Q1 2020 Earnings Call
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Good morning, ladies and gentlemen, and welcome to the CRH Medical Q1, 2020 results conference call. At this time all lines are in listen only mode. Following the presentation. We will conduct a question and answer session. If at any time. During this call you require assistance. Please press star zero for the operator. This call is being recorded on me.
13th 2020, I'd now like turn this conference over to Richard Bear. Please go ahead.
Thank you operator, and good morning, everyone I'm joined today by our CEO dr. to try and money.
President of theory, James JJ, Jay Krieger.
And Vice President of course, you development, Tom Sanders before we start I'd like to remind everyone that certain statements.
Well here today constitute forward looking statements within the meaning of the applicable security laws.
Well important assumptions definitions and cautionary statements about forward looking information and their risk inherent to our business. Please refer to the cautionary notes.
And your 10-K.
During this call will discuss non-GAAP by National financial measures.
Indicators of our performance.
New territory management discussion and analysis for the three months ended March 31st 2020, but a reconciliation of non-GAAP measures to reported GAAP measures. These documents are available on SEDAR and Edgar.
And the Investor section of our website. In addition, please note that we will be using the abbreviation Gee I can report to Gastroenterologist. Finally, please be advised that every fortunate actual currency.
Yes, the U.S. dollar not all dollar figures reference they are in U.S. dollars with that I will now turn call over to Dr. to Charlotte.
Thank you Richard.
Thank you all sort everyone on the call for joining us to discuss CRH as first quarter 2020 result.
We hope everybody safe and healthy as we work to navigate through these unique in challenging times out there like most of you were doing this call from our home.
So please bear with us and event that we experienced any technical challenges here during this call.
So before we address the financial and operational metrics for the first quarter I'd just like to address the effect of the cold in 19 pandemic, which is.
Exerted significant pressure on the global health care delivery system and more directly upon our business.
While we begin as we began to see it's getting a sharp impact of cobot 19 in mid March on or procedure volumes.
We do expect the impact in the second quarter to be even more pronounced.
As you're aware many states many health systems in response to the pandemic implemented guidelines that restricted elective procedures that most sell facilities in order to prioritize hospital resources towards a Kara cobot 19 patients.
This dynamic coupled with the restricted distancing policies.
Significantly impacted the number of patients at the it seems that are anesthesia business is there exactly how long we experienced these decreased volumes remains uncertain. Most of the reaches into countries are still under some measure restrictive sheltering distancing.
It, but we're cautiously heartened to see a number of our legacy customers are beginning to open now at least in part.
Worth they've said opening scheduled throughout the rest of this month now once they're reopened.
We think it'll take a number of weeks for these agencies to return to normal patient level throughout most of April our anesthesia volumes were down 90% from our no normal operating volumes, whereas this week or buying deficit has improved to around 75%. So we're still down 75% from what we would consider normal but further improvements are scheduled.
Barring any relapses or delays, we do expect that to continue to increase.
Also as you might expect the pandemic it increased demand for our or Regan excuse me decreased demand for a reason ER segment as many physician offices are open now just for essential visit.
That too has started to increase as these offices open up but.
We hope that we can see continued to increase there.
Our hemorrhoid treatment volumes have therefore been limited to for so so far to be more urgent cases.
In order to mitigate the financial impact at this lower demand for our products and services. We've worked swiftly to reduce costs, we've taken steps to bolster our liquidity in advance of the heightened uncertainty in the financial system as well Richard will address some of those measures later, but we remain confident that we have an enduring business that will survive. This crisis and we continue to forge ahead with the key enough.
It is that we have fully prepared to service Aries assay partners as these volumes begin to normalize.
Let me just address a couple of our primary initiatives first.
With respect to our proud of payer negotiations and rate strategy, we remain external active external dialogue to optimize our contracted case mix recall that our last conference call. We discuss some of the challenging payer dynamics that are impact that impacted our fourth quarter, 19th 2018 result.
Given the delays in the passage of a surprise billing legislation in Congress.
We had contemplated the passage of that lesson legislation dismayed to facilitate our contracting transition throughout 2020, however, with the passage of certain Medicare provision in the cares Act ones that were originally coupled to this passage of the surprise billing legislation, we no longer anticipate the passage of the billing legislation in the near term.
Yes, we continue to make progress on our rate objectives, largely because of a more positively biased provider backdrop here in light of the pressures on the health care industry in mis selling in this pandemic.
