Good day. Thank you for standing by. Welcome to the U.S. Physical Therapy fourth quarter 2022 year-end earnings conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. In order to ask a question during the session, please press the star key followed by one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then zero. I'd now like to turn the call over to Chris Reading, President and CEO. Please go ahead, sir.
Thank you, Gretchen. Good morning and welcome everyone to U.S. Physical Therapy's fourth quarter and full year earnings call. With me on the call this morning include Carey Hendrickson, our Chief Financial Officer, Eric Williams and Graham Reeve, our co-COOs, Jake Martinez, our Senior Vice President and Controller, and Rick Binstein, our Executive Vice President and General Counsel. Before we begin to discuss our results here this morning, we need to cover a brief disclosure statement. Jake, if you would, please.
Thank you, Chris. This presentation contains forward-looking statements which involve certain risks and uncertainties. These forward-looking statements are based on the company's current views and assumptions. The company's actual results may vary materially from those anticipated. Please see the company's filings with the Securities and Exchange Commission for more information. Thanks.
Thanks, Jake. We have a lot to cover this morning. I'll start by discussing demand. As we look at volumes which finished the year in really a nice fashion, we were steady in the quarter with October and November coming in at 29.4 visits per clinic per day for both of those months. We started December really well, averaging just above 30 visits per clinic per day for the first two and a half weeks. As you might recall, the country got hit with an extreme polar temperature and weather event just before Christmas. That threw a little damper on volume going into the holidays, but otherwise we looked very good throughout the quarter. We finished December at 28.6 visits per day, which brought the quarter in at 29.1 and overall for the year at 28.7.
These were the second best volume per clinic per day numbers in our company's history for both the fourth quarter as well as the year. Considering the staffing challenges this year along with everything else, I'm very proud of our partners, our clinical teams, and all the many people who work to make sure our patients get taken care of and have a tremendous experience. They've worked extraordinarily hard these past few years under difficult conditions and continue to produce incredible results over nearly four and a half million visits this year. I'll just mention that volume out of the gate starting this year has been ahead of expectation. It's been nice. Shifting gears on the injury prevention side of the business, we had another strong growth year with revenue up more than 75% on the year and 37.6% for the fourth quarter.
Despite those strong results, we were impacted throughout the year with open positions that were difficult to fill in some markets due to rather across-the-board employee scarcity this past year. That has seemingly begun to improve, with more recent months seeing open positions filled at a greater rate, allowing us to get to revenue and profit generation in a better overall timeframe. For some positions, and this is a comment that's meant to be across the board for all parts of our company. For some positions, we are finally seeing a greater number of qualified applicants across our portfolio of partnerships, which also feels like a good trend.
While this has improved in recent months, we're not yet close to being in what I would call a normal, balanced hiring environment, although again, we've made progress as the year has unfolded, and we will continue to work diligently on that as we start this new year. Another bright spot that we expect to continue to help us as we go forward has been our net rate and our related contract renegotiations, which will continue through the entirety of our 2023 year. Our net rate improved to $104.28 in the 2022 fourth quarter, up sequentially from $105.53. I'm sorry, up from $103.53 in the final quarter of 2021.
In spite of the Medicare rate change, the PTA reimbursement change, and the sequestration relief phase out in 2022, our contracting and ops teams have worked hard to overcome some of these headwinds, and that hard work is definitely paying off. Our rate progression quarterly this year went as follows: $103.00 even in Q1, up slightly to $103.18 in Q2, more traction in Q3, up to $104.01, and finally to finish the year at $104.28 in the fourth quarter. While we are pleased to make some progress through the year, we have much more work to do before we are done.
One of the things we've decided as part of our overall strategy is begin to drop payers who will not acknowledge the value that our care, the care provided by all physical therapy provides to their membership in the way of adequate and fair payment for the life-improving care that we provide. Offering substandard contracts is not fair and is not in keeping with the low cost, high value return to function equation that physical therapy offers its patients today. A completed course of physical therapy results in a statistically healthier patient over the course of the next 12-24 months with lower overall healthcare spend for all things, and it's time that this is recognized. It is also time that we as providers refuse to accept low ball, no margin contracts from payers.
