Select Medical Holdings Corp (SEM) 2019 Q4 法說會逐字稿

Good morning and thank you for joining us today for Select Medical Holdings Corporation's earnings conference call to discuss the fourth quarter and full year 2019 results and the company's business outlook.

Speaking today are the company's Executive Chairman and Co-Founder, Robert Ortenzio; and the company's Executive Vice President and Chief Financial Officer, Martin Jackson. Management will give you an overview of the quarter and year and then open the call for questions.

Before we get started, we would like to remind you that this conference call may contain forward-looking statements regarding future events or the future financial performance of the company, including, without limitation, statements regarding operating results, growth opportunities and other statements that refer to Select Medical's plans, expectations, strategies, intentions and beliefs. These forward-looking statements are based on the information available to management of Select Medical today, and the company assumes no obligation to update these statements as circumstances change.

At this time, I will turn the conference over to Mr. Robert Ortenzio.

Good morning, everyone. Thanks for joining us for Select Medical's Fourth Quarter and Full Year Earnings Conference Call for 2019. Let me start off by saying Q4 was another very good quarter for us, with all 4 business segments exceeding same quarter prior year revenue, adjusted EBITDA and margin. 2019 was a solid year for development growth for the company. We added a new 60-bed rehabilitation hospital in partnership with the University of Florida Health System in Gainesville, a new 60-bed rehabilitation hospital in partnership with Dignity in Las Vegas and a new 30-bed rehabilitation hospital with partners in New Orleans. We also relocated our rehabilitation hospital in Newport News, Virginia that we operate in partnership with Riverside Health into a new 50-bed hospital.

In addition, we acquired 4 critical illness recovery hospitals in 2 separate transactions and added additional critical illness recovery hospital through a joint venture partnership. We also increased our portfolio of outpatient rehab clinics by 78 clinics during the year, ending 2019 with 1,740 clinics under our management.

During 2019, we completed the integration of U.S. HealthWorks into our Concentra business and have fully captured the synergies we outlined when we acquired the business in early 2018.

Let me now take you through our operational metrics for the fourth quarter and the full year. Overall, our net revenue in the fourth quarter increased 8.7% to $1.37 billion. For the full year, net revenue increased 7.3% to $5.45 billion. Net revenue in our critical illness recovery hospital segment in the fourth quarter increased 6.7% to $455 million. The increase was driven by both an increase in volume and rate, with patient days up 5.2% compared to the same quarter last year and revenue per patient day up 1.5% to $1,742 per patient day in the fourth quarter.

Occupancy in our critical illness recovery hospital segment was 67% in the fourth quarter compared to 66% in the same quarter last year. For the year, net revenue in our critical illness recovery hospital segment increased 4.7% to $1.84 billion. Again, we experienced an increase in both volume and rate compared to last year. Patient days were up 2.6%, and net revenue per patient day was up 2.2% to $1,753 per patient day for the year. Overall, occupancy in our critical illness recovery hospitals was 68% this year compared to 67% last year.

Net revenue in our rehabilitation hospital segment for the fourth quarter increased 20.9% to $183 million compared to $151 million in the same quarter last year. Patient days increased 15%, and net revenue per patient day was up 8% to $1,739 per patient day in the fourth quarter.

Occupancy in our rehabilitation hospital segment was 78% in the fourth quarter compared to 75% in the same quarter last year. For the year, net revenue in our rehabilitation hospital segment increased 14.9% to $671 million compared to $584 million last year. Patient days increased 11.9%, and net revenue per patient day was up 4.9% to $1,685 per patient day for the full year.

The increase in patient days for both fourth quarter and the full year was primarily driven by the new hospitals we opened in 2019. Occupancy in our rehabilitation hospitals was 76% this year compared to 74% last year.

Net revenue in our outpatient rehab segment for the fourth quarter increased 7.7% to $272 million compared to $252 million in the same quarter last year. Patient visits increased 7.2% to over $2.25 million -- 2.25 million visits in the fourth quarter. Our net revenue per visit increased $104 in the fourth quarter compared to $103 per visit in the same quarter last year.

