Q2 2021 LHC Group Inc Earnings Call

[music] concerns over here and there's all day.

I hear that automated it and then they go home.

[music] Lloyd let me take a call as well.

Good morning, and welcome to the LHC Group second quarter 2021 earnings Conference call, all participants will be in listen only mode share.

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Please note. This event is being recorded I would now like to turn the conference over to Eric Elliott Senior Vice President of Finance. Please go ahead.

Thank you Danielle and good morning, everyone I'd like to welcome you to LHC Group's earnings conference call for the second quarter ended June 32041, we issued our earnings release last night and I would like I would also like to highlight that we have posted some supplemental information on the quarter on the quarterly results section of our Investor Relations page with supplemental.

It'll deck as well as a copy of the earnings release, the 10-Q and ultimately a transcript of this call when available can be found on this page our supplemental deck includes our full year 2021 guidance assumptions the impact of COVID-19 in detail on the breakdown among sector performance all of our non-GAAP reconciliations and breakdowns of adjustments are included as well we will reference.

Assist information in our remarks today, we expect today's prepared comments from Keith Myers, Chairman and Chief Executive Officer, Jos profit, President and <unk>, Chief Financial Officer to run for approximately 20 minutes to allow time for Q&A before we start I would like to point everyone to our forward looking statements on page 2 of our supplemental presentation and encourage you to read it.

Carefully they apply to statements made on this call and our press release and in our supplemental financial information now I will turn the call over to Keith.

Thank you, Eric and good morning, everyone.

I'd like to begin.

As customary by voicing my deep appreciation and respect for our <unk>.

Based on post acute care settings, such as Smith.

In addition to force Senators from each party co sponsoring the choose home Bill.

We have lead sponsors from both the Senate Finance Committee and the Senate Agent Committee.

Including the chair of the Senate Finance Health Subcommittee and the chair of the Senate aging commodity.

Yeah.

In the near term, we expect choose home to be filed in the house with strong bipartisan support including lead sponsors from committees of jurisdiction responsible for legislating health care policy.

This common sense legislation will allow qualifying seniors the choice of receiving sniff level care in the comfort of their own homes.

Guaranteed Medicare savings of at least 20% of the cost of an inpatient sniff episode of care.

The introduction of choose home was aided by strong endorsements from key organizations such as <unk>.

The National Council from Medicare and Medicaid reform.

Allies for independents, leading age.

In other organizations, representing veterans and those with disabilities.

These endorsements and strong congressional support physicians choose home for consideration in the budget reconciliation process or other year and legislative packages.

I'd like to mention that choose home conceptually is not new.

Various states have already demonstrated cost savings and better outcomes by combining skilled and personal care services.

Such as the Ohio passport program, which has been in place since the early nineties and has consistently demonstrated both cost savings and better patient outcomes.

Similarly since 2019.

CMS has provided Medicare advantage plan the option to include non scale Homecare services transportation home modification and assistance with activities of daily living as part of their plans.

Choose home combined these services with the traditional Medicare home health benefit and for the first time provides traditional Medicare beneficiary option to recover safely in their own home as an alternative.

A more costly and restrictive inpatient and post acute settings.

Cost savings are hardwired, because choose home limits.

To not exceed 80%.

Of the monthly cost of US day in a skilled nursing facility and limited the benefit to 30 day episodes of care.

Medicare savings on the choose home were projected on the healthcare economics firm on Dobson and Davanzo to be in the range of $1.6 billion to $2.8 billion over 10 years.

A copy of the Dobson Davanzo choose home saving analysis is included in our supplemental debt.

Last month LHC group commissioned on National Survey led by Dr. Deferred Fredrik Barbara on the decision company in Nashville.

The finding was that Americans overwhelmingly prefer in home care.

Serious illness, or hospitalization as opposed to inpatient and post acute settings.

Notably survey respondents strongly supported Medicare coverage for the various services provided under choose home such as transportation medical supplies and in home modifications.

A copy of the survey results field. The other decision company is included in our supplemental debt.

We expect these survey findings favoring more in home care to resonate in Congress and aid our advocacy or choose home.

Now turning to regulatory updates.

CMS has published favorable final rules for fiscal 2022 related to both hospice NL tax.

We also saw a favorable proposed rule for home health and projects no cuts for 2022, and an aggregate increase in payment rates of 1.7%.

Through also included a proposal to expand nationally a home health value based payment demonstration from non state to all 50 States beginning January 1.2022.

The national expansion of <unk> is supportive of our recently announced advanced care at home service margin expansion.

Which further leverages, our existing post acute capabilities to provide an efficient low overhead alternative to more restrictive and costly inpatient care settings.

The opportunity we have to bring our advanced care at home model to scale is substantial.

As we have significant direct experience in this area from the proven and highly successful Smiths diversion programs. We have developed in partnership with a number of hospitals throughout the country.

Beginning with Ochsner health in 2014.

Yeah.

Yes.

And now last but certainly not least I'll close my prepared remarks with an overview of M&A.

Excluding only 2018, when we announced our merger with almost family.

