Q1 2022 InnovAge Holding Corp Earnings Call
Ladies and gentlemen, thank you for standing by and walking through the end of each first quarter 2022 earnings conference call at.
At this time, all participants only listen only mode. After the speaker's presentation. There would be a question and answer session to ask the question do on this session you would need to first start in one on your telephone please.
Please be advised that today's conference is being recorded if you require any further assistance. Please first start in zero I will now I'd like to hand, the conference over to you speak of put today right Caboodle you may begin.
Thank you operator.
Good afternoon, and thank you all for joining.
Oh, 121st.
First quarter earnings call.
With me today.
<unk>.
C E O.
You you bow.
The day after the market closed.
The press release containing detailed information on our quarterly results.
You may access.
On our company website.
Dot com.
For those listening to the rebroadcast of this presentation you remind you that the remarks made here in our as of today.
November 9th 2021.
Have not been updated subsequent Ernie.
<unk>.
Hearings call.
Refer to certain non-GAAP measures.
Reconciliation of these measures the the most directly comparable GAAP measures can be found in our physical first border 2022 press release, which is posted on the Investor Relations section of our website.
During the call will be making forward looking statements.
Reading statements related to our growth prospects regulatory other expectations and our outlook on fiscal year 2022.
Listeners are cautioned that all of our forward looking statements involve certain assumptions and are inherently subject to risks and uncertainties that can cause a actual results to differ materially more current expectations.
We advised listeners to review the risk factors discussed in our Form 10-K annual report for fiscal year 2021, and subsequent reports filed with the SEC.
After the completion of her prepared remarks will open the call to take your questions I will now turn the call over to our president and CEO or inhibit.
<unk>.
Thank you Ryan and thank you all for joining US. This afternoon I'm pleased to report that we have a strong start to work 20 twenty-two fiscal year.
And that we are reaffirming the guidance that we provided on our last earnings call in September for fiscal year 2022.
As of the end of the quarter innovate served approximately 6990 participants.
This represents an increase of approximately 7.2% compared to the first quarter of fiscal year 2021, when including Sacramento senses, which was not consolidated in the first quarter of fiscal 2021.
We reported strong first quarter revenue of approximately $173 million, an increase of nearly 13.5% compared to the previous fiscal year. As a result of census Grove and an increase in right.
We also reported a center level contribution margin of more than $42 million and corresponding center level contribution margin ratio of 24.5%.
I will now provide an update on our growth strategy.
We remain on track with a three <unk> centres, we expect to open in fiscal 2023, two in Florida, Tampa, and Orlando and one in Louisville, Kentucky.
All three of the sites that we have selected are in the process of being renovated and we continue to work diligently through the development process.
While currently on track as with every development there are factors beyond our control that may impact are expected timeline.
We also continue to evaluate locations for two additional centers and our current plan is to have those two additional centers operational in fiscal year 2024 subject to factors beyond our control.
Regarding acquisitions, we continued to pursue acquisition opportunities in new markets with experienced community partners, who have established footprints and where the economics makes sense.
We are also continuing to look for joint venture opportunities that provides strong strategic value.
Regarding vaccinations.
Last week, the bite administration announced that COVID-19, vaccinations will be required for health care facilities that participate in the Medicare and Medicaid programs and that all eligible employees must be fully vaccinated by January 4th 2022, I am pleased to announce that we can.
<unk> to increase our employee and participant vaccination rates.
As of November 1st 98% of our employees and 89% of our participants have been fully vaccinated. We are pleased that we continue to increase our vaccination rates and we are targeting Ah, 90% vaccination rate for our participants as we did with employees.
During the quarter. We also began flu vaccinations for our employees and participants and we are targeting a 90% vaccination rate for the flu vaccine as well.
We continue to carefully monitor COVID-19 trends in each of our markets and centers.
All of our 18 centers are open with the appropriate Covid safety protocols in place.
If COVID-19 cases rise to a level, where it is no longer safe to operate a center we have the protocols in place to close the centers fully or partially and deliver our comprehensive care model in the home and virtually and ultimately reopen centers in a phased approach.
Participant health and safety remain our primary focus and we believe we have the appropriate protocols should any of our staff or our participants test positive for Covid.
