U.S. Physical Therapy (NYSE:USPH) Q4 2020 Earnings Call

0:00 Ladies and gentlemen, thank you for standing by. Welcome to the U.S. Physical Therapy Q4 2020 year-end earnings conference call. All lines are currently in a listen-only mode. After the speaker's presentation, there will be a question and answer session. If you would like to ask a question at that time, you may do so by pressing star and the number one on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to hand the conference over to Mr. Chris Reading. Please go ahead, sir. Thank you. Good morning and welcome, everyone, to U.S. Physical Therapy's fourth quarter and year-end 2020 earnings call. With me on the line today include Carrie Hendrickson, our Chief Financial Officer, Graham Reeve and Glenn McDowell, our COOs, John Bates, our Vice President and Controller, Rick Binstein, our General Counsel. Before we begin our discussion this morning, we need to cover a brief disclosure statement. John, if you would, please.

0:56 Thanks, Chris. This presentation contains forward-looking statements which involve certain risks and uncertainties. And these forward-looking statements are based on the company's current views and assumptions, and the company's actual results can vary materially from those anticipated. Please see the company's filings with the Securities and Exchange Commission for more information. Thanks, John. Okay, I'm going to start this morning with some prepared comments and some color around select aspects of our year and our final quarter before turning it over to Kerry. to review the financials in a little bit more detail. First, let's talk about our finish to this crazy 2020 year. I am very proud of our team for the way that they led through this whole year. As we all know, we needed to make a lot of adjustments in the business early on.

1:43 Those adjustments impacted people, and those were hard decisions as a result. Our goal always is to help, and we felt the best way to do that was to ensure that the company could get through this pandemic in one piece in good shape if that was possible. Our decisions were made. We gradually worked our way through the year, steadily picking up volume and maintaining very tight controls on the cost side of the business. As we entered the final quarter of this year, we continued to see a nice progression in volume recapture. October's visits per clinic per day increased to 27.7. That further progressed in November to 28.2, which was essentially the point at the point where we were back to pre-COVID levels.

2:28 In early November, our country experienced a strong resurgence to the COVID-19 virus, and as a result, created largely out-of-work exposures. We ended up with over 300 people in quarantine just for the month of November, more in that month than in the cumulative prior six and a half months leading up to that. Those high quarantine numbers continued into December, which is in part why costs increased slightly for the quarter. In spite of this impact, we had a strong operating finish to the year. Visits finished in December within a quarter of a visit per clinic, in spite of the bump in virus numbers and quarantines.

3:16 All in our gross profit for the fourth quarter, excluding closure costs, was $29.1 million. An increase of more than $2 million compared to the 2019 fourth quarter. Gross profit percentage for physical therapy excluding closures was 24.9%, 230 basis point improvement over prior year. Management contract business, which included a recent acquisition completed in the third quarter, also improves significantly to 22.2% up 780 basis points compared to Q4 2019. And finally, our injury prevention business, which performed really nicely all year, finished the quarter at 24.6%, an improvement of 660 basis points over our year-end 2019 finish.

4:13 Operating income for the quarter of 2020 also improved by 2.9 million, or 19.1%, and our operating income as a percent of net revenue increased by 300 basis points from 12.5% in 2019 to 15.5% in 2020, despite the challenges brought by COVID. Another highlight to this year's finish was the completion of our second acquisition. As you know, we put deals on hold at the beginning of the pandemic and then started back up in the third quarter. This is a partnership with a great guy and a great team, and they have navigated this pandemic very, very well. That deal, which we previously announced, produced approximately 54,000 patient visits, and they have a great plan for future growth and expansion.

5:08 As a result of all the great work and sacrifice across the entirety of the company, we finished the year with approximately $11 million of net debt, as well as a revised, updated, and extended credit agreement with Bank of America, very favorable terms. We are pleased to announce the reinstatement of our quarterly dividend, 35 cents per share, which is an increase of 9.4% from the previous dividend paid back in April of 2020. dates surrounding that dividend payment are included in our press release. In closing, and I don't always do this, but I'm going to do it today. I know that with respect to our guidance, there's a little disappointment out there.

