Q4 2022 US Physical Therapy Inc Earnings Call
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Good day, and thank you for standing by welcome to the U S physical therapy first quarter, 'twenty, 'twenty, two and Ernie and.
Year end earnings conference call at this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question answer session in order to ask a question. During this session. Please press the star key followed by the number one on your telephone please be advised that today's conference is being recorded.
Any further assistance. Please press Star then zero I'd now like to turn the call, but a Christian Audi President and CEO . Please go ahead Sir.
Thank you Gretchen and good morning, and welcome everyone to U S physical therapy fourth quarter and for your earnings call.
On the call. This morning include Carey Hendrickson, Chief Financial Officer, Eric Williamson granting Graham Reeve, our Arco Clo's picking Martinez, our senior Vice President and controller.
Vince Dean our executive Vice President and General Counsel.
We begin to discuss our results here. This morning, we need to cover a brief disclosure statement Jacob if you would please.
Thank you Chris.
This presentation contains forward looking statements, which involve certain risks and uncertainties. These forward looking statements are based on the company's current views and assumption.
The company's actual results may vary materially from those anticipated.
Please see the company's filings with the Securities and Exchange Commission for more information. Thanks.
Thanks, Jay So we have a lot to cover this morning.
I'll start by discussing demand.
We look at volumes, which finished the year and really a nice fashion you were sitting in the corner with October and November coming in at 29.4 visits per clinic per day for both of those months.
And we started December really well, averaging just above 30 visits per clinic per day for the first two two and a half weeks.
You might recall the country got hit with an extreme polar temperature and weather event, just before Christmas and through a little damper on volume going into the holidays, but otherwise we look very good throughout the quarter.
December $28 six visits per day, just about the <unk>.
Quarter.
29.1, and then overall for the year at 28.7 Skus.
These were the second best volume per clinic per day numbers in our company's history for both the fourth quarter as well as the ear.
Considering staffing challenges this year, along with everything else very proud of our partners our clinical teams and all the many people who work to make sure our patients get taken care of them never tremendous experience before extraordinarily hard these past few years under difficult conditions.
To produce incredible results over nearly four and a half million visits this year.
And I'll just mention that volume out of the gate. Starting this year has been ahead of expectation it's been nice.
Shifting gears on the injury prevention side of the business.
Another strong growth year with revenue up more than 75% on a year to 37, 6% for the fourth quarter.
The strong results were impacted throughout the year with open positions.
Difficult to fill in some markets due to rather across the board employee scarcity. This past year that has seemingly had begun to improve with more recent months seeing open positions filled at a greater rate, allowing us to get to revenue and profit generation and better overall timeframe, but for some.
<unk> seen this this is karl.
It's meant to be across the board for all parts of our company.
For some physicians, we are finally seeing a greater number of qualified applicants.
Cross our portfolio of partnerships, which also feels like a good try.
While this has improved in recent months, we are not yet close to being in what I would call a normal balance hiring environment. Although again, we've made progress as the year has unfolded and we will continue to work diligently on that as we start this new year.
Another bright spot that we expect to continue to help us as we go forward has been our net rate.
A related contract renegotiations, which will continue through the entirety of our 2023 yeah.
Our net rate improved to one O 428.
The 2024th quarter up sequentially from one O 553.
I'm, sorry up from one O. One O 353 in the final quarter of 2021.
In spite of the Medicare rate change PTA reimbursement change and the sequester relief phase out in 'twenty two.
Tracking contracting and ops teams have worked hard to overcome some of these headwinds.
Hard work is definitely paying off.
Our rate progression quarterly this year, one as follows one O three even in Q1.
Or at least to one of $3 18 in Q2.
More traction in Q3 up to one O four O one and finally to finish the year at one O 428 in the fourth quarter.
Well, we are pleased to make some progress through the year, we have much more work to do before we're done.
One of the things we've decided at this part of our overall strategy is to begin to drop payers will not acknowledge the value that our care.
Carol provided by all physical therapy provides the membership the way are adequate and fair payment for the life improving care that we provide.
