Q2 2020 Tenet Healthcare Corp Earnings Call
[music].
Greetings and welcome to the credit Health Care Corporation second quarter earnings Conference call today's call is being reported.
My pleasure introduce your host Regina Nethery, Vice President Investor Relations. Please go ahead.
Thank you.
Have you join us for discussion of Kinda second quarter 2020 results, including an update on the impact.
Team pandemic.
<unk> senior management participating in today's call will be wrong, but Meyers executive Chairman and Chief Executive Officer.
The Taria, President and Chief operating Officer, and Dan Cancelmi, Executive Vice President and Chief financial.
Pardon me Chief Financial Officer.
Our webcast. This morning includes an accompanying slide presentation, which has been posted to the Investor Relations section of our website at <unk> Dot com.
Well, it's nice to this call are advised that certain statements made during our discussion today are forward looking and represent management's expectations based on currently available information actual results and plans could differ materially.
Kinda this under no obligation to update any forward looking statements based on subsequent information.
Investors.
Cautionary statement slide included in todays presentation as well as the risk factors discussed in our most recent form 10-K subsequent form 10-Q filing and the other filings with the Securities and Exchange Commission.
With that I'll turn the call over to Ron.
The agenda and thank you all for joining us today.
[laughter] may and June in our view represented three different stories, which might be having unique characteristics in challenges to navigate mitigate and overcome the pandemic were forced us to revisit every aspect of our business and any credible case importantly, they required us to adapt our response it.
Every step this family care for patients to protect our teams.
Sure, we could maintain our ability to serve the public health needs.
So with April it was by any measure an unprecedented moment.
Great and an immediate urgency to cost every aspect of our business.
Already discussed a boom in some detail and our June update so I'm not going to comment beyond the facts as shown in our slides on volume and in slide six which we did add upward for transparency purposes on monthly the Dol that April was a significant negative financial impact to the company.
The mandate to eliminate elective surgeries and stay at home orders, while I'm sure everybody acute care hospital was fully open staff as well as some U.S.P.I. facilities.
Revenue took an unprecedented drop what I'm most profitable margin business USPI, taking your greatest immediate head as their revenue dropped by over 80%.
That was the cost to restructure the entire company to respond to pandemic by relocating our teams at home, adding you're tracking systems and deploying resources control information was actually dispense mid April quite an interesting challenge.
But.
We could move quickly in unison and the determination focusing on patients and moving decision to action in effective and efficient manner.
We never allowed ourselves to be overwhelmed.
As we entered May we developed a steak reopening across the network.
Implemented separate cataract care pathways for koby patients he ours inpatient units and outpatient services to minimize the risk of transmission.
We also continued to actively screening patients presenting for evaluation of cobot to virtual visits offsite locations in emergency services.
Markets amplified engagement with our physicians and increased patient education, and marketing resources focused on a cold it's safe awareness program at the local level. We also coordinator wouldn't physicians and patients to very deliberately schedule procedures and to add that to add back the staff.
Based on the demand curve.
This is been a very important part of our recovery effort as we make sure we did not add staff too early or too late.
Our next PR facilities ramped up quickly with heightened coordination across all departments in our health system partners.
Hi, good visitation of rigorous prescreen, and then take protocols to identify at risk patients as well as redesigning patient flow were key actions to take to de risk our facilities and our staff or ambulatory centers also provided a critical access point for care in locations to treat patients not suffering.
On the virus, but not in surgical care that may have been on available now hospital due to cope with.
Well, maybe volumes demonstrated the beginning of the recovery.
Core metrics, while much stronger than April troughs, we're still well below pre cobot levels markets with Covance surges that were ongoing such as in Michigan, Massachusetts, New Jersey, Pennsylvania, California, We're all much more impacted what are hospitals or ambulatory business.
Jamie was the turning point, where we regained the cadence of operating our business with greater insight discipline and data driven decisions that drove much improved performance as executive orders were lifted or use the most of our markets bargains in June continued their upward trajectory with admissions answer.
Surgeries in our hospitals in our USPI facilities are reaching 90% of pre cobot levels.
We're also pleased with the mix and acuity, we saw in terms of hospital Readmissions.
And on the USPI side, even when excluding grant income we drove double digit increases in our net revenue per case, both in the month to month of June and for the second quarter, primarily due to a higher case complexity and a more favorable payer mix that will likely moderate over the balance of 2020, but it is a clear is.
Indication of the importance of our ambulatory division and its impact on our overall business business.
All right most others in our space, our ambulatory business impact a significant to our bottom line. So what are your forced to shut it down we feel a more significant impact than others. Likewise, when we bring it back online as in June we can see the positive impact of how this operation fits within our overall portfolio.
And our hospitals outpatient and we are visits we moved the needle into right direction from when we spoke to in mid June we raised improve further and we believe this is a byproduct of patient comfort levels on accessing hospital care.
We focused our marketing efforts to ensure our communities that are hospitals are safe with designated Covance safe areas. The message we delivered both through our hospitals our positions is that new health can't wait and delayed care can create profoundly serious health issues for our patients in both near and long term when beginning.
To see consumer confidence coming back we believed that focus is really working.
Our results in the quarter and particularly in June underscore the ability of the business to adapt flex and perform and provide clarity that we will deliver at or above expectations. Even in times of a crisis on a non cures act basis, we generated EBITDA of EBITDA in June of 218 million.
That was only slightly lower than our prior year results for the month and underscores we can deliver.
While we believe given the continued cobot searches, which we are managing well in several markets setting guidance at this time would not be feasible. We do strongly believe June is representative of how we will recover.
Our performance on a non tiers at bases of $280 million for June as shown on slide six was inline with our original budget expectation.
The changes we've made during the quarter our permanent their sustainable and they will continue going forward as I said June was the turning point for us to believe we made the right changes developed a REIT structure to address our performance as a company going forward.
Now I'd like to touch on some other key contributors to the results in the second quarter.
First let's start with the Cures Act, which was without a doubt in important bridge to minimize the financial crisis created by the shutdown of our revenue in April.
