Greetings. Welcome to Amedisys Fourth Quarter and Year End 2020 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. At this time, I will turn the conference over to Nick Muscato. Nick, you may begin..

Thank you, operator and welcome to the Amedisys investor conference call to discuss the results of our fourth quarter and year ended December 31, 2020. A copy of our press release, supplemental slides and related Form 8-K filing with the SEC are available on our Investor Relations page of our website.

Speaking on today’s call from Amedisys will be Paul Kusserow, Chairman and Chief Executive Officer; Chris Gerard, President and Chief Operating Officer; and Scott Ginn, Executive Vice President and Chief Financial Officer. Also joining us is Dave Kemmerly, Chief Legal and Government Affairs Officer.

Before we get started with our call, I would like to remind everyone that statements made on this conference call today may constitute forward-looking statements and are protected under the safe harbor of the Private Securities Litigation Reform Act. These forward-looking statements are based on information available to Amedisys today.

The company assumes no obligation to update information provided on this call to reflect subsequent events other than as required under applicable securities laws. These forward-looking statements may involve a number of risks and uncertainties, which may cause the company’s results or actual outcomes to differ materially from such statements.

These risks and uncertainties include factors detailed in our SEC filings, including our forms 10-K, 10-Q and 8-K. In addition, as required by SEC Regulation G, a reconciliation of any non-GAAP measures mentioned during our call today to the most comparable GAAP measures will be available in our forms 10-K, 10-Q and 8-K. Thank you.

And I’ll now turn the call over to Amedisys’ CEO, Paul Kusserow..

when the pandemic hit, we quickly mobilized to ensure our ability to reach and serve our patients. We secured ample PPE, creating a centralized distribution center. We implemented new PPE protocols for our clinical staff. We developed a COVID-19 positive patient treatment protocol.

And our business development staff rapidly prioritized and secured our current referral sources and even found new ones, helping us to recover quickly our volumes and even grow.

Financially, despite all the challenges presented by COVID-19, we grew our adjusted EBITDA year-over-year by 21% from $225 million to $274 million, while expanding our EBITDA margin 170 basis points to 13.2%.

We continued our inorganic journey forward and successfully closed the AseraCare Hospice transaction during the middle of a pandemic and are actively out looking and negotiating for more deals, especially in home healthcare, PDGM, the first major regulatory payment overhaul since PPS over 20 years ago.

Our 2019 investments and constant practice paid off. We executed nearly flawlessly, overcoming the 4.36 behavioral assumptions rate impact. Lastly, we continued our close-to-core innovations by expanding the utilization of our nationwide personal care partnership three times.

We developed SNF-at-home product solutions to take care of higher acuity patients who want to recover at home. And we integrated telehealth into our care planning.

Our personal care network generated approximately $3.5 million in revenue via care coordination with our home health and hospice segments for the full year 2020, 3 times its start and a revenue number, we look to double in 2021.

We are also working on exciting new innovations, largely in predictive analytics and integrated care technologies that will further allow more people to be able to age in place in their home. Before we dive into our fourth quarter and 2020 results and 2021 outlook, I want to acknowledge both Chris Gerard and Scott Ginn.

If you saw our announcement last night, then you know that our Board of Directors has appointed Chris to President and COO; and Scott to Executive Vice President and CFO.

Chris and Scott have been in their role since 2017, and have helped to craft and execute upon all of our strategic initiatives, but it was in the two months of 2020 where they showed their true mettle, helping guide us through PDGM and COVID-19, where we not only survived but thrived.

Both of these promotions are richly deserved and fully earned as a result of exemplary leadership, hard work and significant achievements. I am confident that both Chris and Scott will continue their exemplary leadership and help drive the company to even greater levels of success. Once again, congratulations, gentlemen.

With that, I will turn the call over to President and COO, Chris Gerard, for a run through of our fourth quarter performance. Take it away, Chris..

quality, people, operational efficiency and growth. First, quality. As you know, quality has been and will continue to be a focus of the organization.

We are proud that during 2020, our home health business achieved the quality of patient care Star QPC score of 4.33, and we had 95% of our care centers at four stars and 65% of our care centers at 4.5-plus stars. Next, people.

In a year in which numerous unprecedented challenges impacted our daily lives and work lives, I’m very proud of the progress we made in supporting and retaining our talent. Our total voluntary turnover for the year was 18.3%. Though we made good progress, we still have work to do, especially within our clinical staff.

Reducing nursing turnover is a key initiative for us in 2021, and I look forward to updating you on our progress here in subsequent calls. Now on to operational efficiency, entering the year, PDGM was our biggest initiative. And even though the pandemics were a wrench in our plans, we still overcame the impact of PDGM’s behavioral assumptions.

Optimize our care delivery and utilization to ensure that our patients were receiving highest quality of care with the most appropriate visits, and we improved our clinical staffing mix. For the quarter, we performed 14 visits per episode, which was down 0.4 visits sequentially and 2.8 visits year-over-year.

For the full year 2020, we performed 14.9 visits per episode, down 2.1 visits from 2019. We remain very comfortable with our VPE experience as we have seen no impact to quality. And in fact, quality performance has improved throughout the year.

Entering 2021, we will likely experience a slight pickup from our fourth quarter exit rate as COVID related this business return. But we believe for the full year 2021, our business per episode should be around 14.5. On clinical mix, we achieved 47.5% LPN utilization and 50.9% PTA utilization in the fourth quarter.

