Q4 2019 Earnings Call
2019 results and the company's business outlook.
Speaking today or the company's executive Chairman and co founder Robert deal and the company's executive Vice President and Chief Financial Officer Martin Jackson.
Management will give you an overview of the quarter and year.
And then open the call for questions before we get started we would like to remind you that this conference call may contain forward looking statements regarding future events or the future financial performance of the company, including without limitation statements regarding operating results growth opportunities and other statements that referred to so low.
Medicals plans expectations strategies intentions and beliefs. These forward looking statements are based on the information available to management of select medical today and the company assumes no obligation to update these statements as circumstances change at this time I will turn the conference.
Over to Mr., Robert <unk> CEO.
Good morning, everyone. Thanks for joining us for select Medicals fourth quarter.
But full year earnings conference call for 2019.
Let me start out by saying Q4 was another very good quarter for us with all four business segment six exceeding same quarter. Prior your revenue adjusted EBITDA and margin.
2019 was a solid year for development growth for the company we added.
A new 60 bed rehabilitation hospital in partnership with the University of Florida Health system in Gainesville.
I knew 60 bed rehabilitation hospital partnership with dignity in Las Vegas, I knew 30, Bad rehabilitation Hospital with partners in New Orleans.
We also relocated our rehabilitation hospital in Newport News, Virginia that we operate in partnership with Riverside help into a new 50 bed Hospital addition.
We acquire for critical in this recovery hospitals into separate transactions and added additional pretty bullish recover hospital through a joint venture partnership.
We also crew increased our portfolio of outpatient rehab clinics by 78 clinics during the year ending 2019 with 1740 clinics under our management.
During 2019, we completed the integration of U.S. Health works indoor concentric business and a fully captured the synergies we outlined when we acquired the business in early 2018.
Let me now take you through our operational metrics for the fourth quarter and the full year.
Overall, our net revenue in the fourth quarter increased 8.7% to $1.37 billion for the four year.
Net revenue increased 7.3% to 5.4 or 5 billion.
Net revenue and are critical in this recovery hospital segment in the fourth quarter increased 6.7% to $455 million increase was driven by both an increase in volume and rate.
Patient days up 5.2% compared to the same quarter last year and revenue per patient day up 1.5% to $1742 per patient day in the fourth quarter.
Occupancy in our critical illness recovery Hospital segment was 67% in the fourth quarter compared to 66% and the same quarter last year.
For the year net revenue in our critical illness recovery Hospital segment increased 4.7% to $1.84 billion.
Again, we experienced an increase in both volume and rate compared to last year.
Patient days were up 2.6% and net revenue per patient day was up 2.2% to $1753 per patient day for the year.
Overall occupancy in our critical illness recovery hospitals was 68% this year compared to 67% last year.
Net revenue and a rehabilitation hospital segment for the fourth quarter increased 20.9% 200 $380 million compared to 151 million. The same quarter last year patient days increased 15% and that revenue per patient day was up 8% to $1739 per patient day in the fourth quarter.
Occupancy in our rehabilitation Hospital segment was 78% in the fourth quarter compared to 75% in the same quarter last year for the year.
Revenue in our rehabilitation Hospital segment increased 14 increased 14.9% to $671 million compared to 584 million last year.
Patient days increased 11.9% and net revenue per patient day was up 4.9% to $1685 per patient day for the full year.
The increase in patient days for both fourth quarter and the full year was primarily driven by the new hospitals, we opened in 2019.
Occupancy or rehabilitation hospital was 76% this year compared to 74% last year.
Net revenue in our outpatient rehab segment for the fourth quarter increased 7.7% to $272 million compared to 252 million in the same quarter last year patient visits increased 7.2% to over $2.25 million.
2.25 million visits in the fourth quarter, our net revenue per visit increased a $104 in the fourth quarter compared to $103 per visit in the same quarter last year.
For the year net revenue on our outpatient rehab segment increased 5% to almost 1.05 billion.
Patient visits increased 4.3% to over 8.7 million visits for the year. The overall increase in patient visits resulted from new startup clinics as well as acquired clinics that revenue per visit was $103 per visit both this year and last year.
