Q4 2019 Earnings Call
Ladies and gentlemen, thank you for sending by and welcome to the deal.
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For 2019 earnings conference call.
At this time.
Certain listen only mode.
Peter will conduct a question answer session and instructions will follow at that time.
He's got advice for today's call is being recorded.
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I would like to Kinda conference over to your host Mr., Eric Elliott Senior Vice President.
Thank you.
You may begin.
Thank you Bloom.
I'd like to welcome everyone to LHC group's earnings conference call for the fourth quarter and your ended December 31, 2019. Every once you have received a copy of earnings release last night I would also like to highlight that we have posted some supplemental information on the border and full year 2019 on a quarterly results section of our Investor Relations page. So.
Well mental deck as well as a copy of the earnings release 10-K, then ultimately a transcript of this call when available we'll be found on this page or supplemental deck includes all of our reconciliations and break down of adjustments. We refer to these non-GAAP measures during our call today in a moment well have some prepared comments from Keith Myers, Chairman and Chief Executive Officer and Josh.
<unk> Chief Financial Officer, before we start I would like to remind everyone that statements included in this conference call in our press release and in our supplemental financial information May constitute forward looking statements within the meaning of the private Securities Litigation Reform Act. These statements include but are not limited to comments regarding our financial results for 2012.
Okay and beyond actual results could differ materially from those projected on forward looking statements because of a number of risk factors and uncertainties, which are discussed in our annual and quarterly FCC filings LHC group show up no obligation to update information provided on this call to reflect subsequent events I'm pleased to introduce the chairman and CEO LHC group She tomorrow.
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Thank you Eric and thank everyone for dollar you haven't participated in this morning's call.
I would likely begin by thanking our growing family of health care professionals for their unwavering dedication and commitment to delivering the highest standard that kind of quality.
Outcomes and patient satisfaction, a growing number of patients families and communities, we're privileged to serve.
It's an honor and privilege for me to be part of your team.
[noise] 2019, with another record year for LHC group.
In addition to surpassing a major milestone of an average daily census of 100000 patients.
We recognized last four.
We also form new partnerships with Norton Health care, I think our home health hospice and a lot of care home health and hospice.
We successfully expanded our joint venture partnerships with leading healthcare partners, such as Lifepoint Ochsner health system THR.
Methods and CAFTA region Medical center and others.
We experienced a strong here of organic growth in the face of industry and company specific headwinds the Josh will elaborate further.
On in his prepared remarks.
And we achieved a record number of L.A.C. agencies.
Achieving five star rating from CMS, the high as possible.
Great.
As I mentioned last month.
Approximately 32000 team members drop in country I.
I believe our most significant accomplishment was the team work demonstrated throughout the organization.
And in a very professional disciplined manner and strategically <unk> strategically positioning LHC group for success and the new environment created by PDGF.
We're we've received no hundreds of calls and emails of appreciation for my team members highlighting the level of attention and planning placed on testing training and educating them on our clinical care models proprietary IC system.
I want to thank the entire team for their contribution to the innovative thinking that went into our clinical care models.
With that help we've been able to fulfill our obligation guar patient partners and stakeholders to remain healthy viable and flexible without compromising our primary focus on clinical quality and patient satisfaction.
We are poised to do great things that are already see excellent outcomes and each of our six pilgrim Maxim.
Now I want to talk about what these PDG I'm preparations, meaning for us in 2020 and beyond.
Let's focus first on the clinical aspects the short term disruption caused by this work ahead of PDG in Q4 in early 2020.
And the growth opportunities this new reimbursement model is creating.
As many of you know our clinical leadership team began preparations to transition to pdgm more than a year ago.
We're very proud unappreciated or their tireless efforts over the past year and how through their efforts. We have made significant improvements to our clinically driven evidenced based operating model, which focuses on co morbidities functional scores and diagnosis.
Throughout the second half of 2019, we piloted the cross walking over the previous 153 resource groups for the new 432 different Pdgm resource group.
To ensure we can maintain our industry, leading patient outcomes and satisfaction, while at the same time, improving efficiencies and care delivered and better managing the care of our patients.
We also tested increasing the use of telephonic teaching and training visit leveraging our call center and remote patient monitoring.
Our assessment of the first two months under Pdgm shows that everything is going as planned with our clinical care model.
Use of other methods, such as telephone teaching and training visits to increase the number of patient encounters and early benefits of a streamlined operational structure in home health.
For example, and the month of January we saw the percentage of our Medicare patients receiving telephone teaching and training visits increased to 19% from 16% throughout the fourth quarter.
That's an increase of over 2000 patients receiving promoting towers and one month time.
Another example of the innovation or our care model this spending more quality in home time with patients.
From August 2019 to February 2020, we were able to average five more minutes of home time, we face.
That translate to 5 million more minutes of care delivered in February compared with all of us or the equivalent of 125000 more 40 minute visits per month.
To be able to make the statement that everything is going as planned and we're not seeing any surprises takes a lot of work ahead of time.
You heard those same words from us with the integration of almost family as we went through a very methodical approach to position us for success.
The integration.
We took a similar approach in 2019 to set us up for 2020 and beyond.
Consistent with the outlook, we provided throughout the second half of 2019.
All of the training piloting and preparations for Pdgm had an impact on our performance in the fourth quarter.
It's also reflected in the ramp up of our earnings and EBITDA in 2020 that Josh will discuss in a moment.
In addition to the PD G.M. specific preparations, we aligned our home health and Ace CBS segments for growth in 2020.
The homecare Homebase implementation across all of the almost family locations was completed by year end, while at the same time, we were completing a system conversion in HCV asked one system.
We also realized the sales and operational leadership and several of our home health Division during the quarter.
