LHC Group Inc (LHCG) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to LHC Group's First Quarter 2017 Earnings Call. (Operator Instructions) As a reminder, today's conference is being recorded.

I would now like to turn the call over to Eric Elliott, Senior Vice President of Finance. Sir, you may begin.

Thank you, Chelsea, and welcome, everyone, to LHC Group's Earnings Conference Call for the First Quarter ended March 31, 2017. Hopefully, everyone has received a copy of our earnings release. If not, you may obtain a copy along with other key information about LHC Group and the industry on our website.

In a moment, we'll hear from Keith Myers, Chief Executive Officer; Don Stelly, President and Chief Operating Officer; and Josh Proffitt, Chief Financial Officer of LHC Group.

Before that, I would like to remind everyone that statements included in this conference call and in our press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements include, but are not limited to, comments regarding our financial results for 2017 and beyond. Actual results could differ materially from those projected in forward-looking statements because of a number of risk factors and uncertainties, which are discussed in our annual and quarterly SEC filings. LHC Group shall have no obligation to update the information provided on this call to reflect subsequent events.

Now I'm pleased introduce the CEO of LHC Group, Keith Myers.

Thank you, Eric, and good morning, everyone. Thanks for being with us today.

We are very pleased to report that our first quarter results represented a strong start to 2017. These results continue the operating momentum that we experienced throughout 2016, and that we expect to continue as we look forward to the remainder of the year.

Our attention to detail and proven ability to execute across our 6 pillars of excellence are evident in our organic admissions growth, acquisitions growth, quality and patient satisfaction scores, overall efficiency and organizational readiness, and we are on pace to exceed our expectations in 2017.

Due to this outlook, we have raised our financial guidance for 2017, which Josh will discuss further in his comments.

Our organic growth for the first quarter once again accelerated on a year-over-year basis, which Don will address a bit later.

Our acquisition strategy also contributed substantially to our growth, both from the full quarter results of the acquisitions completed last year and from our LifePoint joint venture, which is a testament to our ability to identify quality opportunities, model, integrate and execute the strategy.

We have now implemented the first 2 phases of the 3-phase plan for the first year of our joint venture with LifePoint. We have acquired 19 LifePoint home health locations and 12 of their hospice locations, and we managed 10 additional home health locations, which will convert to joint venture owned locations in September due to the 36-month rule. The joint venture is proceeding as expected and our work on next steps for further expansion of the joint venture while building out home health and hospice locations where LifePoint hospitals do not currently offer these services is continuing.

As the news release indicated, since the end of the first quarter, we have also signed 2 additional joint ventures with high-quality hospital systems. They are leaders in their markets and they will bring a total of 10 home health and hospice locations to LHC Group when complete. We've expanded our presence in West Virginia and Ohio through our joint venture with Pleasant Valley Hospital in Point Pleasant, West Virginia, and have also announced that a tentative agreement to create a joint venture with Baptist Memorial Health Care system to enhance home health and hospice care in Tennessee and Mississippi.

Baptist Memorial Health Care system located in Memphis, Tennessee is ranked #15 on Becker's Hospital Review's 20 largest nonprofit hospital systems.

Our pipeline of potential joint venture opportunities is unprecedented, and we continue to focus strategically on high-quality, stand-alone, freestanding acquisitions, primarily in Certificate Of Need States.

We believe that LHC Group's reputation for quality care has been an important driver of our acquisition success as well as our accelerating organic growth in home health admissions. Our clients at the top of the CMS Star ratings has been a highly visible indicator of the care we provide and the latest results in April strengthened our position as the provider of the best quality and highest patient satisfaction in our industry.

I want to thank everyone on our LHC team for their contribution to our continuing quality and satisfaction leadership as well as to our ongoing financial success.

We would have neither without the realtime day-to-day effort of our team to provide the best care to their patients.

To see this commitment and professionalism across the company that now has over 12,500 full and part-time employees is certainly a tribute to our management team and business model, but most of all, a tribute to our team members working directly with patients and their families as well as those who support them.

We thank them and recognize them for their dedication and effort. Thank you for your time this morning. And now here's Josh to discuss our financial results in more detail. Josh?

Thank you, Keith, and good morning, everyone. Thank you all for joining our call.

Let me once again begin my prepared remarks by saying how much I appreciate all of our clinical professionals who continue to raise the bar and lead the industry with the high quality and exceptional service you all provide to the patients, families and communities we are so blessed to care for, and all of the LHC Group family members who support them on a daily basis.

Because of all of you, we are able to report another successful quarter to our shareholders and are truly positioned for an outstanding 2017.

With regard to our financial results, net service revenue for the first quarter of 2017 increased 10.8% to $246.6 million and net income increased 23.2% to $9.5 million compared with the first quarter of 2016. Net income attributable to LHC Group per diluted share was $0.53 for the first quarter of 2017 compared with $0.44 per diluted share for the first quarter of last year. Results for the first quarter of 2017 included a positive impact from an excess tax benefit associated with stock-based compensation of $838,000 or $0.05 per diluted share.