Offering substandard contracts has not found its not in keeping with the low cost high value return to function equation that physical therapy offers patients today.
A complete course of physical therapy results in a statistically healthier patient.
Over the course of the next 12 to 24 months with lower overall health care spend for all things.
It's time that this is recognized it was also time that we use providers refused to accept low ball no margin contracts from payers.
In the process of some very Frank discussions.
With some of these payers we have given notice to some of those same payers. If we cannot get a reasonable fair rate, we will opt out of those contracts to date that has begun to bear some fruit and we will continue we plan on continuing those negotiations and discussions as we work our way through extreme.
The large portfolio of contracts.
Our other challenge, particularly in the second half of 2020 to surround the rap rapidly escalating inflationary environment, which impacted our cost of just about everything.
Excuse me.
For the final quarter of 2022 physical therapy total operating costs decreased slightly from a cost per visit and third quarter due to salaries.
Salaries and related costs also decreased slightly about one 6% from the prior quarter.
However, an increase of one 4% from the prior year's fourth quarter, all things considered I think that's a pretty good job.
Considering that our turnover for clinicians on a percentage basis has remained relatively steady throughout this whole time when the profession in general has seen a considerable outflow I'm very proud of how our clinicians our partners and our recruiting recruiting teams work together fill open positions so that.
We could drive the second highest visit volume on a per clinic basis in the history of the company running a supreme linked challenging period.
Another bright spot for us in 'twenty two is in the area of development with five acquisitions in a nice stable of de Novo and tuck in facilities added throughout the year, bringing our total facilities owned at year end to 640 <unk>.
Well discussions and opportunities continue to be strong and we expect to have another good development year as things unfold further we expect pricing to come down with the current interest rate environment impacting buyers across the board, we expect to see other deals others deals not always get over the finish line.
Of the leverage situation of some of those buyers.
Rates continue to rise.
Fortunately, we have completed all of the deals we have set out to complete we expect that to continue as we begin a new year further setting us apart from many other center industry.
Higher leverage.
So less balance sheet flexibility.
One final note before I turn this over to Kerry.
Past couple of years, we have bought in minority interest with mostly discretionary mostly partial buyouts of a portion of our partner's interest.
Key strong partnerships across the country. These amounts totaled over 20 million in 2020 31 million in 2021 over 13 million in 2022.
Additionally, we continue to bring a new younger partners into these top partnerships to continuously ensure we have a stable and ongoing leadership into the future.
We're able to do those purchases purchases in aggregate in an extremely.
Efficient multiple overall.
Throughout those three years and just discussed.
We are encouraged by our progress in some of these key areas as I mentioned as.
As we work hard to deliver for our patients.
<unk> and our shareholders in this coming year that concludes my prepared comments and then carry has a lot of detail that he wants to cover so I'm going to turn it over to you Carey.
Great. Thank you Chris I appreciate it and good morning, everyone.
We noted in our earnings release that we are still evaluating our income tax expense just wanted to address that here our financial statements as presented represent where we currently believe they will land. There was a matter that came to our attention late in our evaluation of tax that we had to consider and we simply need a little more time to fully evaluate it we expect to have that vetting process complete.
In short order and certainly by the time, we file our 10-K next week.
Now turning to our results we reported adjusted EBITDA for the fourth quarter of $17 $9 million, which was an increase of two 8% over the $17 $4 million that we reported on a comparable basis in 2021, and our full year adjusted EBITDA was basically flat with the prior year.
Our operating results, which include the impact of higher interest expense was 58 per share in the fourth quarter and it was $2 70 for the full year of 2022.
Total company revenues increased 11, 7% this year.
Going from $495 million in 2021 to $553 $1 million in 2022 like.
Like all companies, we're continuing to deal with some inflationary cost pressures, but our volumes remained strong and our team is focused as always on finding ways to become even more efficient. So we can produce the best possible results for all of our stakeholders.