I believe as we've seen in the combined organic growth numbers that were accelerating through 2019, and so far this year. This approach to get us ready for more growth in 2020 and beyond was the right one.
Despite these disruptions we did not see any negative impact on our admissions our organic growth our clinical quality.
We remain supportive of Pdgm and CMS is core goals.
There's still a lot of room to improve on this model in the coming years, but it does play to our strength.
It reinforces the critical role in home health care plays as most appropriate and most efficient setting the delivering high quality care in the privacy and comfort of the Hallmark primary plays of resin.
And we are appreciative that Congress in creating pdgm and CMS in implementing in implementing it recognizes so strongly growing value of quality in home services.
As a result of this transition in Q4 and the first two months of 2020, we have seen an increase in a number of inbound calls from smaller agencies looking to add to the business.
Some of these opportunities could be good acquisition candidate and others, we can naturally rolled into our organic growth through market share gains as we are in more of the business and our existing locations instead of acquiring that volume.
Our pipeline of potential joint venture partners in is increasing as well with our value proposition resignation as strongly as ever.
After completing 114.3 million in acquisitions in 2019 and to date in 2020, we believe the current environment positions us to exceed this amount in 2020 and 2021.
We have described the consolidation opportunity driven by PDGF and the elimination of the route payments as historic and so far is playing out for the smaller and more rural providers as we had expected.
It's still too early to say, whether the projected 30% flowserve among smaller home health agencies is the right number.
But it is Ari is our and the industry's expectation that consolidation will accelerate in 2020 and continue over the next several years.
Changes nothing new talk team.
We have successfully manage through numerous reimburses changes over the past three decades.
Each time appropriately adapting to change in a timely manner and emerging a stronger and better organization and as a result greatly benefiting from the resulting industry consolidation opportunities.
As we look ahead to 2020 and beyond their a number of priorities that our team is focused on.
Executing on Pdgm transition.
Continuing to lead the industry and quality patient satisfaction scores as well as key areas around employee recruitment and retention.
Organic growth.
Increased M&A activity in home health Hospice and hospital joint ventures.
Capturing incremental growth in market share from incremental contribution from almost family recent joint ventures and other acquisitions.
Maintaining our disciplined approach to capital allocation.
And continuing and enhancing our good relations with the congressional leadership and CMS to position home health for even greater opportunities in the future.
Now here, Josh to provide some color on our financial results and 2020 guidance reduction.
Thank you Keith and good morning, everyone. Thank you all for joining our call.
As always I'll begin my prepared remarks by saying how much I appreciate all of our clinical professionals across the country and what they do each and every day. It is truly a privilege to serve you as you give so much of your self serving others.
Our supplemental financial information posted on the website provides more detail on the breakdown among sector performance guidance and assumptions.
I will reference that supplemental deck in my summary remarks this morning.
For the fourth quarter financial results here are the big takeaways.
We had another quarter of strong growth in our legacy LHC locations and continued sequential improvement in our almost family home held locations that I will describe in more detail shortly.
Home health revenue was slightly below our expectation due to a decline in case mix in the fourth quarter as we focused on piloting and preparing for a company wide rollout of our PDG a model.
Our adjusted earnings per share was one dollar and 15 cents for the fourth quarter, including approximately nine cents related to a lower tax rate in the quarter.
Q4, EBITDA was a little Chabal, we had originally anticipated due to disruptions from operational realignment and Pdgm purpose preparations.
But by making these changes and accelerating our preparedness into the fourth quarter. We are so much more well prepared for a strong and successful 2020 and beyond.
As Keith mentioned before everything we did in 2019 was to prepares for the future.
Our system conversions.
Our home health operational and sells realignment.
Our heavy focus on improvement of almost family quality scores and our Pdgm preparations have now all been completed and we are set up very well for success this year and into the future.
Now for the fourth quarter and full year highlights.
Incremental margin improvement has continued across all segments on a year over year basis.
Home health adjusted EBITDA improved from 10.5% and 2018% to 11.2% in 2019.
Hospice adjusted EBITDA improved from 8.1% last year to 11.5% and 2019.
H. CBS adjusted EBITDA improved from 3.1% to 5.4%.
Facility based adjusted EBITDA improved from 3.3% and 18% to 4% and 19.
And H.C.I. adjusted EBITDA improved from 2.2% in 2018% to 7.6% and 2019.
Organic growth was a bright spot for US again, this quarter with legacy LHC locations, delivering 10.3% growth and home health admissions.
We're also very pleased with the fact that we experienced a 5.5% increase and home health admissions on a combined basis across all LHC locations, including the former am locations.
It's evident that as we now I'll turn the page to 2020, when we will be reporting organic growth on a combined basis that we are starting 2020 from a more solid launching off point than previously anticipated as they almost family assets continue their dramatic improvement throughout the year last year.
While this is the last quarter, we will be excluding the former a fan location from organic growth one way to look at the impact of this improvement we've made at the almost family locations is to look back at the organic home health admissions on a combined basis by quarter.
I'll refer you to page six of the supplemental deck for this comparison.
You will see that in Q2 combined growth for the entire company for home health was 1.7%.
In Q3, it rose to 3.3% and as I've said, a moment ago, we were up to 5.5% combined organic growth in Q4.
Maybe the more impressive number is the current projected pace of growth for Q1 2020.
We're currently pacing at a growth rate of 8% to 10% for combined home health organic admissions for Q1.
Compared with our long standing target of 5% to 7% growth for home health I. Thank you can see the benefit of bringing all of our acquired locations up to the operational and clinical standards that we're known for at LHC group and possibly early indications on of the effect of Pdgm market share gains.