Home health same-store revenue grew 8% and hospice same-store revenue grew 4.4% in the first quarter compared with the first quarter of last year. This growth in same-store revenue is due to our growth in same-store admissions of 11.7% and an overall increase in patient acuity in the home health service line, which is offset by an estimated 2% reduction in Medicare home health revenue from a Medicare Home Health Prospective Payment System for 2017.

On a consolidated basis, our gross margin was 37.4% of revenue in the first quarter as compared to 39.1% of revenue for the first quarter of 2016. The decrease in gross margin year-over-year is due to a few factors: one, the negative revenue impact from the 2017 home health reimbursement rule of an estimated 2% reduction to Medicare reimbursement; two, the negative revenue impact from the LTACH patient criteria rule, which affected 2 of our LTACHs beginning June of last year and the other 6 LTACHs beginning September of last year. And also, margin contribution from acquisitions that closed within the last 12 months that is lower than the gross margin for our more mature agencies. Excluding these recent acquisitions, our consolidated gross margin would be 38% for the first quarter of 2017.

Also as is customary for the first quarter, our gross margin included a higher level of payroll tax, which we expect to decrease throughout the year resulting in improved gross margins for the remainder of the year.

Our general and administrative expense was 29.2% of revenue in the first quarter of 2017 as compared to 29.8% in the first quarter of 2016. The improvement in G&A expense as a percent of revenue is due to continuous cost control efforts while growing revenue and generating additional operating leverage.

Now on to bad debt. Our bad debt expense represented 1% of revenue in the first quarter as compared to 2.1% for the same period of last year. The decrease in provision for bad debts was primarily due to continued process improvements implemented in our revenue cycle department.

In addition, same-store patient accounts receivable over 180 days decreased 10% during the first quarter of 2017 compared to the same period of 2016, which reduced our days sales outstanding by 3 days. This was due to the concerted effort to review and collect on older accounts receivable that continued to be aged out as well as receipt of collections on some Medicare processing issues that related to over claims.

The company also noted very strong and more timely cash collections due to the continued maturity of our back office and field operations related both to our point of care platform and to other technology advancements in our reporting and analytics.

With regard to cash collections for the quarter, we collected 101% of revenue for home health compared to 95% in the first quarter of last year and 119% of revenue for hospice in the first quarter compared to 101% in 2016.

As Keith mentioned, we have great momentum and cannot be more excited about our robust pipeline of potential joint venture and freestanding opportunities. We currently have $136 million available on our line of credit, which leaves us well positioned to fund future acquisitions and joint venture partnerships.

Turning now to our annual guidance for 2017. We are raising our fiscal year 2017 guidance for net service revenue to now be in an expected range of $1.02 billion to $1.04 billion from the previous range of $1 billion to $1.03 billion and fully diluted earnings per share to now be in an expected range of $2.23 to $2.33, up from the previous range of $2.07 to $2.23. This guidance does include the $838,000 income tax benefit or $0.05 per diluted share related to the adoption of the new accounting standard for stock-based compensation recorded in the first quarter but does not take into account that recently announced definitive agreement for a joint venture partnership with Baptist Memorial Health Care, the impact of future reimbursement changes, if any, future acquisitions if made, de novo locations if opened or future legal expenses if necessary.

For the full year of 2017, we continue to expect gross margin to be in the range of 38% to 39%.

We now expect general and administrative expense as a percent of revenue to be in the range of 28% to 29%. Bad debt as a percent of revenue to be in the range of 1.5% to 1.7%. And excluding the discrete tax item related to stock-based compensation that resulted in an excess benefit in Q1, our tax rate to be in the range of 41% to 41.5%.

That concludes my prepared remarks, and I'm happy to further discuss anything during the Q&A section. I am now pleased to turn the call over to Don.

Thank you, Josh, and for all listening this morning, thank you for doing so.

I'll begin my remarks by discussing quality in service in a little more detail than Keith and Josh.

With the latest quarterly report from CMS. LHC Group has now produced the industry's top quality and patient satisfaction results for the fourth consecutive quarter. Our quality star rating increased from 4.4 in the January release to 4.5 in the April release, and our patient satisfaction increased from 4.0 in the January release to 4.1 in the April.

While we are pleased that we lead the industry, we are truly rewarded as how this has been able to better serve patients, families, physicians and partners. Our star ratings are just one of the various quality measures that are a point of pride for our team and that we feel differentiate our company inside of the industry.

From enterprise collaboration efforts with the joint commission to working with innovative companies to further enhance our in-home care and service, we are serious and committed to this differentiation and see it translating into shareholder value as we go forward.

Along those lines, we also like where we are with growth, both internal and external. The increase in amount of admission volumes from our JV partners and the community as well as our continued success in executing new joint ventures with hospitals and health systems both underscore our position in this most competitive industry.

Specifically, to the first quarter of this 2017, we saw a 12.8% increase in admissions from hospitals, a 6.7% increase from skilled nursing facilities and a 10.8% increase from rehab facilities as compared to the same period prior year.

