Q3 2022 Select Medical Holdings Corp Earnings Call
[music].
Good morning, and thank you for joining us today for select Medical Holdings Corporation's earnings conference call to discuss the third quarter 2022 results and the company's business outlook speaking today are the company's executive Chairman and co founder Robert or.
N G O N. 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 regarding 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 over to Mr. Robert Ortenzio.
Thank you operator, good morning, everyone welcome to select Medicals earnings call for the third quarter of 2022.
Before I give some detail on each of our divisions I'd like to provide some overall commentary on the quarter.
This quarter, we have continued to focus on recruitment training and retention of personnel throughout the organization, but more specifically on the critical illness recovery Hospital divisions.
These efforts have been successful as we set the stage for future performance.
To commend our entire team as they continue to meet the challenges head on while remaining committed to providing exceptional patient and employee experience.
Throughout 2022, our diversification has provided us the opportunity to offset the difficulties. We may have encountered in particular a lot of business.
We couldnt be more pleased with the performance of both our inpatient rehab hospital and consents for divisions this quarter.
Inpatient rehab division exceeded prior year over year revenue occupancy and adjusted EBITDA.
We recently announced the expansion of our partnership with <unk> to open a 35 bed freestanding rehab hospital in Central Pennsylvania with targeted 2023 opening.
The development pipeline for inpatient rehab division is strong and the division is poised for continued success.
Consensus volume continues to grow and they have consistently exceeded expectation.
This quarter can center opened one de Novo clinic in Waukesha, Wisconsin.
Signed four leases for additional de Novo clinics.
Three are expected to open by year end with one located in Wisconsin, and two in Italy High value Valley, Pennsylvania.
The fourth de Novo in Columbus, Ohio, All open in 2023.
On the acquisition front agreement has been signed to acquire clinic in Tulsa, Oklahoma, which is set to close by the end of the year.
<unk> continues to be a healthy pipeline for potential future de Novo and acquisition targets on the horizon, We expect Concentrix strong performance to continue in Q4 and as we head into 2023.
Our outpatient division surpassed prior year revenue with an increase in both volume and rate.
Staffing and Covid leaves presented challenges this quarter, but did improve as the quarter progressed.
These positive trends have continued into the month of October .
In Q3, we expanded our expanded our clinic count by 13 via acquisitions and de Novo growth.
Looking forward to the remainder of the year, we have leases executed for 17 de Novo clinics. The outpatient division continues to have a strong pipeline potential de novo and acquisitions with.
With the progress made in Q3, along with the continued improvement in October we're confident the outpatient division will be in good shape heading into 2023.
The critical illness recovery Hospital division faced staffing headwinds in this quarter, but continue to make strides reducing.
There are an agency rates and utilization.
<unk> also continued to be successful hiring full time RN nurses, while improving retention. We are cautiously optimistic that as we continue to onboard full time clinical staff, our cost structure will stabilize heading into 2023.
Similar to last quarter, Marty Jackson will provide additional granular data.
On the direction.
Medical loss recovery hospitals labor expenses.
Overall, we experienced revenue growth in the quarter with an increase of two 2% over prior year.
The impact of the full re implementation of sequestration was a $9 million headwind when comparing Q3 to prior year same quarter for the quarter.
Total company adjusted EBITDA was $153 1 million compared to $208 6 million in the prior year.
Our consolidated adjusted EBITDA margin was nine 8% for Q3 compared to 13, 6% in the prior year.
Cares Act Grant income was recognized in Q3 of this year as well as Q3 of prior year. This quarter, we recognized $8 $1 million of grant income.
Versus $1 7 million in prior year.
At this point I'll provide some further data points as commentary on each of our operating divisions.
Our critical illness recovery hospital divisions patient days were 2% higher than prior year. However, we experienced a drop of 1% of net revenue due to a decline in our revenue per patient day.
A full re implementation of sequestration lower case mix index and an increase in threshold days contributed to the decrease in revenue right.
Occupancy decreased to <unk> 67 from 68% compared to prior quarter.
Many of our referral short term acute care hospitals continued to experience lower volumes in the ICU as compared to prior year, specifically vent patients, which contributed to both our drop in case mix index and occupancy in the month of October we have seen improvements in volume acuity Ed.
Threshold days.
