Q3 2019 Earnings Call

And your lines will again be placed a musical thank you for your patience.

Services Group, Inc. The meaning of the private Securities Litigation Reform Act of 1995 forward looking statements are often preceded by words, such as believes expects anticipates plans will goals me intense ceiling or similar expressions.

Forward looking statements reflect managements current expectations as of the date of this conference call and involve certain risks and uncertainties. The forward looking information are based on assumptions that we have made in light of our industry experience and our perceptions of historical trends current conditions expected future developments and other factors that we believe are appropriate under the circumstances as with.

Any projection for forecast they are inherently susceptible to uncertainty and changes in circumstances health care services group actual results could differ materially from those anticipated and these forward looking statements as result of various factors and the forward looking information forward looking statements are not guarantees of performance.

On the factors that could cause future results to materially differ from recent results are those projected forward looking statements are included in our earnings press release issued prior to this call. It in our filings with the Securities and Exchange Commission, including including the Fccs ongoing investigation.

There could be no assurance that the FCC or another regulatory body will not make further regulatory inquiries or pursue further action that could cause result in significant cost and expenses, including potential sanctions or penalties as well as construction management the ongoing I see see investigation and or any related litigation could adversely affect.

Or cause variability in our financial results, we're under no obligation and expressly disclaims any obligation to update or alter the forward looking statements whether as a result, such changes new information subsequent events or otherwise.

Ladies and gentlemen, thank you for standing by welcome to the Health care services groups Q3 earnings call.

At this time off participants are in listen only mode. After the speaker's presentation. There will be a question and answer reception to ask a question during the session you'll need to press star one on your telephone if your card for their assistance. Please press Star Zero I would now like to handle conference call over to your speaker today, Ted Wahl President and CEO . Please go ahead.

We plan on filing our 10-Q by the end of the week.

As the industry works towards stabilization, we continue to take actions that position the company for long term growth.

We entered the third quarter with management capacity, which facilitated the new business additions, we saw earlier in the quarter.

Some of our momentum was tempered by our recent exit from around 90 facilities affiliated with the New York based ownership group.

Exiting this particular group of facilities was the right decision.

It's critical we maintain disciplined in credit related decisions, especially in what remains a challenging environment for the industry.

During the quarter, we continued our solid service execution in the base business.

Our Q3 direct cost of services were temporarily higher from startup related cost, particularly early in the quarter as we inherited the inefficiencies within our new business at which are now on budget.

We also had temporarily higher payroll cost during the quarter as we still have management capacity from the strong recruiting and training efforts over the previous 12 months along with the recent facility exits.

We aim to be a fish in in our service execution, including management development and feel confident in our management recruiting and training plan as investing in managers is the most crucial element in our ability to operate and grow the company over the long term.

For the remainder of the year, we will be laser focused on managing the base business and selectively assigning our managers to new opportunities.

We will also continue with a cautious view on growth as the industry works its way through the latter stages of this challenging cycle and manages the transition to the patient driven payment model.

In the meantime, we remain committed to making decisions that best position us to take advantage of the growth opportunity that lies ahead and deliver shareholder value over the long term.

With that abbreviated overview I'll turn the call over to Matt for more detailed discussion on the quarter.

Thanks, Good morning, everyone revenue for the quarter was $455 million with dining and nutrition, I 230 million and housekeeping and laundry segment revenues reported a 225 million incremental revenue impact in Q4 related to the facility exits the Ted mentioned earlier, it's about $15 million and about 10.

Million it that will be in dining and 5 million or so in housekeeping and laundry.

Net income for the quarter came in at $18.3 million and earnings per share was 25 cents per share.

Direct cost of services is reported at 87.4% with housekeeping and dining segment margins reported at 9.6% and 3.8% respectively.

The temporary cost increase of about $4 million relates to payroll for account managers, whereby there recently completed the management training program were transitioned out of the facility that the company is no longer service doing additional cost of around $2 million were related to startup costs and inefficiencies for new business added during the quarter because.

Nobody expected decreasing impact from each ads account managers continued to be assigned to new facilities at which they are budgeted and then the new business additions operate on budget overall, our goal is to manage direct cost below 86%, excluding the temporary investments in management capacity and any new business startup efficiencies that may occur.