As mentioned in the release, our year-over-year growth in organic home health admissions has accelerated for each of the last 6 quarters. Our 11.7% organic admissions growth for the latest quarter is the strongest such growth we've produced in 6 years, specifically since the first quarter of 2011.

Because of the increase in admissions from facilities, we continue to benefit from higher acuity patients, which has resulted in a 6.0% increase in average revenue per Medicare episode for the first quarter of 2017 as compared to the first quarter of 2016.

As a side note, in the first 4 months of this year, we have gained the trust of more new physicians than ever before. Specifically, we have had just over 2,600 physicians admit patients to our care teams that before now had not done so.

Next and turning briefly to our people pillar. We continue to accelerate recruiting but are also laser-focused on investment and retention of our existing 12,689 team members. As a result, we have the lowest vacancy percentage in our company's history, 5.5%, and our turnover has decreased by 3% in the last 16 months alone. These stats and the associated efforts needed to produce them are paramount to our continued growth, our predictive quality and service, and perhaps more importantly, they are mission-critical for that employee engagement that Keith talked about in his prepared comments.

So in closing, thank you, team. You truly are fulfilling our mission of exceptional care and unparalleled service. And along with you, we are all living that vision to improve the quality of life in the United States.

This concludes our formal remarks. And now operator, we are ready to open the line up to the questions for those on the call.

(Operator Instructions) And our first question comes from the line of Brian Tanquilut with Jefferies.

That was a really good quarter. Keith, first question for you. As I think about your joint venture comment, what do you think is driving your success there in terms of gaining traction? You've always had that strategy, but it seems like it has accelerated, number one. And then what are the discussions like in terms of what they are looking for? Are there different kinds of structures that they're looking to setup as they bring in home health partners? If you don't mind, just give us some color on that joint venture strategy and the remaining opportunity there.

Sure. So it's a number of things, it may take a couple of minutes. I think the -- our quality scores certainly are a driver of our growth at every level. And I have to go to that first. With regard to the hospital growth and my statement about the pipeline being at an unprecedented level with regard to hospital health system growth, a lot of that has to do with the size of the opportunities. So historically, we added single hospitals or maybe 1 or 2 or 3 hospital chain would be a multi-location acquisition for us. And now we're just seeing larger systems with more volume and more hospitals coming to us in a single transaction. And I think what's driving that is certainly the quality scores, our reputation, since 1998 when we did the first hospital joint venture. So they can look back and talk to references, and we give a complete list of every hospital we have a joint venture with. I think all of that helps. But then we're also -- a lot of the interest is also being driven by the move to value-based purchasing, population health and hospitals start or starting to think more seriously about that and position themselves for it. And when they look at our ability to create value in that type of reimbursement environment, that's driving them to the table. The last thing I'll mention is what I hear most about when we walk in the room, but that's why they're thinking about choosing as opposed to keep talking. The first half from our response is why I think they're choosing us.

Got you. And then, Keith, as I think about the volume strength that we've seen you guys put up over the past few quarters, I mean, other than quality, is there anything that you guys have been doing or is there -- has anything changed in terms of your sales force or sales strategy? And then how should we think about that your ability to sustain this level of growth going forward?

Yes. So certainly, the quality scores again are at the top of the list because you have to have something to sell, in my opinion. Something that differentiates you from everyone else in the market. So we're really fortunate right now to have that. But our sales efforts have never been better, and Don can jump in and comment on that. That report is up to Don and Don spent a lot of time there. But we're very methodical and very strategic and data-driven in how we approach that and how we -- we have differentiators, but how we use those differentiators to actually grow the business and measure performance of the individual salespeople. Don, you want to...

Yes, Brian. Keith alluded to it. I'd probably use 2 words maturing and evolving. We've certainly been a clinically-driven and operations-driven company since inception. But working with our salespeople and using that same lens of concurrency has produced those results that I talked about those extra 2,600 physicians coming onboard on our team. So I don't think anything's changed more than it's evolving and also being culturally indoctrinated to capacity planning. There's been times that some of our agencies out there, they bump up against capacity and get to kind of a stalemate point. And now we're doing a much better job and I alluded it to recruiting, training and preparing for the growth so that we don't see that sawtooth pattern in that CAGR. Instead, it's really starting to smooth out, and we've done a much better job. So it's a work in progress and it's tough because it's very competitive. But I couldn't be more pleased of where we're positioned between now and the end of '17, and in Canada we're already working with our co-located and trilevel approach. We're already working toward '18's growth right now.

Got it. And then last one for me. As I think about your non-Medicare fee-for-service business, obviously, we saw a lot of strength there. Is there anything you'd call out that drove that? And also how are you thinking about the MA Medicare Advantage opportunity going forward and what kinds of discussions are you having right now with payers in terms of trying to expand into MA?

Yes. So I'm trying to pick the right word here, Brian. So I'm more than optimistic, the board and I are excited about the momentum that we're seeing in our conversations with managed care payers, in particular. And I want to qualify that. What I'm excited about is their openness and willingness to move towards models that are episodic and value-based and that create more of a partnership between us as a provider and them as a payer. And with this -- I just see huge opportunity there, because they can recognize value when you deliver it, and we've done this. We did it the first time in Ochsner. So we spent a lot of time talking about that original value-based model that really was the kickoff for us to move in that direction. So I'm excited about that. We're seeing incremental improvement. You see it in our numbers, but I think we're just scratching the surface in that regard. So did I answer your question? When you said fee-for-service, were talking about the personal care?