As business per episode have come down, our ability to increase our LPN utilization has become more challenging. However, there’s still room for improvement in this number as we work through 2021. And finally, for growth, for the quarter in home health, we grew same-store total volume in admissions, 5% and 6%, respectively.

Our home health division has been nimble throughout the pandemic as displayed by another strong quarter of growth. In hospice, we grew same-store admissions by 15%, while ADC was flat for the quarter. Last quarter, we discussed how ADC growth lags admissions growth.

But at the end of the fourth quarter, a new industry dynamic further inhibited our ability to grow ADC. This new dynamic was a sharp increase in the debt and discharge rate of same month admits, along with the timing of patients coming on to service, which all hindered ADC growth during the quarter.

Said otherwise, patients were dying on service faster and entering our hospice business later in the dying process than historically. This was largely related to COVID-19 and/or the deferral of care due to fears of COVID-19. We believe this is an industry-wide dynamic, which will course correct over time.

However, it’s hard to project when that time will be. The ADC impact continued in early January, but we’re now seeing some very positive signs. In fact, we started to see a week-over-week decrease in deaths entering February as well as total admits surpassing total discharges.

We have provided additional information on these trends and hospice stats, along with our 2021 monthly ADC projections on Pages 13 and 22 of our supplemental slide deck. As you can see, we had another great quarter and an incredible year. Focusing on our four strategic pillars continues to pay off for our patients, our employees and our shareholders.

With that, I will turn you over to Scott, who will take us through a more detailed review of our financial performance for the quarter and year as well as our guidance for 2021.

Scott?.

the suspension of sequestration added $9 million to our revenue and gross margin, hospice rate increase of 2.4% effective October 1.

Continued improvements in clinical utilization and a shift in clinical staffing mix drove a substantial portion of our 450 basis points improvement in gross margin, the benefit of our two 2020 hospice acquisitions and raises, which went into effect August 1.

Sequentially, EBITDA increased $2.5 million, driven by an increase in hospice reimbursement and home health volumes, which was offset by a full quarter of raises, a decline in hospice ADC and increases in contractor utilization in health.

Now turning to our fourth quarter adjusted segment performance, keep in mind, segment level EBITDA is pre-corporate allocation. In home health, revenue was $329 million, up $13 million or 4% compared to prior year, driven by strong same-store total volume growth of 5% and total admissions growth of 6%.

Revenue per episode was up $54 or 2%, which was driven by the suspension of sequestration, an increase in case mix offset higher lupus and a 2.8% PDGM rate cuts, resulting in a roughly flat year-over-year change in revenue per episode, excluding the sequestration benefit. Visiting clinician cost per visit increased 6% over prior year.

The increase was driven by planned wage increases effective August 1.

A significant increase in these from contractors driven by growth in the high number of quarantine commissions, which reached a peak in the last week of December, increased health insurance expense as the delay in medical spend due to COVID-19 caused a more significant sequential increase than normal seasonality.

New higher pay and the impact of lower visit volume on fixed costs. Our gross margin improved 490 basis points despite the 6% increase in cost per visit.

The improvement was driven by our significant progress on clinical staff and mix and utilization, a 90-basis point impact from sequestration relief and the variable nature of our business model, which benefited from higher volumes.

G&A increased approximately $4 million, mainly driven by planned wage increases, the addition of business development resources, investors related to PDGM, partially offset by lower travel and training spend. Segment EBITDA was $65 million, up $17 million, with an EBITDA margin of 19.8%, representing a 460 basis point improvement.

Sequentially, segment EBITDA was down $4.3 million, as higher contractor utilization, a full quarter of raises and higher G&A spend more than offset an increase in volumes.

Now turning to our hospice segment results, for the fourth quarter, revenue was $204 million, up $39 million over prior year, an increase of 24%, which includes the addition of two acquisitions closed during 2020, Asana on January one and AseraCare on June 1.

Net revenue per day was up 5% to $160.72, driven by sequestration suspension and a 2.4% hospice rate increase that went into effect October 1. As Chris discussed, office submission growth was impressive at 15%. However, ADC was flat as an increase in deaths of patients on census and delays in care resulted in shorter length of stay.

Hospice cost per day decreased $1.68, primarily related to pharmacy contract renegotiations and the decline in business performed by all employees due to COVID related access restrictions, EBITDA of $53 million, up approximately $15 million, an increase of 40%.

The Asana and AseraCare acquisitions added revenue of $32 million and EBITDA of $5 million to the segment’s performance this quarter. Sequentially, segment EBITDA increased $3.4 million, despite a sequential decline in ADC. The increase was driven by the impact of the hospice rate update effective October 1.

Turning to our total general and administrative expenses, on an adjusted basis, total G&A was $174 million or 31.6% of total revenue, which is an increase of $20 million year-over-year and includes $11 million in additional costs related to our acquisitions, $9 million in our hospice segment and $2 million in corporate.

Additionally, incentive comp accruals raises additional business development resources and operational support staff accounted for approximately $9 million. We continue to generate impressive cash flow in the fourth quarter, producing $66 million in cash flow from operations.

Our cash flow for the quarter was impacted by approximately $15 million in additional tax payments related to our treatment of CARES Act funds. For the year, we have generated $289 million in cash flow from operations.

