Q4 2019 Earnings Call
Greetings and welcome to the Amedisys fourth quarter and year end 2019 earnings conference call. At this time all participants are they listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator systems. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded it is now my pleasure to introduce your host Nick Misguidance Vice President of strategic Finance. Thank you. Sir you may begin. Thank you operator, and welcome to the Amedisys Investor Conference call to discuss the results in the fourth quarter and year ended December 31st 2019 a.
A copy of our press release supplemental slides related form 8-K filing with the FCC are available on the Investor Relations page of our website.
Speaking on today's call through Medicis will be Paulk, Israel, President and Chief Executive Officer, and Scott again, Chief Financial Officer also joining us as Christa, our Chief operating officer, and Dave Kemmerly General Counsel and senior Vice President of Government Affairs.
Before we get started with our call I'd like to remind everyone that statements made on this conference call. Today may constitute forward looking statements and are protected under the safe Harbor of the private Security Securities Litigation Reform Act.
These forward looking statements are based on information available to Amedisys today. The company assumes no obligation to update information provided on this call to reflect subsequent events other than as required under applicable securities laws.
These forward looking statements may involve a number of risks and uncertainties, which may cause the company's results or actual outcomes to differ materially from such statements. These risks and uncertainties include factors detailed in our SEC filings, including our forms 10-K 10-Q and they came in.
In addition, as required by STC regulation G., a reconciliation of any non-GAAP measure mentioned during our call today to the most comparable GAAP measure will also be available in our forms 10-K 10-Q, an 8-K.
Thank you and I will turn the call over to the Medicis CEO Paulk Israel.
Thanks, Nick and welcome to the Amedisys 2019 fourth quarter and yearend earnings call.
We have three things to talk about today past present, and future 2019, 2020, and 2021 and beyond.
We generally try to avoid hyperbole on these calls, but it would be inaccurate not to describe our performance in 2019 as tremendous some of the highlights were.
We had the great honor of caring for over 50000 patients each day, making more than 12.3 million visits across our three lines of business.
At least 91% of all our home health care centers achieved a star score of 4.0 or above.
We lowered total voluntary turnover to 16.9% our lowest level today.
We grew our adjusted EBITDA, 25%.
From a 181 million to 225 million, while expanding EBITDA margin 70 basis points to 11.5%.
We closed on the acquisitions of compassionate care hospice and rose rock hospice, while closing a sauna hospice on January Onest 2020.
I'd like to welcome all via Sauna associates to the Amedisys family on that note. We're truly excited to have you joined the organization your unwavering drive to provide the highest quality hospice care to all your patience fits perfectly with the culture, we have created at a mess.
Next we expanded our relationship with metal logics by increasing our care centers on the touch and care products from 10% to nearly 50% further safeguarding our pdgm transition.
For those of you newer to our story touch is a program focused on hospitalization reduction and care is a program focused on providing individualized care plans to both optimized patient outcomes and utilization.
Next we executed an innovative nationwide personal care partnership with clear care, giving us a needed personal care service at scale as we work towards further care coordination.
And last we practice practiced and practice for PDGF and thus far our prep is paying off.
None of this would be possible without our over 21000 employees, who is our unwavering commitment and focus on providing outstanding care to our patients in their homes has made this great quarter and your possible.
I want to thank every one of view for helping to deliver such great care and strong results.
With that let's now take a look at the fourth quarter and the full year 2019 results as it relates to our four strategic pillars quality people operational efficiency and growth.
Always first as quality, if you don't hold yourself accountable to deliver the best care and put everything you have into it what's the point of us getting up in the morning, It's a non negotiable and in my opinion. It's the reason why we have been so successful to date.
We achieved our quality of patient care Star Q PC score of 4.26, and we had 15% of our care centers at five stars while 91% of our care centers were four stars as of the April 2020 quality of patient care preview our.
Hospice business once again outperformed the national average in all hospice items set measurement categories.
And is at the top of the National players, we benchmark against secondly people.
If you don't have passionate productive employees, who want to practice there aren't with you.
And to vote to work for you every day you can't deliver great care in that we drove total voluntary turnover, excluding PRN to 16.9%. These are our best full year results ever.
Third.
Operational efficiency.
Right people need great processes, and great tools to be able to deliver great care and to maximize their productivity and impact.
Our focus on operational efficiency has once again driven margin expansion in all of our lines of business and we ended 2019 with an adjusted EBITDA margin of 11.5% 70 basis points higher than 2018.
And finally growth.
If you have the best people with the best tools delivering the best care you should grow disproportionately.
For home Health, we grew same store total admissions, 4% for the quarter and 7% for the year ahead of our guidance range of 5%.
Hospice, we grew same store AIDC, 8% for the quarter and 7% for the year.
On the inorganic front, we close the assign a hospice deal on January Onest, adding.
450, AIDC to our census, we continued to be very interested in hospice tuck ins and we'll look to do more this year.
In home health, we have already seen early signs of the disruption caused by PDG.
Having already absorbed one asset in Missouri, while more and more have been calling.
We will continue to grow share via absorption, but are also interested in strategic inorganic opportunities as they present themselves, particularly in COO in states.
As you can see we had another great quarter, an incredible year on all fronts are of the people by the people strategy of quality people operational excellence and growth is working we outperformed our twice increased guidance ranges and we have set ourselves up for continued growth.
Growth and success in 2020 again, thanks to all the Amedisys employees for all you've done to drive the success you continue to prove that focusing on our people and patients drives increasingly better and better results without and yet insight.
Before I turn it over to Scott to discuss guidance and the financial results I want to touch on a few key initiatives that we will be keenly focused on during 2020, all of which will help us deliver the highest quality care to our patients across all lines of business.
Our single biggest initiative in 2020 is Pdgm, which we have discussed at great length over the course of the last 20 months between revenue drivers to offset the behavioral assumption impact and cost levers such as LPN and ptca utilization and visits per app.
So to optimization, we stand ready to thrive and grow under the new payment systems.
In Q4, 19, we increased our LPN utilization to 42.3% up from 38.6% in Q4, 18, and we increased our PT a utilization up to 44.4% up from 41 point.
7%.
We also continue to expand Metalogix care within our care center portfolio and now have 60 of our home health agencies optimizing utilization to get the best quality and the most efficient results for our patients.
