Earnings Call Transcript - SEM Q2 2021

Operator, Operator

Good morning, and thank you for joining us today for the Select Medical Holdings Corporation's Earnings Conference Call to discuss the Second Quarter 2021 Results and the company's Business Outlook. Speaking today are the company's Executive Chairman and Co-Founder, Robert Ortenzio; and the company's Executive Vice President and Chief Financial Officer, Martin Jackson. Management will give you an overview of the quarter and then open the call for questions. Before we get started, we would like to remind you that this conference call may contain forward-looking statements regarding future events or future financial performance of the company, including, without limitation, statements regarding operating results, growth opportunities and other statements that refer to the Select Medical's plans, expectations, strategies, intentions and beliefs. These forward-looking statements are based on the information available to the management of the Select Medical today, and the company assumes no obligation to update these statements as circumstances change. At this time, I will turn the conference call over to Mr. Robert Ortenzio.

Robert Ortenzio, Executive Chairman and Co-Founder

Thank you, operator. Good morning, everyone. Thanks for joining us for Select Medical's second quarter earnings conference call for 2021. We are very pleased with the financial results of the quarter, as well as the number of other business goals that we accomplished during the quarter. We experienced top line growth in all four of our business segments compared to both the same quarter last year and pre-pandemic same quarter in 2019. The volumes in our inpatient and outpatient business segments are trending very nicely and are well above pre-pandemic volume numbers. In addition to the volume growth, the inpatient and outpatient rehabilitation hospitals and clinics posted their highest quarters for adjusted EBITDA in the history of the company. Concentra has made nice strides with volume improvement as more industries, such as airlines, hospitality, municipalities, and schools reopen. On the development front, on May 1st, Scripps Healthcare entered into our existing joint venture partnership with UC San Diego Health on our 110-bed critical illness recovery hospital in San Diego, California. In June, we closed on a new outpatient joint venture with Mon Health in West Virginia, which marked our entry into the state for outpatient rehab. On July 1st, we entered into a new long-term acute care hospital joint venture with Ascension Saint Thomas in Nashville contributing our 70-bed Nashville hospital to the joint venture and moving forward with plans to add a 30-bed satellite hospital within a hospital at their Saint Thomas West Campus later this year. Also on July 1st, we entered into a new joint venture with CHS Northwest Healthcare in Tucson, Arizona, and acquired a 47-bed long-term acute care hospital, Curahealth Tucson, which we plan to relocate to Northwest Medical Center later this year. Earlier this week, we entered into a new outpatient rehab joint venture with Cedars-Sinai in Los Angeles, California, contributing our 26 outpatient clinics in that market to the joint venture. We continue to work on finalizing the acquisition of Acuity Healthcare, which operates five long-term acute care hospitals through joint venture partnerships in New Jersey and West Virginia. We expect the deal to close sometime late Q3 or early Q4. Our development pipeline remains strong, as we continue to look for opportunities to expand our footprint and partner with leading healthcare institutions throughout the country. In addition, last week, U.S. News and World Report released their annual rankings of top rehabilitation hospitals in the country. Our Kessler Institute of Rehabilitation in New Jersey was ranked number four in the country, its 29th consecutive year of being named among the nation's top. This year, for the first time, we have three of our joint venture partner hospitals making the list. They are Baylor Scott & White Institute for Rehabilitation in Dallas at number 13, Emory Rehabilitation Hospital in Atlanta at number 26, and Ohio Health Rehabilitation Hospital in Columbus, Ohio at number 34. I couldn't be more proud of our clinical and operational teams at these hospitals and throughout the rest of our portfolio of hospitals for their hard work, expertise, and dedication to the care and treatment of our patients. Two other items I wanted to note are the Centers for Disease Control and Select Medical collaborated on a clinical study regarding the long-term impact of COVID-19, which was recently published in the morbidity and mortality weekly report. Finally, as noted in our earnings press release yesterday, our Board has declared a $0.125 per share dividend that will be payable August 30th to shareholders of record on August 18th. As we've done over the past year, we have outlined our business segment monthly revenue, volume and occupancy statistics in our earnings press release and public filings. This quarter, we also included monthly results from 2019 to provide a data point of where each of our business segments were prior to the pandemic compared to where they are currently. We will continue to include this information as long as it provides meaningful insight into the impact of COVID-19 on the company's financial performance. Overall, for the second quarter, revenue for the second quarter increased 26.9% to $1.56 billion and for year-to-date has increased 17.5% to $3.11 billion. Revenue in our Critical Illness Recovery Hospital segment in the second quarter increased 4.7% to $544 million compared to $520 million in the same quarter last year. Patient days were down 1.4% compared to the same quarter last year with 273,000 patient days in the quarter. Occupancy in our Critical Illness Recovery Hospital segment was 69% in the second quarter compared to 72% in the same quarter last year and 69% in the second quarter of 2019. Revenue per patient day increased 6.4% to $1,986 per patient day in the second quarter. Case mix index in our