5:57 And I want to address a couple of things. Number one, and I can't state this enough, team that we have here, starting with our partners, their staff, our executive leadership team, operations team, and all our support teams. They're literally the finest people I've ever worked with. They've made a lot of sacrifices to get us through this year, a very uncertain year, but a year where we demonstrated a lot of grit, a lot of resolve, tenacity, to work through the environment, which we had never been through before. I think we did that, you know, not perfectly by any stretch, but we made really good progress, and I think we laid down a great year, in my view, at least.

6:51 This coming year, we're not done with the pandemic, although I think we can see the light at the end of the tunnel. We have a Medicare cut to deal with, less than what was potentially earlier prescribed, but still a meaningful cut. Our goal as a management team is to always be transparent with our shareholders. I feel personally that with this team, while we have a bit of a hill to climb this year and we always have our challenges, but we have the group in place. that is ready to deal with what comes. We've had some extraordinary weather this first quarter. We had last week, including at home, no power and no water for a week. We had the entire state of Texas, a lot of the state of Tennessee shut down for a whole week.

7:45 And so we have some challenges we're gonna have to overcome this year, but there isn't a group of people that I would rather go to battle with and the team that we have right now. And we're going to do everything in our power to put down another good year. And so we're working hard to do that. I hope you can hang in there with us. And so that concludes my prepared and my off-the-cuff comments. With that, I'd like to turn it over to Kerry to cover the financials in a little bit more detail. Kerry. Great. Thank you, Chris, and good morning, everyone. Today we reported full-year 2020 operating results of $38.4 million, or $2.99 per share, as compared to $36 million, or $2.82 per share, for the full year of 2019. Our 2020 operating results included $13.5 million of relief funds related to the CARES Act, which contributed $7.8 million to our operating results on a net basis, or $0.60 per share.

8:48 If you exclude those relief funds, our operating results per share for 2020 was $2.39. As Chris noted, our operations finished the year strong. For the fourth quarter of 2020, our operating results were $13.9 million or $1.08 per share, which did include $5.2 million of relief funds that were received in the fourth quarter. The fourth quarter relief funds contributed about $3 million or $0.23 per share to our operating results. If you exclude those relief funds, our fourth quarter 2020 operating results were $10.9 million, or 85 cents per share, which is 21 cents per share greater than the 64 cents that we reported in the fourth quarter of 2019. Our adjusted EBITDA, including relief funds, was $23.5 million for the fourth quarter of 2020 and $70 million for full year 2020.

9:40 Excluding relief funds in the fourth quarter, our adjusted EBITDA was $18.3 million, which is up $3 million or 19.4% from the adjusted EBITDA of $15.3 million that we reported in the fourth quarter of 2019. Our full year 2020 revenues were $423 million compared to $482 million for the full year of 2019, which is a decrease of 12.2%. Our revenues in the fourth quarter of 2020 were $117.5 million, a decrease of 3.8% from $122.1 million in the fourth quarter of 2019. Our physical therapy patient volumes per day per clinic dropped at the onset of COVID-19, but then they continually improved from May through December.

10:27 Our patient volumes per day per clinic were 26.2 in the first quarter of 2020. They decreased to 18.9 in the second quarter. That was the trough. and then they increased to 25.8 in the third quarter and 27.7 in the fourth quarter of 2020. That fourth quarter 2020 volume of 27.7 was really back to pre-COVID levels, only slightly less than the volume per day per clinic of 28.0 in the fourth quarter of 2019. Our net rate for our physical therapy operations was $105.60 for the full year. which is down slightly from $105.90 for full year 2019. Our net rate in the fourth quarter was $107.05 which compares to $105.90 in the fourth quarter of 2019. The fourth quarter of 2020 included a slight adjustment to net rate for earlier 2020 periods. Physical Therapy revenues were $373.3 million for the full year of 2020.

