Q1 2020 Earnings Call
Good morning, and thank you for joining us today for select Medical Holdings Corporation's earnings conference call to discuss except first quarter Twentytwenty result, and the company's business outlook speaking today are the company's executive Chairman and co founder.
Robert Ortenzio, and the company's executive Vice President and Chief Financial Officer Marching Jackson Management will give you an older do you over the quarter and then open the call for questions before we get started we would like to remind you that this conference call may contain forward looking statements regarding.
For two reasons or the future financial performance on the company, including without limitation statements regarding operating result growth opportunities and other statements that'd be fair to select medical explain expectations strategies intentions and beliefs. These forward looking statements are based on the for me.
And now available to manage mendelson like many called today and the company's assumes no obligation to update these statements I circumstances change at this time I would turn the conference call over to Mr. Robert Ortenzio.
Thank you operator, good morning, everyone. Thanks for joining us for select Medicals first quarter earnings conference call for 2020.
Before outlining some of our operational metrics.
Provide you with a summary comments regarding the effects of the cobot 19 pandemic operations.
As a company the past two months a prudent be some of the most challenging times, we suppose face both clinically and operationally.
During this unprecedented period, our ability to learn collaborate and adapt has been put to the test.
I'm proud to say that our team has risen to the occasion and I could not be more proud of the work they have done in the face of this health crisis.
Our teams have shown tremendous leadership passion encourage and maintaining the highest quality and safest patient care environment.
The level of resourcefulness.
Hyper vigilant and innovation.
Is unmatched.
For the past two months, we have had daily virtual hurdles led by our chief medical in cheap quality officer Dr. body Hammerman.
Attended by operational clinical and functional leaders from across our organization.
These hurdles, which began on March 3rd cover 15 areas to ensure we are informed and responsive in meeting the quickly changing a critical needs of our patience and employees.
Across all lines of business.
Among other indicators review cobot incidents by region.
Clinical review of Kobin infections, they'll ability in sourcing a P.P.E. and ventilator equipment.
Patient management strategies decisions in preparation for treating cobot 19 patient communication strategies and staff contingency planning.
And broader terms. This pandemic has also cast new light on the role of our critical illness recovery hospitals in the continuum of care.
In addition to uniting with our joint venture partners and host hospitals to combat this virus.
[noise] newly established coordinated efforts between critical illness recovery hospitals and other short term acute care hospital has been occurring daily to maximize the effectiveness of patient care and decompress short term acute care hospital I see you bet.
Select medical currently has 62 of our specialty hospitals, providing care for over 350 cobot 19 patients.
Well, the outpatient front, including both outpatient rehab and occupational medicine, we expanded our tele medicine and tell a rehab services across our network. This allow patients to continue their care in the safety of their own home.
We now have over 2000 of our clinicians that are capable of providing tele health services across the United States.
We've seen the volume for these services grow significantly over the past several weeks with the government lock down as well as increased acceptance by payers and governmental rags regulators.
Our ability to collectively answered. This is short historic calling is actually anchored in our culture operational leadership clinical excellence and incredibly dedicated itself was front line of clinicians.
I've been exceptional and this pandemic.
The effects of the pandemic began to hit select medical in mid March.
It's cobot nineteena spread in many markets. We operate we have admitted patients with cobot 19 at face a challenging task of modifying our standard operating procedures to account for the high transmission rate the virus as well as other critical needs are these patient more specifically.
We had to isolate the covert patients from our general patient population enhance staffing provisioned for this acutely ill patient subset, we developed innovative pathway to treat covered patients with active disease, while maintaining shapes segregated space for the care of our no non cobot population.
The pandemic this caused and we'll continue to caused disruption in our operations and our critical illness recovery in rehab hospitals, we add in some cases added to reduce the number of beds created isolate isolated units in spaces, a temporary increase or restrictions on admissions eliminated visitation to family incurred addition.
No cost increases in the use of contract labor.
In our outpatient rehabilitation Concentrix segment volumes have been negatively impacted by number of issues. This includes state governments implementing mandatory closures of non essential or non life sustaining businesses restriction restrictions on individual activities outside the home restrictions on traveling closure of schools.
The state mandated suspension of elective surgeries that hospitals and outpatient surgery facilities reduction of physician office visits and the unprecedented reduction.
The U.S. workforce by 30 million workers, all have had significant effect on our patient visit volumes.
Our press release, we provided the typical financial information statistics that we always do but decided it was very important to provide the reader with a more detailed analysis of financials by bifurcated. Our operating result on a pre and post coded basis.
The first quarter, we believe separate analysis of the quarter to date through February and the month of March provides our investors with greater insight into the financial impact of co bid on our company by business segment.
Overall, our net revenue for the first quarter increased 6.8% to $1.4 billion in the quarter quarter to date through February net revenue was up 12.3% over prior year with all four of our business segments showing growth in this period compared to same period last year. However in may.
Arch overall net revenue was down 3.2% compared to March last year net revenue on our critical illness recovery Hospital segment in the first quarter increased 9.4% to $501 million compared to 458 million in the same quarter last year patient days were up 4.8% compared.