We still fully expect that when ICU volumes of our short term acute care hospital, referring hospitals increase we will see these patients within our hospitals.
Adjusted EBITDA margin for our critical illness was 2% for the quarter.
Care to 11% in the prior year as our SWM beat our revenue ratio increased by 14%.
An increase in indirect labor, which is comprised of orientation education incentive bonus sign on bonus and administration administrative support was the main driver for the increase in labor.
Orientation hours for Rins increased by 53% over prior year overall bonus expense increased by 40% and hospital administrative cost increased by 18%.
Nurse Nursing agency rates and utilization are continuing to decline and are lower than prior year Q3, we saw a reduction of 16% and our and agency rates and a 27% reduction in RN agency utilization from prior year Q3.
On the development front, we have signed agreements with JV partners to open three hospitals located in Jackson, Tennessee, Tucson, Arizona in Alexandria, Virginia. We also plan to open our fourth hospital, which will be a satellite of our current Toledo, Ohio Hospital, all are expected to open in 2023.
Our inpatient rehabilitation Hospital division experienced an increase of 8% and net revenue with patient volumes increasing by 6%.
Occupancy increased to 85% compared to prior year, which was 82% revenue per patient day increased $50 from 1881 to $1931 adjust.
Adjusted EBITDA margin for the inpatient rehab was 21, 7% for Q3 compared to 27% in prior year.
In patient.
Rehabilitation hospitals experienced a reduction in agency expense compared to prior year and overall SWM beta revenue revenue ratio increased by 1% from prior year.
And nursing agency usage levels increase from prior year that we've seen an improvement compared to the first half of this year along with improvement each month throughout the third quarter.
The agency rates for our engine, a rehab division decreased by 38% from prior year and 22% from Q2.
As previously noted we announced that we are partnering with your P&C you PMC to open a 35 bed freestanding rehab hospital in central Pennsylvania, with a targeted 2023 openings.
Concentrix had another strong quarter with revenue increasing over prior year in spite of declining demand for COVID-19 related testing and evaluation services lab.
Last year these services generated $21 million in revenue and $11 million and adjusted EBITDA compared to $3 million in revenue and $1 million.
Adjusted EBITDA in Q3 of this year the.
The revenue decline from Covid testing services was offset by positive performance in our centers center patient volume increased by 2% and Concentrix overall net revenue per visit increased by 3% to $128.
Our adjusted EBITDA margin for Concentrix was 22% for Q3 compared to $22 six in the prior year.
In Q3 of prior year included $1 6 million and cares grant income.
Concentric experienced less than a 1% increase in the rest Wm beat our revenue ratio for prior year Q3 and remain consistent with Q2.
Previously highlighted contactor has a strong pipeline for development opportunities.
Our outpatient rehabilitation Hospital division experienced a 4% increase.
Increase in net revenue with patient volumes, increasing by 3% compared to same quarter. Prior year net revenue per visit increased to $103 from 100 to prior year in spite of a 3% decline in Medicare reimbursement rates adjusted EBITDA decreased compared to prior year with the decrease in March.
To 9% from 14%.
Adjusted EBITDA margin is primarily due to a 5% increase in our salary wage and benefit to revenue ratio and a 14% increase in other operating expenses to revenue ratio compared to same quarter prior year.
The increase in SWM beta revenue ratio compared to prior year is attributed attributable to staffing challenges related to the number of employees on Covid lead which resulted in decreased clinical productivity.
As noted previously we have continued to see improvement in these areas as Q3 progressed and through October the.
The increase in our other operating expenses, primarily comprised of an investment in our outpatient EMR system and minor equipment.
The outpatient division continues to have a robust pipeline of potential de novo and acquisition opportunities.
Earnings per fully diluted share were <unk> 21 for the third quarter compared to <unk> 57 per share in the same quarter prior year and.
In regards to our allocation and deployment of capital our board of directors declared a cash dividend of $12.05 payable on November 29 to stockholders of record as of the close of business on November 16th.
Past quarter, we bought back 315762 shares of stock at an average share price of $23 70.
We will continue to be opportunistic and evaluate stock repurchases reduction of debt and development opportunities.
This concludes my remarks.
I'll turn it over to Marty Jackson for additional financial details before we open the call up for questions.
Great.
Thank you Bob and good morning, everyone.