And help to mitigate some but not all of the adverse effects on our business created by the pandemic.
As required by the needs driven by Cobot 19 pandemic, our operations remain fully staffed 24 hours a day seven days a week.
In every case, we absorbed significant costs to maintain this open status without revenue both in terms of volume and price mix to sustain the costs.
The cares that was instrumental in ensuring we did not ever financial crisis, while we were fighting a pandemic crisis.
Allowing our main effort, which is to care for patients Advacare site to go forward uninterrupted.
As I've already said to provide full transparency on the cures Act financial implications, we created slide six which outlines adjusted EBITDA, both with and without grant income by month, providing a complete deal to support that was vital to our ability to provide this on a ripped uninterrupted here.
At the same time with no way of knowing how long. It was last we prudently took steps to address cash flow.
Again, the care Zach stepped up with CMS, providing based on history, a six month advance payments to our hospitals and three month advance to our ambulatory centers.
This was incredibly important eliminate a potential cash shortfall.
Requirement to begin repayments of these dances starts this month and has to be completed by April which is aggressive considering the surge of cobot cases being addressed.
Hopefully Congress will allow more time to these repayments.
It's not changed by Congress, though we expect to achieve the repayment date.
Internally. We also took a series of actions to further into our liquidity was solid.
We increased our credit line in April and Additionally place to secure note offerings during the quarter.
While we would not have done these placements were not for the extreme uncertainty the pandemic they afforded us additional adequate liquidity moving forward.
We're confident in our liquidity position and believe we've taken prudent steps to remote remove this as a concern.
We also implemented a series of necessary targeted cost actions in Q2, so we could redirect additional resources to our response. These actions build from the efficiency initiatives, we began implementing over to over two years ago to evolve the organization into a more effective operational structure.
With the pandemic hit it resulted in us moving even more aggressively to go deeper and use a different lens to ensure more effective environment, which created and more importantly, with sustainable every decision was tested and informed by learnings and analytical tools, we have developed before and refined.
During the pandemic.
The changes are permanent and have made our operation stronger in leaner.
Addressing the increased the issue of increased costs related to covert care, where costs are more substantial than typical inpatient admissions really involve various factors, including longer length of stay expense expensive contract labor and additional use of supplies.
Overtime, we were able to develop a more targeted approach to manage those incremental expenses, including cohort care.
Enhanced utilization of pp without compromising safety and of course staffing to demand again, well thought out solutions that are permanent and we can deploy them as needed across the enterprise.
I also want to address how we have adjusted day to day Labor management as I noted earlier, we had to strike the right balance in terms of calibrating staffing to demand in both the ramp down and the ramp up period as well as in hotspot areas.
The real time data driven dashboards, we created during the pandemic.
Had been instrumental in informing our response our teams are constantly improving data in two each system to closely monitor staffing.
Additionally, also monitoring PBT supplies.
Medication equipment and bed capacity the ability to capture real time inventory levels of crucial things means we can dial back or accelerate as needed keeping us balanced throughout the system and ahead in meeting the demands of our commissions and facilities.
These systems are supporting our needs and enabling us to transfer nursing sporting supplies other facilities when deem necessary on USPI side as we've said before our approach here was to bring back our facilities online or by O are not center by center may seem like a subtle distinction buy.
Jordan as it helped us to move forward with a higher level of effectiveness and efficiency.
These processes have been have been instrumental in ensuring we have a tight and aligned approach in every hospital and throughout USPI.
And finally, our global business Center Manila has played a critical role in providing us with dedicated high touch support 24 hours a day.
We see an excellent performance from the global business Center, and we continue to increase the leverage even throughout the pandemic of this highly effective in skilled team.
Addressing conifer, which delivered really strong revenue cycle performance during the quarter. The teams move more diligently on cash collection and helped deliver liquidity as industry volume and revenue contracted.
Based on the actions, we took to reduce span and conifer's collection performance, we did not burned through a material amount of cash in the quarter, even when you exclude the Medicare advances grants in the payroll tax match deferral.
Conifer's work in the last corner is a testament to better operating discipline customer focus and a more rapid pace of execution instilled by focus leadership.
The first six months of this year conifer's improved quality efficiency by shifting selected cycle functions to our shared service center.
Which we anticipate will generate modest benefits in the second half with more notable growth overtime.
We've also implemented additional training to ensure frontline team members are well equipped to drive high quality patient satisfaction amidst the pandemic and as part of our continuous improvement philosophy.
And finally, we have recently made some great new additions to leadership, which includes a very strong new chief operating officer, and a great New chief commercial Operation Officer.
Both of them started in late June in a ramping up quickly given their deep health care background and experience in the space.
And as it relates the conifer spin despite the pandemic, we still believe we can achieve the timeline previously announced.
Beyond that there's nothing more to offer on the schedule at this point.
Finally, before I turn it over Dan I want to make a few closing comments.
The pandemic has been a challenge, but we also have learned much due to the meeting nature, having to revisit every aspect of the business. Our last two years of continued change was instrumental in providing an effective platform to rapidly build on these changes.
We had solid operating and financial momentum entering March.
And we have exited June with financial momentum.
And with.
And with a clear cadence with solid non cures Act EBITDA performance as represented in June a stronger better informed team across the enterprise and awareness of the importance and effectiveness of how we are aligning our ambulatory and hospital portfolio going forward for country.
Hi, good success.
We've reduced our expenses by over 12%, which is best in class.
And while we have continued cobot surges, we have shown in Blue Bar organization has the leadership skills and tools to continue the momentum.
Guidance will come but first we need to lock in our visibility we are focused on continuing an effective response and in doing so controlling the controllables.
We remain committed to absolute transparency and keeping you updated as we havent over this last couple of months to the greatest extent possible.
And I also want to close by thanking our caregivers and support staff, who remain resolute in our efforts to serve the needs of our patients and to do everything possible to reduce the rate of infection in our community.
