Q3 2021 Select Medical Holdings Corp Earnings Call
Good morning, and thank you for joining us today for select Medical Holdings Corporation earnings Conference call to discuss the third quarter 2021 results and the company's business outlook.
Speaking today are the Companys executive Chairman and co founder Robert or attend Yale and the company's executive Vice President and Chief Financial Officer, Martin Jackson Manny.
Management will give you an overview of 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 future events or the future financial performance of the company, including without limitation statements rigs.
<unk> operating results growth opportunities and other statements that refer to select medical's plans.
Expectations strategies intentions and beliefs. These forward looking statements are based on the information available to management I'll feel like medical today and the company assumes no obligation to update these statements as circumstances change at this time I will turn the call.
Friends call over to Mr. Robert Ortenzio.
Okay.
Thanks.
Thank you operator, good morning, everyone and thank you for joining us for select Medical's third quarter earnings conference call for 2021.
We are pleased with our clinical and financial performance for the quarter are.
Our clinical teams continue to excel with high quality compassionate care for our patients during challenging times and for that I'm very grateful.
Our business diversification, we built over the last decade has helped us achieve the growth and stability we were targeting.
Three of our four business segments realized double digit topline growth outpatient rehabilitation and occupational medicine saw over a 24% increase in the same quarter year over year EBITDA growth.
We continue to be active on the development front.
As I mentioned during the second quarter conference call, we entered into new joint ventures with Ascension Saint Thomas in Nashville <unk>.
<unk> is underway and our new 30 bed critical illness recovery hospitals.
Hospital within a hospital at the St. Thomas West campus, which will be a satellite campus of our existing select specialty hospital in Nashville, and we expected to open by the end of the year. We also entered into a new joint venture with community Health systems Northwest Hospital in Tucson, and acquired Keira help Tucson, our critical illness recovery hospitals.
We plan to relocate.
Through our joint venture partners Northwest Medical Center campus by the end of the year.
Also during the third quarter, we entered into a new outpatient joint venture with Cedars Sinai in Los Angeles, contributing our 26 outpatient clinics in that market to the joint venture.
On October one we closed on the acquisition of acuity healthcare, which operates five critical illness recovery hospitals through joint venture partnerships in New Jersey, and West Virginia, We've been working with our new partners integrating these hospitals into our portfolio of critical illness recovery hospitals.
And on November 1st we entered into a new outpatient joint venture in Birmingham, Alabama, where CHS Grand view contributing slacks five outpatient clinics in the market.
Our development pipeline remains strong as we continue to look for opportunities to expand our footprint and partner with leading health care institutions throughout the country.
In addition, as we have included in our earnings press release yesterday. Our board has declared a 12 five cent per share dividend that will be payable on November 29 to shareholders of record November 16th.
The board also increased the capacity of our authorized share repurchase program by $500 million to $1 billion and extended the program two years until December 31st 2023.
As we have done over the past year, we've outlined our business segments monthly revenue volume and occupancy statistics in our earnings press release and public filings, including monthly results for 2019 to provide a data point for each of our business segments prior to the pandemic compared to where they are currently we will.
<unk> to include this information as long as it provides meaningful insight to the impact of COVID-19, and the company's financial performance.
Overall revenue for the third quarter grew seven 8% to $153 billion for years.
And for year to date has increased 14, 1% to 4.64 billion.
Revenue in our critical illness recovery hospitals segment in the third quarter increased two 2% to $531 million compared to $519 million in the same quarter last year.
Days were down two 4% compared to the same quarter last year with 272000 patient days in the quarter occupancy in our critical illness recovery hospitals segment was 68% in the third quarter compared to 71% in the same quarter last year and 67% in the third quarter of 2019, we did increase.
Our bed count on a year over year same quarter basis for 2020 to 2021 by 119.
This increase in beds was a result of the acquisition of our New Tucson Hospital, which added 51 beds and the balance of the beds 68 came from bed relocations bed additions and temporary beds at nine of our hospitals.
Revenue per patient day increased four 7% to $1931 per patient day in the third quarter.
Revenue in our rehabilitation hospital segment in the third quarter increased 13% to $212 million compared eight.
8 million in the same quarter last year.
Patient days increased seven 6% compared to the same quarter last year to almost 103000 patient days days occupancy in our rehab hospitals was 82% in both the third quarters this year and last year and 75% in the third quarter of 2019 revenue per patient.
<unk> increased 6% to $1881 per day in the third quarter.
Revenue in our outpatient rehab segment in the third quarter increased 14, 4% to $275 million compared to $240 million in the same quarter last year patient visits were up 18, 3% with $2 3 million visits in the quarter compared to 2 million visits in the same quarter last year.
$2 2 million visits in the third quarter of 2019, our revenue per visit was $102 in the third quarter compared to $104 per visit in the same quarter last year. This reduction in rate is due to a change in our payer mix caused by the pandemic and the related lockdowns in the third quarter last year.
<unk>, which is now normalized to a payer mix consistent with our experience prior to the onset of the pandemic.
Revenue in our Concentrix segment in the third quarter increased 12, 8% to $442 million compared to $392 million in the same quarter last year for the centers patient visits were up 14% to $3 two 2 million visits compared to 283 million.
Visits in the same quarter last year and $3, one 5 million visits in the third quarter of 2019.
Revenue per visit in the centers increased to 100.
Revenue per visit in the centers increased $124 in the third quarter compared to $121 in the same quarter last year.
Total company adjusted EBITDA for the third quarter declined two 2% to $208 $6 million compared to $213 2 million in the same quarter last year. Our consolidated adjusted EBITDA margin was 13, 6% for the third quarter compared to 15% for the same quarter last year.
We did incur one time expenses during the quarter totaling $6 5 million. These included a write down of PPE supplies integration costs of our Tucson acquisition and costs associated with forced relocation of one of our hospitals. In addition, Q3 of 2020 included $3 $2 million of.
Just on the EBITDA associated with the <unk> business, which we sold in August of 2020.
Our critical illness recovery hospitals segment, adjusted EBITDA was $57 2 million in the third quarter compared to $88 8 million in the same quarter last year adjusted EBITDA margin for the segment was 10, 8% in the third quarter compared to 17, 1% in the same quarter last year, we continue to experience significantly higher <unk>.
<unk> cost, which is being driven by an increase of both ours and rates.
Of agency staffing salary wages and benefits increased by 560 basis points on a same quarter year over year basis.
Our rehabilitation Hospital segment, adjusted EBITDA declined one 3% to $44 $1 million in the third quarter compared to $44 6 million in the same quarter last year adjusted EBITDA margin for the rehab Hospital segment was 27% in the third quarter compared to 23, 7% the same.
Quarter last year, we have also experienced increased labor cost of clinicians and our rehab hospitals salary wages and benefits increased on a same quarter year over year basis by 140 basis points.
Our outpatient rehabilitation hospital.
Our outpatient rehabilitation adjusted EBITDA increased 26, 6% to $38 $8 million in the third quarter compared to $30 6 million in the same quarter last year adjusted EBITDA margin for the outpatient segment was 14, 1% in the third quarter compared to 12, 8% in the same quarter last year.
The increase in EBITDA is primarily driven by increases in patient visit volumes.
Our concern for adjusted EBITDA increased 23, 9% to $99 8 million in the third quarter compared to $80 5 million in the same quarter last year consensual recognized $1 $6 million of cares Act payments in the third quarter. This year compared to 400000 in the same quarter last year adjusted EBITDA margin.
