Q1 2020 Earnings Call

Ladies and gentlemen, this is the operator today's conference is scheduled to begin momentarily until that time. Your lunch will again be placed on music cold. Thank you for your patience.

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Ladies and gentlemen, thank you for standing by and welcome.

To the Q1 2020 Providence Service Corporation earnings call.

At this time all participants are in they listen only mode.

After the speakers presentation, there will be a question and answer session to ask a question. During this session you will need to press star one on your telephone.

Please be advised that today's call is being recorded if you require any further assistance. Please press star zero.

Now, let Dan the conference over to your Speaker today Mr. Dan Greenleaf. Thank you. Please go ahead Sir.

Hey, there actually this is Suzanne Smith, Chief Accounting officer, just to announce the call I'm. Good morning, everyone and thank you for joining the Providence first quarter 2020 conference call and webcast with me today from the company, our Dan Greenleaf, President and Chief Executive Officer, and Kevin Dotts, Our Chief financial.

Sorry.

During this call members of the management team will be referencing the presentation that can be found on our investor website under the event calendar and then the current form 8-K, which was furnished to the securities and Exchange Commission. This morning.

Before we get started I would like to remind everyone that during the course of today's call. The company's management will make certain statements characterized as forward looking statements under the private Securities Litigation Reform Act those statements involve risks uncertainties and other factors, which may cause actual results or events to.

Really.

Formation regarding these factors is contained in today's press release, and then the company's filings with the FCC.

We will also discuss certain non-GAAP financial measures in an effort to provide additional information to investors.

Definition of these non-GAAP measures and reconciliation to the most comparable GAAP measures is included in our press release investor presentation and within our form 8-K.

Finally, we have arranged for a replay of this call which will be available approximately one hour. After today's call on our website Www Dot P. R. S C holdings dot com or via the phone numbers listed in our press release.

This morning, Dan Greenleaf, our Chief Executive Officer will begin with some opening remarks, after which Kevin Dotts, our Chief Financial Officer will provide a more detailed discussion of our financial results. Then we will open the call for questions.

That I will turn the call over to Dan I'm Dan.

Yes, Thank you Suzanne and good morning, everyone and thank you for joining us today for Providence first quarter 2020 earnings call. The World has changed dramatically since our last earnings call. Just two months ago grown a virus or cobot 19 as college considerable turmoil among global economies and health care system, our thoughts or with the individuals.

Some families have been directly and indirectly impacted by this crisis and we extend our sincere gratitude to the healthcare workers in the first responders battling cobot gene on the front lines.

Extremely proud of our teammates and transportation partners, who continued to deliver a central services. The members. During this pandemic. Many members are patients with chronic conditions required transportation to critical ongoing medical appointment.

As for dialysis for chemotherapy by ensuring patients can get to and from messenger appointment not emergent setting where ultimately keeping them out of the hospital emergency room in intensive care unit minimizing their exposure to cobot 90.

Our top priority.

Is the health and safety of our teammates transportation providers and members we implemented a company wide risk mitigation program following centers for disease control and World Health organization guidelines that consists of several factors, including remote working in social dispensing practices, we have been able to move third.

Of our workforce or Approx 1000 people to work from both.

A pause in all non essential employee travel a strict onsite and vehicle sanitation Clayton protocol and sanitation protocols processes for rescheduling, Don critical trips a system for rerouting Cobot 19, symptomatic individuals via local emergency medical services proactive engagement.

With dialysis clinics chemotherapy providers methadone clinics behavioral health and other providers of licensing services to accommodate abbreviated hours of operation or reduce treatment capacity and readiness to coordinate designated state local emergency.

Management authorities, if needed to fulfill transportation requirements.

During these extraordinary times, we innovated our services to support our nation's healthcare workers are members of providing extra assistance to our value transportation partners. We have also entered into adjacent markets to meet the demands and the need to members. For example, we have formed partnerships with integrated health care systems in Arizona, Massachusetts.