You answered that part of the question, Keith. The other part was just the strength in the non-Medicare admissions during the quarter, what was driving that?

I think in the non-Medicare, just -- so in managed care admissions?

Yes.

I just -- I think it's our hospital strategy. I mean, the hospital partners have a diverse payer mix. I mean, they have more managed care business. So it's not a hard business to grow. If they -- once you negotiate, you have the leverage to negotiate acceptable rates, those patients are backed up in hospitals and health systems, looking for a place to go and nobody really wants them.

And our next question comes from the line of Kevin Ellich with Craig-Hallum.

Just following up on Brian's question and your response, Keith, it's great to hear your excitement about the MA opportunity. Can you kind of put any goalposts around what that opportunity might be? And any sense on timing when we might actually see it?

No, I wouldn't -- no, I can't. I guess it's -- I think -- let me just say this, I think the path we're on is a path of piloting different models in locations or regions or maybe states and developing proof of concept for best-in-class models that create the partnership that satisfies both sides. And I think that's the path we're on now through 2018, probably. And I mean, the goal for me would be by 2019 to have broader value-based arrangements across our platform. I mean, I hope that helps. I mean, that's what my goal is, this is not an overnight -- it's not an overnight movement.

Sure. No. That does help. Kind of -- so in early early stages like you said, proof of concept and whatnot. So looking at some of the segments, community-based services, I know it's still a pretty small part of the business, but the growth -- top-line growth -- revenue growth out of that segment did slow down just a little bit. Wondering is that just normal, seasonal fluctuations or was there anything else behind that? I mean, it is off a low base.

Yes Kevin, this is Don. It was directly attributed our Elk Valley in Nashville and some of the payer changes that came across in that state. That's bad news. The good news is that certain locations that we did on the de novo specifically, Nashville and Arkansas, picked up about 75% of that and doing so at the same margins. So while that was a blip, we couldn't to be more excited of the margins and then now the opportunity to spread that through the portfolio. So that's -- it's going to be nonrecurring.

Don, do you think that? Oh, go ahead, sorry.

Go ahead. Go ahead.

Just wondering what type of growth, like normalized growth should we see out of that segment?

To be honest with you, I think we'll have a better indication on next quarter's call because we're finalizing some of that right now. I wouldn't model up anything differently than you've seen in the last couple of quarters going through '17, but I'll give you a little bit fresher update as we go through the imminent budgeting process, I guess, I can say that. I know I'm not answering your question. I just don't want you to get too far ahead of it until we have it scripted and approved by our board in August.

Keith, did you have anything to add there?

No. I was just going to say how we look at personal care services across the organization. And I want to go ahead and loop hospice into this as well. When we think of how we look 5 years from now, we think LHC moves towards a model that has hospice, home health and personal care services co-located in every market that we serve. And by co-located, I mean, 1 building, if you will, with 3 suites for each service line but a shared common working area, not just 3 locations at different addresses scattered throughout the community. The collaboration that takes place between staff in those 3 service lines is really important because we're really transitioning patients from one service to another, and we don't want to create a feel that patients actually get discharged from 1 organization and admitted from another. We have to do that for licensure purposes and managing the business. But we want 1 brand with 3 service lines, and that's the direction we're moving in. It's not going to be a perfect world because there'll be certain markets that don't have the reimbursement for the community-based services we serve, we aren't going to put a lost leader into a market. But I think with managed care payers as we move more in that direction, we're going to see more managed care payers that are active in the managed Medicaid side and are going to look to us to help them in that area.

Makes a lot of sense to me. Just 2 quick financial questions for Josh. On the balance sheet, non-redeemable, noncontrolling interest shot up to about $16 million, a little bit over $16 million this quarter from $6 million last quarter, wondering what drove that increase.

Okay. Let me get there with you. That was mostly, Kevin, related to the LifePoint JV that we closed in January.

Will that be the -- is that kind of how we should think about that line item going forward or will it come back down or is it the $16 million is kind of the run rate?

I expect it to probably come back down a little bit. But with LifePoint and then as we phase in LifePoint, we've got the April 1 phase that just happened and then September, it will normalize a little bit below that, but definitely higher than what we've been at.

Okay, that's helpful. And then clearly a nice improvement on the DSO. Wondering if -- with the 3 days improving on the collections. One, is the current level sustainable or it will creep back up? And then in your prepared remarks, you made a comment about the aging of your receivables. And I think some receivables over 180 days fell off. How much of the older receivables falling off led to that improvement in DSO?