Selling general and administrative was reported at $33 million were 7.3% and there was a minimal impact from the change in deferred compensation, a and likewise I'm not a much of an impact from legal or professional fees related to the FCC matter and we expect that you need to be in or around 7.5%.

Excluding any actually see related costs until revenue growth accelerates.

Other income and expense for the quarter was reported as a 7000 dollar expense again minimal impact from deferred compensation and was impacted by timing of certain captive related expenses as well as interest income on or notes receivable and interest expense on the line of credit.

Going forward, we expect our investment income to be around a half a million dollars, excluding the impact of deferred comp or any other timing related items.

Our effective tax rate for the third quarter was 23% and we expect our tax rate for the rest of the year to being a 21% to 23% range, including watsi, but excluding other discrete items that impacted the 2018 tax rate.

Over the balance sheet.

At the end of the third quarter, we had over $120 million of cash and marketable securities under current ratio a better than three to one cash flow from operations for the quarter came in at $60 million, primarily due to the cash collections exceeding billings and favorably impacted by the 24 million dollar increase in accrued payroll and because we called.

The timing of payroll and the impact of the payroll accrual pure previously we wanted to remind you that the fourth quarter payroll accrual would be lower and more comparable to the second quarter payroll accrual, but of course that only relates to timing and ultimately that washes out through the full year.

Yes. So it was reported at 70 days up from Q2 due to the decrease in notes receivable that were previously classified as long term now do in less than 12 months and included as part of current accounts and notes receivable.

As announced yesterday the board of directors approved an increasing the dividend to 20 cents per share payable on December 27th the cash flows and couch cash balances supported and with the dividend tax rate in place for the foreseeable future. The cash dividend program continues to be the most tax efficient way to get free cash flow and ultimately maximize return.

To the shareholders. This will mark the 66th consecutive dividend payments since the program was instituted in 2003 and we're proud that this is now the 65th consecutive quarter that we've increased the dividend payments over the previous quarter, which is now a 16 year period. That's included four three for two stock splits so with those opening remarks.

I'd now like to open up the call for questions.

If you'd like to ask a question at this time. Please press Star then the number one on your telephone keypad, if you'd like to withdraw your question press the pound Keith will foster just a moment cathartic you any roster.

And your first question comes from AJ Rice with credit Suisse.

Hi, guys. This is killed Harris on for AJ.

Oh, sorry.

Good morning, I'd, just like to start on a PD P. M. A little bit do you have any early read from your customers on how that's going I'm understanding that you know, we're only less than a month into it have they talked about any unexpected challenges or are you know how its going so far.

Yeah. I think you you you made the keep pointing that were only a few weeks into it but at this point in the lead up to the implementation and then you know three weeks into the implement implementation. We continue to hear positive experiences and that so far for the majority for the most part the implementation is going.

As expected.

Okay, and I guess, just in your and the way you're looking at your customer base with respect to PDP and are there have you segments that your customer base in some way internally.

And are you keeping a close your eyes on some of those facilities that may have higher exposure to the therapy and maybe more impacted by the reimbursement change.

Yeah like like everything else, it's part of our holistic evaluation of any customer I mean, we were looking at everything from the you know reimbursement environment in the state in which there are operating and their management team capability Wherewithal and of course, you know any.

Other reimbursement considerations like P. D. P M that could impact no. There go forward prospects. So that's part of our valuation along with many other considerations.

Okay and it was good to see some new business adds in Q3.

And I understand the commentary on sort of a cautious view towards gross at this point [laughter], how how do you think the street should be thinking about revenue growth over the next year is it you know should we be.

Be baking in something very minimal or take a sort of a wait and see approach to what happens in Q4 and Q1, how would you think about the cadence of getting back to some reaccelerate accelerated revenue growth.

The latter weighting more cautious view as we work our way through Q4 in Q1 and you mentioned it in your question, but we continue to have a cautious view on the industry and specifically growth.

As the industry works towards stabilization and manages this transition.

To the Pdps. So for US you know we overall industry fundamentals are improving we do believe we're in the latter stages of this difficult cycle no longer term demographic trends aside which all of US know are extraordinarily favorable that data we are seeing today.

