LifePoint Hospitals Earnings Call Insights: Expense Rates and Store Revenue Growth

LifePoint Hospitals, Inc. (NASDAQ:LPNT) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Expense Rates

A.J. Rice – UBS: I just had a couple of questions. Maybe the specific ones first, on that high-tech comment of $32 million to EBITDA is that – are you having the same roughly expense rate as last year about 8 million and therefore 40 million of incentives is something close to that?

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Jeffrey S. Sherman – EVP and CFO: That’s in the ballpark, A.J.

A.J. Rice – UBS: On the volume and pricing assumptions for 2013, can you give us any flavor for what you think those might look like?

Jeffrey S. Sherman – EVP and CFO: On the adjusted admission side we are anticipating being down 1% to up 1% for the range. For pricing, I kind of gave the individual pricing.

A.J. Rice – UBS: Is there an update on the new Mexico indigent care program?

Jeffrey S. Sherman – EVP and CFO: At this point, the stage is still in discussions about the program. So, at this point, we’re not anticipating any other changes in our guidance other than the reductions that started in the third quarter will continue. So, it will another roughly $6 million in reductions in 2013.

A.J. Rice – UBS: Then finally, just stepping back and thinking about next year and health reform implementing. Are you making any changes now investments over the next year to better position. I mean you’ve got ongoing investments to improve efficiency and so forth, but I wondered if there anything that you’re specifically doing to prepare for that and maybe any early discussions you’ve had with the insurers about contracting for next year which you’re seeing?

William F. Carpenter III – Chairman and CEO: This is Bill. We are indeed looking at ways to deal with the coming insured population in our markets and so we are investing in programs today and doing a lot of planning for what that will look like. Our regional strategy that we have invested in with respect to the new acquisitions is really designed around that in order to provide scale and then in individual markets we are looking at ways to put that scale to use as we really try to use the hospital as a focal point for care in the community to help bring the public along these newly insured patients along into the coverage that will be available. So, that’s some of things that we’re doing.

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Jeffrey S. Sherman – EVP and CFO: I just think from a capacity standpoint, we have capacity won’t be the only thing with staffing, really until we see volume changes, but we think we have capacity on ED departments today to treat the patients, and we have started having early discussion on, in terms of exchange pricing and it’s too early to comment on this point, but we’re early in the process on our discussion with managed care companies regarding the exchange products.

Store Revenue Growth

Justin Lake – JPMorgan: Question in terms of the revenue growth, so it looks like you guidance implies low single digit same store revenue, is that right?

Jeffrey S. Sherman – EVP and CFO: That’s correct.

Justin Lake – JPMorgan: Obviously the top line in the total guidance is much higher than that, so can you give us an idea of how much of that top line is coming from revenue that’s already been acquired versus – and what you’ve got baked in for acquisitions?

Jeffrey S. Sherman – EVP and CFO: Well we don’t have any acquisitions that haven’t been completed in the revenue base Justin. If you look at Marquette, we’ve said that roughly $320 million of revenue. So, there is little bit over $200 million of revenue, incremental revenue from Marquette, and probably another $20 million to $30 million of revenue from other acquisitions that we completed in 2012 earlier in the year. So, you get about $230 to $240 of acquisition revenue from the three hospitals acquired in ’12 full year impact in ’13.

Justin Lake – JPMorgan: So, can you walk us through what you think you are going to generated for cash flow in 2013 and potential use of that.

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Jeffrey S. Sherman – EVP and CFO: We haven’t given cash flow guidance in the past you should expect it is going to be pretty consistent flowing from the EBITDA line today, Justin. So, I think free cash flow was 160 million this year or 180 million last year I think that’s reasonable proxy for looking at ’13 flowing down from the EBITDA line.

Justin Lake – JPMorgan: So, CapEx is going to be similar and the…?