We're in the process of some very frank discussions with some of these payers, and we've given notice to some of those same payers that if we cannot get a reasonable fair rate, we will opt out of those contracts. To date, that has begun to bear some fruit, we plan on continuing those negotiations and discussions as we work our way through an extremely large portfolio of contracts. Our other challenge, particularly in the second half of 2022, surrounded the rapidly escalating inflationary environment which impacted our cost of just about everything. Excuse me. For the final quarter of 2022, physical therapy total operating costs decreased slightly from our cost per visit in third quarter. PT salaries and related costs also decreased slightly, about 1.6% from the prior quarter.
However, an increase of 1.4% from the prior year's fourth quarter. All things considered, I think that's a pretty good job. Considering that our turnover for clinicians on a percentage basis has remained relatively steady throughout this whole time when the profession in general has seen a considerable outflow, I'm very proud of how our clinicians, our partners, and our recruiting teams work together to fill open positions so that we could drive the second highest visit volume on a per clinic basis in the history of the company during a supremely challenging period. Another bright spot for us in 2022 is in the area of development. With five acquisitions and a nice stable of de novo and tuck-in facilities added throughout the year, bringing our total facilities owned at year-end to 640.
Development discussions and opportunities continue to be strong. We expect to have another good development year as things unfold. We expect pricing to come down with the current interest rate environment impacting buyers across the board. We expect to see others' deals not always get over the finish line 'cause of the leveraged situation of some of those buyers as rates continue to rise. Fortunately, we have completed all of the deals we have set out to complete. We expect that to continue as we begin a new year, further setting us apart from many others in our industry with much higher leverage and much less balance sheet flexibility. One final note before I turn this over to Carey.
In the past couple of years, we have bought in minority interest with mostly discretionary, mostly partial buyouts of a portion of our partners' interest in key strong partnerships across the country. These amounts totaled over $20 million in 2020, $31 million in 2021, and over $13 million in 2022. Additionally, we continue to bring in new younger partners into these top partnerships to continuously ensure we have a stable and ongoing leadership into the future. We're able to do those purchases in aggregate at an extremely efficient multiple overall throughout those three years that I just discussed. We are encouraged by our progress in some of these key areas, as I mentioned, as we work hard to deliver for our patients, our staff, and our shareholders in this coming year. That concludes my prepared comments.
I know Carey has a lot of detail that he wants to cover, so I'm gonna turn it over to you, Carey.
Great. Thank you, Chris. Appreciate it. Good morning, everyone. We noted in our earnings release that we're still evaluating our income tax expense. Just wanted to address that here. Our financial statements as presented represent where we currently believe they will land. There was a matter that came to our attention late in our evaluation of tax that we had to consider, and we simply need a little more time to fully evaluate it. We expect to have that vetting process completed in short order and certainly by the time we file our 10-K next week.
Turning to our results, we reported adjusted EBITDA for the fourth quarter of $17.9 million, which was an increase of 2.8% over the $17.4 million that we reported on a comparable basis in 2021, and our full year adjusted EBITDA was basically flat with the prior year. Our operating results, which include the impact of higher interest expense, was $0.58 per share in the fourth quarter, and it was $2.70 for the full year of 2022. Our total company revenues increased 11.7% this year, growing from $495 million in 2021 to $553.1 million in 2022.
Like all companies, we're continuing to deal with some inflationary cost pressures. Our volumes remain strong. Our team is focused as always on finding ways to become even more efficient so we can produce the best possible results for all of our stakeholders. Our physical therapy patient volumes per clinic per day finished at 29.1, as Chris noted for the quarter, which was the second highest per day volumes in a fourth quarter in our company's history, bested only by the fourth quarter of 2021. By month, our average visits per clinic per day were 29.4 in both October and November. 28.6 in December, which is typically the lowest month in the fourth quarter due to the holidays. There was the weather issue that Chris also noted.
