Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Second quarter operating results exceeded expectations driven by same unit revenue growth and operating efficiencies.
- Revenue benefited from a strong payer mix, with stable patient volumes overall.
- Recognized revenue related to a one-time settlement with a payer, favorably impacting adjusted EBITDA by approximately $3 million.
- Maintaining full-year 2024 outlook for adjusted EBITDA of between $200 million and $220 million.
- Generated $109 million in operating cash flow in the second quarter, compared to $93 million in the prior year.
Negative Points
- NICU days declined slightly, indicating a potential area of concern in patient volumes.
- Volume declines in pediatric urgent care offset strong growth in maternal fetal medicine.
- Portfolio restructuring plan involves exiting a significant number of office-based practices, which could disrupt services.
- Increased restructuring costs from $25 million to $40 million due to additional practice exits.
- Full impact of restructuring and cost benefits will not be realized until 2025, indicating a period of transition and uncertainty.
Q & A Highlights
Q: I may have heard this wrong, but it looks like you're now assuming about $40 million in restructuring costs, up from $25 million before. What's changed there? And how will these costs play out?
A: Initially, our restructuring costs were estimated at $20 million. We've since added more practices to our exit plan, increasing our estimate to $40 million. These costs include severance and lease terminations. We've incurred some costs through June 30, with the remainder expected by year-end.
Q: Can you provide more insights on the office-based practice exits? How will this impact revenue and EBITDA in Q3 and Q4?
A: Most office exits are slated for the second half of the year. The full impact of these exits and associated costs will be realized in 2025. For Q3 and Q4, we expect consistent quarters similar to Q2, with positive impacts from restructuring activities becoming evident in 2025.
Q: The press release mentions an improved payer mix. Is this due to the $3 million settlement, or would it still be up without it? Also, any updates on the No Surprises Act and arbitration cases?
A: The payer mix improvement does not significantly include the $3 million settlement. It's more about a greater mix of nongovernmental payers versus Medicaid. The managed care landscape remains stable, with normal course renewals continuing.
Q: Can you quantify how much payer mix versus hospital contract admin fees contributed to the pricing increase year-over-year? Are you in the early stages of renegotiating subsidies from hospitals?
A: Payer mix played a slightly greater role in overall same-unit pricing versus contract and admin fees. We successfully renegotiated some hospital contracts at the end of last year and into the first half of this year. We continually assess pricing related to hospital relationships.
Q: After the portfolio restructuring, how should we think about the company's growth prospects in 2025 and beyond?
A: Post-restructuring, we aim to stabilize margins and pivot towards growth. We see unique opportunities in our 80-20 mix of ambulatory and hospital-based service lines. Maternal-fetal medicine practices have shown strong same-unit volume growth, which we expect to continue.
Q: Can you provide any incremental color on discussions with managed Medicaid? Also, how should we think about same-store labor inflation versus pricing increases?
A: Managed Medicaid represents a significant portion of our governmental mix, largely a pass-through from state Medicaid schedules. We saw modest deceleration in labor inflation during Q2. Our portfolio restructuring decisions were influenced by cost trends in office-based practices.
Q: NICU days declined 80 bps in the quarter. Was this due to volume or length of stay? Was there any payer pressure?
A: There were no meaningful changes in NICU admission rates or length of stay year-over-year. The decline in NICU days is consistent with overall trends.
Q: 2Q was strong even after backing out the $3 million one-time benefit. Why did you only reiterate guidance? How do you feel about consensus for 3Q and 4Q?
A: Despite a strong Q2, we have significant changes ahead, including RCM transition and practice exits. Our unchanged full-year outlook reflects our best gauge of these moving parts. Consensus estimates for Q3 appear appropriate, with Q3 and Q4 EBITDA expected to be comparable.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