Net revenue in our Concentrix segment for the fourth quarter increased 3.4% to $397 million.
For the fourth quarter revenue from our centers.
Was 354 million and the balance of approximately 43 million was generated from onsite clinics community based outpatient clinics and other services.
For the centers, we had patient visits of 2.9 million and net revenue per visit was $122 and the fourth quarter. This compares to 2.8 million visits and $124 per visit in the same quarter last year for the year net revenue in our Concentrix segment increased 4.6% warmer.
$1.63 billion. The primary driver of the increase was a full year effective yours health works or acquired February one 2018, and additional acquired centers in 2019.
Visits and our centers increased 5.6% to almost 12 point million 12.1 million visits compared to 11.4 million visits last year revenue per visit was $122. This year compared to $124 per visit last year. The decline in revenue per visit for both the fourth quarter and the full year was driven by our chief.
Change and our business mix with an increase in employer service visits which are paid at a lower rate.
Total company adjusted EBITDA for the fourth quarter increased 16.9% the $171.9 million compared to 147.1 million in the same quarter last year with consolidated adjusted EBITDA margin at 12.5% for the fourth quarter compared to 11.6% for the same quarter last year.
For the year.
Total adjusted EBITDA increased 10.2% to $710.9 million compared to 645.2 million last year with consolidated adjusted EBITDA margin at 13% for the year compared to 12.7% last year.
For our critical illness recovery Hospital segment, adjusted EBITDA was $60.5 million for the fourth quarter compared to 56 million in the same quarter last year. The increase adjusted EBITDA was driven by.
By both an increase in our existing hospitals and contribution from the four hospitals acquired in 2019 adjusted EBITDA margin for the segment was 13.3% in the fourth quarter compared to 13.1% in the same quarter last year.
For the year critical illness recovery Hospital segment, adjusted EBITDA was $254.9 million compared to 243 million last year.
The increase adjusted EBITDA was driven by an increase in our existing hospitals. Despite the extended temporary closure of our Panama City Hospital and the contribution from our four hospitals acquired in 2019.
Adjusted EBITDA margin was 13.9% both this year and last year.
Our rehabilitation hospital segment, adjusted EBITDA increased 51.4% to $43.3 million in the fourth quarter compared to 28.6 million in the same quarter last year adjusted EBITDA margin for the rehab segment was 23.7% in the fourth quarter compared to 18.
9% in the same quarter last year.
The increase in adjusted EBITDA margin resulted from both increases in our existing hospitals as well as contributions from the hospitals, we opened in 2019.
For the year.
Our rehabilitation hospital, adjusted EBITDA increased 24.7% to $135.9 million compared to 108.9 million last year adjusted EBITDA margin was 20.2% for the year compared to 18.7% last year.
The increases in adjusted EBITDA margin resulted from increases in volume and rate across many of our existing hospitals adjusted EBITDA losses in our startup hospitals. They point 8 million this year compared to 4.7 million last year.
Outpatient rehab adjusted EBITDA increased 14.9% to $40.2 million in the fourth quarter. This year compared to 35 million the same quarter last year.
Adjusted EBITDA margin for the outpatient segment was 14.8% in the fourth quarter compared to 13.9% in the same quarter last year.
For the year adjusted.
Outpatient rehab adjusted EBITDA increased 6.9% to $151.8 million compared to 142 million last year.
Adjusted EBITDA margin was 14.5 per cent compared to 14.3% last year the increase in adjusted EBITDA for the full year was driven by increases in both our existing clinics and contributions from new startup and acquired clinics.
Concentric adjusted EBITDA increased 6.8% to $56.8 million for the fourth quarter compared to 52.9 million. The same quarter last year adjusted EBITDA margin was 14.2% in the fourth quarter compared to 13.8% in the same quarter last year.
For the year Concentra, adjusted EBITDA was $276.5 million compared to 252 million last year.
Adjusted EBITDA margin for the Concentrix segment was 17% this year compared to 16.2% last year.
The increase in adjusted EBITDA margin for both the fourth quarter and the full year was the result of lower relative operating costs across the combined concentrix and U.S. Healthworks business.