I would first like to provide some additional detail regarding our labor cost within the critical illness recovery Hospital Division.
As in the prior quarter, we've seen a significant sequential reduction from Q2 of 'twenty two to Q3 of 'twenty two.
Our in agency rates utilization and total agency expenses.
We realized a 22% reduction in agency rates during the period from $111 an hour to $86 an hour.
A 33% drop in agency utilization from 32, 9% to 21, 9%.
And a 51% reduction agency cost from $56 $4 million down to $29 $7 million.
Also consistent with prior quarter, we continue to see significant reductions of these categories within the third quarter.
Saw a reduction from July to September of 11% on a rate from $93 $83.
12% reduction on agency utilization from 23, 4% to 25%.
And a 21% reduction for overall agency expense from $11 2 million.
$8 million.
Well, we have seen significant improvement in our direct or in agency costs. We have continued to experience elevated costs.
Orientation and incentive to sign on bonuses as we hire nurses to replace agency.
We expect to orientation of bonus cost to start returning to normalized levels in Q1, and 23, taking into account the appropriate amount of training time to onboard nurses, which is approximately 70 weeks.
Another area of opportunity, we have our hospital administrative costs, which are fixed.
During the pandemic, our focus was providing all the necessary resources needed to care for our patients.
Now that we're coming out the other side of the pandemic there appears to be some opportunities to reduce administrative costs at the hospital level.
With the continued improvements in our indirect labor costs, along with the anticipated reductions in orientation education incentive bonuses administrative fixed cost and increased revenue. We are confident that our SWM be to revenue ratio should be in the 55% to 57% range in Q.
One of 23.
Moving on to our financials in Q3 equity in earnings of unconsolidated subsidiaries were $8 1 million. This compares to 11 5 million in the same quarter last year.
The decline in earnings was primarily the result of recording cares Grant income in Q3 of the prior year in our unconsolidated joint ventures.
Net income attributable to Noncontrolling interest was $11 million. This compares to $23 3 million in the same quarter last year.
This.
Increase is primarily due to the purchase of membership interest in Concentrix in Q4 of 'twenty one.
Which we now own 100% of the voting interests.
Interest expense was $45 $2 million in the third quarter.
This compares to $33 $8 million in the same quarter last year. The increased interest expense was primarily attributable to an increase in the one month LIBOR rate compared to Q3 of 'twenty, one as well as borrowings made under our revolving credit facility.
LIBOR rate on $2 billion of our term loan is capped at 1%. This is through September 30.
<unk> 24, which provides us a level of protection and predictability moving forward in the current interest rate environment.
But at the end of the quarter, we had $3 8 billion of debt outstanding and $108 $2 million of cash on balance sheet.
Our debt balance at the end of the quarter was $2 $1 billion of term loans $380 million in revolving loans, one $2 billion to $5 billion, 6% quarter senior notes and $84 $2 million of other miscellaneous debt.
We ended the quarter with net leverage for our senior secured credit agreement of five nine times.
As of September 30th.
We had $213 $5 billion of availability on our revolving loans.
For the third quarter operating activities provided $94 $3 million in cash flow.
Of which $5 $5 million was recouped in the quarter related to the repayment of Medicare advances.
At the end of September there was less than $1 million to repay to be repaid on the original $325 million.
Medicare advances we received.
Our day sales outstanding was 53 days at September 32002. This compares to 53 days at June 32, 22% to 52 days at the end of 'twenty one.
Investing activities used $55 million of cash in the third quarter. This includes $41 $9 million in purchases of property and equipment and $13 1 million in acquisition and investment activity during the quarter.
Financing activities used $25 7 million of cash for the third quarter. This was primarily due to the common shares repurchased totaled $15 million.
Dividends on our common stock for $15 $9 million and $22 million in distributions to noncontrolling interests.
These were offset in part by $30 million net borrowings on our revolving line of credit.
We have a capacity to purchase an additional $400 million million.
Millions of shares under the program, which remains in effect until December 31.
2023, unless further extended earlier, Germany.
We are reaffirming our revenue outlook for the year and we expect revenue to be in the range of $6. Two 5 billion to $6 4 billion for.
For 'twenty two.
We are also reaffirming our previously issued three year compounded annual growth rate target for revenue to be in the 46% range. We still expect capital expenditures to be in the range of $180 million to $200 million for the year.
