Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the commit Corporation fourth quarter 2019 earnings Conference call. At this time, all participants' lines are in listen only mode. After the speakers presentation. There will be a question and answer session. During this session if you'd like to ask a question. Please press star.
Our one on your telephone.
Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero.
I'd now like to turn the call conference over to your Speaker today, Ms. Sherri Warner with Investor Relations. Please go ahead.
Good morning, Our conference call. This morning will review the financial results for the fourth quarter of 2019 ended December 31st 2019 before we begin let me remind you that the safe Harbor provisions of the private Securities Litigation Reform Act up 1995 applied to this conference call.
During the course of this call the company will make various remarks concerning managements expectations predictions plans and prospects the constitute forward looking statement.
Actual results may differ materially from those projected by these forward looking statements as a result of a variety of factors, including those identified in the company's news release on February 18, and various other filings with the FCC you are cautioned that any forward looking statements reflect management's current views only.
And that the company undertakes no obligation to revise or update such statements in the future. In addition management May also discuss non-GAAP operating performance results during today's call, including earnings before interest taxes, depreciation and amortization or EBITDA and adjusted EBITDA.
A reconciliation of these non-GAAP results is provided in the company's press release dated February 18, which is available in the company's website at Chemed Dot Com I would now like to introduce our speakers for today, Kevin Mcnamara, President and Chief Executive Officer of Chemed Corporation, Dave Williams Executive Vice President.
Okay, and Chief financial Officer of Chemed, and Mick Westfall, President and Chief Executive Officer cannot be Tufts health care corporations subsidiary I will now turn the call over to Kevin Mcnamara.
Thank you Sherri good morning.
Welcome to Chemed Corporation's fourth quarter 2019 conference call I will begin with highlights for the quarter and David isn't there a follow up with additional operating detail.
Well then open up the call for questions.
Consistent with the first nine months of the year, our fourth quarter 2019 operating results were very solid and at the high end and in many cases exceeding exceeded our internal expectations in the quarter Chemed generated revenue of $522 million an increase of 14.2%.
Our consolidated net income in the quarter, excluding certain discrete items, what sport hours and 22 cents per diluted share an increase of 26%.
We tosses additions have continued to strengthen throughout the year in the fourth quarter of 2019, we had been in 17479 patients.
Which is 5.4% above the prior year and compares favorably to the second quarter 2019 admissions growth of 3.8% and a third quarter admissions growth of 4.4%.
<unk> revenue increased almost 11% in the quarter. This was driven by a combination of our 6.1% growth in average daily census, as well as our annual Medicare price increase that was effective October 1st 29 see.
There's a 11% revenue growth resulted in a 26.8% increase in adjusted EBITDA.
Roto Rooter can didn't exist so consistent growth in our core plumbing and drain cleaning service segments with aggregate revenue, increasing 21.2% in the quarter and adjusted EBITDA, expanding 20.9% well, we posted excellent growth in adjusted EBITDA or overall adjusted EBITDA margin of 24%.
Well the slight decline over the prior year quarter.
Normally was such a significant increase in revenues immigrant cost model would show an increase of EBITDA margin. However, I wrote <unk> wrote a roto rooter margin growth was held back as a direct result of our previously announced rotor acquisitions that initially generate operating margins that are Stan substantially below our roto rooter operating metrics.
As most of your where the second quarter 2019, we acquired the California franchise territory, serving Alameda County.
And portions of southwest through San Joaquin County, These acquired territories had.
Annual revenue of roughly $11 million and sort of a population of approximately $1.7 million.
In September 2019, we completed the H S. W acquisition, which was our largest franchisee H S. W consisted of franchise territories Metro Los Angeles, which includes inland Empire, San Fernando Valley, San Gabriel County.
Orange County, as well as territories in San Diego, California.
Dallas, and El Paso, Texas, Phoenix, Tucson, and warrants Arizona.
Salt Lake City, Arlington Park City, and Provo, Utah.
And Portland in Salem, Oregon, collectively these Hs w. rotary locations or approximately 32 million people the aggregate revenue by about 70 million.
These acquisitions have been immediately accretive to earnings whoever required. These territories, knowing their gross margins EBITDA margins and pricing and mix of service offerings were significantly below the average of our existing Rover operations.
For example in the fourth quarter 29 team. They just W. acquisition had gross margins that were 10 percentage points or 1000 basis points below the run rate.
The interest W. branch operating margins were 18.8 percentage points below our average we're branch operating margins.