Earnings per fully diluted share was 24 cents for the fourth quarter compared to 18 cents for the same quarter last year.
Adjusted earnings per fully diluted share was 31 cents per diluted share for the fourth quarter compared to 20 cents in the same quarter last year.
Adjusted earnings per fully diluted share excludes the pretax losses on early retirement of debt and its related tax effects for both.
In both the fourth quarters this year and last year.
Earnings per fully diluted share was $1.10 for the year compared to one dollar to last year adjusted earnings per fully diluted share was $1.24 per diluted share for the year compared to one dollar three last year adjusted earnings per fully diluted share excludes a pre tax losses on earlier.
Tyerman of debt and nonoperating gains and their related tax effects. This year.
Last year adjusted earnings per share excluded the loss on early retirement debt not operating gains us health works acquisition costs and their related tax effects.
This point I'll turn it over Marty Jackson for some additional financial details before we open the call up for questions.
Thank you Robert.
Good morning, everyone.
For the fourth quarter, our operating expenses.
Which include our cost of services general and administrative expenses.
And $1.2 billion. This compares to $1.1 billion in the same quarter last year.
As a percentage of our net revenue operating expenses for the fourth quarter were 88%. This compares to 88.9% in the same quarter last year.
For the year are out our operating expenses were $4.77 billion. This compares to $4.46 billion last year as a percentage where net revenue operating expenses for the year or 87.5%. This compares to 87.8% last year.
Cost of services and $1.18 billion for the fourth quarter. This compares to $1.9 billion in the same quarter last year as a percent of net revenue cost of services or 85.5% in the fourth quarter. This compares to 86.5% in the same quarter last year.
For the year cost of services were $4.6 billion. This compares to $4.3 billion last year as a percent of our net revenue cost of services.
Reighty, 5.1% for the year. This compares to 85.4% last year.
DNA expense was $34.1 million in the fourth quarter. This compares to $30.3 million in the same quarter last year.
DNA as a percent of net revenue was 2.5% in the fourth quarter. This compares to 2.4% of net revenue for the same quarter last year.
For the year G and H expense was $120.5 million. This compares to $121.3 million last year DNA as a percent revenue was 2.4% both this year and last year.
As Bob mentioned total adjusted EBITDA was $171.9 million and the adjusted EBITDA margin was 12.5% for the fourth quarter. This compares to the adjusted EBITDA of $147.1 million, an adjusted EBITDA margin of 11.6% in the same quarter last year.
Adjusted EBITDA for the year was $710.9 million. This compares to 645.2.
Million dollars last year adjusted EBITDA margin was 13% this year that compares to 12.7% last year.
Depreciation and amortization was $52.5 million in the fourth quarter. This compares to $52.6 billion in the same quarter last year.
For the year, depreciation and amortization expense was $212.6 million compared to $201.7 million last year.
We generated $6.3 million equity in earnings unconsolidated subsidiaries during the fourth quarter. This compares to $7 million in the same quarter last year.
The year, we generated $25 million equity in earnings of unconsolidated subsidiaries. This compares to $21.9 million last year.
We did recognize a loss on early retirement of debt in the fourth quarter this year of $19.4 million.
We recognized a loss on early retirement of debt in the fourth quarter last year $3.9 million for the year, we recognized $30.1 million losses on early retirement of debt. We also recognize nonoperating gains of $6.5 million during the year last year, we recognize $14.2 million losses.
Early retirement of debt and $9 million of non operating gains.
The loss on early retirement of debt 2019 resulted from the refinancing activities in the second half year.
We were able to reduce interest rates and extend maturities on select senior notes as well as reduced borrowing cost and concentrix through the repayment of their second lien term loan.
Interest expense was $44 million in the fourth quarter. This compares to $50.5 million in the same quarter last year.
The decline in interest expense in the quarter results from both a decline in LIBOR rates as well as the repayment on consent for the second lien term loan, which carried a higher interest rate.
Interest expense for the year.
$200.6 million this compares to $190.5 million last year.
We recorded income tax expense of $63.7 million. This year that compares to income tax expense at $50.6 million last year.
Net income attributable to select medical holdings.
