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| 8-K - RESULTS OF OPERATIONS AND FINANCIAL CONDITION - HOOPER HOLMES INC | form8k.htm |
| EX-99.1 - PRESS RELEASE DATAED MARCH 12, 2010 - HOOPER HOLMES INC | exhibit99-1.htm |
Hooper
Holmes, Inc.
2009
Fourth Quarter Financial Results Conference Call
March
12, 2010
Operator: Ladies
and gentlemen, thank you for standing by. Welcome to the Hooper
Holmes 2009 Fourth Quarter Financial Results Conference Call. During
today’s presentation all parties will be in a listen-only
mode. Following the presentation the conference will be opened for
questions. If you have a question please press the star, followed by the one on
your touch-tone phone. If you would like to withdraw your question
please press the star, followed by the two. If you are using speaker
equipment, please lift the handset before making your selection. This
conference is being recorded today, Friday, March 12, 2010.
I would
now like to turn the conference over to Mr. Andrew Berger. Please go
ahead.
Andrew Berger: Thank
you. On behalf of the management of Hooper Holmes, we are extremely
pleased that you have taken the time to participate in our conference call, and
thank you for joining us to discuss the company’s 2009 fourth quarter financial
results and business outlook.
Before I
introduce management, I would like to remind everyone that certain statements
made during the call, or during the course of this conference call, especially
those that state management’s intentions, hopes, beliefs, expectations or
predictions for the future are forward-looking statements. It is
important to remember that the company’s actual results could differ materially
from those projected in such forward-looking statements. Additional
information concerning factors that could cause actual results to differ
materially from those in the forward-looking statements is contained in the
company’s annual report on Form 10-K, copies of which may be obtained by
contacting either the company or the SEC.
By now
you should have received a copy of the news release which was issued this
morning before the market opened. If you have not received a copy
please call me, Andrew Berger, at 216-464-6400 and I will send a copy to
you.
Participating
in the call today are Roy Bubbs, Hooper Holmes President and Chief Executive
Officer, and Mike Shea, Senior Vice President, Chief Financial Officer, and
Treasurer.
At this
time I will turn the call over to Roy Bubbs. Roy?
Roy Bubbs: Thank you,
Andy, and good morning, everyone, and thank you for joining us
today. I’m very pleased to be reporting our profitability for the
fourth quarter and our annual results. These results show the payoff
from the work we’ve done to improve our business and operations.
We
generated 3.1 million in cash from operations in the fourth quarter, and 8.7
million for the full year. We also reduced our costs for the year by
approximately $8 million.
We began
2010 with even a lower cost structure, a strong balance sheet, no debt, and 16.5
million in cash.
We did
much more than just generate cash and cut costs in 2009. We completed
a series of strategic initiatives that give us competitive
advantages. We’ve brought important new services to the
market. We introduced Instant Scheduling, which allows us to complete
an insurance exam in under six days. We believe now that makes
Portamedic the fastest insurance exam company. We introduced Broker
Elite providing case management services to the largest distributors of life
insurance in the United States. As a result orders from brokers were
up last year. We showed how Heritage Labs biostatistical research can
improve underwriting. Our research was endorsed by some of the
industry’s leading reinsurers. We’ve developed a new risk score for
diabetes and we are deploying more risk scores to help our customers reduce the
costs, improve the yield of lab testing. And during the year we
completed a SAS 70 audit, a comprehensive review of our information technology
operations. We also established a dedicated HIPAA and privacy
compliance management. Taken together, these two steps should make
our customers and our applicants even more confident about our commitment to
information security. Overall, I’m proud of the way we have differentiated our
exam and lab testing services. I’m also proud of the way we have
managed costs. With a reasonable economy and a return to a
business-as-usual in the life insurance industry, we are well positioned to
consistently generate earnings from operations.
As
shareholders, you own some powerful assets. Portamedic has a strong
brand, completing between 40% to 45% of all the life insurance exams in the
United States. We are working to increase that percentage with new
services to help insurance companies further reduce cancellation rates and
improve closing ratios. At a time when health reform is front-page
news, your company operates an efficient, accurate, national network of local
medical professionals. Portamedic examiners and a
national footprint can also serve growing health and wellness
markets. In 2010 we expect to deliver millions of dollars of revenues
from new screenings for Medicare Advantage plan sponsors. And, we
have just been selected by a major health insurer to screen their new health
plan participants, which may deliver over $1 million in new revenues in
2010.
I’m also
proud of our Health & Wellness and Lab operations. Health and
wellness grew 39% in 2009. We see double-digit growth continuing for
this business in 2010 as our team continues to sign on new customers and expand
our capabilities. Heritage Labs grew in the fourth quarter and we are
optimistic about continued growth in the lab testing and kit
manufacturing.