For the year, net revenue in our outpatient rehab segment increased 5% to almost $1.05 billion. Patient visits increased 4.3% to over 8.7 million visits for the year. The overall increase in patient visits resulted from new start-up clinics as well as acquired clinics. Net revenue per visit was $103 per visit, both this year and last year.

Net revenue in our Concentra segment for the fourth quarter increased 3.4% to $397 million. For the fourth quarter, revenue from our centers was $354 million, and the balance of approximately $43 million was generated from on-site clinics, community-based outpatient clinics and other services.

For the centers, we had patient visits of 2.9 million, and net revenue per visit was $122 in the fourth quarter. This compares to 2.8 million visits and $124 per visit in the same quarter last year.

For the year, net revenue in our Concentra segment increased 4.6% to almost $1.63 billion. The primary driver of the increase was the full year effect of U.S. HealthWorks, acquired February 1, 2018, and additional acquired centers in 2019. Visits in our centers increased 5.6% to almost 12.1 million visits compared to 11.4 million visits last year. Revenue per visit was $122 this year compared to $124 per visit last year. The decline in revenue per visit for both the fourth quarter and the full year was driven by our change in our business mix, with an increase in employer service visits, which are paid at a lower rate.

Total company adjusted EBITDA for the fourth quarter increased 16.9% to $171.9 million compared to $147.1 million in the same quarter last year, with consolidated adjusted EBITDA margin at 12.5% for the fourth quarter compared to 11.6% for the same quarter last year.

For the year, total adjusted EBITDA increased 10.2% to $710.9 million compared to $645.2 million last year, with consolidated adjusted EBITDA margin at 13% for the year compared to 12.7% last year.

For our critical illness recovery hospital segment, adjusted EBITDA was $60.5 million for the fourth quarter compared to $56 million in the same quarter last year. The increase in adjusted EBITDA was driven by both an increase in our existing hospitals and contribution from the 4 hospitals acquired in 2019. Adjusted EBITDA margin for the segment was 13.3% in the fourth quarter compared to 13.1% in the same quarter last year.

For the year, critical illness recovery hospital segment adjusted EBITDA was $254.9 million compared to $243 million last year. The increase in adjusted EBITDA was driven by an increase in our existing hospitals despite the extended temporary closure of our Panama City hospital and the contribution from our 4 hospitals acquired in 2019. Adjusted EBITDA margin was 13.9%, both this year and last year.

Our rehabilitation hospital segment adjusted EBITDA increased 51.4% to $43.3 million in the fourth quarter compared to $28.6 million in the same quarter last year. Adjusted EBITDA margin for the rehab segment was 23.7% in the fourth quarter compared to 18.9% in the same quarter last year. The increase in adjusted EBITDA margin resulted from both increases in our existing hospitals as well as contributions from the hospitals we opened in 2019.

For the year, our rehabilitation hospital adjusted EBITDA increased 24.7% to $135.9 million compared to $108.9 million last year. Adjusted EBITDA margin was 20.2% for the year compared to 18.7% last year. The increases in adjusted EBITDA margin resulted from increases in volume and rate across many of our existing hospitals. Adjusted EBITDA losses in our start-up hospitals, $8.8 million this year compared to $4.7 million last year.

Outpatient rehab adjusted EBITDA increased 14.9% to $40.2 million in the fourth quarter this year compared to $35 million in the same quarter last year. Adjusted EBITDA margin for the outpatient segment was 14.8% in the fourth quarter compared to 13.9% in the same quarter last year.

For the year, adjusted -- outpatient rehab adjusted EBITDA increased 6.9% to $151.8 million compared to $142 million last year. Adjusted EBITDA margin was 14.5% compared to 14.3% last year. The increase in adjusted EBITDA for the full year was driven by increases in both our existing clinics and contributions from new start-up and acquired clinics.

Concentra adjusted EBITDA increased 6.8% to $56.8 million for the fourth quarter compared to $52.9 million in the same quarter last year. Adjusted EBITDA margin was 14.2% in the fourth quarter compared to 13.8% in the same quarter last year. For the year, Concentra adjusted EBITDA was $276.5 million compared to $252 million last year.