Our net rate for our physical therapy operations was $104.28 in the fourth quarter of 2022. That was a $0.75 per visit increase over the fourth quarter of 2021. That's particularly notable when you consider that the fourth quarter of 2021 had the 2% sequestration relief, which was no longer there in the fourth quarter of 2022, and that the fourth quarter of 2022 included the 0.75% Medicare rate reduction that was in effect beginning of 2022, as well as the PTA reimbursement change.
Our rate increased in each quarter in 2022, moving from $103 in the first quarter to $103.18 in the second quarter to $104.01 in the third, and then to $104.28 in the fourth quarter. This is despite the pressures on Medicare rates from the reductions put in place at the beginning of the year and the phase out of sequestration relief. We've seen some nice commercial rate increases this year due to the hard work of our contracting team, which resulted in our average commercial rates also increasing each quarter in 2022. Our average commercial rate in the fourth quarter of 2022 was 3.4% higher than it was in the fourth quarter of 2021.
We still have a lot of work to do on this front, but we're making progress, and we expect that progress to continue. As Chris noted, we're going to renegotiate or terminate contracts that reimburse us at a rate that is less than what it costs us to serve our patients, which is primarily related to a subset of our Medicare Advantage contracts. Physical therapy revenues were $121 million in the fourth quarter of 2022, an increase of $6.8 million or 6% from the fourth quarter of 2021. Our physical therapy operating costs were $96.8 million compared to $90.2 million in the prior year.
On a per visit basis, our physical therapy operating costs were $4.05 per visit the fourth quarter, which was a decrease of $1.09 per visit from the third quarter of 2022. We're pleased to see that cost per visit amount come down some in the fourth quarter from where it was in the third quarter. Our physical therapy margin also improved in the fourth quarter. It was 20.0%. That's less than it was in the fourth quarter of 2021 when it was 21%, but it is up from 18.7% in the third quarter of 2022. The revenues from our Industrial Injury Prevention business were $18.9 million in the fourth quarter, which is a $5 million or 37.6% increase over the previous year.
Expenses on the Industrial Injury Prevention business increased four and a half million dollars, we ended up with operating income of $3.3 million in the fourth quarter of 2022. That was 19.4% greater than the prior year. For the full year of 2022, our IIP revenue increased 75.5%, with our operating income up 49.3%. On a same-store basis, our Industrial Injury Prevention revenue was up 9.1% in the fourth quarter versus the previous year. For the full year, it was up 20.7%, and that same-store operating income was up 12.9%. Our corporate office costs were $11.9 million in the fourth quarter of 2022.
As a percent of revenue, those corporate costs were 8.4% of revenues in the fourth quarter of 2022, which is virtually the same as it was in the fourth quarter of 2022, 2021, excuse me, when they were 8.3% of revenue. For the full year, our corporate costs were 8.3% of revenue. That's down from 9.4% of revenue in 2021. You'll note in the release, we did record a $9.1 million impairment related to our November 2021 Industrial Injury Prevention acquisition that we made in the fourth quarter of 2021. We recorded that in the fourth quarter of this year. The impairment analysis was initially triggered by the sellers not achieving their earn-out.
Our assessment of the expected future performance of the acquisition hasn't changed. Its projected cash flows over time are similar to those at the time of the acquisition. However, we have used a higher discount rate in discounting those cash flows to present value now than we did when determining the value at the time of the acquisition. That higher discount rate was really the source of the majority of that impairment amount.
Our interest expense increased from $191,000 in the fourth quarter of 2021 to $2.2 million in the fourth quarter of 2022, which was due to an increase in our debt, primarily related to acquisitions that we've closed during and since the fourth quarter of last year, also, of course, significantly higher interest rates in the fourth quarter of this year than last year. Our balance sheet overall remains in an excellent position. We have a $150 million term loan with a five-year swap agreement in place that fixes the one-month term SOFR rate on that $150 million at 2.815%.