Yes, great questions, Kevin. So that's probably why you see where we finished the quarter at 1% bad debt percentage, but we're still guiding to 1.5% to 1.7%. Some of that older Medicare claims processing issues that we were the benefit of in Q1, you kind of need to normalize some of that out. And then I think the greater than 180 days, the intensity of the efforts that we've put into that over this quarter, you're going to see continue, but as a proportion it's going to kind of more normalize out throughout the year, which kind of will get me back to the same-store run rate for bad debt in the 1.5% range and then we're guiding a little bit higher than that because with an acquisition beside the LifePoint coming through throughout the year, you're going to have a little bit more wobbly bad debt percentage coming in acquisitions. So we're trying to take that into account with our range.

And our next question comes from the line of Ryan Halsted with Wells Fargo.

So just to start on guidance, the increase in revenue seems to include further acceleration. So I'd just be interested on where you think you're going to see some acceleration on that. And did I hear that it -- guidance excludes Baptist Memorial, which I know you're targeting a June 1 close. Can we assume that when that closes that, that could add a half year of contribution?

Ron, this is Josh. I'll take the second part of your question and then Don can jump in on the first part, and we can tag team it if we need to. But specific to our guidance on Baptist, you're right. Since we've not closed the joint venture, we did not included in our guidance. But in the press release that we issued earlier this week, we quantified approximately $25 million of annualized revenues. So assuming we close it on June 1, then you could take about half of that, and then flow it in through this year. We also mentioned in our release that it would be slightly accretive. I wouldn't bake much by way of EPS into go-forward guidance, but come June, we will be baking that half of the $25 million in revenue into it.

And then, Ryan, this is Don. First part of the question. It's attributed to volumes and the things that we kind of talked about in organic growth side and certainly LifePoint is going to start maturing as well. But there, again, as Josh said, that top line incorporates that, but we're turning those around operationally. So I think those are the 2 factors really underscoring that.

Okay, that's helpful. And then on hospice, I mean, I know we've been somewhat spoiled with some pretty impressive growth for several periods, but it seems like it maybe slowed just a little bit. So I was curious if there's anything in particular you would want to call out on that.

I think you just nailed it. I mean, we've had such huge success that it's a factor of the hurdle rates right now. But I would continue to bake in what we have talked about earlier. It's not going to exceed home health by no stretch of the imagination. But I think you just said it, it's all about the hurdle rate that we have coming up, and we had such great prior periods that, that's what we're leaping.

Okay. And then I wanted to move on to the joint venture with Baptist Memorial. Certainly, it seems like a really attractive opportunity. I'd love to hear your thoughts on what's kind of the bigger picture, opportunity there, if you could kind of frame how to think about maybe making comparisons to how you frame LifePoint, how many of their hospitals do you think there is a chance to expand into. And also, what's kind of the margin profile that you can think you can kind of get from the partnership? That'd be helpful.

We'll tag team that. I'll let Keith maybe go global and high level, and I'll maybe specificate some of that as he goes. Well, I think from a margin standpoint, we see that, that revenue base is going to go up to our same-store margins. For example, they just announced as you saw their merger with the Baptist system in Jackson, which is an existing partner, we see huge synergies from that midpoint of Jackson all the way up through Memphis to kind of spread that market with that brand, but they also alluded in Arkansas. We have a provider there that we're at a point in time, going to reverse that provider into the venture, brand it as such, and see that as a huge growth potential. Josh can clarify this, but I think they've had numerous hospitals, maybe even 17 hospitals. At a point in time, much like LifePoint we'll go in and put our services in that. Have we really scored what that's going to look like? Not in earnings, I mean, we're just getting under that and I was up there, actually Tuesday. So I think again, that'll be a little bit clearer as the next months come through, and we see what their management teams locally want to do and when. So Keith, you can take off from there.

Yes. So I think -- everything Don is -- certainly accurate in all of that. Don mentioned Mississippi Baptist. Let me try to paint this picture. When we went to Mississippi Baptist in Jackson in 2001, and they had 1 location and they were just in Jackson. And from that, we built out all of the service line and branches in all the contiguous counties and built a network that's 8 location and just build a dominant home health network in Heinz County and all the contiguous county under the Baptist brand, and that was the vision back then of Mr. Jerry Cotton, who was Chief Operating Officer there. We followed that model. We did the same thing when we joint ventured with University of Tennessee Medical Center. And I don't know how many branches. How many branches in UT now?

In that location 4 or 5.

Yes, so built all of that out in the surrounding counties. So in the case of Baptist and Memphis, it's a larger opportunity starting off, but the same relative growth opportunity when you consider all the counties they serve through their multiple hospitals. Some of them don't have home health at all today, and even the ones that have home health are really just servicing their host county and not really servicing their contiguous counties.

I don't want to box myself up with this but I also want to give you some clarity. At $23.7 million in TTM I mean, obviously, our goal is to double that. And whether that's going to be in 3 years or 5 years, we're kind of putting agency-specific plans. But that's so doable because of the way that -- they're not different, by the way. The way that most of those volumes are coming from their facilities. So we didn't even embark upon outside community sales and targeting those positions. So again, I don't have the exact answer of where we're going from a budget standpoint, but the next milestone will be $50 million with that.