Turning to page nine of the supplemental deck I would note that our adjusted consolidated gross margin of 37% in Q4 was a 10 basis point improvement year over year, and a 70 basis point improvement for the full year 2019 versus 2018.
Consolidated adjusted DNA expense as a percent of revenue was 27.1% for the full year 2019.
Which was a 50 basis point improvement down from 27.6% in 2018.
Our adjusted consolidated EBITDA was 10% for the fourth quarter and 10.2% for the full year, which is a year over year 130 basis point improvement for the full year of 2019 up from 8.9% in 2018.
Pages 12 through 18 of the supplemental deck highlight the results and page seven notes the key staff by segment.
In addition to the improvement in organic growth in our home health segment, we have maintained our gains and the hospice and CBS segments.
With regard to hospice for the full year 2019, we delivered a 11.5% EBITDA margin, which is attributable to lower gionee expense solid volume growth and improved cash collections on our hospice receivables.
In regards to our age CBS segment, we achieved a 5.4% EBITDA margin for the full year up 230 basis points from 3.1% in 2018.
These gains were made in both gross margin and Gionee expense.
Turning to page 22 of the supplemental deck, we've updated all of our debt and liquidity metrics for the year.
You will note that adjusted free cash flow net of taxes paid was 115.4 million for the 12 months ended December 31 2019.
Driving growth and free cash flow will continue to be a priority for us in 2020, but I will call out that it will be heavily influenced on a quarterly basis by the timing of how we progressed through the new Pdgm model during the year.
Dsos were 49 days in the fourth quarter compared to 46 days in the same period, a year ago due mainly to a buildup of unbilled receivables and CBS caused by higher conversion of the fan locations to continue link.
This should work itself out over the next six months as the locations work through those claims.
Dsos under the Pdgm model have not been an issue up to this point as CMS is paying claims relatively quickly, but we still expect there could be a bit higher as the year progresses and settled out.
During 2019 and today in 2020, we acquired annualized revenue of 114 point Threemillion through joint ventures, both new and extensions of existing partnerships as well as through strategic acquisitions and tuck in acquisitions.
We cannot be happier with how closely we are working with these partners and the better performance, we are getting post integration.
Our joint venture partners are only a fraction of the one third of hospitals that have home health agencies.
We have more room to grow in that space for sure.
Maybe even the much larger opportunity is among the remaining two thirds of hospitals, who don't yet have home health agencies, but are starting to recognize the strategic value that in home health care provides to their health system.
With our seat at the table with our ABL business, leading quality measures and extensive partnership experience. We are our contractual partner that they can depend on.
The home health industry remains highly fragmented the impact of Pdgm and the elimination of the rat payments should accelerate the consolidation into the largest providers such as LHC group over the next several years.
We expect to increase our volumes through inorganic growth and also earning the business with leading quality and patient satisfaction scores to drive incremental organic growth.
We've already seen what can happen in the acquired former almost family locations. After taking a very patient approach to build out solid operations and higher scores before we began an aggressive sales and marketing effort.
That same approach can and will be replicated in this new environment.
We are certainly known for home health, but another growth engine for us is in hospice.
We are making a very intensive push on adding hospice to markets, where we already have an established home health presence.
Our goal is over the next five years to have at least 75% of our locations, where we have home health co located with hospice.
With a solid balance sheet in over 450 million of liquidity, we're well positioned to fund all of this growth activity.
Net leverage at year end was 1.04 times adjusted EBITDA for 2019.
We have 220 million available on our credit facility and an accordion feature that can provide an additional 200 million of capacity.
Now moving to 2020 and introducing our guidance for the full year guidance for 2020 net service revenue is in a range of 2.13 billion to 2.18 billion.
Yes in a range of $4 in 60 cents to $4, an 80 cents and EBITDA less non controlling interest and a range of 230 million to 240 million.
We are assuming an effective tax rate of 27% for the year and fully diluted shares of $31.6 million, but the main assumptions to factor in for the full year are the timing associated with offsetting the pdgm behavioral assumption revenue cut and sequential increased cost efficiencies that will.
Ramp throughout the year.
We have consistently noted throughout 2019 that we thought we would see some disruption in Q1 lesser disruption in Q through two and then more normalized results in the second half of the year. When we believe we will mitigate the entire cut from a revenue standpoint, while having upside on EBITDA with our cost reduction.
And extend or visit optimization initiatives.
Our guidance reflects that progression and has more details on pages 19, and 20 of the supplemental deck.
To help understand how that progression will work, we have issued guidance for the first quarter.
We are expecting net service revenue to be in the range of 500 to 510 million.
EPS in the range of 70 to 80 cents and EBITDA less non controlling interest in the range of $33 million to $40 million.
The first quarter, we'll see a home health Medicare rate impact of approximately 3% to 4% or 7.5 to 10 million due to the impact of the Pdgm behavioral adjustment.
This will incrementally improve and should be offset by mid year.
Our cost efficiencies and extend our optimization will also take a similar track and improve sequentially throughout the year.
The first quarter will also be impacted by $4 million to $5 million and higher payroll taxes compared to Q4 2019, but we'll benefit from an approximate 2.5 million reduction and income tax expense due to the impact of an excess tax benefit on restricted stock vestings.
We believe the flow of 2020 will have a sequential improvement quarter over quarter.
We are proud of the strong execution and committed by our teams all across the country during 2019, particularly in our preparations for Pdgm.
We have the plan in place and the care model to thrive in 2020 and beyond.
We have a historic consolidation opportunity ahead of us with multiple levers to pull to deliver growth on all fronts and clear differentiators that provide competitive advantages.
We look forward to reporting our progress to you throughout 2020.
That concludes my prepared remarks blue, we're ready to open the floor for questions. Thank you.