Our encouraging I mean, the occupancy trends stronger reimbursement.

Programs and trends, whether it's at the federal level at the 2.5% increase we saw kick in October 1st P. D. P M, which has been cautiously optimistic we received within the provider community and and so far so good as far as implementation even at the state level from a reimbursement perspective ex if you out.

Liars, there there seems to be positive trends and we're also seeing some of these improvements within our work within our own customer base and certainly more positive sentiment first hand within that customer base, but you know as I mentioned are alluded to we're not out of the words, just yet and I think it's really important hey lives that we remain disciplined in our decision made.

King, especially when it comes to credit related matters and will continue to apply that discipline and evaluating not only existing customers as well as Nick but also new business ads, which again and that's why we continue to take that more cautious view over the next couple of quarters.

Okay, and then just one more minor thing you mentioned the timing of the captive related expenses impacting other income I think you mentioned that in a previous quarter as being a headwind on that timing was this similarly, a headwind or did this go the other direction as a positive and can you quantify.

It was this was similar similar to last quarter, but moving forward certainly in Q4, and then beyond we would expect it to be in and around that I think Matt mentioned, a half a million dollars are so from a from a net benefit in terms of that line item.

Okay. Thanks, a lot guys.

Next question next question comes from Ryan Daniels with William Blair.

Hey, guys. Thanks for taking my questions have a quick one in regards to their credit quality of your customers I'm curious what kind of early warning systems you have in place to kind of analyze that risk and I know you don't payment terms or delays in collecting cash would be one but I'm more curious about anything at the site level with your facility manner.

There's a fair monitoring occupancy pick the ability to report that so you get kind of even other leading indicators on what that may look like going forward.

It's a great question, Ryan and it it is truly in all of the above strategy. As you know most important to US is is the payment coming on time and in full and certainly as we've now migrated close to 60% of our customer base to that weekly payment model, we're getting a more frequent view.

Into the payments and we've talked about the multiple benefits that come both psychologically and just from a cash flow perspective for both the customers and for ourselves with that weekly payment model, where there is not sort of that larger end of month decision point that were artificially creating for the customer do you do I cut this large check to health care.

Services group at the end of the month, which could be four times year, obviously end of quarter, maybe I short pay them. This month and I'll make it up to them next month or I'll sit on it for a couple of days and its into in later once we get into that weekly a payment frequency and cadence. They think about cutting that check to health care services group, just like they think about cutting their payroll checks, which.

Yes, exactly how we want them to think about off so migrating to the weekly payment model has certainly been a significant move for us and that is.

The most significant and loudest indicator as to the credit worthiness or credit position of a customer secondary to that of course exactly as you alluded to we are gathering boatloads of Intel and data from the field some of which has gathered in the facility directly as you mentioned, we're typically attending the standup meetings in the.

Good morning at the facility in which we're getting a view as to not only the current census, but generally some insight into the current payer mix. In addition to expected admission discharges. So at the facility level, we're getting a very real glimpse as to not only the current completion of the facility resident population, but also what they're anticipating in the near term going.

Forward, so that gives us greater visibility as well and then really outside of that its connecting a lot of dots within the larger broader vendor community right. I mean, we're out there we're dealing with paper and plastic vendors chemical vendors were watching a chemical vendors food vendors.

It's we're taking some cues from them as well and we've had instances and we may have shared this.

Before but we've had instances in which customer pays us on time in full no issue, but our district manager picks up the phone calls our office here in a panic, saying that there's four vendors in the lobby of the facility, saying they didn't get paid that month you that in of itself is not for us to trigger a conversation with that customer and really require that they make us.

Your comfort even in spite of maybe a pristine track record of paying us. So it really is Ryan an aggregation of different data points and sources that we utilized not the least of which is the payments obviously and that it is really that kind of multi pronged effort with our financial services team here in the core.

Robert off as really being the champion of contract integrity, the formal credit assessment process, but very much supplemented by our field based organization and operators.

Okay. That's very helpful color and then.

Just as a follow up I want to talk a little bit more about.