We are
making progress correcting some of the challenges facing our Hooper Holmes
service division. This division operates in four areas: a call center
we manage for one of our largest customers; a medical records collection
business; tele-interviewing services; and underwriting. Our volumes
have dropped as our customers’ volumes have significantly
declined. However, we will soon finish deploying our variable cost
platform across these businesses to improve our profitability. And
our professional tele-underwriting service, which uses trained underwriters, and
our physicians’ information line service are growing.
Let me
turn it over to Mike now for the numbers.
Michael Shea: Thank
you, Roy, and good morning, everyone. For the fourth quarter 2009 our
consolidated revenues decreased 5% to 45 million, compared to 47.4 million in
the fourth quarter of 2008.
Net
income for the quarter was $3 million, or $0.04 per share, compared to net
income of 1.2 million, or $0.02 per share in the prior
year. Our fourth quarter net income includes a $1.5 million tax
benefit pertaining to the utilization of fully reserved net operating losses
resulting from the Business Assistance Act signed into law during the fourth
quarter of 2009. We received the corresponding tax refund of 1.5
million last month. For the fourth quarter of 2008, it includes a
reversal of approximately 1.6 million in SG&A incentive accruals along with
a $0.2 million loss from discontinued operations.
As for
revenues in the fourth quarter, our Portamedic revenues decreased approximately
3% to 32.3 million. This revenue decline is a result of a reduction
in paramedical exams completed of 4%, partially offset by slightly higher
revenue per exam in comparison to the prior year period. Heritage
Labs revenues totaled 3.1 million in the fourth quarter, an increase of 5% from
the prior year. Revenues for our health and wellness business were up
significantly in comparison to the prior year, increasing approximately 39% to
4.1 million in the fourth quarter of 2009, while our Hooper Holmes Services
revenues decreased 34%, to 5.5 million, primarily resulting from reduced demand
for our out-sourced underwriting services.
Our
consolidated gross margin for the fourth quarter of 2009 was 27.2%, compared to
24.2% in the prior year. This margin improvement of approximately 300
basis points is primarily a result of cost reduction actions implemented
throughout the year.
As for
selling, general, and administrative expenses, SG&A on a
consolidated basis, totaled 10.5 million in the fourth quarter, an increase of
approximately 0.5 million, or 5% from the prior year. This
quarter-over-quarter increase is primarily attributable to a $1.6 million
incentive accrual reduction recorded in the fourth quarter of 2008.
Regarding
our balance sheet, working capital at December 31st,
2009 was 30.1 million, including 16.5 million in cash and cash equivalents, and
no debt outstanding. Accounts receivable totaled 20.4 million,
with days sales outstanding of 41 days. Regarding cash flows, cash
provided by operations approximated 3.1 million in the fourth quarter of
2009. Capital expenditures for the quarter were approximately 0.7
million.
And with
that I’ll turn the call back to Roy.
Roy
Bubbs: Thanks,
Mike. Before I take your questions, I’d like to talk about our
outlook for the year, which, quite frankly, depends on an improvement in the
economic climate and the life insurance industry.
Our
success is built upon a three-legged stool. First, we need to
continue to contain costs. We have a strong track record in this area
and we’re not letting up. Second, we need to continue to execute on
our current plan. Our strategy is to earn more business through
improved services. We will make Portamedic even faster and more
accurate. We will leverage Heritage Labs research to grow our testing
business. We will continue to expand our Health & Wellness
capabilities. And we will help our customers work smarter, faster,
and better through Hooper Holmes Services. Third, we need new
revenues from our new initiatives outside the life insurance
industry. These three things need to come together with an improved
economy and life insurance industry for our business to meet its growth and
profitability targets this year.
We’re not
sitting on the sidelines waiting for the economy to improve. In
Portamedic our new initiatives include new revenues from new health insurance
and Medicare Advantage screenings. I am pleased to say we are seeing
some traction. We started doing Medicare Advantage screenings in
December. And we have signed agreements to provide these services in
three States and we are working now to begin to ramp these businesses
up. We have also been chosen to deliver what could be tens of
thousands of new screenings for a large health insurer. And we are
now providing new finger printing and drug testing services in many of our
Portamedic local offices.
Heritage
Labs should benefit from Portamedic’s growth by completing new lab tests from
new health plan customers. Heritage Labs is also expanding
distribution channels for its testing kit, which will be sold through medical
supply companies and new retail channels.