11:31 which was a decrease of 13.8% from full year 2019. Our physical therapy revenues in the fourth quarter of 2020 were $104.5 million which was down 4% from $108.9 million in the fourth quarter of 2019. The fourth quarter decrease in our physical therapy revenue was primarily related to having 28 less clinics on average in the fourth quarter of 20 than we had in the fourth quarter of 2019. due to the sales and closures that we made earlier in the year at the onset of the pandemic. Our industrial injury prevention business was less affected by the pandemic in 2020 with full year 2020 revenues higher than 2019 by $1.7 million or 4.6%, including an acquisition we made in April of 2019.

12:18 While our physical therapy volumes declined about 55% in April, Our industrial injury prevention business declined only about 20% to 25% initially before returning to levels slightly less than normal pretty quickly as some of our largest clients, most notably Costco, increased their business with us during the pandemic, which helped to partially offset the clients that we had from other clients that pulled back due to their challenges related to COVID. Revenues for the industrial injury prevention business were $9.7 million in the fourth quarter of 2020 as compared to $10.3 million in the fourth quarter of 2019. We took significant measures to reduce our costs in 2020 to mitigate the impact of lower volumes in the revenues due to COVID, including furloughs, a reduction in force, and tight expense management across virtually all of our cost categories.

13:06 As a result, our operating costs, excluding closure costs, declined to $324.6 million in 2020, a decrease of 12.2% from 2019, and our costs remained at 76.7% of net revenues in both years. For the fourth quarter of 2020, our operating costs, excluding closure costs, were $88.3 million, down 7.2%, from $95.1 million in the fourth quarter of 2019. Our cost as a percentage of net revenues were lower in the fourth quarter of 2020 than in the fourth quarter of 2019. They were 75.2% in the fourth quarter of 2020 and down from 77.9% in the fourth quarter of 2019. So while our revenues were $4.6 million lower in the fourth quarter of 2020 than the fourth quarter of 2019, our operating costs were $6.8 million lower.

13:59 So our gross profit increased $2.2 million in the fourth quarter of 2020 when compared to the fourth quarter of the previous year. Our gross profit margin was 24.8% in the fourth quarter of 2020, which is up 270 basis points from our gross profit margin of 22.1% in the fourth quarter of 2019. For the full year of 2020, our gross profit excluding closure costs was $98.4 million compared to $112.5 million in 2019, with the gross profit margin of 23.3% in 2020, which is the same as it was in 2019. Our corporate costs were $42 million in 2020, which is down $3 million from $45 million in 2019, with the same cost reduction and measures in place at our corporate office as we had at our operations.

14:49 In the fourth quarter of 2020, our corporate costs were $800,000 lower than the fourth quarter of 2019, even with $1.1 million in CFO transition costs related to the accelerated vesting of stock for our former CFO. Excluding those CFO transition costs, our fourth quarter 2020 corporate costs were down $1.9 million, or 16.2%, from the fourth quarter of 2019. Other income net of other expense was $13.1 million for the full year of 2020, which does include that $13.5 million in relief funds. It also is net of $1.6 million in interest expense, which is down from $2.1 million in 2019 due to the reduced borrowings we had under our credit line in 2020, and then also a lower weighted average interest rate due to the decrease in LIBOR that happened in 2020.

15:44 Our weighted average interest rate in 2020 was 2.6%, down 130 basis points from the 2019 rate of 3.9%. Our non-controlling interest were 16% of our gross profit, including CARES funds, for full year 2020 and 16.3% for the fourth quarter of 2020. If you exclude CARES funds, which had a higher profit, excuse me, a higher percentage related to the non-controlling interest, The percentage of gross profit attributable to non-controlling interest was 15.3% for both the full year of 2020 and the fourth quarter of 2020. Our balance sheet is in a strong position as we begin 2021. At December 31, 2020, we had only $16 million drawn on our $125 million revolving credit facility, and we had almost $33 million in cash.