Critical Illness Recovery Hospital was 1.33 in the second quarter compared to 1.32 in the same quarter last year. As we had mentioned in our most recent earnings call, staffing remains an issue in the Critical Illness Recovery Hospital, and it did have an impact on the number of patients we were able to admit for the quarter. We had a number of our hospitals that were unable to accept patients due to lack of clinician availability. This staffing challenge represents a reduction of occupancy of approximately 1.5%. I would like to point out the staffing challenges have been isolated to our Critical Illness Recovery Hospital, and we have not experienced this issue in any of our other business segments. Revenue in our Rehabilitation Hospital segment in the second quarter increased 26.1% to $213 million compared to $169 million in the same quarter last year. Patient days increased 24.8% compared to the same quarter last year, with almost 105,000 patient days. Occupancy in our Rehab Hospital was 85% in the second quarter compared to 71% in the same quarter last year and 75% in the second quarter of 2019. Revenue per patient day increased 1% to $1,849 per day in the second quarter. Revenue in our Outpatient Rehab segment in the second quarter increased 67.8% to $280 million compared to $167 million in the same quarter last year. Patient visits were up 79.2%, with 2.4 million visits in the quarter compared to 1.3 million visits in the same quarter last year, and 2.2 million visits in the second quarter of 2019. Our revenue per visit was $102 in the second quarter compared to $106 per visit in the same quarter last year. This reduction in rate is due to a change in our payer mix caused by the pandemic and related lockdowns. Revenue in our Concentra segment in the second quarter increased 46.1% to $456 million compared to $312 million in the same quarter last year. For the centers, patient visits were up 40.9% to 3 million visits compared to 2.15 million visits in the same quarter last year and 3.1 million visits in the second quarter of 2019. Revenue per visit in the centers increased to $125 in the second quarter compared to $124 in the same quarter last year. I also want to highlight that we recognized $98 million in other operating income in the second quarter related to funds that we received under the CARES Act Provider Relief for incremental costs and lost revenues incurred as a result of the COVID pandemic. Last year, we recognized $55 million in other operating income related to these funds. The adjusted EBITDA results for our Critical Illness Recovery Hospital, Rehabilitation Hospital, and Outpatient Rehab segments do not include any recognition of this income. We record other operating income related to those segments under our other activities. Adjusted EBITDA results for our Concentra segment included recognition of this income, including $32.3 million in the second quarter of this year and $800,000 in the same quarter last year. Total company adjusted EBITDA for the second quarter increased 91.3% to $342 million compared to $178.8 million in the same quarter last year. Our consolidated adjusted EBITDA margin was 21.9% for the second quarter compared to 14.5% for the same quarter last year. Our Critical Illness Recovery Hospital segment adjusted EBITDA was $72.9 million in the second quarter compared to $89.7 million in the same quarter last year. Adjusted EBITDA margin for the segment was 13.4% in the second quarter compared to 17.3% in the same quarter last year. We experienced a deterioration of EBITDA margin in the quarter due to significantly higher nursing costs, which was driven by both an increase of both hours and rates of agency staffing. Our Rehabilitation Hospital segment adjusted EBITDA increased 83.9% to $50.8 million in the second quarter compared to $27.6 million in the same quarter last year. Adjusted EBITDA margin for the Rehab Hospital segment was 23.9% in the second quarter compared to 16.4% in the same quarter last year. Our Outpatient Rehab adjusted EBITDA was $45.6 million in the second quarter compared to adjusted EBITDA loss of $6.3 million in the same quarter last year. Adjusted EBITDA margin for the Outpatient segment was 16.3% in the second quarter. Our Concentra adjusted EBITDA increased 230.3% to $137.1 million in the second quarter, including the $32 million in CARES Act payments recognized in the quarter; this compares to $41 million in the same quarter last year, which included $800,000 in CARES payment recognition. Adjusted EBITDA margin was 30% in the second quarter compared to 13.3% in the same quarter last year. Excluding the $32.3 million of CARES Act payments, the adjusted EBITDA margin would have been 23% for the quarter. Earnings for common share increased 213% to $1.22 for the second quarter compared to $0.39 for the same quarter last year. In both periods, our earnings per common share was positively affected by the CARES Act Provider Relief Funds recognized in the respective quarters. Excluding the CARES Act income, earnings per share would have been $0.72 in the second quarter this year and $0.09 per share in the same quarter last year. On the regulatory front, last week, CMS issued the final inpatient rehab rules for fiscal 2022 effective October 1st of this year. The final rule includes a 2.3% increase in the standard payment amount, which is slightly less than the 2.5% included in the proposal. In addition, the high-cost outlier threshold increased by 20%, which was slightly worse than what was in the proposed rule. The CMG relative weight and average length of stay values were also updated in the final rule. Finally, this week, CMS also issued the final LTAC rules for fiscal 2022. The final rule included a 2.2% increase in the federal base rate. Again, slightly less than the 2.5% increase outlined in the proposal. The high-cost outlier threshold was increased 21% and the MS-LTC-DRG relative weight and expected length of stays were also updated in the final rule. That concludes my remarks and I'll turn it over to Marty Jackson for some additional financial details before we open the call for questions.

