LHC Group, Inc.
Q1 2017 Earnings Call Transcript

Published: 4 May 2017

[Operator:]

Good day, ladies and gentlemen, and welcome to the LHC Group's First Quarter 2017 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today's conference is being recorded. I'd now like to introduce your host for today's conference Mr. Eric Elliott, Senior Vice President of Finance. Sir, you may begin.

[Eric Elliott:]

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 will 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 during 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 to introduce the CEO of LHC Group, Keith Myers.

[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 continued 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 six 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 with 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 Donald will address a bit later. Our acquisition strategy also contributed substantially to our growth both from the full quarter result of the acquisitions completed last year and from our LifePoint joint venture which is a testament to our ability to identify quality opportunities to model, integrate and execute the strategy. We have now implemented the first two phases of the three-phase plan for the first year by joint venture with LifePoint. We have acquired 19 LifePoint home health location and 12 of their hospice location and we manage 10 additional home health locations which we'll convert to joint venture own locations in September, due to the 36 month group [ph]. The joint venture if proceeding as expected and our work on mix 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 two additional joint ventures with high quality hospital systems that 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 the set of 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 number 15 on Becker's Hospital Reviews' 20 largest non-profit hospital systems. Our pipeline of potential joint venture opportunities is unprecedented and we continue to focus strategically on high quality standalone free standing acquisitions primarily a certificate in these states. We believe that LHC group's replication for quality care has been an important driver of our acquisition success as well as our accelerating organic growth in home health admission. 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 a provider of the best quality and highest case of 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 [indiscernible] without the real time day-to-day effort of our team to provide the best care for their patients. To see this commitment and professionalism across the company that now has over 12,500 full and part-time employees certainly attribute to our management team and business model, but most of all attribute 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 is Josh to discuss our financial results in more detail. Josh?

[Joshua Proffitt:]

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 a 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 regards 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 and 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 the Medicare home health perspective 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 LTAC patient criteria rule which affected two of our LTACs beginning June of last year and the other six LTACs 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 its 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 the 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 three days. This was due to a concerted effort to review and collect on over accounts receivable that continue to be aged out as well as receipt of collections on to a Medicare processing issue that related to older 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 and our reporting in 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 top lien of potential joint venture and free spending opportunities. We currently have $136 million available on our line of credit which leaves us well-positioned to fund future acquisitions in 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 the 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, the notable locations have opened, or future legal expenses if necessary. For the full year of 2017, we continue to expect gross margins to be in the range of 38% to 39%. We now expect general and administrative expense as the 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 discreet tax item related to stock-based compensation that resulted in an excess benefit in Q1 are 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'm now pleased to turn the call over to Don.

[Donald Stelly:]

Thank you, Josh, and for all listening in this morning, thank you for doing so. I will begin my remarks by discussing quality and 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 increase 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 to 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 the scale of 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 six quarters. Our 11.7% organic admissions growth for the latest quarter is the strongest such growth we produced in six years, specifically since the first quarter of 2011. Because 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 from the first quarter of 2017 as compared to the first quarter from 2016. As a side note, in the first four months of this year, we are gaining the trust of more new physicians than ever before. Specifically, we've had just about 2,600 physicians admit patients to our care teams that before now have 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 of 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 in service and perhaps more importantly, their 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. Along with you, we're 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:]

[Operator Instructions] Our first question comes from the line of Brian Tanquilut with Jefferies. Your line is now open.

[Brian Tanquilut:]

Hey, good morning, guys. Congratulations. 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're looking for? Are there different kinds of structures that they're looking to set up as they bring at home health partners? If you don't mind, if you could give us some color on that joint venture strategy and the remaining opportunity there?

[Keith Myers:]

Sure. Thanks, Brian. It's a number of things. It may take a couple of minutes. I think our quality scores certainly are a driver of our growth at every level. 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 and health system growth, a lot of that has to do with the size of the opportunities [ph]. Historically, we added single hospitals or maybe one, or two, or three hospital chains would be a multi-location acquisition for us and now what you're seeing larger systems with more volume and more hospitals coming to us in a single transaction. 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 a lot of the interest is also being driven by the move to value-based purchasing population health and hospitals are starting to think more seriously about that position themselves for it. And when they look at our ability to create value and 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 [indiscernible]. The first half of our response is why I think they're choosing us.