Care uses ours, and others data and robust analytics to deliver a patient specific individualized care plan that helps ensure we are optimizing visits per episode with the most appropriately skilled clinicians based on each patients individual needs.
The results have been promising as this quarter, we reduced our visits per episode to 17.
Now from 17.7 in Q4, 18, well the quality ratings are holding strong and in many cases improving.
With nearly seven weeks of Pdgm under our belts now I'm pleased to report our early experience has been quite positive CMS claims processing has gone smoothly, thus far and our clinical and back office teams have not experienced much disruption.
As expected in the broader industry, we are seeing an uptick in smaller operators, reaching out for health. We absorbed one asset late in 2019 and have a growing pipeline of similar opportunities. We are evaluating this year.
Our tireless preparation for Pdgm is paying early dividends in 2020.
And I am confident that our success will continue throughout the remainder of this year.
We'll know much more in March when we have a cleaner view of pgms impact in fall, but so far so good.
Our next Big 2020 initiative is delivering on the compassionate care hospice EBITDA contribution of $34 million to $36 million. We have developed a fine tuned integration engine and outperformed our initial expectations in 2019.
This asset is poised to grow and operate more efficiently and we remain confident that we will deliver the EBITDA we promised.
Continuing the progress we made in 2019 consistent above market growth in all three lines of business will be a major focus of 2020.
We have become more and more sophisticated with our usage of data related to business development staff activity and referral source patterns and expect 2020 to be a year of outsize consistent growth across all our lines of businesses as we build proprietary sale.
Sales and marketing tools and capitalize on the advantages we've built in quality and people.
Finally, continuing to build the infrastructure necessary to truly operationalize, our personal care network will be a focus for our team in 2020.
The innovative arrangement, we executed in 2019 with clear care was just step one in what will be an iterative process to build the pieces necessary to provide truly coordinated care to our patients and payers.
2020 will be a year, we continue to invest in this build out and feed the network.
We are most excited though about 2021 and 2022 by then the early chock a first half 2020, PGGM should we be well behind us our new hospice assets will be fully integrated and operating at our legacy growth rate and margin less.
Evals and we are focusing and betting that integrated home health will be a differentiator for M&A plans wanting to keep their chronic members at home.
We will update you on these initiatives throughout 2020 and beyond as we reached the major milestones and with that I'll turn it over to Scott Goodwin, who will take us through a more detailed review of our financial performance for the quarter end year as well as our guidance for 2020.
Scott.
Thanks, Paul I'm very pleased report another excellent quarter at full year financial results for the fourth quarter of 2019 on a GAAP basis. We delivered net income of 83 cents per diluted share on 501 main in revenue, an increase of 66 million or 15% compared to 2018.
For the year, we delivered net income of 3084 cents per diluted share an increase of 29 cents on 2 billion in revenue an increase of 209 3 million or 18% compared to 2018.
For the quarter, our results were impacted by income or expense items adjusting our GAAP results that we have characterized as noncore temporary or onetime in nature.
Slide 16 of our supplemental slides provides detail regarding these items in the income statement line is each item each adjustment impacts for the quarter on an adjusted basis. Our results were as follows revenue grew 66 million or 15% to 501 million EBITDA increased over 8 million or 19% to 52.
1 million.
EBITDA as a percentage of revenue increased 30 basis points and EPS increased three cents to 94 cents per share.
For the year on an adjusted basis.
As far as follows.
Revenue grew 297 million or 18% to 1.96 billion EBITDA increased an impressive 45 million a 25% to 225 million EBITDA as a percentage of revenue increased 70 basis points and EPS increased 77 cents, a 21% afford Allison 40 cents per share.
Yes.
As our results indicate 2019 was a tremendous year from medicines as we continue to successfully executing our plan to deliver financial results that match, our clinical excellence, while executing on our inorganic growth strategy by hospice segment.
Before I turn to segment performance I want to remind you a few items that impacted our sequential performance in Q4.
Plan wage increases effective August virus added approximately 2 million and cost.
And seasonality of health insurance claims on workers comp added approximately 5.5 million.
I'll now turn into our fourth quarter adjusted segment performance keep in mind segment level EBITDA is pretty corporate allocations.
In home Health revenue was 316 million up 12 million or 4% compared to prior year driven by a 4% increase in both same store total volume and admissions.
I think commission cost per visit increase $1.55 cents, mostly driven by plan salary increases.
Overall cost per visit increased $1.90 cents, a 2% increase over prior year.
Gross margin improvement of 160 basis points was driven by rate increases across all payers as well as a year over year decrease in business preface so from 17.7 to 17.
We're seeing sequential improvement in this year over year comparison throughout 2019 as of against Q1 of 19 is slightly have 28 soon.
EBITDA was 48.1 million up 4.7 million with an EBITDA margin of 15.2%.
Presenting a 90 basis point improvement.
The segment's EBITDA margin was 16.3% for the full year 2019, which represents a 120 basis point improvement over prior year, and a 310 basis point improvement since 2017.
Other items impacting the fourth quarter results of our home health segment include.
As a percentage of revenue was 24.1% for the quarter, which is up 70 basis points compared to 2018.
Shifting our staffing model and raises drove the increase.
Finally effective November Onest 2019, one of our episodic pay us phase out their plan offering and the members are transferred over to plans and pay per visit we expect minimal financial impact.
Turning to our hospice segment results for the fourth quarter revenue was $165 million of 56 million over prior year, an increase of 51%.
Same store average daily census was that 8%.
Net revenue per day was up 1% to $153.42 and cost of service for day was up 5% to $83.13.
DNA for the segment increased 15, million% to 23% of hospice revenue was inclusive of acquisition activity, which added 12 million.
EBITDA was 38 million up 8.5 main over prior year, an increase of 29%.
EBITDA margin was impacted by the inclusion of the CCH in rose rock acquisitions.
Excluding the impact of these acquisitions, our hospice EBITDA margin improved from prior year.
For the quarter the CCH in Rose rock acquisition added $46 million in revenue and $4 million and that's our hospice segment.
For the year CCH in Rose rock added 174 million in revenue and 20 to remain the hospice segment pretty corporate EBITDA.