Thank you ladies and gentlemen, if you have a question that this time. Please press the star and then the number one and you touched on some soon.
First question, that's been answered or you wish to remove yourself from the Q. Please press the pound Keith.
Your first question comes to the Lane Bryant Phillips.
From Jeff Please ask your question.
Hey, Good morning, guys I guess my first questions for you John.
I think about Q4, obviously put up really good growth they think about 5.5% on the volume side, but obviously you bid for the topline and it which flowed through the EBITDA line does I think about what happened there I get the PBC a mitigation that indicates that change but is that all part of.
Pdgm prep and then if that's the case why is Q1 revenue also week, if you've already adjusted the case Nick.
And your volumes are very strong quite quite a bit.
Yeah, Brian Great questions and you're spot on SOFORT for Q4, the topline effect, although as you mentioned, we had such good strong admissions growth you had a depression in our pricing of about $20 per episode on Medicare, which results in you know two to two and half million dollars of top.
So on that fell straight to the bottom line on case mix and pricing in Q4.
That does.
I have a piece of the roll forward into our Q1, so if you're trying to bridge from Q4, let's just stick with topline for a minute of around 530 million in revenue to our guidance range of even at the top end to 510 million in revenue I'll give you a few.
This is that May help your bridge that one is call it seven and a half to 10 million of the behavioral adjustment effect.
Q1 that will be further mitigated in Q2, and then as we've been saying by July should be fully offset but that is about 10 million of the bridge I'm you've got another call. It three to 5 million for continued lower case mix for the crossover episode.
It's from 2019, so that same dragged down that affected Q4 is also flowing through and those crossover episodes. So that is factored into this guide and then not as impactful, but we do have lower billable hours in our age CBS segments.
Thats rolling starting into Q1 due to the disruption from the continue link conversion that we finalized in Q4. So I think those three pieces should help bridge you on the top line to get you to our Q1 Guy brine and then the only other thing I would add four bridging the Q4 to Q1 on the bottom.
One would be that roughly $5 million increased payroll taxes that is different from Q4.
No I appreciate that and then I guess I'll pass it on to keep.
I think about growth.
Let them looked like bouncing back or whatever I see that inflection there.
How do you feel about your ability to number one get it back up to eight LHC.
Growth averages and then the ability to sustain that growth for the combined entity going forward I know you've talked about jvs in the past. The you know the it's worth the challenges, Florida is if I put all those together how should I be thinking about mostly what he growth.
Yes that that's that's.
That's a great question Scott referenced the restructuring of our in car sales effort in the last two quarters, most that happening in in the fourth quarter beginning in the fourth quarter and we're already seeing very strong results in that I want to be go a little deeper into that.
Prior to.
Midpoint, though 2019, historically, we operated a model where where are all sales bundled up through operations.
And.
And we began to look at that strongly in the second quarter last year and thinking about.
Opportunities for improvement as we always do in all aspects of business.
But I actually one of our board members Brent Turner came in and helped US with this and help to assess our structure and Weve, where we landed is separating sales out from operations and having a dedicated sales leadership all the way up to the C suite.
And and and focused 100% on sales in every market.
After about 90 days are beginning to roll that out we started to see early signs of improvement and it really took off at Q4 and so that's where these results are coming from it. It's a it's not an accident and it's not as though we don't know why it's happening.
We know why it's happening it is replicable. So were up we're highly confident that this growth trend, we see and in all aspects of our business both side leg legacy Lacy and layers to a fan is going to continue to ramp on this trajectory.
One last thing.
Just just to be really clear on this.
Every state is a unique market I think we all know that but after remind you that so florida.
Does not have the.
The market share potential for us per agency that a state like Maryland would have where do you have only a handful of providers. So but on a you know in that Florida market I think we will be a leading growth company within our competitors with them the Florida market in every state if that makes sense.
Yeah, Keith Brian This is Josh I'm going to tag on to where can you. Just ended I'm glad you ended with Florida, because that was a specific point of Brian's question and in connection with the operational and sales realignment. One thing. We also did in the fourth quarter around Florida was to add a higher level executive over.
Over the sales efforts just for that state. So as you know, Brian We've got division level executives that run as partners to our operational folks across the company and we really put an intense focus with one leader in the state of Florida and I've got to tell you not only are we pleased with the the combined growth for.
The combined company in Q4, Florida itself was about 2% positive in the fourth quarter. The first positive organic growth quarter that I can remember for the state of Florida, even long before our acquisition of almost family and it is pacing to around 8% positive.
In Q1, so when we give you that eight to 10 for the full company since Florida was asked about only give you at Florida is also right. There in that same mark I'm, which has us all really pleased here at the home office.
Got it and then I guess my last question related to all that is.
One one feedback or question you've done some investors is just you know with Don leaving how do you guys thinking about the bench and the ability to execute.
At a time when there's so many balls up in the year.
Yes, others. So that's a good question first of all.
With regard to Don.
I just want to be clear dons still working with the company on a consulting basis and.
Here in the room with me as Andy Beg Miller, Chief clinical officer that.
And he's been here since the early gender made early days and Dr. been belgate as our senior medical advisor.
Don still works with them on quality initiatives and things like that so.
We.
But those of you don't know we have a strong team of season tenured divisional presidents, who are all clinical Raul commissions themselves all nurses that been in home health for 20 years of more every one of them and that's where the that's where today the day to day operational leadership.
Socket could go on further about bench, but I guess the takeaway is.
Theres a lot of clinical leadership structure has been here long time that operating the business and balance still here now has.
We haven't lost that Democrats.
I got it thanks guys.
Brian.
Your next question comes in the late July niches of Bank of America, You May ask your question.
Hi, good morning, Thanks, so much for taking the questions.
So just to clarify the commentary around the disruption you experienced in Q4.