Adjusted EBITDA margin for the Concentra segment was 17% this year compared to 16.2% last year. The increase in adjusted EBITDA margin for both the fourth quarter and the full year was a result of lower relative operating costs across the combined Concentra and U.S. HealthWorks business.

Earnings per fully diluted share was $0.24 for the fourth quarter compared to $0.18 for the same quarter last year. Adjusted earnings per fully diluted share was $0.31 per diluted share for the fourth quarter compared to $0.20 in the same quarter last year. Adjusted earnings per fully diluted share excludes the pretax losses on early retirement of debt and its related tax effects for both -- in both the fourth quarters this year and last year.

Earnings per fully diluted share was $1.10 for the year compared to $1.02 last year. Adjusted earnings per fully diluted share was $1.24 per diluted share for the year compared to $1.03 last year. Adjusted earnings per fully diluted share excludes the pretax losses on early retirement of debt and nonoperating gains and the related tax effects this year. Last year, adjusted earnings per share excluded the loss on early retirement debt, nonoperating gains, U.S. HealthWorks acquisition cost and their related tax effects.

At this point, I'll turn it over to Marty Jackson for some additional financial details before we open the call up for questions.

Thank you, Robert. Good morning, everyone. For the fourth quarter, our operating expenses, which include our cost of services and general and administrative expenses, were $1.2 billion. This compares to $1.1 billion in the same quarter last year. As a percentage of our net revenue, operating expenses for the fourth quarter were 88%. This compares to 88.9% in the same quarter last year.

For the year, our operating expenses were $4.77 billion. This compares to $4.46 billion last year. As a percentage of our net revenue, operating expenses for the year were 87.5%. This compares to 87.8% last year.

Cost of services were $1.18 billion for the fourth quarter. This compares to $1.09 billion in the same quarter last year. As a percent of net revenue, cost of services were 85.5% in the fourth quarter. This compares to 86.5% in the same quarter last year.

For the year, cost of services were $4.6 billion. This compares to $4.3 billion last year. As a percent of our net revenue, cost of services were 85.1% for the year. This compares to 85.4% last year.

G&A expense was $34.1 million in the fourth quarter. This compares to $30.3 million in the same quarter last year. G&A as a percent of net revenue was 2.5% in the fourth quarter. This compares to 2.4% of net revenue for the same quarter last year.

For the year, G&A expense was $128.5 million. This compares to $121.3 million last year. G&A as a percent of revenue was 2.4%, both this year and last year.

As Bob mentioned, total adjusted EBITDA was $171.9 million, and the adjusted EBITDA margin was 12.5% for the fourth quarter. This compares to the adjusted EBITDA of $147.1 million and an adjusted EBITDA margin of 11.6% in the same quarter last year. Total adjusted EBITDA for the year was $710.9 million. This compares to $645.2 million last year. Adjusted EBITDA margin was 13% this year. That compares to 12.7% last year.

Depreciation and amortization was $52.5 million in the fourth quarter. This compares to $52.6 million in the same quarter last year. For the year, depreciation and amortization expense was $212.6 million compared to $201.7 million last year.

We generated $6.3 million in equity and earnings of unconsolidated subsidiaries during the fourth quarter. This compares to $7 million in the same quarter last year. For the year, we generated $25 million in equity and earnings of unconsolidated subsidiaries. This compares to $21.9 million last year.

We did recognize a loss on early retirement of debt in the fourth quarter this year of $19.4 million. We recognized a loss on early retirement of debt in the fourth quarter last year of $3.9 million. For the year, we recognized $38.1 million of losses on early retirement of debt. We also recognized nonoperating gains of $6.5 million during the year. Last year, we recognized $14.2 million of losses on early retirement of debt and $9 million of nonoperating gains.