Including the applicable margin based on our leverage ratio, the all-in rate on that $150 million of debt was 4.665% in the fourth quarter. In our statement of comprehensive income, you'll note that our swap agreement currently has a mark-to-market value of $5.4 million, which means the current expectation is that we will pay $5.4 million less in interest expense over the remaining term of our five-year swap agreement than we would have paid without the swap at a variable interest rate. In addition, we estimate that the swap agreement saved us approximately $700,000 in interest expense in the second half of 2022.
We also have a $175 million revolving credit facility that had $31 million dollars drawn on it at December 31. We had a cash balance on our balance sheet of $31.6 million at December 31. The borrowings on our revolver are at a variable rate, and the weighted average variable interest rate on the debt on our facility in the fourth quarter was approximately 5.75%. We also noted in the release that we increased our quarterly dividend rate from $0.41 per share to $0.43 per share, effective with the first quarter of 2022.
We're pleased to increase that again, as we have each year since the inception of the dividend in 2011. Our volumes in January and the first couple weeks of February have been very strong on a comparative basis to those same months in past years. While inflation pressures remain, our costs on a per visit basis stabilized in the fourth quarter of 2022 as compared to the third quarter of 2022.
We believe the progress we've made with commercial and other rate wins in 2022, and that we expect to continue to have in 2023, will enable us to offset the headwinds in 2023 related to the 2% Medicare rate reduction that became effective on January 1st, as well as the full year impact of the phase-out of sequestration relief which occurred during 2022, which together represent an impact on our revenue in 2023 of approximately $4.3 million. With expected continued strong volumes, momentum in our rate negotiations, and the continued excellent focus of our operating team on making our operations as efficient as possible, we estimate that our adjusted EBITDA will be in the range of $75 million-$80 million in 2023, which excludes the potential impact of acquisitions in 2023.
Contributions from our acquisitions would be additive to our adjusted EBITDA. Our guidance in 2023 and forward will be on adjusted EBITDA. We'll continue to provide operating results and operating results per share in our earnings reports, but our guidance will be related to adjusted EBITDA. We'll also provide information related to our debt and interest rate so that you can project our interest expense accurately. For 2023, we expect the rate on our $150 million term loan to be 4.915% based on our leverage pricing grid. The debt on our line of credit, which was $31 million at the end of 2022, will be at a variable rate of one-month term SOFR plus a spread based on our leverage grid.
Currently, our all-in variable rate is approximately 6.65%, which includes the January increase in federal funds rate. That rate is expected to move in tandem with any changes in the federal funds rate going forward. In closing, we're in a good position as we start 2023, and we look forward to producing strong results for all of our stakeholders in 2023. With that, Chris, I'll turn the call back to you.
Yeah. Thank you, Carey. Great job. Operator, we're gonna go ahead and open it up for questions now.
At this time, if you'd like to ask a question, please press star and one on your touchtone phone. You may remove yourself from the queue at any time by pressing the pound key. Once again, that is star and one to ask a question. We'll take our first question from Brian Tanquilut from Jefferies.
Morning, Brian.
Good morning.
Chris, maybe the first question for you. You know, as we think about the environment in the physical therapy space, I mean, some of your bigger competitors are clearly struggling with, you know, over-leveraged balance sheets and tough operations, high turnover rates of clinicians. As I think about, you know, market share opportunities from some of those disruptions or distractions and then M&A opportunities, I mean, how are you thinking about, you know, what's in front of you and what you guys can do to maybe potentially gain market share as a result of all this?
Yeah, appreciate that question, Brian. you know, anytime, and I'm gonna speak broadly, anytime there's, you know, a tough operating environment, let's call it that, you know, it affects certain providers more than it affects other providers. because we do have, you know, a really nice balance sheet overall, our interest rates are up as well, but, you know, we started with a great balance sheet. We have more flexibility. We've already seen, and I don't wanna be too specific, but we've already moved some key people, you know, from, we'll call assets that are more distressed. We've seen opportunities to pick up some clinics and we've done that.