16:35 Our cash includes $14 million in Medicare advance payments that we intend to pay back in 2021. We also deferred in total in 2020 about $8.3 million in payroll taxes under the CARES Act. We'll repay half of that balance by the end of 2021, and then the other half is due by the end of 2022. Speaking of our revolving credit facility, we're pleased to have amended and extended our facility for an additional four years through November 30, 2025. We were able to maintain our favorable rate structure with just a slight increase in the undrawn fee at the lowest debt coverage level despite the fact that the base of our agreement, LIBOR, as I mentioned, has decreased significantly from the time of the previous extension. We were also able to expand the accordion feature of the facility so that we now have access to $150 million under the line if we need it.

17:26 We also raised the limit on dividends among a few other favorable modifications. At our release this morning, Chris alluded to the range that we provided of $2.40 to $2.50 for operating earnings per share for 2021. There are several things that impacted our thinking on that range. First, the Medicare rate reduction of 3.5% that went into effect on January 1 of this year, which we estimate will reduce our 2021 revenue by about $4.5 million. On a net basis, that equates to about 21 cents per share. Also, the 2% sequestration relief on all Medicare payments we've had since May 1 of 2020, that will end on March 31 of this year.

18:11 And we estimate that will reduce our revenue beginning in the second quarter by about $2 million, which is about 10 cents per share on a net basis. And while we always have some weather-related impacts in the first quarter of each year, the weather-related events we had in our two largest states, Texas and Tennessee, over the last couple of weeks were unusually significant. We estimate that we lost about $2.8 million of revenue from those events, which equates to 13 cents per share. And then, as Chris noted, you know, there's still uncertainty related to COVID and its potential impacts on our operations in 2021, particularly in this first part of the year. While we're confident in our ability to respond to whatever may come our way, we continue to have a high number of employees out due to quarantine, and we don't know what impact, if any, that the new, more contagious variants of COVID might have on our business.

19:00 As usual, that range does not include any potential acquisitions that we might make in 2021. One of the things that's been strongly confirmed through the pandemic is the strength and resiliency of our employees and our operations. Our team has managed well through the pandemic and we've successfully managed through rate changes in the past and we expect to do so this time as well. All things considered, we're pleased with our results in 2020 and with our strong finish to the year and we look forward to a successful 2021. Now, Chris, I'll turn the call back to you. Okay. Thanks, Carrie. Good job. Operator, let's go ahead and open the line for questions or comments. As a reminder, you can ask an audio question by pressing star and the number one on your telephone keypad. Again, that is star one.

19:54 The first question will come from the line of Brian Tanquelute with Jefferies. Hey, good morning, guys. Hey, Brian. Good morning. Thanks for addressing the guidance right off the bat. But I guess I also wrote to both of you guys. As we think about what goes into that, we get the fact that you're facing Medicare headwinds, and obviously the weather has been tough in Texas and here in Tennessee as well. But how should we be thinking about cost offsets and The underlying organic growth assumption that you're expecting, you know, obviously COVID in the background may be driving some conservatism. Just some thoughts on how we should be thinking about the moving parts. Yeah. So, you know, as we dissect it, and Brian, I appreciate the question, when we look at our budget for 2021, we get back to actually a little bit ahead for the full year.

20:55 on a visits per clinic per day basis ahead of where we were in 19. And we have a few less clinics, obviously. We expect to have a good clinic opening year in terms of de novos. We also expect to have a good development year, frankly. We have a number of things that we're working on that we expect to get done. When we look at the underlying fundamentals of visits per clinic per day, We expect to be, you know, back and a little bit ahead of where we were pre-pandemic. I can tell you we started the year January a little slow, but January picked up sequentially. And, you know, while it wasn't fully back to pre-pandemic levels, it was low single digits within, you know, on a visit per clinic per day basis.

21:46 And so the challenge for us is We took out so much cost in 2020. And not all that was sustainable. Some of that we've had to bring back. Quite honestly, we have people running on less than fumes. And so we'll see, I expect that we'll see some of that margin pick up as we go forward into this year. We know that 2021, it sounds like a little thing, you know, has one less business day, so that's six or seven cents. Our volume, we expect to get back, and that is even, you know, considering the slow start that we've had in January and February, we're going to have to crawl out of that hole. But the Medicare impact's real, and we're going to do our best.