The loss on early retirement of debt in 2019 resulted from the refinancing activities in the second half of the year. We were able to reduce interest rates and extend maturities on Select senior notes as well as reduce borrowing cost at Concentra through the repayment of their second lien term loan. Interest expense was $44 million in the fourth quarter. This compares to $50.5 million in the same quarter last year. The decline in interest expense in the quarter resulted from both the decline in LIBOR rates as well as the repayment on Concentra's second lien term loan, which carried a higher interest rate.

Interest expense for the year was $200.6 million. This compares to $198.5 million last year. We recorded income tax expense of $63.7 million this year. That compares to income tax expense of $58.6 million last year.

Net income attributable to Select Medical Holdings was $148.4 million for the year and fully diluted earnings per share at $1.10. Excluding the pretax losses on early retirement of debt and nonoperating gains and the related tax effects this year, our adjusted earnings per share was $1.24.

We completed a refinancing transaction during the fourth quarter, which effectively combined the capital structure of Select and our majority-owned subsidiary, Concentra. On December 10, Select issued $675 million in incremental 6 1/4% senior notes due 2026 at a price of 106% and entered into an incremental $615 million term loan. A portion of the net proceeds from the incremental senior notes and incremental term loan were used by Select to loan $1.24 billion to Concentra, who would then use the proceeds from the intercompany loan to repay in full its $1.24 billion in syndicated term loans outstanding.

At the end of the year, we had $3.4 billion of debt outstanding and $335.9 million of cash on the balance sheet. Our debt balance at the end of the year included $2.143 billion in term loans, $1.225 million in 6 1/4% senior notes and the $78.5 million of other miscellaneous debt.

Operating activity provided $178.5 million of cash flow in the fourth quarter. This compares to $113.2 million in the same quarter last year. For the year, operating activities provided $445.2 million of cash flow compared to $494.2 million last year.

Our days sales outstanding, or DSO, was 51 days at December 31, 2019. This compares to 53 days at September 30, 2019, and 51 days at December 31, 2018.

Investing activities used $46 million of cash in the fourth quarter. The use of cash was primarily related to $33.2 million in purchases of property and equipment and $12.8 million for acquisition and investment activities during the quarter. Investing activities used $316.7 million for the year. The use of cash was primarily related to $157.1 million in purchases of property and equipment and $159.6 million in net acquisition and investment activities during the year.

Financing activities provided $67.4 million of cash in the fourth quarter. The provision of cash included $77.1 million in net proceeds from the refinancing in December. This was offset in part by distribution as noncontrolling interest and repayment of other debt.

For the year, financing activities provided $32.3 million of cash. The provision of cash included $104.6 million in net proceeds from the refinancing activities during the year. This was offset in part by common stock repurchases, repayment of bank overdrafts, repayment of other debt and distributions to noncontrolling interest during the year.

Additionally, in our earnings press release, we reaffirmed our business outlook for calendar year 2020 provided earlier this year. We expect net revenue to be in the range of $5.575 billion to $5.675 billion. Adjusted EBITDA is expected to be in the range of $725 million to $760 million, and fully diluted earnings per share is expected to be in the range of $1.27 to $1.46.

Before we open up the call for questions, I'll turn it back over to Bob for an additional update on Concentra.

Thanks, Marty. As many of you are probably aware, after the end of the year, we entered into agreements with our Concentra joint venture partners to purchase a total of 18.7% of the voting interest in Concentra for total consideration of approximately $352.7 million. The purchase was the first of our partner's 3 put rights under the restated operating agreement post the U.S. HealthWorks transaction. After the purchase, Select now owns approximately 68.8% of the voting interest of Concentra. The joint venture partners continue to have the right to put 1/3 of their initial membership interest to Select in 2021 and any remaining membership interest in 2022, with Select retaining the right to call any remaining membership interest outstanding in 2022.

That concludes our prepared remarks. At this time, I'll turn it back to the operator, who will open it up for questions. Thank you.

(Operator Instructions) And our first question comes from Frank Morgan with RBC Capital Markets.

Just noticing the strong rate growth on the IRF side of the business. Any color about the strength in that growth? And is that any way related to this new care tool? Is there any prior period cost report settlements in there? Just -- anything you can attribute to that unusually strong rate growth?