As a result, we believed that our rate strategy has been decoupled from the surprise billing legislation and we continue our work to strengthen our long term ties with our prior payer partners, which we believe will will improve the overall revenue and pricing visibility of our business.
Also supporting our ongoing pair strategy, we'd like to point out that Brian Griffin has recently joined our board of directors for those of you may not know Brian.
He has extensive operational strategic experience at some of the largest a pair related entities in the country and were keen to get his guidance and leverage on site and leverages expertise and a insight is good.
Second initiative, we remain optimistic with regards to our business development pipeline. Our team remains in discussions with all our prospective targets and partners. We've actually been moving deals forward. During this phase as you may suspect, we temporarily paused capital deployment towards acquisitions as a result to this pandemic though.
We believe that many smaller providers facing unprecedented financial and operational pressures match, you drive more BD opportunities foresee CRH as we emerged from the pandemic.
Finally, we're focused on implementing strategies to drive growth in our Oregon segment. We continue to believe the segment had to market opportunity well north of the current level of business that we're seeing and Tom centers will talk about more more about Oregon shortly.
So with that I'll turn this call over now to Jay Korea, who will talk more about the NCCN.
Good morning, everyone I'd like to Echo discharge comments and thank all of our shareholders for their support and for joining US today. Additionally, I want to thank our employees and our provider partners for their continued devotion to patient care during these difficult times.
Our first quarter anesthesia revenue fell 13% to $23.2 million on a 0.6% increase in cases revenue per case of $297 represented a 1.3% sequential improvement from the fourth quarter 2019.
Steve just segment generated adjusted operating EBITDA of $8.1 million, representing a 37.6% drop from the first quarter 2019.
Our to covert 19 same store cases in January and February 2020 were actually up 4% when compared to the same period. In 2019. However has to shore noted after a solid start to Q1, we began to see covered 19 related pressures on our business in March.
That pressure only worsened in April that's procedure demand continued to decelerate.
To provide some color on these trends.
In terms of various see footprint. We finished 2019, providing service at 58 Ks sees.
The number of operational asked fees fell to 30 by the end of Q1, and then to 20 by the end of April.
Let me caution you that the term operational is not necessarily uniform across all of our is sees in some cases it could mean fully operational status. While in most cases. It means only partial operational status for example limited days when a centers open or reduce capacity or potentially both.
As a result, whereas our weekly volume at falling to below 40% of normal by the end of Q1 and as low as 10% of normal during April we are now at approximately 25% and improving although we can't yet predictive sustainability or the extent of any improvement at this point.
We are encouraged with some states and helped US and said now just recently started to lift restrictions on elective procedures.
We're diligently monitoring procedure scheduling patterns, but just remains too premature to reliably communicate any expectation around when our case volume could begin to rebound in meaningful way.
Rich with respect to business development, while we remain active dialogue with potential targets and partners as the sure noted we temporarily suspended acquisition spending until we're sure our prospective partners have restored operations to an adequate level.
We expect to resume normal travel and increase BB activity. Once some of this uncertainty lifts, but we're currently unable to predict when that might occur.
Our team remains engaged actively prospecting for acquisitions and all the prospects, we hope to share more with you during the second quarter earnings call.
As a side while the circumstances on unfortunate we think some of the financial strain on many of our target provider groups could actually work to drive more BD opportunities. This year age as these businesses begin to view their anaesthesia operations as transactable sources of liquidity for their core operations.
Now turning the call over to Tom Sanders.
Hi, Thanks, Jay Good morning, everyone. Prior to that Kogan outbreak Reagan revenue for January and February was up 9% over that same period at 2019 before experiencing the fall off in mid March due to the pandemic impact on G.I. visits.
First quarter Reagan sales totaled 2.3 million decreased 5% first quarter 2019, we reported segment adjusted operating EBITDA of 1.2 million, representing a 54.1% margin.
Coming into 2020, we've begun to initiate additional practice support measures aimed at identifying and treating more patients to drive revenue growth.
Targeted program, placing greater emphasis on maximizing the real potential of our installed base retraining position, particularly in practices, where usage had decreased as we ramp back up we'll continue to engage in EM retraining, yet retraining initiatives, while qualifying new inquiries to identify the most efficient opportunity just to deploy.
Our training support resources. In addition, we've utilized available downtime to evaluate process improvement opportunities for sales and training.