[Brian Tanquilut:]

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

[Keith Myers:]

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

[Donald Stelly:]

Hi, Brian. Keith alluded to it. I'd probably use the two words of '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've talked about those extra 2,600 physicians coming aboard on our team. I don't think anything has changed more than it's evolving and also being culturally indoctrinated to capacity planning. There has been times that some of our agencies out there, they bump up against capacity and get to 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 servitude [ph] pattern in that cager. Instead, it's really starting to smooth out and we've done a much better job. It's a work in progress and it's tough because it's very competitive, but I couldn't be more pleased to where we're positioned between now and into '17 and [indiscernible] we're already working with our co-located and tri-level approach. We're already working towards '18's growth right now.

[Brian Tanquilut:]

Got it. Last one for me. As I think about your non-Medicare fee-for-service business. Obviously we saw a lot of trends there. Is there anything you would call out that drove that and also, how are you thinking about the Medicare advantage opportunity going forward and what kinds of discussions are you having right now at payers in terms of trying to expand into MA?

[Keith Myers:]

I'm trying to pick the right word here, Brian. I'm more an optimistic. I'm - amount excited about the momentum that we're seeing in our conversations with managed care payers in particular and I won't 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 player. 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 at [indiscernible], so we spend a lot of time talking about that original value-based model that really was the kick-off for us to move in that direction. I'm excited about that and we're seeing incremental improvement. You see it in our numbers, but I think we're just scratching the surface in that regard. Did I answer your question? When you said people service were you talking about the personal care?

[Brian Tanquilut:]

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?

[Keith Myers:]

I think in the non-Medicare - in managed care admission?

[Brian Tanquilut:]

Yes.

[Keith Myers:]

I think it's hospital strategy. Our hospital partners have a diverse payers mix. They have more managed care business. So it's not a hard business to grow. 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.

[Brian Tanquilut:]

Got you. All right. Thanks, guys. Congrats again.

[Operator:]

Thank you. And our next question comes from the line of Kevin Ellic with Craig-Hallum. Your line is now open.

[Kevin Ellic:]

Good morning. Thanks for taking the questions. Just following up on Brian's question and your response, Keith, it's great to hear the excitement about the MA opportunity. Can you put any gold post around what that opportunity might be and any sense on timing, when we might actually see it?

[Keith Myers:]

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

[Kevin Ellic:]

Sure. That does help. It's kind of some early stages like you said, proof of concept and whatnot. So looking at some of the segments, community-based services. I know it's pretty small part of the business, but the revenue growth out of that segment did slow down just a little bit. I'm wondering, is that just normal seasonal fluctuations? Or was there anything else behind that? There's off a little base?

[Donald Stelly:]

Hey, Kev. This is Don. It was directly attributed to 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 a de novo specifically, Nashville and Arkansas picked up about 75% of that and doing so at the same margin. Well, that was a blip. We couldn't be more excited of the margins and then now the opportunity to spread that to the portfolio. I'll add that it's going to be non-recurring.

[Kevin Ellic:]

Go ahead, sorry.

[Keith Myers:]

Go ahead.

[Kevin Ellic:]

I'm just wondering, what type of growth like normalized growth should we see out of that segment?

[Donald Stelly:]

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 hymn of the budgeting process, I guess I could say. 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 in, approved by our Board and all this.

[Kevin Ellic:]

Sure. Keith, did you have anything to add there?

[Keith Myers:]

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

[Kevin Ellic:]

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

[Joshua Proffitt:]

Let me get there with you. That was mostly, Kevin, related to the LifePoint JV.

[Kevin Ellic:]

Okay.

[Joshua Proffitt:]

That we closed in January.

[Kevin Ellic:]

Is that how we should think about that line item going forward? Or will it sum that down? Or is $16 million kind of a run rate.

[Joshua Proffitt:]

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

[Kevin Ellic:]

Okay, that's helpful. And then clearly a nice improvement on the DSO. Wondering the three days and improving on the collections. One, is the current level sustainable or will it [indiscernible]? And in the prepared remarks you made a comment about the aging of the receivables with I think some receivables over 180 days fell off. How much of the order receivables falling off led to that improvement in DSO?

[Keith Myers:]

Yes. I know. They are great questions, Kevin. That's probably why you see where we finish 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 issue that we were to benefit of in Q1, you need to normalize some of that out. And then I think 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 more normalized throughout the year, which kind of would get me back to same store run rate for a bad debt in the 1.5% range and then we're guiding a little bit higher than that because with an acquisition, the size of 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.

[Kevin Ellic:]

That's very helpful. Thanks for the time and congrats again on a nice quarter.

[Keith Myers:]

Great. Thanks.

[Operator:]

Thank you. And our next question comes from the line of Ryan Halsted with Wells Fargo. Your line is now open.

[Ryan Halsted:]

Thanks. Good morning. Nice quarter.