Health
& Wellness is also expanding beyond our wellness and disease management
customers. This division is signing up new health management
companies for screening, and kit and lab services. We are also
developing important new services for the health care industry. For
example, we have developed a new Internet based platform to find people with
undiagnosed diabetes, much earlier and more efficiently than currently
possible. Our unique screen before the screen allows us to focus on
those at highest risk. People at highest risk then receive a lab test
for A1c, which is the American Diabetes Association’s preferred method of
measuring diabetes risk. We have recently signed an agreement to
provide this platform to a Blue Cross Blue Shield organization with more than
one million members. We’re also extending our reach in to clinical
trials. We have a contract to help a manufacturer win FDA approval
for a new medical device. And, we are developing new services to
reduce hospital re-admission and support the patient centered medical
home.
I have to
say in fairness that 2010 is off to a challenging start. Unemployment
is at a 25-year high, around 10%. Consumer confidence fell in
February to 46 points, a 13% drop over the last six months. This
translates into a difficult environment for the insurance
industry. The weather in the northeast and the mid-west hasn’t helped
either. The industry lost approximately four days of productivity in
January and February because you can’t sell insurance and you can’t complete
insurance exams in snowstorms.
The best
summary of our outlook is to confirm that we expect to be profitable for the
year. Looking at the sum of the cost controls and revenue initiatives
we have in place our goal is still to achieve a minimum of 5% profitability in
2010. But, for us to do this, the economy and the life insurance
industry can’t stay where it is today. In fact, we are concerned
about achieving Q1 profitability based on the results we’ve seen in January and
February. If the trend we have seen in the first two months of the
year continues it will be very difficult in meeting the plan.
Finally,
our Board continues to work to make our Company an even more responsive and
shareholder friendly business.
And now,
let me—let’s turn it over to your questions.
Operator: Thank
you. We will now begin the question and answer session. As
a reminder, if you have a question please press the star, followed by the one on
your touch-tone phone. If you would like to withdraw your question
please press the star, followed by the two. If you’re using speaker
equipment, you will need to lift the handset before making your
selection.
Our first
question comes from the line of Dennis Van Zelfden with Brazos
Research. Please go ahead.
Dennis Van
Zelfden: Good morning, everyone. My first question
revolves around the SG&A. Does the 10.5 million that you reported
include some extra depreciation that—as you have reported in past
quarters?
Michael Shea: Yes,
Dennis, let me address that. There is 0.6 million of the accelerated
depreciation in that number that we spoke about in prior quarters. I
do want to point out though, because it is a fourth quarter number, and if
you’re looking at run rates going forward specifically first quarter, there’s a
couple of adjustments in Q4 2009 that historically we always have in the fourth
quarter, decreases to SG&A. Number one is the incentive
compensation as we true up our targets at the end of the year, in the fourth
quarter we had about a $400,000 reduction in incentive
accruals. Also, vacation allowances, compensated absences, we have a
use-it-or-lose-it policy, so at December 31st we
took approximately $400,000 back into income in the form of reduced SG&A,
and other minor you know year-end adjustments. So that 10.5 has to be
the 600,000 of accelerated depreciation, but then the other direction about you
know, 800,000, a million or so, going in the other way for SG&A, so you know
a better run rate would be in that 11.5 million range for Q1.
Dennis Van Zelfden: And,
then again, the 11.5 would include another 600,000 correct?
Michael Shea: That’s
correct. That goes until the second quarter, the end of the second
quarter of this year.
Dennis Van
Zelfden: Okay. With respect to gross profit margins
is there room for them to rise further without an increase in
revenue?
Michael Shea: We’re
always looking to reduce. If you’re talking the actual margin it
depends how much revenue goes down, if it does continue to
decline. But where—we’re constantly looking at that, Dennis, and have
a number of cost reduction programs currently underway, you know, you see
that. They’ve been underway. You see the 300 basis point
improvement that we had here in the fourth quarter and that was on a revenue
decline of 5%. Revenue was down year-over-year in January and
February of 2010 and we continue to look at all those costs of operations to see
where we can make reductions so, you know, we continue to manage our gross
margin.
Dennis Van
Zelfden: Okay. So I guess what I’m hearing is that
there may be a little more room to go up, but you really need a turn in revenue
to get ‘em really going?
Michael Shea: Yes, and
that’s a great point. When the revenue does turn, I mean, we’re
really very lean in our costs of operations right now so, a large portion of
that incremental revenue will start to flow through to the bottom
line.
Dennis Van Zelfden:
Okay. With respect to the 5%, I would assume that’s a pre-tax goal in
2010 and I heard your comments that a number of things have to kind of turn
around to get there, but what kind of revenue level would you need to have to
get there?