Enrollment growth continues to improve and has surpassed prepandemic levels are participants continue to serve as ambassadors for the end of age bran and referrals. We received from our own innovative participants have historically made up approximately 25% of census growth.
In addition, our recently launched digital marketing strategy has continued to grow our referral base in the first quarter digital referrals grew 65% compared to the previous quarter and we continue to invest in this channel and refine our strategies to maximize.
Is the impact on census growth.
I know I want to briefly discuss labor and wage inflation as we continue to received questions about this topic.
As we mentioned on the last call. It is no secret that the health care sector has historically faced a shortage of licensed practical nurses registered nurses certified nursing assistants, and other frontline healthcare workers like drivers and the Covid pandemic is not help the situation.
Asian.
Historical shortage of health care workers has long required us to think outside the box to fill our recruiting needs and that adaptability is a strength that we continue to use as we grow our business.
To mitigate potential labor disruption, we have made wage adjustments for key positions throughout our centers, which we have factored into our fiscal year 2022 guidance.
We are also continuing to evaluate our recruiting competitiveness on an ongoing basis.
We are experiencing a longer lead times for recruiting new talent as a result, we are focused on expanding our employee referral program and we have developed our own pilot program in Colorado to train certified nursing assistants that we can then employ.
Our top priority is ensuring that we are appropriately staffed to care for our participants.
In markets, where recruitment has been slower than anticipated, we have been able to supplement with temporary labor in order to maintain appropriate staffing levels.
Importantly, our guidance for fiscal year 2022 reflects our expectation that the labor market continues to remain tight.
I will now provide a brief update on the regulatory environment.
We continue to see positive federal and state legislative activity, reflecting bipartisan support of pace.
Regarding the current federal legislative activity.
The pending budget reconciliation package is still being discussed in the house and Senate.
Package could provide additional funding for paste providers through home and community based services known as H CBS and beneficial policy changes that would increase access to pace.
The House Committee on energy and Commerce has recommended $190 billion of H C. B S. Funding. We believe this increase in funding will ultimately benefit the pace program and we remained strong advocates for program support that will help increase market awareness.
And participate access for pace beneficiaries.
On October 20th the <unk>.
Centers for Medicare and Medicaid innovation or CMI publish it strategy refresh plan that charged a path for the next 10 years.
The first objective in the strategic plan is to drive accountable care.
CMI site space, specifically as a program that could be included as an accountable care entity.
We also believe the pace model of care lines up well with Cmis key priorities as we provide a more holistic approach to cure incorporate social determinants of health and participant care plans empower beneficiaries as consumers and improve outcomes.
As we prepare for new programs for CMI, we have begun to work with the National Pace Association or NPA and other pace organizations to evaluate models that may fit within the key themes that CMI is looking for.
Also in late October the Federal Department of Health and Human services announced each state's plan for how they will spend the additional 10% increase to the state federal match for Medicaid home and community based services.
This announcement, which is part of the American Rescue Plan Act is expected to add approximately $12.7 billion nationally and provide additional funding to encourage states to expand home and community based services and strengthen their Medicaid programs.
Regarding state legislation.
In Michigan pending Senate Bill 203 remains active and is pending committee vote and they have until the legislature adjourns in December 2022 to vote on it.
I will now provide a brief update on the status of our audits in Sacramento in Colorado.
We have worked and continue to work collaboratively with our regulators as we seek to constantly improve our processes and outcomes to better serve our participants and their families.
In Sacramento, we submitted our corrective action plan last month, and we received an additional requests for information in early November we.
We expect to provide the requested information in the next few weeks and at that time. The corrective action plan will be under review by CMS and the state we've.
We began implementing the proposed corrective actions even prior to submitting the plan.
If and when CMS accepts the corrective action plan. They will then begin monitoring its execution and a satisfied will then allow the center to run and monitored for an unspecified amount of time.
Once and if CMS is satisfied that the issues raised have been remediated and are not likely to reoccur. They may lift the freeze.
While we can provide a general overview of the expected process. There is no standard timeframe for these events to occur and there's no guarantee that CMS will be satisfied with the corrective actions or will not impose additional sanctions.
For context there.
There were less than 200 participants in our Sacramento Center as of the beginning of this month.
In Colorado as previously indicated the state and CMS completed their audit work in July and in October we received validation results from CMS.