Our personal care segment generated approximately 20 made on revenue in the fourth quarter and improve the about margin by 110 basis points over prior year.
Our difficulty driven by the strong economy continue to limit our growth.
Our results not comparable to prior year as their inclusive of acquisitions.
Turning to our general and administrative expenses on an adjusted basis total DNA was 154 million.
I'd, 0.7% of total revenue.
Total DNA increased 25 main over prior year, driven by approximately $14 million relates to our hospice acquisitions and 5 million for additional sales employees to support growth.
Additionally, we have made purposeful DNA investments of nearly $7 million in 2019 for the following.
Pdgm preparation, including pay practices redesign and staffing model changes.
Security enhancements innovation pilots and expansion of de Novos.
Our significant room and cash flow continued in the fourth quarter, we generated $75.2 million and cash flow from operations and pay down nearly $70 million on our revolving credit facility, bringing our net leverage ratio at approximately 8.7 times.
Our Dsos declined 3.8 sequentially to 40.9 days.
As we promise excluding the funding of the assign acquisition at the end of Q4, we fully paid off all revolver borrowing led to the CCH acquisition.
For the year, we have generated $202 million and cash flows from operation and 109 through me and free cash flow.
I'm very pleased with the progress of our inorganic growth strategy. During 2019, we completed two hospice acquisition closing additional acquisition on January 1st between 20 and ended the year with 11 de Novos.
Finally, as you can see on page 18 of our supplemental slide that we're leasing our guidance for fiscal year 2020.
Our guidance ranges, our revenue of $2.12 billion to $2.16 billion, adjusted EBITDA of $250 million to $260 million and adjusted EPS of 4090 cents to $5 in 13 cents.
There are several key factors impacting 2020 guidance outlined on slide 18 to 22 of our supplemental slides.
First medicis specific PGM pricing headwind of 2.8%.
Our hospice reimbursement is up approximately 50 basis points. However, the majority to increase we pass through to general inpatient in rest of facilities.
Has led to a negative 50 basis point margin impact.
For CCH, we're estimating EBITDA in the range of $34 million to $36 million.
Sadly included in our same store numbers as of February one 2020.
Landry wage increases of 2% to 3% that we effective in the second half of the year keep in mind. Our first half 2020 results will be impacted by raises given in August 2019.
In total the impact to 2019 2020 raises is approximately 20 to 23 million of increase then.
Our effective tax rate assumption is approximately 26% with an estimated cash tax rate of approximately 24%.
Continued incremental investments in the business approximately 12 million, which includes the following following.
Jim resources at approximately 5 million.
Additionally, the Nova spend of approximately 4 million.
Investments and innovations and projects, including future Buildout and personal care partnership of approximately 3 million.
As Paul mentioned, we're very confident our preparation efforts around pdgm.
As we've discussed throughout 2019, the cost levers data to offset the impact will be heavier weighted in the back half 2020.
Accordingly, we expect our EBITDA performance in 2000, Teus look much different than our historical patterns.
There are also some additional mines I'd like to call out that will cause our sequential EBITDA progression from Q4 2019 to Q1 2020, so different than prior year. These items include.
The impact of 5 million relates a rate, noting 2019 was a positive for both home health and hospice.
Contributions from CCSG, EBITDA, which are now in our year over year comp, which accounts for approximately 4 million.
And the benefit of nonrecurring fleet gains realized in 2019 of approximately $1 million.
Finally, this guidance assumes a fully diluted share count of 333.4 million shares.
We believe that our efforts around pdgm that materialized in the second half of 2020 combined with continued growth in the contribution from our hospice acquisitions will translate into a meaningful upside as we move to 2021 and beyond.
This will conclude our prepared remarks operator, please open the line for questions.
Thank you we will now be conducting a question and answer session in the interest of time, we ask that you. Please limit yourself to one question and one follow up if you would like to ask a question. Please press star one on your telephone keypad.
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Our first question comes from the line of Brian Tanquilut with Jefferies. Please proceed with your question.
Hi, Good morning, guys good morning.
First question for you fall, so as I think about growth.
Q4 growth decelerated, a little bit from what you did for most of the year.
I know you beat the guidance for there for the year on organic growth, but how should we be how should we be thinking about the factors that impacted the growth performance for Q4, and I noticed that you're forecasting an acceleration for both the hospice and home health segments for 2020. So if you don't mind, just bridging us through.
You're thinking about growth exiting that Q4 run rate or the Q4 performance into 2020.
Sure. Thanks for the question Brian.
Yes, Q4 was.
Interesting time for both home health and hospice in the sense that home health, we were heads down on Pdgm prep and in hospice, we were heads down on.
CCH integration finally, finishing the the homecare Homebase integration and then starting to.
Build out the management teams. So I think what we did is is I think the growth in Q4 due to the concentration on these areas wasn't what we desired.
And I think.
We have a lot of confidence, though with the the head of steam we're bringing in in terms of this year. So we're confident we're going to hit the numbers, particularly in hospice, we know that.
We're building out we have the we have the the reps that we need out there there was a bit of off we'll all while we were concentrating on all these other issues in terms of hiring so we got a little behind not like we did prior where we were underwritten 20 off we're about in certain cases, maybe 10 20 reps off but.
Weve corrected that and the first we know that we have to accelerate on the growth.
To get through what we need to so we're feeling quite good about it thus far I don't know Chris any.
Just just.
Just a little color on kind of Q3 Q4, there is a little bit of.
Comp noise in those numbers as well what we did as we layered our 2017 18 and 19.
Adam charging the trend lines show consistency across each year with progression.
A couple of examples as Q4 this year, our Medicare growth was four was 1% on a comp of 2018 of 3% in our Q3 was 5% on a comp of flat.
And then our total growth or total admissions for Q4 was for on a comp of 6% and nine on a comp of 4%. So we just had a little bit of inter quarter kind of noise in some of the other factors I feel confident that.
Trend line is consistent our 2020 trend launch.
Much from what we've seen the progression from 17 to 18 18 to 19, we should see the same thing 19 to 20.
No I appreciate that and then I guess Scott in your prepared remarks, you talked about acceleration 2021 and beyond if your line is walking us through how you guys are thinking about.