Same quarter last year with over 270000 patient days net revenue per patient day increased 4.5% to $1839 per patient day in the first quarter.
Occupancy in our critical in this recovery Hospital segment was 70% in the first quarter compared to 71% in the same quarter last year net revenue was up 11.2% in the quarter to date through February period.
The only up 6% in the March period, and compared to last year.
Net revenue on our rehabilitation hospital segment in the first quarter increased 17.8% $282 million compared to 155 million in.
Last year patient days increased 14.2% compared to the same quarter last year with over 94000 patient days.
Net revenue per patient day increased 6.1% to $1732 per day in the first quarter.
Occupancy in our rehab hospitals was 79% in.
In the first quarter compared to 76% in the same quarter last year net revenue was up 24% in a quarter to date through February period.
The only up 6.8% in the March period compared to last year.
Net revenue in our outpatient rehab segment in the first quarter increased 3.4% to $255 million compared to 247 million in the same quarter last year patient visits were up 3.3% with over 2.1 million visits in the first quarter.
Our net revenue per visit was $104 in the first quarter compared to $103 and the same quarter last year net revenue was up 10.8% in the quarter to date through February period, but then declined 10.6% in the March period, when compared to last year.
Volume trends it along the same lines as revenue with patient visits up 11.2% in the quarter to date through February period, but then down 11.6% in the March period, when compared to last year.
Net revenue in our Concentrix segment for the first quarter increased six tenths of a percent the $399 million compared to 396 million in the same quarter last year for the centers patient visits were down 1.2%, a 2.9 million visits in the quarter net.
Revenue per visit in the centers was $123 and the first quarter compared $124 and the same quarter last year net revenue was up 5.8% in the quarter to date through February period, but then declined 9.4% in the March period, when compared to last year.
Interest volumes trended along with revenue as patient visits were up 4.9% in the quarter to date through February period, but then down 12.6% in the March period, when compared to last year.
Total company adjusted EBITDA in the first quarter increased 10.1% to $187.3 million compared to 170 million the same quarter last year, our consolidated adjusted EBITDA margin was 13.2% for the first quarter compared to 12.8% for the same quarter last year.
The quarter to date through February adjusted EBITDA.
It was up 32.5% over the prior year with all four of our business segments, showing double digit growth in the January February period, compared to same period last year. However in March overall, adjusted EBITDA was down 22.3% compared to March last year.
Critical in this recovery Hospital segment, adjusted EBITDA increased 21.3% to $88.6 million compared to 73 million the same quarter last year adjusted EBITDA margin for the segment was 17.7% in the first quarter compared to 16% in the same quarter last year adjust.
EBITDA was up 28.6% in the quarter to date through February period, and up 10.2% in the March period, when compared to last year. Adjusted EBITDA margins were 17.2% combined January February period, this year and 18.6 in the March period.
Our rehabilitation hospital segment, adjusted EBITDA increased 49.5% to $38.6 million compared to 25.8 million the same quarter last year adjusted EBITDA margin for the real Hospital segment was 21.2% in the first quarter compared to 16.7%.
In the same quarter last year.
First quarter last year included adjusted EBITDA startup losses of $2.8 million the quarter to date through February adjusted EBITDA was up 72.5% and up 12.5% in the March period, when compared to last year adjusted EBITDA margins were 22.4% indeed.
Combined January February period, this year and 18.6% in the March period.
Outpatient rehab adjusted EBITDA was $27.1 million compared to 29 million the same quarter last year adjusted EBITDA margin for the outpatient segment was 10.6% in the first quarter compared to 11.7% in the same quarter last year.
Adjusted EBITDA was up 33.6% in the quarter to date through February period, but declined at 65.4% in the March period, when compared to last year. Adjusted EBITDA margins were 12.9% in the combined January February period, this year that only 5.3.
For sense in the March period.
Our concentric adjusted EBITDA was $61.5 million compared to 66.3 million the same quarter last year adjusted EBITDA margin was 15.4% in the first quarter compared to 16.7% at the same quarter last year.
Adjusted EBITDA was up 11.7% in the quarter to date through February period, but declined 37.5% in the March period, when compared to last year. Adjusted EBITDA margins were 16.6% in the combined January February period, this year and 12.9% in the March.
Period.
Earnings per fully diluted share increased over 33% to 40 cents for the first quarter compared to 30 cents for the same quarter last year.
Adjusted earnings per fully diluted share was 37 cents per fully diluted share for the first quarter compared to 27 cents in the same quarter last year.
Adjusted earnings per fully diluted share excludes the nonoperating gains related tax effects in both the first quarter this year and last year.
While the broader implications the code that 19 pandemic on our operational results in overall financial performance remain uncertain.
We have seen reason for optimism as states begin to reopen the economy, including elective surgeries.
On April 16th the proposed inpatient rehab rules for fiscal 2021 were posted by CMS. The proposed rule if adopted but see an increase in the standard payment amount of 2.2% as well as a reduction in the high cost outlier, we expect there ought to be finalized in early August after the required comment period.
