Q4 2022 Enhabit Inc Earnings Call
Good morning, everyone and welcome to inhabit home health and hospice since fourth quarter 2022 2022 earnings conference call.
At this time I would like to inform all participants that their lines will be in a listen only mode.
After the Speakers' remarks, there will be a question and answer period.
I'd like to ask a question. During this time, please press star one on your telephone keypad.
You will be limited to one question and one follow up.
Today's conference call is being recorded if you have any objections you may disconnect at this time.
I'll now turn the call over to Mark Brewer and habit home health and Hospice Chief Investor Relations Officer.
Thank you, Chris and good morning, everyone I want to thank you all for joining and habit home health and hospice for our 2022 fourth quarter earnings call with me on the call today are Bob Jacobs, Marr, President and Chief Executive Officer, and Crissy, Carlisle, Our Chief Financial Officer before.
Before we begin if you do not already have a copy the fourth quarter earnings release supplemental information and related form 8-K filed with the SEC are available on our website at investors thought he had dotcom.
On page two of the supplemental information you will find the safe Harbor statements, which are also set forth on the last page of the earnings release.
During the call we will make forward looking statements, which are subject to certain risks and uncertainties many of which are beyond our control.
Certain risks and uncertainties that could cause actual results to differ materially from our projections estimates and expectations are discussed in the company's SEC filings included in our Form 10-K, and subsequent quarterly reports on Form 10-Q, each of which will be available on the company's website in the fall we encourage you to read them.
You are cautioned not to place undue reliance on the estimates projections guidance or other forward looking information presented today, which are based on current estimates of future events and speak only as of today.
Undertake a duty to update these forward looking statements are.
Our supplemental information and discussion on this call will include certain non-GAAP financial measures for such measures reconciliation to the most directly comparable GAAP measure is available at the end of the supplemental information in the earnings release.
Like to remind everyone that we will adhere to the one question and one follow up question rule to allow everyone to participate if you have additional questions. Please feel to reenter the queue with that.
Turn the call over to Bart.
Thank you Mark good morning, everyone. Thanks for joining us.
We appreciate the commitment and diligent work of Iron habit home health and hospice leaders and our staff as we focus on delivering our care where patients prefer it and their homes.
It is the quality of the care. Our team provides that is the catalyst to our future growth.
Starting with a recap of our financial results on a consolidated basis for fiscal year 2020 to our financial results were revenue of 1 billion $83 $1 million and EBITDA of $159 $3 million.
Significant changes were required in 2022 to lead important strategies for our future success.
We added the company's first chief Human Resource Officer in January of 2022.
We established our payer innovation team in May of 2022.
We added an executive with extensive hospice experience to lead our hospice team in June of 2022.
All of this while preparing and executing the plans necessary to spend into our own company on July one last year.
Let's start with the progress we've made in these notable 2022 changes.
Our chief Human Resources Officer has worked with our data and analytics team to develop a robust human capital dataset.
This is allowing us to drill down much further than we could historically on understanding what's happening with our workforce and what we need to do to recruit and retain our staff. So that we can meet the demands for our care.
We are pleased to report that our full time nursing candidate pool increased 19% and quarter four over last year.
This drove a 101 net new full time nurses in the fourth quarter.
60 in home health and 41 in hospice.
Our full time vacancy rate ended 2022 at approximately 24%.
Which accounts for some of the Recalibrating of needs based on staff that have shifted from full time status to part time or P. R N.
In 2021, approximately 35% of our nursing staff, where P. R N.
As of December 2022, we now have approximately 39% and a P. R N status.
This means we need more people are full time equivalents to meet demand.
With the progress in clinical staffing. It is now imperative that we ensure sufficient business development resources in the field.
We had 83 last direct sales head count in December 'twenty, 'twenty, two versus 2021.
59, less at home health and 24 less in hospice.
As I will discuss later, we made some organizational changes and this last month that resulted in 60 additional frontline sales individuals now back in the field to drive growth without the need for additional total sales head count increase.
Let's move now to our payer innovation team.
We are pleased with the continued progress of our payer innovation team 2022 was a strong year for non episodic home health admission growth at 26, 7% for the full year and 19, 9% for quarter four year over year.