Our continued strong cash flow generation has helped us to end the year with a net leverage ratio of 0.7x, which is quite impressive as we have completed approximately $650 million in acquisitions since February of 2019.

We remain focused on pursuing M&A opportunities in 2021, with an emphasis on consolidation opportunities within our home health segment. Finally, as you can see on Page 20 of our supplemental slide deck, we are releasing our guidance for 2021.

Our guidance ranges are revenue of $2.28 billion to $2.32 billion; adjusted EBITDA of $315 million to $325 million; and adjusted EPS of $6.25 to $6.47. There are several key assumptions impacting 2021 guidance outlined on slides 19 through 22 of our supplemental slides.

First, our home health and hospice pricing updates are partially offset by the sequestration suspension ending March 31, 2021. The estimated impact of pricing updates, net of the anticipated return of sequestration is $20 million.

As noted in Slide 22 of our supplemental materials, we anticipate a decline in ADC before returning to sequential and year-over-year growth in Q2.

A quicker-than-projected ADC recovery will result in significant outperformance; incremental EBITDA contribution from previously completed acquisitions of approximately $25 million, some margin impact in the hospice business from the return of hourly clinician visits, which is approximately $8 million benefit to the hospice segment in 2020.

Planned wage increases of 2% to 3% that will be effective in the second half of the year. Keep in mind, our first half 2021 results are impacted by raises given in August of 2020. In total, this equates to approximately $24 million in increased spend.

Our effective tax rate assumption is approximately 26%, with an estimated cash tax rate of approximately 15%. And finally, continued incremental investments in the business of approximately $15 million, which include additional de novo spend of $5 million and investments in innovations and projects of approximately $10 million.

Some additional items to keep in mind related to our performance from Q4 2020 to Q1 2021. The impact of the ADC hospice decline combined with two less calendar days is estimated to impact revenues by approximately $10 million.

Home health rate increased net of sequestration of $4 million and a benefit of lower health costs related to seasonality of claims. Additionally, the full impact of the return of sequestration in Q2 was $9 million.

Finally, our guidance assumes 33.4 million shares and we are projecting cash flow from operations to be in the range of $235 million to $240 million. This projection is inclusive of the impact of the no pay RAP and repayment of payroll tax deferrals under the CARES Act, which together totaled nearly $60 million.

I will now turn back the call back over to Paul to conclude.

Paul?.

Thank you. EVP and CFO, Scott Ginn, well done. As you can see, we have much to be proud of for what we were able to accomplish in 2020, has turned the headwinds of PDGM and COVID-19 into tailwinds. We have even more to be excited about for 2021 and beyond.

First, demographics, they are strongly in our favor with the baby boomers creating a potential surge of patients in the coming year, with more people turning 65 years old than ever before.

The burgeoning 75 plus population, coupled with ever increasing unsustainable healthcare costs puts us in a very advantageous position as an at-home, aging-in-place company, delivering the highest quality care at the lowest cost to seniors. Keep in mind, over 9 out of 10 baby boomers want and expect to be able to age and die at home.

According to CMS’ public projections and based on current law, both home health and hospice are in line for positive rate updates, well into the future. Given the low-cost and high-quality nature of our businesses, this makes a lot of sense.

Next, our scale and cash flow generation coupled with the fragmentation of both the home health and hospice industries presents us with an exciting opportunity for continued inorganic growth and will position us as a major market consolidator.

As the unsustainable subsidies subside, we expect to capture more and more market share over the coming years as we roll up our respective industries. And lastly, the COVID-accelerated trends of doing more for more in the home, no one is better positioned than Amedisys to take advantage of the share shift into the home.

And as we grow our SNF-at-home capabilities, technology innovations and other high acuity programs, we expect to take even more share from other post-acute providers. It’s truly an exciting time to be at Amedisys. And that ends our prepared remarks. Operator, please open the call for questions..

[Operator Instructions] And our first question is from the line of Brian Tanquilut with Jefferies. Please proceed with your question..

Hey, good morning, guys. Congrats on the year and the quarter. Since we are only allowed to ask one question, I will give you a three-part one. Paul, I will start by asking, obviously, the growth rate for Q4 was solid, especially relative to what we have seen for the peer group. How are you thinking about – and the guidance is strong, right.

So, what drives that? And then I guess related to that, the hospice ADC obviously has faced these challenges.

So, if you can walk us through what you are doing or how you are thinking about inflecting that and getting us to the trend line that you showed in that slide on your deck? And then, I guess, for Scott, the last one is just the conservatism of guidance, all related to the first two parts of the question? Thanks..

Yes. On the growth side, I think we are just very confident about what we have seen in the terms of our trajectory, Brian. Besides good looks and charm, which I think we have got, there is lots of – that’s a joke, there is lots of sales folks that we have been incorporating. We have taken a lot of business.

And in the COVID period, I think by being good citizen, what we have actually done is we have pitched in hard and we won a lot of market share. Although in some places, let’s say, in some facilities, SNFs and ALFs and some of these other places, we have gained share, but the pie is a little smaller due to COVID again.

So, I think our feeling is that we can continue to drive the volume and we are seeing very strong indicators that again, the quality correlations, the service correlations, what I talked about initially, we came in very strong with PPE. So, I think that’s been pushing us forward.