22:41 to work our way through it and to come up with some offsets. But this is our best guess right now, you know, on a look forward basis. I appreciate it. And Chris, I know in the past, you know, you've talked about, especially when you were facing the steep Medicare rate cuts, you've talked about potentially ramping up M&A this year as a way to offset, right? So where do you stand in that? I mean, with Medicare cuts being mitigated a little bit, and then I know you don't like talking about pipelines, but you know, how does, how are the conversations going with potential targets? It's good. It's good. I mean, I'm pleased that we got, look, we're, you know, we always, we always seek out the best folks. We try to, and we've done the deals that we've closed, which is with phenomenal folks and the deals that we will close also with phenomenal people and the discussions we're having really, really good opportunities and good people.

23:42 So I expect this is going to be a really busy year. We always have things in development. Sometimes they don't work out. You know, most of the time they do. But I expect this will be a busy year for us. And you will see us, you know, in the not-too-distant future. Yeah, okay. And then, Chris, last question for me. I know, you know, you kind of slowed down the de novo strategy a few years back, but you just mentioned de novos again. So how should we be thinking about your commitment to de novos and the pace of development on that front? Yeah, you know, we've always been committed to de novos.

24:29 Most of the de novos that we open are within our top 20 or top 30 partnerships. And and we'll get back to kind of what our average pace has been more recently excluding the 2020 year where we just press pause on just about everything. We've, you know, the de novo opportunity though, I guess I'm a little different than some of the other companies out there. We, when we got here 18 years ago, we were throwing open de novos, you know, picking Picking a target city and just blitzing that city with openings. And quite honestly, it didn't work. And it's hard to work. And so we're selective with what will open. But I expect, you know, somewhere in the mid-20s this year in terms of de novo openings, which kind of gets us back to where we were before. Maybe we'll be a little better than that, maybe a little lighter.

25:32 But that's what I expect at this point. Awesome. Sounds good. Thanks, and congrats. We'll chat soon. Thanks. Thanks, Brian. The next question will come from the line of Larry Solo with CGS Securities. Good morning, guys. Thanks for taking the question. Carrie, welcome. It's a public welcome to U.S. Physical Therapy. It's been a couple months, but first public call. Chris, I know you don't guide, you know, seat to quarters, and clearly, you know, cadence-wise, I assume we're going to start at a much lower volume, you know, with the weather impact and the rising incidence of COVID. So just trying to get a better feel for the volumes.

26:17 You said you sort of expect it to be, you know, we recovered the pre-pandemic levels at the end of the year, but it sounds like we're going to get a little of a swoon here, at least in the first half of the year. So my first question is sort of what do you Thank you for joining us. You know, sometime in Q2.

27:02 You know, we're not that far off. Had last week's, you know, apocalypse not happened here in Texas and a few other places, you know, sub-zero temperatures with literally everything shut down, we would have had a decent February. But having, you know, knowing where we are right now, first quarter is certainly going to be light. I think second quarter and usually beginning in March, we begin to pick up steam. I expect that to happen this year. Team's very, very focused. They know we have some ground to make up for the weather and for the rate, and they're working very hard.

27:47 But we'll be a little bit back and loaded. I won't say that we'll be fully back and loaded. I think Q2 and forward should While we'll still have the pandemic, I think things should be steadier. In terms of the workforce, look, we have put up really good same-store numbers the last few years. I expect to get back to same-store positive once we get on the other side of this pandemic. I think we can move market share. This period of time we've been through has been hard on everybody, and we've come through it really in good shape. So again, I think it's about moving market share. Certainly a full workforce and a robust economy helps everybody.

28:36 But we've been through recession periods before where we've been able to grow, and I don't expect us to be in a recession. I expect us to to be able to move market share How does that interplay sort of with, I think you mentioned you have 300 or so employees, I don't know what the number is today, but it sounds like certainly some inefficiencies and is that causing you to hire more temporary help and sort of temporary elevating costs even more?