With the continued shift of Medicare beneficiaries, moving to our Medicare advantage payer or pair innovation team has been critical to setting us up for volume growth in 2023.
While we continue to meet and negotiate with the national payers, we have established a strong regional contracting strategy.
In the second half of 2022 we have been successful negotiating 18, new regional agreements.
Nine of these are now in effect and seven of those are episodic rates.
One particular agreement, which we mentioned in the quarter three call became effective on October one.
This agreement covers 13 of our branches in six states. These.
These 13 branches experienced 4.2% growth year over year and quarter four primarily due to this new agreement.
As evidenced by this one multistate agreement the local and regional agreements provide avenues for growth. Each successful agreement creates an opportunity for us to be a stronger resource to our referral sources. It creates access for patients to inhabit home health care and in turn the outcome data we need to continue to reinforce.
Our value proposition with the payers.
Turning to our hospice segment, our strategic decision to add an experienced hospice executive to our team has led to specific opportunities for improvement in our staffing and in our diversification of referral sources.
We experienced a 0.7% same store and two 9% total store ADC growth sequentially. We were pleased with the stability considering our ADC in quarter four last year dropped 200 from the prior quarter as fewer patients tend to initiate hospice services over the holidays.
The strategic sales and operational changes previously made in this service line are starting to gain traction the.
The strategy to move away from our home health staffing model to a case management model has supported our hiring efforts and in some markets. We have successfully rehired previous stop that enjoyed our culture, but not our previous staffing model.
As I mentioned, we had 41 net new nursing hires in quarter four in hospice.
Currently 30 are in orientation.
We used above average contract labor in quarter, four as we staff to rebuild referral relationships, while new hires weren't orientation. We peaked at twenty-six contract our ends in 'twenty branches.
By the end of January we already have this managed down to 12 contracts and seven branches.
We are making great progress on the strategic initiatives, we initiated in 2022.
With Labour challenges referral source needs diversified payors and a focus on efficient acceptance of referrals are operational and sales team need to be aligned with this in mind, our regional leadership worked diligently over the past four months on a new organizational structure.
We announced phase one at the ended the year and the final phase mid January .
Historically, our sales and operations team had a very different reporting matrix with little to no alignment with the new structure now in place complete alignment now exist. We are confident the sales and operational alignment will drive success clinically and operationally.
In addition to our focus on growth at our existing locations. We remain focused on our de novo strategy and our due diligence or potential acquisitions.
In the fourth quarter, we made three acquisitions that added five hospice locations and one home health location.
We evaluate the opportunities in our pipeline carefully with a priority for adding hospice, where we have home health and home health acquisitions that provide tuck in opportunities for improved scale and density.
We opened four de novo's in 2022 with two to four anticipated in quarter. One the pipeline of de Novo's remains strong for 2023.
For 2023, we remain confident in the need for home based services.
Our guidance for 2023 includes consolidated net operating revenues $1 billion $110 million to $1.140 billion consolidated.
Consolidated adjusted EBITDA of $125 million to $140 million.
Adjusted earnings per share of 50, 289 cents per share chrissy.
Christie will cover the key considerations underlying this guidance and with that I'll turn it over to Crissy. Thanks.
Thanks, Barb consolidated net revenue was $275 1 million for the fourth quarter down $1 million or 0.4% year over year.
We estimate the continued shift to more non episodic payers in home health and the resumption of sequestration decrease consolidated revenue approximately $11 million year over year.
These items were offset by an approximate $5 million audit recovery related to a prior year home health Medical claims review improve.
Improved collections experience related to Medicaid in hospice and a three 8% increase in our hospice Medicare reimbursement rates effective October one.
While all of these items fall directly to the bottom line.
That EBITDA, which decreased $8 7 million or 17, 8% year over year also includes higher cost of services and incremental administrative and general expenses as a standalone company.
In our home Health segment total admissions decreased one 5% year over year as continued strong growth in non episodic admissions was offset by a reduction in episodic admissions in the fourth quarter of 2022, our non episodic visits grew to approximately 26% of our total home.
<unk> visits.
In the fourth quarter of 2021, non episodic visits comprised approximately 20% of our total visits.