Michael
Shea: You’re exactly right. The 5%, we have spoken
about that. That is our goal. It is going to be
challenging based on what we’ve just talked about for our first quarter of
2010. Revenue has to increase, and it has to come both in our core
existing business and from the new revenue initiatives that Roy was just talking
about. But you know in your modeling, Dennis, you need to get up into
that $195 – $200 million range to really start achieving 5% pre-tax
number.
Roy Bubbs: But
saying that we—one of the things we did in our plans is we did factor in the
challenge of what the industry was showing us at the end of the
year. And, so we’ve targeted a more aggressive cost cutting to
hopefully create an insurance contract for us and to achieving, still achieving
those plans. So we’ve looked at all the parts of the three-legged
stool and—in trying—in forecasting and therefore, as we’ve said we—the industry
is off to a very interesting start, which is a significant part of our
revenues. We factored in some of that. It’s too early to
tell if that—how hard of that impact we’ll feel going in to the next few
months. I think some of it is for sure is weather and when you think
about weather for a second, you know. We didn’t lose obviously in southern
California snow days, but the—obviously in Washington, D.C. and the Philly area,
they lost more than three or four snow days, so collectively we think it’s at
least four plus days. And when you’re doing over 5,000 exams a day
that equates to over 20,000. And then if you use a simple, you know
that some exams cost more than 100, some cost less than 100, so let’s use $100
for a number, that’s over $2 million of revenue that we think is pretty directly
related to a weather condition that is out of all of our control. We
truly don’t anticipate having snow days in March and April and May going
forward.
Dennis Van
Zelfden: Okay. Roy, continuing on, excuse me, last
question here. In past conference calls you alluded to what I would
refer to as some big upcoming revenue opportunities. Now when you
talked about your new Medicare Advantage and your new health plan participant
that’s going to give you some business, is that what you were talking about or
is there something else that you still haven’t told us about?
Roy Bubbs: Well we
have a multitude of things we’re working on. Those two. We have
contracts. We’re actually starting a business as of December in the
Medicare side of it, and so that’s why I’m now verbalizing it. As we
do have a contract with a Blue Cross and Blue Shield, large Blue Cross and Blue
Shield provider which we will probably be announcing in the next couple, three
weeks. But as we do have contracts, as we start seeing revenue,
that’s when I feel comfortable to start talking to them more, you know,
specifically. So, but we do have a multitude of different revenue
generating plans that we’re working through. We’re working with
insurance companies and we hope to be announcing many of them in the second and
third quarters as we go along.
Dennis Van
Zelfden: Okay. Thanks, guys.
Michael
Shea: Thank you.
Operator: Thank
you. Our next question comes from the line of Walter Schenker with
Titan Capital. Please go ahead.
Walter
Schenker: Hi. Two questions. First, I
may have heard it wrong, but in the base Portamedic business the
decline—straight question. Pricing year-over-year was relatively
flat?
Michael Shea: That’s
correct.
Walter Schenker: Hadn’t
it been running ahead 3% to 5% based on price increases and price competition
mix?
Michael Shea: It was,
yes, in the 3% range earlier in 2009, Walter. That is
correct. Pricing is becoming—the exact amount it was up, it was still
up but up 0.3%. Pricing is becoming very competitive, very
competitive in this—there’s certainly a lot of pressure on the insurance
industry and that’s translating through to their suppliers and that’s
us. So pricing is becoming competitive and the good news is in the
fourth quarter as you saw our year-over-year unit decline has decreased and
improved actually, but pricing year-over-year is starting to flatten out and I
would expect that to continue in 2010.
Walter
Schenker: Okay. And second question. Roy, you
made reference to what, for me, was some non-traditional customers, traditional
being corporate customers, in the wellness testing. Could you expand
on that a little bit more? Just give us some sense as to what the
magnitude of that might be going forward?
Roy
Bubbs: Yes. It’s really too early to tell, you
know, we—we’ve entered, as I said, the clinical trial area. We have,
in doing the clinical testing, we have quite—we continue to grow that
area. The clinical trial area is something we went into last year and
we continue to look at opportunities there. Some of these can expand
and be quite lucrative and some of these can turn out to, obviously, not
generate much revenue at all. You know last year we thought we would
do a fair share of flu shots in the fourth quarter, and we all know the problem
with getting flu vaccine in the fourth quarter of last year. And
therefore that obviously affects us. So we’re constantly working on
things that ebb and flow. And one of my problems in answering that
question right now is obviously there’s the ebb and flow in
D.C. While we think we’re on the right track on some of the
deliveries, until the health plan is or lack of a health plan is clearly
defined, some of them—some of these things may not develop and will give us
opportunities to do some other things. So we’re trying to keep a
broad base in the various developments that we’re doing to go with the flow of
where health care is emerging to. That’s a lousy answer to a
good question. But we are moving in to non-traditional
areas. We do also believe that we’ll be able to support the pharma
industry better as we move forward and, hopefully, we’ll be talking about that
in the second and third quarters.