<unk> was 22, 6% in third quarter compared to 26 in the same quarter last year. The increase in EBITDA is driven by both increased patient volumes as well as COVID-19 screening and testing services provided by our centers to onsite clinics located at employer work sites.
Earnings per common share was <unk> 57.
In both the third quarter. This year in same quarter last year adjusted earnings per common share was <unk> 56 in the third quarter last year, which excluded non operating gains and their related tax impacts.
Now I'll turn it over to Marty Jackson for some additional financial details before opening the call up for questions.
Yeah.
Thanks, Bob and good morning, everyone.
For the third quarter, our operating expenses, which include our cost of services and general and administrative expenses were 134 billion or 87, 1% of revenue.
For the same quarter last year operating expenses were $1 2 billion 85, 4% of revenue the increase in our operating expenses as a percent of revenue was primarily driven by the increased staffing cost in our critical illness recovery hospitals and rehabilitation hospital segments.
Cost of services were $1 3 billion for the third quarter. This compares to $1 one $8 billion in the same quarter last year as a percent of revenue cost of services were 84, 6% for the third quarter. This compares to 82, 9% in the same quarter last year.
G&A expense.
<unk> was $37 9 million in the third quarter. This compares to $35 $5 million in the same quarter last year G&A as a percent of revenue was two 5% in both the third quarter of this year in the same quarter last year.
As Bob mentioned total adjusted EBITDA was $208 $6 million and the adjusted EBITDA margin was 13, 6% for the third quarter, which compares to total adjusted EBITDA.
$213 $2 million.
And adjusted EBITDA margin of 15% in the same quarter last year.
Depreciation and amortization was $50 1 million in both the third quarter of this year in the same quarter last year.
We generated we generated $11 $5 million in equity and earnings of unconsolidated subsidiaries. During the third quarter. This compares to $8 $8 million in the same quarter last year.
Interest expense was.
It was $33 8 million in the third quarter. This compares to $34 million in the same quarter last year.
We recorded income tax expense of $27 7 million in the third quarter. This year, which represents an effective tax rate of 21, 6%.
This compares to the tax expense of $31 $6 million and an effective tax rate of $23 to.
<unk> percent in the same quarter last year.
Net income attributable to Noncontrolling interests were $23 $3 million in the third quarter. This compares to $27 5 million in the same quarter last year.
Net income attributable to select medical holdings was $76 9 million in the third quarter and earnings per common share was <unk> 57.
At the end of the third quarter, we had $3 4 billion of debt outstanding and $748 million of cash on the balance sheet.
Our debt balance at the end of the quarter included $2 1 billion in term loans $1 2 billion.
6.25% senior notes and $74 million of other miscellaneous debt net leverage based on our credit agreement EBITDA was two six times at the end of the third quarter compared to $2 five one times at the end of the second quarter and 348 times at the end of last year.
Operating activities provided $99 million of cash flow in the third quarter, which includes the repayment of $92 million of Medicare advances.
As of September 32021, we have $159 5 million of Medicare advances remaining on the balance sheet. We expect this remaining balance to be recouped now through April of 'twenty two.
Our DSO.
<unk> was 54 days.
At September 30th 21. This compares to 54 days as of June 30, 'twenty one.
And 56 days at the end of December December 30, <unk> 2020.
Investing activities used $69 $1 million of cash in the third quarter.
The use of cash included $48 9 million in purchases of property and equipment.
And $21 9 million and acquisition and investment activity in the quarter.
We also generated $1 8 million in proceeds from the sale of assets in the third quarter.
Financing activities used $85 $4 million of cash in the third quarter. This included $64 4 million and the repurchases of common stock $47 5 million of which constituted repurchases under our board authorization repurchase program.
This also includes $16 $9 million in dividend payments and $7 million net payments and distributions to noncontrolling interest in the quarter.
The company repurchased over 138 million shares for a total cost of $47 $5 million during the third quarter under our board authorized share repurchase program.
Since inception, the company has repurchased close to 40 million shares for a total consideration of $404 million.
As Bob mentioned, our board authorized a $500 million increase in availability under the program was extended through December 31 2021.
Our total available liquidity at the end of the third quarter was over 134 billion. This includes $748 million of cash.
And close to $595 million in.
Revolver availability under the select credit agreement.
Additionally, in our earnings press release, we provided updated business outlook for calendar year 2021 for the full year 2021, we now expect revenue in the range of 6.05 to $6 $1 5 billion expected.
<unk> adjusted EBITDA to be in the range of $980 million to $1 billion and.
<unk> earnings per common share to be in the range of $2 98.
The $3 and nonsense.
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 additional questions.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Standby, while we compile the Q&A roster.
Our first question comes from the line of Justin Bowers with Deutsche Bank. Your line is now open.
Hi, good morning, everyone.
Okay.
Just in terms of the labor situation I mean, that's that's not a surprise for anyone and health care services. These days, but can you just talk about some of the some of the tactics.
That's in the strategies that you guys are doing to.
To mitigate the situation and just making sure you guys have.
Enough capacity.
Yeah.
Sure, Jeff we'd be happy to do so.
As you might suspect there is a number of things that we're doing to make sure that were.
We will have appropriate.
Clinical staffing in place to take care of them.
Volume increases.
And a lot of that has to do with.
Yeah.
Really focusing on.
Consistently evaluating each of the markets to upgrading or two increasing pace as the market demands.
We're spending a lot of time on <unk>.
Agencies, I think you and I have talked about it before that.
The PRN pool is basically disappeared most of those have gone to agency.
So we're taking a look at making sure that we have longer term.
Contracts with the agencies over a period of nine months and not weeks.
We're also working on our CMA programs trying to increase.
CNA.
Our C&I population.
So there's a number of things that we're doing.
I think some of those also include technology, we're taking a look at our telemetry units and some of our newer centers.
Where we can use.
Technology to address those.
We can use the nurses on the floor.
Understood and then.
Is <unk> typically that's a seasonally strong quarter for <unk>.
For the for the for.
For the L tax and.
Historically, there's been some benefit with incrementals.
Is that understanding that's probably not going to be the same pattern.
The make order of magnitude but.
Should there be some type of <unk>.
Margin benefit as volumes step up or as is the.
As the labor situation kind of.
Going to eat into that historical.
Kind of benefit when volumes increase.
Yes, you are.
Absolutely right. The fourth quarter is typically we see a bit of a pop in census.
And we are seeing that.
Having said that we're also seeing labor increases so we would hesitate at this time just to say that there's going to be margin expansion in the fourth quarter due to the volume increase specifically because of the additional labor costs.
Got it and then just.
The $6 3 million and one timers that you guys called called out was that was that most all enel tackle was that in any other segments as well.
Just.
Go ahead, yes.
Yes, it was mostly all in <unk>.
Thank.
I think it was five 5% to $6 $5 million was in <unk>.
Okay, and then with all the new beds coming online.
Which I think is roughly 200.
Is there any other thing that we should be keeping in mind.
In terms of startup ramp up or any one timers for the segment in <unk>.
Yes, that's a great question I think there's going to be some.
As we usually have some additional integration costs associated with.
With acuity with the integration of acuity.
And.
I think that we should see that in October and maybe a little bit in November but the post that I think it's full steam ahead.
Okay. Thanks, I'll hop back in queue.
Our next question comes from the line of Frank Morgan with RBC capital markets. Your line is now open.
Good morning, Pete.
Is there any.
Just curious getting more specific on the <unk>.
Implied fourth quarter guidance.
Is there anything that you are building in our Houston any improvement in the old Tech are basically things stay just as they are and then.
The rest of the businesses are outpatient et cetera.
<unk> continued to improve and make up that shortfall is that the way youre thinking about or is there any other.