In conjunction with the validation resolved the agency's referred our case to the compliance and enforcement division of CMS for review and possible further action with respect to the Colorado audits to date, we have no indication of whether the agencies intend to freeze or otherwise curtail our program.
Or impose other sanctions.
Additionally, given the recent referral to the compliance and enforcement Division, we do not have an indication of what further action if any the division may take we cannot guarantee the outcomes of these artists.
Finally, we will begin a routine audit in new Mexico that will be handled remotely.
We are committed to the quality improvement a comprehensive care coordination in each of our centers. We believe the audit process is important to the integrity of the program and each audit. We undergo is an opportunity for us to improve the pace program improve our services and ultimately the outcomes of our participants these.
<unk> will continue to make our program better over the long term and we are taking lessons we have learned from these audits and applying them as we continue to grow.
Finally, and before I turn the call over to Barb to review our financial performance in more detail I want to thank all of our employees for their hard work and dedication providing high quality care for the participants that we serve every day barb.
Thank you Marie.
Before we open the call to questions I want to provide some highlights from our first quarter of fiscal year 2022 performance.
Given the impact on our results of decreasing COVID-19 transmission rates during the period in some cases I will refer to sequential comparison to our fourth quarter of fiscal 2021 in order to provide a more meaningful picture of our performance.
We produced strong financial results in the first quarter and ended the period with 18th centers and a census of approximately 6990 participants as of September 30th 2021.
Compared to the prior year period, when including Sacramento census, which was not consolidated in the fiscal first quarter of 2021.
This represents an ending census increase of approximately 7.2%.
Compared to the fourth quarter. This is an increase of over 2% and in line with the guidance, we provided last quarter.
We reported over a 20900 member months for the first quarter, a seven 8% increase over the prior year, when including Sacramento census in the first quarter of fiscal 2021, and an increase of over a 2.5% over the fourth quarter of fiscal 2000.
21.
During the first quarter, we continued to grow referrals and census, following the favorable trends we experienced in the fourth quarter of fiscal 2021.
We believe our digital marketing efforts are key to driving additional census growth.
And we continue to optimize these strategies to reach those searching for a senior care alternatives.
In addition to the nearly 65% growth in referrals from our web qualifier tool or digital lead conversions grew more than 20% compared to the fourth quarter of fiscal 2021.
Revenue of $173.1 million in the first quarter of fiscal year 2022 increased by 13.4% compared to the first quarter of fiscal year 2021.
The drivers of this growth or an increase incentives.
Coupled with a healthy increase in Medicaid rates.
Regarding Medicaid rates as we mentioned on our last call. We received a combined rate increase of just over 5.3% in Colorado, Pennsylvania, and Virginia for fiscal year 2022, and we are still working with the state of new Mexico to finalize those right.
External provider cost in the first quarter, where $90 million, a 22.2% increase compared to the first quarter of fiscal 2021.
Well some of this variance is due to census growth, we experienced higher per participant costs, an inpatient housing outpatient and specialist care as medical costs in the current quarter normalized post COVID-19.
As we mentioned on the last earnings call. We continue to see elevated utilization levels as participants catch up on services that were delayed as a result of the pandemic.
Compared to the fourth quarter of fiscal 2021 external provider costs increased five 8%, primarily due to higher housing costs associated with an annual increase in rates in Colorado and Virginia.
Coupled with an increase in housing utilization.
The increase in housing rate is determined by the state and incorporated in their rate setting methodologies, when establishing our pace rates each year.
Our cost of care, excluding depreciation and amortization with $40.7 million for the first quarter.
Six 4% increase over the first quarter of fiscal year 2021, driven by an increase in Santos.
And a 5.8% increase over the fourth quarter of fiscal 2021, primarily due to an increase in cost per employee associated with annual merit and market increases couple.
Coupled with an increase in overtime contract services and temp labor.
Center level contribution margin, which we define as total revenue less external provider cost and cost of care.
Excluding depreciation and amortization was $42.3 million for the first quarter compared to $48 million in the previous quarter and $46 million in the first quarter of fiscal 2021.
As a percentage of revenue center level contribution margin for the quarter was 24.5% compared to 28% in the previous quarter and 26.7% in the first quarter of fiscal 2021.
As we mentioned on the last earnings call. We continue to see elevated utilization levels as participants continued to catch up on medical services delayed as a result of the pandemic.