The revenue profile going forward can you speak to how much and you may have mentioned, that's but how much new business was signed in the third quarter and how much of that was actually recognized during the period. So trying to get a feel for take the run rate pick up 15 million how much do we want to add back in that wasn't recognize.

This quarter to get kind of a run rate entering Q4.

Yeah, Ryan as far as the business that we added in the third quarter nearly all of it was added in the early part of the order. It was about $50 million, an annualized revenue and we solve just about a 12 million dollar impact in Q3, so nearly all of that ran through the Q3 results now that's offset by.

Obviously, the facilities that we exited the exited facilities.

Amount to about 70 million or so in annualized business and only about three and a half million of those exits ran through the Q3 results. So that's where we end up with about 15 million remaining to run through Q4 results from a revenue perspective.

Okay. That's helpful. Then last question.

Can you give us a proxy for kind of how many excess facility managers you have just so we can see.

Kind of the inherent capacity that's already on the system that you're not generating revenue for and maybe any color on your thoughts on how long that can take to the point you back to normal margins. Thanks.

Yes, it's challenging for us to really quantify explicitly Ryan how many managers are currently out there.

Throughout the 48 states in which we operate within our field based organization. It's obviously very fluid I would say that if you think about the various buckets really two buckets, one being managers, who recently made their way through the training program. That's a number that continues to decrease especially in geographies in which.

There is either an opportunity to fill vacancies were to upgrade current management positions. The other box would of course be managers, who are freed up as a result of having service or been the manager assigned to a facility that we're no longer servicing and that's where there is much more fluidity, because certainly we freed up a number of managers.

As a result of the facilities, we exited in the second quarter.

It's very much well positioned us to be able to onboard that new business in the third quarter. So you're right out of the gates in Q3 with Onboarding, new business absorbing some of that capacity.

From the second quarter, but then unfortunately that offset with exiting facilities at the tail ended the quarter and early parts of Q4 here, which again frees up additional capacity. So it's very fluid Ryan and I would say the benefit that we have currently is that very well geographically dispersed. So it does become very much a localized up or down to the.

The district at level as to ultimately finding a home for those managers and that could take.

Take the form of either as I said filling a vacancy upgrading an existing management vacancy I'm sorry at existing manager who's not performing up to snuff or ultimately assigning them to a new business opportunity and that's why Ryan even though we have a cautious view towards growth over certainly the next three to six months.

You know as the industry as I mentioned continues to stabilize and in conjunction with the PDP at ERP implementation over the next over the coming year, you should see a direct correlation between new business ads and then direct cost of services coming down as we're deploying into signing those.

Freed up managers to specific facilities into new opportunities.

Okay. Thanks, guys.

Next question comes.

Next question comes from Jason Plagman with Jefferies.

First question, so as I imagine that PDP M is absorbing a lot of management attention that you're at your clients. Currently do you think that could have any impact on client implementation of.

Implementations of your services over the next you know two or three quarters. It just any thoughts there would be helpful.

We think of that is more of a Q4 dynamic I think the short answer would be yes.

It certainly we talk about all hands on deck with certain things here in terms of a team based effort and Matt mentioned it in the context of.

Credit and collection certainly on the on our customer side right now that is if not diesel focus. The primary focus is the successful implementation of the patient driven payment model. So in terms of some new business opportunities that we otherwise would have started in the fourth quarter, they would likely be pushed out into the first half of next year.

Yes.

Okay. Thanks Thats helpful. And then just one clarification I think you gave the number the dollar impact of the excess managers you carried in Q3 I didn't catch that number if you could just repeat that that'd be helpful.

That was around $4 million Jason.

Okay. Thanks.

Next question comes from Mitra Ramgopal with Sidoti.

Yes, hi, good morning, I'm, sorry, if I missed this already but as you look at <unk> at the bench in terms of the managers you have from exiting a facilities and from the ones you have train and develop.

How confident are you that you know you are going to be able to assign these managers to facilities over the next 612 months and again, that's also leading into the optimism you have in terms of bringing on new business in this environment.

Yeah, I would say Mitra, there's a 100% confidence that we will be able to place those managers. The timing is the question as is always the case and really kind of ties into Ted's comments about revenue and adding new business, but the timeframe that you outlined which be it would be six to 12 month I'd say.