Considerations that you're thinking about in the fourth quarter for <unk>.
Critical care covered hospitals.
Yes, Frank I think from our perspective.
We're really taking a look at L tax.
Being in that same ballpark again, it's really a question of the negotiation with the.
The nursing agencies.
And what the rates are.
Got you and on.
On that.
Can you give us any kind of color around what's the difference.
Uh huh.
Between say contract me on a weekly basis versus a monthly yogurt.
Two or three month basis.
Is it a meaningful difference there.
In terms of course as far as the pricing is concerned the pricing is really not that much different it's just getting the guarantee that you're going to have those those nurses over a longer period of time.
As you as I'm sure you know fourth quarter, we start this week, we've seen some nice increases and then the first quarter you really see a pop in the first quarter. So we want to make sure that we have the staffing in place.
To take care of those patients.
Got you, but that does it but this is literally all staffing theres no other no.
Moving around.
Units opening or closing or transitioning during the quarter you attribute most of this.
So basically this nursing issue.
We would.
Got you.
And then I'm just curious over on the Earth's at good pricing growth presumably.
Presumably that's mostly acuity.
Just curious your thoughts on how sustainable that type of <unk>.
Rate growth as we start thinking about next year.
Yes, we think that will continue to see those same types of increases shrink.
Gotcha.
Just curious obviously this news out of Pfizer today, but no we're not.
Large cap pharma analyst.
How does that strike you do you think that with.
You think thats.
The good thing for your business and that certainly hopefully would help on the labor side, but just any initial reactions to how you think that would affect providers.
What's that.
Well have more specific Frank I'm sorry.
We've been preparing for our earnings call I'm not like.
Hello, Matt Yes.
Are those the way Pfizer has a real appeal that and as you know.
Highly effective in reducing.
Hospitalization for Covid in.
Requesting approval on it.
Okay, Yes, sure that's going to be a game changer of course.
It's that's going to be strong.
I see it as a as a positive I see it as a positive for <unk>.
Staffing I see it as a positive for you now.
All of health care so.
I think that's a great thing the more therapeutics that we get.
The better off we're going to be that.
I am not concerned that there is not going to be enough Hell teck patients for our hospitals.
Right Okay. Thanks.
Our next question comes from the line of Kevin Fischbeck with Bank of America. Your line is now open.
Good morning, guys. This is courtney on for Kevin Thanks for taking the question.
One quick one for you guys called out in your prepared remarks, and also in the press release that <unk> occupancy was down sequentially quarter over quarter as well as year over year. So could you just talk a bit about your occupancy in markets that are higher.
Higher COVID-19 disruption versus markets with lower Covid disruption.
Yes, definitely we'd be happy to do that.
When we had our second quarter.
Our earnings call I think we talked about in.
In the second quarter, we had a number of hospitals that were on bed hold.
And that was really the direct result of us not paying.
Not paying agency fees, we stopped at a certain cap the agency fees at a certain dollar amount and what we've decided to do was.
Moving forward, we're going to stop that we're going to continue to pay additional dollars to the agencies.
And so in essence, what we saw was you saw a 65% occupancy rate in July 68%.
In.
In August and then 70 I think it was 70, 71%.
September that's really a function of we just couldnt flip a switch and make those changes we were making those changes basically in August. So you saw a little bit of a pop in August and then we're seeing that.
71% in September and those that occupancy continues to.
To remain in that 70 plus percent range.
Okay. Thanks, that's super helpful and.
And so I guess you know you guys talked about how you you restarted the share repo program this quarter and.
<unk> authorized the larger program that's double the size of what it was before so I guess just generally how are you guys thinking about share repo now obviously you guys reiterated your long term your long term growth CAGR. So was this always a library that you plan to use it to hit that 17% to 20% EPS CAGR or is it like an upside lever.
This is really an Upsized court Courtney I mean, what we what we decided to do was we went through we were at.
$404 million of the $500 million repurchase program.
And we wanted to make sure that we're in a position to be opportunistic.
Yes.
Accordingly, when you look at.
Towards the end of the year or the beginning of next year. When we do our final purchase of Concentrix. The company will become a very significant.
Cash generator. So we're just.
Putting all of the all of the bullets and R and R. R.
Our.
Gunter to take advantage of opportunities that may present themselves to through next year.
Yes, that's correct.
And then I guess, one last quick one you know give you guys a break from the labor question I guess, what would what would you say is the ongoing rollout of telehealth and telemedicine for select you know now that it seems like patient care, it's really Barton you'd return to the actual health care settings and actual facilities itself.
You could give any segment level color.
But both in the outpatient rehab and then particularly at the centra.
Sentra have really have the capabilities to do a lot of telehealth and in fact during the height of the pandemic both segments had saw dramatic increase in their telehealth.
But that has really come down pretty dramatically and.
I'm not I don't think that we see that as a trend in our business that may be different.
In other segments, but in.
Occupational medicine and in outpatient rehab, we see that coming back down to more normal levels that we saw.
Prior to the pandemic.
Okay. Thanks, guys.
Our next question comes from the line of Bill Sutherland with the benchmark. Your line is now open.
Thanks, Good morning.
Marty and Bob So.
Just wanted to think a little bit more about the staffing issue.
And I suppose it's a little more acute.
Critical illness the.
First because of the.
The profile of the employees in other words more therapists.
And I guess, that's not as tougher situation.
As the <unk>.
The nursing.
Picture.
That's absolutely true.
The rehab hospitals are while they have nurses is very therapy, driven and our critical illness recovery hospitals are not not only more heavily nurses the level of training and sophistication that nurse population that we employ.
Higher as well so we really compete often with hospital acute hospital ICU for the nurses that we need so that makes it even more difficult.
For us to.
Keep the.
Those levels nursing that we needed the critical illness recovery hospitals.
So.
When you look at the last year or two and the mix of your staff.
And critical illness that are contractors.
Can you give us a sense of the change in percentage of total.
Okay.
A year or two.
Yes, Bill Historically agency has been in that 10% to 13% range and what we've seen.
Over the past year is really in the 22% to 25% range.
So.
Andy.
And I think a lot of that has to do with what we historically have done is we've used our fully deployed nurses. Then we would go to <unk> and then we would go to agency PR in for all intents and purposes has disappeared.
Most of those have gone over to the agency.
Just just because of economics.
Absolutely.
No I mean, the economics here are very very significant.
Okay.
As part of the issue also is that you just had more more turnover in your permanent.
Employee base and are you taking any strategies. It if that's the case or are you taking any strategies.
That as well.
We certainly are I mean, we're very focused on turnover.
I know.
The operators have spent a significant amount of time on retention on mentoring programs.
So it really and there's a whole host of programs that they have in place to do that.
Yeah.
So youre hopeful you can get a better handle on that I mean thats. The other let's say other way you could give us.
<unk>.
You can bring down this this problem with the.
Agency costs.
Obviously.
Yes, no I think thats right okay.
Okay, and then last one.
How are you looking at the outlook for.
The compensation.
Increases into next year, just given this whole labor picture and benefits for that matter and insurance.
<unk>.
Hey, Bill when you say the the labor costs are you talking about what we just talked about the staffing.
I'm thinking more about your permanent ranks and kind of what you were thinking about is the you know what youre going to be looking at as far as inflationary kind of impact.
Well I think what we've done is we're.
We're probably in the two 5% to 3% range.
Across the board for next year is what we've been planning for.
Okay I just didn't know if you're seeing more pressure on that as well that was that was the point of the question. Yes, I mean, the only pressure is coming from the clinical staff.
