LHCG

LHC Group (LHCG)

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LHC Group, Inc. (LHCG)

Q2 2008 Earnings Call Transcript

July 31, 2008 11:00 am ET

Executives

Eric Elliott – VP, IR

Keith Myers – Chairman and CEO

Pete Roman – SVP and CFO

John Indest – President and COO

Analysts

Art Henderson – Jefferies & Co.

Ralph Giacobbe – Credit Suisse

David MacDonald – SunTrust

Darren Lehrich – Deutsche Bank

Newton Juhng – BB&T

Sheryl Skolnick – CRT Capital Group

Eric Gommel – Stifel Nicolaus

Bill Bonello – Wachovia Securities

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the second quarter 2008 LHC Group Inc. earnings call. My name is George, and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of this conference. (Operator instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr. Eric Elliott, Vice President of Investor Relations. Please proceed, sir.

Eric Elliott

Thank you, George, and welcome everyone to LHC Group's Second Quarter 2008 Financial Results Conference Call. In a moment, we'll hear from Keith Myers, Chief Executive Officer of LHC Group, John Indest, President and Chief Operating Officer, and Pete Roman, Chief Financial Officer.

Before that, I would like to remind everyone that statements included in this conference call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, comments regarding our financial results for 2008 and beyond.

Such statements are subject to a number of risks and uncertainties such as changes in reimbursement, changes in government regulations, changes in the company's relationships with referral sources, increased competition for its services, increased competition for joint venture and acquisition candidates, and changes in the interpretation of government regulations. Therefore, actual results may differ materially from any financial outlook presented herein.

Further information or potential factors that could affect the company's financial results can be found in the company's Form 10-K for the year ended December 31, 2007. LHC Group shall have no obligation to update the information provided on this call to reflect subsequent events. Now I am pleased to introduce the CEO of LHC Group, Keith Myers.

Keith Myers

Thanks, Eric, and welcome, everyone.

This morning I'd like to start by introducing members of our senior management team. As Eric mentioned, you'll be hearing from John Indest, Pete Roman and myself this morning. Also joining us for the call this morning are Don Stelly, our Senior Vice President and Director of Operations, Daryl Doise; our Senior Vice President, Director of Corporate Development; Richard MacMillan, our Senior Vice President who serves as Senior Counsel, Chief Compliance Officer and Director of Government Regulatory Affairs; and a new addition to our senior management team, Pete November, Senior Vice President, General Counsel and Director of Mergers and Acquisitions.

By every measure, the second quarter of 2008 was a breakout quarter for the LHC Group family. Being here since day one, I can say without hesitation that LHC Group is stronger today than we've ever been in the 14-year history of the company. Our clinical operations team continues to drive our success by providing higher quality and more cost-effective care to the patients, families, and communities we serve than ever in our history.

The investment we've made in our back office support services over the past year, especially in the area of revenue cycle management, has resulted in a complete turnaround, with cash collections as a percentage of revenue never higher, and DSO never lower since our initial public offering in June of 2005.

Our management team continues to be the clear industry leader in management team effectiveness in terms of long-term measures such as return on assets, return on capital and return on equity. Given our significant financial strength and flexibility, we are better positioned to take advantage of the opportunities ahead of us than in any point in the history our company. We have never been more confident in our proven operating model and we look forward to increasing our already impressive pace of acquisitions, with an increased appetite for larger opportunities in the future.

Now I'll touch on some of the highlights of the quarter and then turn it over to Pete and Johnny for further review. Starting with acquisitions in Q2 of 2008, on April 1st, we acquired 100% of the assets of Home Care Connections and Rivercrest Home Health Care. This acquisition consisted of four locations in Amarillo, Odessa, Uvalde and San Antonio, Texas. The service area of these acquisitions spans 64 counties in Texas, which brought LHC Group's total service area in Texas to 102 counties. The primary service area of this acquisition has an estimated total population of 4.8 million, with almost 11% over the age 65 and total annual revenue of approximately $8.4 million.

On May 1st, we acquired 100% of the assets of River West Home Care located in Plaquemine, Louisiana. The primary service area of this acquisition has an estimated total population of 1.3 million, with almost 11% over the age of 65 and total annual revenue of approximately $700,000.

On May 19th, we acquired 100% of the assets of Home Care Solutions, Inc. The acquisition consisted of eight locations in Tennessee and two locations in Virginia, and represented LHC Group's initial entry into the State of Virginia. The service area of this acquisition covers 60 counties in Tennessee, which expanded LHC Group's total license area to the entire State of Tennessee and seven counties in Virginia. The primary service area of this acquisition has an estimated total population of 2.6 million, with almost 14% over the age of 65 and total annual revenue of approximately $11.9 million.

On June 1st, we entered into two separate joint ventures. We entered into a joint venture relationship with Jefferson Regional Medical Center, a 471-bed hospital located in Pine Bluff, Arkansas to provide home health services. The company also entered into a joint venture relationship with Community Medical Center of Izard County, a 25-bed critical access hospital located in Calico Rock, Arkansas to provide home health and hospice services. The combined primary service area of these agencies has an estimated total population of 700,000 with almost 14% over the age 65. Total combined revenue for 12 months for these agencies was approximately $3.0 million.

In the first half of 2008, we have added 21 locations in seven states through acquisitions with combined annual revenue of approximately $29.9 million. De novo locations continue to contribute significantly to our growth. In the first half of 2008, we opened eight new de novo locations in five states. We have 16 additional de novo locations scheduled for opening in the second half of 2008.

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