We are working collaboratively with some of our top partner practices to identify best practices and hemorrhoid treatment growth opportunities. This includes working with them to better understand their patient data and identified the proper patients educate providers on curative treatments and grow hemorrhoid banding volumes that were spots within the last week were beginning to see our customer.
Our practices engage syndicated by orders in the rescheduled trainings, we believe post cobot opportunity for series CRH or Reagan remains as high as outlooks I'll now hand, the call over Richard Bear, our Chief Financial Officer.
Thanks, Tom we reported consolidated.
Q1 revenue of 25.5 million.
Maybe kind of 12.6 million compared to the first quarter 2019.
Total adjusted operating EBITDA for the quarter was 7.5 million compared to 13.1 million in the first quarter 2019, adjusted operating EBITDA.
A little to shareholders was 4.9 million during the quarter.
We finished the first quarter of 2020 with 13.3 million in cash.
And equivalents and total borrowings 70.5 million.
We generated free cash flow 5.6 million after distributions to Noncontrolling interest.
We note that these distributions were suspended in mid March as result of Cobot Nike.
I'd like to comment a bit more about steps, we've taken that will help us mitigate some of the impact has come in 18 on operational and financial metrics.
We have reduced staffing cost as much as possible primarily in our 10 99 third party provider workforce. Additionally, we reduced by must be paid.
For much of our senior executive team and to a majority of non provider employees.
Prior to March 31st we too are down 5 million from our credit facility declared distributions to joint venture partners.
The necessary steps to participate in several release programs.
Additionally, as to showing Jay both noted we temporarily suspended oriented each acquisition program.
We also decreased capital allocated towards share buyback program or the preserve liquidity and maximize operational risk readiness.
At March 31st 2020, we get drawn 70.5 million on our credit facility. The facility includes 125 million committed facility.
What's an accordion feature that increase available credit the 200 Nelson.
I'll now turn it over to sharp.
Thank you Richard.
In closing I'd, just like to comment on a couple of the targets that we've provided on our fourth quarter earnings call first with respect to revenue per case, although we were pleased with our first quarter revenue per case, we're pleased that had met the expectation that we communicated on our last conference call.
We are temporarily withdrawing our 2020 target ranges given that Nick current nature of the operating environment that we're in now and the reduced ability to communicate reliable rate expectation.
We assure investors were continuing to make progress on our rate strategy, but unpredictable volume unpredictable case mix dynamics here will likely yield rates in the upcoming period that just would not provide stakeholders with a useful insight on the progress we're making.
Second as we've noted a few times in this call Weve curve the pace of our acquisition program as such our acquisition related capital spend may not achieved the risk recent historical levels.
As we indicated we might before in closing I want to thank our leadership team and employees for their hard work. During this crisis, we remain confident in our long term strategy remain committed to the to providing outstanding service and care to our customers.
The necessary steps that we've taken to mitigate the cost and conserve capital should allow us to navigate this crisis, while same time, ensuring that we can be in a state of readiness as volumes begin to normalize.
So with that we will take your questions.
Thank you ladies and gentlemen, we will now begin the question answer session should you have a question. Please press star followed by one on your Touchtone phone you will hear three tone prompt acknowledging your request and your questions will be pulled in the order. They are perceived should you wish to decline from the billing process. Please press star followed by two if using a speakerphone please lift.
Our hands that before pricing any keys, one moment for your first question.
Your first question comes from David Martin with Bloom Burton. Please go ahead.
Good morning, everyone a couple of questions for you.
The first one is prior to cope with did your A.S.C. partners have much excess capacity. So if there's been a backlog dole top but during the shutdowns or do we expect a spike in business following coal bed.
Take a shot that this is Jay Krieger, David Thanks for the question I think generally speaking most at fees run at a 75% to 80%.
Capacity level of they also have the ability to run saturday's, if they want to or later hours.
If they wanted to increase that capacity more show I think the pent up demand is something.
That we could see actually a at least the short term bump.
In historical volumes.
Okay. Thanks.
Historical like.
Hi next question how much can you tell you treat down your Anna Ccs service expense if an S. C. Close is can you for all the employees without any salary without any severance.
Let me, let me start, but let me start with Alan This is Richard So we have three types of staffing models. We have 10 99, we have third party providers and we have W. Two providers.
So the easiest stress.
These expenses for us to for us to control would be the 10 99.
And then the third party providers and W. Two of the would we did.
Or low as many of those as possible.
Okay do you have any visibility on on what Youre in a Ccs service expenses going to be in Q2.