Walter
Schenker: Okay. Thanks a lot.
Michael Shea: Thank
you, Walter.
Operator: Thank
you. As a reminder, ladies and gentlemen, if you would like to ask a
question, please press star, one at this time.
Our next
question comes from the line of Beth Lilly with Gamco. Please
go ahead.
Beth Lilly: Good
morning.
Rob
Bubbs: Morning.
Michael Shea: Good
morning, Beth.
Beth Lilly: I
wanted to just talk about the Portamedic business for a little bit
here. Can you, excuse me. Do you expect the business to be
up in terms of revenues this year?
Rob Bubbs: The
answer, you know, is an unknown answer and that is the economy and the life
insurance industry. Look, we—I looked at the first two months of
sales from the life—our top 20, or let me check, yes, top 25 insurance companies
year-over-year. And we all—and I compared it to last year, which
obviously wasn’t a stellar year. And 17 of those 25 are off from last
year. And when you added the average up, it was double
digits. So our top 25 customers in general are off to a worst start
than they were off of next year. On top of that management, our
business managers and Burt Wolder, our Chief Marketing Officer, and I spend a
lot of time on the street with insurance companies, and they’re—they are talking
about a slow start in some of the things they’re doing in order to catch
up. So when you add the consumer confidence aspect, the insurance
industry off to a slow start, and there’s various reasons for that, I’d like—I’d
love to think it was all the weather, but it isn’t all the
weather. You know, it doesn’t paint an exciting picture of the first
two months. Saying all that we’ve built this program where we’re
starting to work with some of the larger distributors who collect the
information before they send it to the insurance companies. That
creates opportunities. We have Instant Scheduling. It’s
catching on with agents across the country really fast. We’ve—our
managed scheduling center reduced two days from our scheduling and now it’s been
scheduling added another two days, or a net of four days. And so it’s this, as
they get comfortable and start using it, we think this is attracting more
brokers and agents to use it. And so we have a lot of initiatives to
offset that doom and gloom I just gave you a minute ago. It’s too
early to tell, in my opinion, after two months, but it is—it will be a
tremendous challenge to get this to grow, if we continue to see the same trends
in January and February.
Beth Lilly: And what
about just in terms of, you know, can you provide a little more insight in to
just the dynamics with the competitive environment? Is the pricing
issues coming from the insurance companies portion down or is it coming from
competitive actions in terms of, you know, the insurance companies say, all
right, let’s make bids and then you have a competitor out there that’s engaging
in less than profitable activity?
Rob Bubbs: Well, I
think it’s both. And insurance companies are, or have—obviously if
they’re off to slow starts and didn’t have the financial results they want,
they’re pushing all their vendors to cut costs as we push our vendors to cut
costs, et cetera. So it’s a vicious circle. And, so yes,
we have pressure. And then, quite frankly, we walked away from an insurance
company last year because the prices they asked us to work on, starting the
latter part of last year and into this year, we couldn’t make a
profit. And so, I no longer want to be in business of losing money on
every case we do, and so there’s that kind of pressure. Second of
all, I think there has been, based on what I see, some of the prices out there,
some cost cutting irrational behavior on, maybe on our competitors, of cutting
costs at this moment. I have to say it’s not
widespread. It could become widespread but it isn’t widespread, but I
scratch my head trying to figure out how some of these people are paying their
examiners and delivering quality services to both the agent, the client, and the
insurance company at the prices that they’re willing to work for
today. So, I think it’s a combination of both.
Beth
Lilly: Okay. Right. Very
helpful. Thank you.
Operator: Thank
you. Our next question comes from the line of Brad Evans of
Heartland. Please go ahead.
Brad Evans: Roy, thanks
for the questions here. In light of the sluggish start to the first
quarter, are there any additional cost actions that you’re
contemplating?
Roy Bubbs: We’re always
reviewing costs generally. We do it as I mentioned before, we
intend—we anticipated before the fact that this could be challenging and so we
actually developed in our plan additional cost cuts. So reading into
that insurance contract, two things happened. If it continues, we
continue to look for ways to cut our costs over and above what we’ve already
planned and that comes in two places. Either, you know, the hard cuts
that need to be taken, the structural cuts or whatever, and the second one,
though is we do have variable costs that when volume is down obviously the
variable costs go away. So these variable costs are the easier of the
two. But we do, Michael and I continue to stay very focused on, of
managing our expenses and we will continue to do that. And we’re
always looking at ways to improve our margins while not taking away the services
and the quality of services that we need to deliver to our clients.