2021 to date has been our best year in terms of acquired revenue in the 27 year history of LHC group.

Based on our success, thus far are strong M&A pipeline and the exclusive nature of the majority of opportunities in our current pipeline.

We have more than doubled our previous acquired revenue target for 2021 to a range of 350 million to $500 million in acquired revenue.

The incremental adjusted EBITDA contributions from these acquisitions alone.

12% to 17% increase in 2022 compared to our 2021 range for adjusted EBITDA.

And now I'll turn it over to Josh to provide more color on our growth and operations then Dale will provide more detail on our financial results and guidance prior to Q&A Josh.

Thank you Keith and good morning, everyone. Thank you for your time this morning.

Also wanted to take just a moment to thank all of our colleagues on the front line as we continue to provide much needed high quality services to our patients during the public health emergency.

As well as all of our quality operations and growth leaders on support team members across the country for all of her many contributions from success I'm truly inspired by the Amazing work you are all doing.

As well as positive sequential momentum in our key performance indicators.

Slide 17, and 18 of our day sales of progression over the last 5 quarters.

You will note that same store home health organic admissions are up 16, 4% in Q2 over Q2 last year and are up 7.3% year to date.

When you Peel back the details on the strong organic growth performance in the quarter for home Health I would note that Medicare same store organic growth was 8.8% in Q2 and non Medicare episodic admits grew organically by 37%.

I also want to highlight that total same store admissions for home health are sequentially up 1% from Q1, which gives us above 109000 total home health admissions and to a level ahead of our all time high which we achieved in the first quarter of last year, just north of 108000.

Sequentially Medicare same store admits were up 1.2% non Medicare episodic same store admissions were up sequentially, 4% with home health census, up 1, 9% and home health, New physician referrals up <unk>, 7%.

And hospice organic growth in admissions was up 1.1% for the quarter and 4.7% year to date with average daily census, also up from Q1 by 1% and 3.1% since Q4.

A few additional positive indicators for the continued improvement in our hospice segment performance, our that our admin to discharge ratio was positive for the first time since the onset of the pandemic and our average discharge length of stay has stabilized for 2 consecutive quarters at just shy of 80 days in Q1 and Q2, while June July and.

Early into August it has been running back north of 80 days, which is now back to pre pandemic levels.

We are also working hard to support this growth with our hiring and recruiting efforts as demonstrated on slide 16.

For the third consecutive quarter, we have hired a record number of a frontline employees, while our turnover continues to be well below industry averages.

These headcount statistics have a direct correlation and validation with our differentiated culture. Our continued census growth and our unwavering focus on patient satisfaction and quality outcomes.

In order to keep my prepared comments short during Q&A I'll be more than happy to get into some of the strategies and tactics. We have deployed last year and in the first half of this year that are yielding these positive results in a pressured labor market.

Before I get into organic growth.

I want to briefly discuss our recently announced strategic partnership with <unk> health to jointly develop and deliver an expanded service offering of Atlanta clinical care services in the home.

This innovative clinician led proprietary model will elevate in home care and deliver higher acuity care on the home my harnessing the combined talent and experience of partner physicians with our nurses therapists and physician extenders as well as our industry, leading in home patient care proprietary data analytics.

<unk> capabilities clinical modeling and technologies.

As we rollout this expanded service offering later this year, we have the near term opportunity to capture share where we overlap in 70 hospitals, where we have joint ventures, and an 100 non hospitals, where we already have a home health presence.

I would also stress that this is not an exclusive arrangement.

While we have a lot of runway ahead of US with this partnership we can just as easily work with other EDI and hospitalists that operate in hospitals outside of Sep's footprint.

It is safe to assume that in addition to the number of inbound calls we have received from existing and potential hospital partners. Since the announcement that we will be doing the same for other providers across the country that operate within our other 365 joint venture hospitals.

Now turning to inorganic growth drivers at the time of our last call. We have completed or announced a total of $18.1 million in acquired annual revenue for 2021.

Since that time, we're now up to $161.7 million in acquired annual revenue announced or completed.

Based on the pace of transactions to date and the size of our pipeline, which continues to remain mostly exclusive we have more than doubled our full year target for the year, and which will have a benefit to 2021, but the biggest impact will be in 2022 with the incremental EBITDA contribution in the range of 35 to 50 million.

On that Keith highlighted earlier.

These 2021 acquisitions provide a further layer of growth given that we have a track record of significantly increasing the contribution from acquired revenue over the 12 to 18 months following acquisition.

While 2021 is shaping up to be a record M&A year for US. We also remain confident in having another strong M&A year in 2022 with an expectation for more jv's and further home health consolidation.

Our outlook is as broad as ever with our sequential trends heading in the right direction, our growth levers propelling us forward with organic and inorganic growth and policy and regulatory tailwind that are prioritizing in home care we.

We have a big second half ahead of us and we are well positioned to deliver on those opportunities.

Bill I'll turn it over to you to add additional color on our results and on our guidance.

Thank you, Josh and good morning, everyone.

I am pleased to report our second quarter results were in line with our expectations and consistent with the bridge. We originally provided on the Q4 call demonstrating how the first half of the year would play out compared with the second half of the year in terms of our full year guidance.