Yes. Frank, there's really 2 variables that are driving that: one is the increased census in our California rehab hospital, which has a much higher rate; and number two is there has been a favorable impact associated with the change from the FIM scoring to the GG scoring. So we've had -- we have seen a favorable impact from that.

Got you. Would you -- could you attribute a weighting of that? Like how much was coming -- is it primarily the new care tool? Or would you say it's more driven off the [CR app set]?

It's really a combination of both, Frank.

Okay. All right. And then just, obviously, you brought on some -- I don't think there were any -- you didn't call out any start-up losses in the fourth quarter, I believe. But what do you have -- what's implied in the guidance for start-up losses for 2020?

Really, start-up losses will probably moderate. I think we have -- in the third and fourth quarter, we had some new hospitals coming on board.

Got you. And then just -- obviously, you talked about these LTACs. You've just recently brought on some of those in partnerships. Is there any kind of thought around where you think the target margin should be for the -- but really for LTACs, but also for your IRF business. Where do you think that will settle out?

I mean we're pretty pleased with where the margins are right now, in particular, on the inpatient rehab side. I think that's probably a good indicator as to where it's going to be.

Okay. And then, I guess, in terms of just capital structure, obviously, a lot of refinancing activity. But where do you really focus -- now that you've got these refinancings done, what's really going to be the focus going forward from a capital deployment, from a debt reduction standpoint? And I'll hop off.

Sure, Frank.

I think from the -- in terms of use of capital, Frank, we -- our primary focus is the continuing acquisition of the minority Concentra interest. So that's what we really have an eye toward. We'll do some modest allocation of capital to acquire small outpatient clinics. And then the bigger one would be allocation of capital to new rehab joint ventures where we may build some new hospitals. But other than that, I don't think that we're looking for any significant capital allocations in 2020 leading up to the Concentra purchase.

And our following question comes from Justin Bowers with Deutsche Bank.

Congratulations on a really strong start to what turned out to be a strong year. So as you -- I guess, as you think about this year or 2020 and kind of beyond, what are some of the opportunities you're looking most forward to? And then what areas of improvement are you guys focusing on?

Well, in terms of opportunity, we think that 2020 is probably a good year where we're going to focus on our execution. We do want to grow in each of our segments, and we think we can with some development projects. And continuing to operate the business, leading up to the next Concentra purchase. So I don't -- I think it will be a year of kind of steady performance in terms of the execution of the business and operations.

We would like to add some new critical illness recovery hospitals in our hospital within a hospital model, sign some more rehab joint ventures with some leading health systems around the country, continue to have some net gains in our outpatient business, either through de novo growth or outpatient acquisitions. And then we think we're going to have another steady year with Concentra, adding to their portfolio of clinics, probably through some small tuck-in acquisitions.

In terms of improvement, Marty?

Yes. Justin, I mean, as far as improvements are concerned, we still believe that there is, in particular, on the critical illness recovery hospitals, we think there's the opportunity to expand the margin there, and then also on our outpatient business. We've seen some significant improvement over the past couple of quarters, and we expect that to continue.

Got it. And then just in terms of critical illness, can you just talk about the external environment a little bit, just in the context of adding some facilities there? And it looked like you added one during the quarter as well. Was that a hospital within hospital model? And then -- or facility? And then kind of what are the discussions or kind of efforts, internally, you're having with the existing portfolio?

Well, I'll take the first part of your question first, which -- what is the external environment. As many of you know who follow the company and the industry on the LTAC or what we refer to as our critical illness recovery hospitals, there continues to be, although winding down, considerable contraction of the industry as the industry adapts itself to the new criteria. And for some of the features that didn't really apply to us, that continued to phase in, they'll -- will all be phased in, in 2020. That has resulted in a contraction of the industry. I think the number of beds are down probably 27%, and Medicare spend similarly is down from the last numbers I looked, probably about 27%. So if you look at the Medicare spend from over $5 billion to a much lower in the $4 billion range.