We have a really good development plan for this year around our top 30 to 35 partnerships which make up, you know, vastly about 80% of our overall earnings. Those include de novo and tuck-in acquisitions, so smaller practices in existing strong markets. I expect, as we've seen in the past, that, you know, although, you know, would love for the market to have a great tailwind for all of us, it's not that way right now. For us, there'll be some opportunity in here for us on the development front for sure.
Yeah. That makes a lot of sense. Carey, you know, you've called out how your cost per visit is down slightly, but as I think about the labor market, I know in your case.
Yeah
The challenges last year were more on the lower end of the labor or the skill spectrum. Maybe just any color?
Right
you can share with us on what that looks like right now.
Yeah. I mean, I mean, just as our total operating costs did, our salaries and related costs also came down in the fourth quarter versus the third quarter. You know, Chris talked about how we're seeing more success in finding and hiring qualified candidates. You know, I'd say there's, you know, there's gonna continue to be some labor pressure for sure, but we feel we're in a much better position as we begin 2023 than we were in the middle of 2022, particularly. Chris, I don't know, or Eric or Graham, if you have any comment on that.
Yeah. Just, I'll just say, Brian, we're not seeing rates come down yet, we don't think.
Yeah
continue to test that. I'll let either Graham or Eric discuss the rollout of some automation at the front desk, and speak on that just for a minute. Yeah, I'll Chris, this is Eric. I'll tie in a couple comments here. No question, rates have not come down yet for, you know, clinical staff or front office staff as it relates to replacing positions, but it was a little bit easier in Q4 in terms of hiring people, so the time to fill open positions got shorter. Without a doubt, the biggest challenge we saw last year from a rate side was on the non-clinical side. You know, very competitive environment. Those folks had the opportunity to work anywhere besides healthcare, so that was tough.
We realized that we needed to bring automation into our environment to help us. Last year, we upgraded our EMR system, you know, all of our databases in order to take advantage of automated functionality that's available on the platform, and this is really gonna help us on the front office side. Examples of that automated functionality would be appointment reminders, you know, going out to appointments, on-demand messaging, things that, you know, we weren't doing everywhere before. The ones that we're the most excited about that we think is really gonna give us some leverage here are check-in kiosks for our patients, allowing them to check themselves in to their appointments, complete forms, questionnaires, medical history, where we don't need front office people doing that anymore.
There's a patient portal that offers patients the ability to request appointments, message the clinic and provide access to the medical records, things before that our front office would have to do. We're in the process of rolling that out right now with our largest partnerships. We're gonna gain significant traction over the year across the portfolio, and we think that's gonna allow us to leverage our front office costs as a whole.
Awesome. Thank you, guys.
Thanks, sir .
Our next question comes from Larry Solow from CJS Securities.
Morning, Larry.
Hi. Good morning, Chris. Good morning, guys. Thanks for the taking the questions. Just, I guess just on, looking out, you know, on a sort of high level, same-store sales volumes were very good and sound like they ended the, you know, end the year well and strong, excluding the holiday season, and started this year strong. You know, full year last year, obviously it feels like you hit kind of a wall. I mean, you had a really good 2021, of course. I think last year you had some, you know, obviously staffing issues and maybe you, a little step back from COVID or whatever, you know, you kind of looked down a little bit for the year.
What do you look at, you know, or the back half of the year, at least, how should we look at, you know, 2023? You know, do you feel like volumes, should, you know, growth and volumes should return, or are there some things that will still hold you back? You know, before we even get into the pricing discussion, but just in terms of, you know, volumes on a same-store sort of level.
I can tell you know, we're out of the gate pretty well, really well. You know, that month and a half, two months doesn't make for a year yet. Our plans for the year are certainly up volumes this year. As you mentioned, last year, we were impacted on a couple different fronts. While COVID is kind of for everybody in the rearview mirror, what happened last year was people had not taken vacations in a really long time until that, in combination with just a really tight labor market, increased our time to fill positions. The pullback from our record year, which was 2021, which was really strong, was fraction of a visit. We're working hard to deliver a good year.
We're out of the gate, we're out of the gate in good fashion. We hope we can certainly do that through the year. As we mentioned, we've made some improvements in staffing. It's beginning to feel better, you know, I hope that continues. You know, we'll see. So far so good.