Pennsylvania, and New York to provide transportation for health care professionals to win from health care facilities, while also enabling mobilization of their SAP robot in home care, we established partnership with several large payers and state use our transportation network through Bard right to win from.

Grocery stores and food banks in the same safe reliable way members access transportation for their medical care, we're delivering food directly to members as well in the state of New Jersey, we're providing Medicaid members food delivery and multiple counties through partnerships with food banks within the first weeks of a new coal.

Food delivery program launched by Middlesex Counties Food distribution Center M.C. foods in partnership with Logisticare, We delivered food to approximately 1000 food and secure individuals who previously would have relied on public mass transportation you get to.

Good pantries or other sources.

We are grateful for opportunities such as the because we continue to expand or services outside of our traditional patient care center delivery model to become true connectors in health care ecosystem with an emphasis on social determinants of Bell. In addition to innovating our services, we're offering financial system toward transportation.

Providers, whose resilience in response during this pandemic has been admirable we deployed to host.

Oh really program aimed to protect the sustainability of our transportation providers, including bridge loans to address their working capital needs stopgap support with provider insurance the suspension of fees associated with timely filings of Credentialing documentation temporarily eliminating denials and weight.

He charges and adjustment in minimum credentialing requirements expedite the recruitment of additional transportation providers and an extension in the time for submission of non essential driver Credentialing and training requirements.

I am hopeful that the most severe phases of the cobot 19 crisis, maybe behind us, but if this pandemic process for an extended period.

Worsens, we're in a strong position to weather the storm first.

Our services are essential we have a comprehensive risk mitigation program in place to protect our teammates and the key constituents in our transportation ecosystem.

Second while it's difficult to precisely quantify the impacted cobot 19 on our business in the short term, we've experienced lower member utilization of the Capitated contracts as shelter in place and sold to the practices have led to the postponement of less urgent important.

In the first quarter of 2020, or adjusted EBITDA grew 31.5% 16 million.

And we generated 38.8 million up operating cash flow, Kevin will discuss the financial results in more detail later in the call third with the increase in unemployment Health management associates.

Predicting it increased the Medicaid roles with approximately 85% of revenue under Capitated contracts, we could see an increase in both revenue and adjusted EBITDA for it we have an asset in capex like business model that is non cyclical nature with a re occurring revenue stream fit.

With a clear leader in industry with significant positive tailwinds, including an increasing shift in health care away from higher cost institutional setting an aging population a greater emphasis on preventative care and expanding Medicare advantage market transportation to medical pointed and some pharmacies as one of the fastest growing.

Supplemental benefits within the Medicare advantage market. According to impact the total number of Medicare eligible beneficiaries is expected to increase from roll off roughly 59 million and 2018 to over 80 million by 23 finally, our strong balance sheet net cash totaling 92.

2.4 million at you ended the quarter positions us well will stay on external shocks.

Moreover, during the quarter, we proactively broad 162 million under our revolving credit facility as a precautionary measure to enhance our financial flexibility given uncertainty surrounding cobot nineteens impact on global economy and financial markets. During the quarter. We also expanded our credit credit facility from.

200 million to 225 million and extended the maturity date to August Spurs 2021.

As we announced this morning, we purchased national metric, a non emergency medical transportation business, the fifth tremendously well with Logisticare national better trends brings us more than 200 million of estimated annual revenue across 12 States. In addition to deepening our national presence this acquisition.

Continues to solidify our number one position in the industry establishes a long term strategic and economic partner ships with key payers furthering our ability to address various social determinants of health.

Got it adds.

More than 5 billion trips per year and brings approximately 2 million additional members Logisticare platform.

The acquisition consist of only ongoing contractual relationships, excluding the legacy business operations and will allow us the AD revenue and gross profit without incurring significant redundant operating expenses expenses much like our business approximately 85% of the national trends business is compensated.

We're not providing specific bottom line guidance for the acquired business. However, we will expect it to have gross margins in line with out of Logisticare be accretive to Providences earnings in sport meaningful long term value creation.

Well, we may continue to pursue selective opportunist opportunistic acquisitions such as this our primary focus is on our organic growth strategy, which we continue to advance this quarter.