For the second quarter net service revenue was up 12% year over year and 4% sequentially.

Adjusted EBITDA increased 27, 5% year over year, and 19, 6% sequentially.

Adjusted net income increased 32% year over year, and 16, 6% sequentially to $1.62 per diluted share.

While revenue was a little lighter than what we had projected it was spread nominally throughout all our service lines and therefore, we are keeping our 2021 revenue guidance range impact.

The earnings and adjusted EBITDA results were on track as well so sitting here at the halfway point, we're right, where we need to be for 2021.

Consistent with past practice I will refer I want to refer you to our earnings release and supplemental deck for the detailed commentary on our results I want to spend my time. This morning on the key metrics and trends supporting our underlying strong performance and growth initiatives.

Factors behind our 2021 full year guidance and then close with our recent announcement on a new expanded credit facility and what that means for our growth trajectory.

I would first call your attention to page 17 in the supplemental debt, where we've broken out the key revenue factors for our home health Hospice and home and community based service segments.

Our home Health segment delivered strong results with revenue up 16, 7% year over year and up 6.1% sequentially with an EBITDA margin of 15, 2% up 220 basis points on both a year over year and sequential basis.

This impressive performance was driven by double digit admission and census growth along with a year over year increase in revenue per Medicare episode of 4.6% and a sequential revenue per Medicare.

Revenue per Medicare episode increase of 1.3%.

The revenue rate increases were driven by institutional add Mitch up on elective procedure recovery, a LUPA percentage on PDGF episodes declining and our case mix improving.

The industry wide hospice challenges are well documented.

We are encouraged by how well our hospice business stood up in the second quarter as our exposure to senior living centers is modest with only 8% to 9% of referrals coming from this channel.

Hospice segment revenues increased 1.7% sequentially, while our EBITDA margin of 11, 1% was up 60 basis points versus the prior quarter and in line with our guide heading into the quarter with.

With the improvements in operational drivers discussed by Josh we remain confident that our hospice segment can achieve sustained EBITDA margins.

13% to 15% by the fourth quarter of this year.

The personal care business continues to face headwinds around the well documented staffing challenges present during the public health emergency.

Our billable hours were down 2.3% versus Q2 of 2020 and were down 1.2% sequentially from last quarter.

Demand remains very robust and personal care. It is important as an important component of the care we deliver.

We are working several initiatives to increase labor supply and capture unmet unmet demand in the by the administration and Congress are actively supporting this valued service, but the cumulative effect of stimulus checks and unemployment assistance is a tough headwind right now.

I would be remiss, if I did not point out how well our service lines are managing the labor and cost pressures that are prevalent across the health care sector.

On a sequential basis, all service lines demonstrated strong cost control management, keeping cost per day cost per visit and cost per billable hour trends either flat or in line with annualized pre COVID-19 merit like increases.

As mentioned by Josh The company has invested intently on increasing and innovating around our recruiting efforts, which has resulted in record numbers of new hires meaningful net employee growth and stabilizing costs.

We will remain extremely focused and committed to this initiative to ensure our growth prospects are supported by the best talent in the industry.

While COVID-19 prevalence lessened in the second quarter, we are constantly reminded that the presence and impact of this virus has certainly not gone away.

Covid related spend in the second quarter decreased to $10.8 million compared with $12 million in the first quarter.

We noted last quarter, we would revisit our COVID-19 spend based on what we saw in the second quarter, which coupled with early indications of a possible covered resurgence driven by the Delta variant. We are now expecting we will incur 30% to $35 million in COVID-19 related expenditures in 2021.

Turning to the full year guidance outlined in our earnings release, the only adjustment. We've made is to a range of adjusted earnings we have raised our adjusted EPS range to $6.30 to $6.50 per share up from $6.20 to 640 due to better visibility into our effective tax rate and depreciation.

At the midpoint. These ranges reflect 8.6% revenue growth 27, 7% adjusted EPS growth and 23, 6% adjusted EBITDA growth less non controlling interest our core assumptions remain largely consistent with our previous 2021 guidance assumptions with the only exception being that we are.

We're adjusting our near term hospice or organic growth rate down to the 4% to 6% range versus 8% to 10% previously which is being fully offset by the inclusion in our guidance of 2 hospice acquisitions that closed on July <unk> health.

So Dave I'll lose in heart and home.

We are keeping a close eye on the recent COVID-19 surge is driven by the delta variance, but be assured we are amply experienced and fully prepared to deal with this virus should end up being a sustained resurgence.

Lastly, we are very proud of our balance sheet, we've worked hard to keep our leverage low and our powder dry for the accelerated organic growth we've been projecting.

With that growth now upon us I would refer you to our 8-K filed earlier this week on an expanded credit facility that increased our revolver from $500 million to $800 million with a 25 basis point improvement in borrowing costs.

And in an accordion feature that increases our borrowing capacity to $1.3 billion nearly double our current borrowing capacity of $700 million.