From an external standpoint, I think it's -- that's probably good for the overall industry as it rationalizes and just focuses on taking the -- what we call the LTAC-compliant patients, which are those patients that were in an ICU or require mechanical ventilation inside the LTAC. So I think that, that will probably continue to ring itself out through the balance of 2020.

And what we're seeing for us is as that industry becomes a lot more stable and, I think, generally viewed much better by the regulators as we read the rules, the proposed rules and even some of the commentary coming out of MedPAC, we think that there's an opportunity for us to selectively add LTACs around the country. Won't be a big effort, but I think incrementally, we could add some LTACs. So I think that's really where we think the -- where an opportunity is and given the backdrop of the industry.

Our next question comes from A.J. Rice with Credit Suisse.

Maybe just a couple of things, if I could ask. This is sort of a conceptual question. When I look at what your EBITDA growth was for 2010, it was -- I calculated and that may be dangerous, but 10.2% roughly, increase. If I look at the midpoint of your guidance for 2020, you're looking at about a 4.4% increase. And you said there really weren't that much in start-up costs in there.

I guess are you -- is that a conservative starting point? Or is -- I'm not really sure what would necessarily moderate significantly. I know the buildup at U.S. HealthWorks synergies played out in '19, but you'll get a full year benefit of those synergies all year long. So that's probably still an incremental positive. What -- is any sort of big-picture puts and takes that are leading you to sort of a mid-single-digit as opposed to something similar to what you did in 2019?

Yes. A.J., the guidance we provided, it was -- I think it is relatively conservative, but it's something that we're very -- we're comfortable with right now. And we'll -- after the first quarter, we'll take a look at it at that point in time. And if it's conservative, we'll make an adjustment.

Okay. But is -- if you look at the major segments, is there any particular segment where you would see -- obviously, you had some very good results in IRF, for example, and others. But do you see moderation, clear-cut versus what you posted in '19?

I think it fair to say that at this moment, we don't see any significant headwinds in any of our segments. The Concentra will always be sensitive to more general economic conditions. But I think the business still seems pretty strong right now. The -- we have -- I don't know if there's any question that we've really hit our stride in the inpatient rehab side of the business, and we don't have any new openings scheduled for the next couple of quarters. So that's just a question of maintaining the performance that they've had there.

And then the LTACs, much bigger base of hospitals. I mean as Marty suggested, we want to continue to focus on driving census there. And depending on the flu season, the remainder of the year, that can be a tailwind or a headwind. And so we feel actually pretty good about where we are now. But...

Okay. All right. When you think about Concentra, and I see here, towards the end of the year, you've done the intercompany loan, you repurchased the first tranche there. I think that -- or you purchased the first tranche. I think that was done slightly ahead of schedule. So I guess it opens up a twofold question for me. One, is there a possibility of perhaps, if the priority is to retire some of those stakes, is it something that might get accelerated in any way? Or should we think it's probably going to play out as is in the current agreement?

And then second, is there anything about the way the deal is structured today? I know an intercompany loan is sort of a formality. But are there things that you would do if you owned 100% of Concentra that you can't do because of the current structure until you buy those pieces out?

I think -- I'll take the second part of your question, and I'll let Marty take the first. No, I don't think there's anything that we see today that we would be doing different that would be meaningful at Concentra if we owned 100% today versus what we own. So no, I don't think there's anything there.

Not constrain an investment in any way or anything and move into other cash flow into that business or anything?

No. We -- I would say that we do not feel at all constrained. We've had great partners there who are focused as we are on the long-term viability, stability and growth of the company. And so I would say, no, there's no constraints there.

And as to the first part, I'll let Marty weigh in. But I would think that the second put would probably play out the way the first one did. And so we would think about our partners putting their next tranche to us right at the end of 2020 or right at the very beginning of 2021. Marty, do you...

Yes. No, I think that's absolutely right, Bob. The other thing is if you take a look at the agreement itself and the methodology that was structured in the agreement with regards to using an investment banker to determine evaluation, what we -- what all partners concluded was given the fact that you take a look at the 2 largest transactions in this space were done by us and our partners at 11.3x, at the end of the day, there was really no need to hire an investment banker and given that we were able to accelerate it based on expected year-end EBITDA. So as Bob indicated, I think that will play out in 2021 as well as 2022.