We estimate the impact of this payer mix shift was approximately 6 million on revenue and adjusted EBITDA during the fourth quarter for.
For full year 2022, we estimate the impact of this payer mix shift was approximately $22 million.
As Bob discussed, we are making steady progress demonstrating our value proposition to payers as we negotiate new agreements with improved rates.
Our cost per visit increased 7% year over year, primarily due to increased labor costs and increased costs associated with fleet and mileage reimbursement.
Ultimately 300 basis points of that increase was driven by a year over year increase in employee group medical claims.
In our hospice segment, the strategic changes, we made to sales and operations are providing positive momentum our labor constraints from early in 2022 continue to ease and our average daily census grew two 9% sequentially from the third quarter.
Cost per day increased 12, 1% year over year, primarily due to lower clinical productivity.
Increased use of contract labor increase.
Increased costs associated with fleet and mileage reimbursement and an increase in employee group medical claims.
With the success, we had hiring nurses in the back half of the year, we had new full time nurses in our hospitals that hospice segment, who were not at full productivity throughout most of the fourth quarter.
Because we knew this capacity was coming online we increased our use of contract labor. While this negatively impacts our cost per day in the near term. It shows our referral sources that the capacity constraints. We experienced early in 2022 are subsiding and sets us up for success going forward.
In regards to our home office administrative and general expenses consolidated adjusted EBITDA for the fourth quarter of 2022 includes incremental costs, we incurred as a standalone company.
For the fourth quarter of 2021, the net overhead allocation from encompass health was $3.6 million as shown on page 27 of the supplemental slides that accompanied our earnings release for.
For the fourth quarter of 2022, we recorded a standalone company cost of approximately $5 million. These costs include expenses associated with the transition services agreement, we have with encompass health as well as costs, we are incurring to ramp up our team and their resources.
Let's transition now to the balance sheet.
Information on our debt and liquidity metrics is included on page 16 of the supplemental slides, we exited the quarter with net leverage of three five times and we had approximately $179 million of available liquidity, our net leverage increased sequentially from the third quarter due to.
A $20 million draw on our revolver and use of existing cash to fund three acquisitions totaling approximately $36 million.
A 15 million dollar deferred payroll tax payment associated with the cares Act.
And a $9 million decrease in trailing 12 month adjusted EBITDA.
We'll talk more about our leverage after I cover 2023 guidance.
Before I leave 2020 twos financial result.
Want to mentioned two items that should be considered when bridging 2022 to other years.
As I've already already discussed in December 2022, we received approximately 5 million related to the successful defense against the prior year Medical claims review.
In addition throughout 2022 we experienced improved collections related to Medicare advantage payers in home health and Medicaid in hospice. These improved collection efforts allowed us to decrease our revenue reserve for Senate percentages in both areas. We estimate this benefited 2022 revenue and adjusted.
EBITDA by approximately $4 million.
Let's now move to 2023.
We continue to operate in a challenging environment.
Home health, our non episodic payer mix continues to grow as a percent of our total visits. In addition, while we are pleased with the progress we are making in improving our clinical capacity in both segments. We are having to pay more for these clinicians and use contract labor to support our referral pipeline as the new staff ramp up.
And the net home health market basket update of 0.7% for 2023 is not enough to offset rising labor costs before we consider the impact of the resumption of sequestration in the first and second quarters of 2023.
All in.
We estimate we have approximately $40 million of adjusted EBITDA headwinds to overcome in 2023 days.
These headwinds include.
An approximate $14 million impact from the continued shift to non episodic patients.
Approximately $9 million to $10 million of incremental administrative and general costs associated with being a standalone company.
An approximate $8 million impact from wages, increasing at a higher rate than the net market basket update from Medicare.
And approximately $8 million from the resumption of sequestration.
As a reminder, both segments will not anniversary the resumption of sequestration until July 1st Medicare pricing in the first quarter will be impacted by 2%.
In the second quarter will experience, an additional 1% for sequestration at year over year.
We estimate our cost per visit cost per day will increase between 4% to 5% in 2023.
As a reminder, labor represents approximately 90% of our cost per visit in home health and approximately 60% of our cost per day and hospice.