And as stated last quarter, we will readdress, our business outlook target growth rate for adjusted EBITDA and earnings per share when we believe the labor markets stabilized predictable.
This concludes our prepared remarks and at this time, we would like to turn it back over to the operator to open up the question to open up the call for questions.
Thank you as a reminder to ask a question you will need to press star one one on your telephone please stand by while we compile the Q&A roster.
Our first question comes from Justin Bowers with Deutsche Bank You May proceed.
Hi, good morning, everyone.
Marty just.
And Bob you laid out a pretty substantial year over year increase in <unk> and.
And bonuses.
Indirect costs and admin costs.
And the <unk> segment.
The the kind of the labor environment was running a little Hot then as well.
Just trying to get a sense of where the opportunity is.
In addition to like the.
Obviously, you have like the agency labor Thats.
Under.
Pretty decent control levels at this point, but.
In terms of helping us bridge from <unk> to <unk> to that 55 to 67 target rate as it is kind of the assumption that you'd be able to go back to the <unk> Q21 levels or.
Are you able to maybe bring a little more savings on some of those increase in direct costs and you've been having and at a high level is there any way to help us.
To help quantify kind of.
Where the opportunity is on maybe a quarterly or annual basis.
Yes, Justin.
Great question I think the way to take a look at it is obviously, we went through a once in a lifetime.
Issue with the nursing costs.
<unk>.
We are.
Rose very significantly.
And I think to get back to the norm.
We basically.
Utilized three pools of nurses, we take a look at our full time nurses.
Our PR ends and agency nurses historically, what <unk> seen is.
Direct are in nursing hours.
For full time is about was about 70%.
<unk> <unk> was about 15% to 16% and agency made up the difference.
What we saw during in particular, the latter part of last year and the first two quarters of this year.
One significant increases in the dollars paid to travel nurses.
And so.
Those.
Those nurses in essence left the full time workforce to trap.
So we saw as I mentioned, 70% on a full time basis, 66% to 70% and a full time basis, we saw that go well under 50%.
As rates went from.
Historically, <unk> 72 to 78 Bucks an hour to in January of this year $151 now.
Those rates as I mentioned on the call are now down for US are now down to $83 an hour. So what we're seeing our nurses, leaving the travel.
The travel area and moving back to full time.
And as they move back to full time, we're hiring we're hiring I mean, I think if you take a look at year to date.
Between 'twenty one 'twenty two.
We've hired 70% more nurses.
As we see that really as an investment.
In the future and getting back to that full time percentage of 66% to 70%.
I think the other way to think about it is during this period of time, we in essence have we're paying to our ends.
For one oriented FTE.
So we're training nurses typically takes about two months to do that we're also having agency nurses take care of the patients.
So once they go through training those nurses will replace.
The agency nurses.
And youll see the costs come down significantly.
So I'll leave it at that and see if you have any follow up questions.
I guess one of the.
To oversimplify things that would be one way to think about it would be alright. So.
If you are hiring and I'm, just going to put out round numbers out there if youre hiring 300 nurses.
In a given quarter.
They're not necessarily going to be productive.
During that period.
Because of the training cost the training that you mentioned, Japan effectively you can think of.
Think of those 300 as being you know.
Part of that double.
The double nurses that youre carrying during.
During the quarter.
Is that.
Is that sort of the correct interpretation and then the follow up there would be just on the overall.
The base wages.
Some of your peers are seeing pressure there as well and then you talked about kind of.
What their underlying rates are.
Where have you guys been.
In terms of the base or.
This year or over the pandemic and then going forward, what's kind of the kind of like the underlying inflation that.
That would be helpful.
Yeah as far as the base salary for our full time employees, what we've seen over the past two years is about a 10% increase.
So and then we've actually supplemented that with incentive bonuses.
But what we're looking at is an annual increase of in that 5% range.
Justin.
Okay. That's helpful and just one quick one.
Go ahead.
Yes.
You had mentioned the assuming the 300 was the number is much higher than that but.
In essence those are.
They're not just an efficient I mean, they're basically.
Being trained so theyre not in the direct workforce at all.
So again getting back to that.
The thought that in essence, we have two full time nurses for one full time position.
Understood understood and then okay.
The.
I think that's where people are having having difficulty bridging the gap and not seeing that.