The operating performance of these newly acquired territories are slightly ahead of our initial projections. However, we are in the midst of a project to reengineer. These branch operations to emulate a roto rooter branches I have strong confidence that every one of these acquired territories will have significant operational improvement in margins and overall profitability over the coming quarters.
I would like to turn this teleconference over to David.
Thanks, Kevin.
The beat US net revenue was $340 million in the fourth quarter of 2019, which is an increase of 10.7% when compared to the prior year period.
Revenue in Greece is comprised primarily of a geographically weighted average Medicare reimbursement rate increase of approximately 5.5%.
6.1% increase in days of care, an increase in the Medicare cap billing limitation that decreased revenue three tenths of 1%.
This growth was partially offset by acuity mix shift fluctuations in that room and board and contractual adjustments the combination of which negatively impact revenue grow approximately seven tenths of 1% when compared to the prior year period.
Average revenue per patient per day in the fourth quarter of 2019 was $198.48, which is 5% above the prior year period.
Reimbursement for routine homecare and high acuity care averaged $164.62 and $996 in 82 cents respectively.
During the quarter high acuity days of care were 4.1% of total days of care and 11 basis point decline over the prior year quarter.
Just 11 basis point mix shift in high acuity days of care reduce the average increase in revenue per patient per day from 5.5% to 5% in the quarter.
In the fourth quarter, 2019 detachment crude $4.5 million Medicare cap billing limitations. This compares to the prior year Medicare cap billing limitation accrual of $3.5 million.
VITAS currently has 30 Medicare provider numbers.
On a 12 month trailing basis 23 of these provider numbers have a Medicare cap question of 10% or greater.
The provider numbers haven't kept pushing between zero percent and 5% and for provider numbers have a Medicare cap billing limitation.
Fourth quarter of 2019 gross margin, excluding Medicare cap was 26.3%, which is a 204 basis point margin improvement when compared to the fourth quarter of 2018.
Selling general and administrative expenses were $21.2 million in the fourth quarter of 2019, which and it is an increase of 3.9% compared to the prior year quarter.
You touched adjusted EBITDA, excluding Medicare cap totaled $70.5 billion in a quarter an increase of 27%.
Adjusted EBITDA margin, excluding Medicare cap was 20.5% in the quarter, which is a 259 basis point improve margin improvement when compared to the prior year period.
Now, let's turn to the Roto Rooter segment.
Roto Rooter generated quarterly revenue of $182 million for the fourth quarter of 2019, an increase of $31.9 million or 21.2% over the prior year quarter.
On a unit for unit basis, which excludes the Oakland and Hs W. acquisitions, Kevin mentioned earlier that were completed in July and September 2019, respectively, Roto Rooter generated quarterly revenue of $162 million for the fourth quarter of 2019, an increase of 7.9% over there.
Prior year quarter.
Excluding the Oakland and Hs W. acquisitions commercial drain cleaning revenue increased 7.1% commercial plumbing and excavation declined 110th of 1% and commercial water restoration declined 17.4% keep in mind commercial water restoration represent only 10%.
Of our total water restoration service revenue.
And overall on the unit per unit basis commercial revenue.
Excluding these acquisitions increased 1.2%.
The residential side, excluding acquisitions, our residential drain cleaning increased 10.1%.
In an excavation increased 7.4% and residential water restoration increased 14.6%.
Overall residential sales excluding acquisitions.
Increased 9.5%.
As of December 31, 2019, Chemed had total cash and cash equivalent to $6.2 million in long term debt of $90 million.
During the fourth quarter of 2019, the company repurchased 50000 shares of Chemed stock for $20.7 million, which equates to a cost per share a $414 an 11 cents.
As of December 31, 2019, there was approximately $104 million of remaining share repurchase authorization under this plan.
Our guidance for calendar year 2020 is as follows.
Revenue growth for beat Us prior to Medicare cap is estimated to be in the range of 8.5% to 9.5%.
Both admissions and average daily census in 2020 are estimated to expand approximately 3.5% to 4.5%.
And our high acuity days of care are estimated at 4.1% of total 2020 days of care.
Full year adjusted EBITDA margin for Vitaros prior to Medicare cap is estimated to be 18.7% to 19%.
And we are currently estimating $18 million for Medicare cap billing limitations in calendar year 2020.
Roto Rooter is forecasted to achieve full year 2020 revenue growth of 13% to 14%.
This revenue estimate is based upon unit the unit revenue growth of approximately 4% to 5% in our core plumbing and drain cleaning services.
