I think it’s only fair to allow One Call to tell their side of the story. So, here it is.

Yesterday One Call execs had an off-site meeting and subsequently released a letter to customers extolling the successes the firm is having; landing new customers, rolling out Polaris, improving patient experience, and really improving customer satisfaction.

Oh, and OCCM is fully compliant with its debt covenants and is meeting its financial obligations.

Allow me to make a few observations.

First, current financials will not be reported until some time after June 30 – two days from now – so Mr Baldwin is technically correct when he states that OCCM is “fully compliant.”  Until those financial results are reported (likely mid July, or in two weeks), the debt holders don’t know if OCCM is or is not in compliance; Q1 financials indicated OCCM was compliant – if barely so.

Second, congratulations to OCCM on landing “13 new customer relationships.” Not to be too picky, but I don’t know if that is expansions of existing relationships – say by adding transportation to an existing customer relationship, are entirely new customers, expanding from a one-state contract to multiple states, or what exactly.

Third, Mr Baldwin didn’t mention that Broadspire, Nationwide, and several of the Great American companies have terminated or are terminating or drastically reducing their business with One Call.

I do not envy Baldwin and the folks at One Call; they are in a very difficult position which Baldwin stepped into long after the die was cast. OCCM is loaded down with a huge and growing debt burden, has spent millions on an IT system that – in my estimation – will not improve customer satisfaction, and is trying to compete with other suppliers that are nimble, deliver excellent customer service, and aren’t trying to be all things to all people.

With the exception of Eileen Auen, Peter Madeja, or Mike Ryan I don’t know any leader who could salvage the situation. And even those august personages would face the greatest test of their prodigious talents.

But here’s the really awful thing – even after recent layoffs, OneCall still has thousands of employees who will be affected by this. They had nothing to do with the sale of various predecessor companies, the ridiculous debt, the frankly stupid decision by Apax to put the company together in the first place, the investment of millions into an IT system that could well be too little, too late.

Yet the folks who do the work every day are going to be the ones most hurt.

That sucks.

What does this mean for you?

Fortune favors the prepared. (borrowed from Louis Pasteur)

Some of the investors that own OneCall Care Management’s debt holders are getting organized to prepare for a “potential liquidity event and expected covenant violation…”

That’s the lede from a piece [subscription required] authored by Associate Editor Paunie Samreth citing two sources (not me) writing on Debtwire, an Acuris company. Samreth:

If you’ll bear with me for a minute, here’s the non-English version of what’s happening. The issue at hand is a “7x first lien leverage covenant” which kicks into action when the company draws down its revolver debt by 20%.  According to Samreth’s article, OCCM had a “razor-thin” margin at 6.9x as of March 31.

I do NOT know what those specific covenants are, however in my experience debt holders put covenants into contracts so the debt holders can take control – partial or total – of a company that is at risk of defaulting on its debt.

Samreth also indicated OCCM had drawn down $50 million of the $56.6 million revolver.

Allow me to translate into language we non-financial wizards understand.

Among other debt instruments – bonds etc – OCCM has “revolving” debt, which is kind of like a line of credit. The company can borrow from it and pay it back as cash flows dictate.

The “7x” is calculated by dividing the total long-term debt – which was reported to be $1.375 billion on March 31 – by cash flow (adjusted EBITDA) – which was $200 million over the 12 months preceding March 31.

So, as of March 31 OCCM had drawn down its revolver by way more than 20%, but had kept its revenue-to-debt ratio just below 7, which prevented the covenants from kicking in.

That was almost three months ago. Since then…citing Samreth:

Summer isn’t off to a sunny start for OneCall.

Two good-sized customers are moving their business to other suppliers. Sources indicate concerns over OCCM’s financial situation led to the switch to other vendors for transportation, PT, imaging, DME and home health.

Sources indicate MTI America, VGM HomeLink, MedRisk, HomeCare Connect, and Paradigm are among the winners. (MTI and MedRisk are HSA consulting clients)

Other customers have been in discussions with OneCall about ensuring payments for treating providers are made on a timely basis.

OneCall was carrying just under $2 billion in debt at the end of the first quarter; that has increased due to the refinancing of a big chunk of debt earlier this year. Despite the refi, debt service is eating up most of OneCall’s cash flow, dollars that would otherwise go to internal needs such as Polaris – the company’s name for their new IT platform..

The refi terms allow OneCall to not pay a portion of the interest on the new debt. Instead, the deferred interest becomes part of the debt owed. So, sort of like credit card debt, if you don’t pay the interest owed, you end up owing interest on the unpaid interest.

That saves cash over the near term, but increases the company’s total debt load and the cost of paying off that debt just gets bigger every month.

I’m hearing the customer-facing part of Polaris is gaining fans, but development of connections to and replacement of legacy internal systems isn’t keeping pace. This may be part of any cash-flow problem; Polaris was supposed to reduce headcount by replacing people with systems. If customer-facing staff hasn’t been reduced and customer service levels haven’t gotten better, OneCall has a couple challenges, namely:

• continuing to pay for Polaris development, while
• keeping more people on payroll, in an effort to
• keep customer satisfaction at some reasonable level and
• generate enough cash flow to pay the bills.

I’ve asked OneCall for their comments, but the company has been quite unresponsive of late so don’t expect anything substantive.

Marketing is not sales support.  If proposal writing and RFP responses are in “marketing”, you aren’t doing “marketing”.

Selling is one-to-one. Selling is finding out what that individual’s views, perspectives, challenges, biases, needs, opinions, fears and desires are. It is NOT “selling”, rather it is finding out what problem that person has and what she wants to buy, then packaging your offering so it addresses that individual’s needs and situation.

Marketing is one-to-many. It is doing the research to identify market segments, and those segments’ needs, wants, fears, and buying processes. It is developing and modifying products and services so they specifically address general and specific needs. It is promoting those products and services so potential buyers are aware of them and see the applicability to their situation.

Marketing can be squishy; it can be hard to assess the ROI on a marketing campaign or investment.

Work comp services execs often think marketing is easy, simple, and they are good at it. Hey, they can write an article, press release or “white paper” or give a speech or design a booth.

While a few execs understand Marketing, most do not.

And that is precisely why work comp services is a highly commoditized industry where price is critical. 

What does this mean for you?

Marketing’s budget should be 2 percent of your revenues, and led by someone who really knows the subject.