Brad Evans: It seems
logical that perhaps some of these volumes may have just been deferred, is
that—have you seen anything? And it may be early, obviously with
respect to March, but have you seen, have you seen any trends that might
indicate that the sluggish volume trends you’ve seen, you know, due to some
weather issues have, and the economy obviously have, have you seen any uplift
here as weather has become a little less punitive?
Roy Bubbs: Yes, you know
it kind of overlaps, and I think, you know, I’m a conservative kind of guy and
I—but I do believe, I’m hoping and believe obviously we’re not going to deal
with the weather for all our sakes. But second of all is that what I
hear in talking with the industry is they still have an optimistic point of view
even though they’re off, and they’ll admit they’re off to a poor first
quarter. They have optimistic views. They have—many of
them have some kind of plans on how they’re going to either change their market,
expand their markets, change products, et cetera and so the industry isn’t doom
and gloom. They’re, they believe they can expand and move in to
especially the middle market areas and so forth, which generates us revenues too
and is one of the reasons we’re on the street working with them to make sure we
understand where they’re going, what their visions are, and what their plans
are, so we can make sure our product offerings align with
them. So, yes, I’m still optimistic quite
frankly. Remember most of these people have—live on
commissions. They have to earn a living and they don’t get salaries
and so they’re going to figure out a way to move good product to their
consumers.
Brad Evans: Mike,
can I just get the volumes for Portamedic and Health &
Wellness, as well as for Heritage for the fourth quarter?
Michael
Shea: Sure. Portamedic first. Paramedical
exams were 366,000 or 5,907 per day. Do you need the prior year
numbers also, Brad?
Brad
Evans: No.
Michael
Shea: Okay.
Brad Evans: Thank
you.
Michael
Shea: Heritage. Fourth quarter. 139,000
specimens tested and screenings completed in our health and wellness were 95,000
in fourth quarter 2009.
Brad
Evans: Okay. I’ll get back in to queue. Thank
you.
Michael
Shea: Thanks, Brad.
Operator: Thank
you. Our next question comes from the line of Bill Sutherland with
Boenning and Company. Please go ahead.
Bill
Sutherland: It’s Boenning and
Scattergood. Thanks. Roy, not to get overly focused, I
guess on this goal you have for profitability, you know, in terms of exactly how
it progresses, but perhaps the way to think about this given the early
challenges in the year and given the programs you’re just beginning to ramp up
and that kind of thing, perhaps there’s a progression to the year that would be
helpful for us to think about and, you know, you’re, you know clearly I think
any one’s going to normalize for what had to be dealt with in the first
quarter. So I just wonder if you want to maybe think it out loud with
us on that, on that line of thinking.
Roy Bubbs: Well a
lot of our continued cost savings
and so forth are, you know, effective slowly and surely throughout the
year. As a result,
we don’t get the immediate100% impact but they move through the whole year, and
like last year we saw a lot of the things we were doing in the end of the first
quarter, second quarter, early third quarter even having a material impact on us
in the fourth quarter. So from an expense point of view, we will
continue to do that. From a revenue point of view as I said to you
we’re ratcheting up our Medicare Advantage but I used a general term, millions
of dollars of revenue we anticipate coming from it. Obviously if
we’re just ratcheting up we’re getting very little of it. And quite
frankly to think about just the commercials of Medicare Advantage on the TV,
it’s tend to get—they tend to—only people that are starting to get up in age
watch these commercials. But in November and December and January you
hear a lot about them and that’s when they’re enrolling these
people.
Then the
second phase in Medicare Advantage is to code these people. Do they
have chronic diseases or not. And that’s where screenings and plans,
reviews and all things come into, in line in reviewing does this person have a
chronic disease. And therefore, the federal government will reimburse
us more for that particular person versus another person. So then the
exam season kind of after the enrollment period kicks in. So we
should see a steady, growing flow of that for the remainder of the
year. We—the health insurance area, the new carrier that we just
contracted with, that should be reasonably, my guess is based on what I’ve heard
from them, is that it—that should be once we’re up, and loaded, and we have the
gooey ends finished with, it should be done if it isn’t already done
momentarily, we should see a reasonably consistent flow month in and month out
of new participants with their sales force and their marketing is out there
generating new people for that provider.
Medicare,
going on some of these newer initiatives, we’re just launching this Internet
based screening system that I’m extremely excited about because that—it’s really
more than just generating kit revenue. It has a great opportunity for
identifying legally participants who may, that pharma may be interested in, or
device selling manufacturers being interested in, in the diabetes
arena. So there is multiple opportunities for that going
forward. And if we’re right in our assumption that we think that this
has multiple plays, and we are in open conversations with many other firms to
deliver that kind of service. And so, yes, we’re still emerging into
the health sector and we, you know, it won’t be an even glide path
upwards.