Me, we we're doing everything in our powers to control the cost most of the cost on the indices expense I'd relates to providers.
So as it relates to.
The 10 90 nines and.
Third party providers those expenses are dropping down as far as possible and there'll be some cost associated with maintaining at some level of the W. Two providers.
We don't have a specific we're not providing specific guidance on what that number is going to be.
For Q2.
Okay and my last question is there the rate strategy, you mentioned that a rule improved visibility on pricing you know once were beyond coal that doesn't you execute the full rate strategy is that expected the rate per procedure will go down or will go up.
See increased visibility.
David to share.
That's it's hard for us to project that which is the reason that we the sort of withdrawn our guidance you know we're not anticipating changes in our in our previously communicated are expected rates, but we really just don't know if.
We don't know if and when we're going to be able to get the payer to negotiate and a and engage so I.
I think timing is an issue for us.
Okay. Okay. Thank you.
Your next question comes from Richard close with Canaccord Genuity. Please go ahead.
Yeah, Thanks for the questions [noise].
Excuse me I'm curious a your operate and various states I assume some are.
Reopens some are not so yeah with respect to the 25% level that you mentioned.
Can you maybe you get a day.
I assume that's the company average across to all the centers can you maybe provide some details in terms of.
You know maybe what the percentage is in the states that have opened up obviously, Georgia and Florida you guys are in I think South Carolina as well those are open.
I.
I assume Texas.
But you're maybe the Washington.
It's not open and Massachusetts, I assume as well so any anyways.
Any details there that could be helpful. In terms of what is happening in the reopen stakes.
Yeah, Richard it's Jay Thanks for the question to clarify that 25%.
Represents a case volume not an assay opening volume.
And so what you may have as you may have a multi site.
Group, who only have one or two of their multi multi sites open because they are consolidating volume.
So it's it's hard to say what we've seen is we can we track every single site on a daily basis. So we have a look into what our forecast is at least in the next few days of course, it that it's ever changing with Covance.
Some of those states you mentioned like Washington, Massachusetts are just beginning to open a this week or next whereas some of those other states that we are heavy in such as Georgia, Texas, Colorado had been opened for some time and it's just a matter of their volumes getting backup to normal levels, so but the 20.
5% really just represents our the percentage of volume.
As compared to our baseline.
Okay.
And then as we think about Oh ray good.
You know a I would I suspect that you know because of the the fall off overall or.
Volumes, not only old Reagan, but other procedures you do you envision that maybe the value proposition as you go out and try to market that improves as providers try to get on maybe catch up.
Or increase revenue streams I'm not sure if you'd had discussions during this the the.
Emerging into a situation or not just trying to gauge in terms of maybe appeal benefits that.
From this once things to open up.
Sure just argument it ticked I'll take this problem sand yeah. So so yeah. We believe we spent a lot of time deal Reagan team has because we've had we've had time to early look and do a lot of analysis and actually still engaged with.
Wait a few of our practices so to your point exactly as I think there, it's an opportunity or Reagan because it's not that doesn't need to be performed in a surgical center, there's opportunities and practices are looking now like you said did game to look for revenue opportunities spoken existing services, they've got where we sit nicely there and do answer.
Areas, where we also can strategically said I'm kind of looking at banding out as Marvin ancillary. So so we're.
Optimistic and that's been kind of them kind of.
Basically backed by some of the discussions we have their practices I I believe it's there's a really good opportunity for us there and we are ramped up to kind of change that messaging that not format. So.
Okay, and then maybe a question for Richard in terms of the distribution.
I understand.
Holden that off.
What are your thoughts in terms of get a when the distribution starts back up it's a good on when you hit a certain kind of steady state I'm in terms of cases or any thoughts with respect to that.
Good question, Richard So distributions will commence when we look good.
Comfortable that collections have commenced and we can meet future cap working capital needs without requesting capital calls from our joint venture partners.
Okay. Thanks for the questions and answers.
Your next question comes from Doug Miehm with RBC capital. Please go ahead.
Yeah. Thank you couple of questions I guess the first one is are you getting a sense of how your patient population, which typically over 50 is thinking about going back to health care sites.
We have observed that yeah outside a co visit a lot of hospitals and other types of clinics are well below normal juice, saying that that could remain that way.
Until we get that maybe 2021 or after vaccine. Thank you.
Doug just to show up again, thanks to the questions Mike.
I think look this is one giant experiment right I don't know than anybody really knows.