Reimbursement, how you're thinking about again growth in volumes as you think about M&A environment and thinking about the absorption that you guys mentioned, how do you put all that together past the noise as 2020.
Yes, I think.
I still think all that activity is still have you thinking about it started with kind of those into your questions. There around the what we can absorb from everything else going on whether it's some consolidation there may still feel that in the back half because that's when most of the pain we felt on.
The cash flow impact so we still think of the heavy backend loaded if you think as we move forward a center impact was about 2.8% on the revenue piece.
I think we're going to probably be.
From our modeling and a little bit adjustment, our co morbidity offset I think we're going to probably be short on that probably about $2 million in Q1, and then we cover that up so on average will be fine pro full year. So that gets there and then from the the visits in the mix mix piece around MLP and online MPT BTA, we think we're going to get to 50% probably in Q4.
And we'll average one visit for it for the year, but you'll see that picked up into Q4, I just think it looks different.
Well into Q3 in Q4, typically Q twos been our best quarter will pull back down in Q3, I think thats out the window for how we look I think we still continue to build performance Q2 forward.
In how we're thinking through all the different movements in the levers.
And then 2021 got just is that in an acceleration year, you think I think it's a tremendous opportunity of aegis and our entire Mali and look at the multiply on exit run rate.
As we hit these levers come through as a tremendous upside and we got continued upside around the CCH.
Yeah.
Is our plans laid out even at this and top in the first quarter those exit rates in Q4, 2020, Tees up 21 pretty pretty settling for us. So we're feeling good we're feeling good about where all this is going on the long view.
So.
And we think we're pretty good shape in terms of how we're heading into the second half the year, where we're going to need to.
Really rely on the cost levers in home health and then we will be fully integrated.
On hospice, so we should be cooking with gas so we feel and generally quite good about those.
All right I'll jump back into queue. Thank you. Thanks, Brian.
Thank you. Our next question comes from the line of Matt Larew with William Blair. Please proceed with your question.
Hey, Matt.
Hey, good morning.
Waterfall quickly on Brian's question.
Around the fourth quarter.
Paul you alluded to obviously the heads down on Pdgm.
Not only in a management level, but also kind of an operational level, whether it's talking referral sources about what new information you need or maybe the agency is focused on starting next can you give a sense for.
The things that affected growth. Thank you for do you feel like they're largely.
Placed at this point or or some of that linger into Q1 in Q2 at year as your agency and your sales folks are continuing to focus on PGM.
I think I think I think we're seeing I think we're encouraged about what we've seen so far I think I think so we have to put a little note of caution in there will be full out on pdgm in March So we'll start to see the full impact of PGGM in March.
I think where there will be some.
We still will experience more or less disruption around us because as I indicated in my remarks, there's.
Theres a lot of people picking up the phone and calling us now more than I thought and.
So I think there will be disruption around us I do think that affects the referral sources to a certain degree.
And.
But I I don't think we saw a little in the fourth quarter.
And then yes at the at the care Center level. It was heads down still is but heads down on pdgm execution in home health and then integration on CCH in bringing that bringing that asset in line with our legacy operations, but we're we're still on track on both of them. So we feel very good about it.
Okay, and then following up on the care something absorbing some of these foreign policy you're taking.
You can you give because thats when you decide to.
Okay.
Construction, the Green light just walk us through some logistics the timeline how quickly once the opportunity is right can you really bring these folks and these patients.
Into the full.
Yes, I think the key is where we there's there's three buckets. If you well, there's one which is where where some of these folks overlap with our licenses and so that's about 16% of the United States at this point, where we have that coverage. So we believe that we can do some good absorption and thus far.
Our it's where there has been overlap with our license and so thats what that way. We can just bring in the business. We can bring in some select employees and we don't have the liability that to provider number would bring with it the in home health. There is a unique thing thats called the look back a six year look back and so when we go outside our license.
Jerry or acquire a provider number we have to be very careful because then we are liable for some of the things that occur in that six year look back. The other third bucket is a COO and bucket, where we're pretty interested in seeing anything in a COO and state.
Because these are more difficult markets and obviously people tend to do better in Seo ends there was a higher value associated with them. So those are the three buckets were looking at the easiest one obviously is where there's overlap.
Within our license area I don't know Chris.
To go a little deeper on kind of that that processes. When we get approach, where we hear for of an agency. The struggling financially. The has a base of patients and employees. We have a tool kit deployed all of our care centers out there. We have a dedicated team also running the project management to make sure that we're evaluating our capacity.
Mountain that against what the agency may have that are needing to transition.
Identifying if theres an opportunity to Har Har clinicians, we have Oh, we have a kind of a fast track hiring process that we can we can deploy the locations and as a matter of patient choice if the patients to choose to move to our agency and physician what's on the orders then evaluation and admission and absorb.
We absorb them into our into our business I will say that early experiences as that.
This is this is on a on a sample of really too is about 50% of the actual patients it up.
Qualifying for home care, but based on our assessment standards. So it's not a full redistribution of the patients.
Okay, and then if I could just one more in its on Metalogix mentioned, you're increasing.
The investments.
Fair.
Can you can.
Yes, what are the things you're looking for in terms of incremental.
Metalized mixes that gets rolling out the tools to more agencies or are there other tools or strategy anything you're working on.
So we're currently focused on two tools of Metalogix has run now it's a it's care, which is really I'd say more of a pdgm kind of episode optimization kind of model.
Our system, and then touch which is really what we deployed.
In late 2018, that's really more around hospitalizations, we've got through pilot phase on both of them in 2019, we started to expand to other care centers. Both products in late 2019, and now it's really deployment of those two products into into all of our care. So.
Enters we have a plan to have care deployed.
Throughout the organization by the end of Q2.
And then we'll have touched done by the end of Q3 I believe so it's really more just kind of fees and training and in rolling out rollout cost associated with those products.
I think the ideas that obviously care is essential for Pdgm. So thats primary thats, what we want to make sure.
Pushed out but the touch product for US is very important as were in our discussions with managed care, obviously, reducing a if we go at risk often with managed care wants to for US to go at risk on his hospital Readmissions and this has helped us very much in our.
Of hospital, Readmissions, where touch has been in.
Put in place the results have been very strong for us.
Thank you.