On page 38, other supplemental you will see that we have total liquidity of $1.1 billion net after paying back all $93.3 million other provider relief funds and CMS recouping approximately $88 million of Medicare advanced payments through July 31.

Our day sales outstanding decreased to 55 days in Q1 down from 57 days sequentially and down from 61 days in the second quarter of 2020, driven by strong cash collections in the quarter.

Adjusted free cash flow year to date June to $63.8 million up $44 million versus last year's comparable year to date adjusted free cash flow.

The free cash flow improvement is driven by growth in our core service lines strong underlying business fundamentals and lower capital spending.

As we look ahead to the balance of the year, we're in a great place with our balance sheet to support the many organic and inorganic growth opportunities we are pursuing.

We can't look past the strength as a true competitive.

Competitive advantage and how it frees us up to execute on an historic level of M&A activity and to take advantage of the tremendous tailwind behind us on on.

On the business legislative and regulatory fronts.

That concludes our prepared remarks, operator, we are ready to open the floor for questions. Thank you.

We will now begin the question and answer session to ask a question you May Press Star then 1 on your telephone keypad.

If youre using a speakerphone please pick up your handset before pressing the Keith.

Your question. Please press Star then 2.

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The first question comes from Justin Bowers from Deutsche Bank. Please go ahead.

Hey, good morning, everyone.

For us really appreciate.

The continuously increasing disclosures and transparency you gave us a lot to work with on a ton.

1 just wanted to kind of a strategy slash decent question for Keith and Josh.

In terms of the Etsy CP partnership can you.

Can you give us a sense of kind of what the receptivity has been from from some of your partners and then.

Longer term, where do you think.

Where do you think this business can go and kind of how are you thinking about market sizing just acknowledging that it's still early days.

And then secondarily kind of with the choose home legislation.

How does that kind of impact youre thinking on on this on the size of the addressable market for free.

What kind of debt.

The S E C partnership.

Yeah I'll go first thanks Joseph.

So with regard to SVP, let's start there.

Just.

1 minute on that I don't think we've had the chance to say this but after Kip Schumacher the SMTP stands for Schumacher company was.

Originally Schumacher group.

And he was he was a emergency room physicians.

The emergency room.

At the hospital.

Lhc's first joint venture hospital in 1998.

In fact in.

On 1 doctor shoe market was going to BMO original investor.

With my wife, Ginger and what became LHC group.

Just all that to say our history with them goes from goes way back from heat on shoe market with a medical director for LHC for.

Sure.

Some time.

So with that.

And that we need.

Strong submit the physician support to take higher acuity patients and to the home.

And Schumacher now has developed quite a robust telemedicine program with on demand positions.

That can support on nurses 24, 7 so that's a key component.

The the rest of the receptivity so far from it.

Boston Partners.

I could say I've been overwhelming but but it was.

On a really expected to be overwhelmingly positive because we were doing so much then the version work. This was just.

Really dialing up.

From an acuity from the work we're already doing so.

We've we presented 2.4 of our major partners so far.

And 4 for 4 wants to move forward with.

On a program. So we're going on we're going to develop the first round of these advanced programs.

Those 4 strong partnership hospital, and then we will learn from that and began too low.

The program out further after that.

I think choose home.

Connected to that.

And a very natural way and these are things that we were going to have to do in home health.

Right.

Choose home anyway.

Just.

The advanced care model will allow us to take them on higher acuity patients.

Home.

Probably the best way to sales.

What was the other part of your question.

Our day in October.

And choose home Keith Justin maybe the 1 thing I would.

Couple of things to add on the advanced clinical care services model.

I know Keith mentioned, how we've been doing this for a number of years. So this isn't new but theres continued progression and momentum into this higher acuity in the home service model is picking up so much momentum, but the 1 thing that has proven per years for us.

And I would think Keith even in these 4 conversations we're having with our JV partners is it's not a cookie cutter model. It's not you can't create an approach and then go deploy it all over everywhere you got to work very closely with the clinical departments on the CMO. The <unk> of those health systems and make a custom.

<unk> program that meets their needs because when you've seen 1 you've seen 1.

You really have to work individually with them. So we've put together a team led our CMO and.

Other members on our clinical team that are working with these hospital partners, but it's not going to be a 1 size fits all program.

Ill health care globally.

I.

Things haven't changed.

Got it and then just a quick follow up can you.

Can you just help us understand kind of the cadence through the rest of the year. The bridge from from first half second half like what are the.

What are the moving parts.

And anything to call out maybe quarter to quarter.

Yes, Justin this is dale thanks.

Here's how I would.

Hi, Judy here as we look at really.

As mentioned in the.

Prepared remarks really the 1 highlight is around our hospice business, where we've adjusted organic growth rate.

But we're completely offsetting that with our newest acquisitions Casa de Luise and hard home that closed on 7.1.

So the way I would look at with the way we see the second half of the year playing out from a Q3 perspective, we see a revenue range in the $5.80 million to $590 million.

Range on EBITDA in the $80 million to $85 million range and as a reminder, in <unk> we have.

Estimated MSP payment of about $10 million in that guide.

And then in Q4 I would look at.

