Quarterly Overview: Odyssey Healthcare turned in a record quarter that can be attributed to expense management, lower Medicare cap rates and a reduction in bad debt expenses. Aggregate admissions were up 4%, but same-store-sales were up only 1%. Q1’10 admissions were 12,744 patients, while discharges were 12,692. The specialty programs continue to be a major focus for the company’s marketing effort; particularly, their COPD specialty program. These programs enhance care by assessing patient needs based on their terminal diagnosis. The programs give Odyssey the ability to expand acuity capabilities, allowing for a greater gain of market share through diversification of services. Odyssey has developed four other programs that it intends to release over the next few quarters in an effort to jump start admissions. The Company changed its corporate logo, but indicated it remains committed to keeping its local brands of VistaCare, Avalon and Odyssey Hospice. The Company is spending a significant amount of time and effort to better train the local sales force. This includes training on the CareBeyond specialty programs and developing a marketing dashboard. The marketing dashboard will give local sales people daily feedback, goal progression and access to referral information and tips on how to market to them. With the Company’s success of managing the expense side of the P&L, they are clearly turning their attention to growing the revenue side.

Acquisitions and Market Developments: Odyssey completed no acquisition in the 1st quarter; however, the company said it was active on the business development front. Most of the discussions are in the early states with nothing imminent. Management remains very price sensitive, as they should with their own Enterprise Value/EBITDA trading at only 7.06 times. While this shows discipline, it also suggests there is a disconnect between buyers and sellers with sellers’ expectations above reasonable market valuations. The Company did consolidate two Medicare provider numbers into one and had two programs certified by Medicare (OR and CA). The Company now operates 92 Medicare certified programs. According to the recently filed 10-Q, Odyssey received an administrative subpoena for records from the HHS Office of Inspector General (OIG) requesting various documents and certain patient records of one its hospice programs relating to services performed from January 1, 2006 through December 31, 2009. These types of issues tend to work themselves out and do not seem to be a distraction for the company.

Financial and Operational Performance: Total revenue increased yr/yr by 2.4%, but was down 1.1% sequentially to $171.5M. Net patient revenue per day was $154.63. The average daily census (ADC) has only grown only 1% from the prior year; however, operations are now significantly much more efficient, and the company has improved cash flow. We expect management to turn more of its attention to growing its ADC whether organically or inorganically. Average Length of Stay (ALOS) was up to 87 days, which was up 4 days both sequentially and yr/yr. This is was primarily due to patient mix. Gross margins reached 43.8%, its highest level since Q2’05. Primary contribution to this margin improvement has been the use of technology by field staff. G&A expense also declined to 27.4% of revenue as the company leverages its corporate and program overhead. Adjusted Operation Expense Per Patient Day was $132.03 for the 1Q’10 compared to a year ago, $137.19/Patient Day. The improvements in GM and G&A expenses resulted in record EBITDA margins of 14.6% of revenue. Long-term, management believes EBITDA margins will run in the 13%-13.5% range. Odyssey continues to hoard cash, accumulating another $11.9M in the quarter. This was primarily achieved through improved expense management and a reduction of DSO from 58 to 56. Currently the Company has in excess of $141M of cash on hand and plans to pre-pay $29 million in debt in 2Q’10.

Tags: Home heathcare, hopice, M&A, mergers and accqusitions, Odyssey Healthcare, selling a business, Wyatt Matas