As it
pertains to Portamedic. We continue to, as I said earlier, we
continue to improve our services. We continue with our sales force to
get more people interested in our Instant Scheduling. We continue to
see more and more new agents coming in to the fold. On that, it
doesn’t mean our competitors don’t go out and try to convince them to go back to
their services, but we continue to see that. Our Broker Elite
program, where we have very good dialogue going with national distributors,
which we think will continue to get more traction and we get more people
interested in it. So it is an evolutionary process.
Bill Sutherland: All
right.
Roy
Bubbs: So. I—that’s—I could go on and on but I
think it’s a good break for me to come up for air.
Bill
Sutherland: Right. Well, certainly diversification
has got to be a plus. Remind me to what degree—you know, what is
generally the shake out down to your level if a couple of big insurance clients
combine? Is that usually negative or neutral or?
Roy Bubbs: It’s been all
over the map. I mean last year when we had a major carrier which we
were getting significant amount of volume on a weekly basis, went from 1500 –
2000 exams a day, fell down to 200 exams. Their products were being
bought by other carriers and we—and I kind of know the industry
well. I kind of tracked it along with Rich Whitbeck, who everyone
knows enormously well too, and where we thought the business and we believed the
business was going didn’t equate to the same amount of acts (sp?) picked up from
the other carriers. So it really depends. Merging doesn’t
necessarily double the size in carriers. It—sometimes it’s a
detriment, only because that—think about a brokerage general agency for a moment
who is using four, five, six companies. They don’t want to put all
their apples in one cart. If one a—two companies roll up and they
happened to be two of their companies and they tend to spread that business now
to some other carriers.
Bill
Sutherland: Umm-humm.
Roy Bubbs: So it
really, you know, if it’s a career company, it’s—things shouldn’t change a
lot. If it’s a brokerage company it can or cannot.
Bill
Sutherland: Okay. Well I thank, I thank you for the
color.
Michael Shea: Thank you,
Bill
Operator: Thank
you. Our next question comes from the line of Joe Feraitola, a
Private Investor. Please go ahead.
Joe
Feraitola: Hello, Roy, Mike.
Michael Shea: Hi,
Joe.
Roy Bubbs: Hi,
Joe.
Joe Feraitola: I got a
couple of questions. When you were talking earlier about the snow
days, Philadelphia and Washington, D.C., were you referring to the fourth
quarter or the current quarter that we’re in?
Roy Bubbs: I was
referring to throughout the current quarter.
Joe
Feraitola: Okay. So that’s not reflected in the numbers
that were reported? That should be in the next quarter’s
numbers?
Roy Bubbs: I was setting
the tone of what we’re seeing going into 2010.
Joe Feraitola: All
right. And my other question. Have you added employees in
2009 or, I mean, I’m just trying to understand the employee
count? Do—did you add any or do you plan to add any in
2010?
Roy Bubbs: We’ve
strategically hired to fill what we think are important positions to meet our
goals and needs but our total head count went down.
Joe
Feraitola: Okay. My next two questions refers to, I think
it’s been almost two years now, that you started a retail kit division with
Heritage Lab right, where you were selling kits to Wal-Mart and stores like
that?
Roy
Bubbs: Yes.
Joe
Feraitola: Okay. Is there any update, progress on
that? Is that starting to work out? Are you still—I know
it’s a long time to build up but at what point do you think its, it, it’ll
either be good or not good?
Roy Bubbs: Well, it
continues to grow and our kits right now primarily, or the majority of them, are
in the diabetes space. And with the second half of the year the
American Diabetes Association coming out and saying the A1c kit is the preferred
way of measuring or—measuring diabetes, diagnosing diabetes, excuse me, we have
seen some uptick lately in the amount of kits being ordered from our
retailers. But saying that we continue to expand that market
place. One of our challenges is we’re selling kits but until they’re
tested we do not show, show that revenue. And so as more and more of
our—are being used, we’ll be able to see revenue growth.
Operator: Thank
you. Our next question comes from the line of Craig Pieringer with
Wells Capital Management. Please go ahead.
Craig Pieringer: Good
morning. I came on late so I apologize if maybe you have
touched on this but in the current discussion of health care reform there’s a
lot of talk about limiting hospital re-admissions and I’m curious how well, or
not well positioned are your Portamedic assets to address this burgeoning
need?
Roy Bubbs: We are, we are working very
aggressively on that business to position our
resources to be part of the solution.
Craig Pieringer: And
that’s all you have to say about that? That means you’re working
hard, you’re aware of it and working hard but nothing more
specific?