Continued but slowing revenue growth from water restoration services combined with 12 months of revenue from the Oakland and Hs W. acquisitions.
Roto Rooters adjusted EBITDA margin for 2020 is estimated to be in the range of 23% to 23.5%.
Based upon the evolve full year 2020 adjusted earnings per diluted share, excluding noncash expense for stock options tax benefits from stock options cost related to litigation.
Intangible amortization reacquired franchise rights and other discrete items is estimated to the range of $16 in 20 cents to $16 in 50 cents. This 2020 guidance assumes an effective corporate tax rate of 25.2%.
For comparison Chemed 2019 reported adjusted earnings per diluted share was $13.96.
I'll now turn this call over to Nick Westfall, our President and Chief Executive Officer Vitaros.
Thanks, Dave VITAS had an excellent fourth quarter completing what was a solid 2019 were each employee came together to focus on execution throughout the entire year.
I would like to thank each of our VITAS team members for their ongoing commitment and dedication to making these results a reality.
In the fourth quarter, our average daily census was 19250 patients an increase of 6.1% over the prior year.
Total admissions in the quarter were 17479.
This is a 5.4% increase in admissions when compared to the fourth quarter of 2018, and as our third sequential admissions growth rate increase starting with the second quarter of 2019.
This sequential performance continues to be result of our collective organization striving to improve all aspects of our ability to differentiate between us.
And efficiently serve the patients families and referral sources and each of the communities in which we operate.
During the quarter admissions increased in all four of our president locations when compared to the fourth quarter of 2018.
Hospitals, which typically represent 50% of our admissions increased 5.8%.
Home based admissions increased 1.5%.
Assisted living facilities increased admins by 9.4% and nursing home admissions expanded 0.2%.
Our average length of stay in the quarter was 95.2 days. This compares to 92.6 days in both the third quarter of 2019 as well as the fourth quarter of 2018.
Our median length of stay was 16 days in the current quarter, which is one day less than the 17 day meeting in the prior year quarter.
Year to date basis median length of stay 16.
CDN length of stay as a key indicator of our penetration into the high acuity sector of the market with that I'd like to turn this call back over to Kevin.
Thank you Nick I will now open this teleconference to questions.
Thank you if you would like to ask a question. Please press star one on your telephone to withdraw your question press the pound Keith.
And our first question comes from Joanne Good luck with Bank of America. Your line is open.
Thanks. This is Joe on like that you kind of bank of America. Thank you.
So in terms of furnished with feed us.
Okay margins were pretty good in that second line obvious to me now.
Their rate Oh coming in much much better.
And I guess, even after you raised your views for the year.
Still you came much much better than your updated guidance. So can you talk about the main area because sand versus your internal expectations, what drove a better performance in Q4.
Yeah join I'll. This is Dave Williams I'll comment first.
So the on of course, we knew were going to get a price increase that was significantly higher than anyone anticipated.
Well, they CMS announced in July August and basically they were taking a rough cut up 20 basis points at a routine homecare.
And then general in patient care.
On a national rate was gonna go up 35% and continuous homecare was going up almost just a hair under 40% nationally.
But we had a lot of uncertainty regarding how that would actually impact our fourth quarter as well as what we're looking at going into 2020 in the big unknown would that be that would be of course geographic mix shift, which always moves around for VITAS, but the other side of it is what our high acuity days of care.
Turn out to be in the fourth quarter of 2019 as well as going forward in 2020 as an example, as you know we mentioned that there was in the a really slight decline in our days of care in continuous homecare and G. D combined which is what we call high acuity that's declined 11 basis points in the quarter.
Over the prior year going from 4.18% of 4.07%.
Very modest 11 basis point decline actually shaved a full 50 basis points off of our price increase going from 5.5% to 5%.
So what we.
When we gave our initial guidance, we were somewhat conservative knowing that high acuity care mix shifts and have a significant impact on the pricing points, we realize but it looks like we stabilized around 4% to 4.1%.
And that's really what we ended up projecting into our guidance for 2020. So we ended up with a net 5% price increase and Thats really the big driver in terms of the 125 basis point EBITDA margin increase for Vitaros in 2020 over 2019 with.
Of course, a bit of that growth actually happen some of that 5% growth, but some of the 5% price increase growth. We had was translated into higher margin and Vitaros. This fourth quarter 2019, EBITDA, but you bring up a great point, because we don't have any control or driver relative.
You have to what high acuity care turns out to be in any given quarter or any given year. It's the thousands of individual decisions made by our positions based upon current patient needs. So we're still keeping a close eye and what that ratio turns out to be but it's not a ratio were in any way of incontrol off.