Because of the I'm just a question for PGM and also the alignment of 'cause it decisions. So how much you expecting to see in Q1 from D. So.
I guess disruptions that you experienced in Q4.
Yes, you're right, it's Josh Great question, I'm glad you asked and.
So I'll specifically address your question and maybe even go to another category that's related as it relates to the operational realignment Pdgm preparedness.
We accelerated and pushed all that into the fourth quarter. So there's no continues.
Costs or no continued.
Disruption from that regard that we expect there will be no adjustments around that in Q1 that we expect we just have the headwinds of the rate cut and continuing to roll out the model, but we really were intentional and getting all of that into Q4 and not kicking the can and spreading it out over a period of time.
Likewise.
On the operational realignment that's done so any severances and any other you know aspects to the cost side. There are fully behind us and you won't see near that replicates and then lastly, the other category join to that I would highlight that we've had throughout the course of this year on the adjustments around the almost family trends.
Action and all of the integration cost in the conversion homecare Homebase I'm pleased to report the that is now also all behind us and we will not be having those kinds of adjustments going forward either.
Okay.
Okay. Good because he had it what's my other question in terms of any Oh, I guess implementation costs, so that or any other costs excluded from the guidance for 2020 interesting, but that's it sounds like you don't expect any of that either.
Included in adjusted EBIT that will exclude it correct.
That's correct.
Okay, Good and then.
How about you know how I guess, the PPG and.
Well so to the year, so can you kind of.
The mind SNL, so give us enough. They want you I had just different pieces attempts to frac well the how different actions seen any combined to pass for that production numbers visits per episode and you know such a 10 just stood at.
To your staffing models. So can you give us an update where you stand and kind of how the pacing.
It's going a you know so we can see how that compares to push is how deal was talking about this last time.
Sure sure.
I can start maybe if the I'll leave anything out Keith can jump in as well.
As far as how it's going to ramp and pace throughout the year as evidenced by our Q1 guide we expect not only the revenue pressure in Q1, there will be continued revenue pressure, but not quite to the same extend in Q2 and that will be gone from July forward.
On the cost side, you know the receptivity of the model is extremely strong and I know Keith alluded to that in his prepared remarks, but we are getting such great feedback.
Of our evidenced based clinical care model, that's out there and really the increased number of patient touches or patient encounters I know you know Keith mentioned over 2000 additional patients.
We're saving telephonic visits.
Over the run rate of Q4.
That was telephonic visits that had been incorporated as part of the care delivery model in the field. We also have a centralized call center here at the home office.
That has increased its number of interventional health check related calls from the run rate in Q4 up to where we're running in January and February and we're seeing a lot of that so as that continues to progress and his extend or utilization continues to mature throughout the.
Year Youre going to see that you know ramp of you know margin improvement quarter over quarter I know we've highlighted this one and this is totally unrelated to pdgm, but I want to highlighted for you again on the extend or utilization side now that we have almost family completely converted to our instance of homecare homebase.
Okay and completely deployed on our care delivery models, we add LHC havoc store historically, depending on if you're talking nursing warfare be been anywhere from a 50, 50, 260, 40 extend or mix with 60% being the extend or is the lower cost.
Of care delivery and 40 being the ahrens P.T. level at almost family that is still around a 35 65, depending on the disappointing in certain areas 40, 60. So there is now a lot of room for kind of that final level of care model deployment once we've got them.
Converted which is going to be a big contributor to our EBITDA improvement throughout the year.
So I would now would you know to put a bow on this Joanne I would tell you that you know Q2 will definitely be much stronger than Q1, Q3, even though typically it might not be will be stronger than Q2, and then Q4 will be slightly stronger than Q3. So that's how I would kind of model it out to ramp.
Okay, great. Yeah, that's what I was getting I went to seasonality, it's gonna be asking how much different that into passed and if he is still because that's focused economics.
And then I guess, there that you had a piece of.
This discussion you mentioned, we see and I guess, we talk about it seemed to talk in terms of cash flow and how Q1, Oh, yeah. She's done a week, but also because it does that elimination. So can you give us sense.
And he really cares about quantifying that.
Anyone numbers for cash <unk> for the year operating cash late night Caso with caught pack switching to pass yeah. He will talk about Oh office expansion. So I didn't know what they just yeah. It's still asked in the works Kristen.
19 topic senior living alone so what things pushed to 2020 switches.
Can you talk about the operating cash related topics like 2020, Inc.
Yes, Thanks Jeremy.
So on the cash flow and the impact from the RAF reduction I guess, we'll call. It in 2020, the full wrap elimination is in 2021, but the wrapped production going from you know either 60 or 50% dependent on a start or a recert versus now the 20% the quantification of that out.
Our best estimate as I sit here today is roughly $35 million to $40 million of less cash collections. In Q1 now as we've described that's a one time cash collection phenomenon that will happen in the first quarter level off and then for Q.
Used to throughout we would expect our cash collections to be on a similar run rate than what we've historically had a so thats a one time kind of the event on cash the dsos impact that we've described and we still feel confident of four companywide dsos throughout the year will be about a five to 10 day uptick.
And then kind of set to a new norm.
So we still feel confident about the guidance that we've given in that as it relates to Capex and then free cash flow.
You know we had a free cash flow about 115 million for 2019, I would tell you our free cash flow for 2020 would be somewhere in the 130 million range and then the capex component of that <unk>, we expect to be somewhere around 50 million for this.
Here and you you highlighted the big one Joanna which is the continued expansion of our home office efforts on some of those costs were felt from a capex standpoint in the last year and the remainder will the brunt of it will be here in 2020, with possibly just a little rolling over into 2020 ones beginning.
But we should have that wrapped up in Q1 of 2021.