Was $148.4 million for the year and fully diluted earnings per share.
Dollar 10, excluding the pre tax losses on an early retirement of debt non operating gains and the related tax effects. This year, our adjusted earnings per share with was $1.24.
We completed a refinancing transaction during the fourth quarter.
Which effectively combined the capital structure of select and our majority owned subsidiary concentric.
10, select issued $675 million incremental six in the quarter senior notes due 2026 at a price of one of six.
And entered into an incremental $615 million term loan a portion of the net proceeds from the incremental senior notes in incremental term loan reviews by select to loan $1.24 billion to Concentrix. We then use the proceeds from the intercompany loans repaid in full is $1.24 billion.
Indicated term loans outstanding.
At the ended the year, we had $3.4 billion debt outstanding and $335.9 million of cash on the balance sheet. Our debt balance. The ended the year included $2.143 billion in term loans 1.2 to 5 million and six in the quarter senior notes and 70.
$5 million other miscellaneous debt.
Operating activities provided $178.5 million of cash flow in the fourth quarter. This compares to $113.2 million in the same quarter last year.
Year operating activities provided 400.
$45.2 million of cash flow compared to $494.2 million last year.
Our days sales outstanding our Dsos 51 days it.
Decemberthirty one 2019. This compares to 53 days September Thirtyth, 2019, and 51 days Decemberthirty one 2018.
Investing activities used $46 million of cash in the fourth quarter use of cash was primarily related to $33.2 million in purchases of property and equipment and $12.8 million for acquisition and investment activities during the quarter investing activities used $316.7 million for the.
Year use of cash was primarily related to $157.1 million purchases of property and equipment.
And $159.6 million in net acquisition and investment activities during the year.
Financing activities provided $67.4 million of cash in the fourth quarter.
Asian of cash included $77.1 million net proceeds from the refinancing in December.
Was offset in part by distribution is non controlling interest in repayment of other debt.
For the year financing activities provided $32.3 million of cash the provision of cash included $104.6 million net proceeds from the refinancing activities. During the year. This was offset in part by common stock repurchases repayment of bank overdrafts repayment of other debt.
Distributions to Noncontrolling interest during the year.
Additionally.
In our earnings press release, we reaffirmed our business outlook for calendar year 2020 provided earlier this year.
Expect net revenue to be in the range of $5.575 billion to $5.675 billion.
Adjusted EBITDA is expected to be in the range of 725.
$760 million.
And fully diluted earnings per share is expected to be the range of $1.27 to adopt six.
Before we open up the call for questions I'll turn it back over to Bob for an additional update on concentric.
Thanks, Marty as many of you are probably aware after the end of year, we entered into agreements with our concentric joint venture partners to purchase a total of 18.7% of the voting interest in Concentrix for total consideration of approximately $352.7 million.
The purchase was the first of our partners three put rights under the restated operating agreement post you a health works transaction.
After the purchase select now owns approximately 68.8% of the voting interests of concentric.
Venture partners continue to have the right to put one third of their initial membership interest to select in 2021 and any remaining membership ship interest in 2022 with select retain the right to call any remaining membership membership interest outstanding.
In 2022.
That concludes our prepared remarks at this time I'll turn it back to the operator, we'll open it up for questions. Thank you.
Thank you ladies and gentlemen, if he has a question at this time you will need to press star one on your telephone.
Draw. Your question. Please press the pound key once again that is star one to ask a question on our first question comes from Frank Morgan with RBC capital markets. Your line is open.
Good morning, just noticing the strong rate growth on the Burbs side of the business.
Any color about the strengthen that growth in a is that way related to this new care to as any prior period robot cost poor settlements and they're just any anything you can attribute that unusually strong rate.
Yes, Frank Theres really two.
Two variables that are driving that one is the increase senses in our California rehab hospital, which has a much higher rate.
And number two is there has been a favorable impact associated with the change.
From the film scoring to the Gigi, scoring so we've had we have seen a favorable impact from that.
Gotcha. It would you could you attribute weighting of that like how much was coming from is it primarily the new care to or would you say, it's more of an off the CR upset.
It's really a combination of both Frank.
Okay.
Alright, and then.