So through from the increased agency savings and then just on the.
On the new facilities that you guys have coming online and what's what's kind of the phasing or for the El Tac roughly.
For that Youre talking about for the <unk>.
For new critical illness hospitals that we have.
That I mentioned in my comments.
Yes, I think they will be coming I think they'll come here right.
Yeah. They come I think through I think we have them as coming throughout the year probably.
Q2 through to the end of the year.
Okay.
I appreciate it I'll hop back in queue.
Thank you one moment for questions.
Our next question comes from Kevin Fischbeck with Bank of America, You May proceed.
Yes. Good morning, actually this is Joanna <unk> filling in for Kevin. Thanks for taking the question here. So just to follow up on <unk>.
One of the last comments around the wage increases or user experience on <unk>.
<unk>, 5% annual interest the last two years. So as we look forward do you expect a similar increase this to continue over the next year or are you expecting something different.
Yes, I mean for us John It really is.
It depends what's going on in the marketplace.
We could certainly see a 5% of the economy as hot if there's a recession, that's normally timeframes, where we see.
The rates really moderate so if you take a look at where we were we were in 2008 2009, we literally saw.
Increases.
In that 1% range through.
Through that period of time through 2014.
So.
We think if there is a recession that will certainly be a benefit too.
Additional supply of nurses in the market.
Therefore, moderating the base rate.
That's an important point that Marty makes I mean, there is some uncertainty around even though we're seeing a downturn in the economy as most of you know the labor market is still remains pretty.
Robust and I think that there is some expectation around that softening as well as the fed continues to be aggressive so.
We'll see there are some people who feel that the economy and inflation is not going to come on our control until we start seeing unemployment tick up a little bit if that's the case that that.
It will actually be a benefit for us in terms of late.
Labor at our hospitals, because as you know, particularly in nursing.
Nurses there are a lot of people with nursing licenses.
They can come off the sidelines pretty quickly and add to your labor force.
And particularly in PRN or some taking some shifts which can really.
Quickly.
Assessed with the with the ability to bring them on.
Alright, exactly and then I guess also the flip side in terms of pricing outlook. So could you talk about that by your segments.
Mitsui.
The the rate outlook for the critical critical and as hospitals, but also can you talk about the commercial payers embarrass boss of Maths I guess to the labor pressure.
Rate increases specifically, if you can give us some branches you expect going into next year and then after that and I guess.
In other segments any color there in terms of their tariffs are consensual and outpatient policy outlook. Thank you.
Sure John as you know on the Medicare side, that's basically fixed net primarily.
On the inpatient side.
There is typically about an 18 to 24 month lag on that with regard to commercial <unk>.
I'd expect.
It's hand to hand combat.
We're always we're looking for high single digit rate.
Our rate increases just like CPI.
And we have been.
Moderately successful at achieving that in number of cases, but we still a long way to go.
And also I guess on that front the pricing commentary in your <unk> segment.
<unk> relationships.
Joint ventures are those helping at all with rates. Thank you.
I would say very much so.
Marty's comments on the negotiation for the for the commercial rates on the critical illness side really are.
It's different when you look at different segments in pockets of the.
Our geographic scope, but I think on the <unk> side, because most of our hospitals are are partnered with large systems are weak we have much more pricing power there than we do probably on the critical illness side.
Great. Thank you for the color.
Thank you one moment for questions.
Our next question comes from Ben Hendrix, with RBC capital markets. You May proceed.
Thank you very much could you talk a little bit more about capital allocation priorities and how you're balancing.
Your de Novo in M&A opportunities versus the.
Returning.
Doug capital to shareholders and then also debt pay down kind of considering where leverage is can maybe.
How those priorities have evolved and how you believe they will kind of evolve into into next year. Thanks.
Okay.
Well first of all we think that the board.
Declaring.
The dividend for this quarter I think you can expect that to continue I think we're committed to that.
The.
We made a point of.
Calling out some of that.
<unk> acquisition opportunities at both Concentrix and outpatient I.
I think that that will continue to allocate capital in that area because frankly, the valuations are very compelling and that the nominal dollars are just frankly not that high.
Where we tend to have bigger capital allocation is when we build new rehab hospitals, but with really strong partners that will continue to be a priority. If we can do a hospital with a strong part of our out of hospital and one of our joint venture markets.