We're proud to say that our staph infections in our hospitals have averaged 1.3% versus 16% nationally.
They are the heroes and we thank them along with all who have been first responders across the country and without whom we would not have achieved the results of where we are today, so with that I'll turn it over to Dan Dan.
Thanks, Ron and good morning, everyone.
I also want to thank our caregivers and employees across the entire company. We're very proud of their incredible capabilities and continued dedication to exceptional patient care as well as a team oriented approach that is allowing us to adapt quickly without impacting the quality of care for our patients.
I'll begin my remarks with slide four.
Our patient volumes cost management and earnings significantly improved as the quarter unfolded.
The entire quarter, we generated net income from continuing operations of 88 million compared to 24 million last year.
And our adjusted EBITDA in the quarter with 732 million.
Which was significantly better than our expectations.
And analyst expectations, even excluding stimulus grant income we received.
As we move through the quarter and restrictions were east we carefully ramped up our facilities to provide essential health care services for the communities we serve.
We were also diligent and adding back resources to meet the care demand as it grew through the quarter, rather than simply adding back cost at pre covered levels and assuming the volumes would returns.
We certainly appreciate the stimulus relief aid received quickly from the government and we were able to recognize in the pay now.
523 million of grant income.
Which partially offset the significant amount of expenses required to keep our hospitals open and our loss revenues as a result of the pandemic.
As you can see in our release, our operating revenues declined.
912 million compared to the second quarter of last year.
Let's turn to slide five in review, how our volumes evolved over the past several months.
We've been pleased with the volume improvements as the low point in April as a reminder, three lords before the pandemic took hold we're off to a good started the year building on our momentum from strategies.
We had been working on through 2019 and the early part of this year.
As restrictions were used by state and local officials volumes and May began to recover and continue to build in June as we work closely with physicians and patients to assure them of the safety of our facilities.
In the scheduled procedures.
As a result in June we recovered about 90% of pre covered levels for hospital admissions and surgeries.
And our USPI team grew its surgical cases back to about 90% of pre covered levels.
As we mentioned before hospital E R and outpatient volumes continued to rebound as well, but at a somewhat more moderate pace.
Another encouraging trend is that our volumes in July have generally held steady or improved compared to June. Despite the spike of carbon cases in July in many of our markets in Arizona, California, Florida and Texas.
Let's now move to slide six which reflects our EBITDA improved substantially as we move through the quarter, even when the stimulus grant income is excluded.
We are sharing this monthly information externally in the interest of full transparency given the unprecedented nature of the pandemic.
Reporting monthly financial results is unusual and we are not committing to do this long term, but we thought this information will be helpful. For you to understand our trends in this difficult environment.
The top section of this slide shows our monthly EBITDA in the quarter without the grain income the middle section of the slide highlights. The grant income relief, we were able to recognize.
And the bottom section of the slide summarizes our EBITDA, including the grant income.
As you can see in a top section of the slide our monthly EBITDA, excluding brands improved from a loss of 123 million in April to positive EBITDA of 218 million in June.
There are a couple of important points I want to mention.
First our EBITDA in the quarter, excluding grants was 209 million, which came in much stronger than we anticipated when you're modeling various scenarios at the outset of the pandemic.
Another important point is that our junior EBITDA of 218 million, excluding grants was better than our original budget develop at the beginning of the year before covered.
Despite the fact that our June volumes were 10% to 20% lower than our budget and last year and depending on the metric you look at.
This demonstrates that are necessary cost actions were effective and how we diligently ramped back up our facilities.
Helped to offset the impact of the loss volumes in June.
Next on slide seven.
I want to discuss our cost performance during the quarter.
We can always do better, but our operators did an exceptional job managing costs given all the pressures they faced.
Our continued focus on cost management together with the necessary reductions as a result of the significantly lower volumes did occur bid.
Drove a dramatic year over year decline in our operating expenses.
As you can see on this slide.
Consolidated expenses declined by 475 million or 12% and our hospital segment operating expenses declined by 377 million or 11%.
We believe our cost management in the quarter was very strong, especially since our Detroit, the Massachusetts markets encountered elevated levels of carbon patients in Q2, which constrained our ability to reduce costs in those two markets to the same degree is our other markets.
As Ron mentioned, our adoption of the use of additional real time data over the past several years allowed our operators to respond quickly for the pandemic and make the necessary adjustments to cost levels as volumes declined.
And as volumes began to ramp backup.
Over the past several years, we've been effective it identifying and executing on cost efficiencies and managing our costs, but when this crisis began our teams across the company, Doug even deeper and step to the plate and realize more profound actions were necessary to manage through this panel.
And they delivered.
Although these type of cost actions are never easy they were necessary and make us stronger as we continue to recover.
Let's go to slide eight and review our cash flow during the quarter and how our cash balance increased 2.9 billion in the quarter.
In recent updates we've provided I've talked about our expectation to not have a material cash burn in the second quarter.
As we anticipated based on the actions we took to reduce spend.
And conifer strong cash collection performance you can see we did not burned through a material amount of cash in the quarter.
Even if the benefit from Medicare advances the grants the payroll tax matched deferral and the net proceeds from debt transactions are excluded.
As a result of our improved liquidity, we were able to fund 79 million for the company's for one k. match to employees that was deferred from the first quarter due to uncertainties as a result of the pandemic.
Before I wrap up my remarks, let's turn to slide nine to discuss our liquidity.
We currently have sufficient cash resources and available liquidity under our 1.9 billion line of credit facility.
As of yesterday, we had approximately 3.1 billion of available cash on hand, and no borrowings outstanding under our line of credit.
We took various important actions during the quarter to enhance our liquidity position and appreciate the support we received from our investors and banks to accomplish this along with the critical pandemic relief aside from the government.
I also want to mention that we received additional stimulus green proceeds in July.
About 150 million.
Which will help to partially offset lost revenues and costs.
We've been absorbing as a result of the pandemic.
Which are greater than the total funding we've received today.