Our revenue range of $5.75 to $5.85.

And then EBITDA range of 75 to 80.

That gets you right to the back to the mid points of our full year.

Given the first half results.

Got it. Thank you so it looks like it looks like home health another kind of sequential step up of similar magnitude that we saw less so on <unk> from <unk>.

Okay. Thanks, so much I'll hop back in queue.

Great. Thanks Joseph.

The next question comes from Brian <unk> of Jefferies. Please go ahead.

Hey, Good morning, guys. Josh you mentioned on in your prepared remarks, something about addressing questions on labor, So maybe let's hit that topic first.

What are you seeing on the labor market and we obviously track with the hospitals and the staffers are saying so I'm just curious what you're seeing and how you're addressing that issue.

Yeah, Brian good morning.

As is getting so much attention on conversation throughout this whole, earning season and really for the past few quarters.

The pressured labor market is real and across the country.

Markets are feeling more pressure than others.

As Keith said earlier and as we often say.

Healthcare is local and so are kind of the pressures in the labor market.

I want to start by just kind of focus on first on the retention side and then on the recruiting side from a retention standpoint, which is really our miss recruiting strategy, Rob Brown is retaining our dedicated and highly qualified staff to begin with.

We I've.

Talk directly to a lot of our recruiters.

And ask them why do people choose to either join or stay at LHC group and directly from them.

Small company feel.

Big Company resources, we're a family a.

Our comprehensive benefits and competitive pay.

Packaged flexible variable scheduling flexible pay structure.

What we've invested in education and tuition reimbursement are on.

Online continuing education program. So so from the from the bottom up the the feedback we receive all the way through all of our talent acquisition is that we are doing so many things that differentiate us to retain our staff.

I'll give you some specificity Brian on benefits. So I mean first and foremost you've got to be competitive in your pay right, but from a benefits perspective.

We do market studies every year to ensure that we're not only offering a comprehensive package, but that we are very competitive and leading our peer group and our offerings under our PPO plan.

And when you really break it down into the 2 categories that include more than 60% of our workforce.

We are at 30% below our peer group and the premiums that are having to be covered by the employee. So for an employee only that's you know about $2000 in for employee children and that's about $4000 a year. So we've really invested a lot in in them from that standpoint.

We've also rolled out some formal education reimbursement programs education discounts you know about our program with University of Louisiana that we've talked about.

Over the past year, we've really enhanced our employee.

Our employee assistance program.

Due to all the stress and the additional support needs throughout Covid. So so I would first start with just retention.

That has yielded continuing to have low vacancy rates for us.

Kind of turnover area.

And then when you think about hiring.

I said in my prepared remarks, we've had 3 consecutive strong quarters there.

We've invested in that too over the last year, our head count for our recruiters has gone from 33 Q2 of last year up to 53 as of today. So we've had a 61% increase in the head count that we've dedicated to talent acquisition and then some of the specific programs that we rolled out last year.

When we saw this pressure mounting have really more some fruit Brian I mean.

We put out a new employee referral program first quarter of this year and we've already hired over 630 employees year to date with another 450 in Q through that program.

<unk>.

Enhanced our LHC alumni kind of I'll call. It the alumni returned home program to get former LHC family members to come back and last month alone. We hired 75 of those which was more than a 60% increase in that strategy.

And I could go on with some other pieces, but definitely to leave more time for other topics, but I do think Brian to put a fine point on it we have invested in our people.

For over 20 years and that has been the bedrock of who we've been but it's not just lip service we do it through benefits, we do it through programs and we put a lot of effort in this area and real proud of the team.

I guess I would end with that extremely proud of from our chief administrative officer on all of our home office support team members and our division presidents and all of our leaders throughout the field recruiting and retention is on everybody on Theyre doing a great job.

No I appreciate that color you, Josh I guess my second question as I think about guidance right I mean, you're you're maintaining guidance here.

And I was looking back to the original assumptions in the guide on ADC and obviously you guys fell a little bit below that so is it right to think that acquisitions are coming in above original plan and thats, what's plugging the hole there and as I think about your guidance for the year I mean, I think you had talked about.

Yes, 35% to $50 million of EBITDA in 2022 contribution from the target.

$300 million to $500 million. This year. So what is assumed in terms of unannounced acquisitions to get to the guidance number just any color on that on on how we're plugging some of the holes on organic and getting to the guidance range.

Yeah. Bryan this is Josh I'll start and then I'll hand, it over to Dale to kind of walk through the impact on guidance.

So I mean, I think you hit the nail on the head from the hospice standpoint.

The rail puts and takes there are we've got the cost of day lose on the heart and home that day will mentioned.

But I wouldn't say that they're performing.

At a different level of unexpected, but when you take the revenue that they're going to bring in from their point of closing throughout the rest of the year. We have included those in the guide because as you know our practice is to include once we've closed not once we've announced so.

Hospice for example is on the board Hasnt announced deal, but it's not included so that would be more upside for the back half of the year once that closes.

So you you do have some.

Revenue positive offset from the acquisitions, that's helping some of that.

Sensus that you mentioned as well as in hospice.