But I'll turn that over to Nick to see if he has any additional 'cause it before.
I just want to say Theres Theres also another skewing factor.
Within high acuity that is whether it's continuous care in patient care and.
Obviously.
Yes.
The.
Continuous care has a little bit higher margin, so that that shifts that affects the.
The relationship as well, but having said that Nick any other comments. So the question no. Other comments other than just to reinforce the last point Johanna, which Dave made the.
The decision, making related to whether patients experiencing a period of crisis, and therefore warrants a higher level of care, whether it's continuous care GE IP is very patient specific and clinically driven by our physicians and our care teams in so well continue to make those decisions were just meant.
Watching what that translates into from a total percentage of total total days on a go forward basis in modeling that into our guidance on a go forward basis.
So on that point, so you're saying.
That's what Twain fastest 4.1.
So Jason Mccarthy high acuity, so how does this.
The year.
Tonight.
I'll walk you back through each of the last few quarters. So that you can see the degree of comfort with it in Q2 of this year. It was 4.2% which was flat against the prior year Q3 was 4%, which was 70 based seven basis points less than the prior year and then as we just reported it was 4.1% which was.
11 basis points.
Less than the prior year quarter, so that normalization around 4.1 is what we felt comfortable with going into 2020 as we anticipate total days of care to continue to expand but the ratio between routine home care and high acuity to remain consistent with what we're experiencing at the tail end of 2019.
So I'm sorry are you, saying that.
So I'm sorry, so year over year for the full year you expecting the.
The high acuity days, there as a percentage of total too.
To actually increased or decreased slightly to remain relatively flat, which is that that 4.1 person.
Yeah, but just.
Full year 2019, Joanna just so we're clear came up to 4.17%.
But everything were benchmarking is off of fourth quarter 2019.
That's really what we think it and it does look like so we think stabilize I remembered Nick mentioned it was 4%.
Event and the third quarter 2019, 4.07 in the fourth quarter of 19, we really do think it's stabilized, but we have to.
Emphasize this is just an accumulation of physician base decisions and if we see a spike in and referrals that come out of hospitals that number could go up if we drop a little bit in hospital based referrals that result in admissions the high acuity ratio could drop a little bit.
Its base exclusively on patient need, which is which is very much a market specific.
Dynamic.
Right understood and then on that front in terms of the guidance for the margins seem beat us for the year.
How does your classified under 20 basis points are still increase year over year, obviously in Q4 alone.
The margin increased mitral and try to Q. So I assume it's the dynamic off Q4 2020, having a normalized.
Revenue grow training blocking the rebasing.
Just a higher rate since that way to think about it that we should expect the first three quarters has oh.
Nice went back 100 basis points margin expansion and things will normalize for Q4 2020.
Certainly things will normalize in the fourth quarter of 2021, we see what our October Onest 2020 increases.
It would be probably reasonable and conservative to keep that in a range of 1% to 2%, but typical of our business model. When you get all of the price increase from the federal government on October Onest, well, certainly October 1st inflation Hasnt eroded any of that price increase so you expect more that to fall to your EBITDA line, but then as you go out.
During the quarter and then you go into the following year as people are pass through pricing.
Wage increases as inflation a roads that you certainly all things held constant economically ODAC do expect an erosion of that margin from the fourth quarter.
Okay, and that's when we experienced through throughout the year. You know if you look at the last 10 years. The only thing that can offset that in terms of inflation eroding is the little bit of leverage we have in our fixed or semi fixed cost in the form of central support cost.
Right and the other piece on the guidance on feed us or you are you getting too.
Average daily census.
4% admission growth for.
But in terms of.
Average daily census growth 2018 can be much better it was 6% for the year stainless Abbas you know your guidance. So so this is it just some conservatism here or are you just kind of looking at a tough comps in second half of 19, because that's the growth was so strong book.
Can you just kind of trade. So that's how we should think about.
You know the 80 season, I guess with that.
There was some comments made.
How you're trying to drive a better experience for the patient. So the trial starts just so can you talk about that give us more specific examples of actions you're taking that allows you to deliver it at 6% 80 should grow that you did 2019th.
Sounds good John I'll I'll take a stab at answering both of those lunch or David Kevin May have some additional color to add into it but for the admission in the AIDC range inside of 2020, it's consistent with some of our historical approaches to which is to provide a conservative range on both of those operating metrics and throughout the call.