With respect to capital expenditures I want to emphasize again that our planned reduction this year of about 40% was based on very specific project by project analysis.
This is the target approach with individual projects evaluated at the senior level of our company.
We want to ensure you that we reduced spend in the right places to allow for continued investments that position us for growth as we recover and get pass the pandemic.
We also continue to evaluate other opportunities to enhance our liquidity, including our expectation that the sale of our Memphis facilities will close by the end of the year.
As well as pursuing the potential sale leaseback of certain medical office buildings, if the economics makes sense.
From a debt perspective, we do not have any significant maturities until April 2022.
However, we're very mindful of the unsecured notes scheduled to mature in April of 2022.
As a result in June July we repurchased 239 million of the 22 notes and we will continue to evaluate further repurchases depending on market conditions.
We remain committed to improving our cash flow generation and lowering the total amount of our debt and leverage.
We realized many of you may have questions about our projected cash flows in Q3 and for the remainder of the year.
Due to the uncertainties of this environment, we've not provided earnings were cash flow guidance for the rest of year.
Although I do want to remind everyone that we will begin to repay the Medicare advances in August it have to be repaid in full by next April unless Congress acts to extend the repayment terms.
However, I can assure you that we're very focused on cash flows and executing on other liquidity opportunities.
Fortunately, we continue to believe we are well positioned from a liquidity perspective to confront these challenges.
Once again I want to thank all our caregivers and employees for the remarkable efforts over the past several months it as a reminder of how inspiring health carriers.
With that I'll now turn the call back over to run.
Thanks, Dan I have nothing else debts. So on it we just move ready to questions.
Thank you another conducting a question answer session, if you'd like to replacing the question Q. Please press star one under telephone keypad, a confirmation tone will indicate your line is in the question Q you May press star too if you like term over question from the Q.
Participants using speaker equipment, and maybe necessary to pick up for handset before pressing star one one moment please poll for questions.
Our first question today is coming from Ralph Jacoby from Citi. Your line is allied.
Thanks. Thanks. Good morning. So the July trends, obviously were helpful. Can you, maybe just give us a little bit more offensive trends by either state or major markets. Since your footprint. Obviously covers areas currently in hot spots and other areas that sort of hit peak earlier, just trying to get a sense of parents there. Thanks.
And Ralph ITSM.
Just a couple of points about July as you know the from the news the covered hotspot activity.
It's probably affecting our markets the most on the hospital side.
Would comprise Arizona, Texas and Florida.
That's obviously different than what we saw in the first part of.
The pandemic surge in April and May so the markets have changed the strength in July reflects a of the volumes reflects a couple of things. The first is obviously.
Our ability to have learn and managed.
The covered cases in the first wave and now being able to in parallel perform good coated care, but also maintained in a responsible fashion elective work in the hospitals. Despite covance surges and then the second thing is the markets that Dan referenced earlier, Massachusetts, Michigan and some of the.
The other areas may be in California that had initial covance surges, a demonstrated about ability to recover those markets.
Back to normal as their coveted.
As their coveted cases have come down and we feel very good about the fact that we can see markets that really went through a significant surge and the ability to bring them back.
Into a normal range very very quickly on the U.S.P.I. side the strength in the markets is broad based we continue to see strength in the markets, even where there is covered a hot spot activity because these centers, especially the as sees a really a respite from the activity.
In the hospitals and increasingly we're seeing physicians, making choices to come into those assets seized to perform necessary care and that's reflecting that is reflected in the strength of the ongoing volume recovery that you see on USPI side.
Okay. That's out that's helpful and if I could squeeze just one follow up when I look at the at the monthly EBITDA the 218 million in June.
I guess why wouldn't that be sort of a fair baseline or run rate as we think about the back half, especially if most of the volume metrics will seemingly get better as we move through the year or maybe you can help us with factors like seasonality or pent up demand or maybe cost coming back up as to reasons why that wouldn't be fair.
Thanks.
Your office, Dan Good morning.
Listen so certainly we were pleased with June as I mentioned.
Basically hit our original budget for June despite volume has obviously been.
Substantially lower than what we would we originally anticipated someone had asked me you know beginning of the year Haiti thinking you can hit your June budget, if your hospital volumes and surgical volumes are going to be off 10% to 20% or said I don't know, but that seems like a stretch. So I do think back to certainly a very good indicator.
Sure.
Of the actions we've taken as Ron pointed out the it will be able to stick and you know is is we moves through the rest of the year, obviously it depends on various markets and how coated.
Is up or down, but we think thats a.
Reasonable baseline to move forward and ultimately depending on what happens.
Covered perspective.
Okay. That's helpful. Thank you.
Banco next question is coming from Peter what's occurring from Deutsche Bank. Your line is alive.
Good morning, guys. Thanks for taking my questions to follow up on that June EBITDA very impressive considering impact volumes. So if you questions. There what was the pricing mix in June just trying to understand what the revenue impact was in June and given that you. Some more hard details exactly what the cost containment was.
During June and sustainability, all that as you roll into their carbon back half here.
Yeah, Hey, Peter Stan.
The next I would.
Let me frame it this way the mix.
Between the various payers Medicare commercial Medicaid and uninsured I would say.
The commercial mix was very much in line with our overall volume trends.
And in June and July in fact, it's gotten even better.
The commercial trends have improved in July.
Not surprisingly in the quarter, the Medicare volume moves a little bit softer than the overall volume metrics and on the hospital side as well as on me on the ambulatory side.
And for logical reasons.
It wasn't dramatic but he was somewhat softer than the overall.
Volumes Medicaid was pretty much consistent.
With the overall trying things slightly better and then uninsured the numbers are much smaller there, but uninsured volumes.
We're a little bit lower than our I would say a little bit you made the decline was a little less than the overall, but the mix was good and the mix is is fine in July which is very encouraging from a pricing perspective pricing was strong whether it's on hospital side or what.
There were on the.
Spy side that number reasons, one the the level of higher acuity procedures that were retained and performed in our facilities. It's a math issue right a lot of the lower acuity business.