The impact of this increase will be felt more in our home health segment due to the Medicare net market basket update of 0.7% in the final rule for 2023.
With a three 3.8% net market basket update for hospice, we expect to be able to offset more of the rising labor costs in that segment.
Based on these factors.
A conservative approach to our guidance is prudent at this time and estimate 2023 of adjusted EBITDA will be in the range of 125 million to $140 million.
On page 19 of the supplemental slides, we provided a list of guidance considerations for 2023.
The most sensitive factor within the low end and high end of the guidance range is the continued shift to more non episodic patients. We expect that percent of our non episodic visits as a percent of total visits to continue to increase.
The continued progress of our payer innovation team and are negotiating more and improved Medicare advantage contracts is a key to our performance in 2023.
Our ability to hire and retain clinical staff is also an important success factor.
We've made meaningful net new hires in the back half of 2022 and with our continued focus on recruitment and retention. We believe we can grow volumes and improved productivity.
As many of the Medicare advantage contracts, we negotiated in the third and fourth quarters of 2022 are not yet effective and given our ongoing efforts to hire and retain clinical staff to meet demand, we expect our financial performance to be higher in the back half of the year than the first half.
In regards to free cash flow, we currently expect to generate between $49 million and $88 million in 2023.
Included in this range is the impact of increased cash interest payments in 2023, resulting from a full year of payments versus six months of payments in 2022.
Higher interest rates and a 25 basis point increase in our super spread due to increased leverage in October 2022, we fixed the interest rate on $200 million of our term loan giving rise in interest rates.
We remain focused on maintaining financial flexibility and we are keenly aware of our leverage well, we expect to be well within our leverage covenant of 4.7 odd times, we believe a more balanced approach to use of free cash flow was prudent in 2023, and therefore, we are not providing a range for acquisitions.
We continue to believe growth is an important part of our long term strategy and we'll continue to evaluate acquisition opportunities in our pipeline carefully.
In 2023, we plan to supplement organic growth by investing $2 million to $4 million to open 10 de novo locations.
De novo locations have attractive economics, and help us capitalize on growth in overlapping geographies.
We plan to prioritize new hospice sites in markets, where we already have home health locations as the ability to co locate home health and hospice allows us to grow with minimal incremental infrastructure cost while also leveraging our existing referral sources and brand with that I'll turn it back to Barbara Thanks Chrissy.
To close I'll bring you back to our momentum in 2023 with the continued progress in our recruitment and retention efforts.
The progress of our payer innovation team as they sell our value proposition in particular, our home Health 30 day Hospital readmission rate that is 400 basis points better than the national average.
The progress of our hospice operational changes and our recent reorganization that improve the alignment of our local operational and sales leadership.
As well as realigning 60 sales staff back into direct sales roles.
With that I'll ask the operator to open the line for questions.
Thank you.
To ask a question. Please press Star then one on your telephone keypad.
Andres you will be limited to one question and one follow up.
Our first question is from Brian <unk> with Jefferies. Your line is open.
Hey, good morning, guys.
I guess Chris.
My first question is when you.
You gave the detail on the guidance one thing you mentioned that it's prudent to be conservative here and you highlighted $40 million headwind.
Think about those moving parts right I mean.
What sort of improvement.
Is embedded in the guidance in terms of labor in terms of pricing I know you highlighted all the efforts there. So just trying to gauge the level of conservatism.
But what it will take to drive upside versus the guidance right.
Yeah. So thanks for the question Brian in regards to you know.
Again, the most sensitive factor.
In the guidance range is the steady state of episodic and non episodic and what does that look like its a balance between growing visits and getting improved rates and so you know our payer innovation team is focused on that I think Barton can comment on some of our regional prioritization and.
Strategy in regards to the markets, where we're focused and how the team is approaching that but it really is about that balance between growing the rate and growing the number of contracts and so it's hard to pinpoint that most sensitive factor.
And give you guys a number that you know, it's not X and Y exactly it's going to be a balance.
Got it Okay, and then as I look at page 14 of your slide deck.
There was a charge there for roughly $2 $5 million for strategic review costs, and then I guess you called out the pubco cost of roughly 9 million. So first what is the $2 5 million and then on the pubco cost is that.