Just obviously brought on seven I don't think there any you didn't call out any startup losses in the fourth quarter I believe but what do you have what's implied in the guidance for startup losses for 2020.
Really startup losses will probably.
Moderate I think we have in the third and fourth quarter, we have some new hospitals coming on board.
Got you had.
And then.
Just.
Obviously, you talk about these the Elteks you've just recently brought on.
Some of those in partnerships is there is there any kind of thought around where you think target market target margins should be for though really for eltek, but also for your business.
Business, what do you think that will settle out.
Yes, I mean, we're.
We're pretty pleased with where the margins are right now in particular on the inpatient rehab side.
I think thats, probably a good indicator as to where it's going to be.
[music].
Okay, and then I guess.
In terms of just capital structure, obviously, a lot of refinancing activity, but where do you really focus we now that you've got these refinancings done where what's really going to be the focus going forward from a capital deployment from a debt reduction standpoint, I'll hop off thank you.
Sure Frank.
I think from.
In terms of use of capital frankly, we.
Our primary focus is the continuing.
Acquisition of the minority Concentrix interests. So that's what we really have an eye toward we'll do some modest of allocation of capital to acquire small outpatient clinics and then the bigger one would be allocation of capital to new rehab joint venture is where we may build some new hospitals.
But.
Other than that I don't think that we're looking for any significant capital allocations in 2020, leading up to the conceptual purchase.
Okay. Thank you.
Q.
Thank you and our following question comes from Justin Bowers with Deutsche Bank. Your line is open.
Hi, good morning, everyone and congratulations on a really strong start to what what turned out to be a strong year. So.
As you I guess as you think about this year or 2020 and kind of beyond what are what are some of the the opportunities you're looking most forward too and then.
What areas of improvement are you guys focusing on.
Well in terms of opportunity. We think at 2020 is probably a good year, where we're going to focus on our execution, we do want to grow in each of our segments and we think we can with some development projects and continuing to operate the business leading up to the next.
Central purchase so.
No I know I think it'll be a year of kind of kind of steady performance in terms of the execution of the business and operations, we would like to add some new critical illness recovery hospitals, and our hospital within a hospital model sign some more rehab joint ventures, with some leading health systems around the country.
We continue to have some net gains in our outpatient business either through de novo growth or outpatient.
Our acquisitions and then we think we're going to have another steady year with concentric adding to their portfolio of clinics probably through some.
Small tuck in acquisitions.
In terms of improvement Marty.
Yeah, Justin I mean as far as improvements are concerned we still believe that there is in particular on the critical illness recovery hospitals, we think there's the opportunity to expand the margin there and then also on our outpatient business.
We've seen some significant improvement over the past.
Over the past couple of quarters, and we expect that to continue.
Got it and then just.
In terms of critical illness.
Can you just talk about the external environment a little bit.
In the context of adding some facilities there and it looked like you added.
Added a added one during the quarter as well was that was at a hospital hospital model and then.
Facility and then.
Kind of what what are the discussions are kind of efforts internally or you're having.
With the existing portfolio.
Well I'll take the first part of your question first so what is the external environment. Many of you know who follow the company in the industry on the L. tagg or what we refer to as our critical illness recovery hospitals. There continues to be although winding down considerable contraction of the industry as the industry adapts itself to then.
New criteria and for some of the features that didn't really apply to us that continue to phase and they'll all be all be phased in 2020 that has resulted in a contraction of the industry. I think the number of beds are down probably 27% in Medicare spend similarly is down from the last numbers I looked at.
Probably about 27% so it look at the Medicare spend from over $5 billion to to a much lower in the $4 billion range from an external standpoint, I think it's that's probably good for the overall industry is at Rationalises and just focus is on taking the at what we call the LTV.
Compliant patients, which are those patients that we're in now and I see you or require mechanical ventilation inside the eltek. So I think that that will probably continue to ring itself out through the balance of 2020, and what we're saying for us is.
As that industry as becomes a lot more stable and I think generally viewed much better by the regulators as we read the rules the proposed rules and even some of the commentary coming out of Medpac, We think that there's an opportunity for us to selectively add l. tax.