And the response to the Cobot pandemic, both CMS in Congress Act attempt to temporarily suspend certain regulations concerning length of stay requirements and are critical in this recovery hospitals and to suspend certain regulations that govern governed admissions into rehabilitation hospital in order to facilitate the transfer of patients from general acute care hospitals into.
Specialty hospital settings.
That concludes my remarks, I'll turn it over Marty Jackson for some additional financial details before we open the call up for questions.
Thanks.
Good morning, everyone.
Before I provide financial details for the quarter I wanted to highlight some of Bob's comments. The first quarter for select was really the tale of two periods, the pre and post cobot periods.
We had nice revenue growth.
Double digit adjusted EBITDA growth.
Excuse me.
And the EBITDA margin expansion in all four of our business segments in the quarter to date through February than in March we saw the stay at home requirements of most states being mandated along with the suspension of elective surgeries.
Had a significant negative impact on our outpatient occupational medicine businesses.
Our operators have done a terrific job, making the appropriate changes to rightsize our costs, but the key area. They are spending most of their time on now is regaining volume.
Volume was the primary driver to get us back to pre cobot status.
Moving to the financial details.
For the first quarter, our operating expenses, which include our cost of services in general and administrative expense.
It was $1.23 billion and 87.3% of net operating revenue for the same quarter last year operating expenses were $1.16 billion and 87.7%.
Of note out of net operating revenues cost of services was 1.2 billion for the first quarter compared to 1.13 billion in the same quarter last year as a percent of net revenue cost of services were 84.9% for the first quarter. This compares to 85.5% in the same quarter last year.
GNS expense was $33.8 million in the first quarter. This compares to $28.7 million in the same quarter last year.
DNA as a percent of net revenue was 2.4% in the first quarter compared to 2.2% of net revenue for the same quarter last year.
As Bob mentioned total adjusted EBITDA was $187.3 million, an adjusted EBITDA margins with 13.2% for the first quarter. This compares to total adjusted EBITDA of $170.1 million and adjusted EBITDA margin of 12.8% in the same quarter last year.
Depreciation and amortization was $51.8 million in the first quarter. This compares to $52.1 million in the same quarter last year.
We generated $2.6 million in equity in earnings of unconsolidated subsidiaries. During the first quarter. This compares to $4.4 million in the same quarter last year.
The reduction in equity in earnings was the result of a decline in performance of the other healthcare related businesses in which we own a minority interest.
We had a non operating gain of $7.2 million in the first quarter. This year.
And a 6.5 million dollar nonoperating gain in the first quarter last year.
Interest expense was $46.1 million in the first quarter. This compares to $50.8 million in the same quarter last year.
The decline was the result of a reduction in variable interest rates.
As well as the refinancing activity, we did during the second half of last year.
We recorded income tax expense of $21.9 million in the first quarter. This year, which represents an effective tax rate of 23.7% compared to tax expense of $18.5 million.
In an effective tax rate of 25.7% in the same quarter last year.
Net income attributable to non controlling interest was $17.3 million in the first quarter. This compares to $12.5 million in the same quarter last year.
Net income attributable to select medical holdings was $53.1 million in the first quarter and.
Fully diluted earnings per share was 40 cents, excluding the non operating gain and its related tax effects. Our adjusted earnings per share was 37 cents.
At the end of the first quarter, we had $3.57 billion debt outstanding and $73.2 million of cash on the balance sheet.
Our debt balances. The ended the quarter includes $2.1 billion in term loans $165 million in revolving loans $1.2 billion and six in the quarter percent senior notes and $78 million other miscellaneous debt.
Operating activities provided $44.1 million of cash flow for the first quarter. This compares to $41.8 million in the same quarter last year.
Our days outstanding or DS, though was 53 days at March 30, Onest 2020. This compares to 51 days at December 31, 2019, and 53 days at March 30, Onest 2019.
Investing activities used $44.7 million of cash in the first quarter the use of cash included.
$39.2 million and purchases of property and equipment and $16.7 million acquisition and investment activities. This is offset in part by $11.2 million and proceeds from the sale business during the quarter.
I will also point out until we have a better handle on the timing of the recovery from the pandemic, we have slowed down cash flows cash outflows due primarily be maintenance capex.
Financing activities used $262.1 million of cash in the first quarter. This includes $366.2 million to purchase shares in Concentrix from our minority partners.
Which selects now owns 68.8% of the voting interest in consent in Concentrix use of cash also included $39.8 million and prepayment of term loans $8.7 million to repurchase common stock and 10.8 million in net payments and distributions to noncontrolling interest.
This was offset in part by net borrowings of $165 million on revolving loans during the quarter.
As a result of the development and uncertainty surrounding the impact in our.
In our operations of Cobot, we've previously withdrawn our business outlook for the year on April Threerd 2020.
Beginning his second week of April we started receiving grant dollars related to the $100 billion set aside as part of the carriers Act for hospitals and health care providers.