Okay. Chris, I've noticed, you know, you sound very encouraged, you know, just about pricing. I know, you know, even for the over the last few quarterly calls, it sounds like at least in the near term, hopefully the increase in commercial rates will maybe even more than offset the government comp. It does sound like at least qualitatively, I know you can't get into too much specifics, but it sounds like you're, you know, you're starting to, you know, get better things, you know, things are coming your way and hopefully, you know, over I know you can't move the needle too fast, but hopefully over the next, you know, several quarters, the needle will keep moving in your direction, it sounds like.
Yeah, that's the goal. Frankly, Larry, this is overdue. You know, we've taken contracts probably in the past, and accepted them that we should have pushed back on hard. Frankly, we're just not gonna continue to do that, and we're getting some good results from the efforts. It does take time, as you mentioned, and in our structure, we don't just have one big contract for everybody because we have lots of regions and lots of partnerships. Working our way through, the team's done a really good job. It's gonna take some time, but do think we can offset some of the, some of the Medicare pricing, things for this year and continue to move the ball forward.
Great. If I could just squeeze one more in. Just in terms of just acquisitions and, you know, it sounds like, you know, you probably have a, maybe a, you know, an upper hand or certainly a better position than a lot of your competitors on that front. What about just leverage? You're not super levered, but you're more levered than you guys have been historically, so about a little less than about 2 times. Would you consider taking that up higher? I mean, is there, you know, and still not being all that high, especially for a business that generates, you know, pretty good cash flow. Any, any thoughts on that?
Yeah. Carey, you wanna start with that and then I can jump in.
Sure
if needed.
Larry, as you noted, our leverage ratio at the end of the year is 2.0x . I mean, I think, we would be comfortable moving that up from there, certainly. You know, it just has to be the right deal and at the right price. I mean, like, that's what we're really focused on right now. We do have the available capacity. We have $31 million drawn at the end of the year on our $175 million facility. We obviously have plenty of capacity there. It's really about just. We have a lot of good deals in the pipeline. Chris, you may wanna talk about that.
There are deals in the pipeline and, you know, we're just gonna have to evaluate them each one individually and make sure we do smart deals.
Mm-hmm. Yeah. I don't really have anything to add. I don't wanna talk too much about, you know, what's prospective-
Yeah
Because it's not done till it's done.
Sure.
Right.
We're trying to be smart about how we deploy capital. you know, part of that is in our dividend increase this year, and we expect to continue to do deals and, you know, we're hoping we can get those done at pricing that makes sense for everybody.
Excellent. I appreciate all the color. Thanks, guys.
Thanks, Larry.
Thanks, Larry.
Once again, that is star and one to ask a question. We'll take our next question from Matt Larew from William Blair.
Good morning.
Good morning.
Hi, Matt.
Good morning.
Hey, Chris. Hey, Carey. Wanted to go back on the payer issue one more time. You referenced obviously some contracts paying below your cost of care. Directionally, could you maybe just size up what that basket of contracts looks like as a percentage of your revenue? Have you given hard date deadlines for when, you know, you expect people to compensate you appropriately? Then the third piece is, do you have a sense if other operators in your markets are starting to take a similar tack in their approach or sort of the distressed nature of some of those assets might make them more willing to strum along?
let me start with that, Carey. I don't wanna get into too deep a detail into some of these discussions. They are sensitive. You know, the percentage of our reimbursement on some of these lower contracts isn't particularly great. You know, it's low single digits. We have a lot of contracts that we are renegotiating across the commercial spectrum, and contracts that are much higher paying contracts where we have gotten increases as well. Some cases we have given notice, and that is according to the terms in individual contracts. So those do vary.
With respect to other, you know, providers, other competitors that are in the market, I frankly, I hope everybody's gonna do what we've started to do and I would encourage them to, you know, to look hard. Volume that costs you money to see it isn't volume that any of us should be seeing. The world changed last year in terms of inflation in a lot of different areas, and certainly employee inflation was one of those. We provide a tremendous service to our patients. It bends the downstream cost curve for the entire healthcare system when a patient comes through a completed course of physical therapy. That's well documented now in some independent studies. Some, we use that information to get ourselves not an extraordinary rate.