Thanks, Matt.
Thank you. Our next question comes from the line of David Mcdonald's with Suntrust. Please proceed with your question.
Morning, guys.
Paul can you give us spend a quick minute on the clear care partnership and ill.
What does that Don in terms of the conversation with the May plan.
Kind of in the construct of value based care.
Actual additional services that you guys would be providing just anything in terms of hybrid conversations changed now that you have that capability.
In place.
Yes, the conversations of have it's been obviously I think a real enhancement. The key thing is there's two parts to a one is building the network, which is kind of what we've done and that happened in a big Bang approach. So all of a sudden it was there and now we need to feed the networks. So Chris is working on that were largely doing as we establish that were largely doing that.
Through cross referrals and we're seeing some we're seeing some good early results, we still out of work to do on that but since its emerge we were encouraged by what we've seen the next piece is working with with our partners of wells going clear care to integrate our information that we have from homecare Homebase in home health hospice.
And then the information that we're going to be getting through our personal care.
Bruce.
Clear care, we have to then integrate that all together so that we can fundamentally optimize which caregivers are best.
And then we have obviously the what we've been able to build with the care product of metal logics is fundamentally individualized care planning. So we're very excited the plan seem to be very excited about the idea that we have access to a variety of differ.
Resources that fundamentally can deliver really good care for the lowest possible costs, so thats, but thats.
So the talk is really good I think all the pieces are kind of loosely being assembled now we have to put it all together, but there seems to be a lot of enthusiasm around it we had some we've been having some good early conversations.
Okay.
And just on metal Ladish can you talk a little bit about.
Yes, a little bit of the incremental opportunity around capacity that likely frees up and more importantly.
Does that tool give you the opportunity to potentially accelerating accelerate the staffing mix shift.
And I know what kind of talked about 50 50 type number.
One of the metal logic tools in place is there an opportunity maybe do a little bit better than that.
Yes, so ill answer that one Dave.
So with met with regards to Metalogix I think it's going to be really visit optimization, making sure. We're providing the right number of visits for patients. If the data plays out and we do achieve like a one visit reduction per episode, obviously that does create capacity.
At our care center level, I don't think you're really influences our skill mix from PC to PA or an oriented LPN.
More importantly, what I think accelerates that we're in we're already seeing it.
Coming out of the gate is our pay practice change that we did in Q4 of last year that was our biggest barrier to get not getting optimized on that on that mix and we got through the pay prices change non thousand of our clinicians fundamentally how to change in the way that they were paid in really kind of encouraged them working at the top in there.
A license. So that's that's what gives us confidence to get to the 50 50.
Possibly beyond that but we're feeling good about it.
Okay and then just last question look at the impact of the reimbursement changes and wrap payment and all that stuff kind of kicks in.
And some of the smaller players struggle do you think the government may revisit but look back here I mean in some cases I would imagine there's not a lot of incentive to take that risk on.
And you could end up with some.
Some fair counties or whatever you want to call. It terms of access to care issues is that you know attached.
Area that you think the government may be willing to take a look at a little bit more closely.
I've been trying that's a good question, Dave I've been trying to work with CMS on this we had some good early discussions with.
CMS on this but since you have kind of gone dark on us.
I think at some point that will be like food desert. So I think there potentially could be home health deserts, particularly in some of the rural areas where you.
Where you're losing the rural add on plus you're getting the rap issues plus you're getting the cuts.
It's going to be I think there will be some places at that point, we'll see if CMS can come back to the table. Obviously I think if CMS is if CMS really wanted to facilitate.
Consolidation in this industry, which it seems like they do with this.
I think the first thing they did by eliminating the ramp is is fundamentally try to push out a lot of fraudulent players and tried to limit people from coming in particularly smaller players, but I think the idea is that.
If they really want to foster our consolidation.
And there were no liabilities that we had to scrub scrubbing scrub and you can imagine some of the small players we go in that or paper based or that have documentation that's up somewhat suspect.
It's pretty difficult so.
We've been bugging them about this at least I have and my hope is that if they do create these deserts. If it is if we really have some dips theyre going to have to come back to the table and figure out how to entice people to get back in.
Okay. Thanks, very much yeah. Thanks.
Thank you. Our next question comes from the line of Frank Morgan with RBC Capital markets. Please proceed with your question.
Thank you.
Hello, Good morning, Hey.
Yes, not me as Scott question, but I bet, you called out I think somewhere around maybe $10 million of items EBITDA adjustments that would be affecting the first quarter versus that.
Fourth quarter of 19, I just wanted to isn't as simple as just taking that out of that 52 million dollar adjusted EBITDA run rate in the fourth quarter and Thats a good place to start for one Q. I guess, that's the first question and then I think you also commented about how but.
You'd be accelerating with nice growth by the fourth quarter going into next year, just any any kind of guidance around sort of what would be the implied run rate as you exit for Q 20.
[music].
Thanks, Frank I'll start with that and just kind of reiterate the numbers, but I think.
The simple answer is yes, I think thats, a good way to how you're thinking about the start.
A lot of this is just things that came through as we lift from Q4 to Q1 and as I talked about the fact that we added CCH in Q1 of last year was about $4 million, we had rate good guy of about three and then fleet was one.
So thats about eight there and then the other piece of it was the fact that will be a little slower hi, about a 50 bips off from town overcoming a 100% of that rate, 2.8% initially kind of really more January February. So that's another two is that's where that came from so I think thats a good when you're thinking about seasonality, we grew about $11 million last year. So.
Thank you for Q1, so I think thats, a good way to start thinking about it and then building from there as we as the cost levers in the Finalization. Another 50 Bips on rate comes through I think thats a good way.
Think about it.
The other piece was around growth and just several as directory and the gallery patients. So thats correct scripts.
We expect as we planned out this year.
Does it will be it'll be a little bit more back half loaded on on the gross the total emissions side, what we did not baked into our into our forecasts or to our guidance is any of the kind of disruption in rescues from other agencies.
Go out of business that we absorb so any of that that happens in the second half of the year can be tacked on top of kind of our our growth trajectory that we are already expecting.
This year, we're we're investing.
A little bit more heavily into our BD staffing as well as adding incremental leadership in both lines of business, which is a senior level position and the significant investment on our part.