Our key internal growth priorities include acting on the voice of the customer ensuring the right people are in the right.

Implementing critical technology advancements, reducing operational variation driving outweigh in improving quality and customer service centers accelerating profitable growth and rebranding and driving cultural transformation unified Providence Logisticare in circulation under one umbrella im referencing.

Voice to the customer we remain intensely focused.

On our number one priority, which is listening to our payers their members and our transportation providers are action during the cobot 19 outbreak such as providing member with transportation to the grocery store and offering financial system program torture based transportation partners demonstrate exactly what I mean by.

Shifting to the voice of the customer.

We've made considerable progress, placing the right people in the right siege, which includes the recent appointment of Kennedy Wilson as Logisticare as new Chief operating Officer Kitting joined US This week and brings more than three decades of executive leadership experience in to help your industry encompassing a range of senior operation.

Funnel managerial and commercial project Logisticare. He was the chief commercial officer of the Health care Division of Cydex, So president and Chief operating officer anger and held various roles at Cardinal health and prominent sales management positions at Baxter healthcare with counties appointment Logisticare has added.

Evan key executive she would senior leadership team since August 2019, we have assembled a best in class management team that I believe will be will drive transformational change and growth at the company.

I think noted on our last call there were significant opportunity leverage technology to improve the member experience further differentiate ourselves from our competitors enable expansion into adjacent markets outside of a core Medicaid market and help us to reduce operational variation and drive out ways, we expect to formally launch.

Our fraud and member next generation provider platform, which includes circulation elegant core user interface in the third quarter 2020. This interface enables writers to track the rides via mobile App. In addition text messages the voicemail alerts will provide REIT status update.

Even approximately 30% of our 25 million annual calls are related to ride status. We are optimistic that features like this will generate significant value for our members and improve our productivity. In addition, we continue to make progress on our enhanced interactive voice response system, which we expect them.

Launch in the second half of this year on the topic of reducing operational variation to driving out ways. We're employing a single repeatable model throughout the organization are highly focused on cost containment initiatives improved efficiency increased profitability and improve quality regarding accelerating.

Profitable growth.

Obviously, our acquisition of National Medtronic business significantly advances our plan. In addition, we were very pleased to renew and extend our preferred partnership lift this quarter with a multiyear commitment our joint effort will improve access to care for millions across the U.S., who rely on logisticare for reliable and could be.

New transportation to fulfill the medical need our nationwide lift partnership was established in 2017, we're lifts largest non emergency medical transportation partner disagreement represent the countries most significant collaboration between any M.T. manager and he rideshare company.

Our philosophy is not about winning or maintain business at all costs, but rather about driving transformational growth from a solid base. We have made deliberate decision to walk away from certain lower margin contracts. This contribute to flat year over year revenue comparisons for the first quarter. It helps improve health.

Business during the first quarter, we successfully successfully renegotiated three contracts, which contributed 3 million a benefit during 2020.

And 5.5 million on a full year run rate basis Kevan dot.

Chris Eccles and the team remain busy with another six contracts, which they are actively pursuing rate increases.

The overall cadence of VR piece in our industry has slowed down as result of Copel 19, but several large opportunities you're making up for bid we're vigorously seeking to wendy's.

Appropriate for our business finally.

We are in the initial phases, a formal rebranding as we're collecting internal messaging feedback from teammates across the company. Although the cobot 19 pandemic has slowed some of our work in this regard we're excited to eventually roll out a unified message on our mission vision message in values.

In closing.

Our strategy to transform Logisticare has commenced in Oregon amid the unprecedented unprecedented macro scenario.

Given uncertainty surrounding cobot 19, and multiple inflight initiatives, we will not be providing guidance at this time. However, we're very optimistic about our ability to optimize logisticare as business to create significant value for Providence shareholders, we are well positioned again.

Market share lead to innovate the industry and emerge stronger as a nation moves through and beyond the cobot 19 pandemic I. Thank our transportation providers. Once again, we're helping our countries most probable patients receive access to critical care during these challenging Stein.