Martin Jackson, Executive Vice President and Chief Financial Officer

Thanks, Bob. Good morning, everyone. For the second quarter, our operating expenses, which include our cost of services and general and administrative expense, were $1.33 billion or 84.9% of revenue. For the same quarter last year, operating expenses were $1.12 billion and 90.5% of revenues. Cost of services were $1.29 billion for the second quarter; this compares to $1.08 billion in the same quarter last year. As a percent of revenue cost of services were 82.6% for the second quarter; this compares to 87.8% in the same quarter last year. G&A expense was $35.7 million in the second quarter; this compares to $33.5 million in the same quarter last year. G&A as a percent of revenue was 2.3% in the second quarter compared to 2.7% of revenue for the same quarter last year. As Bob mentioned, total adjusted EBITDA was $342 million and adjusted EBITDA margin was 21.9 million for the second quarter. This compares to total adjusted EBITDA of $178.8 million and an adjusted EBITDA margin of 14.5% in the same quarter last year. Excluding the CARES Act income recognized in the quarter, adjusted EBITDA margins would have been 15.6% in the second quarter this year and 10% in the same quarter last year. Depreciation and amortization was $51 million in the second quarter. This compares to $52.3 million in the same quarter last year. We generated $11.8 million in equity and earnings of unconsolidated subsidiaries during the second quarter. This compares to $8.3 million in the same quarter last year. Interest expense was $33.9 million in the second quarter; this compares to $37.4 million in the same quarter last year. We recorded income tax expense of $65.7 million in the second quarter of this year, which represents an effective tax rate of 25.1%. This compares to the tax expense of $23.3 million and an effective rate of 25.7% in the same quarter last year. Net income attributable to non-controlling interests was $31.3 million in the second quarter. This compares to $15.8 million in the same quarter last year. Net income attributable to Select Medical Holdings was $164.9 million in the second quarter, and earnings per common share were $1.22. At the end of the second quarter, we had $3.4 billion of debt outstanding, and over $800 million of cash on the balance sheet. Our debt balance at the end of the quarter included $2.1 billion in term loans, $1.2 billion in senior notes, and $70 million of other miscellaneous debt. Net leverage based on the credit agreement, EBITDA dropped to 2.51 times at the end of the second quarter. This is down from 3.02 times at the end of the first quarter and 3.48 times at the end of the year. On June 2, we completed an amendment to Select and Concentra revolving loans. We increased the availability on Select's revolving loan from $450 million to $650 million and simultaneously canceled the $100 million Concentra revolving loan, which was set to mature in March of next year. Neither revolving loans had any borrowings outstanding. Operating activities provided $123.1 million of cash flow in the second quarter. Our day sales outstanding or DSO was 54 days at June 30, 2021 compared to 56 days at both March 31, 2021, and December 31, 2020. During the second quarter, we repaid $73 million of Medicare advances. As of June 30, 2021, we have $251 million remaining on the balance sheet. We expect similar quarterly requirements until the advancements are fully repaid. Investment activities used $35.7 million of cash in the second quarter. The use of cash included $36.7 million in the purchase of property and equipment and $8.4 million in acquisition investment activity in the quarter. We also generated $9.4 million in proceeds from the sale of assets in the quarter. Financing activities used $34.3 million of cash in the second quarter. This included $16.9 million in dividend payments, $9.8 million in net payments and distributions to non-controlling interests, and $6 million repayments of other debt in the quarter. Our total available liquidity at the end of the second quarter was almost $1.4 billion, which includes the $800 million of cash and close to $595 million in revolver availability under the Select credit agreement. Additionally, in our earnings press release, we provided an updated business outlook for calendar year 2021. For the full year of 2021, we now expect revenue in the range of $5.85 to $6.05 billion, expected adjusted EBITDA to be in the range of $970 million to $1 billion, and expected earnings per common share to be in the range of $2.91 to $3.08. This concludes our prepared remarks and at this time, we'd like to turn it back over to the operator to open up the call for questions.

