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Dialysis Corporation of America (DCAI)

Q1 2009 Earnings Call

May 6, 2009 10:00 am ET

Executives

Andrew J. Jeanneret – Chief Financial Officer

Stephen W. Everett – President & Chief Executive Officer

Analysts

Darren Lehrich – Deutsche Bank

Nicholas Jansen – Raymond James

Presentation

Operator

Good day ladies and gentlemen and welcome to the Dialysis Corporation of America first quarter 2009 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this conference call is being recorded. And now, your host for today's conference Chief Financial Officer, Andrew Jeanneret. Sir, please begin.

Andrew J. Jeanneret

Thank you, [Tiran] and welcome everyone to our first quarter 2009 conference call. My name is Andrew Jeanneret, and with me is Steve Everett, our CEO.

I would like to start the call with our forward-looking statement disclosure. During this call, we may make forward-looking statements, which can generally be identified by the content of such statements or the use of forward-looking terminology that includes statements that do not contain historical facts. All such forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

For further details concerning these risks and uncertainties, please refer to our SEC filings included in our most recent quarterly report on Form 10-Q and our Annual Report on Form 10-K. Our forward-looking statements are based on information currently available to us and we undertake no obligation to update these statements, whether as a result of changes in underlying facts, information, future events or other developments.

I will now turn the call over to Steve Everett.

Stephen W. Everett

Thank you, Andrew, and good morning everyone. Yesterday, we announced our results for the first quarter of 2009. As with our prior calls, I’ll spend a few moments going over some key data points from the quarter, as well as an overall business update before Andrew covers the financial results. We’ll follow that by take any questions that you may have.

First some operating points. We are currently operating 37 outpatient dialysis centers, and have two in development. We are providing acute treatments in 11 hospitals, and caring for over 2000 ESRD patients in our centers. We employ 650 full and part time clinical and support personnel throughout the seven states where we are operating from.

On the clinical front, we made several progressive steps in improving what has already been an excellent quality care. Our Kt/V greater than 1.2, which is a measurement for the adequacy of dialysis remains excellent, with about 97% of our patients meeting this standard.

Our hemoglobins greater than 11 are down slightly, less than 1% to approximately 81%, which is primarily due to the inclusion of our Hyattsville center in these statistics. There are a large number of nursing home and short-term rehab patients in those centers, which typically have a tougher time with anemia management.

Lastly, our access management continues to improve with about 57% of our patients having fistulas in place. Andrew will be going over the financial statements, the financial results for the quarter, but I do want to bring to focus a few data points that need to be kept in the front of our analysis.

Last year’s first quarter, we had an operating income of approximately $1.3 million. This year’s same quarter results were approximately $800,000 of operating income. We also made significant investments in our SG&A that resulted in more than $200,000 in expenses for the quarter, which will continue on a going forward basis compared to the first quarter of last year.

Our $265,000 grant to the University of Cincinnati is expensed in this quarter. Our excellent relationship with the University is expected to continue to grow and to expand. And as you know, we are in a process of opening two new centers with them. The transitional costs associated with our Hyattsville center approximated $150,000. These of course should not be recurring.

Finally, we have some uncertainties surrounding some new commercial revenues resulting in $100,000 bad debt provision. So, had we not made those investments in our future as well as the other items, I just mentioned we would’ve ended the quarter with approximately $1.5 million in operating income, with the $200,000 back of SG&A cost that were planned, and we’ll be near $1.3 million, which is where we had internally targeted. On the new business development front, our team continues to progress well with the closing of two new de novo opportunities during the quarter, as well as various levels of discussions on a number of other opportunities.

Two new centers both in Cincinnati, Ohio area are expected to complete construction and be open for patients this year. On a related note, we’ve been asked by many of the you if the current economic situation is impeding our ability to bring physicians to the table, especially, when they have their own financial resources to bear. The answer is yes and no. We’ve experienced some hesitation from potential physician partners, but thus far it seems to be a cost for further contemplation by them, but not a significant barrier.

We may see the small ownership percentages by these docs, but at the end of the day that’s fine with us. Currently our physicians are purchasing anywhere from 20% to 40%. With the current economic situation, the potential for that to go down into 10% to 25% is very real, and again that would be fine with us.

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