We feel very confident that the the managers that are currently sort of considered excess capacity. If you will not specifically assigned to a facility at which they are budgeted I think its exceptionally reasonable to expect within a six to 12 month period. They would all be assigned to various facility. So they'll be puts and takes.

Eggs as to.

The revenue and facility ads, but very confident that the current crop of sort of on underutilized or unassigned managers will be placed within a certainly within a six to 12 month period.

Okay, that's great and then.

As you again, a intelligent and new business. If you can give some sense in terms of the conversations you're having.

Are you finding potential customers I'm, taking more of a wait and see approach or are there more willing to.

Listen to your proposals.

Versus say, maybe six I think yeah, there's always been a willingness and I think just building off of what Matt just spoke to we have significant visibility into the business, we have significant visibility into service execution, whether its quality assurance that the facility level customer satisfaction budget first.

It is actual and as we talked about before in a consistent way, we have significant visibility into the demand for the services.

New business activity and certainly our pipeline, but it is an industry that continues to be in a state of transition and I think because of that we're going to assess these new opportunities and onboard facilities over the next couple of quarters, but we're going to do so in a more controlled pace until we decide it's the right time to re accelerate.

Okay. Thanks, again for taking the questions.

Okay. Great. Thank you metric next question comes from Bill Sutherland with a benchmark company.

Thanks, Good morning.

Good morning.

The operating cash flow is awesome in the quarter.

You think you'll be about at the 80 million levels for the year.

I think thats a fair number.

I know thats in and around where we're at now, but when you think about cash collections and cash flow for the quarters. It will be significantly impacted similar to Q2 of this year by the change in in the payroll in the payroll accrual the timing of that payroll accrual so that would be.

As good a number is any to use and if we overperform.

We'd be able to point to specific reasons, but our goal remains the same we want to collect what we bill quarter in a quarter out we've done that three of the last four quarters and no we would point to.

Certainly among other things that change in the change in payment frequency and that initiative.

As being a significant catalyst for that type of success. You know if we were we were here a couple of years ago Bill we'd be talking about how very few if any of our customers. We're paying us at a frequency greater than monthly and Matt mentioned it earlier, but here, we are today and I attribute that to proactive leadership to innovation.

From the from the the ops team and the financial services team collaborating around ways to improve our experience a lot to migrate towards this this higher frequency payment model here, we are today with damn near 60% of our customers paying us at that type of frequency. So again.

That leads to more visibility into the customers financial commitment to the partnership as well as more predictable and more consistent cash flow.

And then with the balance sheet improving and.

The stock where it isn't any incremental plots by the board on returning.

Cash to shareholders potentially.

Purchase program.

Hey, so it's always a point of discussion we havent been.

Shy about communicating to to you and others that the board and the company's priorities in terms of capital allocation continue to be.

Organic growth first and foremost which were deeply committed to as well as the dividend, which you know consistency sustainability of is really the guide posts, but that does not preclude us from you know looking towards share repurchase plan. If if if if it makes sense at a point in time, so I would never.

Take that off the table, but again, that's how we think about capital allocation in terms of priority at least that deposit.

And then turn it I guess the last one that has I think about this let's let this latest group of facilities that you.

Decided to.

Exit from.

When you look across your portfolio at this point.

I would you categorize.

So these where you have to think about this potential.

You know loosely.

Like a loop like a Mike.

I'm sort of partnership like you're dealing with here that decisive centralized.

Yeah. Good you have to deal with them on a different basis at that point.

Yeah.

Look weve I think just in terms of.

You know exit tour revenue step Downs I would I would I would answer it this way, though we've we've done a lot of work.

Over the past year right going back to the third quarter of last year with our housekeeping initiative, which was more.

Which was more margin focused I know in the fourth quarter with some of the food transition work, we did on the dining side and then.

The second quarter of this year with the transitions largely in Texas, but other transitions as well in exits that we had and then this quarter I think we've done a great deal of the work we do not foresee any.

But look if a partnership or client relationship is trending in the wrong direction or is no longer in the best interest of the company. We're prepared to make that decision that may be somewhat painful in the short term, but best positions. The company for the long term. So I know that's not a specific answer to your question, but I am sharing our thinking on it.