Around the country, what will be a big effort, but I think incrementally we could add could add some elteks. So I think thats really where we think the opportunity where an opportunity is in given the backdrop of the industry.
Okay got it. Thank you congrats again I'll hop back in Q.
Thank you.
Thank you. Our next question comes from AJ Rice with Credit Suisse. Your line is now open.
Hi, everybody.
Maybe just a couple of things if I could ask.
You know this is sort of a conceptual question when I look at.
What's your.
EBITDA growth was for 2010. It was 10 point I calculated that may be dangerous, but 10.2% roughly.
Increase if I look at the midpoint of your guidance for 2020, you're looking at about a 4.4%.
Greece, and you said, there really weren't that much in startup cost in there I guess I guess are you is that a conservative starting point or is I'm not really sure why wouldnt necessarily moderate significantly I know the buildup in U.S. health work synergies played out and 19, but you'll get a full year.
Benefit of those synergies all year long, so thats, probably still an incremental positive what.
Is any sort of big picture puts and takes that are.
Lead you to sort of a mid single digit as opposed to something similar to what you did in 20.
19.
Yes, Hey, Jay the guidance, we provided it was.
I think it is relatively conservative.
But it's something that we're we're very we're comfortable with right now will will after the first quarter, we'll take a look at it at that point in time and it was conservative will make an adjustment.
Okay.
That is if you look at the major segments is there any particular segment, where you would see.
Obviously had some very good results in or for example in others, but.
Do you see moderation clear cut versus what you.
You posted a 90.
I think it's fair to say that at this moment, we don't see any significant headwinds in any of our segments. You know that concentric will always be sensitive to more general economic conditions.
But I think the business still seems pretty strong right now the.
We have only or is any question that weve really hit our stride in the inpatient rehab side of the business and we don't have any new openings scheduled for the next couple of quarters. So that's just a question of maintaining the performance that they've had there.
And then they elteks much bigger base of hospitals made as Marty suggested we want to.
Continue to focus on driving.
Census, there and depending on the.
The flu season, the remainder of the year that can be a tailwind.
Or a headwind and so.
So we feel.
Actually pretty good about where we are now but you know.
Okay, all right when you think about.
Concentra.
Let's see here towards the end of the year you've done the intercompany loan you you repurchase the first tranche there I think that or you purchase the first tranche I think.
I think that was done slightly ahead of schedule. So I guess it opens up a twofold question for me one.
Is there a possibility.
Perhaps if it priority is to retire some of those stakes is.
Is something that might get accelerated in any way or should we think it's probably going to play out as is in the current agreement and then second.
Is there anything about the way the deal structure today, I know and intercompany loan sort of a formality, but are there things that you would do if you own a 100% of concentra.
That you can't do because of the.
Current structure until you buy those pieces out.
I think.
I'll take the second part of your question and now that might take the first no I don't think theres anything that we see today that we wouldn't be doing different.
There will be meaningful of concentric we owned 100% today can.
Versus what we own so.
No I don't think there doesn't seem drain and investment in any way or anything.
Moving to other cash flow into that business or anything.
No we I would say that we do not feel at all constrained we've had.
Great partners, there who are focused as we are on the long term viability stability and growth of the company and so I would say now there theres no constraints there I'd add to the first part I'll, let Marty weigh in but I would think that the second put would probably play out.
The way the first one dead.
And so we would think about.
Our partners, putting their next tranche to US right at the end of 2020 are right very beginning in 2021, Marty Yes, no I think that's absolutely right.
The other thing is if you take a look at the the agreement itself.
And the methodology that was structured the agreement.
With regards to using an investment banker to determine evaluation, what we would all partners conclude it was.
Given the fact that.
You take a look at the two largest transactions in this space.
We're done by.
US and our partners at 11.3 times at the end of the days it was really no need to hire an investment banker and.
Given that we were able to accelerated based on expected year end EBITDA. So as Bob indicated I think that will that will play out in 2021 as well as 2022.
Okay and then my last question.
If you're thinking about growing again in terms of adding properties in the eltek world or critical access world.