Great.
And is that is that kind of in line or is that also creeping up the permanent.
Certainly creeping up that.
It's a function of both the full time employees cost the agency so.
The way, we take a look at us on a combined basis.
Alright, okay.
Alright, guys. Thanks, so much.
Bill Thanks Bill.
Our next question comes from the line of a J Rice with credit Suisse. Your line is now open.
Hi, everybody I think is a follow up to.
Frank's question I wanted to ask you guys about a couple of biotech drugs to while you're there.
Okay.
Oh.
Getting aside.
So not to beat a dead horse here, but to ask on the labor I mean, some of the other providers are talking about the fact that during the COVID-19 surge of Delta surge they had.
Nurses out on quarantine and that sort of exasperated the problem, but on the other hand that might be more of a temporary issue than than some of the long term dynamics.
May persist.
<unk> drilled I mean, how much of the labor issue that you're dealing with do you think was related to maybe just the after effects of the.
Serge and might dissipate versus sort of some of that is going to persist for a while.
Yes, I wish it was the case, but I would tell you that we don't really see that.
Okay. Okay.
Let me ask you about.
The vaccine mandate, where are you guys add with respect to.
To your employee base and do you think thats going to be a further challenge in the fourth quarter here.
<unk> absorbed most of whatever's going to happen as a result of that.
Well I think the vaccine mandates are going to be.
The challenge for all health care providers to meet and we're certainly on it.
While we have not mandated we certainly have encouraged and educated and we continue to get more and more of our employees vaccinated, but with the new federal mandate.
I'll move quickly.
Like everybody else and quite honestly it will be.
It'll be easier when you have it required across the board then.
Hospitals, making around decisions and markets because it causes a very.
Has the potential cause very disproportionate issues in Submarkets, where.
One would mandate another institution would not.
Right.
Obviously, you had good performance both in the Concentrix business in the outpatient rehab business I guess I would have thought that those might've gotten adversely impacted by fallout from the.
Delta surge it doesn't really look like that happened much did you.
Was there anything I guess it would be more of a reopening issue.
Related to can sentra, if there was any fallout and it would be.
Step down on.
People coming out of.
Elective procedures or something on the outpatient side, but it's hard to see in the numbers that you had much impact did you feel like there.
You guys have said that you feel like there were.
If there was any impact from the delta surge in the third quarter on those businesses.
We did not.
<unk>.
To use <unk> term it was full speed ahead on both of those segments with.
Increasing.
Volumes, and we're not able to track any negative to the Delta search Hey.
Jay.
The great thing that we feel very good about is that when you take a look and compare 'twenty one's.
Volume numbers to 19, which is where all the COVID-19 started.
We're well ahead of that.
And that's yes.
The signal.
Yes.
Just less than I wanted to just ask you about the development activity it seems like.
Maybe there's a little bit of a pickup in activity I guess I was I was wondering do the in the aftermath of the pandemic either in some of the stuff you're doing with the critical access facilities or the <unk> are you seeing more urgency more interest.
People understanding your capabilities more than saying, Hey, I'd like to do a partner there and then also with the outpatient.
Things Youre doing that sort of new what is the opportunity to pick up the branding of a strong hospital system in the local market.
With those outpatient relationships or what is the driver behind doing the JV on the outpatient rehab side.
Let me take the first one first part of your question, a J, which is in terms of what's the demand for.
The joint venture in that development and I would say that since the pandemic the demand for joint ventures in critical illness recovery hospitals or the <unk> segment has increased.
I think thats because the <unk>.
Pandemic has given a very significant recognition of the importance of having.
That level of service to Decompress, Icu's, which are in short supply at most acute care hospital. So that recognition has driven a lot more incoming on.
Maybe putting a lot of our specialty critical illness recovery hospitals and in a market that maybe does not have access to them. So that has been an increase since the pandemic on the outpatient side of the business. It's been a natural outgrowth of successful joint ventures in.
Ships with very significant.
We can partner. So we may have started a partnership with a rehabilitation hospital and adding on outpatient just becomes.
Natural as we.
Deepen the relationships that we may have and.
Start having discussions about the opportunities and yes. It is.
It is absolutely the case that we feel it benefits us.
Are you able to take care of our being able to take advantage of the branding.
A local dominant health systems, I mean, I mentioned in the prepared remarks today about our new joint venture partners with Cedars.
They're just a very significant player in.
In southern California, and being able to develop and put up new centers with their brand I think is very helpful and thats been repeated across a number of our areas. So theres some of those joint ventures.
<unk>, our snap ons to existing joint ventures, and a few that are just are new.
I mean, I think you are asking more and more of that.
How many of your outpatient.
Clinics are now in a joint venture and where do you see that going potentially overtime.
Yeah, I'm going to say I'm going to say, 40%.
Of R.
Our outpatient business is.
Comes through joint ventures.
I'd have to check that number on hold me to it but I think that if I had to think about why it was it's probably close to that and where do we see it going we see it growing on both sides.
We have a pretty robust acquisition pipeline for small outpatient.
Acquisitions that would not be partner.
And then we will certainly use opportunities to partner with large systems.
Many of those that we already have partnerships with and some new ones.
Okay great.
Thank you AJ.
Our next question comes from the line of Justin Bowers with Deutsche Bank. Your line is now open.
Alright, thank you.
Squeezing me back in I, just wanted to follow up on the on two things would be L. Tech pipeline is that.
How does that look.
With your kind of traditional hospital and hospital model versus like <unk>.
New builds.
Is the first question and then I wanted to follow up on some central.
Yes, Justin could you repeat that question. So yes. So I'm just in terms of the old Tech pipeline like if you look at the portfolio now, it's mostly it's mostly hospital and hospital.
You've done a couple.
A little bit of a mix.
The back half of this year. So I'm just as you look forward looking.
Looking ahead.
Your pipeline and kind of deals that you have.
Is it more.
More of the rock this model.
Hospital and hospital or is it.
Is it going to be more kind of new builds or.
Freestanding.
Yes, Jonathan.
Thanks for specifying that yes. It is all associated with.
For the most part HII ages.
Okay.
So.
Depending on the circumstances, we may do a new build but for the most part.
We're very focused on the HIV ages.
Yes.
Okay.
And then just wanted to circle back to consensus again, just because I think this has been in terms of volumes it's probably.
A record quarter.
For you guys. So I was wondering if you could just give us a little more color on some of the strength that youre seeing.
Where that's coming from and then.
Yes.
As we think about for Q2 is usually a little seasonality of the business. So how should we think about kind of the.
Some of that strength.
To overcome some of the typical seasonality what are kind of the puts and takes as we think about <unk> business.
While consensual right now is pretty much hitting on all cylinders I mean, they they with a return of employment there theyre seeing a lot more of their pre employment stuff as more people are working youre seeing more injuries. They continue to have some testing so.
That business has.
Just look at the numbers that just it's just been incredibly strong. They also do a very good job on M&A picking up new locations and new centers. So all the fundamentals and that and the concentric business are there and are strong and so we.
We continue to be pretty bullish on on the performance of <unk> Centrum.
And what we've seen is when you go into the specific areas.
We've seen growth in hospitality, we have seen growth in airlines, we see growth in the schools coming back online and actually state and local governments coming back online.
So those areas, we're pretty dormant.
For the past year, but we've seen some nice increases there.
Yes.
Okay got it so it sounds like <unk>.
Heart recovery part picking up share as well.
Okay. That's all I got thanks, so much Greg.
Great.
Okay.
I'm showing no further questions at this time I would now like to turn the conference back to the management for their closing remarks.