That's something that I think you could expect us to do I think the thing that would be.
A much lower priority would be any acquisitions of size.
Wouldn't expect over the next year to see the company really take on anything that's significant.
Significant capital requirement for a larger acquisition inside any of the four divisions for right now.
We have the labor to focus on bringing EBITDA back to hit some of our 2023 goals. So that's how we would generally I think think about have you think about capital allocation Marty you want to add anything to that sure.
I think the other thing is when you take a look at paying down debt. The only area I think we'd be focused on is paying down the revolver.
The other our other debt obligations, our senior notes.
Our term loan term loan right now, we're pretty well protected by the cast through.
September 24 that rate is on the $2 1 billion debt rate is maximum is three 5%.
So from that perspective, we will certainly keep that in place.
Thanks, guys.
Okay.
Thank you one moment for questions.
Our next question comes from Bill Sutherland with Benchmark Company you May proceed.
Thanks.
Morning, everybody.
I just wanted to just think about the <unk> to revenue ratio a little bit Marty.
Appreciate the color on that.
What was that ratio pre COVID-19.
Martin.
In a range that you saw there.
Okay.
Yes, Bill that range was in the 51% to 52% range.
And that in that period of time as from 2018 to 2020.
Okay.
You want to get you think based on all of the steps, you're taking including the indirect.
Even thought about until.
You went into that.
You believe you can get back to the mid <unk>.
Our expectation is by beginning of next year will be in the 50, 557% range.
Okay.
And that's based on that based on the cost side.
As you know.
As you know that's really made up of not just the cost but also the revenue. So we're getting some higher <unk>.
Rate increases that should be beneficial to potentially take that down even further.
But I suppose we need to think about kind of the new normal.
Regardless of.
I mean, the mix that you pointed out between permanent PRN in an agency is obviously the biggest.
Lever, but.
Even though we've had a catch up I would say with new and overall.
Our rates for nurses permanent and agency debt I can't imagine with the shortage.
Is it going to.
I was just going to probably.
After the step function increase going on.
But we continue to move up that up more.
Normal rate is that is that.
What youre thinking.
Well.
Again our.
Our focus is.
What what's going to happen in the future, it's going to be difficult to predict right. Because I think we have mentioned to the extent that there is a recession in place that's going to have a moderating effect on any increases.
So.
I think going through 'twenty, three we will be taking a look at that on a consistent basis.
As I had mentioned.
Going from 'twenty to 'twenty, two we saw increases of about 10% or annualized about 5%.
<unk>.
I mean, we can certainly.
We will continue to take a look at it I think we're we're assuming somewhere in that.
4% range for increase Susan.
You all haven't had any.
Labor disruption issues happening like the acute care systems.
With the clients find disruptions.
[laughter] ticketing staying out.
Uh huh.
Now we have not.
Yes.
Rob you mentioned the outpatient rehab.
The issue with increased Covid leave I was little surprised at that in the quarter.
Are you all surprised.
Yeah, a little bit I think we were I mean.
Whenever because these outpatient locations are small you can think of them as you almost retail locations and you think about therapist close proximity to their patients. So.
Any any sickness even before.
Our Covid test.
Our therapy therapists and staff will well appropriately call off right and when you think about.
Typical therapy location.
Unlike a hospital there may only be one or.
Two therapists in that location. So when one is out for a day.
You just you lose an awful lot of revenue and so until they get tested and are clear to come back so.
We talk about it as efficiency.
Not even be the right word because when you think about work efficiency, you think somebody working efficiently, but really what we're referring to is that you have a therapist that calls off in a in a clinic and there's just it goes to zero I mean, there is no treatment. There is no revenue until we either can get somebody else to come in.
To fill in which is difficult for for professional staff like a therapist or they get tested or are there whatever condition. They have they are comfortable they can come back into the.
Can come back into the clinic and I think our.
Our our Covid leads were in the third quarter were.
706.
<unk>.
Yes.
Individuals so that's that.
That can be meaningful I mean, do you see it in the numbers.
You'd have to define what's meaningful but.
It does have it does have an effect.
And that was that that number that I. Just gave you was the highest amount of sense.
January of this year, where it was like $8 50, and we know what situation. We were in in January it was much more significant.
We were surprised.
But I think we continue to see that moderate further would go into that.