Wasnt there in the quarter.
And.
And the the revenue per unit for the lower acuity businesses is lighter than here at higher acuity stuff. So there's a natural impact on the overall metric like pricing was strong and the is it the between the mix and by payer so.
It was encouraging as Ron pointed out listen as we continue to build back the lower acuity services through the rest of the year that overall metric in other net revenue growth on a per adjusted admission basis or per case basis. It will moderate as is lower acuity stuff comes back, but and you know when we were very.
Well position from a commercial managed care contracting perspective, and so you know we got good visibility into pricing.
Moving forward. So we're we're pleased with give you know revenue yield that weve been able to ever laws.
And then for follow up their August is typically a slow month to surgeons take vacations or any color for hospitals about how they see sort of on demand in August.
Do you think that the docs are motivated to work for the backlog can provide.
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And put out a couple of thoughts.
First of all.
And looking back over the past few years, I mean August doesnt soften that much.
We tend to have a pretty good cycling.
Through the summer of and staggering of physician vacations that this year I would say had a qualitative basis because of the covered surge that we've seen in July many of the specialists are booking cases into August pretty actively actually and we feel very good about that and yet when you look at the ambulatory business in particular on the ambulatory.
Surgery side.
They're performing almost 100000 procedures a month and the vast majority of those are new procedures that are booked and and and not.
Deferred cases from up from the backlog and that's a testament to the fact that the physicians are running their offices and attempting to ramp up their offices to full throttle to what they were before because they have ongoing demand. So we actually feel pretty good about the strengthen the trends all the way from.
The upstream activity to what ends up.
They end up choosing to put in our facilities downstream looking into August.
I actually think that on a go forward basis as the cycle of the Covance surge, which peaked in the second or third week of July in places like Arizona, and Texas, Florida still pretty high if those numbers continue to come down and create more capacity, we'll see we'll see a similar.
We'll see a similar type of effect in the hospital business.
As as well.
Great. Thanks much.
Thank goodness question today coming from Whit Mayo from.
Yes. Your line is that a lot.
Hey, Thanks, maybe for a for threat or so I'm not sure threats on or not that I wanted to hear more about some of the.
Changes that you guys made with scheduling and block time in the quarter are you, making any modifications to that going forward not sure if you're getting block time, yet just wondering what the response was from your physician partners.
Good.
Hey, wet outlook on spread eight yeah went I think we did a good job flexing down quickly.
To match the sharp drop off in demand in a short period of time, obviously when cobot head.
We flex down by about 65%.
Similarly, our governor keyboards, and our operators have done very good job as weve ramped back up our volume related to ramping up our capacity and staffing, it's obviously very demand driven.
But we put in place an algorithm to continue to ramp up our capacity in staffing in it in a very thoughtful and data driven manner. Our goal for our utilization and staffing is built offer most efficient and high margin month, which is December. So anything we can continue to ramp capacity with this high high bar for efficiency.
He will ensure we don't kind of over rotate in terms of opening up too much capacity for the level with demand at any one point in time. So generally speaking I think we did have a good job ramping down capacity quickly and obviously with the opposite intent of ramping up capacity slowly as demand came back.
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And maybe just my my follow up for Ron just any update it perspectives on some of the offshoring initiatives, how that's tracking versus plan out are there any productivity metrics that you can share just any surprises that may have developed in the quarter. Thanks.
Well, we have over 900 associates now.
In Manila, and they're doing very good they also had to.
Shelter in place country required that so we were able to bring them up.
Within a week pretty close to a week from home.
We had a very good from day, one built a very good business continuity.
Process, which typically is good over there just because sometimes typhoons and other storms do hit and requires that so from experience we knew that and therefore, we started that way.
But we came up very fast and we've had very good support.
Performance is.
Hi, 90% a level we added throughout this whole process, we continue to place more people over there.
So we've done some of that nature.
Nature numbers, but some of that and look it's going to continue to develop and we'll probably double in place.
Going forward without any issue maybe even more.
We'll see out develops but right now we're very comfortable with the process, we've got to a defined schedule laid out.
For the next six months and we follow with pretty.
Pretty religiously we it's interesting you know we started this last February and.
You know, it's gone incredibly well I don't know house to describe it we've been able to higher incredibly highly talented people.
For financial standpoint, I think Dan would agree that.
Financial standpoint, we've really added some some outstanding talent and so support wise, we've been we've been very good. So we're very pleased with it.
It'll continue to grow but we're doing it in a methodical way.
And so far I've got no concerns other than.
You know, we watch very closely during the pandemic, but they've gone through all of it so.
We'll see where where it goes but I'm very comfortable what we've got and where we're going so.
Great. Thanks for the time.
Yes. Thank you. Our next question is coming from Kevin Fischbeck from Bank of America. Your line is that lives.
Kevin Great. Thanks.
Wanted to ask about that that they can that the June at a run rate number you said a few times that you know that that cares money isn't really you know enough to fully offset what the impact it's been so far but I guess you Didnt book the full.
There's money that you received so far so we expect the rest of the 50 to be.
Okay at some point.
In the back half of the year kind of on top of that yeah gene run rate.
Hi, Kevin as Dan Good morning.
We'll be able to recognize you know a fair amount of it I can't say with precision the exact amount at this point it will be depending on.
The amount of lost revenues that we have to absorb and as well as additional costs for the remainder of the year.
Hey, listen if everything got back to normal and you know we were you know.
Bob you know at or above pre covered levels that would be great. That's a great story.
And we probably wouldn't end up recognizing as much but obviously coverage levels of spices as we pointed on certain markets here in July so we'll be able to recognize you know a lot of the money.
And the back half the year, it's by hospital.
Got it back to rubber raises a good pointed you have you look at it on hospital by hospital basis, So some hospitals.
We were way short other hospitals were over so we can only recognize based on need.
And again its allocated by hospitals so.
It's not allocated for the system.
Therefore, we have to work through that yet to figure out how that's going work so.