Our physical therapy patient volumes per clinic per day finished at $29 one as Chris noted for the quarter, which was the second highest per day volumes in the fourth quarter in our company's history bested only by the fourth quarter of 2021.
By month, our average visits per clinic per day were $29 four in both October and November and then $28 six in December which is typically the lowest month of the fourth quarter due to the holidays and then there was a little there was the weather issue that Chris also noted.
Our net rate for physical therapy operations was $104 28 in the fourth quarter of 2022 that was a 75 cent per visit increase over the fourth quarter of 2021, that's particularly notable when you consider that the fourth quarter of 2021 had the 2% sequestration relief, which is no longer there in the fourth quarter.
2022, and that the fourth quarter of 2022 included the 0.75% Medicare rate reduction that was in effect at the beginning of 2022 as well as the PTA reimbursement change.
Our rate increased in each quarter in 2022.
From a $103 in the first quarter to $103 18 in the second quarter to $104. One in the third and then to $104 and 28% in the fourth quarter again. This is despite the pressures on Medicare rates from the reductions put in place at the beginning of the year and the phase out of sequestration really we've seen some nice.
Commercial rate increases this year due to the hard work of our contracting team, which resulted in our average commercial rates also increasing each quarter in 2000 22022, our average commercial rate in the fourth quarter of 2022 with three 4% higher than it was in the fourth quarter of 2021.
We still have a lot of work to do on this front, but we're making progress and we expect that progress to continue and as Chris noted, we're going to renegotiate or terminate contracts that reimburses at a rate that is less than what it cost us to serve our patients which is primarily related to a subset of our Medicare advantage contracts.
Physical therapy revenues were $121 million in the fourth quarter of 2022, an increase of $6 $8 million or 6% from the fourth quarter of 2021.
Our physical therapy operating costs were $96 $8 million compared to $92 million in the prior year.
On a per visit basis, our physical guarantee operating cost of $4.05 per visit the fourth quarter, which was a decrease of $1 90 per visit from the third quarter of 2022, we're pleased to see that cost per visit amount come down some in the fourth quarter from where it was in the third quarter.
Physical therapy, Mark physical therapy margin also improved in the fourth quarter. It was 20.0% that's less than it was in the fourth quarter of 2021, when it was 21%, but it is up from 18, 7% in the third quarter of 2022.
The revenue from our industrial injury prevention business were $18 $9 million in the fourth quarter, which is up $5 million or 37, 6% increase over the previous year.
Expenses on your desk find your prevention business increased $4 $5 million and so we ended up with operating income of $3 $3 million in the fourth quarter of 'twenty, two that was 19, 4% greater than the prior year.
For the full year of 2022, our IP revenue increased 75, 5% with our operating income up 49, 3% on.
On a same store basis, our industrial injury prevention revenue was up nine 1% in the fourth quarter versus the previous year and for the full year. It was up 27% and that same store operating income was up 12, 9%.
Our corporate office costs were $11 $9 million in the fourth quarter of 'twenty two as a percent of revenue those corporate costs were eight 4% of revenues in the fourth quarter of 2022, which is virtually the same as it was in the fourth quarter of 2022 2021 excuse me when they were eight 3% of revenue and then for the full year our corporate.
Costs were eight 3% of revenue that's down from nine 4% of revenue.
In 2021.
You'll note in the release, we did record a $9 $1 million impairment related to our November 2021, and that's really to prevention acquisition that we made in the fourth quarter of 'twenty one.
We recorded that in the fourth quarter of this year. The impairment analysis was initially triggered by the sellers not achieving their earn out.
Our assessment of the accept expected future performance of the acquisition Hasnt changed and its projected cash flows over time are similar to those at the time of the acquisition. However, we had to use a higher discount rate and discounting those cash flows present value now that we did when we when determining the value at the time.
Does that higher discount rate was really the source of the majority of that impairment amount.
Our interest expense increased from $191000 in the fourth quarter of 2000 $21 million to $2 million in the fourth quarter of 2022, which was due to an increase in our debt primarily related to acquisitions that we've closed during and since the fourth quarter of last year and then also of course significantly higher interest rates in the fourth quarter of this year then.