The psychology, the patient groups or what the dynamics are gonna be as they come back what patient flow looks like the new procedures or for that for shielding et cetera.
But same time, there is some level of urgency to some of the procedures that underperformed, which many of the procedures that are performed and they can be deferred for some point, but at a certain time, they do need to get done and so I think that there's going to be a base level of demand and based that face level of volume that just has to get done some of the stuff at the margins will depend on.
On not just people's comfort, but.
Deficiency that these centers can operate on once we're back up and running.
Yeah, there's a lot of uncertainty there I guess is really what I'm trying to say.
Okay, No that's what I thought, but just was wondering if you had a better gauge it based on commentary on it but that's fine.
Second when you touched on briefly just with respect to capacity utilization I know that Jay mentioned normals around 75 to 80, but if social distancing measures or some other types of measure it's not to beat but put in place once that 75 to 80 likely to drop to or.
In the event they do have to do that they would open up on a saturday or something like that I know this is all sort of notional, but and could you give me an idea.
Oh, okay, but some of that color, but I will tell you that all of our partners are prepared.
To be able to extend their hours and ER and try and capture as much of the the pent up demand as possible.
But jay good.
Sure well I'll clarify my comment about 70, 580% first and I don't know that that is a a plan to current generally physicians build their endo centers to meet their needs and that includes how many rooms. They have how big the center is some of these centers are.
Built with larger footprints that will accommodate.
You know potential screening areas or social doesn't seem that that you referenced.
Others may not and it may require them to either make some changes functionally or even a construction wise, but others may just do it with their time schedule like to shore said I think it's too early we had groups right now that have told us that they are already up.
At a at a high percentage, you know greater than 75% running and they're not seen any difference in the efficiency of how their center is running and then those that haven't gotten to that level. Yet we don't know what's going to happen well they fall into that category or will they be less efficient I think it's just too early to.
No.
Okay. That's that's great answer.
My final question just has to do with on the private pay side do you have any idea of how many people may have lost insurance that we.
You would consider potential clients.
We wouldn't have visibility into that we know that unemployment levels are at an all time high.
You know and that's primarily service industry related.
But to correlate between you know.
You know.
Like it type of insurance service related industries have versus other related industries, we don't have that level of information.
Okay, great. Thanks, very much that's that's what that's one of the reasons why were you don't withdrawing guidance because the payer mix dynamics.
Something that we just don't have visibility into right now.
Thank you.
Your next question comes from Andre Leno with National Bank. Please go ahead.
Hi, Good morning. Thanks for taking my question is that a couple from me up first I was wondering if you have any visibility into conversations with our partners of how re bookings are and go and let's say for June or July or August got beyond that any of the procedure that are being canceled are they being booked at.
All I need to the ability our common.
Well as Andres Jay Thank for the question groups all groups are.
Every day booking new cases.
It's just a matter of how far out in the future of they book them.
What we're hearing is that they all have two to three month backlogs at a minimum a and so it's really more matter of when they can book them in and how long it takes to catch up to that pent up demand.
What was the other part I'm sorry, what was part of your question.
No no doubt that when I was just.
Wondering if they've seen any kind of ER optic right like so yes. There is backlog, but are those cases that were being canceled or being re bucked at all the i. I don't like Cabot tend to deploy get all.
Yeah, I think initially when cobot started no one knew how long it would take in so they were rebooking those cases at the time.
And then once it became apparent that they're there there was an unknown to the end. They just started canceling the cases or with the idea that they would rebook at a future date that has now begun that there seems to be a light at the end of the tunnel for most of these groups and so they started rebooking again.
But how their priority is taken I don't really know because each each group the a little bit different but they're filling the schedules as much as their open.
Okay, great. Thank you that's a great answer the other question is on the Oregon side have you seen or do you expect a any issues in terms of inventory or our production there at all when things start ramping up.
Richard.
Tom I'll jump and.
Oh go ahead. Please go ahead and I've got good Richard.
Yes, no no issues I mean, we maintained.
A number of months of.
Supply of their Reagan system, and we're always we're always.
Looking on Newbuilds, that's our contract.
Provider, so no impacts to inventory during this shutdown.
Okay, Great. That's it for me thank you.
There are no further questions at this time. Please proceed.
Okay, well with no further questions. Thank you operator, and let me. Thank everyone again for participating. This morning. Thank you for your interest in CRH and we look forward to speaking with you again next quarter. Thank you.
Thank you.
Okay.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and I said you. Please disconnect your lines have a great day.