians have rapidly shifted to Telehealth providing access to remote consultation for the pregnant mothers and the Pediatric patients whose lead move on their own time line. Not that of the pandemic and our Radiology organization has mobilized efforts to utilize big data to enhance our ability to use the natural language processing capabilities within our own data base to support faster treatment and to enable tracking of this virus is progression throughout the country particularly in the event of any future resurgence.
Enter access taken steps to support our Affiliated condition in particular. We've moved aggressively to strengthen our supply chain and sort spring protective equipment during a time of acute need in order to ensure that our conditions could provide care as safely as possible without depending on our Hospital part number for that equipment.
For some time prior to the onset of the covid-19 pandemic. We also have invested to enable Telehealth access across our position population, which has proven to be valuable in the recent. But in fact our teams have gained experience in England this access, utilizing BC and internationally recognized they'll help platform and have done so across dozens of specialty. This is no small task. And today we are exploring ways that we can provide this same service on a consultative non practical basis to enable non men have positions to onboard to that platform.
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Receive true benefits of our scale as a national Medical Group Physicians across our organization have been able to share their experiences and collaborate across. So for example, a pediatric surgeon who has experienced a covid-19 surge in his or her Market can help another pediatric surgeon who made the expecting a third to prepare for what's to come at the benefit from that experience to improve visibility. We have created virtual doctors lounges for our positions across multiple Specialties to enable collaboration and candidly to help preserve a sense of normalcy in a time of social distancing and significant stress. I could not be more proud of the effort. My colleagues have undertaken across our organization in order to fulfill our commitments to take great care of our patients.
This is also around present at the time for our company because yesterday we announced.
American anesthesiology organization has combined with North American Partners in anesthesia Napa to form the most comprehensive anesthesiology pain management and perioperative Care Organization in the country.
Anesthesiology Physicians and traditions are part of the backbone of our health care industry and we have been proud to be part of this clinical service line since our birth anesthesia group join mednax in 2007 from that beginning. We built an organization spanning more than 40 practices with total revenue in 2019 of 1.2 billion dollars.
We have certainly faced challenges in this business related to payment Star City of clinicians in the face of growing demand and reimbursement headwinds month and the challenges posed by the car and dented are significant as well to that end. We believe the best positioning for American anesthesiology. It should be part of a larger organization with a singular dedication to anesthesiology with the scale scope and financial support not only to manage through today's environment, but to invest Innovations the advancement advancement of patient care and grow in the future.
We share a common culture and philosophy with Napa. We're both clinician LED exhibition Centre organizations with long histories of placing patient care as our highest priority. I have known Doctor John dicapua chief executive officer for a long time and the two of us also share a mutual respect for one another and for the organizations that we need. I have the utmost confidence that under his and his team's leadership. This combined organization will thrive in the future months.
To that end. We are closely aligned with Napa and will be providing Transitional services to ensure a smooth integration in the months to come.
We also will be able to share in the future success of Napa and its Financial Partners through the contingent consideration. We agreed upon as part of the transaction that we announced dead.
Ask for Ben access of this week. We are holding focused on our Pediatrics and obstetrics Medical Group on our mednax Radiology Solutions Medical Group and our surgical directions are Consulting organization.
To make sure we Face, challenges in these groups related to the covid-19 pandemic while patient volumes appears to have stabilized in recent months. They remain below normal levels across many of our specialty particularly within radiology and our office based women and children's practices.
In addition of certainties exist related to the economic impact of what the country is experiencing and how that will affect payer mix and people's behavior among other factors, but I am confident that the steps we've taken to address these challenges will ensure our own abilities to care for our patients during this difficult.
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that are focused efforts will provide us with significant opportunities to innovate succeed and grow into
before returning the call over to Steve and I'll make one additional comment related to a matter we discussed last quarter, which is the notices of termination that a number of our practices had received from United Health.
Given the transaction that we closed yesterday. I am going to confine my comments. The only refer to those practices within our Pediatrics and obstetrics medical groups off the total revenue associated with the United contracts that these practices on an annual basis is approximately twenty to twenty-five million dollars month related to these contracts. I am encouraged by the dialogue that we have had with United which I would characterize as constructed. We have mutually agreed. She said it is in no one's best interest for these positions to be out of network.
To that end. I am announcing that United has agreed to delay the effective dates of those terminations for several months in order to give a time to talk about the right solution.
And we are getting engaged in meaningful conversations about appropriate rates for the critical services our Affiliated Physicians provide to their patients. I am very pleased with the progress that we have made and I look forward to a mutually beneficial long-term resolution so that we can focus on our highest priority taking great care of our page.
With that said I'll close with a note of thing. I am deeply grateful to each of the thousands of clinicians and the non Clinical Associates who support them across our organization and to those are now a part of Napa challenging time yield through Heroes and there are more Heroes across our family of caregivers than I could possibly bring in the time I have with you today with that. I'll turn the call.