Operator, Operator

Our first question comes from Frank Morgan of RBC Capital Markets. Please proceed.

Frank Morgan, Analyst

Good morning, and good results. My first question is about labor, which has been a common topic this quarter. I'm interested in when you first identified this issue as specific to your critical care units. Why do you think it's more common in that area compared to others? Also, could you discuss the usage of contract labor? You mentioned it remained elevated during the quarter, so do you have any updates related to the end of the quarter concerning either usage or rates?

Robert Ortenzio, Executive Chairman and Co-Founder

Thanks, Frank. It's Bob. Yeah. It is curious. I think a lot of people assume that in a specialty hospital environment, whether it's rehab or LTAC, you'd experience the same nurse or same staffing challenges, and it's really not the case. In the critical illness recovery hospitals, we really compete with the general acute care hospitals. Typically, we have a higher threshold for nurses; oftentimes, they're critical care nurses and they're being recruited heavily by the acute care hospital industry. It's a difficult environment, and many nurses are leaving that environment. I think that's probably consistent with what you've heard from kind of other providers. So that's really the reason why the clinical shortage, primarily nursing, has been isolated to our Critical Illness Recovery Hospital, and not the Rehab Hospitals or our Outpatient or the Concentra segments. As to the agency use, I'll let Marty make a few comments on that.

Martin Jackson, Executive Vice President and Chief Financial Officer

Yeah. Frank, what we have seen is in the first quarter of 2021, we had really peaked with regards to the increase in the nursing rates. There was a significant increase from Q3 of 2020 to Q4 of 2020, and then Q1, we really saw the increase. We saw that drop this quarter. Now having said that, I would anticipate that we would see it either be flat or start to increase a little bit. We are starting to see significant referrals that our operators are telling us are related to the Delta variant. So, which just means we're going to need more nurses. I would expect that to continue probably at least through the next quarter.

Frank Morgan, Analyst

Gotcha. And then, on the rate side for the contract labor, I'm guessing that's probably still elevated.

Martin Jackson, Executive Vice President and Chief Financial Officer

Yes. It is.

Frank Morgan, Analyst

Gotcha. Has there been any improvement in the admission holes you mentioned, or is it still about the same?

Martin Jackson, Executive Vice President and Chief Financial Officer

We think it's gotten better. What we've done is we've increased the rates that we'll pay for agency nurses. So we have started to see that flow.