They will be kind of onboarded and up and running by the end of Q2. So we don't expect to really see the pull through from that until later in the year.
But all indications are it's going to be a nice exit.
As we as we go out to 20 into 21.
Would you say that.
I think we've stated the bright visit.
Hopefully the goalpost will stop moving at this point in the sense that our self imposed growth in terms of.
Hospice looks very good so we're heading and we also got some good market baskets, we're heading into.
And then the on the home health side.
We've got some stability there and we'll be in cooking with gas on PGGM.
Having having worked through the.
2.8% and then starting to deliver on the cost side. So I think we feel very good about it.
Is it fair to say that the fourth quarter wells will be the highest quarter of EBITDA contribution for the year.
Nickel as we've built to it I think thats, yes, I think thats a good assumption as you really everything will be in place at that point, that's correct. So remember just in our normal.
Our normal kind of EBITDA up aggression that means you're still going to have health insurance. So just kind of speaks to how good of a quarter that would look like as we get Tonight.
Got you ask I think what we're saying is that Theres, a new paradigm in terms of how how this is going to look it's not going to fall the traditional Q twos, the best and then.
I think we're.
Telling people that that it's not going to work out way, it's going to be up it's going to be a hockey stick in the second half year and the other thing I would just as people are things that Frank around the modeling visas cost per visit.
It certainly if you think about a differential we say, let's use were somewhere around 90 $90 per visit.
Think about 75% of that is really a fixed costs or it is a fixed cost piece of it so.
At 20, 525% I'm sorry, the inverse there so 25% is fixed so as we take out one visit for example.
It could side they could increase it will increase our cost per visit, especially early until we get the staffing mix and everything right just thinking about the math through that so thats important to keep in mind and will help us in the back half is we get raises it'll.
Help us overcome some of that year over year impact from a raise perspective.
Not yet and then maybe just one more and I'll hop.
Obviously, we talked a lot about the adjustment related to PD GM on the traditional part of the business, but what are you seeing out a managed care plans and I think you made reference to something that converted from a is that a managed care payer that had can vary from episodic to per DM. So just any color around that whole on that on the M&A side as it relates to Pdgm I'll hop. Thank you.
Yeah, Hey, Frank it's Chris again, so on the latter part of the question. Yes, we did have a significant volume payer that had an episodic product with us that they did sunset last year at the end of last year.
Those patients who are those members were read distributed amongst across the or other service offerings that are our plan offerings of which we had contracts with.
Our medic, our managed care team did an excellent job and working through that transition with the payer to make it a net neutral for us economically.
We'll see as a big shift in our episodic admissions versus our private per visit admissions as we go forward.
But again it was it was something that we were able to actually negotiate a nice rate and then on the bigger picture is we're having almost every negotiation that we're having a conversation around either new contracts renewing contracts has some component of.
Gained share that that thats being contemplated so we're we're not only inching along in terms of getting our base rates on the per visit side.
We are dealing with the per visit contract. We're also getting some opportunity upside opportunity negotiated and with regards to.
The quality that we produce so we we see that trend continuing annecy gives us the incentives to make sure that we'd leave with quality and we get paid on quality and.
We're doing with plans that were not quick to to open up the first thing so loosen up the pursuing so it's just taking this little while to get there, but we're excited we know that Medicare advantage is not going to slow down and penetration we have to be able to play in that game very well and it'd be a good partner.
And we have a lot of energy around that yes, just following up on Christmas point Frank is.
Our at risk pieces on a gainshare last year was 5% of our Medicare advantage or non Medicare book It will be quadrupled this year to 20%. So we are taking more risk and we are doing more but it's largely gainshare. So theres not downside on it but.
We're we're trying to get involved as many as easy as we can because we believe that's where the future is growing.
Thank you.
Thanks.
Thank you once again, please remember to limit yourself to one question.
Our next question comes from the line of AJ Rice with Credit Suisse. Please proceed with your question.
Right.
Hey, how are you guys.
Just asking about the cash flow and your expectations for 2020 I have a 19, you did operating cash flow roughly 202 million and 194 free cash flow I know you've got obviously the growth of the business, but you're also pointed to higher cash taxes, the impact of the wrap payments and there was a three points.
Six day decline in Dsos at the end of the year I don't know, where you think that will be this year, whether that will sustain or not but any sort of a directional comments on where you think cash flow will come out for 2020 sure. Thanks.
We're looking kind of in $160 million to $165 million range for cash from ops, I think well, you'll see as a direct disruption in Q1 that we've been talking about I think where some we believe in somewhere in the range of $60 million related to the wrap to change and then our number of progress from there to get back to somewhat of a normal DSL, we'll take a hit.
Then stabilize and you'll see us build cash again, so we are.
Hi, good about where we're heading into for the rest of the year still be in great shape.
Fuel on the revolver to fund this on a deal right at year end and as we're looking at and now we think we'll pay that back down probably a majority of it into Q2 have a small portion left in the Q3. So we think cash flow still absent that Q1 disruption nice and I story 2020 as well.
Okay, and then a quick follow up is.
Obviously, you even done a deal already I wonder whether as a light of Pdgm are you seeing pricing on deals change in any way yet and.
And what is a competition are you one of the fees that are stepping up to be on the buy side or is there are you still see in the same usual players and I wondered and they all the deals also does that have any spillover on the hospice sciences that tends to be to say buyers of hospice and home health in many cases.
So we've seen at least on that front, we've seen that.
Thus far if you talk something in its generally free so.
The idea as you have some conditions there that you have higher certain people.
But generally the patients come.
So when it's in our license area, we don't expect to pay anything odd is their competition yes.
Is but I think the key is that we're interested in I think people again, our quality wins, I think our ability to absorb employees wins.
The fact, we have a very good playbook that Chris talked about wins. So we know what to do how to get licenses up how to get people working the other thing.
On the hospice side, though no the prices Scott can talk more particularly about this unfortunately, the prices have followed with hospice theres still.
The there's not much left out there, there's some medium size assets, but theyre, they're going to that are coming to market and everybody's coming to market now because the prices are so high so it's a tough market for hospice, although we're still seeing some pretty decent deals, but that's fair bomb area hospices stay in pretty frothy.