So yes, we are going to stick by the 9% home health growth, 18% hospice admit growth and then drive that and then we are starting to see some good things on ADC, but I’ll let Chris take that one..

Yes. Hey, good morning, Brian. Thank you. Yes. So, on the ADC side, we have analyzed this almost in which way you can.

And what we are seeing is, is that truly, across all segments upsetting in-home or in facility ALI or SNF as well as where the referrals are coming from, either physician or our own home health agencies referring over or hospital or SNF referrals. We are seeing a decline in the length of stay across all of those segments.

So for us, what we do feel like is going to happen throughout 2021 and we are already seeing that so far in January and in February as you know as the vaccine is getting more widely distributed and COVID is starting to decline, we are starting to see these death rates start to decline as well.

We expect that to continue through this year and then start to revert back to a normal length of stay and you can see that illustrated in our slide deck in terms of where we see it going.

So that part we see as kind of uncontrollable from our viewpoint, it’s just really more about people getting comfortable going and seeking their medical care in a timely fashion. From the things that are controllable, it’s around admissions. And we have been building out our FTE kind of staff for sales.

We have been working with our data to identify new referral sources and take an opportunity. Obviously, with the 15% admission growth year-over-year in Q4, that’s a good sign and we have got aggressive growth planned this year, 18% for the full year in admits and we feel like we are going to execute on that strategy.

And just a little color around on the admit growth and the ADC growth, through the acquired locations that we have done over the last couple of years plus our de novos, we have got about a third of our agencies that are less than 50 ADC. And that’s where we see the real opportunity is taking those smaller agencies, growing those aggressively.

We have the feet on the street. We have the volume flow that’s coming through. And what we just need to really see a pull-through in an ADC perspective is a reversion back to a normal length of say..

Yes. And I will get to your third one, Brian. So, I mean from a conservatism of a guidance perspective, the trend on ADC is what got us there. We certainly have the opportunity to outperform as we move forward. So we are watching those trends. We feel good about them right now.

But as we were sitting here in November, felt really good where we were and then the deterioration from this kind of shift in what we are seeing from a discharge perspective certainly had us rethink it, but feel good about where we are. I think there is always something built in there.

Certainly, we are going to – we have done a good job at our spend over the years. The way we load this is we generally leave us some room and from a decisional perspective where we are not going to load up all costs early.

If you were to go look at our trends, you will see that we kind of spend late in years and that’s once we have a better handle that we are delivering on our growth promises. So we will do that again. I have got myself room there.

So, I feel pretty good at the place we are right now and generally as we come out, there is some conservatism around that built in..

Thanks, Brian..

Thank you..

Our next question comes from the line of Justin Bowers with Deutsche Bank. Please proceed with your questions..

Hey, good morning gentlemen. Hey, everyone and congrats to Chris and Scott on the recognition and a good job well done this year. I am just going to follow-up on the previous questions. One related to home health, it sounds like you guys are taking share.

And I was just curious if one, where are you in terms of the recovery of the electives? Are trends pretty similar to where they were in the last quarter? And then how are you thinking about that in terms of the guide? How much of that comes back this year? And then on hospice, I am just wondering – with all the moving pieces, how are you thinking about margins year-over-year there? And then I will stop there..

Right. Chris, I am going to hand off to you, except for one thing that I think we are watching very carefully, Justin and that is, the fact that straight hospital discharges are not only what we are looking at, we are seeing some migration of certain procedures off to ambulatory surgery centers. So we are seeing some growth there.

So I think one of the things we have done very well is understand where the types of places where we get our patients where there has been migration, we followed that.

And when we followed it over to ambulatory, there is – we expect there is going to be more and more that’s done over there as well as other places outside the hospital, but we are all over the hospital. We are winning shares there, we are winning share there, but we are going to look for that to be a little more diffuse than we used to see.

I don’t know, Chris?.

Yes, yes. Thanks, Justin. So what we are seeing and what we have baked into our plan for 2021 is we don’t – right now we are at about 75% of pre-pandemic levels in terms of the elective procedures. We don’t have that coming back to a full 100%. So in the event that it does, that’s some upside for us. We have it coming back to about 90%.

So that’s kind of baked into our growth numbers. We do get our fair share of these referrals coming out of hospitals. As Paul mentioned, some of those may transition over to ambulatory surgery centers, which we see as an opportunity to actually increase our share of those discharges.

So, we see that as an opportunity upside that’s not really baked into our numbers, but we don’t have really a significant part of our 9% admission growth that’s planned for 2021 coming from this sub-sector. Again, we are sitting at 75% of pre-pandemic levels. It’s not gotten much north of that at all during the pandemic.

So, we are still being pretty conservative around our capturing of that..

Yes. And then on your question around growth, I think on margin, on hospice margin, I think most of the movement you are going to see is really going to be at the gross margin line. I think with all of the – everything we have going on here, there is a lot of moving pieces with acquisitions running out.

I think from a gross margin perspective, we came in roughly at 49% for the fourth quarter, which is really strong. And as a signal throughout the year, we were benefiting probably about 1% from lower visit volumes because of the access issues on hospice.

So that normalizes to around a 48% from a gross margin, we’re going to have the rate increase for a full year, which would affect in Q4. So that’s a beneficial. You’ll have sequestration go away in the second quarter.