[Keith Myers:]

Thanks, Ryan.

[Ryan Halsted:]

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. Did I hear that the 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 half a year of contribution?

[Joshua Proffitt:]

Hey, Ryan, 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 bad, since we've not closed that joint venture, we did not include it in our guidance, but in the press release that we issued earlier this week, we quantified approximately $25 million of annualized revenues. Assuming we close it on June 1, then you could take about half of that and then flow it in for this year. We also mentioned in our release that it would slightly accretive. I wouldn't make much my way of EPS and to go forward guidance. But come June, we will be making that half of the $25 million in revenue into.

[Donald Stelly:]

And then Ryan, this is Donald. First part of the question. This really attributed to volumes and the things that we've kind of talked about in organic growth side. 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 two factors really underscoring that.

[Ryan Halsted:]

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

[Donald Stelly:]

I think you just nailed it. We've had such huge success that it's the factor of the hurdle rates right now. But I would continue to make in what we have talked about earlier. It's not going to exceed home health on those 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 have such great prior periods that that's what we're leaping.

[Ryan Halsted:]

Okay. And then I wanted to move on to the joint venture with Baptist Memorial. It certainly 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 frame how to think about maybe making comparisons to how you framed LifePoint, how many of their hospitals do you think there is a chance to expand into and also what's kind of a margin profile that you think you can kind of get from the partnership. That would be helpful.

[Donald Stelly:]

We'll tag team that. I'll let maybe Keith go global and high level and then I'll maybe some of that as he goes.

[Keith Myers:]

You start.

[Donald Stelly:]

Well, I think from a margin standpoint, we see the bad 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 spread that market with that brand. But they also alluded in Arkansas. We have provided there that we're at a point in time going to reverse that provider into the venture branded as such and see that is a huge growth potential. Josh can clarify this, but I think there they have numerous hospitals maybe even seventeen hospitals at a point in time much like point will 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 just none of that and I was up there actually Tuesday, So I think again that'll be a little bit clear 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.

[Keith Myers:]

Yes, so I think everything that - Don is certainly accurate in all that. You know Don mentioned Mississippi Baptist Center. But I think to try to paint this picture, when we went to Mississippi Baptist and Jackson in 2001 and they had one location and they were just in Jackson. And from that we built out all the service line and branches and all the contiguous counties and built a network that eight locations and just built of dominant home health network in host county, and all the contiguous counties under the Baptist brand and that was the vision by Mr. Jerry cotton who was the Chief Operating Officer there. We follow that model. We did the same thing when we joint venture with University of Tennessee Medical Center and I don't know how many branches them. How many branches average -, so built all that out in the surrounding counties. So in the case so Baptist and Memphis it's a larger opportunity starting off but the same relative growth opportunity when you consider all the counties they serve to that 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 the contagious county.

[Donald Stelly:]

I don't want to box myself up with this but 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 three years or five 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 would be $50 million with that.

[Ryan Halsted:]

Okay. Now that's very helpful. Maybe last one from 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 this some sense of home health joint ventures verses standalone versus Hospice and even community care where do you see the most opportunity in the pipeline?

[Donald Stelly:]

Okay. Sure. So the - so clearly the hospital joint venture relationships or the - I've used the word unprecedented because that's accurate. The momentum and momentum meaning actual, active discussions with hospitals and the volume of business associated with that is unprecedented for hospital joint venture space. Whenever we go to 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 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 free standing side, we are just very strategic about that. I mean we are primarily focused in each state and focused on high quality assets that have been around for a long time have excellent reputation and we continue to operate under the same brand. The third part of our strategy, and I must use LifePoint as an example. When we partner with hospital for health systems, you'll have the same thing with Baptist and Memphis. They'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 re-brand 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 three things that we do. With regard to putting on 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 of the hospital negotiations don't go as quick. Those transactions don't close as quickly as freestanding gas. And it's written it's hard sometimes to peg the time that when they're going to close. Often we're in exclusive negotiations, so it's not about bidding contest it's just about all of the approval processes. And the stages you have to go to go through with a hospital system.

[Ryan Halsted:]

I appreciate that and that's very helpful. Thank you for taking my questions.

[Operator:]

Thank you. And our next question comes from the line of David MacDonald with SunTrust. Your line is now open.

[David MacDonald:]

Hi, good morning guys, 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?

[Keith Myers:]

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 discussion we're having or with system related opportunities. And let's just say system related will be with three or more hospitals. And 25%, I think it's less than 25%. Josh's is nodding his head probably significantly less. Josh you might be closer to it, but all the single standalone hospitals and 3 years ago you could reverse that. The vast majority of our conversation is with single standalone hospitals.