29:25 Yeah, a little bit, a little bit early on. And we expect as the year progresses that these folks in quarantine, number one, we're getting our people vaccinated and We're in 39 states, and so there's a state-by-state bit of a patchwork for how efficient and effective that is. But early results are good, and people are getting vaccinated. And so because of that, we expect our quarantine numbers to begin to decline as that number increases and people have second-level vaccine under our belt, a greater percentage of those. I think we'll make progress there. I think from a corporate perspective, we've got the group back that we need to operate the company, and as we grow and add new partnership deals, we may have some slight changes and additions there. I think in the field, we're also pretty well staffed right now, other than for the redundancy that happens because of the because of the people in quarantine. And once that is alleviated, I think things will settle in and we'll be in a little better shape.

30:45 Okay, great. And then just lastly, the industrial injury prevention business held up relatively well in 2020. I think it was actually flat or eked out on small even revenue gain. What's your outlook as we head out to 21 for that business? Yeah, I think we have a forward outlook. I mean, we expect a good year. I think our rate of change, one of the things will slow a little bit this year, and we're going to have to rebuild our, and the group's been working on it, we're going to have to rebuild our opportunities pipeline. We just had a lot of people kind of on pause, so to speak, you know, during a lot of 2020. Our sales cycle for the IAP business is a bit longer. It takes up to about a year in discussion with some of these companies, but it's coming back and we made some good progress of late.

31:37 So I expect that group, I have a tremendous confidence in that group. It started the year well for us this year in 2021. It's now our largest single partnership in ranking. in terms of total contribution, and I expect them to put down a good year this year. But we're a little bit more flat-footed maybe than we have been in the past just because of COVID, but they'll pick it up. Got it. Okay, great. Fair enough. I appreciate it. Thanks, guys. Thanks, Larry. The next question will come from the line of Matt LaRue with William Blair. Hey, good morning. This is Dan Waller on for Matt LaRue this morning. Thanks for taking my questions.

32:23 Sure. Tell Matt we said congratulations on the new baby. We'll certainly do that. But just wanted to ask with the PT cut reduced to around 3.5% for 21, are you seeing anything to maybe having the remainder of the cuts come back in 22? And then quickly on the 15% cuts for PTAs and OTAs in 22, What levers are you guys pulling in your staffing model, and how should we be thinking about maybe the net impact to rate in 22? Yeah, so the first part of your question is, do we see the remaining part of that cut coming in 21? I'm not sure yet. I'd be giving a total wild guess at this point, which I'm not inclined to do.

33:09 So I hope not. I think they've gotten there. We're going to be working hard within our APTQI Alliance as we did throughout the entirety of last year to keep that at bay. On the 15% PTA reduction, we made a number of changes in staffing. It's been a couple years ago, pre-COVID, where we actually shed in a lot of our facilities some of our PTAs. I don't want that to sound bad. Those are good folks. But we rebalanced our staffing somewhat. And I think the key for us is just going to be scheduling and making sure that our PTAs are connecting with and other non-federal patients.

34:05 And I think we're at a level where we can do that pretty effectively. We may have pockets where we have to be a little bit more creative, and we'll certainly work on that as the year progresses. But I think right now we should be, generally speaking, okay with respect to federal patients. Great. Thanks a lot. The next question will come from the line of Mitra Ramgopal with Sidoti. Yes, good morning. Thanks for taking the questions. First, Chris, you talked about being able to grow market share organically, and I was just curious if you could give us some color in terms of as a result of the pandemic, what you saw this past year in terms of a lot of maybe your mom and pop competitors.

34:59 Yeah, it's a good question, Mitra, and good to hear your voice. You know, it's mixed. We have on the mom and pop side some really good competitors, and I think PPP money helped a lot of them, the ones that applied for it and got it, and that was kind of the bridge to the other side. But, you know, we've also seen, you know, a huge increase in the number of small practices that, you know, aren't probably going to make it or need a home and didn't fare so well and don't want ever to go through this again, what they went through in 2020. So I still think, you know, the big companies are much better resourced to move market share than the smallest of the groups.