Our understanding is the department of health and Human services has distributed $50 billion is 100 billion dollar fun select and its consolidated subsidiaries have received $93.7 million related to this grant dollars beginning April 10.
We also received an additional $10.1 million entities, we manage where we are a minority partner.
These funds are designated to reimburse providers for lost revenue, an incremental health care related expenses in dealing with the cobot pandemic.
We also applied for and began receiving advance payments under the Medicare accelerated in advance payments program. Beginning April 9th we received a total of $316.1 million in advance payments for our Medicare from our Medicare fiscal intermediaries.
These funds are designated as advances and are scheduled to be repaid beginning 121 days after receipt and no later than 210 days after receipt of funds.
We also received an additional $25.6 million in advance payments and entities, we manage where we are harm minority partner.
In addition, we've begun deferring the employer portion of social security taxes allowed for under the cares Act these payments must be deferred.
May be deferred through 2020 and must be repaid 50% by December 30, Onest 2021, and the balanced by December 30, Onest 2022.
We estimate this amount to be in the range of $90 million to $100 million through 2020.
We have taken these actions and additional measures to help improve our liquidity position, including deferring or suspending discretionary capital expenditures, reducing compensation and furloughing employees in some areas of the organization and negotiating with landlords to receive rent deferrals at certain facilities, where we have temporarily closed.
Yes.
Another point I'd like to make.
Is that the refund the refinancings, we executed on the latter part of last year has provided us with additional liquidity.
Between cash on hand in our credit facility revolvers, we have close to $1 billion of available liquidity today.
This concludes our prepared remarks and at this time, we'd like to turn it.
Back over to the operator to open up the call for questions.
Thank you and to ask the question you need to press.
Our team and the number one on your telephone to withdraw your question Crestor skier pound team.
Please standby will be compiled that Q in a roster.
Our first question is from Frank Morgan with RBC capital markets.
Good morning.
I noticed in the commentary you as you talked about since the end of the quarter. Some optimism is states started to open up.
Specifically or ambulatory surgery centers opening I'm curious can you.
Maybe tell us what percentage of your overall outpatient and Concentrix business comes or is the results of the outpatient surgeries.
And just any more color around.
What you've seen so far or what stage you would expect to see.
The early recovery.
Yes, Frank this is Marty.
You know quite candidly, we really can't.
Give you what states, we expect to open up I mean, that's that's a crystal ball type of thing what we can tell you is that about 21%.
Of our outpatient rehab visitors come from elective surgeries.
And that's basically what we've seen over the past year.
So when these elective surgeries come back we expect to see some some nice volume increases.
And Frank this fall we are starting to see that in some states that there have been approvals for elective surgeries down in the in the Texas market certainly we've seen that and we're starting to see the opening of some elective surgeries here in Pennsylvania, and some of the southern states. So.
That's that's starting to happen how of as we speak although.
It's not as they say flipping the switch I'll take a little bit of time for those to.
For the precautions and for that surgeries and then there's a lag time before we see the patients.
Gotcha, and then on the Concentrix side, how do you think about that in terms of just what's happened with unemployment.
What are your thoughts around the ramp up there and what what are you hearing from.
Some of your customers there and I'll hop. Thank you.
Okay.
Paul as you know and we've said in the past Concentrix and an employment driven business. So.
This is this is a hits them pretty hard but as employment comes back end, if we have a V or U shape domain, we would expect to see the consent for business.
Ill respond.
Correspondingly.
If the.
[noise] if the recovery.
And the employment is slower than I suspect, we'll see that in the consent for volumes as well so again hard hard to tell hard to tell but.
It will improve as employment.
Continues to go back up and as businesses, even not just driven by unemployment statistics by just as general economic activity returns that can central volumes will grow.
You have been early color on the month of April some of the other companies have kind of given the some insight anything you could share with us there and that will be done. Thanks.
April is going to be very very tough month in particular on our outpatient businesses, both outpatient rehab and concentric.
In the early part of April we were seeing a 50% reductions in our outpatient about 45% on concentric.
We have seen that.
Basically bottom out and we started to see growth come back in the.
The last week the last two weeks of April.
On the other hand, our critical illness recovery hospitals.
I think we see them as being strong because of the physician that they have taken in in the face of the pandemic. So I think that part of the business will be stronger.
Thank you.
Thank you. Our next question is from Dusting Bowers with Deutsche Bank.
Hey, good morning, everyone and congrats on the on the performance, especially during the first two months and I think putting up double digit EBITDA growth over the entire quarters. So nothing this call side given.
The last few weeks, there and I appreciate all the disclosure in the press release, some 10-Q last night so.
Just kind of piggybacking on Frank can you help us I'm kind of understand where volumes are maybe on the critical on this side like relative to March or how they are trending it sounds like.
But you you've kind of picked up a little more on the Opex side, just the commentary with 350, Colgate patience and then.
On inpatient rehab I was a little surprised that.
You know kind of the the decline towards the end of March there and just kind of trying to get a sense of if you feel like your bottom there and where things are now in that part of business.