Okay, now that's very helpful. Maybe one last one for me. On your M&A pipeline, I was wondering if you have a dollar target to sort of describe what's in there. And then just any thoughts on where you're seeing the most opportunity? I assume it's in more of these joint ventures but if you could just give us some sense of is it your home health joint ventures versus standalones versus hospice? And even community care, where do you see the most opportunity in your pipeline?

Okay, sure. So clearly the hospital joint venture relationships are the -- I've used the word unprecedented, because that's accurate. The momentum -- and momentum meaning actual active discussions with hospitals and the volume -- a volume of business associated with that is unprecedented on hospital joint venture space. Whenever we go into a hospital joint venture, we may be looking at the home health. We normally are looking at the home health primarily. But what comes with that is of the opportunity to add hospice and personal care services over the long term. So it's the relationship with the hospital and the health system and the partnership operating under that brand that creates opportunities to provide the whole spectrum of home health hospice and personal care services. So that's the hospital joint venture strategy. And then on the freestanding side, we're just very strategic about that. I mean, we're primarily focused in Certificate of Need States and focused on high-quality assets that have been around for a long time, have an excellent reputation, and we continue to operate under the same brand. The third part from our strategy is, and I'll just use LifePoint as an example. When we partner with hospitals or health systems, we'll have the same thing with Baptist in Memphis, there'll be certain hospitals that they have that do not currently have home health agencies. So in those cases, we're acquiring small home health agencies that we rebrand and establish a hospital-based agency essentially. It's more efficient to do that, in many cases, than it is to open up an agency even in a non-COM state. So those are the 3 things that we do. With regard to putting a number on it, I think I want to stick with our statement that we expect to exceed our acquisition -- our acquired revenue in 2016. And I just want to stay with that for now because the hospital negotiations don't go as quick. Those transactions don't close as quickly as freestanding acquisition, and it's hard sometimes to peg the timing of when they're going to close. Often, we're in exclusive negotiations, so it's not about a bidding contest. It's just about all of the approval processes and the stages you have to go to -- go through with the hospital system.

And our next question comes from the line of David MacDonald with SunTrust.

A couple of questions. Keith, first, can you give us a sense when you look at the pipeline, what percentage of those joint ventures now are potentially with multi-facility bigger health systems? And where was that percentage 1 or say, 2 years ago?

That's a really good question. I wish I could give you the exact answer. I wish I had it in front of me, but I'm going to just take a shot at it. So 75% of the discussions we're having are with system-related opportunities now. And let's just say system-related would be with 3 or more hospitals. And 25% -- I think it's less than 25%. Josh is nodding his head, probably be significant less. Josh, you might be closer to it, but are with single standalone hospitals. And 3 years ago, you could reverse that. The vast majority of our conversations were with single stand-alone hospitals. That's where the momentum's coming from. You just the -- you hit the heart of it. Josh? You think it's less?

Yes, no. Keith, I agree completely. And probably in a little bit more leaning toward the bigger systems now and the flip side of that coin would almost be the reverse, if not more dramatic the other direction. If you were to go back 2 to 3 years ago, it would be 90%-plus base that would have been the smarter systems, and this momentum has really picked up over the last 18 months.

How much is the momentum picked up since the LifePoint announcement?

Probably at least doubled in the system side.

And then, Keith, can you just spend a minute on -- you kind of tossed out there your vision down the road as home health hospice and personal care kind of co-located, and I think the synergies and the benefits there would be fairly obvious. But what type of time frame do you think it's realistic to envision that being either a noticeable or a meaningful piece of locations that you guys have?

Well, I think I'm going to throw that to Don because -- and the reason is that it's not -- it does have some [cost of debt in it] that we're going to acquire hospice and we're actively pursuing hospice. But before Don jumps in, if we look at our hospice acquisition that might have overlapped with our existing locations in 25%, 30%, 35% of the hospice locations in the target. But it's the other 2/3 of the location are in markets that we're not in and don't see any potential to go in, in the near term. And then it really doesn't fit in the model. That's especially if the hospice has high percentage of their patients that are in nursing homes, that's not our model. So for the most part, we're building this with acquisition of small hospices in 1, 2 or 3 location. I'm just tucking them into our existing home health model in relationship with hospitals. Don, good timing.

Yes, So -- and you probably don't know this because I didn't say this ever before, but you think about we have 299 home health locations, which is kind of a hanker and 77 hospices locations and 12 CBS today. Today, we have 26 markets that we're co-located in. And those operations, the collaboration and the care coordination has given us the confidence actually for -- Keith who has said, we did. So if you kind of go there, not all of those 300 are going to have market readiness for each of those services. But I got to tell you I'd be appalled to not see half the portfolio go in to mid-'18 and in 3 to 5 years 2/3 of that do that. And then only other caveat is as Keith talked about these health systems in the pipeline, that I'm running through my head, not one of them do not have a multi-service lines. So that is on top of what I've already said. Differently stated, if you take the 300 within 5 years, we totally expect to have co-located portfolio. And then on top of those 300, it depends what we acquire.