Okay. And then my last question. If you're thinking about growing, again, in terms of adding properties in the LTAC world or critical access world, is there any -- I mean, I know you referenced continuing the hospital within a hospital model. Is there anything that's changed your thinking about freestanding critical access hospitals and whether those would be of interest?

And any comment on the competitive landscape? Your major competitor in this space has now sort of been in a different ownership structure for more than a year. And I wonder, have you seen any change in the competitive landscape as a result of any of that?

Yes. First thing, yes, A.J., in terms of our critical illness recovery hospitals and just for other people that may not be as familiar, critical access is a whole different class of hospitals, but our critical illness hospitals. We probably would not be looking to do specific freestanding, critical illness recovery hospitals for us. Now you may -- we are seeing a model that could emerge where you have a post-acute hospital that has both rehab- and LTAC-licensed bed in the same building. So we might do that. But our model is to have, particularly because we are an LTAC-compliant, patient-focused only, is that we tend to think about these are smaller bed complements. So we like that 35-bed, and that's best served in a leased hospital within a hospital model. So you should not expect to see us break ground on the construction or the acquisition of freestanding LTAC hospitals. The capital for that would really be directed only to the rehab hospitals.

In terms of the competitive nature out there, I mean, this is probably a pretty good time for us because most everybody in this space is adjusting to the new criteria. Now it does seem like it's been a couple of years. That criteria was passed in 2015. But remember, the way it was phased in to the cost reports, a lot of companies and individual operators are still making some adjustments. So because we got a bit more of a jump on that in terms of our plan, it does allow us now, as we have a very stable platform of 100 of these hospitals, to look at opportunities.

So I -- it's a long way of saying that competition is not from other providers in that space, is really not nearly the factor that just making sure that we get the market right and that there is great availability of those compliant patient population. So you need a market where there are a lot of ICU beds and where there is a need to have the clinical programs to move those patients faster out if they may be having disproportionately long stays in the short-term acute care hospitals. So the competitive factor is not nearly as big as that. I hope that answers your question.

And our next question comes from the line of Kevin Fischbeck with Bank of America.

I was wondering if you could provide a little more color on the same-store revenue growth by division. I think you gave like a consolidated growth, but wondering what the organic growth profile looked like in Q4.

Yes. Kev, we have not -- I mean, early on, we have not provided same-store versus new. We may start doing something like that, in particular, on the outpatient side because of the rapid growth that's occurring there. But other than that, you shouldn't expect to see same-store growth.

I guess then -- you mentioned your 2020 outlook and how you're looking to add, basically, to each division, the number of hospitals. Does your guidance assume a certain amount of capital deployed on these kind of tuck-ins and additions? Or if you deploy capital outside of Concentra, it would be upside to that?

Today, yes, I think we put out there somewhere in the $175 million worth of capital expenditures, and that includes -- it includes, on the inpatient rehab side, the joint ventures that the business signed that we know we're putting some shovels in the ground. So it would include that, and it includes some CapEx associated with our clinic increase on the outpatient side. It does not include anything on the critical illness recovery hospital.

Okay. And then maybe it makes sense to talk about the clinics, the outpatient rehab clinics because, I guess, it's a sector that maybe we haven't spent a lot of time on. So just wanted to kind of hear -- you guys have been adding to that clinic site pretty nicely. What is the opportunity there? And how big can that get? And why is it a place that you quick served, can you put capital towards?

Well, it's very fragmented, first of all. So while we are the largest provider by, I think, a pretty wide margin in terms of both revenue and number of outpatient clinics and our geographic footprint, it's still very fragmented. And we do see that as an opportunity for growth. If you looked at kind of the recent history of the company, going back to when our primary focus had to be the LTAC criteria, then we pivoted to the acquisition of Concentra, and then very quickly after that, the follow-on acquisition of U.S. HealthWorks, all at the same time, while the inpatient rehab development was really taking shape, and we accelerated that inpatient rehab business. The outpatient really was the one that we did not allocate as much capital or focus. And we think that now -- that the latter half of 2019 and in 2020 and beyond, that is a much more greater focus of the company. So you can assume, with the capital that we -- the additional capital that we've deployed there, we've also deployed much more management focus on growing that business.