So I think from a gross margin perspective, we’re going to kind of hang in that 47% to 48% range for the year, which would probably keep us in a similar range to where we were in that 20 – high 24% to the mid 25.5% type of EBITDA margin at hospice..

Got it. Thanks so much for the questions..

Thanks, Justin..

The next question comes from the line of A.J. Rice with Credit Suisse. Please proceed with your question..

Hey, A.J..

Hi, everybody. I – maybe I’ll just ask about the labor dynamics. I know you’ve called out now a couple of times in the last quarter, the headwind from clinicians out on quarantine. I wonder if you could quantify that? And are your clinicians, I would think they would be pretty much front of the line to get the vaccine.

And so could we see that moderate pretty quickly once they’re vaccinated, they wouldn’t have to be out on quarantine? Or is there something I’m missing there? And then just on similar, on the turnover rate. Your turnover rate was down sequentially from third to fourth quarter.

I guess we’re hearing about clinicians burning out and all of this stuff with the good crisis to see the turnover rate come down sort of against that grain.

Any comment on how you are having that happen?.

Yes. Let me start with the kind of impact around the dollars and Chris, will let you kind of get more into the other piece around the quarantine and so forth. But – and I’ll start with the fact that quarantine does certainly be an impact to us. And we did see some higher quarantine of clinicians in Q4 as COVID cases rose.

We think we peaked at the end of December. So that certainly is working its way down, but it will be a slow kind of drop. So that – so what’s causing that? What happens when that happens is we’re getting impacted by needing contractors. The strong growth in home health is also driving that need as well.

From a sequential perspective, we were up $1.39 on contractor cost per visit. At 1.8 million visits a quarter, that’s roughly $2.5 million sequential hit to us relative to that. Year-over-year, we’re up roughly $2.36 on contractor cost per visit, which equates to roughly $4 million.

So certainly some opportunities on those, but the strong growth will kind of limit to how quickly we can bring that number down.

Chris, any other color?.

Yes. Just in terms of kind of the workforce. We peaked at about 6% of our clinicians. We’re on quarantine leave in December. That was a high watermark for us, dating back to early April of last year. That number has come down significantly so far this year, we’re around 3%.

As we get our clinicians vaccinated, that obviously offset some of that so that they’re not required to go on quarantine leave even if they’ve been exposed, but they have been vaccinated. Right now, we’re about getting close to 40% of our clinicians have been vaccinated. So that’s moving in a good direction as well.

What we’re focusing on for this year is really that clinician burnout for both home health and hospice and making sure that we’re adequately staffed. We’re really beefing up our clinical capacity.

Frankly, our 6% Medicare – 6% growth in Q4 was a little bit stunned just because it was coming so fast, and we’re fighting quarantine with our clinicians in utilizing contract nurses. That we could have done a little bit better.

So we’re really – it opened our eyes to making sure that we’re building out this clinical capacity this year, making sure the back door is shut in terms of any nurses choosing to leave the organization. And we see that we’ve got good line of sight to be able to support the growth that we’re going to have – that we have in our plan for this year.

At the same time, driving down contractor dependencies back to a normal level. So I’m very optimistic about all of that. And those are all kind of good factors to support not only good growth for this year, but a good growth trajectory going forward..

Okay..

And then two points on the labor side, one is we know what causes burnout. Two, we’ve – we’re in the staffing business. So that’s what we’re – that’s all – our utilization of human capital is what we do as a business and hard to find human capital.

So we’ve developed a very good predictive model out there, which can basically tell when we’re going to lose people between 60 and 90 days ahead of the time they leave. So we’re being very proactive now about driving this model to drive down turnover. We’ve seen some very good early results.

And it’s that sort of effort to understand how to manage human capital, which is key to our success. We’re just people. We have no real assets. And therefore, the assets are our people, and we have to have incredible understanding, particularly when there is more burnout and there is shortages of clinicians.

So we feel very good about where we are, but we’re going to continue to really drive, be in the vanguard of understanding how to predict labor utilization, how to predict burn out, how to predict turnover..

Okay. Great, thanks..

Appreciate it. Thanks, A.J..

Our next question is from the line of Andrew Mok with Barclays. Please proceed with your question..

Hi, good morning. Hi, good morning. I wanted to follow-up on the hospice headwind. On the last slide of your earnings presentation, you have a nice visual for the revised hospice ADC assumptions in your guidance. I sized the revenue headwind at about $25 million. I think I’ve heard a $10 million headwind in your prepared remarks.

Can you confirm that headwind amount or provide a quantification for the ADC revision?.

Yes. So yes, my prepared remarks, I was referencing the move from Q4 to Q1 in the $10 million number as we thought that, that would be impactful to revenue I think your math is looking at the chart, you’re probably in the ballpark from a revenue perspective, which you can see there..

Got it. Okay. That’s helpful. And I wanted to dig in a little on the expectation for a 9% increase in same-store admissions growth on the home health side. How are you thinking about the pace of that growth throughout the year? And I think you had 1,700 new referral sources through Q3.

Do you have the total new referral sources for the year? And are you able to quantify the contribution to growth from those new referral sources? Thanks. .

Yes, it’s a great question. So I don’t have the number for the full year. I do have an update for Q4, and that was actually 3,000 on the home health side, new referral sources, and that generated 20% of our volume for the month – for the quarter, I’m sorry.