I also want to take a minute thank the logisticare.

Who time after time stand up and respond when our patience and customers needed. The most I cannot thank them enough for what they continue to do under the circumstances with that I will now turn the call over to Kevin.

Thanks, Dan.

Our first quarter revenue totaled $367.3 million, a slight decrease a 0.1% from $367.8 million in the prior year period, primarily reflecting contracts, we no longer serve including Mcl contracts in California, Louisiana in New York combined with lower volume associated with.

Certain profit court or contracts due to the covert 19 pandemic.

As Dan discussed earlier, we intentionally walk away from certain contracts that had low profitability.

I read adjustments secured in the latter parts of 2019, partially offset these factors.

We successfully renegotiated three contracts during the quarter, which contribute to a $150000 of in quarter benefit for 2020. This benefit will be approximately $3 million and $5.5 million annually. In addition, we have another six contracts that were actively repricing.

Moving to service expense, our gross margin defined as revenue less purchased services was 23.9% of revenue in the first quarter 2020 compared to 21.5% in the first quarter of 2019.

The 240 basis point improvement reflects lower purchase transportation costs due to lower utilization across multiple contracts as a result of covert 19 pandemic. In addition, we benefited from the proactive decision to walk away from certain underperforming contracts as well as multiple rate increases we secured in the latter portion of 29 team.

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From an operational standpoint, as Dan mentioned, we started to see some encouraging trends within our transportation cost towards the end of last year driven by company specific actions.

We look forward to discussing some of these metrics in more detail on future calls once we returned to a more normalized environment post coveted 19.

Our adjusted operating expense defined as all other expenses, excluding purchased services and after adjusting for FX was 19.5% of revenue in the first quarter 2020 versus 18.2% in the first quarter 2019, the increase in Spain was primarily attributable to investments in our team processes and technology.

We expect operating expense as a percentage of revenue to come down in the back half of the year as we continue to execute on our various operational productivity initiatives.

In the first quarter 2020, our adjusted EBITDA totaled $16 million and our adjusted net income equaled $9.9 million or 58 cents per diluted share.

I'd like to note that our reported income from continuing operations net of tax of $16.3 million in the first quarter of 2020 included a tax benefit of $11.1 million due to the impact of the Corona virus aid relief in economic Security Act otherwise known as the key.

Theres Act.

As a result, we expect to collect $27 million in the third quarter of Twentytwenty related to the carry back of net operating losses. However, we will have higher taxes payable going forward due to the elimination of the ano will carry forward.

Moving to our cash flow statement cash flow provided by operations in the first quarter was up 2020 was $38.8 million, while cash used in investing activities totaled $1.6 million inline with last year.

[noise] on May six 2020, we entered into an amendment on our credit agreement, which expanded the revolving credit facility from $200 million to $225 million extended maturity date to August 1st 2021, and increased our letter of credit Sublimit from $25 million to 40 million.

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This quarter, we borrowed $162 million under our revolving credit facilities as a precautionary measure to enhance the companys financial flexibility given uncertainty surrounding to cope with 19 pandemic.

And its impact on global economies and financial markets.

We ended the quarter with $92.4 million up net cash.

Finally on March 11, 2020, the board authorized a new stock repurchase program under which the company may repurchase up to $75 million of the company's common stock.

Yes. The board authorized program started on March 11, 2020, we repurchased 195.

1576 shares for $10.2 million through May five 2020.

And we have approximately $64.8 million available under the share repurchase program.

Let me go to matrix and our equity investment before we turn it over the call for today I want to cover matrix for the first quarter Providence recorded a loss of $2.6 million related to matrix equity investment on a standalone basis matrix generated revenue of $61.3 million and adjusted EBITDA up nine point.

$9 billion, both down from first quarter 2019.

Matrix was impacted by the slowing comprehensive health assessment volume in March due to covert 19 within home and mobile assessments placed on pause.

Given matrix is business is based on healthcare workers going into the home our skilled nursing facilities to complete comprehensive assessments. The demand for these in person services dropped significantly in March, particularly as the business is primarily geared towards the Medicare advantage population.