Last year.
Our balance sheet overall remains in an excellent position, we have a $150 million term loan with a five year swap agreement in place that fixes. The one month term stoper right on that $150 million at $2, 815%.
Including the applicable margin based on our leverage ratio the all in rate on that $150 million of debt was 466, 5% in the fourth quarter.
In our statement of comprehensive income you'll note that our swap agreement currently has a mark to market value of $5 4 million, which means the current expectation is that we will pay $5 $4 million less in interest expense over the remaining.
The remaining term of our five year swap agreement then we would've paid without the swap at a variable interest rate. In addition, we estimate that the swap agreement date Thats approximately $700000 in interest expense in the second half of 2022.
We also have a $175 million revolving credit facility.
That had $31 million drawn on at December 31, and we had a cash balance on our balance sheet at $31 $6 million at December 31 the.
Borrowings on our revolver are at a variable rate and the weighted average variable interest rate on the debt facility in the fourth quarter was approximately $5 seven 5%.
We also noted in the release that we increased our quarterly dividend rate for 41 cents per share to <unk> 43 per share effective with the first quarter of 2022.
<unk> increased that again as we have each year since inception of the dividend in 2011.
Our volumes in January and the first couple weeks of February had been very strong on a comparative basis. The same months in the past in past years, and while I'm flashing and placement pressures remain our cost on a per visit basis stabilized in the fourth quarter of 2022 as compared to the third quarter of 2022.
We believe the progress we've made with commercial and other rate wins in 2022 and that we expect to continue to have in 2023, well eight will enable us to offset the headwinds in 2023 related to the 2% Medicare rate reduction that became effective on January 1st as well as the full year impact of the phase out of sequestration relief, which occurred during 2022, which.
Together represent an impact on our revenue in 2023 of approximately $4 $3 million.
With expected continued strong volumes minimal in our rate negotiations and to continued excellent focus of our operating team on making your operations as efficient as possible. We estimate that our adjusted EBITDA will be in the range of $75 million to $80 million in 2023, which excludes the potential impact of acquisitions in 2012.
Three.
Contributions from our acquisitions would be additive to our adjusted EBITDA.
Our guidance in 2023 and four it will be on adjusted EBITDA will continue to provide operating results and operating results per share and our earnings reports that our guidance will be related to adjusted EBITDA will also provide information related to our debt interest rate.
You can protect our interest expense accurately.
For 2023, we expect the rate on our $150 million term loan to be $4 91, 5% based on our leverage pricing grid.
The debt on our line of credit, which was $31 million at the end of 2022 will be at a variable rate of one month term sofa, plus a spread based on our leverage grid.
Currently our all in variable rate is approximately $6 six 5%, which includes the January increase in fed funds rate that rate is expected to move in tandem with any changes in the fed funds rate going forward.
In closing we're in a good position as we start 2023, and we look forward to producing strong results for all of our stakeholders in 2023 and with that Chris I'll turn the call back to you.
Yeah. Thank you Carrie great job operator, we're going to go ahead and open it up for questions.
Yeah.
At this time, if you'd like to ask a question. Please press star one on your Touchtone phone you may remove yourself from the queue at any time by pressing the pound key once again that this time wanted to ask a question. We will take our first question from Brian <unk> from Jefferies.
Good morning, Brian Good morning Guy.
Chris maybe the first question for you you know as we think about the environment.
Therapy space.
Some of your bigger competitors are clearly struggling with.
Over levered balance sheet and tough operation.
Turn it over as a clinician so as I think about market share opportunities from some of those disruptions or are.
Distractions and then M&A opportunities I mean, how are you thinking about you know what what's in front of me and when would you guys. Since he's made potentially gain market share as a result of all this.
Yes, I appreciate the question, Brian So anytime you're going to.
Speak broadly anytime there is.
No.
Tough operating environment, let's call it that.
It affects certain providers more than it affects other providers because we do have.