Where it should be 9 million incremental should we expect more going forward or is that the right number to run rates of the business.
Yes, so some of those the strategic review costs, Brian . So those are some of the one times such as things like rebranding cost and things that kept coming in during the quarter.
So those are one time and are not recurring as you think about 'twenty two 'twenty three and the stand alone costs going forward.
We still think that long term the right run rate is that $26 million to $28 million range that we've been talking about when you think about those cost today again in Q3 and Q4. They were running at about $5 million you can expect that to go up a little bit you know.
Q1, Q2, Q2 would probably be the most heavy quarter because that'll be when we we've done most of our hiring and we're still on Parsons portions of the TSA as they get up to speed.
And then in the back half of the year Youll, probably see it kind of level off again to something that would equate to something quarterly and that $26 million to $28 million range.
Got it awesome. Thank you.
Sure.
The next question is from <unk>.
With Stifel. Your line is open.
Okay.
Good morning, Good morning, Bob Bob can you talk about the steady increase in PR and staffing pastas and sounds like it will continue to Marshalls is here how much do you think that pure and Mitsui.
And could you quantify the impact for each one.
The 1% increase that mix.
Much of that could be offset by savings from agency labor.
So there's a difference first I guess, so there's two things contract labor is different from PRN. So contract labor is the agency labor that you pay that is a pretty significant amount above our normal staffing right. So for example in quarter, 452% of our visits in hospice was.
Perform by contract labor nurses compared to one 7% last year.
That is different than P. R N. So PRN or our staff. They are hired by us they're just they're paid as our staff members are however, their status is that they work when they want them. They don't work when they don't want to and so it's a very flexible staffing. So when we talk about the shift of full time to PR and it really is a.
Pressing those nursing staff that want more flexibility. So when you see us going from that 34% to 39%. What it means is when you would've expected our vacancy rate to actually go down with how positive our quarter four net new hires were however, it stayed relatively stable because what we wanted to do is readjust the head count needed.
It to kind of counter that movement of some of the staff to PRN and that's why you see that 24% vacancy rate.
Okay.
Yes got it you need more staff to handle the same volume well yeah. Just curious on the could you talk about the 90, new contracts executed this quarter and the additional nine works what is the size of the potential beneficiary pool that you could access and how quickly do you think it can be a scale, there and maybe refresh us on the price.
And do you expect on those.
Sure. So what I would say is what we've decided is probably best to give you those covered lives in the ones that are effective last quarter, we talked about the ones. We had negotiated we've decided that probably whats most meaningful is what is the member lives on those that are are now effective and so when you look at the ones that are effective which are nine of the 18.
We negotiated between quarter, three and quarter four of those nine it covers a little over a million lives seven of those are at episodic rates.
And the reason, we'll do the covered lives on the ones that are effective as we are finding that there's a pretty big variance.
When you start and negotiate the terms to it actually being effective and it has a lot to do with the Credentialing that has to happen on the payer side. So that can range between three and six months are to actually have those contracts become effective and are in a market.
That's helpful. Thank you.
Uh huh.
Again, Thats star one to join the queue and also as a reminder, please limit yourself to one question with one follow up.
Next question is from a J rice with credit Suisse. Your line is open.
Good morning.
Hum.
I understand obviously the growth rate in your M E book.
Quite robust and the challenges associated with that on the fee for service side that seems to be declining as you know high single digits I know, there's not a lot of growth in fee for service enrollment, but I'm sure. So.
Surprise.
That's happening for a couple of quarters now.
Do you have any assessment as to why the fee for service visits.
<unk> have dropped off.
To the way they have it seems like it's greater decline than what we're seeing in the actual enrollment and fee for service.
Yeah, I think you know a couple of it it's a lot of different factors, but I would say the ones I would call out is you know we have seen obviously that shift in the markets in which we operate so when we look at the M. A enrollees in our markets and then realize had gone up 11% while the fee for service in our markets have gone down four 1% I would also say that.
The other thing we have felt that we've all we've always had a strong program called our community care program, which is providing these services at assisted living senior apartments settings. What we have found is that you know you have a really strong M. A business development person that comes in and provides launch for the entire apartment comps.