But we've done a lot of the work and we don't anticipate any as we look out over the next three to six months I would only add to that bill. It's interesting. The way you asked the question asking about carragher categorization, which for us is a.

It doesn't apply necessarily to a lot of what we do because of the you know the very specific nature of each contract and the facility relationship and the ownership structure and the payment structure. So for US we would more likely get ourselves into more trouble by attempting to categorize and sort of paint with broad strokes as it relates to our customer.

Her and payment and credit related concerns, which is why getting back to the earlier conversation. We had in response to Brian's question about the credit assessment. It really does need to be a facility by facility ownership group by ownership group.

Factoring in the relationship and the.

The property company and how that Interplays, so for us it categorize ization of our customers and subsequent relationships would be a dangerous game to play. So unfortunately, we do need to and we're very much committed to the assessment down to the facility specific conditions and all the resulting outflows that I mentioned as it relates.

Contract ownership payment credit et cetera.

Okay. Thanks.

Next question comes from Bretton offline with Berenberg capital.

Hi, guys. Thanks for taking my question I'm on for Sam first question is really on the customer exits and I guess that headwind is it fair to assume.

59, our headwind for both Q1 and two of next year I guess all else equal.

No. The 50 million was the <unk>. The 50 million was the in and around the amount of new adds new business. During the earlier part of the quarter I think you're probably referring to the 90 or so facilities, the 70 million or so that we exited.

Later in the quarter into the current quarter and that would be on a net basis about a $15 million headwind. If you will into next quarter.

And but that headwind won't persists into Q1, our Q2, where it was about will just be comment just becomes the new base revenue. So no that would that would that would carry over into hill. The revenue is replaced as we deploy as we utilize some of the management capacity, we had in new business opportunities similar to what we do.

Good in the current quarter, where we had freed up managers from some of the second quarter exits and we're a and as well as additional management capacity from a lot of the work we've done.

In building out the management pipeline over the last year, and we were able to deploy and utilize those talented management people in new facility opportunity. So that is when when we're not having a specific decision.

Like we made.

In the at the ended the quarter this year, where that is the virtuous cycle. We're we're developing management people and then we're utilizing them and they are there there are having opportunities in new business that were siding and that's a rinse and repeat effort.

You know in terms of our management development and new business at cycle.

Okay, then maybe on just see the new customer acquisition pipeline and how that is looking and could you maybe compare that to.

How the trend with I guess that play pot pipeline looks with maybe your management pipeline, how that has historically trended and has a management pipeline kind of always.

Been more robust and new customer acquisition pipeline and maybe just some color on that.

It's interesting that sort of juxtaposition as you frame. It because we are in a position where were really experiencing the complete inverse of what we've seen historically for those who followed the company for a longer period of time, you would've heard us talk frequently and consistently about the gating factor on our growth being our ability.

To.

Recruit higher train develop and ultimately retain our managers and we've generally been able to grow as quickly as we were able to develop managers.

The point this point in time in the company's history now for all of the reasons Weve outlined some of which are within our control as to the sort of restart and recognition of the recruiting efforts some of which we're you know.

Somewhat painful and not necessarily of our primary choosing that being exiting up facilities has created this management excess and that overlays into a time period in which we're really in probably the second greatest challenging.

Industry cycle, that's been in place since we've been doing this going back to 1976. So it's really having the management capacity is a really a luxury that weve never.

Never enjoyed to this great degree that's of course, tamped down a bit by the cautious view that we remain I'm, having a as it relates to the industry and the prospects to layer in new customers or expand relationships with current customers. So the norm is very much more so brett that we would have X.

Yes demand as compared to management capacity. So we find ourselves in a very great position right now with that management capacity coupled with.

Essentially record levels of demand, it's just applying that caution and doing the diligence and assessing opportunities to expand the business that made from a timing perspective.

Lag out a bit of the growth relative to what we might have seen in other times of having management capacity yet at our avail.

Okay. Thank you for taking my questions have gone.

You too.

Next question comes from Chad Vanacore with Stifel.