Portion of the year, we may modify modify that range has experience as experience comes in and so you know admission growth in AIDC growth. While there is a correlation to it is also unique depending on the.
The unknown of how long it patient is ultimately going to stay with you for all those appropriate patients that come on on day one so.
To your point it is I don't know if we did.
Describe it as conservative, but it's consistent with our historical guidance of a range for both that will update throughout the course, the year and the only thing I wanted to add is.
As what there is a factor that that.
Could affect these numbers that is.
In.
You know areas like Florida, California, where.
We will we want more shorts they patients.
And we actually monthly average length of stay to go down.
Salespeople they spend more time, calling on.
Possible discharge planners and.
Yes. Good sources of patients that are good that are more likely shorts. They patients as opposed to assisted living you don't care.
Organization, So I mean, it to the extent that what I wouldn't see as a success.
Or.
2020 would be some adjustment in that those efforts may be even.
That's outpace.
APC and the benefit you might Joe others, there from a normal operating.
Reporting situation that that create some challenges, but that should help you on the Medicare cap.
And given where we're doing it we think that Theres, a two to one pay off or something like that you don't mean, so you've got to put it all together but.
I personally yeah beef costs is when you look at their projections in there.
Guidance.
We're in good position to deliver on them.
And to reiterate Kevins point, you know as we look at 2020, we hopefully.
See a admission growth rate continuing to grow like it has and mentioned sequentially and our AIDC growth rate will be what it is depending on how long those patients stay with us.
To answer your second question Johanna related to the comments on what's driving some of that sustainability and slight increases from an admission growth perspective at a very high level I think theres, probably three components.
Speak to the obviously, it's much more tactical and a localized level, but it's a continuation off of our multiyear strategy really focuses on a variety of things off I'll comment on three of them, but being an independent hospice without any ownership or affiliation with upstream referral sources has always been critically important.
For VITAS to do these things in the first one is separating out the value proposition of hospice. So lets say why hospice to those referral sources and watch then why VITAS and I think we've been very successful at.
Being able to educate unexplained both of those those things. The second one is just ongoing improvements in consistency with our education and training not only out to the patients families and referral sources, but internally with our team to focus on all those key factors that are really influencing our success in the admissions.
Yes.
And then when we think about tax will feed on the street, we're always focusing and measuring our improvement on things such as speed of response to those referral sources when speed of responses critical such as a hospital discharge planner and so we can probably spend the next our and a half talking about some of those strategic execution pieces, but thats what the team has.
It's been focused on we're going to continue to be focused on it with some new initiatives also rolling out.
In here inside of 2020, and we're just going to continue to focus on the execution on a day to day level, there and hopefully the results will continue to fall.
Okay, and then different topic on staying on hospital.
So there's I guess.
I would have different small proposals had it takes then it will create some changes here.
So can you comment on some of those I guess any update on the proposal carving into hospice benefit.
And then can self.
You are actively trying to position ahead of that are you waiting to see what's could come out from these athletes plans and also I guess or some other proposals.
Matt and I guess you under president.
Uh huh.
Other proposals to make some changes in hospice benefit. So can you just trying to last kind of how you think about that reimbursement outlook hospice and many and <unk> and then maybe comment on any all Steve.
Oh, the SAP proposals that are out there. Thank you.
Yes, I just don't start date by saying you know Nick and Dave follow these.
Potential.
Changes very closely.
In both from an association standpoint, and from political contact standpoint, and the more you know you don't know, but let me just say before I turn it over to them. They maybe they could probably about some specifics.
We operated on a presumption that the status quo is not going to hold forever.
We don't anticipate that didn't happen is that soon but we like a lot of things you know things Jake.
I think the benefit of rotor were and the type of.
A couple of it is we don't national in scope.
We will be.
We should be.
The most adept at adjusting to these changes whatever they are so.
I'd say at the top level I say, we'll see what happens I don't expect that the things last forever, but I'm very confident and how we'll be able to deal with Jay just update anything internally about specific potential changes. The yeah go it yes, let's let's use for your question, we need to break out into two kind of government stakeholders. One is.
C M I center for Medicaid and Medicare innovation, basically creative different ways of billing to make the health care system more efficient and the second one is I think you will basically referring to a medpac recommendations. So let's take the see my first what see it Amite is currently working.
And with Medicare advantage plans and they're trying to engage their appetite whether they want to offer within M&A plans hospice option.
And it's still an unknown, we actually there's going to be a another conference call with C. M. A mine next week basically getting a feel for what did what are the m- plans interested in what will be a positive in the negative or the potential unintended consequences as well as what will reimbursement b, but it's.