A really nice balance sheet overall, our interest rates are up as well you know we started with a great balance sheet and so we have more flexibility we've already seen it I don't want to I don't want to be too specific but we've already moved some key people from we'll call assets that are more distress.
We've seen opportunities to pick up some clinics.
We have a really good development plan for this year around our top 30 to 35.
Partnerships would make which make up.
Lastly, about 80% of our overall earnings.
And those include de Novo and tuck in acquisitions, so small and practices and existing strong markets.
I expect.
We have seen in the past.
You know, although you know I would love for the market to have a great tailwind for all of US it's not that way right now, but for us there'll be some opportunity in here for us on the development front for sure.
That makes a lot of that doesn't carry you called out how your cost per visit is down slightly but as I think about the labor market. I know you in your case the challenges last year were more in the lower end of the labor or the skill spectrum.
Any color you can share with us what.
It looks like right now.
Okay.
Yeah, I mean, just as our total operating cost at our salaries and related costs also came down in the fourth in the fourth quarter versus the third quarter.
And Chris talked about how where we're seeing more success in finding and hiring qualified candidates.
I'd say, there's there's there's you know there's going to continue to be some some labor pressure for sure, but but we feel we're in a bench better position. We begin 2023, then than we were in the middle of 2022, particularly.
And Chris I don't know, where Eric was granted if you have any comments on that.
Yes.
Brian we're not seeing rates come down yeah. We don't think we're going to continue to test that.
And I'll, let either Graham our Eric discuss the rollout of some automation at the front desk.
And speak on that just from that.
Yeah, I'll I'll Christmas is that this is Eric.
I'll tell you a couple of comments here so.
No question rates have not come down yet for.
Clinical staff or front office staff as it relates to replacing positions, but it was a little bit easier here in Q4 in terms of hiring people. So the time to fill open positions got shorter and without a doubt the biggest challenge we saw last year from up from a rate side was on the non clinical side, you know very competitive environment those folks have the opportunity to work.
Anywhere besides health care, so that was tough and so we realized that we needed to bring automation into our environment to help us and so last year, we operated our EMR system.
All of our databases in order to take advantage of automated functionality that's available on the platform and this is really going to help us on the front office side. So examples of that automated functionality would be appointment reminders going out to appointments on demand messaging.
Things that we.
We weren't doing as we were before and the ones that we're the most excited about but we think it's really going to give us some some leverage here or check in kiosks for patients, allowing them to check themselves in for their appointments complete forms questionnaires medical history, where we don't need front office people doing that anymore, and then theres a patient border that offers patients the ability to run.
Cost of appointments a message to clinic and provide access to the medical records things before that our front office would have to do so we're in the process of rolling that out right now, but our largest partnerships, we're going to gain significant traction over the year across the portfolio and we think that's going to allow us to leverage upfront.
Front office costs as a whole.
Awesome. Thank you guys.
Thanks, Sir.
Yeah.
Our next question comes from Larry Solow from CJS Securities.
Good morning, Larry.
Good morning, Chris Good morning, guys.
Thanks for taking the questions just I guess just on <unk>.
Yeah.
Sort of high level same store sales volumes were very good and some of them.
A year well strong excluding the holiday season, so far this year strong.
Full year last year, obviously, it feels like you had kind of a wall.
Really good 2021 of course.
I think last year, you had some obviously staffing issues and maybe.
And a little step back from Covid or whatever.
<unk>.
Do you kind of slowed down a little for the year, what do you look at the back half of the or at least how should we look at you know 23 do you feel like your volumes should growth in volume should return.
Or are there some things that will still hold you back.
Before we even get into the pricing discussion, but just in terms of volumes on a same store sort of level.
I can tell you you know or out of the gate.
Pretty well really well.
You know that month month, and a half two months doesn't make for a year, yet, but our plans for a year or certainly up volumes. This year. As you mentioned last year, we were impacted on a couple of different fronts.
Well, while Covid is kind of for everybody in the rearview mirror what happened last year was people had not taken vacations in a really long time until that time.
Combination with just a really tight labor market increased our time to fill positions.