Home Health is as Paul said early on we think we've got an absorption opportunity I think the quality assets come available that.
We'll have some vendors out there for that at some larger plays you can move on with what they're looking to move out of this pdgm world.
And we'll see where pricing lands there but.
This definitely.
Remains extensive.
Okay. Thanks.
Thanks sector.
Thank you. Our next question comes from the line of Jackson Bowers with Deutsche Bank. Please proceed with your question Hi, Justin.
Hey, good morning, everyone.
I'll keep this quick or running towards the top of the hour but.
Just wanted to be just wanted to clarify the cadence I'm just trying to parsing some of the some of the statements during the call together and it sounded like you were saying Threeq you would be higher than.
To Q and then.
If all everything is in place than Youre going to exit for Q4, Q being the highest so it just sounds like it was going to be a sequential ramp throughout the year in terms of the EBITDA as a is that fair characterization.
That's fair I think because of the way that we're going to that we have to implement our care product to drive the savings to make a full reduction and then to get our ratios on 50 50 on Lpms in PA days, we're going to need to.
We're going to we're going to come to that full fruition.
In Q4, and so thats, where you're going to see the margin expansion. Yeah, you have two things at play there.
Just to remind everybody. So you've got the levers going on from Pdgm perspective, as you kind of build.
Most of the revenue levers that you start off Q on little bit amiss, there gets in the build that into Q2, the cost levers on ramping up and then if you come back and think about that incremental dollars around CCH.
AIDC as we exited Q4 was below our we've got to build that backed up so you'll see a benefit out of that as we get to that full $34 million to $36 million, we're talking about.
Thats going to be doing AIDC build for the rest of the year. So you'll have both of those helping drop that number up in the back half.
Got it and then just in terms of.
Quick follow up on hospice to some some healthy double digit growth you're forecasting there's some moving pieces in there as well is should we be thinking about the growth profile of that business kind of similarly, as well accelerating throughout the year.
Yes, yet and when does keep in mind kind of whats showing that if you look at that 14% guide on.
Hospice I admit growth CCH is coming into that number in Q2 I mean also in February.
So thats and my same store metrics, so they're juice and that growth rate.
And our guided number.
Okay. Thanks, I'll take the rest offline.
Thanks.
Thank you. Our next question comes from the line of Matthew Gilmore with Baird. Please proceed with your question.
Hey, Thanks for the question I wanted to ask about the margin performance with your Medicare advantage book in home health and the growth rates for the non Medicare business were again favorable.
But you're still level to expand margins, even though those tend to be lower paying on another payment rate us coming up so sort of what's going on there are you just getting more efficient elsewhere or are you better able to match sort of the resources with what the Medicare advantage payers are expecting.
I Love that question Scott.
Pushed down.
I think you are good and so just step back we certainly have gotten increases on the Medicare advantage that Chris who runs that routine for us and little bit more color to that but so we didn't increases across the board. There. If you look at our overall margin profile.
If you look year over year from revenue, perhaps on Medicare Sadler up 25.
And then we took out 0.7 of the visits and you're getting more and more efficient there as we move forward. So that's flowing through from both the cost perspective, and a topline perspective, so that certainly help feed our margins there Chris you want to its.
I would say a sequel parts us getting little bit better rates from the Medicaid managed care organizations in this bringing.
We are starting to Chuck, but we're seeing that sequentially.
Year over year as well as of this move in the mix and being able to optimize our peer stuff.
A body these visits to the little bit lower margin than the traditional Medicare we're being more purposeful around kind of how we're deploying or acquisitions.
So that we're kind of optimize in terms of skilled mix.
Got it thanks I'll leave it there.
Okay. Thanks.
I think what we're going to do as push through is.
I think we're going to continue to take questions, even though it's over it will be over the time.
If those for those who want to still hang on we can still just go through an answer the question. So.
If people or have the time to extend beyond 11 o'clock.
Which we think it's almost there now will will stay on.
Thank you. Our next question comes from the line of Andrew Cooper with Raymond James. Please proceed with your question.
Thanks for squeezing me and I'll be kind of quick, but just kind of wanted to take another cut at the they admission or add make growth you called out for 2020 versus Fourq you. Obviously fourq you at 4% I think overall, our 3.9% overall and.
A little bit better than flat in Medicare and home Alf versus the 7% guide just sort of.
I know you called out comps, but but other than that.
Should we think about that pacing through through 2020, if we think about BD reps that you mentioned as well I'm just kind of any any other kind of way to think about that and make sure. We havent sort of frame right as to why for he was a little bit lower and why we're getting back to sort of what you saw on the first three quarters.
For the year overall.
So this is a proven too many questions Chris yes.
Well I mean, I think we've talked about we talked about comp side of that does distorted a little bit on the 4.4% of total total EBIT growth for Q O Q4, and there are 1% or some points.
On the Medicare side. The one thing that we we did have a lot of kind of internal focus on pdgm and pay practices and things that were affecting impacting our care centers on a pretty much a daily basis.
The one area that I think that we failed to execute on that had a lingering effect on those through Q4 was when we grew our BD staff, our fts, our number of reps out they're calling on referral sources. We had subsequent growth is growth in the subsequent quarters in years.
From from that growth of staff.
What we did as we did not grow our PD staff from the end of Q2, all the way through the end of Q4.
And it was really kind of more of just we're focused and other areas. We had some leadership changes at the frontline manager level to slow down the hiring process.
We've identified it I think we've got good line of sight to get there out of the gate in 2020 were really close to our our budgeted number we're looking to add about 8%.
NBD heads in 2020 over 2019, plus the incremental.
Question, the leadership that I mentioned.
Give us a lift coming into the second half and what we're doing now as we're just getting more purposeful with our with our data.
We have a ton of data we have claims data that we break it slice in many different ways, we're finding that way.
We're spending a lot of.
Unnecessary energy and unproductive waters. So what we're doing is getting more purposeful around how we're spending our time.
Through that we expect to see some incremental opportunity increased productivity from our reps. So I have a good high confidence level in our ability in or 7%.
Growth in 2020, just to kind of.
Just to frame it up one more time 2000 in 18, we had 2% total admit growth, 2019% 2018 fibers in 2019, 7% and we added reps in 18, and we added just reps in the first quarter of 19, So I still feel like we got through our strategy, which is going to execute.