This medical costs normalization dynamic is the primary driver of the year over year decline in central level contribution margin as a percent of revenue.
Well the normalization of medical costs that we are seeing began in the fourth quarter of fiscal 2021 hour center level contribution margin in that period benefited from a revenue adjustment due to risk score and part D bid true ups and a rate estimate adjustment.
And slightly lower cost of care due to graduate will be opening of centers.
Which are the key drivers of the quarter over quarter decline in central level contribution margin as a percent of revenue.
Excluding the impact of those revenue adjustments in the prior quarter hour center level contribution margin as a percent of revenue expanded approximately 130 basis points in the first quarter.
Sales and marketing expense for the first quarter was $6.3 million, an increase of $2.2 million compared to the first quarter of fiscal 2021.
Primarily due to an increase in headcount to support growth and costs associated with new advertising campaigns to raise pace awareness.
Corporate general and administrative expense for the first quarter was $21.1 million, a decrease of $50.5 million compared to the first quarter of fiscal 2021.
Primarily due to $58.5 million in fees incurred as a result of the apacs transaction in fiscal 2021.
Excluding the APEC seen the year over year increase of $8 million is primarily due to company growth and the addition of costs associated with becoming a publicly traded company.
Net income for the first quarter was seven $6 million compared to a loss of 49 $8 million in the first quarter of fiscal 2021.
And up from $6.3 million in the fourth quarter of fiscal 2021.
We reported earnings per share for the first quarter of six cents on both a basic and diluted basis.
Our fully diluted share count was 135 million 516513 chairs for the first quarter ending September 30th 2021.
Adjusted EBITDA, which we calculate by adding interest taxes, depreciation and amortization and one time adjustments for transaction and offering related costs and other nonrecurring or exceptional costs to net income was $18.2 million for the first quarter.
A five 7% decrease quarter over quarter, and a 21.2% decrease your over a year.
Our adjusted EBITDA margin was 10.5% for the first quarter compared to 11.3% for the fourth quarter of fiscal year, 2021, and 15.1% for the first quarter of fiscal year 2021.
The year over year change and adjusted EBITDA and adjusted EBITDA margin is a reflection of three primary dynamics.
One as discussed earlier on the call the impact of medical costs normalization on center level contribution margin as Covid transmission declines.
Two higher sales and marketing expense as a result of our investment in digital marketing and other sale initiatives and.
And three higher corporate general and administrative expenses, partially as a result of the costs associated with being a publicly traded company.
The quarter over quarter change and adjusted EBITDA and adjusted EBITDA margin is primarily a function of one the revenue adjustments recorded in the fourth quarter of fiscal 2021.
To increase housing utilization, coupled with higher cost of care as mentioned previously and.
And three partially offset by a reduction in SG&A as compared to the fourth quarter of fiscal 2021.
We do not add back any losses incurred in connection with our de Novo centers in the calculation of adjusted EBITDA dinner.
Dinovo Center losses, which we define as net losses related to Preopening and start up ramp do the first 24 months of Dinovo operations were point $2 million for the first quarter.
This includes our Tampa and Orlando centers in Florida, and I were Louisville Center in Kentucky.
Turning to our balance sheet.
We ended the quarter with $215.5 million in cash and cash equivalents and had $83.3 million in total debt on the balance sheet, representing that under our senior secure term loan plus capital leases another commitment.
And a secured net leverage ratio of 0.82 times as calculated pursuant to our credit agreement.
For the first quarter ended September 30th 2021, we had $3 million of capital expenditures and we generate at $26 million of cash from operations.
Turning to guidance for fiscal year 2022.
We are affirming the guidance for fiscal year 2022 that we provided on our last earnings call in September.
We expect our ending census to be between 7500.
7750, and remember months to be in the range of 86580 7800.
We are forecasting total revenues in the range of $712 million to $725 million and adjusted EBITDA in the range of 62 $72 million.
And estimating adjusted EBITDA for fiscal 2022, we did not add back any expected losses associated with our dinovo centers.
The Nova losses for fiscal 2022 are expected to be approximately $10 million.
Finally, we did not include any potential acquisitions in our guidance for fiscal year 2022, given the timing of acquisitions can be hard to predict.
In summary, we had a strong start to fiscal year 2022, where.