All what we would call was a demonstration project a very small scale project over the next several years to actually gauge what the impact would be on Medicare beneficiaries efficiencies of a continuum of care.
Are you keeping things at arm's length by these decisions made by the patient as opposed to an insurance company trying to save on curative care costs, but see am I. The whole point of demonstration projects in modeling is try to figure out the reaction to the health care system without disrupting the all of Medicare So thats going to be several years.
And the Nike.
The second one is met path, which is the advisory board on reimbursement to Congress and went Medpac does is on a very broad based scale. They look at everything reimbursement for Medicare and they come up with various observations some of them just at 30000 feet some of them and out but at 30000 feet.
They made the thought you the cap protection on Medicare billing eight the index for different reimbursements by different geography.
Example, we it's about a 30000 dollar Medicare cap protection per admission, but that 30000 is the same in San Francisco with a $240 routine home care reimbursement as Baton Rouge, Louisiana, which I think it's below $140. So they're talking about indexing the cap not having an increase in hospice.
And then reducing cap by 20% and that's a proposal that well get discussion, but I don't I suspect even medpac doesn't expect Congress to take that off but I'll also turn into next to see if he has and the other observations one other just very quick comment to add onto it when you take all of them, including see in my mind or.
What was inside of the President's budget, but at the CMO my level.
Reinforce kevins, we're actively engaged in the dialogue to be a stakeholder to provide any input to see him EMI or any other governmental stakeholders that are really trying to achieve in the recognition of one thing.
Hospice when it was enacted on the Medicare benefit and 83 was all was the first value based full capitated risk reimbursement and it drives and down total cost of care inside of the system and improves quality for patients and so what we're trying to collectively figure out of the country is how do we get more appropriate and greater access to pay.
Patients and we believe the believing that that will be good for the industry and for the country. It's a matter of how we get there and how the rules and or demonstrations evolve, but we see that at a very positive thing potentially for the industry in the future as well as a positive thing for patients and families throughout the country.
I think the end takeaway is how Kevin openness and the status quo and health care will you know it's this is going be dynamic not static and you'll have to have a care and business model that is prepared for changes in reimbursement, whether it's going to be next year or three or four years down the road and we have structured VITAS and.
And our capital structure and our business models prepared for these type of changes.
So just a follow up what they're seeing my Oh. This is a proposal and that's just couldn't be at that on in certain markets.
But to my question.
You are you in discussion with any of class a.
So outlay first kind of trying to.
One quick can't rely on how to kind of structure because I guess the next standpoint, it will be a the phase right. They will.
Uh huh.
They will have a proposal first I guess for the fate.
Oh adjustments to include the hospital.
In those states.
So I I m- plants already.
Looking to provided for inputs on battles.
That's not wait there yet.
So John it for the most part until the pricing and the actuarial piece comes out which would the first time would be scheduled for next week for some of those public awareness at that point with the plans will have an meanwhile, arguably enough information to begin to formulate their desire and whether they want to participate in individual.
Markets or not and at that point, you know, we already have relationships with some of those plans and we'll just discuss whether it is mutually advantageous or not but there are current gaps in the proposed designed is still need to be addressing ferreted out that are important details by CMS.
So can you almost have begun to see a my has done a great job of engaging all stakeholders, which would include the hospice industry may plans, just just to name a couple.
As as well as the academy of Hospice and palliative care physicians, but the reality is seeing my has been more directly engage with M&A plans.
With what hospice industry, providing thought process in import both the seem am I on M&A, but the active participants right now RCM am I on M&A, and we're kind of waiting in the wings to see how we can participate in that plan. Once we have clarity on what seem am I on the M- plans of reaching an agreement.
That's a big unknowns.
Okay I will lead you have to Florida Novak coupon attrition actually went up you can finished.
Q. So if you have more questions.
Please don't yet [laughter]. Thank you so.
So we talk about hospice.
And if he doesn't I guess the route of the organic quotas pretty good when you talk about that 7.9% excluding that deals during the quarter a that that's pretty were passed but seems like you kind of guiding to a a further deceleration. So is it also similar to what you described because.
The outlook that you sort of more conservative It Secretary, Eric as you talk about it for 4% to 5%.
For side of things, so theres something missing piece here at the bridge from from that number 213% to 14% overall revenue growth.
No we would consider actually the core base business had 4% to 5%. If you look at historical is actually a fairly robust. It I think it's a direct result of are more detailed an aggressive campaign on internet marketing and making sure. We saw it show up in paid a natural search but.