Great and he's right I squeeze out of less than a quick can you remind us in terms of to hospice swayed uptake for fiscal 20, or what do you expect for how they teach you get even different pacing.
About 1.5% to 2%.
Still positive after <unk>, okay, great. Thank you I'll go back to the Kid. Thanks.
Thanks Joanne.
Your next question comes into line of Scottsdale from Stephens. Your line is open.
Hi, Thanks, Good morning, I'm interested if you can give us an update around the topic of the Recertifications in what you saw in the Fourq you know that had been a sort of topic throughout the back half of the year didn't really here that mentioned, specifically as well, but just interested in terms of the impacted that add between.
The admissions growth that you reported relative to the the net revenues in Medicaid Medicare build episode and then also as we look forward to 2020, what you're expecting on the Recertifications as well.
Yes, Scott it's Josh good questions I'm for Q4, we experience you know the pretty much our typical run rate for research you know 30, 35% and so far into Q1, we're not seeing any change wants anything different.
From a recertification or length of stay perspective, and through our you know care planning models and everything that the clinical team and working on we don't see any reason why that would change so for modeling purposes. I would just continue to model the same recertification and length of stays that we have this historically had.
Got it so but bottom line on the research pieces at this point, that's that's pretty much stable in terms of the impact.
That's right that's wrong for it.
And then also just wanted to follow back up on the hospice segment and.
Just to give some thoughts or frame wing in terms of what you're expecting on either rads or volume growth in terms of how you want to frame that it and then on on the margin outlook for 2020. After you did see a pickup in hospice margins last year.
So as we've been saying on the past few calls very very proud of our hospice leadership team. We made some realignment in that area a well before we did on the home health and HCB aside and we're starting to see the fruits of that from a top line perspective, I would expect you know six.
8%.
Admissions growth. This year, we had a slightly lower admissions quarter in Q3 that kind of rolled over and affected our top line a little bit for Q4 in hospice.
But we.
Expect that to sequentially quarter over quarter improve we were up to about 5% in Q4.
Q1, you know maybe in the 3% to 5% range and then you know continue to progress throughout the year. There and then from a length of stay and 80 see perspective again, I would say that that's pretty stable as was the discussion around home health.
And then I guess lastly, your question on a margin expectations.
You know for about three years, we were really striving to get to those double digit EBITDA margins for hospice and obviously in Q1, they'll be depressed with payroll taxes and other but for the year last year, we were 11.5% we've been saying if we can be in that 10% to 12% fully load.
EBITDA a margin percentage that was our goal. So if we could be at that 11 have to 12, maybe a little bit better than that as we get to the back half the year that would be really good for our hospice segment.
Got it that's helpful. And then just last quick one for me in terms of just the 2020 the that differential between the adjusted EBITDA growth that the midpoint of around 11% and EPS growth a little little bit light or 5% is that pretty much just all the normalization of the tax rate that drives that are just anything else that you wanted to call out there.
That's it you got to Scott.
Okay, all right. Thanks.
Your next question comes to the Lane, Frank Morgan RBC capital markets remain something.
Good morning.
I wanted to go back to the operational realignment Oh other than just the separation of direct report line between marketing.
In operations is there anything specifically are you could share with is or what theyre doing different because this is really some amazing amazingly fast.
Improvement that you're starting to see so any specific color or what is different other than just the the separation of the or chart.
I'm sure Frank as Keith I'll take that so you know and simple simple terms you had 'em, we haven't had a senior vice president of operation.
That.
Reported to dawn and in the past.
And so and all of the divisional.
Sales and operations people went to that senior Vice president of operations to support.
And what we've done now is split.
Got into Rep, too, but we have a senior vice president of operation that own that supports only.
Our focus is.
His full attention on supporting the operational leaders and another senior Vice President of sales. The focus is solely on supporting the sales will be.
Got you also group of analysts that are separated though sales specific analysts that were far that.
Sales senior Vice President support that.
Hi, everybody just focused 100% on sale so sales.
Getting.
Probably three times the focus the got in the past.
You know, but because it was really was such an operations company and Brad helped us realize asset resection operations company that.
We focused on sales when we had nothing to focus on an operation.
In terms in terms of anything specifically they done within this group the new.
Senior VP of sales and all the analysts I mean is there anything they specifically implemented so far that you could share with us.
Yes, Josh I.
I guess out I mean.
I mean.
I mean that so there are specific their specific goals and then sales programs and then the daily monitoring.
How each individual is tracking to their individual goal.
Yeah, what is back to them everyday that's something that we do and operations they've always done, but we but we haven't done it.
Sales with the intensity of we do in operation Iraqi that's what I was going to say I mean, there's there are several elements to that but Frank I mean I. Thank you you definitely know us well enough in a lot of folks do about our discipline and rigor and how we concurrently manage the business operationally.
We frankly have taken that discipline and rigor and concurrent management to hold another level on the sell side.
All you know not just in the metric management, but the the data that they get in their handheld every morning. The prescriptive route planning that does support team is now giving them.
You know they they've created some new metrics that we didnt, even track and monitor prior to the fourth quarter or that is really pretty eye opening that is now being put forth out there every morning.
And so their credit you know I'm a lot Tom cell phones can you can get a bad Rab, but I'll tell you know when you give them goals and you give them measures and they have you know camaraderie and competitiveness among themselves you really see that take hold the last thing I'll say a on the.
On on the kind of realignment side is we also went from nine divisions in home health down to seven.
And in that restructure you had multiple division presidents up until the fourth quarter that we're all had locations in the state of Tennessee. For example, and then multiple division presidents that may have locations in the state of Georgia, and that's on both the sales and operations side. So they were you know.
Bumping into each other so to speak.