I'd like to mention the sensus piece on home health as well.

When we spoke back in March.

In May we were really feeling good about where the census levels were at that time, and we havent started to see the seasonality occur yet at all.

I'll tell you back half of May really the second half of May we saw kind of the typical I would say home health seasonality and then June was down like it has been in I'll say 2018 in 2019 will ignore 2020, because that's a weird.

<unk> comp for these metrics, but seasonality kind of happened in the back of May and June which brought the home health census down, but I am pleased that July is a little bit better than those 2 previous seasonal norms of 18, and 19 and we are north of 86000 as of yesterday.

Day on home Health census.

Yes, I mean, I think but I think Josh Okay, I hit the highlights there, but really I think what our focus is on is really the main change in guidance. It's offset each other is really around that hospice space, where year to date first half of the year organic growth is at about 4.4%.

And so.

That's where we right now Phil.

<unk>, our organic growth rate back to the 4.6 range on that but being fully made up with the 2 announce 2 closed deals that have come in so.

That's a that's.

That's really where we're at and again, we feel that we feel very good and obviously our guide will change as we move forward and close deals.

Awesome. Thank you guys.

Thanks, Matt.

The next question comes from Matt Larew of William Blair. Please go ahead.

Hey, good morning, everyone.

I just wanted to ask you mentioned debt. So the revenue has been across the board a little light.

Sort of in each category, just curious on the home health and hospitals.

What you think the key drivers were there Jack you just mentioned some seasonality.

Generally speaking it seems like Q2 was a pretty good operating environment.

Others have highlighted things like turnover and staffing it sounds like that wasn't the case for you, but maybe just anything you could point us to help.

What's out there.

Sure. Thanks, Matt.

Offline I'll say more to you about this but hopefully our things go on go with that New Baby Girl Yours, I think she's probably about 6 months old now.

Youre spot on thank you guys.

Okay, I thought that was about right.

So for home health it really is.

Analogy, so I won't restate any of that on the hospice side and you see where we've pulled down kind of the annual expectation there as well, it's not as much around the staffing in the recruiting issues. There as it is just some of the industry specific headwinds on.

Sniffs are <unk> I think bill mentioned earlier.

The percentage of our admissions there.

But but I don't know.

Maybe some of the positives for hospice because I think our team has done a great job of really setting itself apart in differentiating us in hospice performance, we're not quite where we thought we were going to be.

But we're still on a very strong position as we head into the back half as evidenced by those length of stay numbers I gave you part of where the Miss is for the past few months was that link is length of stay was still a little bit solidarity now that that has normalized and that's real.

Attributable to getting more community referrals as the Smiths and <unk> have not rebounded yet and their capacity and occupancy levels.

Historically that would be around 11% to 12% of our hospice referral volume and its now running between 7.5 and 8% for us Fortunately thats not a big portion of our volume we have a very different hospice strategy.

And then maybe some others and we don't have as much risk there, but our teams have done a great job of offsetting that and going out into the community, which is helping to bolster some of those length of stay numbers.

And then Matt I also highlighted in my prepared remarks that admit discharge ratio.

That's a big deal.

So as your length of stay is already improving if you admit to discharge ratio is now back to positive we should start seeing census.

Grow at a better clip.

Credibly pleased that it's growing and we continue to see hospice census growth.

Even with all those dynamics, but I think we could start seeing it grow even better.

Okay. Thanks, and then.

Maybe for Keith or even Bruce that you know I think we've heard from a mixed opinions about the likelihood of passage for Qs home and it sounds like you're a bit more.

On a positive on that happening, maybe just give us a sense for how you are kind of handicapping that maybe what the most likely vehicle would be and then if it is passed.

How quickly could it become meaningful for LHC, obviously, you've begun to put sort of a clinical capabilities in place both internally and with.

SCP.

Just maybe a little more color on on how you see that playing out would be great.

Yeah, Yeah sure so you're on.

I'll just <unk>.

The reason that we're so bullish on it on the on.

The probability of.

Of this becoming law.

I'll start with the sponsors in the Senate.

So we have 5 of the 8 sponsors.

Our on the Senate Finance Committee.

And.

<unk> and Todd young being the 2 lead.

That combined with.

Consumer preference, especially.

The COVID-19 experience.

Pandemic.

I think we couldnt be better positioned for inclusion either on either.

Reconciliation or in a year end package.

I was spent quite a bit of time in Washington on over the last month.

And so what I'm, saying to you is not hearsay, it's from personal visits with key members on in <unk>.

Both the house and the Senate.

And I've got somewhat of a feel for this have been.

In doing this work on the hill for nearly 30 years, so you're on.

No when they're being polite to us, but really mean, when you really have something thats.

That they believe in so I do think it's highly likely.

No guarantees.

Anything can happen.

But let's so let's assume that it does have on how fast could it become meaningful.

I think it could it could become meaningful very fast because.

There are a lot of home health providers.

Across the country that are capable of providing debt.

This level of care.

When we're dialing up now too.

On a higher acuity level.

Hospital at home, we don't like to use that term.

Because it would imply that.