[David MacDonald:]

Okay.

[Keith Myers:]

And that's where the momentum is coming from. You hit the heart of it. Josh, you want to add?

[Joshua Proffitt:]

Yes, no Keith I agree completely and probably in a little bit more leaning towards a bigger systems now and the flipside 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 there would be 90% plus days that would have been the smaller systems. And this momentum has really picked up over the last 18 months.

[David MacDonald:]

How much is the momentum picked since the life point announcement.

[Keith Myers:]

Probably at least double-digit in the system side.

[Donald Stelly:]

Okay. And then can you spend a minute on, you kind of talked out there your vision down the road is 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's the timeframe do you think it's realistic to envision that being either a noticeable or a meaningful piece of the locations that you guys have?

[Keith Myers:]

Well, I think I'm going to throw that to Don. Because - and the reason is that it's not - it does have some - that we're going to acquire and we're actively pursuing Hospice. But before Don jumps in, if we look at the Hospice acquisition that might have overlap with our existing locations and 25%, 30%, 35% of the Hospice locations in the target, but if the other two-thirds of the location are in markets that we're not in it and don't see any potential going on in the near terms. Then it really doesn't fit in the model, 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 acquisitions of small Hospices, 1, 2 or 3 locations and just tucking them into our existing home health models and relationship with hospitals we're done timing.

[Donald Stelly:]

Yes, so and you probably don't know this because I didn't say this ever before but you think about at 299 home health locations which is kind of an anchor and 77 hospice locations in 12 city yesterday. Today we have 26 markets that were co-located in and those operations the collaboration and the care coordination has given us the confidence accolade actually for Keith which I have said we did. So if you kind of go there not all of those 300 or 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 into mid 18 and then 3 to 5 years two-thirds of I'd do that and then the only other caviar it as Keith talked about the health systems in the pipeline. Then I'm running through my head, not one of them do not have 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 that co-located portfolio and then on top of those 300 it depends what we acquire.

[David MacDonald:]

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

[Keith Myers:]

Yes that missed on. I actually said that - January 1st of this year through April, 2,600 physicians admitted patients there are services that had not done that before it was a new physicians, different physicians.

[David MacDonald:]

But Don, I guess couple of question one can you give us a sense of what the total number of referring doctors for the company is right now so 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 of bringing these folks to you?

[Donald Stelly:]

Yes, it's about 11,000 physicians and it's interesting you see that a really good question because in LHC Group's experience the real organic growth comes from diversifying your position 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 position groupings to 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 re-engage their route mapping so to speak. And we do that based on [indiscernible] rankings of physicians. So I'll just give you a quick example. The best physicians target is the medical director of another competing home health agency they already know the benefit and when we go out we tell him why we're different and better than their own agency that their medical directors were seen huge success at diversifying that profile.

[Keith Myers:]

This is Keith, and I'll just add to that. That works when you have something different to sell, so when you have good employee engagement scores and people hear good things for the staff and the community. All those things actually give you a product to differentiate yourself and then went down just talk about me manages with the details that he described that's what generates results.

[David MacDonald:]

And guys just one final follow-up on that 11,000. Does that include the 2,600 so we were talking about something like 8,400 you added 2,600 or is it now 13, six?

[Keith Myers:]

It's the first, you are absolutely right that's embedded into that number. So that 8,500, 8,800 some of that.

[David MacDonald:]

So you guys just your physician base diversified by 31% since the beginning of the year.

[Keith Myers:]

There you go.

[David MacDonald:]

Okay, thank you guys.

[Operator:]

Thank you. And the next question comes from the line of Dana Hambly with Stephens. Your line is now open.

[Dana Hambly:]

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

[Keith Myers:]

Yes, that's really a great question. So 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 that will tell you about. We're modeling out the need in the organization for that pipeline way in advance. In terms of home office, so we know what metric that create 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 they are going to be addition necessary and rev cycle and human resources and all those functional departments. And then on the leadership side that's also an important part, we have a dedicated recruiting team. That is sourcing the leadership talent to lead these different operations. So for example a life point transaction, you have to have a - just have an operational leader there that has experience most of the time those come from within that has been groomed in LAC, but then you have to back fill that location and begin to groom someone who can step up to that next level in the future that's just an ongoing assembly line process here. That's not much different than the staffing calculator that Don alluded to that we use at the branch level. Don you want to step in?