Is there any I mean, I know you referenced continue the hospital that hospital model is there anything that's changed your thinking about freestanding critical access hospitals or whether those would be of interest in any comment on the competitive landscape.
Your major competitor in this space is now sort of been under different ownership structure for more than a year and I wonder of.
Have you seen any change in a competitive landscape as a result of any of that.
Yes first thing yeah, AJ in terms of our critical illness recovery hospitals I'd just for other people that may not be as familiar critical access as a whole different class of hospitals that are critical in this hospitals, we probably would not be looking to do.
Huh.
Specific freestanding.
Critical illness recovery hospitals for us now.
You may we are seeing a model that that could emerge where you have a a post acute hospital that that has both rehab and eltek license bed in the same buildings. So we might do that but our our model is to have particularly because we are in eltek complying.
Patient focused only is that we tend to think about these are smaller bed complements so we like that 35 bed.
And that's best served in a in a least hospital within a hospital model. So.
You should not expect to see us break ground on the construction or the acquisition of freestanding.
Eltek hospitals.
The capital for that would really be directed only to the rehab hospitals.
In terms of the competitive.
Nature out there I mean, this is probably a pretty good time for us because most everybody in this space is adjusting to the new criteria now it does seem like it's been a couple of years that criteria was passed in 2015, but remember the way it was phased into the cost report a lot of companies and individual operate.
Leaders are still making some adjustments so.
Because we we got to a bit more of a jump on that into in terms of our plan. It does allow us now as we have a very stable platform up 100 of these hospitals to to look at opportunities. So I, it's a long way of saying that.
Competition is not from other providers in that space is really not nearly the factor that just making sure that we get the market right and that there is great availability of those compliant patient population. So you need a market where there are a lot of IC you beds.
And.
Where there is.
A need to have the clinical programs to move those patients faster out if they may be having disproportionately long stays in the short term acute care hospitals. So.
You know that the competitive factor is not nearly as big as that.
Okay guys. Your question, yes, that's great. Thanks, a lot.
Thank you and our next question comes from the line of Kevin Fischbeck with Bank of America. Your line is open.
Great. Thanks.
Wondering if you could provide a little more color.
The through the same store revenue growth by Division I think you give like a consolidated growth but.
Wondering what the organic growth profile looks like in Q4.
Yes, Kevin we have not.
I mean early on we have not provided.
Same store versus new.
We may start doing something like that in particular on the outpatient side because of the rapid growth it's occurring there.
But other than that.
You shouldn't expect to see same store growth.
I guess.
You mentioned your 2020 outlook and how you're looking to add.
Basically.
Each division the number of hospitals.
Does your guidance assume a certain amount of capital deployed on.
These kind of tuck ins and additions or if you deploy capital outside of Concentrix would be upside to that.
Today, I think we've put out there somewhere in the $175 million worth of capital expenditures and that includes.
It includes on the inpatient rehab side the joint ventures, the been signed that we know we're putting on some shovels in the ground. So would include that includes some capex associated with our.
Clinic increase on the outpatient side.
It does not include anything on the critical illness recovery Hospital.
Okay and then.
Maybe it makes sense to talk about.
Clinics, the outpatient rehab clinic.
Because I guess the sector that maybe we havent spent a lot of time on so just.
Right and kind of here you guys haven't been adding to that.
Clinic site.
Pretty nicely.
What is the opportunity there.
How big can that get in.
Why that a place that you are.
Can you put capital support.
Well, it's fair, it's very fragmented first of all so while while we are the largest provider by I think a pretty wide margin in terms of both revenue and number of outpatient clinics and our geographic footprint.
It's still very fragmented and we do see that as an opportunity for growth. If you look at that kind of the recent history of the company.
Going back to when our primary focus had to be the LTAC criteria will then we pivoted to the acquisition of Concentrix and then very quickly after that the follow on acquisition of US help works all at the same time, while the inpatient rehab development was really taking shape and we accelerated that input.
In rehab business the outpatient really was the one that we did not allocate as much capital or focus and we think that now that the latter half of 2019 and in 2020 and beyond that is a much more greater focus of the company.
So you can assume with the capital that week the additional capital that we've deployed there. We've also deployed much more management focus on growing that business and when you see the growth in a number of clinics.