And when you see the growth in the number of clinics, it's actually even more significant because we report it as net growth. So on a base of 1,800 -- nearly 1,800 clinics, every year, there is a significant number of clinics that we either close or consolidate just because of the natural process. So this year, if -- when we add -- if you add 70 clinics, you can assume that we're really maybe adding as much as 100 or more clinics just because that's a net number.

So I think that it's become a management -- much more of a management focus as we're reacting to what we see as the opportunity. So as Concentra and U.S. HealthWorks has realized the synergies, we've been successful in the transition of the criteria on the LTACs. We -- you can see that we have good momentum on our inpatient rehab joint venture strategy, that really leaves the outpatient as an area where we can focus and drive some value.

All right. Great. And then maybe last question. Can you give us a sense of kind of what the multiple range that you're paying across the 3 different divisions? When you buy something in the other divisions, what kind of multiples are you paying?

Sure. On the outpatient rehab, we're paying anywhere in the neighborhood of 4 to 5x LTM EBITDA. And we'll do some adjustments on that for -- owner compensation and things like that. But 4 to 5x is really the number there.

On critical illness recovery hospital, we acquired 4 hospitals. The multiple there that we paid was in the neighborhood of 4 to 5x.

When we take a look at Concentra, Concentra is also in that 4 to 5x range. And then inpatient rehab -- inpatient rehab, the strategy there really is not to acquire one-offs but really do the joint ventures.

Okay. So the 11x that you talked about as far as the Concentra multiples, that's the big-platform type deals. When you do your smaller things, it's going to be probably modest multiples.

Yes.

Yes. That's correct.

Yes. I mean -- well, it's a good question, Kevin. The fact of the matter is when you take a look at the occupational medicine business in the United States, we have 521 centers throughout the entire country. The next largest player has 40. And most of the augment centers are really -- owners have 2 to 3 to 4 centers at a pop. So it will be a much smaller multiple.

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

Just one quick follow-up. What are you seeing on the labor side for therapy? Obviously, with the home healthcare industry going -- undergoing PDGM and the SNF industry going to PDPM, there seems to be this belief that there will be a shedding of the therapy capacity in those 2 industries. So are you seeing anything yet on the labor front that might be improving that for your business?

Yes. Frank, great question. We think it's a little too early to see the benefits of the changes that have taken place, in particular, on the SNF side. But we do -- we have been seeing substantial layoffs of PTs from contract therapy companies. So we do expect to see some benefit from that.

And our next question comes from Bill Sutherland with Benchmark.

Just wanted -- a couple of follow-ups on the rehab hospital side. The 2 planned hospitals this year, will they be consolidated?

Yes. They are nonconsolidated, Bill.

Okay. And when we look -- when we think about the cadence on the rehab hospital operating margin this year, the quarterly cadence, would the -- since these aren't going to be consolidated with the -- so the margin kind of be likely to stay in the range that it was in at the back half of '19?

Yes. I think you can expect that to be the same, Bill.

Okay. And then I just wanted to understand on this care tool and the impact on rates. I think you all have said that you're probably experiencing better than the 2.5% average improvement. And can you help us understand why that applies to you guys specifically?

We cannot, Bill. I mean it is the change from the FIM scoring, which has happened historically. Our reimbursement people took a look at the changes that were being implemented. We felt pretty comfortable at the time that we thought that it would not be a headwind to us, and it would probably be a slight benefit. And that's what we're finding. And I think it's difficult for us to tell you what competitors are seeing versus what we're seeing. All we can do is tell you what we see.

Yes. It's just mechanics, I mean, as they do the posting and the coding at the facility.

And I'm showing no further questions at this time. I would now like to turn the call back to Mr. Ortenzio for any closing comments.

No closing comments. Thanks for your attendance and your questions, and we look forward to updating you again in the next quarter.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a good day.