Yeah. Justin this is a this is Marty let me take you through.
Where we are with L. tanks, and the urge with regards to volume I mean, the elteks have had a pretty strong.
April.
And.
We expect those numbers to continue were AIDC is up.
Nicely and we expect that to probably continue through June.
On the inpatient rehab side, we were hedged relatively hard up in the North Jersey area with Kessler and one of the things that we had decided to do was a number of the.
Tessler hospitals have semi private rooms, and what we've done is.
And essence moved those semiprivate the private so we have basically limited the number of patients. We can take in one one per room, just because of the transmission of the virus.
So as soon as we start to that as soon as we start to see that decline we will ultimately go back to Semiprivate.
Okay got it so it sounds like disproportionately hit and Jersey and [noise].
I'm.
Not as not a steep in some of the other markets and then.
Maybe just.
Flipping to the cost structure.
Excuse me.
Has there been.
I mean, it sounds like you're comfortable with where you are now just with the commentary focusing on volumes now versus costs and so can you kind of give us a sense maybe some of the additional actions you've taken at the end of the Q1 then.
More broadly how you think about variable versus fixed costs on the cost of services one.
Sure just in the.
On the inpatient side, they're really there really hasn't been I mean.
Our group there the operators have done a terrific job.
And for the most part the volumes are in particular in Accredo critical in this recovery hospitals are maintaining or exceeding were our expectations were so there's really not many changes that are happening there on the on the inpatient rehab side, we've seen a little bit of of reduction or flexing of staff.
There and then on the outpatient.
Rehab side and consent true we have of flex pretty significantly on staffing and as you probably know you know salaries wages and benefits represent a significant portion of our cost structure.
So you know the interesting thing is on our outpatient rehab.
I'm in selects model is to have critical mass and the geographic locations, where we are so we've seen a 50% reduction in our volume we have 20 clinics in the certain marketplace. What we have done is dropped we temporarily closed 10 of those clinics.
And furloughed.
Those basically the employees that were working those 10 clinics and moved all the volume over to the other 10 clinics and then on concentric the same type of thing we took a look at that same type type of activity.
Got it and when volume and then when the volume comes back.
Our expectation is we will very quickly.
Bring those clinics up those centers up with the employees coming back.
Got it alright, so we should see some improvement I mean, you guys just didnt have any chance to respond like in March things just happened so quickly.
I will I will hop back in queue and congrats again.
Thank you access.
Thank you. Our next question is from Peter Costa with Wells Fargo.
Good morning, and thanks for stepping up the Kobin patients here last quarter.
Great job in January and February before all the started my question is what's going to happen I'm sure, we'll get to the other side business.
Having seen the changes that you've seen what do you think will happen in particular in the critical looms recovery business with your relationships with providers and what they've seen and their dealings with you.
In terms of your from sources and then also.
On the outpatient side do you think that's going to go and stay more mobile going forward and what does that mean to you in terms of your flexible cost in that area.
Okay.
Yeah. Thanks here the on the critical as recovery hospitals off I firmly believe that we will come out of the the a pandemic stronger than we went in.
For a number of reasons we've had many hospitals that are in that have been in the hotspot Northern Jersey that services kind of New York City, Detroit, New Orleans, and and other markets I think we have probably over 60 hospitals that are treating coded patients. So we have.
Com.
Critically important to many of the Big Hospital ice use and when we have gotten referrals from from hospitals that we had never gotten before and there was I think very strong appreciation in recognition of the kind of services. So we can provide we are probably one of the largest.
Providers of ventilator services in the United States with probably over 2000, ventilators and all of our hospitals and I think that the other thing that has has become.
More appreciated is for all the talk about a shortage of ventilators I think theres.
Become a greater appreciation that it's just not the ventilators that it is important because of the sophistication because of the see acuity of the patient in the sophistication at the machines, it's not just enough to wheel a machine and you have to have a kind of.
Staffing and protocols with not only pulmonologists, but.
Infectious disease doctors respiratory therapist, who can work in calibrate these machines in order to get them the maximum efficiency and to successfully when patients off the ventilators. So.
I didn't never thought in my career that I would that I would.
You get to a point were virtually everybody in the United States and I was one of ventilator is I mean that was certainly not the case a couple of months ago and I think that.
Our hospitals have very much.
Run into the fire if I could use those words to treat the cobot population. So that's not an easy for us because of the.
The things we've had to do to have more isolation more PE and the like but it is right down the center of the fairway for what it is that we do.
So I think most people believe that these kind of respiratory infectious diseases are going to be with us for.
For a long period of time and so we have some hospitals that have really begun some early discussions with us about perhaps partnering with them to put in more of our critical in this recovery hospitals in markets and to become a really important part of the continuum. So I'm encouraged by that.
On the outpatient side the business I think you know that business will come back I mean, it's not that's not there's just no way that Thats gone forever. It's just like elective surgeries are not going from theres going to be a pent up demand and I have no way of knowing what they the shape of that recovery is going to look like whether it's a V or are you or.