Thanks, So Matt you mentioned that it's a challenging point in the cycle and you'd had it been at the helm for a couple of business cycles now so I'd like to hear from.

You had Ted what insisted that since pointed cycle, that's different than other cycle as you've seen.

Why is contract turnover higher compared to the past.

Yes, I don't I I would say over the past 15 years.

We haven't seen a cycle like this Chad Matt referred to as the late in the balanced budget Act, which was in the late Ninetys as being maybe one or the other counterpart to this type of cycle. So I think this is different for a variety of reasons, but certainly aki relative to the last let's say couple of decades it was occupied.

I'd say right the low between the demographic trends.

Favorable demographic trends from the baby boom being preceded by the lowest birth rates in U.S. history, and that demographic trend that age cohort working its way through the long term care continuum. So I think that created significant pressure in the industry at large and then you layer in some of the the wage and.

Flaishon Ari pressures the uncertain reimbursement environment. Some of these have always been ebbs and flows, but and then and then lease cost right. Some of the lease cost pressures that we're out there and had to be worked through so I think this was a confluence of different factors, which made it somewhat unique again relative to the past couple of decades of our.

Our experience is having said all of that you know and I mentioned at a couple of times throughout.

Good morning, we see industry fundamentals improving.

And that is clear to us the data are clear in terms of Directionally, where we believe the space is going and we're going to be prepared to execute on our long term growth strategy.

When opportunistically over the coming quarters, but certainly longer term.

We believe we're well positioned to do that.

What kind of signs or you're looking for in your client base thats kind of signal that recovery.

You know really gets back to that.

The granular sort of facility level assessment, Chad right. I mean are the beds full do they have a pipeline of new admits.

Awaiting them they have healthy relationships with other local hospital and health systems to continue to feed that pipeline. So it's really kind of that bottoms up assessment of our the beds full is there a plant in place to optimize their occupancy and likewise to to leverage the opportunity that PDP M. presents.

To them, so it's really more art than science.

But ultimately the greatest indicator for us as it relates to our current customers is now with respect to payment are the payments coming on time or the payments coming in full that is the greatest indicator for us and as to assessing the credit worthiness or the overall health of a prospective customer. Unfortunately, there is not a.

Magic.

Tests that we can run or formula that we can apply it really is that that rolling up. This leaves ground up bottoms up effort to assess the local conditions and then do the homework as it relates to ownership structure their behavior and reputation within the industry as it relates to other vendors and other providers within the community. So.

I'm really trying to round out our assessment, both quantitatively and qualitatively as much as as possible.

All right then just one more for me to talk about cash flow earlier, yeah. It was solid in third quarter, but you expect to give some back in fourth quarter due to use of working capital and lower revenues.

We're really should we expect free cash flow shakeout fourth quarter and full year 19, and then how to get back that ABT 100 million in 2020 that you historically you've got.

Well first Chad I appreciate you, saying.

Record cash flows the highest cash flows the company has ever experienced in a three month period as being solved. So thank you for that now you're putting words in my mouth.

No.

But but I'd call it right.

Right right right around where right around where we're at <unk>.

Because of the timing of the payroll accrual we'd expect it to look more like Q2, I think we had.

No.

Two were $3 million, a cash flow as reported in the second quarter, because the second quarter was impacted in the other other direction by the timing of the payroll accrual, Matt talked about how that strictly a intra quarter impact not a year over year impact. So we would expect that were at or where it over $80 million sitting here today Chad.

So any additional cash flow for the fourth quarter would in fact put us in that 80 to 100 million dollar range.

All right I'll leave it there thanks for the questions Greg.

Thank you.

At this time I will turn the call over to the presenters.

Okay. Thank you Sharon.

Look forward to finishing the year strong and laying the groundwork for 2020 as industry fundamentals continue to improve for the remainder of the year, we will prioritize managing the base business.

Signing our new managers, our managers to new opportunities and exercising discipline and evaluating both existing customer relationships as well as new business opportunities all the while making decisions that best positioned the company to take advantage of the growth opportunity that lies ahead and deliver shareholder.

Now you over the long term.

So on behalf of Matt and all of US at Health Care Services group I want it again to thanks, Sharon for hosting the call today and thank you again, everyone for participating.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.