Jeffrey S. Sherman – EVP and CFO: CapEx I am expecting to be in the range of $230 million to $240 million. So, we continue to have IT investments, those are ramping down. 2012 was our peak year for IT capital investments. Those are starting to come down in 2013. We also have some capital commitment related to market are starting to ramp up and in 2013 that will happen from the next several years.

Justin Lake – JPMorgan: So, then just last question physician recruitment and employment been a big push. Can you give us any incremental color in terms of what you are expecting now for 2013. Maybe base line just in terms of what the contribution is versus from a top line perspective and more importantly a bottom line perspective in terms of these employed physicians and what you expect that number to look like in terms of 2013. I know it has been headwind. I am just trying to get some sizing and how much more we should think about being a headwind in ’13?

Jeffrey S. Sherman – EVP and CFO: I’ll start with probably just overall financial impact and I’ll turn to David to give little color just on plans for ’13. So, physician practice losses have been increasing, but they’ve been increasing very consistent with the number of employed physicians. So, our losses have been growing as our employed physicians have grown. The losses were pretty consistent in the fourth quarter from the third quarter and as we said last quarter from the third quarter and as we said last quarter to third quarter, typically our largest quarter for bringing new doctors either through employment or through recruiting. So, I would expect that the losses will continue in a consistent manner that we’ve been seeing with more physicians moving towards employment in 2013. So, I think it’s our expectation. We’re going to continue to see more physicians employed and the losses will move accordingly with that. But we are seeing improvement in the practices that we have operated for over a year and we continue to refine our practice management processes to ensure we’re getting good performance out of the ones we are employing.

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David M. Dill – President and COO: Justin, this is David. The only thing that I would follow-up to Jeff’s comment, I look at the employment of physicians in two different buckets. One, those physicians that are new to the market that we’re bringing into the market that will – the employment of those physicians will at least be at the same rate that we’ve seen over the course of the last year. So, I think that headwind will continue to be there. There will also be several physicians over the course of 2014 that will employ through transactions what we call in-market transactions in our communities. So, the actual number of employ physicians will grow. However, those practices are already established in the communities in the way that we’ll structure those. You won’t see the same pro rata share of employment losses for those type of doctors. So, I’d expect a combination of those two to significantly continue to ramp up. The number of employee doctors, the financial impact won’t be as dramatic for those that we’re acquiring in partnering with that are already certain patients in our communities.

Justin Lake – JPMorgan: Those doctors are acquiring. Are you buying out the practices or are they just moving to an employment agreement?

David M. Dill – President and COO: Typically moving to an employment agreement. There might be a small amount of assets – physical assets equipment that are purchased very small though. We’re not paying goodwill typically for any of these acquisitions.

Justin Lake – JPMorgan: Can you just throw us the numbers and I’ll jump off in terms of the physicians in ’12 and the expectation for ’13 as well as the losses in ’12 and ’13?

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David M. Dill – President and COO: Just in terms of employed physicians we said and have said consistently that we expect to add around 100 net new physicians into the Company over the course of the year. We hit that target. I think it should be able, but higher than that in 2014, given the current recurring plans and our retention plans are In place and a lot of that’s just indicative of jus the growth of the organization and the new hospitals are coming into the Company. I will turn it over to Jeff for some of the financial implications.

Jeffrey S. Sherman – EVP and CFO: The practices are – losses are running $14 million to $15 million a quarter, Justin. I would expect that that will increase in 2013 consistent with more doctors being employed, but I don’t expect to see a huge growth there which is quite consistent with number of employee physicians going up. Now it’s a little bit harder of us to predict, how many ended the year, we know how many physicians we’re targeting, how many of them are going to get through employment versus recruitment guarantees is little bit hard today.

William F. Carpenter III – Chairman and CEO: But as far as the overall recruitment in general Justin, we’re operating within the range we need in order to be able to achieve our expected results.

A Closer Look: LifePoint Hospitals Earnings Cheat Sheet>>