We are affirming the guidance for fiscal year, 2022, which does not reflect any potential acquisitions.
And we continue to consistently generate positive cash flow from operations.
We believe interest in the pace program will continue to grow as we built market awareness among eligible participants.
That concludes our prepared comments operator will now open the call to questions.
Thank you, ladies and gentlemen, as a reminder to ask the question do we need to press started in one on your telephone.
To withdraw your question press the pound K.
Day that star one to ask a question.
Police Stambaugh, we compiled the Q&A roster.
First question comes from the line of Big bomb Kosovo with bird.
Lane is open.
Yeah. Thank you for taking the questions. My first one is on Sacramento you mentioned some of the progress that you've made around the corrective action plan. There just curious if you can give us some more color on what some of those corrective actions are in any more color on the specific steps that you're taking their to address the issues and.
And then just as a follow up to that I'm curious to know how your recent observations in Sacramento in Colorado are influencing your strategy around future dinovo launches and in particular you is there any reason to think that the ramp incense is our margins at the upcoming to novo's in fiscal 23, and 24 might be different from what you previously.
Thought before these recent audits came up just any color on how all this is informing your execution strategy would be great. Thank you.
Sure. Thank you that's on this morning.
I'll I'll kick it off and then I'm going to ask Melissa Walcher, Chief Medical officer to give a more specific update regarding the audit audit and some of the primary areas that we focused on we're continuing to work collaboratively with our regulators and we will continue to be focused obviously I'm committed a commitment.
To quality.
We have submitted our corrective action plans to CMS and that's currently in process.
They like to identify and discuss some of the areas the that we're using to remediate some of the issues.
Yeah sure. Good afternoon, everyone. So we really tried to focus on the primary areas that were under review on the audit and that we have been working on for a corrective action. They include closing our network and provider contracting gaps.
I'm in particular, making sure that we can take your contract with one of those critical specialty providers.
As well as accounting back up providers for some of those specialties, we focused on staffing both in terms of ensuring that word staffing up, particularly on schedulers medical assistance and the like as well as staff training has been a huge focus across all of our staff rolls.
With primary care and home services, a particular attention.
And then we've been working on two other areas one documentation.
Ensuring that we do audit oversight reads of all of our charts and primary care as well as in home care, and then making sure that any consult referrals that we had to defer delay during the pandemic that we got those schedule. So the staff and then we're working really hard on all of those areas and we do believe that this will.
Help us with regard to the corrective actions.
Thank you Melissa.
Uhm here.
Oh, sorry go ahead.
Yeah, I was just going to jump in and answer the third part of that question and that was <unk>. We have not made any adjustments to our assumptions as it relates to our dinovo, whether that be the ramp or any of the enrolment assumptions. So I I think you know marine said early on that we're incorporating them all.
These lessons learned in our planning for the day novo's, but we have not made any changes to our assumptions.
Okay. Thank you.
Thank you.
Our next question comes from the line of route to Kobe with City. Your line is open.
Hi, Good afternoon. This is Jason throw on for Ralph to Kobe. So thanks for taking my questions, but I guess first.
It looks like you know sense of came in line with your 2% sequential growth expectations, but the COVID-19 have an impact for that growth at all and couldn't perhaps better underlying sound system that was originally expected, maybe partially offset by any culvert impacts or how does that dynamic way out of the corner. Thanks.
Mm mm hi, Jason <unk>. Thanks for the question you know Coca really hasn't had any impact on those protections. It really was as expected for the quarter you know as we announced in our annual call in September that's what.
We expected for this quarter given the ramp in referrals and enrollment. We also noted however in in our remarks that we're seeing some very high levels of referrals from our digital campaigns. We're very pleased with that and we also noted that that that level of referral activity is.
Well back to the pre COVID-19 levels. So it's really what we expected for this quarter.
Got it Okay. That's helpful thing So I guess and then just my follow up here I guess, we got it is unchanged and then maybe outside of a perpetual it back from the audits can you help frame, maybe what the largest swing factors that could impact trans moving throughout the year, you know maybe anything along the lines of Covid flare ups, I mean, you're talking about labour trends or anything that you.
You're saying that you could think worth delving into at this point. Thanks.