Lex or senior setting and the next thing you know in a relatively short period of time that entire book of business that was historically fee for service has shifted to and M. A plan. So we have seen that in many of our markets and it's why one of the things we want to do right now and we're working with our business development teams in the field is identify for us.
As those large referral sources that not only have an MA plans, but they have a strong book of fee for service. So that we can prioritize those type of regional agreements to be a better resource to those referral sources to try to grow additional fee for service alongside the M. E book, So it's really getting the feedback for.
Our field representatives to our payer innovation team on what plans and where should we prioritize for these regional contracts.
Okay, and then maybe just my follow up.
Flushed out if you have any more metrics and share around the labor use of contract labor percentage in Q4 versus what's your thinking for 'twenty three any update on turnover rate in.
Are you turning away any volume because you can't get the waiver or was that a headwind in any way to your admissions and the whole milk raws.
So we do continue to have some staffing limitations in branches. So for example in quarter. Four we had 62 branches that were staffing constrained for home health offer hospice. It was seven branches. So there are some markets, where we continue to have some staffing constraints those are the markets where.
You know and I think we'd mentioned that you know, while we tried we anticipate having a more normal merit increase in 2023. There are some markets, where we may have to do some market adjustments and these are examples if we continue to have the headwinds of not being able to fill all those positions I would say you know we have seen the contract labor are ready go down a hospice.
It's been the primary user of contract labor in quarter four we've already seen that decrease in by the end of January and again are only using those in the markets, where we know we've done the staffing we have hired people there and orientation, we want them approve the use of contract labor for day in and day out use if we haven't done the hiring.
Because frankly, it's just too expensive ever resource for a clinician that that does individual visits.
Okay. Thanks, a lot.
The next question is from Jason Cazorla with Citi. Your line is open.
Good morning.
Great. Thanks, Good morning, just on the home health front.
For episode continuously declined over time, but I guess, you know that downward trend looks like it accelerated a bit in fourth quarter.
I guess you know how should we think about that visit per episode trend for 2023.
Perhaps you know somewhat of an offset to the reimbursement and the labor backdrop in home health.
It's obviously something that we continue to vote got focus on are the visits per episode the balance for us is making sure that as we manage the visits per episode and then some of our markets. We're now using the Metalogic pulse tool, which is allowing us to have more real time information on the patient and so as we utilize our that tool we want to make sure we buy.
That's it in a way that we are not impacting those readmission rates because frankly, that's one of our biggest values to bring to the payers and so right now we're comfortable where our visits per episode are but if there'd be about availability as we rollout pulse to the rest of our branches you know it's something that we'll continue to work on if we can do it and manage the the readmission rates.
Got it okay. Thanks, and then just on the hospice front you know you've dealt with some significant labor scarcity pressures. This year I know you have the 10% to 15% total admission growth target over the long term, but just given the hiring efforts you've done throughout 'twenty. Two do you think you've more or less baseline these volume pressures in fourth quarter.
And that you should be getting back to year over year organic admission growth next year or how should we think about that dynamic.
Yeah. So I do think if you think about it we we hired our executive and in June of last year. You know she's really spent our time kind of you know understanding what was going on in our markets. The rollout of the new case management model happened in fourth quarter that didn't mean overnight. It turned on it meant that everyone had each local branch had to do kind of a GAAP assessment on what.
Do I need to hire to be able to really function. In this case management model Oh, we were excited to see the positive trend in hiring in that fourth quarter and it's as the word is getting out that we're moving to this case management model and we've been excited to see in January that our candidate pool has continued to be strong. So you know it is really about getting the.
Staffing, where we need to so as to your point, we can get back to historic growth.
Okay. Thank you for the color.
Yeah.
Our next question is from Andrew Mok with UBS. Your line is open.
Hi, Good morning can you provide a bit more detail on the volume expect expectations embedded in 2023 guidance and then if you could parse out expectations for fee for service and MA volume growth in home health that would be helpful. Thanks.
Yeah, So Andrew we don't give that level of detail in our in our guidance considerations. It's it's again, it's a balance between the growth that we see in our markets and the shift to more Medicare advantage. In addition to our strategy to also use those Medicare.