<unk>.
The only thing I'm thinking as you may have.
Part of this is just an issue of more vulnerability.
Thinking flu so.
Fingers crossed on that.
Yes of course.
Does come back to the companies, which is something that I've I've mentioned it does come back to our I think the benefit and the power of our diversification.
Flu will.
The flu could affect the staffing in that area, but.
A bad flu season will also be a tailwind to our hospitals and we're talking about and we talk about the labor market. If we have a hard recession.
It may be a benefit the staffing on critical illness, but that would be a headwind to our concentric division, which has performed just.
Spectacularly over the last year before so this we do have that on both sides and that was as we've built the company over the last 25 years that is a little bit intentional as we've tried to moderate our overall Medicare we are about a 50 50 mix in our company between outpatient and inpatient.
Concentrix is fabulous balance that does very well in good economic times and staffing.
Yeah.
Is benefited in our hospitals and more lean economic times.
Yes.
I appreciate the portfolio balance you guys have created.
Thanks again, that's it from me.
Okay.
Thank you one moment for questions.
Our next question comes from miles Highsmith with Deutsche Bank You May proceed.
Hi, Good morning, guys. Thanks for taking my questions.
I guess just wanted to go back to the to the critical illness.
Margins and expenses.
I'm sorry, if you've covered it there are a lot of numbers coming through I guess first just to clarify when you hire somebody in and they're in that training period and my right to think that they are getting paid their full time rate during that eight week period or is it different.
Yes, they are full time right.
Well as you know, we're still experiencing sign on bonuses.
So it's a full time rate plus.
Some bonuses.
Okay, and then that was kind of my second question I don't know if you've given that they are willing to give it but I was trying to kind of parse out the nuances of.
Essentially paying for two nurses one during the training period, and then another to care for the patient and in many cases that's agency.
Versus.
Just kind of these indirect costs I know you gave some percentages.
On the bonus expenses being up 40% in the quarter are you willing to give us like what that dollar amount was.
The additional dollar amount.
Relative to last year or just on an absolute basis this quarter or maybe asking it differently are you willing to give us the indirect cost this quarter.
Might be considered more investments.
For the future. So we can try to parse out what's that duplicative piece versus kind of that temporary indirect piece.
Well, what we can do miles just gives you an idea.
Terms of nominal dollars, what we see as an investment moving forward right.
That is if you take a look at where we were the first second and third quarter.
As we started to hire up more and more nurses in that second quarter. There was about an incremental increase of $7 million between the first and the second quarter.
The delta between the second and the third quarter was an additional $20 million.
And Thats, what youre trying to about $27 million being a what we perceive as an investment in basically replenishing the full time pool of nurses that we have.
And thats on a quarterly basis, so you annualize that.
Some significant dollars.
But again I think our focus is to try to make sure that that full time pool of nurses.
Is pretty much up to where we expect to be.
For 2023.
And I think we're pretty close to that.
Yes, Okay. That's super helpful. Thanks for that color last one I think I heard you say your leverage calculation is $5 nine for the quarter are you.
Was that correct sorry.
Yes, that's correct.
Okay.
Sure.
I'm, just kind of where you are.
Hum.
Have a comfort level for target leverage as we get into more normalized times.
Times in 2022 and beyond.
Yes.
<unk> 23, with what we're looking at now miles that we anticipate to be in the four times range.
Yes.
Okay.
Yep Yep.
Okay. Thanks, a lot guys I appreciate the time.
Thanks miles.
Thank you one moment for questions.
Our next question goes from a J rice with credit Suisse. You May proceed.
Hi, everybody.
Couple of quick questions.
First of all.
When I look at that.
The margin.
Variation in.
And the outpatient business it sounds like you're attributing what part of it is labor and part of it is.
What you're doing with the EMR system can you.
As the labor piece.
Youre, saying thats.
Strictly this COVID-19 callouts or is there anything else going on in the labor area that's worth highlighting.
And talking about on that in that division and then on the <unk> piece is that.
Is that just for the third quarter, and then you're done or is that going to be elevated for a while what's your thought on that.
Okay.
Let me address the EMR question first Jay Yes, it's elevated in the third quarter there'll be a little elevation in the fourth quarter, but then we will we should turn we should basically have the same type of it will be a reduced number moving forward.