Yeah, Yeah. So you know as we mentioned, we're keeping very close tabs on labor trends and we are we have a lot of efforts underway to to mitigate some of those labour trends, including that you know the CNA program that Marie and talked about you know various types.
Other recruiting functions, so keeping close tabs on that and so far we're managing that quite well, but certainly that deteriorated that could have an impact certainly another outbreak of COVID-19 would have an impact for everyone. So you know we are.
We are you know fingers crossed that doesn't happen, we talk about our vaccination rate. So we're quite pleased with that so I think those would be you know a couple of the big swing factors.
In our guidance Sweet indicated early on that we have factored in the Sacramento enrollment freeze, we had already factor that into our guidance. So.
That that's already factored in.
[noise] got it okay. Thank you.
Thank you.
Our next question comes from a lot of Matt in the room with Wham Blur. The line is open.
[noise] hi, good afternoon.
Understand on on the audits that there's no maybe no standard timeframe or or average outcome, but in your research could you just need to get a sense for what the the high and low end of the timelines might look like in the range of possible outcomes, you've observed and similar audits in the past.
Uhm, Yes. This is maureen so first off please note that we have not received a final report for example, correct, but we do expect to see something hopefully by the first of the year.
You know the ranges in regards to Sacramento.
Really is under it would be speculative to give you a a timeframe at this point cause it's really up to Sam S. I will say that we are working hard as Lisa described in many of the areas the network the provider agreements to staffing the training.
Referrals and consult so I'm, ensuring that we're getting our documentation online and then once that plan of correction.
Is finalized with CMS, which hopefully we hope it will be soon but we can't say for sure. The date then they will begin to really start to monitor things from that point hopefully in the next.
Few months will have even more updates to give to as we progress through that process a lot of this too with surveys that can be.
There is some judgment that CMS is using and they want to evaluate that's why it's so important that the staff are collaborating with the regulators because ultimately at the end of the day, we both care about the patient and that's what we have to work together Melissa did you want to add anything to this.
No I think you really covered it uhm marine we don't have any indication of what further action you know might be taken or when you know when the corrective action will be finally accepted.
And in Colorado, you know, we're still waiting for our final report.
[noise] Oh, okay.
The second part of my question actually is a fault to victims question Uhm.
A piece of what he asked about was.
The the assumptions around revenue ramps for me to know what was the second part, which which I don't think I'd have to do is just around the margin.
Perfect you're the novo's again discharge dandy.
Correct or actions you described for Sacramento all seem.
Like thinks it would be.
The sustainable higher.
Cost profile for the center in terms of more staff more documentation. So is it fair to assume that for future to novo's, they're gonna corporate similar.
Mm infrastructure and put in place in dust, maybe have a different margin ramp then dissipated.
Do you want to take that all sounds good yeah.
Yeah, absolutely hi, Matt. Thanks for the question you know at this point, we're not assuming any material change in the margins and the reason for that is we do have staffing ratios in our in our centers and we are we are reviewing that and you know are closely reviewing that but.
The changes that we've made are not materially different it's just really trying to get those positions filled and supplement them. So so not material changes to those assumptions the least I can answer better as it relates to documentation, but I, but that in large part is uhm workflow as opposed to.
Any kind of an investment.
And people are systems, although we are implementing a new E. M. R. In the future, but that in large part in the workflow process improvement as opposed to a resource investment.
That's correct Bob.
Okay. Thanks, a lot for that.
Thank you.
Our next question comes from the line of Jamie Pearce with Goldman Sachs. Your line is open.
Hi, there a couple of questions for me I wanted to start with the Colorado out it in to see what you can say about that.
The referral to the compliance and enforcement Division can you just give us some sense of how how normal that was first sorry, how normal that is if that was expected to.
Any color on it.
Sort of a normal part of the process or if there was something that caused it to be referred.
To review.
Sure Hi, this is Maureen so C. M. S has the ability to refer issues or surveys to to this department. So they can do they can do this at any point with enforcement, it's it's not unusual for them.
I'm too to utilize the departments within within their agency to review matters.
So that's not that's not an uncommon practice per se and we haven't been given just so you know there's been no information as far as the agencies are intending to suspend or otherwise you know curtail our programs or impose other sang.
<unk>, we just don't know at this point so.