[noise] advantage contracts as a way to get more.
Traditional Medicare fee for service back from our referral sources.
So we just we don't go into that level of detail because if if I tell you one one factor and then it comes in slightly different but we still make guidance, we usually get dinged on that so we're not going to go into that level of detail.
Got it okay.
Maybe just a follow up on Standalone company costs, you quoted a year over year increase in the deck of $9 million to $10 million, but hoping you could give us the absolute dollar figure out Standalone standalone cost in 2023 versus 2021, and how that compares to your initial projections.
Yes, so I would think that you know.
<unk>.
2023 is probably going to be in that that you know $26 million to $27 million range.
Again, it's going to be you know.
It's got the TSA in there the TSA is going to roll off as a <unk>.
In response to Brian's question.
So by the time, we get to the back half of the year you should be at somewhere in that that more normalized run rate of the ultimate 26 to 28, but I think given some of those ramp ups in 2023, youre, probably talking about a $26 million to $27 million range.
Okay.
Got it thank you.
The next question is from Joanna <unk>.
With Bank of America. Your line is open.
Thank you so looking for a couple of follow ups.
So you mentioned that you.
You do not I guess provide ranch will afford deal I think so am I reading correctly, you're kind of saying you don't assume acquisitions incremental acquisition.
In your 23 guidance correct.
That's correct. So the the opening of de Novo's. Joanna is included in that guidance and then the of course, obviously the acquisitions that we did in the fourth quarter of 2022 remember that we completed $36 million of acquisitions in that quarter.
They are in the number but there's nothing specific to acquisitions within the 2023 guidance at this time.
Okay.
And the other follow up so Oh, there was a question on.
So chicken has declined to 14 in this quarter and it sounds like you made.
We are thinking that it could even go even lower because I can see rolling out pulse to additional markets. So is that the way to think about it like some 14 lower or are you talking about more how things kind of came in on average for the year kind of just asking is this a sustainable number to 14 point.
But.
Per episode and.
Yes, you know how low can it go really before you start impact quality.
Right I mean, what I would say is we don't have a target and mainly because of that that balance between the readmission rates and you know and the visits per episode are what I would say is that you know as we certainly look as you know a lot of it has to do with the mix of the patients. So as you know as we grow our again more of the therapy intensive Ah.
Rehab intensive type of admissions those do come usually at a higher visits per episode. So it's kind of a balance as you know we as we rollout pulse. That's obviously the focus is to be able to have more real time. So if there is an ability to lower the visits than what biologics. Initially recommended that pulse tool is more real time, so versus the place it.
Bill has the care tool out there you know they get a one time snapshot of recommendation pulse keeps it updated and can show that you know maybe someone needs to go up and visits or maybe they've improved and it can go down and visit so again, it's we don't really have a target for the field, it's balancing the appropriate number of visits to manage the high quality.
Three if I may just follow up on the stand alone company cards discussion so when you're talking about the nine to 10 million increase year over year, but it feels like maybe it came a little bit better than expected Oh, maybe I wasn't really following their numbers, but I guess the previously with spirit.
It's definitely a second half of 'twenty two to be against a six well, even if we see something but I guess it came up 10 million. So that's where I was thinking like maybe it's striking better. So that's why I like the nine two kind of is it sort of in line with how you were thinking three months ago up all these incremental costs or if theres any change in that.
Thank you yeah. So Joanna the for full year 2022, if if I include you remember the first two quarters of the year had the overhead allocation from encompass health and in the last two quarters, where the stand alone costs for the company, let's say for that for the full year is around $17 million.
Those last two quarters were running at about 5 million when she has a little bit better than we had first anticipated.
Part of that has to do with just the ramp up of staff, which again, we think we're doing a great job in trying to be very cautious as we examine every hire and determined is the timing right and is that the initial plan from the strategic review.
And the plan to two stand alone and ramp up.
How are we doing that how are we assessing that is that still the right path I'm asking all of those questions. At this time I still believe that 26 to 28 million ultimately is the right number its just that its ramp and we ramped up a little bit slower than originally.