The pull back from a record year, which was 21.
Which was really strong.
Fraction of a visit and so.
We're working hard to deliver a good year, where out of the gate rather good fashion and we hope we can certainly do that through the year as we mentioned we've made some we've made some improvements in staffing it's beginning to feel better.
I hope that continues.
We'll see but.
So far so good.
Alright, Chris.
You sound very encouraged just about pricing I know you know.
The last few quarterly calls it sounds like at least in the near term.
The increase of commercial rates.
Many of them more than offset the.
The government cut but it does sound like at least qualitatively without I know you can't get into too much specifics, but.
It sounds like you're starting to.
Get better thing you know things are coming anyway, and hopefully overtime, you can't move the needle too fast, but hopefully over the next several quarters. It neither will keep moving in your direction it sounds like.
That's the goal frankly.
Frankly, Larry this is overdue.
We've taken we've taken contracts probably in the past and accepted them that we should have pushed back on par.
Frankly, we're just not going to continue to do that and we're getting.
Some good results from the efforts it does take time as you mentioned and in our structure. We don't just have one big contract for everybody because we have a lots of regions and lots of partnerships, but working our way through the team's done a really good job, it's going to take some time, but.
Do think we can offset some of the.
Some of the Medicare pricing things for this year.
You continue to move the ball forward.
Great if I could just squeeze one more in just in terms of just acquisitions in.
It sounds like you probably have it maybe an upper hand, or certainly a better position than some of your competitors on that front well what about just leverage it youre not super lever, but you're more levered than you guys have been historically, so about little lesson about two times so would you.
Consider taking that up higher I mean is there you know.
And so not being all that high, especially for a business that generates pretty good cash flow and any thoughts on that.
Yeah Kerry you want to you want to start with that and then I can jump in or she needed.
Yeah, Larry as you as you noted our leverage ratio at the end of the year was 2.0 times I think.
We would be comfortable moving that up from there certainly we did it.
It just has to be the right deal and at the right price I mean, that's what we're really focused on right now we do have the available capacity, we have $31 million drawn at the end of the year on our $175 million facility. So we obviously have plenty of capacity there and it's really about just and we have a lot of good deals in the pipeline and Chris you may want to talk about that so.
There are deals in the pipeline.
And you know, we're just going to.
Evaluate them each one individually and make sure we did do smart deals.
Yeah, I don't I don't really have anything to add I don't I don't want to talk too much about you know what.
Prospective because it's not done until it's done.
Alright.
But we're.
We're trying to be smart about how we deploy capital.
Part of that is in our dividend increase this year and we expect to continue to do deals and.
We're hoping we can get those done at pricing that makes sense for everybody.
Excellent I appreciate all the color thanks, guys.
Thanks, Larry.
And once again that is star one to ask a question we will take our next question from Matt <unk> from William Blair.
Good morning, Good morning, Matt.
Good morning, Gary.
I wanted to go back.
Thank you Mark.
Hi.
Some contracts ammonia cost of care.
Actually could you maybe size up what that.
<unk> got a contract looks like.
As a percentage of our revenue.
Kevin hard.
Okay Doug.
It's far less than.
As expected the compensating them.
Appropriately.
Okay.
Do you have a sense of other.
Operators in their markets are starting to pick up some.
Some are packed and their approach or sort of the distressed nature of some of those assets.
More willing to start them along.
Let me, let me start with that Carrie.
I don't I don't want to get into too deeply detail into some of these discussions they are sensitive.
You know the percentage of our of our reimbursement on some of these lower contract isn't particularly great.
It's low single digits.
We have a lot of contracts that we are renegotiating your across the commercial spectrum.
Contracts that are much higher paying contracts, where we haven't gotten increases as well.
Some cases, we have given notice.
And that is according to the terms and individual contracts and so those do vary and with respect to other.
Providers other competitors in the market I frankly, I hope everybody is going to do what we've started to do and I would encourage them to.
Look hard.
Volume the caution money to see it isn't isn't volume any of us should be seen.