35:51 So that doesn't mean there aren't a lot of really strong small groups out there. And a lot of those, you know, are people we end up connecting with and talking to about, you know, a deal at some point in time. But the other thing, Mitra, I think that 2020 did was for hospitals, which is also a big competitor of ours. You know, physical therapy has probably been the 51st priority of a hospital here this last year. It's not high on the list. And so I think we've been able to move some business from the hospitals. I think we can keep that. We're going to fight to do that. And, you know, we've put more emphasis in terms of looking for creative opportunities with hospitals.

36:39 And it's early yet, but I think we'll see that play out as the year unfolds, you know, with us managing and having more creative opportunities with hospitals because it's really not a strong focus of theirs right now. Okay, no, that's helpful. And in a kind of a related question, I guess, as it relates to the Novos, you know, do you think the pandemic has maybe accelerated or maybe changed the mindset of some of the, you know, potential hospitals who are now more interested in joining with you maybe pre-pandemic. Well, you know, I'm not exactly sure if I'm hearing your question right. But I think, you know, when you look at the partners that we've acquired, the partners we're talking to about, you know, creating a partnership together, they're very bullish on the future and they're very bullish on growth.

37:34 and they're very bullish on development. That's organic development as well as tuck-in opportunities and full-on further acquisitions within their partner groups. And so we have a lot of people working on those things locally along with our development team. But yeah, our strong partners are not afraid and they see a lot of opportunity out there and so do we. So we just need to make it happen. Oh, right. Yeah, that's very good. I was just also curious to say you're seeing in terms of your de novo pipeline more interested parties as a result of realizing how difficult it is to sort of deal with the environment solo as opposed to partnering with you.

38:21 Yeah, I got you. I got you. So our de novos are solely and exclusively satellites now of existing partnerships. We're not doing and have it for many, many years. Any one-off, stand-alone, single-site partnerships. And so when we have somebody that comes to us like that and is interested, most typically, you know, they're being referred into or tucked into an existing partnership somewhere. We're not doing any sole, you know, single-site, one-off partnerships from the ground up. All the things that we're doing de novo are all satellites. at this point. Okay, no, that's great. Thanks for clearing that up. And then I know in terms of the Medicare reduction, I was just curious in terms of if you might have the pair mix handy carry as it relates to maybe what percentage of the business is Medicare exiting 2020? Sure. You bet.

39:22 Yeah, so in 2020, our Medicare was 27.2%. There are some contracts that are also kind of tied to that Medicare rate. So we estimate about 31% of our business is tied to the Medicare rate in some way. Overall, there wasn't a whole lot of change 2019 to 2020 in the payer mix. Commercial insurance was 47.6% in 2020. Medicare, like I said, was 27.2. Medicaid was 4.4%. Our workers' comp was 13%. And then our personal injury and self-pay combined was 7.8%. Okay, that's great. Thanks again for taking the questions. Thanks, Mitra. The next question will come from the line of Mark Giovanella with Copeland.

40:12 Hi, thank you. I guess my question is around the dividend. Great to see it reinstated, and I noted at a higher level than you had before, even though earnings-to-payer ratio looks significantly higher than you probably had given the earnings at a lower level than would have been expected last time you had the div. I'm curious if that says anything about kind of a recommitment or a long-term commitment to dividend growth, what the flexibility you got in your credit agreement means that maybe you wouldn't have to cut outside of maybe a pandemic coming again, right? Can you speak a little bit to the payout ratio or goals for dividend growth? Yeah, Kerry, you want to take a run at that first?

40:57 Sure. You bet. Yeah. So when we look at the dividend, obviously we have a strong balance sheet. So we feel great going into 2021. We feel good about the health of the business and where we're headed. You know, we'll take some of these things in stride related to Medicare reduction, those kinds of things, and work hard to mitigate them. But we're very committed to the dividend. We wanted to increase it in the normal progression. So it was 32 cents last time we did it. We generally increase it 9 to 10 percent per year. And we did that with this with this increase from going from 32 cents You did mention a number of headwinds to cash flow in 2021 as well as the earnings. What type of cash flow kind of call is that?