It's actually even more significant because we reported as net growth. So on a on a base of 1800 nearly 1800 clinics every year. There is a significant number of clinics that we'd or close or consolidate.
Just because just because of the natural process. So you know this year, if when we add.
Add 70 clinics, you can assume that were really maybe adding as much as a 100 or more clinics just because that's a net number so I think that.
It's it's become a management much more of a management focus as we're reacting to what we see as the opportunity. So as concentric annualize health work is as has realized synergies we've been successful and the transition of the criteria on the L. tax. We you can see the we have good momentum on our inpatient rehab.
Joint venture strategy that really leaves.
The outpatient as an area, where we can focus and drive some value.
Okay, and then maybe I'm.
Question can you give us a set the kind of what the multiple range that you are paying across three different.
Divisions, when you buy something in that division.
What kind of multi bank.
Sure on the.
On the outpatient rehab, we're paying anywhere in the neighborhood of four to five times LTM EBITDA.
And we'll do some adjustments on that for for comp owner compensation and things like that but four to five times is really the number there.
On the.
On.
Critical illness recovery Hospital, we acquired four hospitals.
The multiple there that we paid was in the neighborhood of four to five times.
When we take a look at concentric concentric is also in that.
Four to five times range.
And then inpatient rehab inpatient rehab the strategy there really isn't onto acquire one offs, but really do the joint ventures.
Okay. So the 11 times, you talked about as far as the concentric multiples that.
The big platform type deals and you do smaller things, it's going to be.
As we model multiple.
Yes, yes, yes, I mean, well it's a good question Kevin The fact of the matter is when you take a look at the occupational medicine business in the United States.
We have 521 centers.
Throughout the entire country. The next largest player that's 40.
And most of the augment centers are really.
Owners have 234 centers at a pop so it'll be a much smaller bolt.
Okay, great. Thanks.
Sure.
Thank you and our next question comes from the line of Frank Morgan with RBC capital markets. Your line is open.
Hey, just one quick follow up.
What are you seeing on the labor side for therapy, obviously with with the home health care industry going undergoing pdgm and the snip industry going to PDP. There seems to be this believed that there will be a shedding of the therapy capacity in those two industry. So.
Are you seeing anything yet on the labor front that might be.
Improving that for your business. Thanks.
Yes, Frank Great question.
We think it a little too early to see the benefits of the changes that have taken place and in particular on the sniff side, but we do we have been seeing substantial layoffs of of Pts from contract therapy companies. So we do expect to see some benefit from that.
You still there Frank.
Yes. Thank you.
Great. Thanks.
Thank you and our next question comes from Bill Sutherland with benchmark. Your line is open.
Hi, Thanks. Good morning, just wanted to a couple of follow ups on rehab hospital side.
The.
Two.
Planned hospitals this year will they be solved and.
Yes, they are Nonconsolidated bill.
Okay.
And.
When we look when we think about the cadence on the rehab hospital.
Operating margin this year the quarterly cadence.
With the.
Since these aren't gonna be consolidated with the.
So the margin kind of.
The likely to stay of the.
Range that it was in the back half of my team.
Yes, I think you can expect that to be the same bill.
Okay.
And then.
I just wanted to understand.
On this care tool and the impact.
On rates.
Thank you all that said you are probably experiencing better them.
2.5% average.
Improvement and can you help us understand why that applies to you guys specifically.
We cannot Phil I mean is it it is a chain from that.
Scoring which has happened historically.
Our reimbursement people took a look at the changes that were being implemented we felt pretty comfortable at the time that we thought that it would not be a headwind to us.
And then would probably be a slight benefit and and that's what we're finding.
Hi.
It's difficult for us to tell you what competitors are seeing versus what we're seeing we all we can do is tell you what we see yeah. It's just it's just mechanics I mean, the they do the posting in the coding at the facility.
Okay.
Thanks, everybody.
Thanks Bill.
Thank you and Im showing no further questions at this time I would now like turn the call back to Mr. atencio for any closing comment.
And no closing comment thanks for your attendance and your questions and.
Well look forward to updating you again next quarter.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a good day.
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