And the world changed last year in terms of inflation and a lot of different areas and certainly employee inflation was one of those we do a tremendous we provide a tremendous service to our patients.
The downstream cost curve.
For the entire health care system, when a patient comes through completed course of physical therapy.
It's well documented now.
Studies.
So I'm going to use that information to get ourselves.
Not an extraordinary rate.
Don't mean to be greedy, but we shouldnt be paid.
Certainly not below our cost and we should be paid they have an adequate margin because of these payers have adequate margins more than adequate in some cases in my view and so my encouragement is for everybody to do this and you know.
We'll see what happens to all I can control is what happens here, but we're focused on it right now.
Okay. Okay.
Yeah.
No.
Update number of acquisitions a couple of years when you think about the same store outlook.
For that Howard.
You're doing it.
So 23 universities and Theres past them.
There are similar environment with some of the other operators in the space. Thank you.
Water stress for.
Opportunities might come up or get them done.
Instead of writing a check on them.
Florida.
Yeah, I mean, we have a very good organic opportunity and injury prevention.
That business in general just by the nature of it.
Companies.
Many of you know.
So maybe we start with one, but we expand services to others and so it was kind of an embedded natural organic opportunity there.
We continue to look for deals.
And there aren't as many or as many providers in this space.
We have a call I think it's early next week Carrie.
You know with with some bankers who are helping us look in.
Think about and consider.
You know similar and potentially adjacent opportunities in some cases slight expansions to the portfolio similar act.
Acquisitions, we don't have anything ready to go yet for sure.
This year.
I'm going to say that.
This year I expect that just by virtue of the size of that business that organically. We have just an incredible year. This last year I hope we can produce another good year, but we haven't we haven't necessarily budget that way, we've we've been a little bit more conservative.
I think it will depend a lot on.
The economy into recession.
We're seeing some caution begin to creep in.
Some sectors, we know the auto sector has been beat up for a while just between chip shortage in the pivot to electric cars and that's kind of frozen people.
And a lot of cases in terms of their purchases.
So there are certain industries I think we'll continue to do well there other industries, where I think things will slow down a little bit.
We will slow with them likely and as things pick back up.
Back up accordingly, so this year I think will be a little bit more muted than years past, but we're working hard to because we have to overcome.
Headwinds in to at the end of it to lay down a good year, when it's all said and done.
Okay.
Maybe.
Eric a gram.
Follow up to your comments around.
Automation and other tools, you can do that pendulum interactions that upfront.
Ah you're piloting goes towards you mentioned rolling out.
What kind.
Kind of timeframe that effective rollout towards value.
We feel are adequate for what you want.
Two.
Thanks for that.
Got it.
Sure.
Yeah.
We're rolling it out so we rolled it out and are in the process of rolling it out at our first partnership right now is our largest part of our shift in the portfolio.
Learning from that it's only partially implemented in that portfolio right now really really well received by the way by the front desk as well as the patients who are utilizing the house.
Our learnings from this first partnership that we're rolling out will allow us to roll it out concurrently at other partnership. So we should have a fairly fast implementation is a faster implementation as we move through the year, but we will have a better idea in terms of the timing for top 40 partnerships, which is where we're focused to start within the next.
By the end of April April 30th.
Okay. Thank you for the question.
Got it thank you.
The next question comes from Mike <unk> from Barrington Research.
Good morning, Mike Good morning, Good morning, Hey, so slightly distracted here five earnings reports if you cover this forgive but I'll ask it anyway have you guys given any update on progress with the P. P O and how partners are either Oh.
It's starting to get traction with that or not so much.
Do you want me to take that.
Chris I didn't I didn't hear the question.
Keeping you on progress GPO progress.
Being received.
It's been well received by actually going live on the 27th we're rolling it out at 180 locations starting on the 27th of February .
It's been worth getting all of the.
All of the.
Yeah.
We need them at different partnerships located in the warehouses are going to be adjacent to their practices.
Go live on that next week.
But how many partnerships does that represent the 180.