When I say reduced from the third and fourth quarter.
I can take a look at pre third quarter, you ought to assume that.
The rates that are the costs you see for that EMR will be what they were pre third and fourth quarter.
Okay and then.
How about.
The labor was that strictly this COVID-19 callout in the outpatient rehab business or was there are you starting to see pressure there as well on the labor issue.
The Cove, it really was the predominant item that impacted clinical efficiency.
Okay. Okay.
Then just on your usage of agency I think youre, saying youre down to about $30 million in the third quarter.
My sense and I may not have is right but.
Was it pre Covid that was you were sort of a $25 million to $30 million use of them.
Agency Labor anyway, So does that mean the agency side, it's pretty much corrected and it's more of this.
Normalizing the permanent.
Staff.
These duplicative training costs is that how you assess the labor situation.
Yes, I think if you take a look at the agency pre pandemic, we were probably in that 8% to $100 million range AJ.
A year.
Right, so and so forth.
Yes, we're still.
Yes, I think we are.
It really is that investment cost and we see that as a onetime event with the training and the onboarding of the new nurses.
Okay.
Okay.
It sounds like you sort of have a timeframe in which you know these.
Onboard nurses training will be done.
And you you're expressing confidence in the 55% to 57% SW Bay as a percent of revenue.
What incremental piece of information are you looking for to get back to starting to give.
Guidance again on the operating income.
Well right now Jayson is the big item is labor.
As you know I.
I mean, if you take a look at.
What's going on labor market, if the labor market continues the way we think it will.
Which will.
Probably see over the next quarter or two we'll be in a position to determine whether we feel comfortable giving guidance on EBITDA and EPS.
When you think about it.
It's November all right, we're going to go through the holidays and a couple of week Thanksgiving or Christmas it'll be it'll be into 2000 22023, everything that we have been doing and even as we've been talking about on this call is really pointing to next year. So if if as we run off this this training expense and so forth.
We're looking for 2023 to be.
Our back to normal year end, if it is at and we see that and we're going to return to giving guidance.
At this point right.
Right now.
Would make no sense other than just given the revenue line that we have so.
We are.
Even last quarter. It was not a question for the management team.
If we were going to get to where we expect it to it's just a question of the pace and how long it would take because what would be the pace of recruitment and the pace of Onboarding and then little things pop up that are.
Unexpected I mean, I would not have expected the COVID-19 leave on the outpatient just surprise me in terms of where we are so those things come up I mean, theyre not theyre not material to the company, but they show up so I think that we have a pretty good chance that those things normalizing.
Through the end of this year, we get through Christmas and we start to you or not as you know I mean, there's a lot of people out there, saying Oh, there's there's new things coming or have a resurgence the flu is going to be greater than ever while we don't know those things and.
Where theyre going to manifest themselves over the next 30 60 days and when they do and we get through the holidays.
I think we could be back in a position to have businesses as usual normal one get back to being able to give the street more guidance.
Okay. That's helpful and maybe just the last one on the comments about the <unk>.
Cap on the floating rate $2 billion.
But.
That is are you at that 1% cap now so theres no further.
Near term impact from rising interest rates.
Are you 100% fixed.
On that.
Expand on that just a little bit more.
Sure.
Yes, we're well in excess of the 1% cap I mean, I think I don't know if I were ones were sent over some benchmark grade or whether that was absolutely 1% yes.
1% is the LIBOR rates and then you have a with the spread on top of that our spread is in the $2 50 range.
So all in you're looking at maximum of three 5%.
Obviously youre there at this point and is that a high percentage of your debt.
As.
As covered or sort of fixed at least through 'twenty four.
Well <unk> got yes, we've got it.
Really two large portions of that $2 $1 billion of floating so $2 billion of the $2 $1 billion is covered and then we've got fixed data of 1 billion $2 25.
Right.
So that basically is everything now there is a portion there is we don't have any coverage on the revolver.
So we are seeing.
Some higher costs there but.
We see our ability to pay that down over the next year.
It is pretty powerful.
Okay. How much is the revolver drawn now at this point.
I think it roughly I think it's about 310.
Three I'm sorry to three eight.
Okay, Alright, that's great. Thanks, so much.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Mr. Ortenzio for any further remarks.
No further comments.
And thank all of you for joining us and thank you operator, I don't know.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
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