Thanks Rodger. Good morning everyone and thank you for joining our call. I'll keep my comments brief today. So we can we talk to you in a store with a few comments regarding our first quarter that are wrong in the environment that we're in our operating results as you've heard from many companies for the first two months of the March quarter were in line with our expectations and tracking to the expected range of 90 to 100 million and adjusted ebitda that we previously guided during the last two weeks of March patient volumes across many of our Medical Specialties were significantly disrupted life in the early days of the covid-19 demek as a whole is disruption and volumes reduced our revenues by roughly forty million dollars during those two weeks compared to our internal forecast.
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Are anesthesiology practices across mednax Radiology, including our on-the-ground practices and at the red and within our office space Women's and Children's practices particularly the chef Cardiology and maternal fetal medicine. Do you have in the rapidity with which the decline of patient volumes occurred at the tail end of the quarter we have live and we have limited ability to make adjustments in that time frame to our expense structure stuff that the impact to our adjusted ebitda for the first quarter was more than thirty million dollars. So most of that Revenue shortfall fell straight through and we reported adjusted ebitda of $53 vs are previously guided range of 90 to 100 North
As we detailed in our press release this morning the impact of our business persisted through April and continues today while we have not finalized our financial results or a bulb on a preliminary basis are Consolidated Revenue declined by approximately one-third in response to this impact. We enacted a number of steps primarily related to labor across our non-clinical employees. We put in place a combination of temporary salary reductions for just about everybody ranging up to 50% reductions for our executive officers and furloughs of approximately 175 people or roughly 25% of our administrative non kind of a Workforce within our clinical population, and we worked collaboratively and in partnership with our Affiliated practices to identify expense actions, including similar salary reductions and in instances, where patient volume down,
Have been heavily impacted reduced hours and furloughs. It's important to know that well, our revenues have been significantly impacted by covid-19 volume reductions. There's simply not a commensurate flexibility to our aggregate operating expenses which consists predominantly of Labor as a result. We estimate that the actions we've taken would only represent a partial offset to the revenue impact we have experienced to date so that end we took additional steps to enhance our financial flexibility through this. In late March. We announced an amendment to our credit facility a conference drawdown of three hundred million dollars.
We have also significantly reduced our third party expenditures as part of the transformation on the restructuring efforts that we've been undertaking since late 2018. Lastly, we have both received and submitted applications for monies available to us under the cares act to date the total amount that we've either received or applied for is roughly fifty million dollars to date we've received twelve million of this and we have submitted applications and recent weeks for the remaining forty million or so that I just mentioned. This does not include a remaining Toronto of money is still to be distributed from the care that since the mechanism to calculate that amount is not available yet and it also does not include the additional $75 billion being termed stimulus 3.5 or tears to which is also still undefined.
we also noted in our
I believe that we do not speak or receive accelerated Medicare payments available through the carers ACT who simply was not Material benefit for us. We also did not apply for small business name under the paycheck Protection Program some of our structural elements, uh were prohibitive to participate in that we have however been able to defer the employer portion of Social Security payroll taxes beginning in April 2020 and which we expect to continue throughout this year as allowed under the ACT another benefit to currently off-duty that was available under that legislation with that said, I'll touch on our announced sale of American anesthesiology the fact if you yesterday this transaction was both signed and clubs.
We've used the transaction as having four elements of values under the terms of the transaction and we received roughly 160 million dollars in cash and retention of net working capital primarily accounts receivable. We also received a contingent consideration in a combined Napa organization were up to 250 million dollars based upon the ultimate Financial results of Napa's Financial Partners additionally as indicated in our 8K filing following the transaction. We will not incur a future Financial losses beginning today related to the impact of covid-19 on American anesthesiology operation.
It's difficult to predict what that impact would have been but based upon multiple scenarios that we evaluated. We estimate that those losses would likely be at least in that range of 150 to 250 million dollars lastly while I wouldn't classify this as an economic consideration. We also looked at this transaction through the scope of our preferred painting operating in Risk profile as Rodger noted following the transaction. We are wholly focused on our Pediatrics and Obstetrics and mednax Radiology Solutions message in our view. This book is improved our risk profile enables us to dedicate resources to these medical groups and pursue future growth opportunities that we believe are significant.
I'd also like to provide a few thoughts that can provide some baseline views and how you can think about our company posted this transaction first looking at our 2019 Financial results last year. We reported total revenue of roughly 3.5 billion dollars and adjusted ebitda of five hundred million dollars at the Top Line and additives as it is is closed in our 10-K and it's easier contributed 30 / 6% of our total revenue last year or approximately 1.2 billion dollars. And as you might recall from my commentary over the place order the anesthesia Medical Group contributed roughly one-fifth of our adjusted ebitda or roughly a hundred million dollars, obviously given the disruption to many parts of our birth my observations do not represent a forecast of contributions from our remaining pediatrix-obstetrix and mednax Radiology Solutions Medical groups in addition has wage.
until late March we are not
Providing Financial guidance for 2020 but I will observe that for 2019 our remaining organization that we have today contributed roughly 2.3 billion dollars of Revenue and Approximately 80% of our historical adjusted even. I will also note that for the brief period when we did offer guidance for 20 28 we guided tours and he would die number of 470s as it compares to last year's 500.