So you know again they have to go through the review process. They review our information they may have come back and ask us for more questions. They might ask us for additional information and our job at that place to provide that documentation to them to be able to substantiate I do think Colorado is a little bit.
Different from Sacramento, and I'm Gonna ask Molly so to touch base on that.
Yeah. Thanks, Marine just Wanna answer the the other piece of the question I heard I think you asked if we received any resolve we did get some verbal communication from him F.
In October that we had two of six areas under review in the validation and validation is information, we provide back and forth to them, where they saw that we didn't provide some missing information. The information was available in our records and in other validation.
Simple, but they were nothing in the two samples that CMS.
<unk> looked at so they could not validate our findings. So that was what was communicated uhm to us.
And you know the Colorado at at we we think that what we provided was pretty sound information is sienna.
You know the missing information, where minor minor items that we did have in the record and you know at this point I think Marina is correct. We have no indication of what the agency is gonna do and we're going to continue to to collaborate with them and provide any information that they asked us.
Okay. Thanks for that had wanted to just move to the quarter for a minute and I'm not entirely clear just what the COVID-19 impact in the quarter was from a cost perspective and ultimately EBITDA.
<unk> was that negative or positive in the corner just.
Just as it relates to kind of your your invitation cost trends I assume those were elevated.
And partially offset by.
Non acute utilization.
What was the net impact of Covid during the quarter that that you can quantify.
<unk> Yep.
Yep.
Uhm yeah. Thanks. Thanks for the question. So you know compared I, there's two comparisons right. There's the comparison to the the prior year quarter, and our external provider cost where about three and a half person.
Sent.
Quarter over quarter, Uhm and on a on a P. M. P M basis, a bit more than that and that is really related to the things that you mentioned as our <unk> centers got back to normal. It's some impatient some housing add some specialty an outpatient care as our participants.
Get caught up on on their care.
So that's the dynamic there compared to the prior quarter, it's up a bit primarily due to the housing rights and some housing utilization. So we noted in the in the comments that in F Y 22, and a couple of states, primarily Colorado in Virginia the rate.
For housing L. Since now for actually higher but that is also built into our overall right. So those costs were up about.
Under 3% as well.
Okay.
Leads me to my last question, which is just on the the EBITDA guidance for the full year, if I take what you did this quarter and apply that to the revenue base for for the full year implies.
Close to the top end of the range, maybe some upside.
Instead of the EBITDA.
So I am curious, where you see margin compression for the rest of the year. If there is a flu dynamic to call out if housing was previously now contemplated or not a big factor in in the first quarter and that's supposed to be a a bigger factor throughout the rest of the year, just just any color on on where.
Where that kind of implied margin compression comes from.
Yeah. So I think the margins for our first quarter were very very solid and really right in line with what we typically see margins at that 24.5%. We do see we do see some signs of zeros external provider cost coming down is in or near term.
I think we said that on our last call and we are seeing signs of that so we think that that those those costs will be will be coming down which is actually helpful to our to our central level contribution margins, where we'll see some compression as our dinovo costs start to ramp up a bit we'll see some compression.
<unk> there.
But as it relates to the external provider costs, we're seeing some some signs of that coming down that housing rate increase with them already included into our guidance. So the extent to which the rate impact that's included in the guidance.
Okay, So just to be clear it it it sounds like the beginning.
Factory is probably those 10 million of.
Awesome that you expect you only add 200000 in this quarter and there was a rabbit.
That's correct Yep that is correct, okay, great alright, thanks for all the color.
Thank you.
Our next question comes from the line of Sarah James with Barclays Salon is open.
Thank you.
Was hoping you could walk us through how the labour pressure, it's impacting the model. So have you guys seen it impact census capacity in revenue or is it more just on the cost side and then on the costs are you seeing it in wages or is it more temporary items like.
Retention and signing bonuses.
Sure Uhm I'll start it off and then you can take it because I know we built these things and do our.
Uhm modeling, but we have done some things obviously staffing is this something we care very deeply about and we did do some across the board wage increases and have done that for some departments within our organization that makes sense to do and we're continuously monitoring that going forward.
<unk> <unk>.
<unk>.
Yep, Hi, Sir Thanks for the question exactly what Marine said, we <unk> in our overall modeling in our guidance. We not only included those merit increases that we included some you know some definitely dollars in there for market increases that we have implemented enlarge.