But that certainly it's not it's really not a question of.
If that comes back strong I just think it's a question of when it could be a month here or there and I think the same thing with concentric the market share the consent for has across the United States.
The largest by far and the occupational medicine as employment comes back there will be the beneficiary and I think all of our divisions have done work to not only look at short term, but also have their eye on the long term strengthening the relationships that we have so hopefully we can come out of this.
Stronger than we went into it.
Pete one of the things that we have seen change on the outpatient rehab side as well as concentric ONEOK mid side is telo rehab and Tele medicine.
Prior to co that we were doing about 50.
50 visit today.
And you know.
In April we averaged a little over 1600, a day as Bob mentioned, we we have trained over 2000 clinicians to provide this types of service and while we think thats terrific.
Lot of the payers have seen the benefit of.
Hello, rehab Tele medicine and are now paying for it we think some of that will in particular with Medicare population.
So we think that that will and now the Medicare is taking a look at paying for it we think that.
Medicare population will probably continue to utilize that.
In many cases, we think the commercial patients will be coming back to the of the clinics or the centers.
All right just as a follow up thanks for all my color on those.
Critical rooms recovery hospitals, but on the outpatient question can you talk a little bit about the financial impact you in terms of how you get paid and what your cost is for mobile versus regular visits.
Yes, great question.
For the most part.
[music].
The the rates are basically fixed.
For teller rehab and Tele medicine.
So there is really not any difference between a visit a physical visit.
Versus a tele rehab or tele medicine visit.
And your costs.
Good morning.
It is very similar yes, because remember it really is the amount of time that you're spending with the patient, it's an essence or one on one.
All the time that you spend with the patients. So the costs are hard at the same.
Okay, and then just since the last follow up on that what do you things can happen on the outpatient side do you think.
You will see migration towards more of these solid results or do you think.
Provider going to come to you more often to work with you going forward. What will you think will change in the in the outpatient side of the world going forward.
Well I think as I had mentioned I think that.
We'll see.
The the.
The tele health to tell a rehab volume probably decline.
As more and more people are a car no longer staying at home.
But we think a certain portion of the population specifically the older pop or the older population will probably continue to do tell rehab.
During the course I know I don't think that just I don't think that the outpatient business at the color is that you look for a systemic change I mean I understand that there's there are certain businesses that you know whether it be cancers or sporting events were you collect.
Tens of thousands of people on close quarters. These outpatient rehab locations are are pretty much made for social. This thing I mean, you don't have a lot of patients in the clinic at the same time you have therapists since it it's really a relatively easy environment to have the kind of safeguards that people are.
Talking about so I, it's hard for me to two project any kind of systemic change in that industry.
All right. It was I was really trying to get it won't be impact would be on your competitors in terms of local some of them go out of business and.
Because of the pressures you're seeing now with mobile going take some of the business away or just running the business being more complicated.
We will some of those providers go away and actually help you with most providers can work for you.
Well you know I think that I think the trends that you know the trends that we saw before the pandemic may may accelerate a bit I mean, I think I think our belief always was that the future that business was going to be fewer larger providers that had the efficiencies in the economies and were able to be dominant in the.
Markets, where they provide I think that it will continue to be difficult for one off providers in the outpatient rehab business big because of the compliance requirements because of the the cost because of.
What payers one end markets and I guess, you could make an argument that that could be accelerated as a result of this event, but.
I'm not sure about that but I don't think it.
It may change the cadence of those changes, but I think that it'll just be continuation of the things that we've seen them, but talking about for some time.
Okay. Thank you.
Thank you our next question its own J Rice with credit Suisse.
Hi.
Hi, everybody glad to hear body as well maybe just a obviously you are able to take some steps by the end of the first quarter and see that you. It looks like you closed.
Down fully 131 of your outpatient rehab clinics and maybe about 19 of the Concentrix centers.
Is that we are there additional closures that has happened since the.
The close of the quarter, where do you sort of stand on those numbers at this point.
Yeah, Hey, Jay Good question of the 131 that were temporarily closed 114 of those were in the Kentucky marketplace, where.
The governor of Kentucky determined that outpatient rehab was non essential.
We had fought that now those clinics are back open.
So.
What we've seen is an increase in the opening of clinics. Those 114 were required by the government the governor's requirements to close we did not want to close.
Okay. So theres not a material increase neither can center or sounds like less than the outpatient rehab that are closed today versus at the end of the quarter.
Thats correct.
Okay, I know, we've been talking around the cost reduction efforts and the fact that you really the decremental margin. The last couple of weeks of March was very severe the outpatient in Concentrix business is there any way to size what all those items you mentioned in terms of cost savings.
Might aggregate too in terms of dollars or.
Perspective on.
The relative margin hit a that you're seeing in into your own part of the second quarter versus what we saw on the and March.
[laughter], there really isn't AJ as a matter of fact.
If you take a look at win win this really impacted us it was really March 16th.
Was it was right after.
World Health organization on declared the pandemic that that third week was when we really started to see the volume decline.