Determined.
The next question is from Larry Solow with CJS Securities. Your line is open.
Good morning. Thanks.
Thanks, Good morning question, Bob Thank you for taking the questions.
A couple of just to clarify.
Yeah.
The guidance range relatively wide, especially for the EPS range and I know you mentioned the I guess the biggest factor is the yes.
The mix shift in the transition.
So to non episodic.
Is that can you just sort of got the $14 million headwind I guess that you say from that Mitch is that sort of the mid point of guidance.
That number is the biggest variable that could swing guidance to the lower or higher end or are there other things in the other big factor in there.
Yeah, Larry So all of those factors that I gave are knowns right sequestration is a known factor.
Right. The fact that we're getting 0.7% and that's not going to offset the wage raise rate increase known factor. The most sensitive is that that payer mix shift and so yes that that is the biggest factor that would put us at one end or the other of the range.
And that $14 million number that you kind of threw out there as a headwind.
For that is that would that number that 14 kind of represents the midpoint of your range, if it's a higher headwind.
At the lower point, you go lower but less headwind you go higher or is that okay.
It's all of the headwinds right all four of those factors I called out our headwinds and the steps and levers that we pull to address those headwinds are all going to impact that but again the most sensitive within the range is the payer mix shift.
Okay and can you just clarify the $5 million.
From the audit.
From a couple of years back was that the Dup all flow to the bottom line is that $5 million EBITDA number it is.
Is the Q4.
It is okay I'm, just if I could just squeeze one more question just on acquisitions it sounds like.
This year, you don't want to put a line in the sand.
Hum.
Well short of that are ahead of that in terms of acquisitions, but with your <unk>.
Leverage at three and a half time.
This could be a quiet year or maybe you kind of want to wait till you get leverage down a little bit how do you kind of view that.
So we view it as.
We believe we can still achieve our business and operational objectives with the leverage that we.
Currently have and what is projected in the guidance range that we've given them. We do want to acknowledge the fact that you know leverages, increasing and that we're gonna have periods of you know for example in the first quarter of this year, we're going to roll off the highest quarter of 2022 and as I've already said 2023 is going to.
Financial performance should be better in the back half and in the first half. So those are just facts that we are keenly aware of it and managing through them I don't want to say that acquisitions are off the table I just want to say that we're going to be very disciplined and when they make strategic sense and we believe it's a nicely valued opportunity we will.
Pursue it but again, we're going to be very disciplined in that approach because again, we acknowledge the leverage and we want to present a balanced message.
Got it I appreciate all the color. Thanks, so much.
Again, Thats star one if you'd like to ask a question. The next question is from Jason Cazorla with Citi. Your line is open.
Okay.
Great. Thanks for squeezing me in here and a follow up I just wanted to ask more broadly around your thoughts on the on the broader competitive environment, particularly given the labor and reimbursement dynamics across both the home health and hospice spaces.
I guess just just give.
The investments <unk> been making on the labor front and the referral streams. You know how are you thinking about your competitive positioning within your markets and the opportunities for you to take share over time. Thanks.
Sure. So I think with the changes that we made in 2022, we are certainly feeling much better about being competitive, especially on that labor front in the local markets. You know it certainly is a lot easier for our branch director to have a team of full time staff right. You know you can count on Monday through Friday, so from an operation efficiency.
It's great to have a team full of full time folks, but what everyone has realized as we have to meet the employees, where they are which means not only being open to the flexibilities that we did do in 2022, but also make sure we give them the tools to those local leaders to now really understand what kind of headcount do I need to have now that I have more flexible staff than I ever had before.
I do think that's allowing us to be more competitive as we've seen that candidate pool really jumped in quarter four and we've seen the same similar in January so feeling good about where we are there.
Okay. Thank you.
We have no further questions at this time I'll turn it over to Mark Brewer for any closing remarks.
Thank you, Chris and thank you to everyone for joining us today.
Everyone that a replay of this call will be available on our website.
Under the Investor Relations page and we look forward to speaking with everybody. During our Q1 2023 call operator, you can terminate the call.
Thank you. This will conclude today's conference call. Thank you all for participating you may now disconnect.
Yeah.
[music].