I think you some of the core business is getting.
Water restoration played an outsized role in our units per unit growth over the past several years that hasn't treated so really 4% to 5% given an industry that has almost no grow we consider extremely positive. But then of course, we have the additional growth from having a full year of App was.
Position revenue and profitability, even though it's a low margin profitability still yellow hula relatively all the acquisitions I've been taking it from that 4% to 5% to that 11%. So actually the core growth for roto Rooter, we consider actually robust given an industry that really can't expand much beyond.
On household formation rates.
The one thing to keep in mind is when we bought.
You know over $70 million sales.
The good I'm I'm focused on California variances as we said that the beach SW acquisition was number of.
Southern Texas, Arizona.
Oregon, but generally speaking the there because of pricing because of service offerings.
Because of.
Mix between commercial and residential.
The that acquisition.
Sales a little over $2 per pop.
$2 per population the average roeder.
Ranch average is over $4, so obviously that the.
Answer your question really as well how quickly we have a big big thought that we're going to they're going to be very successfully they've got a time kind of get they're going to be very successful. We're bringing these branches into the mainstream or is it going to take you know one quarter six quarters seven quarters ever they got a long way to go but.
What makes us exciting again.
What we think we're gonna see nice.
Quarter over quarter growth coming from that major acquisition on top of what David described as solid operating conditions for the base water business.
All right. So soon after that point, obviously, oh, you're guiding to margin slightly down year over year right because that deals that you described.
Not as significant lower margin so just put it.
And could that number is to try to come down but.
Yes, I know you mentioned Oh actually taking we're trying to decide what do you want to insights Terry Theres. So can you give us more details attention that different considerations.
Only different factors just trying to.
Taking consideration to what.
Well be happening in these territories in terms of keeping them why not keeping them and pushing prices so not pushing prices so any other.
Parts of this strategy that you, taking and how I guess this what influence than watching for them because to your point is expectation.
Is that.
You thought that Mike are you thought that it wouldn't I mean, it's all that much and then over time you will improve it. So just trying to assess you know.
I thought that the speed of these changes and what that there is there any actions they will make a big launches will foster parents to which the average.
Anyway to kind of frame for us what we should be looking for in terms of these.
Changes in how they will drive margins.
Well first I think you have to turn to our guidance. We gave for roto Rooter for 2024 for the impact overall in terms of our margins.
What you're really asking for is the timing and sequencing and different things and each location that we acquired or is different for example, the locations that have a large amount of commercial business. That's certainly as more price sensitive where commercial accounts use you multiple times a year or residential may only use you. Once every few years. So it's really the question of man.
Power and the individual location the timing of price increases for commercial versus residential as well as you don't want to increase your residential internet marketing unless you make sure you have the manpower to deal with the business. So each one is unique and how we approach yet and it's not like it's a one size fits all so I think in terms of the.
Timing of the overall impact the acquisitions have on our margins you have to just utilize the guidance. We provided last night and during this call today as you know what will happen in 2020 overall.
Right. So thats why I was getting at that you expect much is to be to be down for the segment a year over year, so that should be expected sort of ramp up to their agenda margins.
More pressured in Q1 on Q4, you exit you know closely track to close the Topoint Oh, you know how how.
How quickly should we expect a you know the cost to be I know a closing an outlet at that.
I I think you expect it to go into 2021 and some of the locations, but we expected margin improvement obviously in.
2020.
But we couldn't even say with confidence Oh gosh. This is going to be an impact in in may of 2020 in the other ones going to be September of 2020, Phoenix will have this well the sequencing is the based upon manpower, which has turnover the sequences based upon the commercial residential mix as well as what we can pass through pricing as well as getting traction.
On our internet marketing for residential.
Theres a lot of permutations. The only thing we can say confidently as we haven't had a failed acquired territory ever since we bought roto rooter and the 19 eighties.
The only question is the timing in in how quickly in robustly they start operating at.
But we can point to one operation in Nevada, one operation in New York. It actually took us several years until we had the right combination of people mix pricing commercial residential before we were comfortable with their operating performance as others, we fix in two quarters.
Give me an example during one of the problems rumors dealing with the previous owners Didnt care that much about their internet reputation. Okay. They dealt with that a lot of.
Industrial and corporate.
Clients.
And so when we bought it theres a number of things we want to diversity and we want to do is one a whole lot to the technicians somebody do it out the technicians, we don't want to train the whole new back to the started from scratch. So the number of changes you can make or.