Thanks to everybody for joining us and we look forward to Covid.
See you next quarter. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
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Good morning, and thank you for joining us today for select Medical Holdings Corporation earnings Conference call to discuss the third quarter 2021 results and the <unk>.
Business outlook.
We can today are the Companys executive Chairman and co founder Robert Ortenzio, and the company's executive Vice President and Chief Financial Officer Martin Jackson.
Management will give you an overview of 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 future events or the future financial performance of the company, including without limitation statements rigs.
<unk> operating results growth opportunities and other statements that refer to select medical's plans.
Expectations strategies intentions and beliefs. These forward looking statements are based on the information available to management of select medical today and the company assumes no obligation to update these statements as circumstances change at this time I will turn the call.
Friends call over to Mr. Robert Ortenzio.
Okay.
Thank you operator, good morning, everyone and thank you for joining us for select Medical's third quarter earnings conference call for 2021.
We are pleased with our clinical and financial performance for the quarter. Our clinical teams continue to excel with high quality compassionate care for our patients during challenging times for that I'm very grateful.
Our business diversification, we built over the last decade has helped us achieve the growth and stability we were targeting.
Three of our four business segments realized double digit topline growth outpatient rehabilitation and occupational medicine saw over a 24% increase in the same quarter year over year EBITDA growth.
We continue to be active on the development front.
As I mentioned during the second quarter conference call, we entered into new joint ventures with Ascension Saint Thomas in Nashville, construction is underway at our new 30 bed critical illness recovery hospitals.
Hospital within a hospital at the St. Thomas West campus, which will be a satellite campus of our existing flex specialty hospital in Nashville, and we expected to open by the end of the year. We also entered into a new joint venture with community Health systems Northwest Hospital in Tucson, and acquired sure help Tucson and critical illness recovery hospitals.
We plan to relocate.
Through our joint venture partners Northwest Medical Center campus by the end of the year.
Also during the third quarter, we entered into a new outpatient joint ventures with Cedars Sinai in Los Angeles, contributing our 26 outpatient clinics in that market to the joint venture.
On October one we closed on the acquisition of acuity healthcare, which operates five critical illness recovery hospitals through joint venture partnerships in New Jersey, and West Virginia, We've been working with our new partners integrating these hospitals into our portfolio of critical illness recovery hospitals.
And on November 1st we entered into a new outpatient joint venture in Birmingham, Alabama, EHS brand view contributing <unk> five outpatient clinics in the market.
Our development pipeline remains strong as we continue to look for opportunities to expand our footprint and partner with leading healthcare institutions throughout the country.
In addition, as we have included in our earnings press release yesterday, Our board has declared a $12.05 per share dividend that will be payable on November 29 to shareholders of record November 16th.
The board also increased the capacity of our authorized share repurchase program by $500 million to $1 billion and extended the program two years until December 31st 2023.
As we have done over the past year, we have outlined our business segments monthly revenue volume and occupancy statistics in our earnings press release and public filings, including monthly results for 2019 to provide a data point for each of our business segments prior to the pandemic compared to where they are currently we will can.
Tenure to include this information as long as it provides meaningful insight to the impact of COVID-19, and the company's financial performance.
Overall revenue for the third quarter grew seven 8% to 153 billion for year.
And for year to date has increased 14, 1% to 464 billion.
Revenue in our critical illness recovery hospitals segment in the third quarter increased two 2% to $531 million.
Compared to $519 million in the same quarter last year. The patient days were down two 4% compared to the same quarter last year with 272000 patient days in the quarter occupancy in our critical illness recovery Hospital segment was 68% in the third quarter compared to 71% from the same quarter last year and 60%.
7% in the third quarter of 2019, we did increase our bed count on a year over year same quarter basis, our 2000 22021 by 119.
This increase in beds was a result of the acquisition of our New Tucson Hospital, which added 51 beds and the balance of the beds 68 came from bed relocations bed additions and temporary beds at nine of our hospitals.
Revenue per patient day increased four 7% to $1931 per patient day in the third quarter.
Revenue in our rehabilitation hospital segment in the third quarter increased 13% to $212 million compared.
$88 million in the same quarter last year.
<unk> increased seven 6% compared to the same quarter last year, almost 103000 patient days days occupancy in our rehab hospitals was 82% in both the third quarter this year and last year and 75% in the third quarter of 2019 revenue per patient day.
<unk>, 6% to $1881 per day in the third quarter.
Revenue in our outpatient rehab segment in the third quarter increased 14, 4% to $275 million compared to $240 million in the same quarter last year patient visits were up 18, 3% with $2 3 million visits in the quarter compared to 2 million visits in the same quarter last year.
At $2 2 million visits in the third quarter of 2019, our revenue per visit was $102 in the third quarter compared to $104 per visit in the same quarter last year. This reduction in rate is due to a change in our payer mix caused by the pandemic related lockdowns in the third quarter last.
Year, which has now normalized to a payer mix consistent with our experience prior to the onset of the pandemic.
Revenue in our Concentrix segment in the third quarter increased 12, 8% to $442 million compared to 392 million in the same quarter last year for the centers patient visits were up 14% to $3, two 2 million visits compared to $2 $83 million visit.
In the same quarter last year and $3, one 5 million visits in the third quarter of 2019.
Revenue per visit in the centers increased to 100.
Revenue per visit in the centers increased $124 in the third quarter compared to $121 in the same quarter last year.
Total company adjusted EBITDA for the third quarter declined two 2% to $208 $6 million compared to $213 2 million in the same quarter last year. Our consolidated adjusted EBITDA margin was 13, 6% for the third quarter compared to 15% from the same quarter last year.
We did incur one time expenses during the quarter totaling $6 5 million Canadian quarter of a write down of PPE supplies integration of cost of our Tucson acquisition and costs associated with forced relocation of one of our hospitals. In addition, Q3 of 2020 included $3 $2 million of.
Just on the EBITDA associated with the <unk> business, which we sold in August of 2020.
Our critical illness recovery hospitals segment, adjusted EBITDA was $57 2 million in third quarter compared to $88 8 million in the same quarter last year adjusted EBITDA margin for this segment was 10, 8% in the third quarter compared to 17, 1% in the same quarter last year, we continue to experience significantly higher nurse.
<unk> cost, which is being driven by an increase of both ours and rates.
Of agency staffing salary wages and benefits increased by 560 basis points on a same quarter year over year basis.
Our rehabilitation Hospital segment, adjusted EBITDA declined one 3% to $44 $1 million in the third quarter compared to $44 6 million in the same quarter last year adjusted EBITDA margin for the rehab Hospital segment was 27% in the third quarter compared to 23, 7% the same.
Quarter last year.
We have also experienced increased labor cost of clinicians and our rehab hospitals salary wages and benefits increased on a same quarter year over year basis by 140 basis points.
Our outpatient rehabilitation.
Our outpatient rehabilitation adjusted EBITDA increased 26, 6% to $38 8 million in the third quarter compared to $30 6 million in the same quarter last year adjusted EBITDA margin for the outpatient segment was 14, 1% in the third quarter compared to 12, 8% in the same quarter last year.
The increase in EBITDA is primarily driven by increases in patient visit volumes.
Our concern for adjusted EBITDA increased 23, 9% to $99 8 million in the third quarter compared to $80 5 million. The same quarter last year consensual recognized $1 $6 million of cares Act payments in the third quarter. This year compared to 400000 in the same quarter last year adjusted EBITDA margin.
<unk> was 22, 6% in the third quarter compared to 26 in the same quarter last year. The increase in EBITDA is driven by both increased patient volumes as well as COVID-19 screening and testing services provided by our centers to onsite clinics located at employer Worksite earnings per common share was <unk> 57.