Okay. Can you guys provide a little bit more detail -- I just want to make sure I heard this right. Keith, did you say over 2,600 doctors had admitted patients, thus far in '17 that hadn't before?

Yes, it's Don. I actually said that. That is exactly correct. From January 1 of this year through April, 2,600 physicians admitted patients to our services that had not done that before. It was new physicians, different physicians.

So Don, I guess that prompts a couple of questions. One, can you give us a sense of what the total number of referring doctors at the company is right now as we can get some sense of magnitude? And then also what are you guys doing in terms of physician outreach, or is it just the quality metrics are bringing these folks to you?

Yes, it's about 11,000 physicians interested. And it's interesting, you see that's -- it's a really good question because in our industry -- well in LHC Group's experience, the real organic growth comes from diversifying new physician profile. So that then leads to that concurrent management of our sales force. We are very prescriptive in their route planning and their sales calls per day. We do statistical correlations to our different physician groupings. If you look at their schedule and say, if you continue on that statistical path, you will not diversify to this correlation. And so we have people and analysts that actually reengage their route mapping, so to speak, and we do that based on best hour rankings of physicians. As I just give you a quick example. The best physician target is the medical director of another competing home health agency. They already know the benefit. And then when we go out, we tell them why we're different and better than their own agency that they're medical directors, we're seeing huge success at diversifying that profile.

This is Keith. And I'll just add to that. That works when you have something different to sell. So when you have the quality scores, when you're joint commission accredited, when you have great patient satisfaction scores, honestly, whenever you have -- when you have good employee engagement scores and people hear good things from the staff and the community, all those things actually give you a product that differentiates yourself. And then what Don just talked about, when you manage it with the detail that he described, that's what generates result.

And guys just one final follow-up. Don, that 11,000, does that 11,000 include the 2,600? So we are talking about something like 8,400, and you added the 2,600, or is it now 13,600?

It's the prior. You’re absolutely right. That's embedded into that number. 8,500, 8,800, something of that.

Okay. So you guys just saw your physician base diversify by 31% since the beginning of the year?

There you go.

And our next question comes from the line of Dana Hambly with Stephens.

I appreciate all the details and the pretty phenomenal growth opportunity here. I want to kind of step back and we're certainly seeing a number of other examples of companies growing very fast. They're doing acquisition that looks great upfront, but then turns out maybe they weren't prepared for this type of growth. So I just want to get your sense of how comfortable you are that you'll be able to handle all of the top line growth without really sacrificing the profitability.

Yes, that's really a great question. So we -- let me start by saying it's hard for me to think of anything that we don't have a metric for. So when we start thinking about growth, this pipeline now I'm telling about, we're modeling out the needs in the organization for that pipeline way in advance in terms of home office, so we know what metric that creates in every department in the home office. We want to continue to leverage G&A cost, and we project that we will do so, but there are going to be additions necessary in rev cycle, in human resources, all those functional departments. And then on the leadership side, that's also an important part. So our -- we have a dedicated recruiting team that is sourcing the leadership talent to lead these different operations. So for example, a LifePoint transaction, you have to have a, I'll let Don jump in here, but you have an operational leader there that has experienced. Most of the time, those come from within that have been groomed in LHC, but then you have to backfill that location and begin to groom someone who can step up in that next level in the future, and that's just an ongoing assembly-line process here. That's not much different than the staffing calculator that I alluded to that we use at the branch level. Don, you want to jump in?

Yes, and I don't mean to sound boisterous when I say this, but the M&A in bringing in the acquisitions, I don't feel operationally we'll have any bearing on overall profitability because our guidance takes into that account if we fold those in, most of them are lost leaders or they're not profitable. So our jobs then become to turn that around. And I think the biggest -- if I can make a really strong point here is that we are a large company. But the way that we've enhanced our quality and our profitability that we've announced this quarter is really looking granular at each location, each visit, and making sure that we're doing the things that statistically yield those results -- predictably, yield those results. And we've been very open to our teams here that LHC Group now is 2 companies in 1. We're an operating company, and we're and an acquisitive company, and people have different roles and responsibilities underneath each. And truly, it's hard. And I don't want to seem like it's not because our teams are working very hard. But it's very predictable, and I am extremely confident that we can do that. And honestly, we had a record year at TTM last year. And along that side, we've marginalized, we've decreased G&A as a percent of revenue, same period prior year, and we've enhanced quality unlike anybody else in the industry. So history's is not always a predictor of the future, but I do feel pretty good about where we are.

And I will want to go add one other thing to the -- at the home office level. So we -- I just want to reiterate, I mean we're laser focused on G&A and we want to have enough, but we want to be as efficient as possible. But when we -- in the building that we're in today in Lafayette, where we operate the home office, we have 425 people roughly in this building that are supporting the whole country and the whole platform. But when we moved to this facility, prior to committing to this facility, we acquired 4 acres adjacent to this facility that -- for future expansion, if we needed it, that's sitting there. So I mean, I hope that helps to give you a little bit of color on how far in advance we're thinking.