Frank Morgan, Analyst

Gotcha. And then, maybe switching over to labor, you had a competitor who mentioned issues related to labor shortages in the outpatient setting. I just wanted to get a reiteration on that aspect, particularly in the outpatient clinic or the Concentra business. There are no staffing issues with physical therapists.

Robert Ortenzio, Executive Chairman and Co-Founder

Well, there are shortages, but I think our team has handled it quite well and it has not resulted in us not being able to see patients. I think that you can tie that just to overall employment difficulty attracting people in the general employment market.

Frank Morgan, Analyst

Gotcha. Maybe just one last question on the guidance and I'll return to the queue. When considering the second half of the year, I'm assuming you're expecting a more typical seasonal pattern. Could you provide some relative weighting between the third and fourth quarters in terms of your expectations? Thanks.

Martin Jackson, Executive Vice President and Chief Financial Officer

Yeah. Frank, what we have done in our expectations for Q3 and Q4 should really be based off of what we've seen historically. If you go back and take a look at, through 2019, typically first and second quarters were higher than the third and the fourth quarters. So what we've basically forecasted is that third and fourth quarters are going to go back more towards 2019 as opposed to 2020.

Operator, Operator

Thank you. Our next question comes from Justin Bowers of Deutsche Bank. Please proceed.

Justin Bowers, Analyst

Good morning, everyone. Regarding guidance, I understand you're expecting a return to normal seasonality. Are there any other significant items to mention for the third or fourth quarter? Additionally, are there any relief funds expected in the latter half of this year? I know there's still some available on the balance sheet.

Martin Jackson, Executive Vice President and Chief Financial Officer

Justin, there are no additional CARES dollars included in Q3 and Q4. Most of those have already been taken in the second quarter. All of our businesses are performing well in terms of volume. We’re pleased with the results in Inpatient Rehab and Outpatient Rehab. Concentra has done an excellent job, and we’re beginning to see progress with the Critical Illness Recovery Hospitals. Overall, we feel confident about the guidance for the full year.

Justin Bowers, Analyst

Got it. There was definitely impressive performance on the Outpatient side, particularly in PT and Concentra. As we consider those businesses for 2022 and 2023, where do you think normalized margins will settle for each segment? Concentra has many moving parts right now, and there are potential opportunities with return to work and return to school. Can you help us understand how you foresee that business performing in the latter half of the year?

Robert Ortenzio, Executive Chairman and Co-Founder

I'll let Marty discuss margins. I want to highlight the excellent job Concentra has done. This business has traditionally been very dependent on employment, and during COVID, they managed to adapt quickly, achieving impressive results through testing and vaccinations while collaborating with employers, even when many people were not back to work. Currently, they are benefiting from a robust employment environment, as many of our employer clients are hiring and returning to work, resulting in an uptick in visits. We anticipate that Concentra will continue to leverage the market share and relationships established during COVID. I remain very optimistic about that business. While it will still be seasonal as always, it is stronger than ever. Additionally, the Outpatient Rehab segment, which was significantly impacted last year, is also seeing a strong recovery in visits. Assuming there are no further shutdowns, we expect an increase in surgeries, particularly orthopedic and elective, at acute care hospitals, which will positively affect our Outpatient Rehab segment. We are confident in their position as well. Marty, would you like to add any comments on the future margins for that business?

Martin Jackson, Executive Vice President and Chief Financial Officer

Sure. On the Concentra side, we believe that over the long term, this business segment will achieve very high-teens margins. The operators have performed exceptionally well, and we anticipate that will continue. For the Outpatient side, we expect margins to reach between 15% and 17%. In terms of Inpatient Rehab, we foresee those margins remaining above 20%. Regarding the Critical Illness Recovery Hospitals, the margins will largely depend on the labor market situation. We expect those margins to stay in the teens, and if there is an improvement in clinical staffing shortages, they could rise into the higher teens.

Justin Bowers, Analyst

Understood. I have one more quick question regarding the guidance. I will return to the queue. Thank you.

Operator, Operator

Thank you. Our next question comes from Kevin Fischbeck of Bank of America. Please proceed.