We, you know, we don't need to be greedy, but, you know, we shouldn't be paid certainly not below our cost. We should be paid to have an adequate margin because these payers have adequate margins, more than adequate in some cases, in my view. My encouragement is for everybody to do this and, you know, we'll see what happens. All I can control is what happens here, but we're focused on it here right now.
Okay. That makes sense. If I can switch to IIP, of the number of acquisitions done in the last couple of years, what do you think about the sort of the same-store outlook for that business? How are you viewing it maybe for 2023 versus in years past? Is there a similar environment with some of the other operators in the space potentially being over-levered or distressed where opportunities might come up? Or given the deals you've done, are you sort of ready to digest those and then move forward organically? Is that what I'm asking?
Well, I mean, we have a very good organic opportunity in injury prevention. That business in general, just by the nature of it, where companies have many, you know, plants and maybe we start with one, but we expand services to others. There's kind of an embedded natural organic opportunity there. We continue to look for deals. There aren't as many. There aren't as many providers in this space. We actually have a call, I think it's early next week, Carey, you know, with some bankers who are helping us look and think about and consider, you know, similar and potentially adjacent opportunities, in some cases slight expansions to the portfolio, similar acquisitions. We don't have anything ready to go yet for sure.
This year I expect that, just by virtue of the size of that business, that organically we had just an incredible year this last year. I hope we can produce another good year, but, you know, we haven't necessarily budgeted that way. We've been a little bit more conservative. I think it'll depend a lot on whether the economy dips into a recession. You know, we're seeing some caution begin to creep in in some sectors. We know the auto sector's been beat up for a while, just between chip shortage and the pivot to electric cars, and that's kind of frozen people, you know, in a lot of cases in terms of their purchases.
There are certain industries I think will continue to do well. There are other industries where I think things will slow down a little bit. We'll slow with them likely, and then as things pick back up, we'll pick back up accordingly. This year, I think we'll be a little bit more muted than years past, but we're working hard to, as we have, to overcome, you know, any headwinds and to, at the end of it, to lay down a good year when it's all said and done.
Okay. Thanks, Chris. Maybe for Eric or Graham, just a follow-up to your comments around automation and other tools you can use on the patient interaction side of the front end. Are you piloting those tools? You mentioned rolling out. Maybe just curious what kind of timeframe does it look like to roll out the tools that you've evaluated? Do you feel like they're adequate relative to what you want, or the things that you need to tweak? Maybe just give a sense for where that strategy, the automation strategy is-
Sure
today versus where you want to get it to be.
Yeah. We're rolling it out. We rolled it out and are in the process of rolling it out at our 1st partnership right now. It's our largest partnership in the portfolio. Learning from that, it's only partially implemented in that portfolio right now. Really well received, by the way, by the front desk as well as the patients who are utilizing those. Our learnings from this 1st partnership that we're rolling out will allow us to roll it out concurrently at other partnerships. We should have a faster implementation as we move through the year. We'll have a better idea in terms of the timing for our top 40 partnerships, which is where we're focused to start, within the next by the end of April 30th.
Okay. Thank you for the question.
Yeah. Thank you.
Our next question comes from Mike Petusky from Barrington Research.
Morning, Mike.
Good morning. Good morning. Hey. Slightly distracted here, five earnings reports. If you've covered this, forgive, but I'll ask it anyway. Have you guys given any update on progress with the GPO and how partners are either starting to get traction with that or not so much?
Graham, do you wanna take that?
Chris, I didn't hear the question.
GPO progress and how it's being received and.
It's being well received. We are actually going live on the 27th. We're rolling it out at 180 locations starting on the 27th of February. It's been worth getting all of the, you know, the items that we need in our different partnerships located in the warehouses. They're gonna be adjacent to their practices, we go live on that next week.
Great. How many partnerships does that represent, 180?