In both the third quarter. This year in same quarter last year adjusted earnings per common share was <unk> 56 in third quarter last year, which excluded non operating gains and their related tax impacts.
I'll now turn it over to Marty Jackson for some additional financial details before opening the call up for questions.
Thanks, Bob and good morning, everyone for.
For the third quarter, our operating expenses, which include our cost of services and general and administrative expenses were $1 $34 billion or 87, 1% of revenue.
To the same quarter last year operating expenses were $1 2 billion 85, 4% of revenue the increase in our operating expenses as a percent of revenue was primarily driven by the increased staffing costs in our critical illness recovery hospitals and rehabilitation hospital segments.
Cost of services were $1 3 billion for the third quarter. This compares to $1. One 8 billion in the same quarter last year as a percent of revenue cost of services were 84, 6% for the third quarter. This compares to 82, 9% in the same quarter last year.
G&A expense.
Was $37 9 million in the third quarter. This compares to $35 $5 million in the same quarter last year G&A as a percent of revenue was two 5% in both the third quarter of this year in the same quarter last year.
As Bob mentioned total adjusted EBITDA was $208 6 million.
The adjusted EBITDA margin was 13, 6% for the third quarter, which compares to total adjusted EBITDA.
$213 $2 million.
And adjusted EBITDA margin of 15% in the same quarter last year.
Depreciation and amortization was $50 $1 million in both the third quarter of this year in the same quarter last year.
We generated we generated $11 $5 million in equity and earnings of unconsolidated subsidiaries. During the third quarter. This compares to $8 8 million in the same quarter last year.
Interest expense.
With $33 $8 million in the third quarter. This compares to $34 million in the same quarter last year.
We recorded income tax expense of $27 7 million in the third quarter. This year, which represents an effective tax rate of 21, 6%.
This compares to the tax expense of $31 6 million.
And an effective tax rate of 23 to.
<unk> percent in the same quarter last year.
Net income attributable to Noncontrolling interests were $23 $3 million in the third quarter. This compares to $27 5 million in the same quarter last year.
Net income attributable to select medical holdings was $76 9 million in the third quarter and earnings per common share was <unk> 57.
Yes.
At the end of the third quarter, we had $3 $4 billion of debt outstanding and $748 million of cash on the balance sheet.
Our debt balance at the end of the quarter included $2 1 billion in term loans $1 2 billion.
In fixed in a quarter percent senior notes and $74 million of other miscellaneous debt net leverage based on our credit agreement EBITDA was two six times at the end of the third quarter compared to $2 five one times at the end of the second quarter and 348 times at the end of last year.
Operating activities provided $99 million of cash flow in the third quarter, which includes the repayment of $92 million of Medicare advances.
As of September 32021, we have $159 $5 million of Medicare advances remaining on the balance sheet. We expect this remaining balance to be recruit now through April of 'twenty two.
Our DSO.
<unk> was 54 days.
At September 30, 21. This compares to 54 days as of June 30, 'twenty one.
And 56 days at the end of December December 30, <unk> 2020.
Investing activities used $69 $1 million of cash in the third quarter.
The use of cash included $48 9 million in purchases of property and equipment.
And $21 9 million and acquisition and investment activity in the quarter. We also generated $1 8 million in proceeds from the sale of assets in the third quarter.
Financing activities used $85 $4 million of cash in the third quarter. This included $64 4 million and the repurchases of common stock $47 5 million of which constituted repurchases under our board authorization repurchase program.
This also includes $16 9 million in dividend payments and $7 million net payments and distributions to noncontrolling interest in the quarter.
The company repurchased over 138 million shares for a total cost of $47 5 million during the third quarter under our board authorized share repurchase program.
Since inception, the company has repurchased close to 40 million shares for a total consideration of $404 million.
As Bob mentioned, our board authorized a $500 million increase in availability under the program was extended through December 31 2021.
Our total available liquidity at the end of the third quarter was over $134 billion.
This includes $748 million of cash.
And close to $595 million in.
Revolver availability under the select credit agreement.
Additionally, in our earnings press release, we provided updated business outlook for calendar year 2021 for the full year 2021, we now expect revenue in the range of 6.05 to $6 $1 5 billion.
Expected adjusted EBITDA to be in the range of $980 million to $1 billion and expected earnings per common share to be in the range of $2 98.
The $3 nonsense.
This concludes our prepared remarks and at this time, we would like to turn it back over to the operator to open up the call for additional questions.
Yes.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Justin Bowers with Deutsche Bank. Your line is now open.
Hi, good morning, everyone.
So okay.
Just in terms of the labor situation I mean, that's that's not a surprise for anyone and health care services. These days, but can you just talk about some of the some of the tactics and the strategies that you guys are doing too.
To mitigate the situation and just making sure you guys have.
You know enough capacity.
Yeah.
Sure, Jeff we'd be happy to do so.
As you might suspect there is a number of things that we're doing to make sure that we're.
We will have appropriate Clint.
Clinical staffing in place to take care of.
Volume increases.
A lot of that has to do with.
Okay.
Really focusing on.
Consistently evaluating each of the markets to upgrading or two increasing pace as the market demands I think we're spending a lot of time on.
Agencies.
Thank you and I have talked about it before that the.
The PRN pool is basically disappeared most of those have gone to agency.
So we're taking a look at making sure that we have longer term.
Contracts with the agencies over a period of months not weeks.
We're also working on our CMA programs trying to increase <unk>.
CNA.
Our CNI population.
So theres a number of things that we're doing.
I think some of those also include technology, we're taking a look at our telemetry units and some of our under centers.
Where we can use.
<unk> technology to address those.
So we can use the nurses on the floor.
Understood and then.
Is <unk> typically that's a seasonally strong quarter for.
For the for.
For the L tax and.
Historically, there's been some benefit with incrementals.
Is that an understanding that's probably not going to be the same pattern.
In terms of the back order of magnitude but.
Should there be some type of.
Margin benefit as volumes step up or as is the.
The labor situation kind of.
Im going to eat into that historical.
What kind of benefit.
This increase.
Yes, Youre absolutely right. The fourth quarter is typically we see a bit of a pop in census.
And we are seeing that.
Having said that we're also seeing labor increases so we would hesitate at this time just in this state is going to be margin expansion in the fourth quarter due to the volume increase specifically because of the additional labor costs.
Got it and then just.
The $6 3 million and one timers that you guys called called out was that was that most all and I'll tackle was that in any other segments as well.
Just.
Go ahead.
Yes, it was mostly all in <unk>.
I think I.
I think it was five 5% to $6 $5 million was in <unk>.
Okay, and then with all the new beds coming online.
Which I think is roughly 200.
Is there any other thing that we should be keeping in mind.
In terms of startup ramp up or any one timers for the segment in <unk>.
Yes, that's a great question I think there's going to be some.
As we usually have some additional integration costs associated with.
With acuity with the integration of acuity.
And.
I think that we should see that in October and maybe a little bit in November but the post that I think it's full steam ahead.
Okay. Thanks, I'll hop back in queue.
Our next question comes from the line of Frank Morgan with RBC capital markets. Your line is now open.
Good morning.
Hey is there any just curious getting more specific on the implied.
The implied fourth quarter guidance.
Is there anything that you are building in our use of any improvement in the El tack or basically things. They just as they are and then.
The rest of the businesses or outpatient et cetera.
<unk> continued to improve and make up that shortfall is that the way youre thinking about or is there any other.
Considerations that you're thinking about it in the fourth quarter for <unk>.