And my last comment to that is, you all and our shareholders were extremely patient, and you all believed us when 2 or 3 years ago, we talked about building the infrastructure for today. Our company is completely point of care. We're completely finished with all that, and those things are behind us, so it gives us the lens into the books of business that we have today that allows us to make pretty quick and appropriate decisions. So it's all of that, that's wrapped into this. And again, it's tough and I don't mean to say it's not. But I think that as a management team we feel extremely confident in the model, its predictive outcomes when we execute the model. And honestly, even more convicted that we have the right people executing this.

Dan, this is Josh. I want to add one thing. I'm sitting here listening to Keith and Don. And when Don just mentioned, how we're completely on point of care, I would also want to throw out there that it takes a couple of years to mature on that point of care. So it's one thing to convert to the point of care but then to have all the back-office efficiencies that we are experiencing now, whether you translate that into our bad debt percentage or other efficiencies we've been able to garner, the way that point of care has integrated from field operations into back office gives me a lot of confidence that the incremental growth that you are talking about we're going to be able more than absorb and leverage going forward.

And our next question comes from the line of Frank Morgan with RBC Capital Markets.

Most of my questions have been answered. But I thought maybe just step back a little bit to higher regulatory level. Keith, I know you spent a lot of time in Washington. Just any kind of updates you're getting out of Washington. Really on 2 fronts, talk around this, I guess, the group of model they're talking about potentially changing for home health care reimbursement, and we had the SNF proposed rules come out last week and certainly looks like some possible changes, they're replacing the old RUGs system. I'm wondering would that be more of an opportunity for you, or how would you view any of those kind of changes?

Sure. So Frank, my read is that -- my read is that the new leadership is focused on opportunities to ease regulations and eliminate any existing legislation that's burdensome and doesn't create real value for the agency and then really slow and push back on any plans for future drastic change that's not well thought out. That's what I hear when we engage with leadership there. Now specifically, whether or not HHCM is going to be in the proposed rule or not, it's hard to read whether the train has left the station or that already has momentum. I don't know how to handicap it. My -- there's a piece of my gut that says that if the train hasn't left the station. But let's just kind of step back and talk about how LHC views it. We've been at this for almost 25 years now and change is just a way of life. And if it does come, it's a minor change relative to many of the changes that we faced in the past. So we're preparing for the worst and hoping for the best. But I would tell you that I am encouraged by the tone that I hear from the new leadership and also by just the awareness across all the bodies in the Beltway of the value proposition of home health, which was much different than it was even 5 years ago. It's now commonly known and commonly accepted that home health is where our major opportunity, if not the biggest opportunity to leverage cost down. And specifically, as related to SNF care, I mean, it's generally known that 50% of the patients that are in SNF could be cared for at home with maybe with some additional services if you would add -- have to add to home health, but at a huge savings overall. So I think that's what's driving a lot of the positive thinking around policy around in Washington.

And our next question comes from the line of Bill Sutherland with The Benchmark Company.

I think I just have one left at this point. And I'm just thinking about the LTACH group a little bit because it put in a decent quarter and patient days up and decent operating contribution. How is that group sort of fit into in your plans as we think forward on what you guys want to do?

This is Keith. I'll take the first half of that, and let Don get into specifics over the LTACH. So we spent a lot of time talking about the home health, hospice and community-based services. But we're committed to hospital joint venture partnerships, and there are specific hospitals that come to us and want a complete post-acute solution. One entity to manage their all their post-acute need, and LHC is positioned to do that. Quite honestly, we always have been. Prior to going public. The company had -- probably was about 1/3 in-patient post-acute, which was rehab, LTACH, and we managed SNF in a number of locations. But when we went public, home health was what was being rewarded. And so our growth was heavy in home health, and we didn't talk as much about any in-patient post-acute services, and we limited that to Louisiana. But now as we move forward with hospitals and health systems, we -- even those that don't require us to do it today want to know that we have the ability to do with in the future. We do, and we always have. So I think that we'll continue to operate LTACHs in hospitals that need us to do it. We do it, and we do with well. And I think we will also see more reentry and more volume in inpatient hospital and possibly even SNF management for hospitals that have some (inaudible) , Don more specifically for LTACH.

That's a really good question. And I think the reason Keith can say that is that we've kind of found our way here with our LTACHs. And when we were in the mid of -- or the latter part of 2016, it was tough, figuring out the cyclicality blend, and we had negative, barely negative, but negative net income in Q4 '16, and that's turned around to almost 2% net income positive and 6.1% EBITDA positive. So I think the accretion and the value to shareholders now Keith can go out and we can at least do that as part of this post-acute, sub-acute continuum and fully confident of not leading with that strategy, but making sure that we're incorporating that strategy, and certainly, not to the detriment of dilution.

And I'm showing no further questions at this time. I would now like to turn the call back to Keith Myers for any closing remarks.

Okay. Thank you, operator, and thank you for everyone for dialing in.

As usual, I want to mention to you that if you have any follow-up questions, Eric Elliott is always available for any of you. And if you need to get in touch with myself, Josh or Don, please make that request to Eric, and we'll always make time available for you.

So thanks so much for joining us. Thank you for your confidence in LHC Group.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.