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Original Source: FD (FAIR DISCLOSURE) WIRE
. Gary Brukardt, Renal Care Group, Inc., President & CEO . Dirk Allison, Renal Care Group, Inc., EVP & CFO . Raymond Hakim, Renal Care Group, Inc., EVP, Chief Medical Officer & Director of The University Division
. William Johnston, Renal Care Group, Inc., Chairman of the Board
. Douglas Chappell, Renal Care Group, Inc., SVP and General Counsel
RCI announced 3Q03 net revenues of $253.8m vs. $231.5m for 3Q02. 3Q03 net income was $26.5m, for an EPS of $0.53 vs. 3Q02 net income of $23.4m, and EPS of $0.46. 3Q03 EBITDA was $61.1m or 24.1% of revenues vs. $54.1m or 23.4% of revenues during 3Q02. 3Q03 operating cash flow was about $73.1m, and the balance sheet shows $121.1m in cash at September 30, 2003. Q&A focus: pricing pressures, share buyback, Epogen, KDOKI guidelines, Medicare reform, and acquisitions.
A. Key Data From Call 1. 3Q03 Revenue: $253.8m 2. 3Q03 Net Income: $26.5m 3. 3Q03 EPS: $0.53 4. 3Q03 EBITDA: $61.1m 5. Shareholder equity as of 9/30/03: $628.8m 6. Long Term Debt as of 9/30/03: $2.7m
7. 3Q03 CAPEX: $9.5m
3Q03 RENAL CARE GROUP CONFERENCE CALL
S1. FINANCIAL HIGHLIGHTS (G.B.) 1. THIRD QUARTER EARNINGS 1. 3Q03 revenue increased 9.6% vs. 3Q02 to $253.8m. 2. 3Q03 net income increased 13.3% vs. 3Q02 to $26.5m. 3. 3Q03 EPS increased 15.2% vs. 3Q02 to $0.53. 2. STOCK REPURCHASE AUTHORIZATION 1. The RCG Board of Directors approved a $200m increase in stock repurchase program, bringing total amount authorized to $450m. 2. Increase in stock authorization program is intended to be a value enhancing measure, and a way to utilize strength of the balance sheet.
3. At the end of 3Q03, RCG completed the purchase of two dialysis
programs, one in Irving, Texas, and another in North Platte,
Nebraska. 3. OPERATING EFFICIENCIES 1. RCG achieved a reduction in overhead for 3Q03. 2. Labor hours for treatment in the in-center hemodialysis product line are lower sequentially, while significantly lower QoverQ. 3. Operating efficiencies mirror improvements seen in RCG clinical results for its patient population that now totals 21,000 plus in 27 states.
S2. MEDICAL OUTCOMES & LEGISLATIVE ISSUES (R.H.) 1. MEDICAL OUTCOMES
1. RCG currently serves more than 21,000 patients. 2. In terms of the dialysis outcomes, RCG tracks the percentage of patients who received the optimal dose of dialysis. 3. Results are expressed either as urea reduction rates (URR), or Kt/V. Due to the trend in reporting toward Kt/V, RCG will adopt this measure. 4. The target for Kt/V as set by the Medical Advisory Board is 1.4 or higher, which is higher than the minimum target of 1.2
set by the KDOQI guidelines. 5. RCG currently has 84.3% of patients achieving this target, which is 40 bps higher than a year ago.
6. In terms of the minimum dose of Kt/V of 1.2, which is a target
reported by CMS, more than 94% of RCG patients have received
this minimum dose, compared to 89% nationally. 7. In terms of anemia management, the percent of patients with hematocrit of 33 or higher is 77.7%. 8. RCG has remained at this level for some time to remain within the hematocrit target guidelines set by CMS. 9. CMS has opened a comment period on the appropriate range of hematocrit for ESRD patients. 10. The National Kidney Foundation, which sponsored the KDOQI guidelines, has also announced that they would review the evidence based guidelines for anemia management in the coming year. 11. In terms of hospitalization, RCG's average hospital days for 3Q03 has decreased to 11.8 days per patient year, more than 2.5 days less than the national average of 14.3 days published by USRDS. 12. RCG's one year rolling average for mortality is 21.5%, more than 2% lower than the national average. 2. CLINICAL INITIATIVES
1. The ESRD program focuses on the education and process of care
of patients as they initiate life on dialysis, specifically
within the first 90 days. 2. Although the results are preliminary, and there is only partial data on many of the pilot centers, RCG has documented a significant reduction in hospitalization and mortality of participating patients in the first 90 days of the dialysis experience, as well as improvement in their knowledge about ESRD. 3. RCG has been collaborating with a large physician practice on a pre-ESRD or chronic kidney disease care model. 4. RCG believes there are opportunities to improve the process of care and the education of patients in that setting.
5. To the extent that a patient coming to dialysis is better
educated, has better control of blood pressure, anemia and
nutrition, the better his or her outcome on dialysis will be.
6. Over the next year, RCG plans to expand the collaborative
model to other sites with other physician practices. 3. VENDOR AGREEMENTS 1. RCG has also finalized several major vendor agreements.
2. RCG's new contract with Amgen beginning January 2004 is now
for 25 months, and RCG feels comfortable that it can mitigate
the majority of the increase in the purchase price with
quality outcomes. 3. RCG has concluded agreements with Baxter for PD and hemo supplies, and with Abbott for vitamin D products.
4. RCG has initiated discussions with FMC to renew existing
contracts. 5. These agreements will allow RCG to maintain the cost of supplies practically flat in constant dollars. 4. REGULATORY MEASURES 1. RCG has decided not to participate in the ESRD demonstration project. 2. The industry, under the umbrella of Kidney Care Partners, has responded to the proposed changes to the AWP payment structure that was proposed by CMS. 3. RCG is actively refining its response to CMS on the issue of the appropriate hematocrit range for the ESRD patients. 4. There is accumulating evidence that Medicare beneficiaries CMS likes to identify -- patients with high hematocrits -- do have lower morbidity and mortality, and in fact cost less to CMS than patients with low hematocrits. 5. LEGISLATIVE ISSUES 1. The House-Senate conference is still working on the Medicare bill, with the structure of the drug benefits package as the major stumbling block.
2. While it is hard to predict the outcome, most people feel that
the political pressures to get it done are fairly intense and
it is more likely than not it is going to happen. 3. Both the House and Senate bills recognize in different ways, the importance of the current AWP reimbursement system, and have committed to keeping the ESRD providers whole for any structural changes in AWP.