Okay, Great and then as far as the volume ramp that you guys are talking about some you mentioned that a lot of the volumes seems to be new volume coming in rather than looking up in inventory, but you know.
Your volumes were down 20% in in Q2 so.
Where is that 20% of volume I guess as far as and its profit to returning back through the system is there some percentage that you expect won't come back and any early thoughts based upon that the markets that aren't seeing code that is that how that will play out they're probably not but today.
Hi, Kevin It's it's I'll, let me, let me break this down between ambulatory business and surgery centers versus the hospitals first and foremost we're not anticipating that there was volume deferred the won't come back at some point in the ambulatory business.
The you know the rescheduling of cases continues its just the all I'm, saying is it's a minority of the cases that are being scheduled.
At this time and going into July and August that is certainly the case the vast majority or new cases that were not specifically deferred there are cases that are higher acuity. This really breaks down by service. There are higher acuity cases that have come back faster there lower acuity cases, and some types of preventative procedures.
Where people may delay those cases for for six months, but yeah based upon our relationships with those patients and physicians, we fully anticipate that those cases will come back.
Into USPI environment. It's just a question of when not everything is getting rebooked.
Immediately.
On the on the hospital side, it's a little bit different you have two types of deferred care. The first type of deferred care has been the reduction in emergency Department.
And you know elective outpatient type visits.
That were the result of probably a bit of.
People feeling fear of coming to a hospital setting it doesn't emergency visits eventually you know the patients will come back, but I'm not sure Theres. A makeup on those types of on those types of visits right. There emergency visits and come back when they have a need and the good news is into July.
We're seeing a very strong trend in all of our markets towards further recovery in the outpatient and emergency Department Arena as a with the same trend Dan described earlier, the commercial side, demonstrating significant strength relative to the to the overall mix from a differ.
Third elective surgical standpoint in the hospitals, we worked down a lot of that deferred activity.
In June and July, but its staggered based upon.
The cobot hot spots. So those facilities that did not have any coated.
Surge in the early part of April worked down a lot of those cases in May and June that has happened to be the markets. You know that are seeing a little bit more of a surge right. Now so were built building a second deferred list, which we will work down in August and September and then yeah. As I noted earlier the markets that were hotspot.
In April and May places like Detroit in Massachusetts.
They're ramping back up in June and July and we're seeing consistently strong results in volumes there working down deferred cases, but also booking new cases. So this is you know it's not going to be one answer for every market across the portfolio, it's really going to depend on when the coded surges calm and how we work.
Work them down and then ramp back normal operations.
Alright, great. Thanks.
Thank you next question is coming from Sarah James from Piper Sandler Your line is ally.
Thank you.
Get a better understanding how much of the pressure you're experiencing right now is related to demand first this capacity. So maybe you could tell us what percent of capacity is your last catch all operating at currently and are you able to flex locations across your system at suggesting alternate location.
Sure sure you that may happen open slot. Thanks.
I said, some let me let me just make a few general comments on that rather than getting into specific or utilization first of all.
In our hospital markets, we have where possible.
Cohort did are covered care in order to have scale of expertise care processes and other things available. So that we're providing the best possible care to those patients that has also been important to creating some capacity in space in order to allow people with needs whether emergent.
Or you know related to their chronic conditions to have ongoing access to surgical and procedure based care or even medical admissions that are necessary.
For those patients and that's that's been an important part of how we manage especially in our multi hospital.
In our multi hospital.
Markets.
You know from an ambulatory perspective, I would say that the ability.
To manage our operating room capacity effectively the way Dan described and breadth described has been critical to creating capacity.
Without necessarily bringing back all the costs related to having the centers fully opened all at once so we're not short capacity in the ambulatory environment. We are managing the o. our utilization to high levels in fact, better than we managed it last year or and then what.
Bringing operating rooms back online as the demand.
Continues to grow consistently grow in the ambulatory surgery environment. So we feel very good about that it also means that on a prospective basis as the volume comes back we are very confident about the ability to perform that business at consistent margins.
And just a follow up that it sounds like you're able to see the timing of the initial surgical referrals for your assay business. So are you able to see how much of the previously referred surgeries youve already.
<unk> bulk.
Okay to calculate.
Yeah, So let me again.
Emphasized a couple of different things one as you know if you think about U.S.P.I. on an ongoing basis in the surgical business. It's about a 100000 cases, a month roughly as a rough number.
That are that are performed there and again the vast vast majority of those in July and going into August as we look out at the schedule, our new cases and not deferred the cases that were deferred at that had been re booked which supported the demand that USPI saw in May and June.
And and also into July dropped off pretty quickly from the standpoint of what percentage were deferred and re booked versus new cases again that is not to say that certain types of procedures Gee I aerosolized in procedures and in things like Ian T. and others have not been.
Deferred for a longer period of time. So we continue to maintain those lists some of those may end up being deferred for for six months, but we continue to maintain those lists and I'm sure. Those cases will overtime trickle back into USPI based upon the relationships, we maintained with those patients and physicians.
Thank you.
Thank you. My next question is coming from Frank Morgan from RBC capital markets. Your line is ally.
Good morning, I was hoping you could maybe bifurcate between the markets that are actually back above 100% pre cobot levels. I mean, the averages are very impressive that things are improving but is there still an opportunity a lot of that.
Markets, where you you're still below 100% of of the a pre cobot levels and then the second question was just in terms that you.
You know you think about your ability to gesture staffing with these ebbs and flows.
That you had a win with demand.
It's just part of the new normal going forward I mean, it is there is this a model of staffing that sustainable over the long term. Thank you.
Yes up to two comments there the first Oh, yes to your first question remember we exited the middle of March and entered this pandemic with the fair degree of momentum in our volumes and the growth and development of our service lines across the hospital and and USPI portfolio was.
Not our intent this year to simply deliver a 2019 volumes. So our goal is not too, though we're measuring ourselves against 2019 volumes for the purpose of these discussions our goal is not too.