Yes, I think.
Andrew one other thing is.
[music].
We've we've we've dealt with this twice now so it's not going to be a third time.
Where we've been caught short on reps were we.
It's just not going to happen so okay.
It's helpful. And then just kind of as a quick follow up of that 7% how much is.
Sort of just natural absorption that you would call out as Pdm pdgm, driven as opposed to sort of long term sort of volume run rate.
If any.
Has no pdgm assumptions, we have to any any absorption would be above and beyond that that address any absorption would be above and beyond.
And if there's 12500 providers out there and we have a 16 roughly 16% overlap with rough rough about 2000 players and we'll see what the shakeout levels are but.
There was a significant amount of absorption we could do.
Again, assuming that Theres significant shakeout.
20, percentish or something like that so there is significant out there. We obviously have to fight for and as I think one of the things that Chris pointed out which is really interesting.
What we've been looking at is we are taking maybe 50, 60% of the business of these folks that are that are out there. The rest isn't this frankly not suitable so it's quite interesting from that perspective, how how how the scrutiny and when you pass it through the filter.
All the patients that are entirely.
That's great I'll leave it that thanks, Thank you for sure.
Thank you. Our next question comes from the line of Joanna Gajuk with Bank of America. Please proceed with your question.
So these two wholly in there.
Last question.
But that two questions.
On the summary comments you, let making antennas just continued investments in 2020.
Well, you, calling out 5 million on PPG Ambrish sources.
That's my opinion the sanctions so.
To me it sounds like despite all that disruption from PDGF.
And CPC with that let hospice not PST still making.
Some efforts in finding the next I guess thinking in terms of investments. So think about that and also specifically on pdgm. What exactly is a 5 million you still expect to spend.
Actually I guess pertaining to prepare oil spill.
Implementation 2020, thank you.
It's mainly metal objects.
So we consider that an investment because it's incremental.
And it's with money well spent the other is the denovo bucket.
That we're doing the other once the clear care bucket, which is the the so those are the fundamentally the three buckets, where we're spending the the the growth money I know Scott has all the details denied youve cash them into Pdgm resource pays as Chris alluded to earlier, so you've got care and touch rollout across the organization there is some.
Some management type pieces, we're putting in place and small dollars not not a ton of people that there has a little bit incremental there. So thats kind of your $5 million number.
No those as we continue to look at those wind up we're sitting around 11 that we started since 18 to 19. So feel good about that process. So we've got some more kind of targeting around tenish there for next year.
So that's something we're looking at and then the rest is build out of that their care partnership run and some other innovation type people processes. So we are.
We think we'll get new Pdgm, we've got our core team is focused on that.
But we see this are very.
Bullish on 2021 forward and we're going to continue to build this business and add resources that we think will be important as we look to play more into in managed care world.
Okay. Thank you.
Thanks.
Thank you. Our next question comes from the line of Matthew Borsch with BMO capital markets. Please proceed with your question Hi, Matt Hi, Good morning. This is Glenn on for Matt.
Hi, good Ita.
Looking at the CCH 2020, EBITDA guide that 34 through 6 million.
Would you say this is this increase in EBITDA is driven from margin expansion with the 10 million and projected 2020 synergies or would you attributed more to topline growth in the CCH business. Thanks, If I had to look and I think it's a combination but I would say more on loan growth may basically measured way, we're probably a little different answer if we would have exited.
A little differently of course.
But we've got opportunity and those will hit our full run rate on synergies.
As we get into that we'll still have natural as you think about from a cost per day and fixed costs through there and how we we staff that you're going to natural get some margin progression is that that topline growth. So it'll be a combination of both the top line will be very important we've got to get that since its back up.
When fourth and talked about the deal we talked about making investments in mbd staff market grow what we said look we like this this.
This company because they have a lot of smaller census care centers, which was like what we looked at it looked like by three or four years ago. We did a tremendous job go in that but we did it by adding sales folks in the right areas and we were behind on adding sales folks start off well in Q1. So we really kind of missed the mark there and helped us and savings that it was probably penny wise in pounds.
Early so we'll push hard and get some heads back in and really grow that AIDC thats, what we want to do we're going to get that 50 million dollar opportunity there'll be plenty of margin opportunities as we get these census numbers too.
The much higher levels.
Okay.
Theres, a theres a point, where you can really start to click in and get a lot of efficiencies and expand your margin on a DC and one of the reasons why we did this acquisition was because it was sub optimal from an eightk perspective, and so we see the ability to grow this margin get the AIDC up to decent levels.
Then we'll see natural margin expansion as a result.
What we've seen in our core operations.
Great. Thank you that's helpful.
Thank you all right.
Final question comes from the line of Whit Mayo with PBF. Please proceed with your question.
Hey.
Good.
Morning afternoon, whatever time it as.
I'm just kind of curious my question is really just around the review choice demo and how you feel about the preparation for that and how you're balancing.
The prep with Pdgm and kind of how you're contemplating or underwriting.
Any impact that you may see with your internal plan if if any.
Yes, so so we haven't going on right now in Chicago, and obviously, we're not choose there.
We have we have three locations, we're doing very well, we're having virtually 99 point something percent affirmation rate is running well.
Basically use the same process that we did the first time it was in place before it was a four was put on hold.
Next status slated to be Texas, we only have one location there. The next state of any size states of any size it will roll out into little impact us, we'll be in North Carolina in Florida.
We feel like what we have as a scalable model it does require little bit of an incremental investment in an individual or two depending on the size.
How many locations you have in the state, but from a processing perspective, we've had very good luck with number one first round affirmations number two the Max or better at actually processing. This so for US. It's just not really kind of any kind of a.
A barrier that we see for now great. Thanks.
Thanks, what thank you it. Thank you there no further questions at this time I'd like to turn the call back over to Mr. closer all for any closing remarks.
Thanks, Michelle and I want to thank everyone, who joined us on the call today and I want US again, thank all our employees who delivered this great year results keep doing what you're doing.
Taking care of the people who need us the most we hope that everyone has a really good day and look forward to updating you on our ever evolving process and purposeful work on our next quarterly earnings call or out on the road.
And talk to you soon take care everybody.
Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.