Courtney Fondufe, Analyst

Hey, guys. This is Courtney on for Kevin today. Thanks for taking my question. I guess just to continue some of the conversation on the guidance, I wanted to clarify, what assumptions you guys are baking in, in terms of how COVID is going to pan out in the back half of the year? And just wondering, are you seeing any markets with more COVID or Delta variant impact than others in Q3 to date?

Robert Ortenzio, Executive Chairman and Co-Founder

The only thing we've heard from our operators is on the Critical Illness Recovery Hospital side. That is, they're seeing some impact from that, which would mean increased census for us. We've seen referrals from the short-term acute care hospitals really start to decline.

Courtney Fondufe, Analyst

Okay. Yeah. That's helpful. And then just to clarify, I guess, one thing on the labor comments you gave. I guess the prepared remarks you guys gave were really helpful. But I'm curious to know if you're seeing issues more so on the actual sourcing spot for labor or on the retention front?

Martin Jackson, Executive Vice President and Chief Financial Officer

It's a very good question, Courtney. It's really both. What's interesting is when you take a look at retention, our people have done a very, very good job retaining nurses, but when you start to see nurses have the ability to make double their income, if they go to agency, there are some clinicians that are jumping for that. We've seen that in the third, fourth quarter of 2020, and then certainly the first and second quarter of 2021.

Courtney Fondufe, Analyst

Okay. Yeah. That's really helpful. And then, I guess, one last question I'd squeeze in. You guys have announced a whole bunch of JV partnerships and then the Acuity Healthcare acquisition a little over a month ago. So just any update on how the JV and deal pipeline are looking today.

Robert Ortenzio, Executive Chairman and Co-Founder

I think it's very strong. As you know, we don't announce any of our joint ventures until they're signed. I mentioned a number of them today in the prepared remarks, but I would say that the pipeline is very good. If you go back a year or so ago, mostly all of the joint ventures that were announced were rehabilitation only, and typically rehab hospitals, and then sometimes outpatient. Now what we're seeing as we've become, I think, a provider of choice to partner in all of our segments, more joint ventures in the Critical Illness Recovery Hospitals, which you really didn't see a year or two ago and announcing more Outpatient joint ventures. I think our Outpatient joint venture with Cedars in Los Angeles is of particular note. This is really our opportunity for growth, and it is filling the pipeline because there are joint ventures across all of our business segments.

Courtney Fondufe, Analyst

Okay. Thanks, guys. That's really helpful.

Operator, Operator

Thank you. Our next question comes from Bill Sutherland of the Benchmark Company. Please proceed.

Bill Sutherland, Analyst

Hey, good morning. Hope everyone's doing well. I was curious on all the activity, Bob, that you guys are doing now with various JV developments. Is there a way for us to get a just a very general sense of the implications for growth as you look into next year? To what degree does this add a few points to your total growth outlook?

Robert Ortenzio, Executive Chairman and Co-Founder

Yeah. I think it wouldn't be difficult for you to do that. The nature of our partnerships because of the profile of the systems should say, it's really hard for us to predict when they come in. I can report to you that we have a robust pipeline, but it's difficult to project when they will actually be signed and then put into place. So, even for example, our joint venture that we did with Rush in Chicago, which is very large and very important to us, it does also have CON in the state, which the timeline is somewhat uncertain, then we have construction. It is more difficult for us to give any kind of guidance on that. We do think about our pipeline and what we have in our guidance. When Marty gives guidance, we don't exclude acquisitions or development or include them, but the guidance does take into account our sense. I think it would be difficult to guide more than that.

Bill Sutherland, Analyst

Okay. That makes sense. Regarding the occupancy issue in Critical Illness, have you decided to go with the agency rates to ensure full staffing, or how do you determine the trade-off concerning the EBITDA impact?

Martin Jackson, Executive Vice President and Chief Financial Officer

Yeah. We have made a decision that we're going to bring in all of the patients that we can, and we're going to staff, even if it means that the labor rates are higher. So, we have made that decision.

Bill Sutherland, Analyst

Okay. Regarding labor issues in both business areas, have you noticed any significant regional differences?