Ill end up at 2019 volumes, we had made investments and plans to grow the business beyond that and that's what we're continuing to maintain our focus on as we look forward, we won't be satisfied when we hit 2019 levels and and that's an important that's an important thing to realized in the hospital.
And the ambulatory business. So those markets that were really hit by Cove. It early on our recovering and yes. They still have more opportunity to come back some of the U.S.P.I. centers that were in states that were hit by covert hard examples New Jersey, Southern California, you know they also are continuing to recover and have more.
Opportunity to come back.
The good news is that the facilities on the hospital side that Didnt have a cobot surge really ramped back up in June.
Very very well and now that Texas, Arizona, and Florida have had a real coded surge we know how to deal with that we know what's the cycle. We know the cycle will go down and we'll wrap them right back up like we're doing in the other facilities. So you know there's in short I would say internally, we maintain our goal.
Yes above the 2019 levels.
Take to your second question Ron alluded to this in his comments.
The pandemic has been an opportunity for us to take our operating teams on the hospital physician and USPI side, and really rethink all of our cost structure, both variable and fixed that's an ongoing activity. So yes, we have developed a sustainable Nu Labour management process that Anna.
Politically driven and on the hospital side is being managed daily on the USPI side, they're managing their operating rooms, and the capacity and labor that they bring online for the demand on a daily basis. It's it's a new way of doing business and certainly a more efficient way of doing business. Obviously, there are employees that are not related to.
To frontline caregivers.
Where [laughter] that cost structure as we've learned to do things differently may not be necessary on an ongoing basis and we'll make some of those furlough reductions permanent and then finally, we're looking at and executing on in an ongoing process all of our expense in our purchase services.
And supply categories on a very active basis, because we have to rebase are what you know used to be considered fixed cost structure.
For the situation that we're in it I would expect that those savings will continue to develop and a crew through the second half of this year launching us into 2021 as a more efficient company. We've really also I think as part of that taken the of.
The basis that darn are fixed cost I mean, we really do believe that you know the concept of fixed cost bird variable costs. I mean, it is real we're not denying that but we cannot excuse the some of the overhead and stuff on the basis that its fixed.
So we are really pushing harder to variabilize.
Everything we look at and.
And therefore, it it makes us more aware of where we spend money, where we spent capital how we spent capital.
It's changed a whole approach I would say to our cost management. So.
Thank you.
Thank you. My next question is coming from AJ Rice from credit Suisse provided a lot.
[noise] hi, everybody.
Maybe just to follow up in discussion a little bit about your employee base or to what extent either looking back at some of the hot spots you had earlier or some of the new hot spots are you having to pay hero pay to any of your workers and then.
Think about Massachusetts, and Detroit some of the markets that have come out the other into little bit we've been hearing.
Notably at least some talk about people being burned out and maybe a little bit of a pickup in turnover are you seeing that anyway.
Just comment on your use a temporary labor throughout all of this how is that trended and are you having to use that to deal with hot spots now.
We we just run we haven't we haven't done anything different on pay we pay our people well and we ensure that people get paid timely and appropriately.
We certainly pay overtime and we have been we've had a fair amount of overtime and premium pay but we manage that also very tightly which helps reduce burn out.
But but clearly where we have pressure points people are working long hours and it's not just the frontline employees. The is the support staff. It's the team is to people in this room everybody's been pretty much engage since April with minimal time.
Really that you would normally think about especially over the summer, but turnover has not been exceptional anywhere significantly that we've seen.
But you know sounds you want to yeah, let me cover and I'm talking about as a corporation, so but going yeah. I. Just you know I want to add a little bit of color to that because you know I I think the caregivers across the industry and certainly in our all of our facilities have been working extraordinarily hard with the great degree of commitment.
To patient care, you know I think and I'll emphasize it again, because I think its among the most meaningful things. We've done during this covered crisis is we committed to early on to a co bid care framework and set of processes that would minimize the exposure to our staff related to co bid and.
Lot of the workflows, the P. PE processes. The choices, we made around purchasing those supplies was built around that principle and the reason we did that from day, one which we knew that this pandemic. Once we began to understand it could last for a very long time, and we wanted to do everything we could any.
Ambulatory business and the and the hospital business [laughter] to minimize those risks to our caregivers because we knew there would be putting in long hours for an extended and and potentially multi surge type of of pandemic and that's what we've seen and so I think that.
It's actually serving us well and look we are grateful for the supporting we've gotten.
Nurses that have traveled around the country nurses within our own system from USPI that have traveled to support other hospital markets and in select cases support that we've received from the federal government in the department of defense in terms of both nursing and physician capacity in markets, where it was necessary all.
Of those things come together to hopefully create a more sustainable environment for the workforce, but you know look I will acknowledge it is hard work I'm sure. There are caregivers that are tired and we're very committed to.
Continuing to have rotations in order to make this sustainable for them because they've done a great job so far.
And we have carried away maybe my follow up.
Well go ahead Im sorry, no I'm, just saying we tried to be very very aware of that market by market location by location even here. So there of course.
Yep, its sort of a sign of the times there were thislife, Nicole and no one's asked about conover, but maybe I'll do that.
One of that issues and thinking about how it's performing it's not easy just to go back to use last year's base, because obviously, you've got some divested hospital dynamics, there going on as well as the last claims related to cope with it they get paid a percent of handling can you just maybe give us your feeling for how there.
Doing it any comment on any of the initiatives that the new management team is taking there and any update on the spin off thinking.
Well as I said earlier the spinoff.
We said even without the pandemic I mean, we're still even with a pandemic, where we still see that is something that we're on track.
And we're working against a schedule so that I mean that is moving forward.
As far as performance all as Dan talked about it in a minute, but from my standpoint, they had an excellent quarter.
They were on top of things there's been a really good job on collections force.
And for their other customers they were on top of all bad communications good.
Management organization like I said, we've added to really Super good people and the organization has been very resilient and has done very well. So then I mean, specifically do you want to your age and shown on wins. It wasn't corner had a really really strong quarter from a cash collection performance perspective.