That we can do things that hospitals can do but on the lower 20 to 30 per cent acuity.

Hospital patients, that's where we're focusing on with advanced care at home.

But <unk>.

Smith at home a lot of home health providers are doing that already especially when you're talking about.

Lowest 20% to 30%.

On our acuity scale of Smith's patients.

Okay. Thanks Keith.

The next question comes from Joanna <unk>.

Bank of America. Please go home.

Hi, good morning, Thanks, so much with the Keith.

Other questions Keith here so.

I guess on that on the M&A target.

Target clearly you've seen a lot of.

Okay deals coming your way.

It seems like you're very confident in being able to close those so can you talk about any I guess competition, you're seeing any pressure on multiples on Holly shield like how we should think about.

That that part of the equation here.

Let me start with that thanks for the question Joanna.

I think maybe maybe Josh on those to you in a minute.

I think it's important to understand that.

The debt, we only move forward to the next level.

Probably.

Maybe a third or less.

Yes.

The opportunities that come into on a pipeline.

For a long time.

Before LHC with Republic.

1 of our first board members was.

A private equity investor.

And we built our model.

Yeah.

Efficiently reviewing opportunities and then calling them for lack of a better term so.

So at department exists in LHC, and we sift through a lot of opportunities that we don't ever go to the next level with.

And when we do Josh maybe you can speak to the rigor and analysis.

Yes no.

Keith.

Good morning Joanne.

First to Keith's point to color on some of the details around that.

Year to date already in 2021, we've passed on 43 deals.

We've gotten on that we've closed on.

That's you know roughly maybe a quarter or so since 2018.

Reviewed at various different stages of being either in a process or looking at a transaction even through diligence and we've passed on 361 deals.

So our M&A department.

Which.

Across the board has been trained with the kind of the foundation that Keith just described on how to look at deals. We've got a process, where we look at a lot. So that the ones, we do need our standards and we've talked before those standards Joanne about.

We're not going to just go out and buy earnings or EPS, we're going to have a transaction that has that growth trajectory in that growth platform for hospice, we're going to ensure that it has a very diversified portfolio of referral sources. So that it's not all tied up into 1 system are tied up into.

All snips or what have you so even some of the larger and medium sized deals out of that have you know closed we've looked at a lot of them, but are very disciplined in the ones that we do and are excited not only on not the ones that we've announced but some of these that are in exclusive discussions are definitely got to meet that pro.

File and if you go back to even our IR deck, that's out there or I think it was Q4 of last year. When we first put the slide out that showed the incremental growth on acquired revenue from 17 to 19 deals.

That's why we are so excited about this acceleration because the deals we do we know theyre not just going to contribute like we're saying for next year, but there's going to be even more growth potential and contribution out of those 2023 on forward.

So really.

Pleased with our M&A strategy on how we're executing it.

Alright, it makes sense and I guess on that.

But on the.

Our partnership with that SCP.

Alright, any investments or any kind of cost outlay.

Associated with.

I guess.

Launching these programs actually.

So can you kind of frame any anything around that partnership with their day.

Drag I guess initially and when do you actually expect to see this.

Programs materialize again kind of contributing to revenues.

It also lucky on that piece.

I know how they see this is very early in the process, but just kind of big picture long term kind of question in terms of.

Target margin on on something like that if you stand up these programs should we think about that kind of from a home health side or is it a different kind of profile flow for something like that that's just kind of program. Thank you.

So on.

I'll take those.

First part of that at least.

With.

With regard to the.

So how quickly we can go to market with these I.

I think we'll I think we'll have our first 2.

Stood up and operating by the end of 2021.

I think there'll be development, there won't be optimized, but where we're actively wherein the profit in the planning process.

With.

With those 2 now.

So.

Okay.

How much investment.

Investments or any costs incremental costs that you are.

I expect and I guess if.

<unk> are also included in the guidance.

Yes.

So that's a really great question.

1 of the benefits of this model is that.

We approach it with them with our low overhead model.

Very low overhead model because between SCP.

And LHC, we have all of the components necessary to.

To stand up and operate without having to our separate staff. We have we have the boots on the ground.

So what we have to do is coordinate the things we don't have the meals the dnb.

The tele monitoring we already have we already do that growth markets.

So we're able to go to hospital partners.

No management fee model.

And so because we don't have overhead to cover so we create a partnership and we just we share in the game that debt that we create so the investment is.

That investment is zero.

So what we did from.

FCB, we agreed to capitalize with 4.

$4 million about $4 million just.

Just to put some capital in but we really arent drawing on that at all.

I'm sure, we will and we'll use that for US we will have to hire some people in local markets.

And there are consulting fees that we will use it for different consultants that will advise us on different aspects of the model, but but there is no no other investment.

And I would just add John this is day of that.

The invest that will scale with the programs right.

That's the variability that will scale as the programs go.

Okay, but in terms of sizing yet kind of when you look out obviously you had the same sounds like.

Just give me in terms of the site.

But what's your kind of target in terms of how much.

Incremental I guess, whether you or you couldn't deal with that kind of channel.