And the efficiency that has been gain from realigning not only at the division level, but down through the regional Vice presidents and area Vice presidents.
In those markets, where they were still that overlap between LHC.
And almost family is really starting to bear fruit you have a lot more focused leadership.
Got you got that makes a lot sense or maybe just one more and I'll hop off.
In terms of one of the areas that you called out is an opportunity was for better rate growth coming from the eighth them side of the business.
With with better quality scores or can you give us kind of any color there on where that issue stands in the in really how long do you think it takes to see that start to be reflected in the in their their rates and then I'll hop off thank you.
So it if we definitely expect to see it in the growth rates. So I want to you know emphasize that and you know frankly, Frank we're seeing the sign a little bit earlier than we expected as we alluded to all through last year, we weren't.
Planning to report a fan growth until Q1, we were pleased to be able to report that trajectory in Q4, and so much of that is just getting the distraction of the conversion out of the way, giving those team members. The same tools that Keith and I just described on the sales front.
And that same level of kinda concurrent rigor and discipline.
So I mean.
From the growth standpoint, I think we've kind of hit that one on the quality feel really good about now that we've gotten them on our one instance, and we've been saying that all along but now that they're fully converted you're going to continue to see that ramp quarter over quarter, they're fully deployed into our performance improvement probe.
Around and all the efforts that we put to drive our quality scores. So I'm pleased with where the rat and you're going to see that quarter over quarter continue to improve which will then lead to more growth on the organic side.
Thanks, very much thanks Frank.
Your next question comes from Delaney just in dollars from Deutsche Bank.
Hey, good morning, everyone. So I just wanted to.
Kind of take a step back and give you an opportunity to talk about somebody initiatives that you guys have done in Q4, I'm just to get ready for you know pdgm and resumed growth in a fan.
You know not to mention although the.
You know the DC in the regulatory issues as well so I'm just kind of in in that context to do you feel like you've you've made the investments that you need to make as we're you know is we're now in 2020, and then I'll pause until the next one.
I'm sure if I understand the question if the question is around.
The operating model and I T and those type things if we've made the investment.
I would say that.
We've made the investments and in 2019 of course, and we and the investment.
Any any as further investments that we need are built in to the budgets in the guidance for 2020.
Okay got it I I'll follow up offline and then secondly.
Excuse me with respect to.
The top line guidance I mean, the each Japan, 10% and in one Q.
How does that relate to the rest of the year. That's obviously much higher than what your historical target has been you know how are we thinking about pacing for that for the rest of the year and then.
You know just at a higher level.
How much you know.
M&A is in the guide announced versus on announce and just the guide include any type of market share gains from PGM or would that be incremental.
A good questions just in a this josh.
So.
I guess in reverse order there are no market share gains baked into our growth expectations or the guide. So maybe you could even call that a little bit conservative we fully expect that we just don't know the pace in which that will happen as I even alluded in my prepared remarks.
That could very well be a contributor to the eight to 10 that we're experiencing quarter to date in Q1 for the full year.
Our guide still includes an assumption of 6% to 8% total admissions growth for home health, which is below that eight to 10 for the year, that's not in any way trying to signal that we think it's going to you know tail off. It's just we typically god. This early in the year to the six to eight we are guiding that for the full.
The company of all locations, no more with and without almost family, but there could be some upside even in that projection. If this current run rate sustains itself and this 8% to 10% we're experiencing the first quarter if that keeps the momentum that it has and you start seeing some market share gain.
Gained from PDG.
Some of our markets that could really be a a big boost throughout the year to give some upside to that top line.
And then the question on are there any acquisitions baked in no we have no future acquisitions baked into the got at all.
Okay got it thanks for the clarification.
Thanks, Justin.
Your next question comes and delaying a smattering <unk> from real India. Your line is open.
Hi, good morning.
Wanted to ask briefly on almost almost family.
I mean now close.
60 home health agencies in the last two years in years past typically averaged around 14 to 15 and I understand there's always some ongoing trimming and domain and some overlap.
Just want to get a sense from a modeling perspective, how should we be thinking about number of agency closures moving forward more in line with the last two years or or more like your historical precedent.
Hey, Matt It's Josh that's great question, and I would say definitely more in line with a historical precedence.
You know one XE to these here and there as we've always done but you know all of the the closures.
Realignment and everything that we've done operationally to be prepared for the growth in 2020 M. beyond is behind us.
I will continue to.
You know point out, though that even with the closures that we've experienced no that was about a five or so if I can remember the number right million dollar EBITDA drag on the business. So we you know definitely we're closing the right locations and in many instances just consolidating into others within the market but.
The specific answer to your question is the you would expect us to be back to that precedent of pre almost family.
Thanks, Josh and I'm, just thinking about somebody else that you're going to PGM.
Asking Nick side, well, what do you think you can do to help effectuate that yeah incentive comp changes is it more agency level direction here, you give them out and Keith maybe just a higher level between some the changes in PD GM and MPD pm.
Whereas therapy going to occur you sense, maybe sort of a dozen folks willing to provide.
Happy in the same way that it's been provided in the past.
Could you repeat the last part of that he said.
About therapy yesterday.
Yeah, just the last part <unk> between some of the changes that seems to be made pdgm and also ppm on on this side, where they're sort of different.
The just getting your sense for whether there may be a desert in terms of.
Operator is going and able to provide therapy.
I'm sorry.
Okay Yeah.
That's clear.
[music].
So you say providers I would say not LHC provider I mean, there there there are opportunities to operate the model more efficiently and into delivery of therapy services, and we're certainly going to harvest those over time as Reid.
As we transition.
Into a full implementation of our model in our and our clinical benchmark.