You look at that both ways.
But that just give me. An example, okay one of the most significant ways that improve.
Marketing, where do you apply and the Internet is customer reviews.
Roto Rooter generally spend a lot of effort.
You know customer reviews, and everybody talked with rotors kind of lose its high price, but they have great service.
Well, it's do though is going to take some time to get and a lot of time to get those customer reviews through a roto rooter level, let's put it that way as you might say well if they just push up well it is like pushing a string you know you can you.
If you do a good job and hope that.
5% of Turner, though a review so I'm just using that as an example, despite their best efforts.
The it's going to take a while to be hitting on all cylinders out a very that very important oh.
Signpost, Okay, but I wouldn't give it is no way to say, we've got we're very hopeful its very hard for us to.
So the give more guidance than that is how quickly it's going to go if it you know we.
What we said in our presentation was.
Our.
Overall metrics on these.
These are.
Branches has slightly exceeded our expectations I mean, we would we do a.
Board memorable authorizing the purchase we go into great detail and we make all sorts of up do though.
Operating metric predictions, we don't believe similar to the public but we make all those and we say okay to the board here, we want to but we want to buy this company hold us to these metrics and though as I said earlier that the presentation, we're exceeding those.
But within reasonable range and no no idea you know as far as the speed of those other changes.
Great I appreciate the color here, so theres a it gets a lot of you're trying to undertake no major changes cintas markets relationships I guess expect for say Oh that affects that for this action in 2021.
So it takes off that color here. Thank you.
Okay. We have another question there.
We have another quick question are we ready to move on.
Yes, if you would like to ask a question press Star one on your telephone. Our next question comes from Frank Morgan with RBC. Your line is open.
I promise model that long have another earnings call [laughter] coming in.
Hey.
I was just curious about you know you talked about back to the hospice side of the business the the admission growth being so strong.
And I know part of that you had easier comps, but you're now several quarters into this is there anything you're seeing outside of what you're specifically doing that youre seeing in the marketplace has anything changing there that's allowing this higher level of ADMET drove down the 4% to 5% range.
And then my second question is and then I'll hop off is related to.
Just.
Plans about external growth any de novo's and what are you seeing in M&A. Thanks.
So Frank and it relates as it relates to the market. We're continuing to see is you know the ongoing swell of appreciation in desire to understand once again that value proposition of hospice as you know upstream healthcare entities more and more of their reimbursement gets full.
Got it into value based and total cost based reimbursement as opposed to fee for service there isn't that recognition around the desire an appetite to appropriately identify hospice appropriate patients and transition them, while providing ryan of choice to the best quality hospice that can.
Keep them you know on the benefit.
As appropriate and so that's just sort of that ongoing trend and it's a in its blending well into our internal improvements were making towards be toss continuing to differentiate itself being an independent hospice provider across the nation.
But nothing on a number of or I mean.
Insulation provider shrinking of providers nothing like that you're just saying, it's not a supply capacity is just more pure demand.
It's a pure demand, but you know the to your point there is a ongoing consolidation of.
Provider ownership right upstream, it's not necessarily the number of providers and so as those large is that consolidation occurs there is a recognition across those enterprises have a preference to have more of a a single a single stop provider that can do everything provide the full complement provide all four.
Our levels of care.
You know basically do hospice the right way in so we think VITAS is well positioned with our size and scale in order to do that and we're just continuing continuing to manage and to ensure we have the right balance of resources. So we don't become constrained from a capacity perspective and can take on all that new business throughout 2020 and B.
Okay.
And your second question, Frank as we don't expect Denovos to be.
Typically like the RV or it's not a big driver in terms of the overall census or revenue.
On any given year, but if we've got a if we've got to.
There's no point in Florida by one in Florida, we do it yes, absolutely, but it doesnt really impacts you know revenue or overall profitability much.
Frank as you see out the marketplace pricing in premiums on hospice businesses from acquisitions still continue that traded at a very large premium so absent an additional strategic alignment will be we're still evaluating all of them, but as you hear from everyone else pricing as Tom is very high and that's why in certain markets Denovo.
So if we want to enter that market, maybe the best market entry strategy.
Okay. Thank you very much.
Thank you and I'm showing no further questions at this time I'd like to turn it back to Mr., Kevin Mcnamara for closing remarks.
Well my remarks are limited to thanking everybody for their kind attention I know, it's a busy day.
And.
Thank you for the thoughtful questions and we'll be prepared to.
The same thing at about three months. Thank you.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect everyone have a great day.
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