So we’re still really doing well in terms of attracting the new referral sources and getting good yield out of those referral sources, and that’s baked into kind of our assumptions around 2021 as well. We want to continue along that path. In terms of pacing, obviously, Q2 is going to be a low comp.

So we expect that you’ll see an outsized kind of year-over-year growth number in Q2. And then Q3 and Q4 should be a little bit more kind of in lines of the high single digits on the growth side. In Q1, a little bit softer. There was no disruption with regards to the pandemic until late in Q1. We lose a couple of business days this quarter.

And what we’ve already kind of witnessed is we had a pretty crippling storm last week that we ended up losing about 325 office days. So our offices were closed in the impacted markets for a total of 325 days if we accumulate that. Much of that gets moved to the right, but not all of it when we have instances like that.

If we look relative to last year, it was only 20 days that we lost in February due to weather.

So that’s a little bit of a little bit of a spend that we took in last week just related to just kind of the weather dynamics, but we don’t feel like that’s all lost business, but just a little bit of kind of a slowdown for Q1, but otherwise, we should see solid, solid growth throughout the year with Q2 being a little bit exaggerated because of the easy comp..

Got it..

And approximately we have 1,175 new hospice referrals, too, for the quarter, right?.

Correct..

Yes. So on both sides, Andrew, we are doing pretty well..

Thanks..

Next question comes from the line of Whit Mayo with UBS. Please proceed with your questions..

Hey, Whit..

Hi, thanks. So CBS put out a slide on their earnings call, suggesting that they believe they will vaccinate pretty much everyone in assisted living and long-term care by mid-March. I know maybe that’s optimistic. I have no idea.

Can you just maybe remind us your exposure? But really, the question I’m getting to here is how are you orienting your strategy around this for the reopening? And how are you positioned to get your clinicians back in the door? How are you engaging with these access points? It just feels like a coiled spring and maybe to clarify, I mean this across both lines of business? Thanks.

.

Yes, it’s going to be more impactful for hospice, which has much more significant – our share of market in the areas where CBS is going to be going. My hope is that CBS is right. It’s much less in home health. But obviously, I think it’s good. The question is that is will this bounce back to the old norm. We aren’t convinced that, that’s going to happen.

We’re convinced that what’s going to happen is more referrals will probably continue to go to home health. Due to the fact that referring clinicians now have had a year of trying to keep people constitutions. But Chris, you’ve got the numbers on – I think it’s 40% on hospice, and I don’t know what it is in home health..

It’s about 8%, the exposure to the ALS and ILS on the home health side. What we’ve been doing is we’ve been getting increasingly more access to the facilities, mainly around having our clinicians vaccinated to be able to enter into the facility. So that’s an opportunity that we’re continuing to focus and take advantage of.

What we do see as – if 100% of occupancy or residents are vaccinated by mid or late March, I don’t know that, that’s necessarily a lot of upside opportunity. Really, what we need is these facilities to get back to kind of pre-pandemic occupancy levels.

And I still think that even if the residents are vaccinated and they’re not letting family members in who are not vaccinated, that’s still going to be a little bit of a barrier for them to grow their kind of their occupancy levels. So we don’t – we’re not really baking that into our projections for 2021 of seeing that as tremendous upside.

But as things start to kind of settle down and more people are vaccinated, we do see just kind of a little bit of more return to norm versus just outsized opportunity..

Okay. .

I think the idea for us with smaller pie, bigger piece, we’ve been stealing share regularly, largely that’s because of the good citizen March we’ve been getting of taking care of COVID patients of getting early in PPE and then pushing vaccination.

So as long as we’re there, we think that it can keep doing that we think we’ll get bigger pieces of a smaller pie. Our hope is the pie gets back to normal. If CBS is going to be pushing that, that would be great for us, but we are counting on it..

Okay. Thanks a lot. .

Appreciate it. Thanks..

Thank you. The next question is from the line of Joanna Gajuk, Bank of America. Please proceed with your question..

Hi, Joanna. .

Thank you. Hi, how are you? Thanks. So I just want to talk about, I guess, you mentioned – there was a discussion on the margins on the hospice side. So can we talk about the outlook for the margins on the home health side? I appreciate the color about the progression of the admission outlook for the year.

But can you just walk us through the puts and takes on the margin side of things?.

Yes. So on the hospice side, I mean, the home health, I’m sorry, side of the business, we ended up 44.2%, which is pretty phenomenal margin for us. We’ve seen continued improvements there. I mean it’s similar things and I’m going to just kind of talk about – so if you think about it, we have a rate good guy coming through, that will be helpful.

You have sequestration runoff in Q2. So those are all great. The other thing that we do have is margin expansion opportunities. If you go look at our PPE, we’re down 2.8% year-over-year in Q4. And you go – we looked at Q1 of 2020, we were at 15.8%. So there’s opportunity earlier in the year around that. There’s opportunity also from a revenue per episode.

We were roughly down kind of 3.5% to 4% in Q1 and Q2. We’re basically flat when you take away sequestration right now. So you’re going to – we’ll see some expansion opportunities when you kind of look at the year-over-year comp perspective. And then back to the – where we really are the 44.2%.

I think we’ll hover in that 44% to 45% kind of range on a gross margin perspective for the year, and we’re right around 19% for the year and EBITDA margin. I think we have a potential with the rate increase to get a little slight, we had better than that..