Second in terms of the impact to our non anesthesia medical groups from the covid-19 pandemic as we disclosed this morning that impact was greatest within our Radiology organization and in our office space Women's and Children's practices during the march quarter the impact of these medical groups made up approximately one-quarter of the total of forty million dollars in revenues. We experienced on a Consolidated basis looking at our preliminary volume and revenue observations for the market. And again, let me please re-emphasize. This is preliminary and we are still in the process of closing our books our point out that the total impacts were ongoing revenues for the model was in the range of roughly 20 to 25%
Third in the coming days. We will be filing Proform and historical financial information for the years 2017 to 2019. In order to present our past results excluding American anesthesiology. I will note importantly though that these financials will not be a perfect representation in any respect of the past performance of our remaining age group, since we are required that they reflect all of the overhead expenses of the company during that period not adjusted for the sale of American agencies Urology and the overhead and support resources that transferred with it looking for it as well. Those overhead results will remain in our results from continuing operations and further. We will likely retain certain operating expenses that will be necessary for the intermediate future and not associated with the transitional services agreement. We have signed as part of life.
And that it's finally in terms of our balance sheet and leverage profile given the number of moving parts of both structural and related to the uncertainty of of the covid-19 pandemics. I'm speaking in rough terms prior to the onset of the pandemic and prior to our sale of American anesthesiology. Our leverage profile was essentially in the high three months in terms of net debt-to-ebitda, which will the level that we have spoken about overtime as a comfortable level for this company, but with something I have to bring that down to a certain extent as we look at the impact to our organization and our leverage profile from all of the moving Parts surrounding this transaction a you know, covid-19.
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The both the numerator and the denominator that being said we remain confident that the steps we have taken so far in response to this unprecedented time for mednax provide us with the financial flexibility. We need to ensure our ability to support our condition and providing them or providing them to care for their patients throughout this challenging. And Beyond without an alternate bath water.
Thank you. Stephen operator. We can go ahead and open up the call for questions, please.
Ladies and gentlemen. If you would like to ask a question, press one zero on your telephone keypad. We do ask that you please limit yourself to one question. Once again, if I ask a question, press one zero at this time.
And we will begin with the line of Ralph Giacobbe with City, please go ahead.
Thanks. Good morning was hoping you could talk a little bit more on sort of the decision the process and also just the timing of the anesthesia style and you know, why not wait for some normal rotation and maybe how you approach valuation sort of for the asset and if you can just apply non, you know how much the you know pay or dispute sort of drove the decision. Thanks. Sure. Hey Ralph. It's it's Stephen Barber. I'm I'm happy to try and give a directional response to some of the items that you mentioned but to a great extent off some of the specifics like the the transaction is complete if the business is now owned by somebody else and we feel generally in these situations that it's not kind of no longer our role to speak to some some of what you asked, you know in in general and as as I think we we've got in that we we issued yesterday, you know, we have had some discussions off.
I'm with others as we've evaluated our options prior prior to the pandemic and you know, I I would say that the transaction that was completed yesterday was done, you know relatively it was relatively recently and a name or was a element of it. I mean you've blown it that was related to the pandemic. I mean we do believe we imagine that the 8K we mentioned it today, you know that that business demonstrated a club that was that was difficult to adjust and particularly difficult to adjust quickly in the face of the pandemic. I would say well, you know, if you think about how it operates Ralph, you know, we have we have contractual commitments in those practices to provide staff into hospitals and of a hospital birth.
You know, one of the practices know they're going to they're going to open 10 operating rooms next week. They've got to be in a position to stop it. So unlike some businesses where you can talk meaningfully and rapidly adjust your labor force. We needed our clinicians to be available to be at the ready if the demand arose and so that that really is Thursday a key element of the of of of the challenge with how do you retain that work force so that they are available but how do you also manage down your cost? So I I I I think it's it's fair to say that, you know, the world's the world changed somewhat for that business under our ownership in the face of the pandemic an office and those operating laws projections of a hundred fifty to two hundred and I emphasize I did use the word at least in both the HK and in my prepared remarks today.
parts of the pandemic will have if it's short if it's long if it's
If it's volatile will have under our ownership. It would have had a very tough to to manage that business without the source of cash impact that we've been discussing and that was the key factor in the decision. But it's also a very significant what we view as is very significant element of the value that we received from the deal was too he's no longer have to shoulder both that financial burden and the uncertainty and volatility for us that it would bring with it.
Okay. Thank you.
Next we'll go to the line of AJ. Rice with Credit Suisse, please go ahead.
Hi, everyone. Good to hear everyone still safe in the midst of all this thanks for the comments Steven. Maybe just try to clarify a couple of months point there. It's all under the umbrella of just understanding what's going on with the elimination the anesthesia business you talk about a hundred fifty to two hundred fifty million future cash losses. I guess I'm trying to figure out what time frame does that relate to you rattled off the cares act funding does any of that get impacted with the sale or do you get to keep em all of that? And is there any way to quantify the residual expense that you're going to incur and over what time frame that is that enough to move the needle I guess.