And you know in the fourth we started making changes, but there is very little.
If anythings savings from the changes we made that occurred in in the first quarter.
And that in March.
Yes, I understand then just trying to see any way to.
Talk about an order of magnitude of what you have since implemented and how that might mitigate some of the revenue pressure sounds like it's a moving target is that the way to think about it.
Yeah Yeah.
Okay.
Just the last question some of the other post acute providers have expressed some caution about these.
Not so much the may be advance accelerated Medicare payments, but more than some of the grant money of a whether they'd be justified or be weather.
And then feel comfortable of all the assets stations, where do you guys fall out with a with respect to that.
Hey, Jay we are currently going through and pulling together all that information right now and were at this point in time, we can't give you a definitive answer on that.
[noise], but you're right, it's complicated and it seems to be shifting so we'll just continue to we'll just continue to work on it.
Fortunately, we have access to all of our costs on our gain information so whatever requirements. If we're not able to keep some of the grant money. It won't be because we don't worn off are not able to allocate we'll be able to do all that so but we're working through that now.
Okay, alright, thanks, a lot.
Thank you. Our next question is some Kevin Fischbeck with Bank of America.
Or maybe just a follow up on a stimulus.
Money number.
He said 10.1 million entities, where your minority partner does that the amounts attributable to you or was that the amount that your partner Scott and you would go to.
My already share of that.
Yes, Kevin that's the total amount.
Girl now that they receive okay.
And then just wondering are more color on the first two months over the year. Obviously, you had leap year in there was probably helped the number it a little bit but you know the growth there was incredibly strong it much stronger than we would have been looking for for the quarter.
Kind of understand maybe a little bit.
How that.
Performance matched up against what you guys are really expecting as you're trying to think about what's it like might look like on a new normal.
Those are.
Trajectory as you would have expected.
For the year more broadly with anything unusual going on this first two months of the year.
No I mean, we they were certainly little bit better than we had anticipated and and again, it's I think across all four business segments. The operators have done a great job, bringing in taking market share bringing in volume.
It's really driven by the volume.
Yeah, I think it was that just a continuation of the momentum you saw from.
Third quarter fourth quarter of last year, a may I, just think a lot of the changes and a lot of things that we did were really beginning to show and.
You know.
We would have been.
Seeding the pleased with the results of the first quarter have we not happened disruption in March but you know I think we believe we can get back to that.
Okay, and then you are the comment about.
Only 1% of outpatient visits coming from elective procedures I guess, what we've seen broadly speaking is that we've seen declined and utilization across almost every provided bigger than what we would have thought I. Just wanted to understand exactly how you were kind of thinking about elective procedures is that kind of.
And what you would have to determine as elective procedure, you know three months ago or kind of.
Are you telling us back into procedures that are you kind of I've had some sort of visibility into have been deferred.
Specifically as it relate to this.
Okay.
I'm not sure we understand the question Kevin can you.
Okay. I think you can you say that earlier I think you said earlier that 21% of outpatient rehab visits come from elective procedures and so you were optimistic that elective surgeries come back then obviously, but it will come back, but I guess, yeah, we've seen surgeries down 70% operations are down 70% in April so.
We've seen a much bigger drop in surgeries every liberal would have thought.
We could have seen before and so I wasn't really sure you know it's it's what.
We're seeing as kind of deferred procedures in April is really the typical definition of what we would think about elective procedures. So when you say.
Okay visits cover elective surgeries I wasn't sure if you were kind of using.
The 70% down this month or whether you're kind of saying well on average historically we thought.
Sure what it was but we're obviously seeing a much bigger impact right now.
Yeah and asked is what we do it was we took a look at those visits that we had coming from elective surgery being done. So postop. We took a look at those over the last 12 months.
Yes, good divide that by the total number of visits that we had that's how we arrived at the 21%.
Okay. So that's that's not necessarily real time.
The impact obviously bigger right now, but yes, how exactly does not real time, but but has that historic and I think that I think we think that all of those surgeries that ultimately.
Find their way to our outpatient.
Those will not.
Be gone I mean, there's just going to be pent up demand. So you know that you. When we certainly believe that there's going to be that will be an acceleration at some point because.
Those surgeries, while we refer to them as elective.
They are going to have to be done.
Now so.
Yeah at some point.
Yeah, and then and then I guess my last question on the rehab everything rehab side.
I guess, we did see you know the patient base being up even though the admissions were down a lot to maybe talk about.
What was going on there whether it's an issue about.
Discharged from the hospital was that because that.
Then we would expect to continue to like a stay would keep increasing or would we ultimately expect.
We have volume patient days to be similar to the admission trends. Thanks.
Yeah I think.
As far as.
As far as length of stay I would expect you know into future you're going to see you go back to historical levels.
That this was a.
No. The pandemic is just a very unique situation with regards to admissions and and discharges.
Okay, great. Thanks.
Thanks.
Thank you. Our next question is from David common with JP Morgan.
Great. Thank you good morning, and thanks for fielding all our outlook question, you know recognizing that there's so many uncertainties.