There’s still additional margin availability in our utilization PTAs and LPNs. At a time with – we’ll still continue to focus on that as well.

And then the one thing that will be a little pressure, but I think it definitely play out in Q1, coming out of Q1 into Q2, is that again, with the contractors that we have in place, we’ve been aggressively hiring nurses and doing a very good job so far this year. So bringing nurses in, they’re not productive for the first 9 weeks employed with us.

And so we’re running a little bit of the duplicate costs with these clinicians, but we’ll see the contractors start to fade off to a more normal rate, and we’ll get these nurses into a productive state. And our focus for 2021, which I think can be really kind of translate into margin opportunity is really keeping our clinicians.

It’s costly to turn over a clinician, particularly a nurse or therapist in our business. So a lot of focus on keeping our clinicians and actually being able to leverage some of those savings into any kind of wage pressures that we see related to nursing as we go forward. So I think that net, that’s still a positive opportunity for us.

It will be a little bit of a headwind for Q1, but I think coming out we should see the benefit of lower turnover, lower contractor utilization and better professional utilization as the year goes on..

Thanks..

Yes. Anticipating our growth, Joanna, we understand the fact that if we’re going to grow the rates that we’re projecting, that labor stabilization and productivity amongst long-standing employees is what’s the most important thing for us.

So we’re starting to see some very good early results where we’re putting – we’ve been putting a lot of emphasis on turnover, as I mentioned with A.J., we’re able now to – with an 80% accuracy, predict when somebody is going to leave our organization within 60 days.

And so we’re being very proactive on that front to make sure that we start to hold our employees and understand where there’s problems and proactively get in front of it..

Yes. If you circle back and look at Q4 in terms of our 6% growth in home health, we also have a spike in our cost per visit. That’s what we’re trying to avoid. So we’re staffing for that 9% growth early on this year, we expected to achieve it and will achieve it.

And so we could have had better margins in Q4 if we were fully staffed with that 6% growth and did not have to depend on the contractor. So that’s how we’re looking at 2021. Right..

That’s a great color. Thank you. So it sounds like there’s still some upside there. Thank you..

Very much. Thanks, Joanna..

Our next question is from the line of Matt Borsch with BMO Capital Markets. Please proceed with your question..

Hi, Matt..

Hey, how are you? Good to speak to you again. Let me ask you a question about the industry consolidation that you think may or may not happen this year. We talked before, you’ve talked before about a shakeout from PDGM, which, obviously, got delayed, you might say in some ways because of the total disruption in the relief measures.

How are you thinking about that going into – now that we’re in 2021, as if they affect the pipeline of acquisitions that you’re going to be looking at?.

Yes. Our pipeline is still pretty good, and Scott can talk a bit about that. But in terms of the governmental piece of it, we’re looking at the fact there’s a no pay wrap, which is, if you don’t get that right, can be very costly. That’s been in effect now for 2 – almost 2 months.

The people are going to start to owe back the money they were borrowing on receivables from the CARES Act, and then they’re also going to have to start to pay their payroll tax deferral at December this year. So the money is coming due. The reimbursement is going to be – there’s going to be money due.

So I think it’s going to be going to be – we’ll start to see it. Whenever the subsidy stopped, though, when the CARES Act people, finally, these subsidies are going to stop, I think there will be some opportunities to swoop in. But I think Scott and team are still going to do deals regardless of when this actually occurs. Scott, I interrupted you.

Sorry..

Yes. No, I was just – I think that’s right. I mean, we’ve – it’s just has been a little different mindset on it. Early on, we felt that these deals will be coming to us a little bit, and we saw some of that early. We’ve kind of had to switch the playbook a bit. And go back to what we did in hospice and identify targets we like and go pursue them.

So we’ve got a great pipeline. Our team is working hard. We’re confident we’ll get some deals done. I mean, looking at our balance sheet, 0.7x levered. We did close to $650 million of deals since February 2019. We basically paid all that. So we’ve got the ability to do that. This year will be another strong cash flow generation.

So we are confident we’ll get there. We’ve got to work through our diligence process. We won’t lower our standards from the acquisitions we want to do and the high-quality, high clinical quality assets. So feel great about it, and we’re pushing hard..

Great.

I mean, just reading between the lines, it sounds like maybe because of how protractive things have been that it may be going into 2022 that we see something closer to a tipping point to the extent that there is one? And maybe I could just – sorry, I ask one other question here, which is, how are you thinking about the new entrants, if I could put it that way, coming in home health has proven to be a sector with very attractive fundamentals.

And so not surprisingly, others bigger companies than some of the mom-and-pops are looking to come in.

Then you see managed care with their own internal home health operations as well?.

Yes. I think we welcome it from a certain perspective. Again, I – this is all we do, and we do it really, really well. And I think our mix in business in home health, hospice, personal care, palliative care is really good. I think the neutrality we have in the market is really good.

I think there will continue to be people we hear rumors every day, much more. Assets being snapped up, there was some news this morning. There was some news last night. I think people are understanding the home is a place where you need to be.

And I think there will be diversified companies that will try to get into this space, and we’ll see how they do. I think one of the great things about this industry is it’s so highly both industries as they’re so highly fragmented. So there’s always going to be the opportunity to continue to work with some of the big players that are out there.