Critical care recovery happens.
Okay.
Yes, Frank I think from our perspective.
We're really taking a look at L tax.
Being in that same ballpark again, it's really a question of the negotiation with the.
The nursing agencies.
And what the rates are.
Got you and on that.
Can you give us any kind of color around what's the difference.
Yes.
Between say contract me on a weekly basis versus a monthly yogurt.
Two to three month basis.
Is it a meaningful difference there.
As far as the pricing is concerned the pricing is really not that much different is just getting the guarantee that you're going to have those those nurses over a longer period of time.
As you as I'm sure you know fourth quarter, we start to as we we've seen some nice increases and then the first quarter you really see a pop in the first quarter. So we want to make sure that we have the staffing in place.
To take care of those patients.
Got you, but that but this is literally all staffing theres no other no.
Moving around.
Units opening or closing or transitioning during the quarter you attribute most of this.
So basically this nursing issue.
We would.
Got you.
And then I'm just curious over on the Earth's at good pricing growth.
Presumably that's mostly acuity.
Just curious your thoughts on how sustainable that type of thing.
Rate growth as we start thinking about next year.
Yeah.
Yes, we think that we will continue to see those same types of increased shrink.
Gotcha.
Just curious obviously this this news out of Pfizer today.
We're not there.
Large cap pharma analyst.
How does that strike you do you think that with you.
I think that's.
Good thing for your business and that certainly hopefully would help on the labor side, but just any initial reactions to how you think that would affect providers.
What's that.
More and more specific Frank I'm sorry.
Our priority in preparing for our earnings call I'm not at.
Yeah.
Yes, yes.
That is the way Pfizer has a about overall appeal that that is a highly effective in reducing.
Hospitalization for Covid.
Requesting approval on it.
Sort of sort of yes, no. Okay that yes, sure that's going to be the game changer of course.
It's that's going to be strong.
I see it as a as a positive as it is a positive for staffing I see it as a positive for.
Sure.
All of health care so.
I think that's a great thing and more therapeutics that we get.
The better off we're going to be there.
I am not concerned that there's not going to be enough Hell teck patients for our hospitals.
Right Okay. Thanks.
Yes.
Okay.
Our next question comes from the line of Kevin Fischbeck with Bank of America. Your line is now open.
Good morning, guys. This is courtney on for Kevin Thanks for taking the question.
Just one quick one for you guys called out in your prepared remarks and also in the press release that you know OPEC occupancy was down sequentially quarter over quarter as well as year over year. So could you just talk a bit about your occupancy in markets that are seeing higher COVID-19 disruption versus markets with lower COVID-19 disruption.
Yes, definitely we'd be happy to do that.
I think when we had our second quarter.
Earnings call I think we've talked about.
In the second quarter, we had a number of hospitals that were on bed hold and that was really the direct result of us not paying.
Not paying agency fees, we stopped assert recap the agency fees at a certain dollar amount and what we've decided to do was.
Moving forward, we were going to stop that we're going to continue to pay additional dollars to the agencies.
And so in essence, what we saw was you saw a 65% occupancy rate in July 68%.
Yes.
In August and then 70 I think it was 70, 71%.
September that's really a function of we just couldnt flip a switch and make those changes we were making those changes basically in August. So you saw a little bit of a pop in August and we're seeing that.
71% in September and those that occupancy continues to grow.
To remain in that 75% range.
Okay. Thanks, that's super helpful and.
And so I guess you know you guys talked about how you you restarted the share repo program this quarter and you know the.
<unk> authorized the larger program that doubled the size of what it was before so I guess just generally how are you guys thinking about share repo now.
You guys reiterated your long term your long term growth CAGR. So was this always the library that you plan to use to hit that 17% to 20% EPS CAGR or is it like an upside lever.
This is really an Upsized court Courtney I mean, what we what we decided to do was we went through we were at.
$404 million of the $500 million repurchase program.
And we wanted to make sure that we're in a position to be opportunistic.
Yes.
So accordingly, when you look at.
Towards the end of the year or the beginning of next year. When we do our final purchase of Concentrix and the company will become a very significant.
Cash generator. So we're just.
Putting all of the all of the bullets and R and R. R.
Gunter to take advantage of opportunities that may present themselves to through next year.
Yes, that's perfect and then I guess one last quick one you know give you guys a break from the labor question.
What would what would you say is the ongoing rollout of telehealth and telemedicine for select you don't know that it seems like patient Care's billion Barton you'd return to the actual health care settings, and actual facilities itself and if you can.
Give any segment level color.
But both in the outpatient rehab and then particularly at the.
Sentra have really have the capabilities to do a lot of telehealth and in fact during the height of the pandemic both segments had saw dramatic.
Increase in their telehealth.
That has really come down pretty dramatically and.
I am not I don't think that we see that as a trend in our business now that may be different.
In other segments, but in.
Occupational medicine and in outpatient rehab, we see that coming back down to more normal levels that we saw.
Here to the pandemic.
Okay.
Okay. Thanks, guys.
Our next question comes from the line of Bill is that their land with the benchmark. Your line is now open.
Thanks, Good morning.
Marty and Bob So.
Just wanted to think a little bit more about the assay.
Ramping issue.
And I suppose it's a little more acute and critical.
Critical illness first because of the well.
The profile of the of the employees in other words more therapists.
And I guess, that's not as tougher situation.
As the as the nursing.
Picture.
That's absolutely true I mean, the rehab hospitals are while they have nurses is very therapy, driven and our critical illness recovery hospitals are not are not only more heavily nurses the level of training and sophistication for that nurse population that we.
Employee.
Higher as well so we really compete often with hospital acute hospital ICU for the nurses that we need so that makes it even more difficult for us to keep that.
Right at those levels nursing that we needed to critical illness recovery hospitals.
Well when you look at the last year or two.
The mix of your SaaS.
And critical illness that are contractors.
Can you give us a sense of the change in percentage total.
Okay, but you know a year or two.
Yes, Bill Historically agency has been in that 10% to 13% range and what we've seen.
Over the past year is really in the 22% to 25% range.
So.
Andy created.
And I think a lot of that has to do with what we historically have done is we've used our fully deployed nurses. Then we would go to PRN and then we would go to agency PR in for all intents and purposes has disappeared.
Most of those have gone over to the agency.
Just just because of economics.
Absolutely.
No I mean, the economics here are very very significant.
Okay.
As part of the issue also that you just had more more turnover in your permanent.
Employee base and are you taking any strategies.
The case, where you're taking any strategies on that as well.
We certainly are I mean, we're very focused on turnover.
I know.
The operators have spent a significant amount of time on retention.
Mentoring programs.
So it really and there's a whole host of programs that they have in place to do that.
So you are hopefully you can get a better handle on that I mean thats. The other let's say other way you can get it.
You can bring down this does this problem with the.
The agency costs.
Okay.
Yes.
Yeah, No I think thats right okay.
Okay, and then last one.
How are you looking at.
Outlook for.
The compensation.
Increases into next year, just given us hold labor picture and benefits for that matter.
Lawrence.
Yes.
Yeah.
Hey, Bill when you say the the labor cost are you talking about what we just talked about staffing.
I'm thinking more about your permanent ranks and kind of what you were thinking about is the you know what youre going to be looking at as far as inflationary kind of impact.
Well I think what we've done as well.
We're probably in the two 5% to 3% range.
Across the board for next year is what we've been planning for.
I just didn't know what you are seeing more pressure on that as well that was that that was the point of the question. Yes, I mean, the only pressure is coming from the clinical staff.
Great.