Martin Jackson, Executive Vice President and Chief Financial Officer

We've seen significant disparities in clinical costs on the agency side, with rates ranging from $76 an hour to $166. So, yes, there is significant variation.

Bill Sutherland, Analyst

And as far as being able to actually find people, just supply issue regionally.

Martin Jackson, Executive Vice President and Chief Financial Officer

It is. It's the typical supply and demand.

Bill Sutherland, Analyst

Okay, that makes sense. I wanted to take a moment to discuss the Home and Hospice segment through a joint venture and see if there are any updates on that. Also, regarding Outpatient Rehab, are you noticing that the proportion of virtual visits is still significant, or has it returned to the pre-COVID mix? Thank you.

Martin Jackson, Executive Vice President and Chief Financial Officer

Yeah. Bill, with regards to telemedicine, telerehab, that's really pretty much going back to pre-pandemic volumes. You had mentioned something about Home Health. I'm not sure if you could be more specific there.

Bill Sutherland, Analyst

You announced a couple of years ago a collaboration with Alternate Solutions Health Network, which you've referred to as Selected Home.

Robert Ortenzio, Executive Chairman and Co-Founder

Yeah. It's very small and kind of not material. We've really brought that on so that we'd have an option for our joint venture partners if they needed it. It still exists, but it's not material to our results.

Bill Sutherland, Analyst

I figured as much since I hadn't heard about it, but I wanted to ask. Thanks, guys. Great quarter.

Robert Ortenzio, Executive Chairman and Co-Founder

Sure.

Operator, Operator

Thank you. We have a follow-up question from Justin Bowers with Deutsche Bank. Please proceed.

Justin Bowers, Analyst

Hey, thanks for letting me hop back on. So, just a couple of quick ones. With the JVs and the LTAC deal that you announced earlier this year, is that in the guide right now? And then kind of a follow-up to that would be the pipeline. How would you characterize the pipeline? Is it more heavily LTAC and earth related or what's kind of the mix there? And then I have one more follow-up after that.

Robert Ortenzio, Executive Chairman and Co-Founder

I say the pipeline is across the board. There are many deals in the pipeline, some which we'll get to the finish line and some won't. It's difficult to say whether it's more heavily weighted to a Critical Illness Rehab or Outpatient. I think it's fair to say that there are projects in the pipeline in each of those areas. And the second question, Marty, was the …

Martin Jackson, Executive Vice President and Chief Financial Officer

Yeah. The second question was the joint ventures that we've announced, are those numbers in the back end of the year? They are, Justin. But I think it's important to know that for the most part, those are negative numbers. We're moving hospitals around. At the end of the day, we also have to on the larger one acuity; we're going to be installing our systems. We're going to be doing a whole bunch of different things there. So you can assume that those are going to be losses for the back end of the year. For the most part, what you'll see is the benefit in 2022 and beyond.

Justin Bowers, Analyst

That helps clarify the guidance for the second half of the year a bit. Also, I wanted to follow up regarding the divestment of CBAC last year, which has led to a quarterly impact of over $20 million in the first and second quarters. I'm curious about the timing of that; I recall the announcement in the fall, but I'm unsure when the closure actually took place. I'm just trying to understand when we will start comparing against that.

Martin Jackson, Executive Vice President and Chief Financial Officer

I think it was early in the second quarter of 2020 when it shifted to the third quarter. The $20 million a quarter you mentioned is really based on the top line.

Justin Bowers, Analyst

Yeah.

Martin Jackson, Executive Vice President and Chief Financial Officer

Yes.

Robert Ortenzio, Executive Chairman and Co-Founder

Yeah. But you're right. You're right on a year-over-year basis, that was a headwind.

Justin Bowers, Analyst

Yeah. I mean, it was a couple of points each quarter, like this year. All right. I appreciate the follow-ups.

Martin Jackson, Executive Vice President and Chief Financial Officer

All right, Justin.

Operator, Operator

Thank you. I would now like to turn the conference back to management for closing remarks.

Robert Ortenzio, Executive Chairman and Co-Founder

Thanks, everybody for joining us for this report on the quarter. Look forward to updating you next quarter.

Operator, Operator

This concludes today's conference call. Thank you for participating. And you may now disconnect.