Just going to buy something doesn’t mean they’re not going to have to partner with somebody. In most of the referral sources that we see hospitals, for example, there’s at 11, 12 home health agencies they deal with.

So we’re delighted to have – to up the game and to continue to partner with various people where possible and go into geographies where they aren’t. So I think there will be a lot more activity. My guess is there will be a couple of IPOs out there. We hear rumors on it. Again, they’ll compare themselves to us. We’ll see how they do.

And we welcome the competition..

Great, thank you..

Right. Appreciate it, Matt. Thank you for the question..

Thank you. Our final question is from the line of Matt Larew with William Blair. Please proceed with your questions..

Hi, good morning. This is Dan Lawler on for Matt Larew. Thanks for taking my question. .

Hey, there. Good morning, Dan..

Yes.

So, just wanted to follow-up on the 9% admission growth guidance in home health, can we get a little color on what drove non-Medicare revenue flat in Q4 compared to Medicare revenue up 6%? And then maybe how we should be thinking about same-store admissions for Medicare versus non-Medicare with respect to guidance for 2021?.

Yes. So from a – first, on the issue around the non-Medicare growth perspective, yes, they were flat year-over-year. If you look at the actual stats on it, it’s going to look better than that. I mean, we’ve got a couple of things going on. We probably got a 2% pricing good guide.

And I think the volume around those numbers from an admit perspective is high. But really, in our Medicare, non-Medicare business, we saw visits per kind of admit go down, which is some of what we saw on our Medicare business. So both of those the volume piece was probably about 1.6%, 1.5%.

So if you look at those combined, we’re kind of in the range of 4.5 type of percent we’d be looking for. While that’s not showing up, it’s really two things that happened a little bit higher from our price concessions, which old terminology our reserves around revenue those are a little higher in Q4 2020.

And then if we talked last year, in Q3, we had a contract was a care improvement plus. I think it was a name we talked about that converted to UHC product that converted from episodic to per visits. In that conversion and the way we recognize revenue, there is completed episodes that ran into Q4 of last year.

That don’t show up in volume numbers that propped up that number. That was probably about 2.5%. So 3.5% going one way, probably the other flattened out that growth number. But we’re still seeing strong admit volumes coming out of non-Medicare.

It’s just in the revenue around this recognition issue and which will kind of work its way out after this quarter. That’s why you’re seeing that flat growth..

Great, thanks. I appreciate the color.

And if I could just sneak one more in, on the SNF-at-home pilot, you mentioned on the last call, can you give us a sense for maybe where you stand with payers? And if you have anything related to the timing for rolling out the pilots or even taking it to CMS?.

Yes. We’re in good shape there. I think we’ve had – our innovations group has done a really nice job putting it together. We’re actually in kind of the final contract negotiations with a major player in the space. And so hopefully, we’ll be out with some news there. But we’ve actually started to do some of the work ahead of time. So we’re excited by that.

We’ll – it’s a very good partner, so we’re excited to learn what we can. But I don’t think we’re going to say anything until we have a signed deal. But we’re feeling good, lots of conversations with people, particularly on the convener-type space where people want to reduce the cost of SNFs and the fear factor that are associated with SNFs.

So we’re getting a lot of interest from managed care plans. But what we want to do is find a great partner to show how it works first and then integrate it into managed care and we believe we can produce better results for less cost. So obviously, that’s of tremendous interest, particularly to the MA plans..

This is Scott, again. Yes, the one other thing I wanted to kind of make sure we have a lot of in our earnings called out around our estimates around guidance for next year and some of our assumptions. And just – there’s a lot of moving pieces there, and I want to just quickly walk through.

If you look at 2020, we’re exiting at $274 million we’ve got our net rate good guide, just to be clear with everybody on that and how we’re talking is roughly $20 million and that’s we’ve got a positive rate of roughly $30 million in sequestration unwinding of the negative $15 million. So it’s a positive rate of $20 million.

We talked about our acquisitions that we’ve done already in place, the CCH, the AseraCare, Asana, everything we’ve done is going to probably, we think, drive incrementally $25 million.

We’ve got raises in health out there that are going to increase kind of health has been run a little lower because of some COVID people not going out and seeking medical care as much, and that’s impacted us. So between raises and health, we think that’s roughly $40 million. We’ve said raises are roughly $24 million.

And then the project de novo spend, we said roughly $15 million. We think travel returns, that’s probably another $5 million, so that’s a bucket of roughly $20 million. That puts you somewhere in the range of a $260 million in type of number.

At that point in time, and we think through growth and gross margin expansion, kind of gets you that other $60 million. So just some highlight level moving pieces out there to help you guys as you think through your modeling..

You got a bonus, Dan. There you go. Thanks, Scott..

You are welcome..

Thank you. At this time, I reach the end of a question-and-answer session. I’ll now turn the call over to Paul Kusserow for closing remarks..

Great. I appreciate it very much, operator. I want to thank everyone who joined us on our call today. I’d also like to again thank all of our employees who delivered on another incredible year of results. Please keep doing what you’re doing. It’s amazing to see taking care of each other and the people who need us the most are patients.

We hope everyone has a really great day today, and we look forward to updating you on our ever-evolving progress and purposeful work on our next quarterly earnings call in April. Till then, take care, everyone, or we’ll see you on the road..

Thank you. This will conclude today’s conference. You may disconnect your lines at this time. Thank you for your participation..