41:57 Do you see based on your projections, you know, what percentage are free cash? From a dividend standpoint? Correct. Yeah. So, well, you know, we really, I don't want to speak too much to the cash because there's uncertainty. We have this range of 240 to 252. Obviously, it would be, it's a higher percentage than it would have been in 2020 or 2019. but we feel very comfortable with it. Okay, thank you. You bet. Again, to ask an audio question, you may do so by pressing star and the number one. The next question will come from the line of Mike Petusky with Barrington Research. Hey, Mike. Hey, guys. So I want to ask a little bit about salaries and related lines. So I think it was 59, I'm sorry, 55.9% of Overall Revs in the fourth quarter. And I was just wondering with the quarantined employees and all the rest, did you guys sort of try to assess, and maybe I missed it, maybe you've said this, but I missed it if you did.

43:06 Have you guys tried to assess essentially what that number would have been sort of in a non-COVID environment? I know you're essentially working at times with two therapists to deliver care to one patient due to the quarantine stuff. Right. I haven't, you know, Mike, and we probably need to and we can probably offline pull that together. I don't know that I have that at my fingertips at this point. I'm not sure Kerry does either. You know, most of those 300, they weren't all clinical folks. but a high percentage were, and you're right, there's a redundancy that gets created there with having replacement staff in a lot of cases.

43:56 But, you know, it's going to be an estimate if we do it because I don't have the ability on a pieces parts basis to tell exactly, you know, who we brought in and replaced or whether somebody just worked more or, you know, what the, What the iteration was in each and every example of that, but we can probably do a back-of-the-envelope estimate offline. Okay. So you said that there were 300 people, employees, quarantined in November, and then I think you characterized as that issue continued into December. Do you have any sense, like currently or in January, what the upper end of quarantine employees was?

44:48 Yeah, it's less than it was. It's going down. I wouldn't characterize it as low yet, but it's better. It's certainly better than November. December was better than November by margin, you know, decent margin, and January and forward have gradually gotten better, but it's still a high number right now. I don't remember. I just don't have it with me, and we're coming off of a few days where the board meeting's in budget and a lot of numbers. I just don't remember what that number is. But I can get to it. So if you want to check afterwards, I know where it is. I just don't have it at the tip of my tongue.

45:33 Okay. And then so where I'm going with all this is I'm sort of wondering, you know, are you guys assuming sort of COVID continues to be an issue for your employees in terms of some redundancies and that sort of thing. Is that sort of baked into the guidance? Absolutely. We're in a COVID environment right now, and I expect we will be fully for a pretty good chunk of this year, to be honest. Now, I said earlier, I don't expect to have as many people in quarantine as we do right now just because of vaccinations, but we know just statistically, both from talking to hospital friends and looking at our surveys of our own employees, we know there's a certain percentage of employees who aren't going to get this vaccination.

46:35 That's true of local hospitals here in Houston as well as in our subgroup, and If you follow the science with the variants and the other things that are happening, we're expected to kind of be in a COVID environment at least for the next few quarters, if not for the year. So yes, it's baked in. And Mike, I have the quarantine numbers in front of me for January, and Chris noted they were highest in November. They came down in December, and they're at a pretty similar level in January, slightly higher in January than they were in December. Can you give a number or a range? Yeah, it's in the mid-200s. Okay, that's still pretty high, okay.

47:20 Still pretty high, yeah, no doubt. It's definitely high, yeah. And I'm assuming the majority of those folks are clinical? Yeah, I don't think we have a breakout exactly by position, but I think the majority of those folks are clinical, yes. Yes. Okay, very good. Thanks, guys. I really appreciate it. Thanks, Mike. Again, to ask an audio question, please press star 1. We show no further audio questions at this time. Okay. Listen, thank you, everyone. I appreciate your time and attention.

48:06 We appreciate your questions and your interest. Carrie and I are available after the call if you have further follow-up. Again, thank you. Stay safe and stay well. Take care. Bye now. Thanks. Bye-bye.