But the best that's going to take time, but for US there's no change in patients where accepting or a and we're still accepting therapy patients no different than that at all I would imagine I would imagine.
Perhaps some smaller providers.
Maybe going you may hear stories of that have gone into models, where they try to avoid therapy.
But for us that would be a nonstarter.
Remember that much of our business come from joint ventures, with hospitals and health systems.
And and Weve White label that so we fly to that brand or LHC employees and their brands. So so they expect us to take all comers from the hospital and so that's what we've done throughout the history as companies I wouldn't just wouldn't fit our model.
Yeah, and maybe the only thing I would add Matt is on you know the how some of that efficiency occurs throughout the year I hate, beating the same drum over and over again, but I'll hit at one more time with all of almost family not only converted to our instance of homecare homebase, but.
Deploying some of our other proprietary tools out to them. There is much more visibility into the care pathways that would lead you know lend itself to this visit is more appropriate to be made bond LPN versus an hour in practice at the top your license type of thing I'm. So that extend are you.
Limitation is also a big key component to to the upside there.
Thanks, guys and then just the last one would be on a key I know.
Now.
On the acquisition was announced that was something we're particularly excited about them.
On that business here and.
No. It was less than 20 Nineteena wasn't 2018, it seems contribution but could you give us an update on what's going on there and have you seen benefits to the rest of the business in terms of knowledge you gain from from its yet as well.
Yeah, Great questions, Matt and you know this is one of those topics that we always like to speak about it just doesn't always get the air time. So the contribution to the bottom line of the company was actually much stronger in 2019 versus 2018 from the HCR segment about $2.3 million of Ebix.
Fusion that we got out of that segment.
Mostly from just better core operations and each of the underlying businesses, you've got imperium, which is the ratio management business, you've got LTSS, which is the long term.
Insurance assessment business, and then you've got a our nurse practitioners business as well so each of those incrementally throughout the year, we're improving their operations I'm, so very pleased with that.
And expect them to continue to contribute even more so in 2020 as far as the learnings go and the other ancillary benefits to the company as you think about even volume growth and upside there I'm not only do we have relationships with almost 40 unique independent ATM goes through.
Out the country as preferred providers, but we have a management company imperium that manages agios across the country and in markets, where we have a leading four and a half five star home Health Agency on there is you know market share gains to receive from that as well.
So I would tell you that you know the learnings and the benefits are very much.
On target with what we expected.
Okay. Thank you.
Let me just add a couple of things of that so let's go back to the nurse practitioner business for a minute, but maybe just help.
Help a share I thinking around HCR. So there were.
Approximately 100 nurse practitioners, they're in that business and when almost family of Clark that business. It was the model was just the new home visits and build part B and and maybe have some benefit of home health reform.
But what were doing with that business is using it as a launching point to develop a palliative care model that that we intend to the blog throughout the organization.
And and so that you know that maybe maybe we'll pay to bigger vision, we have four or for that particular assets. The same could be said for the or.
Imperium base, you business and I'll ask Bruce to chime in here in a minute, but the.
Being the second largest say steel in the country.
We were able to learn from that model and and take that.
Take that knowledge base and.
Utilize it as we look to grow our value based models and with managed care payers and others. Bruce you want to comment yeah, yeah, so to add onto what Ah to adjust that in terms of our learnings both within the AC is that we manage today I'd really curious when does that we work together with whether its.
Through a preferred provider arrangement or were just to provider.
We're moving along with the a CEO market as it matures in the early days the Asias focused almost entirely on managing hospital cost in physician costs, but as asias mature and look for total cost of care across all their provider types. It finally fits right in our sweet spot because as we continue to.
Offer.
Highest quality overall lowest total cost of care as we look at our 180 day total cost of a sudden our offering in home health becomes even more attractive. So we continue to educate the seo market to make strategic decisions on their home health providers to improve their health outcomes in total cost of care.
Sure and as Asias learn that home health is a strategic lever to pull we end up getting better and better we expect a on a lot of education happened in 2020, and therefore, I'm, we're furrows coming our way.
Thank you. Thank you.
Your next question comes the line with me from U.S. landfills.
[noise]. It this is Brian Ross on for with.
Just one on PD G M. I know you've talked about the mitigation on the topline and potential for EBIT upside over the course of the full year for 2020, but you know just looking at the one Q and a 2020 EBITDA range is a that'd be helpful. If you could clarify exactly what level of PGM offsets or.
The net pdgm impact is embedded in the low in a high end to those ranges either in a percentage or you know a dollar basis. Thanks.
Yeah, Brian This is Josh I'll I'll take a shot at it.
No I would I would go back to what I've, how I answer the question, Brian Tanquilut at the start of the call in bridging you to the Q1 effect from Pdgm and the headwinds that will be feeling there.
As far as you know the sequential ramp the obviously, we're not giving quarterly guidance broken out quarter over quarter. So weve, given Q1, and we've kind of bridge and walk you through how and why that makes sense as I said earlier I would make in you know a definite not only topline but mark.
And growth.
Over Q1 in Q2, and so forth in Q3, and then again in Q4.
To join US point earlier, you know, it's not kind of the typical seasonality trend that we've experienced but I wouldn't the I wouldn't be quantifying as percentages or anything right now pdgm effect I, just think it's going to take throughout the year to mitigate on the topline side and then put these initiatives in place on.
The cost side.
Great. Thanks.
No more questions I would like to turn it back over to Mr., Keith Myers for closing remarks.
Okay. Thank you everyone for for dialing in and as always if have any questions if you'd like to contact your Josh myself.
Please contact Eric Elliott he will arrange that banks predominately in the fall it's off to the network.
Ladies and gentlemen, this concludes todays conference. Thank you for your participation, but wonderful day you may disconnect.
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