Getting bills out the door.
Following up with payers and you know I would put to good word out for the payers to they've been I'm very cooperative through all this too. So they conifer's performance was very very strong in a quarter and obviously you can see it in our cash flows so.
We're very pleased with how they responded.
During this during this crisis there overall numbers.
From you know you know revs and EBITDA on expenses.
Conifer continued to do a good job managing costs and and finding additional efficiencies and you know there obviously, a big part of our global business Center initiative as well so that all that continued I mean, the biggest pressure conifer had on on their numbers was the topline.
Predominantly due to their clients and their hospital clients were physician clients, where with the revenues.
Well.
And so is there customers revenues.
Go down in many cases under the contracts that conifer has that you know there's including tenant.
There's a an impact on there none or a client fee income so to speak so rebounded obviously it will continue to rebound is its hospital customers continue to recover as well but were there overall very very pleased with conifer's performs in the quarter.
Okay. Thanks, a lot.
Thank you. Your next question to me 20 from Josh Raskin from that from research. Your line is not a lot.
Hi, Thanks, good morning, and thanks for fitting me in.
Just one question here I guess, what changes permanently externally to tenant as an artist nation that you are reacting to and maybe within that answer specifically, how you're integrating tele health and tier workflow, how that's impacting downstream procedures.
Hey, Hey, Josh its I just want to make sure I understand the first part of your question. When you ask about permanent changes are you talking about in our cost structure or are you referring to external market changes that may become more permanent.
Yeah, no I meant more extra market changes that are becoming more permanent site of care things like that.
Yeah, Okay. So a few thoughts and actually the telemedicine places a good place to start so yeah, I think as we indicated in some of our updates through the quarter. We had implemented both consumer base telemedicine and also hospital based.
You know specialty to specialty telemedicine capabilities, we had over 190000 visits in the quarter.
From a from a telemedicine standpoint are within our physician business and we had a you know tens of thousands of hospital. The hospital telemedicine visits from a transfer standpoint, so we've ramped up those capabilities incredibly quickly. We have also for our cobot care environment seeing 10.
As of thousands of visits with we literally have care algorithm chat thought for example on our website that patients have been using to figure out whether they need to be seen immediately whether they need to get a test et cetera. So I think you know the virtualization of some of this care is definitely something that seem.
As to be more permanent I mean, the executive orders yesterday, only reinforced that from a telemedicine standpoint, we feel very good about our level of preparation there from a primary care and specialty standpoint, a in order to continue to take advantage of those opportunities for care in that setting.
Look the other thing that I think is is going to be really important is ensuring that patients feel safe in the emergency department setting I continue to believe that.
The emergency Department setting is one that will recover.
Based upon the types of cases that we see down right now for example.
There's a significant decline in pediatric visits to emergency Department 12 schools have been off you know sports have been off as those kinds of things start to come back.
We will see a significant increase overtime back to normal levels for those types of emergency Department visits. So I think we're gonna have to put effort and ensuring that for a very long period of time, we maintain the communication about the safety of our of our E. R environment and then you know I don't know for.
Permanent, but I certainly think for the for the coming year at a minimum ensuring the high degree of safety that we haven't are asked fees in a in a setting where we don't see any covin transmission is going to become an important site of care choice for doctors to make.
For some of their low acuity procedures and creating capacity in that environment without adding infrastructure is something we're very capable of doing and are already doing and I think overtime that will lead to a more permanent change in the utilization rates of those assets and that's only a good thing because it's a fixed cost base from that standpoint.
Thanks.
Operator, we have time for one more question.
Certainly our final question today will come from Gary Taylor from JP Morgan Chase and company. Your line is that a lot.
Hi, Good morning. Thank you you know given how well you guys have done on expenses over the years, finding you don't you staffing models and expenses.
Pretty impressive amended for that I want to make sure I understand what you're saying it sounds like you're saying.
You know the end result of this as we get back to you know a normalized operating environment is is really a permanent increase in your expectation for consolidated margins I want to make sure I'm just I'm understanding that.
Hey, Gary it's Dan Good morning, yes, the various actions that we have taken.
Our permanent.
And we'll be sustainable so you know as we recover from a volume perspective and get back to growing business. The cost actions that we've taken will help support driving margin growth.
Got it and do you have a June 19, EBITDA number that we could compare that to 18.
Millions [laughter].
Yeah, No we didn't put into monthly reporting last year, but it now I would tell you Gary it's its very concise Juan pointed it out in his remarks that June this year compared to last year. When you exclude the grants from this this year's June was relatively consistent.
Got it and then last question just thinking about cash flow you know you've been.
You need to point out that excluding all the Medicare accelerated payments cash or cures Act stimulus funds et cetera, you know no material cash burn of course, you know the quarter benefits from as revenue declined the decline in working capital primarily driven by a decline in you know a are so as your revenue recovers.
Finally, seemingly there would be growth of they are growth of working capital again that would weigh on.
On cash flow is there any obvious offsets to that if we get back to higher quarterly revenue in the next couple of quarters.
Yeah. So when you think about our cash flows in the back half of the year without providing specific numbers. It assuming we you know have to.
Repay the Medicare advances.
Based on the current terms I would obviously be a use of cash in the quarter. As you know as revenues grow sure. You know your receivables are going to start increasing a one thing I would tell you that is very encouraging about conifer's performance that we.
Really been I'm encouraged by is the time from build to collection.
The quarter, which will help to mitigate the natural growth in receivables as the business ramps back up.
You know Unfortunately, you know we're not providing specific.
Cash flow numbers and for Q3 or for for the back half of the or in total but.
We're very satisfied with where we're at from a liquidity perspective, and we feel comfortable that we'll be able to manage through the ups and downs as working capital changes based on how the business recovers.
Great. Thank you very much.
Okay. Thanks, well thank you.
Thanks, everyone.
Appreciate it thank you.
Thank you as a thank you operator.
I mean, you may disconnect. Your lines Department have a wonderful day, we thank you for your participation today.