Hmm.
30, probably.
We're trying to do them in geographic Douglas area to test the program and.
The first.
Partnerships go live will be blowing it out and so the partnerships I can get the exact number for you I don't have it in front of me.
Alright, great.
Meaningful progress that's great.
I'm just curious is that because so much Ah I guess your commentary sort it started with the you know sort.
Sort of contract negotiations and some commentary in the Q&A.
Is there a chance that ultimately some of these payers just sort of don't get it in and you end up saying well you know I mean, obviously theres a chance, but I guess.
Yeah.
Like the tone of these conversations I mean, do you think revenues could actually shrink or do you think ultimately everybody for it it sort of it is going to get this and it's just a matter of do you get this bumper or that bump.
Well you know I.
I don't think anything happens uniformly but.
Look we're prepared and in fact in some markets, where we have given notice.
Said fine.
We have other providers, who use other providers.
Well to fill those slots with better paying.
It's frankly better paying plans.
And so we.
We may lose some of these in the short run now interestingly in one of our big partnerships, where they said fine we don't we don't care.
Moved.
Within two months they came back and offered a very meaningful increase.
All right, but we havent put chicken.
And we're prepared to not take the business and we think we can replace that business and let that go.
Frankly to the to the market to our competitor.
They want to take it but then take it yeah.
Sort of on a related note.
In terms of pricing.
And I know, it's way way early but you know it seemed.
In 'twenty four in terms of the CMS I mean is the industry lobbyists and the social.
P E and in others that sort of sort of get this I mean.
It is.
I guess, what I'm trying to get to is it will it be any kind of reprieve from sort of what the industry has been sort of going through the last few years in terms of these headwinds because it does seems between inflation and end up in the pricing.
It's just made it awfully difficult for.
For for smaller operators, particularly or leveraged operators done.
New business.
Uh huh.
I'm trying to get out of the predicting what CMS is kind of doing business because.
It doesn't make a lot of sense and attract that doesn't make a lot of sense to our lawmakers.
Others.
Our efforts in <unk> and with Apta and other constituencies are focused really.
Largely outside of CMS, So I won't predict what CMS does well.
I will say that we've made.
<unk> I think in helping.
Key constituents and Congress to understand what it is physical therapy does between balance and fall prevention.
Falls or a massive massive cost.
The health care system to individuals and their ability to function.
Again.
Hear about it as much.
But it's still a massive problem.
Some great studies out there just to communicate.
The cost differential when people start with the primary care of musculoskeletal care, which is really physical therapy, and so we're trying to pound that message and drive it home.
Washington's little dysfunctional for.
These days and so.
Again, my ability to predict what happens.
But I think we have a great story I think we have good data.
And we're going to continue to bang on it and at some point, it's got a turnaround.
Yeah.
One more quick one for Karen.
Terms of the borrowing capacity I mean to me it looks like it could go up to four times, if you want it but.
Maybe a comfort level slightly lower than that or for the right deal would you go to the right theories of deals can you just speak to maybe where the.
Top and realistically in your view is as far as your comfort.
Yeah, well right now our covenant is at three three times so.
But not to say that we couldn't go to our banks, which we have great relationship with them and get if it was the right deal and the right right timing, we could go higher than that I don't I don't think that we would necessarily be comfortable much above three though for very long. If we went above three it'd be something that we would bring.
I'm pretty quickly.
That's my perspective.
Makes sense, thanks, guys really appreciate it.
Thanks, Mike.
Hugh.
And once again that the Sterne one if you'd like to ask a question, we'll pause for a moment.
Yes, Pearce, we have no further questions at this time I will now turn the program back over to our speakers for any additional or closing remarks.
Okay. Thanks, Gretchen listen I, just wanted to thank everybody for the questions for the time today for the ongoing support.
We appreciate it and then we've got some follow up call scheduled with some of you. So.
Those were going to talk to I hope you have a great day and.
Concludes our conference call. This morning, Thank you.
This does conclude today's program. Thank you for your participation you may now disconnect.
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