And are you a normal growth in your business and then in terms of margin target margin.

I think we will have more I think we'll have more color on that by next quarter.

We can certainly calculate.

Hum.

Our revenue in what we think margin will be per patient, but we don't what we don't know is how many patients.

Individual hospitals are going to want to put into the program.

And being a little more specific I mean, some hospitals.

Want to focus on the lower 10% acuity patients in their hospital and those are there's less.

Opportunity for cost savings there so those will be low return than others and.

Ochsner again is a good example, so there their interest is in <unk>.

Moving the lowest 30% acuity patients to the home. So there you have higher acuity patients and a greater opportunity to generate savings and we don't know yet.

<unk>.

How much how much volume and what those patients will look like until we annualize all of that data and we're in the process of doing that now in step 1 instead.

And standing of our program is to is to collect data and then hear from the partner.

What they want and then to score that out that's why we're doing them.

Yeah, that's that's what day.

Great color I appreciate it.

But I think I think I'll just ask whether there's any anything you can come on now but I appreciate the color and if I may just squeeze on at the very last 1.

In terms of home health to margin like you mentioned very strong in this quarter on.

So I guess first.

A question on how sustainable.

Do you think about next year on those margin. Obviously, that's a question that sequestration cuts coming back and whatnot, but kind of can you can you frame for us how we should think about debt.

In outer years. Thank you.

Joanna This is Dale I mean, I think we've been very consistent in our messaging there that we thought we stood behind our home health business as being a 15% EBITDA margin business.

Continue to state that the appropriate EBITDA margin.

Margin and as you look forward with the sequestration.

We believe our organic growth as well as inorganic growth opportunities.

<unk>.

Allow us to.

Replace not just the revenue, but also continue to improve on our margins as we scale the business bigger so we feel very comfortable with that 15%.

EBITDA level, yeah, absolutely deal on joining this Josh I mean, as you know the home health rule that came out we've got.

Bump in reimbursement that will also help I think it was like 161, 7% that will help offset the sequestration going away. So when you combine reimbursement lift some of the things that you know day on the team are leading on everything we talked about with more non Medicare episodic and just rate improvements there plus growth.

I couldn't agree more deal very confident in the sustainability.

The next question comes from AJ Rice of Credit Suisse. Please go ahead.

Hi, everybody.

Maybe first you.

You guys have now had several since the back half of last year very good growth in your new physician referral.

Sources on wonder.

Is there some way to now.

Now have perspective on that pace of growth I think it's 33% year to year, and Oh, 426%, rather get a year on your current quarter is that.

How does that mature over time do you see the benefit of that new referral source right away.

The amount of referrals, you're getting from those sources improve.

Over some period of time or do they tend to be sticky and stay with you. Once they are a new referral source.

Yeah, Hey, Jay Good morning, this Josh.

I would say you know it does take some time. So the first thing is you know.

Getting that initial kind of referral relationship and that's what's got our growth team on our growth. Later. So excited is you've got you know this much broader group of physicians that are now referring into home health and what we've seen over the course of the pandemic is <unk>.

Got some that are now referring into the home that may have been referring somewhere else previously and then you've got other instances, where it may be a new referral source to us, but they've been a good supporter of home health already and we're just taking market share. So you got both of those dynamics in play and under either scenario.

It may be the first 1 takes a little bit longer for that referral source to have more volume and the second 1 it may take a little bit longer to get stickier to use your phrase.

But I think our team is doing a really good job of <unk>.

Relationship building and frankly, you know continuing to improve our quality scores like Keith mentioned in his prepared remarks at the end of the day, that's going to be the differentiator and making those referral partners sticky.

As far as the sustainability of 30%.

It's too early to call.

On on how long that trend would last and how much of that as you know.

<unk> by the pandemic and with this latest surge wins, the public health emergency over and what does that normalize down too.

On our chore is to make sure that we.

We continue to deliver high quality services and support to those physicians and getting more of their trust and business.

Yeah, No I was assuming that 30% growth wasn't something you continue to see quarter end quarter out, but I was more concerned do you think these are temporary where they may revert to other.

Earl.

Nations It sounds like you don't think that's the case.

We don't at all get real good feedback to the contrary there.

Right the other.

Thing I get asked quite a bit about your visits per episode in home health are.

Probably industry, leading it when you think about it from the perspective of.

A positive impact on your margin you've been in sort of that 12.612, 7% range for 2 quarters now do you think.

Thats a sustainable level is there something about the current environment.

It makes that lower than you think it ultimately settle out but what's your what's your latest perspective on that.

Yes so.

Based on the patients that we have today, we most definitely think its a sustainable level.

And not to rehash all of the work that our clinical leadership team put into rolling out P. D. G M. But we had great confidence on what those ETE would look like based on the primary secondary diagnosis on all the co morbidities and whatnot.

I would always wanted to highlight this a J.

And extremely proud of our continued improvement.

When do you see that we've gone from 4 to 3 stars to $4.3 non stop.

Folks have been able to dial back in a J are you there and I was going to finish up the answer to your question on <unk>. If you are back on.

Okay.

Okay.