In response to the reduction in in home and skilled nursing facility assessments. The matrix team quickly moved a portion of its volume to Tele health assessments.

In addition matrix has formed a partnership with a national essential retailer to deploy matrix's healthcare workers across the country for wellness checks at its retail distribution locations.

In the face of the Kobe 19 pandemic the matrix management team quickly pivoted and redeployed their extensive nationwide clinical worker network.

As such the matrix management team is cautiously optimistic in their outlook for the year as they look to remain on plan with their initial internal expectations.

This concludes our prepared remarks, we will now go to the question and answer session.

Operator.

As a reminder, if he would like to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please stand by probably compile the Q and a roster.

Your first question is from Bob Labick from CJS Securities.

Hi, Good morning. This is actually lead you go to for Bob.

Okay like.

So just starting with the acquisition I know in the 8-K it looks like you paid about 80 million Bucks.

For the acquisition can you talk to it on a multiple of EBITDA either looking backwards, we're looking forwards.

Kevin you want to handle that one.

Yeah, I think AG its a.

Thanks for multiple I think it's in line with kind of where we are I think it's slightly a little bit more more positive I think you think of US is somewhere between two a nine to 11 type of multiple normally and I think basically we actually feel like for $200 million of revenue to get to margins that are equivalent to one.

Here Logisticare is.

I think it's actually probably at $80 million I think it's a little bit slightly favorable.

Okay and to extend to the margins are similar to where you are today are there other synergies in terms of either overhead or call centers.

That you can.

Realized by putting the two businesses together.

Yeah.

I won't hit that Dan Great question flee the the benefit of is what Weve inherently done here is we've acquired effectively these as contracts and effectively without having to bring in any back office overhead.

And we we think I wrote an article three weeks ago about the patient tsunami I think everybody knows that that there's going to be a significant increase utilization again, we're already seeing things picking up over the last couple of weeks. The other thing I also want to point out as I've said in my script is that we're doing other things you know we're delay.

Bring food, we're taking health care workers to their offices. We are we are we are we are taking people the grocery stores and so you know we've we've done I think a yeoman job of making sure that you know that the resources that we have are being we're being deployed in the right way while they were.

Maybe not deployed in a more conventional on traditional way. We are we are deploying them in a way that we think isn't the best needs of our of our customer base right now so I I think it's.

Everybody understands run this together I, we haven't seen anything like that and don't expect to see that given what we would expect to see and you. Just also the other thing you need to keep in mind is I did state my remarks, I would expect that.

Medicaid enrollments going to increase significantly so.

And obviously, we need to keep a healthy transportation provider network and and they know that takes investments so.

That's where we are right now.

So that's very helpful. One more for me in terms of your balance sheet, obviously have plenty of cash on the balance sheet generated very strong cash flow in the quarter.

And then still chose to kind of drug down the revolver any you know any kind of insight into why.

Other other than all the obvious which was the acquisition.

Yeah, I think that might jump all start it there and elect Kevin jump in no obviously listen you're you're asking Lee why we took down the revolver.

Yes.

Yeah, I mean, it we were being I think sensible.

You know, we you know no one knew at the time that that when the co Big crisis. You know went into a full swing did we have any idea what was going to happen and we were being I think I would just think being good fiduciary germs that a business so in the event.

He did happen, we or something that would happen unexpectedly, which we would be in a position to be being a better position or whether that storm. So that's really what a boiled down to.

That that all sounds very reasonable. Thank you very much for the time guys.

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We would now like to turn the call back over to Mr. Dan Greenleaf.

Alright folks well well. Thank you all for participating on our call. This morning, we won't be on the road from best or conferences in the near term given the coven night, given cobin 19, we remain accessible for one on one calls please reach out to our Investor relations from the equity group if you're interested in.

<unk> follow up call, we look forward to reporting back to you in August we will release or second quarter 2020 financial results, They say and have a great day.

So it isn't gentleman. This does conclude today's conference call. Thank you for participating you may now disconnect.

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