Part at the beginning of our our fiscal year. So we've included that we're not seeing so much the retention pressures as the recruitment pressures. So uhm from our retention standpoint, very consistent from our retention standpoint, it's more just the recruitment at all.
All health care industry is experiencing and in some of my remarks, I noted that we have some additional overtime camped in contract and that is really filling those those gaps where we are having some challenges on the recruiting but again, we're doing some hopefully creative things like to see on a program to fill those gaps as well.
So from a cost perspective, it's primarily in that that cost of care on the on the staff and staff component, it's not affecting our enrollment and it's again not really from I'm not really a retention issue.
Okay.
And now that you have the plans from the state on the enhanced S. Map does it offer you any insight on to how you're right and your payments may be changing in key markets and what can you tell us about the correlation between changes in your rights and then your ability.
D to recruit.
Sure <unk> do you want to check the rates yeah. So we're just starting to work through that Sarah with a couple of the state. So we have you know yet to get the exact impact and just starting to work through that with many of the state. So we'll keep you posted we do see that as positive.
<unk>, but you don't have any quantification of that just yet and I think you had a second part to that question was that just you've seen a relationship when your rates go up uhm, if it makes a meaningful difference on your recruiting ability.
Uhm I <unk>.
Yeah recruiting ability for staff meeting.
Just to clarify.
Yes.
So I think what what we've done is because you know we are because being in health care. There is as we've mentioned about the shortages of staff and have historically been that way for health care for many many years.
We try to be in forecast as much as we can as we're putting our budgets together and some of the things that we did mention here today as well so certainly when we get increases from the states that's always helpful. Barb.
Yeah, I I think I think it's helpful. I would say that you know.
It helps us make those increases more affordable.
But it's it but at the same time, you know we know what we need to do to recruit folks regardless of those increases or not.
Yep got it thank you.
Thank you.
Our last question comes from the line of Jeff Garo at Piper Sandler Your line is open.
Hi, good afternoon. Thanks for taking the question, but more to ask about the digital marketing strategy. It's nice to see the success that I was hoping you could translate the success into.
Contribution growth expectations, either near a long term.
Well as you as you May know, we just started really with our digital approach and we are seeing some improvement there I think will be better able to quantify that as we begin to build out a call center in the future and we'll be able to give you a better projections with that Sir.
Yeah, I would I would say that's the case, we've seen great success in the the few quarters that we've reported.
But we need a little bit more time to do some quantification I'm really identify the trends, but we're very we're very pleased it's very where they're very positive results and it's starting to be very meaningful and as we noted in our remarks that the referrals from those digital leads were up 20% quarter over quarter.
The more in the theater.
Yeah extra <unk> all hopeful there maybe maybe a follow up a little bit there and it was great to see that referrals are back to pre cover level broadly.
Noted the different metrics on referrals, maybe throw in a little bit fast without confers on the digital front and I think no surprise, a digital strategy create book a wider toppled the former but.
Wanted to ask how we should think about the efficiency of that channel as it grows and you'd go with a a call center.
How that ultimately impact the the margin of rope profile long term.
Hmm.
That those are that's exactly what we're trying to achieve with some of the comments that you've just made and I think as we begin to build a salad and track it we'll be able to be able to show the success here, but we're very excited about it.
Great they forgot.
Thank you.
We do have another question then thank you and it's what I'm, Gary Taylor with Colin Your line is open.
Hi, Good evening, just a couple of questions Arena also heard you mention looking for JV opportunities and I'm not sure I recall hearing that before maybe I've, just forgotten, but with that is that something new.
Just forgotten and when you think about that is are you just saying J V with the.
A non-profit pace program that currently uhm is in the market versus acquisition.
I don't think it's an either or I think we're open to the opportunity of joint ventures, we have both of US before we did one obviously.
In the Sacramento market with the advent of south system, and another non-profit where we fall.
The JV to provide a paste program there.
So I think we're open to that we certainly it is part of when we think about our three prong approach of.
De novo's acquisitions that acquisition could be you know could also mean, a JV in the future as well.
So cut it off with that and then just but yeah.
I appreciate that and then my last one just going back to Colorado in the referral.
To the compliance enforcement Department.
That that was not around that was taken in Sacramento is that is that correct.
[noise].
So the Sacramento.