I was hoping to follow up a little on a jays question, particularly with regard to Concentra.
And maybe you could give us just a bit more sort of qualitative.
Commentary on the cost structure and the ability to avoid operating losses for any length of time I was thinking that maybe.
Comments about performance during the global finance financial crisis might be helpful could remind us that and then sort of similarities and differences in the business. Since then.
You mentioned rent deferrals, which actually I wasn't expecting and it just jog my memory to ask about.
The significance of rent burden in both the outpatient businesses and whether a permanent closures.
Would be part of the mix as you go forward and then finally, just a thoughts on whether this makes the valuation on the put call little tricky looking out a little bit. Thank you.
Sure David Let me address your last question first is that remember that the the put.
That our minority partners have.
In Q1 of 2021.
Is 11.3 multiple.
Times LTM EBITDA.
And given you know the digital the expected drop in EBITDA and these in.
These last two months, we would anticipate.
And we've actually had discussions with our partners and we do not anticipate that they would exercise that put.
Come Q1 about 21.
And they will they will basically postponed that and exercise that could come Q1 of 22.
Okay as it.
As it pertains to the cost structure.
I had mentioned before that.
The outpatient businesses.
A significant amount of their costs or religious salaries wages and benefits. So the way that we take a look at that is its variable expense and to the extent to the volume isn't there.
The the clinicians are basically flexed.
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And in essence, that's what's occurred.
You know over the past over the past month.
Those those conditions have been flexed.
So costs costs are down considerably.
Okay, and then rent deferrals production, yeah rent rent deferral I wouldn't think about that being a large amount as a matter of fact I believe what we've seen is probably less than a million dollars of cost savings on an annualized basis.
Mm Hmm.
Okay, and then a global financial crisis, or you just reminders of performance them again differences.
And not just cost structure, but similarities or differences in the coming for the business. Thank you. So David we don't think that there's a comparative analysis. There. There's really there is no comparison between what happened in 2008 2009 to what we have today.
You know you're looking at 30 million people being unemployed over the last month.
And you know to the extent the state's begin to open up.
We think a lot of those people will.
Basically the Reemployed.
So you know unlike what you saw you know in 2008, where it was over a period of time.
We don't anticipate that's going to occur.
Great all right well again, thanks, Phil and my question.
Sure. Thanks.
Thank you know our next question is from Bill Sutherland with the benchmark company.
Hey, Thanks until everybody just one or two at this point.
Thinking about the very strong utilization number you headed inpatient rehab, 79% for the quarter. Despite all the.
Well the complications in March.
And I'm wondering if there was a cadence to the quarter utilization.
And.
Right right, where do you think particularly given the mix of patients going forward.
Utilization can run for that business.
Yeah, Bill as far as the way we took Oh, we take a look at utilization is really on an occupancy rate basis.
And.
As you remember we had opened up two new hospitals.
And the first quarter of 2019, and so what you've seen is of a good portion of that volume that youre seeing is really a function of those those hospitals opening up and then some of the hospitals that we've had from the prior year maturing.
So you know for US we think that ultimately you can probably get on.
On a mature basis and that occupancy rate of 80, 586% on the rehab side.
Okay and.
Even with the.
Complications and housing book called the patients.
Yes, yes, okay, [laughter], but the other thing I know I wanted to ask you guys about is CMS came out with yet another set of waivers and they are to go that.
Apply to both your rehab and long term hospitals, basically permitting reimbursement for any Medicare Ed that.
Kind of regardless of patient criteria were there we've heard from.
Would you.
I know you've committed to handling cobot patients with does this allow you to just even.
Take on more AIDC.
Well the heavier just have more census.
In those locations as a result with that.
Yes, my understanding of the rules, where that was really to assist the the short term acute care hospitals decompress, there, they're census move and be able to discuss find to discharge destination for those patients.
As far as we're concerned I think what we'll do as we will continue to handle the highly acute patient population that we've always had.
Yeah, the though the waivers that have was historically on the.
Al pack the came early on which was the.
Ability to bill fully for the site neutral patients and the what they called the 50 50 rule you know we didnt take advantage of those at all I don't I think that and I would say that.
Completely universally across our network of 100, a critical illness hospitals, we're sticking to the high acuity ventilator dependent patients that will be the.
The I think the mission and that and the best patients for us coming out of this and for select medical for US right now as well. So we haven't really taken advantage of any of those waivers.
The mix than that makes total sense.
The last one for me is.
On your timeline for your.
Your new rehab hospital.
Development can you is there an update there any change.
I think the CRE construction has gone on unabated in our Arizona hospitals with banner and we expect that to that are under construction to open on time and Q4.
Okay.
Great. Thanks real coworkers.
Thanks Bill.
Thank you and ladies and gentlemen, a there is no four dirt time for questions I will hand, it back to management for closing remarks.
Yeah. Thank you everybody for joining us and Oh, we will certainly look forward to updating you next quarter.
And thank you ladies and gentlemen. This concludes today's conference. Thank you for participating.
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