30 probably. We try to do them in geographic diverse areas to test the program. After the first group of partnerships go live, we'll be rolling it out in further partnerships. I can get the exact number for you. I don't have it in front of me.
All right. Well, great. That is meaningful progress. That's great. Chris, I'm just curious, because so much, I guess your commentary started with the, you know, sort of contract negotiations and some commentary and Q&A. Is there a chance that ultimately some of these payers just sort of don't get it and you end up saying, "Well, you know..." I mean, obviously there's a chance, but I guess, you know, realistically.
Yeah
As you said, like, the tone of these conversations, I mean, do you think revenues could actually shrink, or do you think ultimately everybody sort of?
No
Sort of is gonna get this, it's just a matter of, you know, do you get this bump or that bump?
Well, you know, I don't think anything happens uniformly. Look, we're prepared. In fact, in some markets where we have given notice and they've said, "Fine, we have other providers. We'll use other providers," we're able to fill those slots with better paying patients, frankly. You know, better paying plans. We may lose some of these in the short run. Now, interestingly, in one of our big partnerships where they said, "Fine, we don't care. We're not gonna move," within two months, they came back and offered a very meaningful increase to our rate, but we had to play chicken.
We're prepared to not take the business, and we think we can replace that business and let that go, frankly, to the to the market, to our competitors. If they wanna take it, let them take it.
Yeah. Sort of on a related note, in terms of pricing, you know, and I know it's way early, but you know, in 2024 in terms of CMS, I mean, is the industry lobbyists and you know, [ABCA and others that sort of get this? I mean, you know, I guess what I'm trying to get to is, will there be any kind of reprieve from sort of what the industry has been sort of going through the last few years in terms of these headwinds? It just seems between inflation and the pricing, it's just made it awfully difficult for smaller operators particularly, or leveraged operators to, you know, do business.
Yeah. I'm trying to get out of the predicting what CMS is gonna do business because what they do doesn't make a lot of sense. In fact, it doesn't make a lot of sense to our lawmakers, and others where our efforts in APTQI and with APTA and other constituencies are focused really largely outside of CMS. I won't predict what CMS does. I will say that we've made headway I think in helping key constituents, you know, in Congress understand what it is that physical therapy does between balance and fall prevention. Falls are a massive cost to the healthcare system and to individuals and their ability to function. Opioids, again, you don't hear about it as much, it's still a massive problem.
There's some great studies out that just indicate a massive cost differential when people start with the primary care of musculoskeletal care, which is really physical therapy. We're trying to pound that message and drive it home. Washington's a little dysfunctional, you know, for these days and so, again, my ability to predict what happens. I think we have a great story. I think we have good data. We're gonna continue to bang on it and at some point it's gotta turn around in my view.
One more quick one for Carey. In terms of the borrowing capacity, I mean, to me it looks like you could go up to 4x if you wanted, but there's probably maybe a comfort level slightly lower than that or for the right deal, would you go to 4x or right series of deals? Can you just sort of speak to maybe where the top end realistically in your view is as far as your comfort level on things?
Yeah. Yeah. Well, right now our covenant is at 3x . But, you know, not to say that we couldn't go to our banks, which we have a great relationship with and, you know, get... If it was the right deal and the right timing, we could go higher than that. I don't, I don't think that we would necessarily be comfortable much above three though for very long. If we went above three, it'd be something that we would, you know, bring down pretty quickly. That's my perspective. Yeah.
Makes sense. Thanks, guys. Really appreciate it.
Thanks, Mike.
Thank you.
Once again, that is star and one if you'd like to ask a question. We'll pause for a moment. It appears we have no further questions at this time. I will now turn the program back over to our speakers for any additional or closing remarks.
Okay. Thanks, Gretchen. Listen, I just want to thank everybody for the questions, for the time today, for the ongoing support. We greatly appreciate it. I know we've got some follow-up calls scheduled with some of you. For those we don't talk to, I hope you have a great day and that concludes our conference call this morning. Thank you.
This does conclude today's program. Thank you for your participation. You may now disconnect.