[Donald Stelly:]

Yes, and I don't mean to sound - 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 the account we fold those in most of them are loss leaders are 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. 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 that specifically. Yield those results predictably heal those results. And we've been very open to our teams here that LHC Group now is two companies in one. We're an operating company and we're an inquisitive company and people have different roles and responsibilities under 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 in TTM last year and along that side we've marginalized, we've decreased G&A's percent of revenues same period prior year and we've enhanced quality unlike anybody else in the industry. So history is not always a predictor of the future, but I do feel pretty good about where we are.

[Keith Myers:]

And I will just, I guess I want to add one other thing to the at the home office level. So we I just want to reiterate, we are very 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 and I see 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 move to this facility, prior to committing to this facility, we acquired four acres adjacent to this facility for future expansion if we needed. That's sitting there, so I mean I hope that helps. Give me a little bit of color how Florida spanned. And my last comment to that is you all and our shareholders were extremely patient and you all believed us 2 or 3 years ago we talked about building the infrastructure for today. Our company is completely point of care we are completely finished with all and most things are behind this that gives us the limbs 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 I know me 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 are the right people executing.

[Joshua Proffitt:]

This is Josh I wanted to add one thing. I'm sitting here and listening to Keith and Don, when Don just mentioned how we were completely on point of care. I would also want to throw out there that it takes a couple 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 to more than absorbing leverage going forward.

[Dana Hambly:]

Good going. Good to hear it. Thanks very much.

[Keith Myers:]

Thank you for the question.

[Operator:]

Thank you. And our next question comes from the line of Frank Morgan with RBC Capital Markets. Your line is now open.

[Frank Morgan:]

Thank you. Most of my questions have been answered. But I thought to step back a little bit at the higher regulatory level Keith I know he has been - Washington any kind of updates you're getting out of Washington really on two fronts talk around that the group of model that are talking about potentially changing for home health care reimbursement and we had the Smith proposed rules come out last week and certainly impossible changes they're replacing the old - system I am wondering would that be more of an opportunity for you how would you view any of those kind of changes? Thanks.

[Keith Myers:]

Sure. So Frank my read is that the new leadership is focused on opportunities to ease regulation 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 was much different than it was even five years ago. It's now commonly known and commonly accepted that home health is where a major opportunity is if not the biggest opportunity to leverage cost down and specifically as related to Smith Care. I mean it's generally known that 50% of the patients that are in Smith could be careful at home with maybe with some additional services you have to add to home health but at a huge saving overall. So I think that's what's driving a lot of the positive thinking around policy around it in Washington.

[Frank Morgan:]

Okay. Thank you very much and that really was a great quarter. Thank you.

[Donald Stelly:]

Thank you.

[Keith Myers:]

Thank you, Frank.

[Operator:]

Thank you. Our next question comes from the line of Bill Sutherland with the Benchmark Company. Your line is now open.

[Bill Sutherland:]

Thanks. I think I just have one left at this time. And I'm just thinking about the LTAC group a little bit because it put in a decent quarter. Patient days are up and decent operating contribution. How is that groups fit in your plans as we take forward on the - there?

[Keith Myers:]

No, no. Looking at each other this is Keith. I'll take the first half and then let Don give in the specific for the LTAC. So we spend a lot of time talking about 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 most acute solution. One demand is there all there - and LHC is positioned to do that. Quite honestly, we always have been. Prior to going public, the company has probably was about one third impatient most acute which was rehab, LTAC, and we managed to sniff in a number of location but when we went public home health was what was being rewarded. So our growth was heavy in home health and we talk as much about any impatient most acute services and we limited that to Louisiana. But now as we move forward with hospitals and health systems, even those that don't require us to do it today wants to know that we have the ability to do it in the future we do and we always have. So I think that we'll continue to operate LTAC in hospitals that need us to do it. We do it and we do it well. And I think we will also see more re-entry and more volume in inpatient hospital - and possibly even Smith management for hospitals that have Smith but Don more specifically, you can tell.

[Donald Stelly:]

Well, it's a really good question and I think the reason Keith can say that is we've kind of found our way here with our LTAC. When we were in the mid of or the latter part of 2016, it was tough figuring out this site neutrality 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 in the value to the 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 are incorporating that strategy and certainly not to the detriment of dilution.

[Bill Sutherland:]

Thanks for the color. Thanks again.

[Donald Stelly:]

Thanks for the question Bill.

[Operator:]

Thank you. And I am showing now further questions at this time. I would now like to turn the call back to Keith Myers for any closing remarks.

[Keith Myers:]

Okay. Thank you operator, and thank you everyone for dialing in. As usual I want to mention to you that if you have any follow up questions 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 Erik and we'll always make time available for you. So thanks so much for joining and thanks for your time.

[Operator:]

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.