And is that is that kind of in line or is that also creeping up the permanent debt.
Thats certainly creeping up that.
And it's a function of both the full time employees cost the agency so.
The way, we take a look at us on a combined basis.
Alright, okay.
Alright, guys. Thanks, so much thanks, Bill Thanks Bill.
Our next question comes from the line of a J Rice with credit Suisse. Your line is now open.
Hi, everybody I think is a follow up to Frank's question I wanted to ask you guys about a couple of biotech drugs to all here or there.
Okay.
All kidding aside.
So not to be.
The dead horse here, but to ask on the labor I mean, some of the other providers are talking about the fact that during the COVID-19 surge of Delta surge they had.
<unk> out on quarantine and that sort of exasperated the problem, but on the other hand that might be more of a temporary issue than than some of the long term dynamics that may persist.
Have you drilled I mean, how much of the labor issue that youre dealing with do you think was related to maybe just the after effects of the.
Serge and might dissipate versus sort of some of this is going to persist for a while.
I wish it was the case.
I would tell you that we don't really see that.
Okay. Okay.
Yes.
Let me ask you about.
The vaccine mandate, where you guys add with respect to.
To your employee base and do you think thats going to be a further challenge in the fourth quarter here.
<unk> absorbed most of whatever is going to happen as a result of that.
Well I think the vaccine mandates are going to be.
Challenge for all healthcare providers to meet and we're certainly on it.
While we have not mandated we certainly have encouraged and educated in and continue to get more and more of our employees vaccinated, but with the new federal mandate.
<unk> move quickly.
Like everybody else and quite honestly it will be.
It'll be easier when you have it required across the board than in.
Hospitals, making around decisions and markets because it causes a very.
Has the potential cause very disproportionate issues in some markets where.
One would mandate another institution would not.
Right.
Obviously, you had good performance both in the Concentrix business in the outpatient rehab business I guess I would have thought that those might've gotten adversely impacted by fallout from.
Delta surge it doesn't really look like that happened much did you.
Was there anything I guess it would be more of a reopening issue.
It related to can centura, if there was any fallout and it would be.
Step down on it.
It will coming out of.
Elective procedures or something on the outpatient side, but it's hard to see in the numbers that you had much impact did you feel like there.
You guys are SaaS did you feel like there were.
There was any impact from the delta surge in the third quarter on those businesses.
We did not.
<unk>.
To use <unk> term it was full speed ahead on both of those segments with <unk>.
Increasing.
Volumes, and we're not able to track many negative to the the Delta search Hey, Jay.
The great thing that we feel very good about is that when you take a look and compare 'twenty ones.
<unk> numbers to 19, which is key for all of the Covid started.
We're we're well ahead of that and that yes.
The signal.
Yes.
Less than I wanted to just ask you about the development activity it seems like.
Maybe there's a little bit of a pickup in activity I guess I was I was wondering in the aftermath of the pandemic either in some of the stuff you're doing with the critical access facilities or the IRS Jv's are you seeing more urgency more interest.
People understanding your capabilities more than saying, Hey, I'd like to do a partner there and then also what's the outpatient.
Things Youre doing that sort of new what is the opportunity to pick up the branding of a strong hospital system in the local market.
With those outpatient relationships or what is the driver behind doing the jb's on the outpatient rehab.
Let me take the first one the first part of your question a J, which is in terms of what's the demand for.
The joint venture and development and I would say that since the pandemic the demand for joint ventures in critical illness recovery hospitals or the <unk> segment has increased.
I think thats because the pandemic has given a very significant recognition of the importance of having.
That level of service to Decompress, Icu's, which are in short supply at most acute care hospital. So that recognition has driven a lot more incoming on.
Maybe putting a one of our specialty critical illness recovery hospitals and in a market that maybe does not have access to them. So that has been an increase since the pandemic on the outpatient side of the business. It's been a natural outgrowth of successful joint ventures in relation to.
<unk> with a very significant partner. So we may have started a partnership with a rehabilitation hospital and adding on outpatient just becomes.
Natural as we do.
Deepen the relationships that we may have and.
Start having discussions about the opportunities and yes. It is it is absolutely the case that we feel it benefits us.
Being able to take care of our being able to take advantage of the branding.
A local dominant health systems, I mean, I mentioned in the prepared remarks today about our new joint venture partners with Cedars.
They are just a very significant player in southern California, and being able to develop and put up new centers with their brand.
<unk> is very helpful and thats been repeated across a number of our areas. So there is some.
Of those joint ventures are snap ons to existing joint ventures, and a few that are just our NIM.
I mean, I think you are asking more and more of that.
How many of your outpatient.
Clinics are now in the joint venture and where do you see that going potentially overtime.
Yeah, I'm going to say I'm going to say, 40%.
Of R.
Our outpatient business is.
It comes through joint ventures.
I'd have to check that number on hold me to it but I think that by I think.
Think about what it was it's probably close to that and where do we see it going we see it growing on both sides.
We have a pretty robust acquisition pipeline for small outpatient act.
Acquisitions that would not be partner.
And then we will certainly use opportunities to partner with large systems.
Many of those that we already have partnerships with and some new ones.
Okay great.
Thank you AJ.
Our next question comes from the line of Justin Bowers with Deutsche Bank. Your line is now open.
Alright, Thank you for.
Squeezing me back in I, just wanted to follow up on the on two things, which would be <unk> pipeline is that.
How does that look.
With your kind of traditional hospital and hospital model versus like new builds.
Is the first question and then I wanted to follow up on central.
Yes, Justin could you repeat that question too. So I'm just in terms of the old Tech pipeline like if you look at the portfolio now, it's mostly it's mostly hospital and hospital.
You've done a couple.
A little bit of a mix.
Back half of this year, so I'm just as you look forward.
Looking ahead in.
Your pipeline and kind of deals that you have.
Is it more.
Ross This model.
Hospital and hospital or is it.
Is it going to be more kind of new builds or.
Freestanding.
Yes, Jonathan.
Thanks for specifying that yes. It is all associated with.
For the most part HII ages.
Okay.
So.
Depending on the circumstances I mean, we may do a new bill but for the most part.
We're very focused on HIV ages.
Yes.
Okay.
And then just wanted to circle back to consensus again, just because I think this has been in terms of volumes it's probably.
A record quarter.
For you guys. So I was wondering if you could just give us a little more color on some of the strength that youre seeing.
Where that's coming from and then.
As we think about <unk>, there's usually a little seasonality of the business.
So how should we think about kind of the.
Some of that strength.
Going to overcome some of the typical seasonality what are kind of the puts and takes as we think about <unk> business.
While consensual right now is pretty much hitting on all cylinders I mean, they they with a return of employment there theyre seeing a lot more of their pre employment stuff as more people are working youre seeing more injuries. They continue to have some testing so.
That business has.
Just look at the numbers that I've just been incredibly strong. They also do a very good job on M&A picking up new locations and new centers. So all the fundamentals and that in the Concentrix business are there and are strong and so we we continue to be pretty full.
Sean on the performance of concentric, yes, just and what we've seen is when you go into the specific areas.
We've seen growth in hospitality, we see growth in airlines, we've seen growth in the schools coming back online.
Actually state and local governments coming back online.
Those areas were pretty dormant.
Over the past year, but we've seen some nice increases there.
Yes.
Okay I got it so it sounds like.
Heart recovery part picking up share as well.
Okay. That's all I got thanks, so much Greg.
Okay.
I am showing no further questions at this time I would now like to turn the conference back to the management for their closing remarks.
Thanks, everybody for joining us.
We look forward to obtain next quarter. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.