Roy Bubbs: Well, we’re
very aware of it. We’re very aware of it prior to even the dialogue
coming out of Washington. We are looking at various
ways. We’re in conversation with medical providers, et cetera in
looking at ways and our low cost, national footprint can help them effect lower
re-admissions and really, that’s really all I really want to say today on
it.
Craig Pieringer: Okay,
Roy. Thanks.
Operator: Thank
you. As a reminder, ladies and gentlemen, if you would like to ask a
question, please press star, one at this time.
Our next
question is a follow up from the line of Dennis Van Zelfden with Brazos
Research. Please go ahead.
Dennis Van Zelfden: Mike,
did you give us an EBITDA number for the year?
Michael Shea: I don’t
believe I did but I can now. EBITDA for the year was 6.2 million, 3.4
for the quarter.
Dennis Van Zelfden: And
does the 6.2 include, I guess it would include the restructuring charges or is
that an adjusted kind of number?
Michael Shea: No, that’s
not adjusted. That does include restructuring. There was—you would
add another 1.2 on that, after that, for the year if you were to exclude
restructuring.
Dennis Van
Zelfden: Okay. And…
Michael Shea: And it does
not include share-based compensation. That was 700,000 for the
year.
Dennis Van
Zelfden: Okay. Thank you for
that. Secondarily, what was CAPEX? What is CAPEX expected
to be for 2010?
Michael Shea: CAPEX right
now we’re looking in that $4.5 to $5 million range. We have a number
of new initiatives coming on board related to some of the revenue initiatives
that Roy was discussing. So right now I’d have to say that’s
certainly a manageable number. If the revenue doesn’t come out to
where it’s forecast to come out, we will certainly manage that down, but right
now it’s forecasted 4.5 to 5 million.
Dennis Van
Zelfden: Okay. With respect to the uses of the rest of
your cash, I guess in tough times like this you’d just be comfortable keeping
your cash or do you have some other specific ideas about it?
Michael Shea: Well
certainly I agree with your sentiment that cash is king in a tough environment
like this especially what we’re seeing in the insurance industry. But
we are going to be using some of it for these, you know, revenue initiatives and
building some of these new revenue streams in 2010. But right now
that, there is no other dedicated usage in 2010 for that cash.
Dennis Van
Zelfden: Okay. And lastly, I know I can get this from the
K but what is your loss carry forward?
Michael Shea: Loss carry
forward Federal is about $80 million, our federal
NOLS. Our State is in excess of 100
million. That’s primarily goodwill and depreciation and was written
off several years ago. Deductible goodwill.
Dennis Van Zelfden: All
right. Thank you very much.
Michael Shea: Thank you,
Dennis.
Operator: Thank
you. Our next question is also a follow up from the line of Brad
Evans with Heartland Advisors. Please go ahead.
Brad Evans: Most of them
have been asked but I’m just curious with the higher capital spending you
foresee this year, do you expect to still be free cash flow
positive?
Michael Shea: Yes, if the
revenue holds and we are profitable for the year, yes.
Brad Evans: And just one
last question on Portamedic, just because it seems like that’s the obvious
concern today. Just within the context of normal seasonality the
first quarter would historically be—how would you rank first quarter for
Portamedic in terms of seasonal performance?
Roy Bubbs: It is usually
one of our strongest quarters. The second and third quarters are, are
normally our weaker and the fourth quarter is strong again.
Brad Evans: And I’m
sorry, Roy, just to clarify you had indicated before that, I heard and I may
have missed it, but you feel that you’ve not lost any market
share? Is that correct? Or do you feel like you’ve taken
market share?
Roy Bubbs: I think the
net, net is—we, we’ve probably haven’t gone—we, we’ve made progress in some of
those initiatives I’ve said and picked up market share and we’ve lost some
market share, because one—for several reasons. One being we did not
continue with one insurance carrier on, basically because we couldn’t make any
money on it. So probably year-over-year all the initiatives we did we
probably broke even from a market share point of view.
Brad
Evans: Okay. Thank you.
Michael Shea: Thank you,
Brad.
Roy Bubbs: Brad, that’s
based on a lot of conversations also with the carriers where we actually do ask
that question.
Operator: Thank
you. At this time I don’t show any further questions. I
would now like to turn it back over to Management for any closing
remarks. Please go ahead.
Roy Bubbs: Once again I
want to thank you for all your questions today. I appreciate it and
wish you a good beginning of the year and look forward to our first quarter
call. Have a great day and thanks
again. Bye-bye.
Operator: Thank
you. Ladies and gentlemen, that does conclude our conference for
today. If you would like to listen to the replay of today’s
conference please dial 303-590-3030, or 1-800-406-7325 using the access code
4259042. Thank you for your participation. You may
now disconnect.