Select Medical Holdings Corporation (SEM) Q3 2021 Earnings Report, Transcript and Summary

Good morning, and thank you for joining us today for Select Medical Holdings Corporation's earnings conference call to discuss the third 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 the future financial performance of the company, including, without limitation, statements regarding operating results, growth opportunities and other statements that refer to Select Medical's plans, expectations, strategies, intentions and beliefs. These forward-looking statements are based on the information available to management of Select Medical today, and the company assumes no obligation to update these statements as circumstances change. At this time, I will turn the conference call over to Mr. Robert Ortenzio.

Thank you, operator. Good morning, everyone, and thank you for joining us for Select Medical's third quarter earnings conference call for 2021. We are pleased with our clinical and financial performance for the quarter. Our clinical teams continue to excel with high-quality compassionate care for our patients during challenging times, and for that, I'm very grateful. Our business diversification we built over the last decade has helped us achieve the growth and stability we were targeting. 3 of our 4 business segments realized double-digit top line growth. Outpatient rehabilitation and occupational medicine saw over a 24% increase in same quarter year-over-year EBITDA growth. We continue to be active on the development front. As I mentioned during the second quarter conference call, we entered into new joint ventures with Ascension Saint Thomas in Nashville. Construction is underway in a new 30-bed critical illness recovery hospital within a hospital at the Saint Thomas West campus, which will be a satellite campus of our existing flex specialty hospital in Nashville, and we expect it to open by the end of the year. We also entered into a new joint venture with Community Health Systems' Northwest Healthcare in Tucson and acquired Curahealth Tucson, a critical illness recovery hospital. We plan to relocate to our joint venture partner's Northwest Medical Center campus by the end of the year. Also during the third quarter, we entered into a new outpatient joint venture with Cedars-Sinai in Los Angeles, contributing our 26 outpatient clinics in that market to the joint venture. On October 1, we closed on the acquisition of Acuity Healthcare, which operates 5 critical illness recovery hospitals through joint venture partnerships in New Jersey and West Virginia. We've been working with our new partners, integrating these hospitals into our portfolio of critical illness recovery hospitals. And on November 1, we entered into a new outpatient joint venture in Birmingham, Alabama with CHS Grandview, contributing Select's 5 outpatient clinics in the market. Our development pipeline remains strong as we continue to look for opportunities to expand our footprint and partner with leading health care institutions throughout the country. In addition, as we have included in our earnings press release yesterday, our Board has declared a $0.125 per share dividend that will be payable on November 29 to shareholders of record November 16. The Board also increased the capacity of our authorized share repurchase program by $500 million to $1 billion and extended the program 2 years until December 31, 2023. As we have done over the past year, we have outlined our business segments' monthly revenue, volume and occupancy statistics in our earnings press release and public filings, including monthly results from 2019 to provide a data point for each of our business segments prior to the pandemic compared to where they are currently. We will continue to include this information as long as it provides meaningful insight to the impact of COVID-19 and the company's financial performance. Overall revenue for the third quarter grew 7.8% to $1.53 billion and for year-to-date has increased 14.1% to $4.64 billion. Revenue in our critical illness recovery hospital segment in the third quarter increased 2.2% to $531 million compared to $519 million in the same quarter last year. Patient days were down 2.4% compared to the same quarter last year, with 272,000 patient days in the quarter. Occupancy in our critical illness recovery hospital segment was 68% in the third quarter compared to 71% in the same quarter last year and 67% in the third quarter of 2019. We did increase our bed count on a year-over-year same-quarter basis from 2020 to 2021 by 119. This increase in beds was a result of the acquisition of our new Tucson hospital, which added 51 beds. And the balance of the beds, 68, came from bed relocations, bed additions and temporary beds at 9 of our hospitals. Revenue per patient day increased 4.7% to $1,931 per patient day in the third quarter. Revenue in our rehabilitation hospital segment in the third quarter increased 13% to $212 million compared to $188 million in the same quarter last year. Patient days increased 7.6% compared to the same quarter last year to almost 103,000 patient days. Occupancy in our rehab hospitals was 82% in both the third quarter this year and last year and 75% in the third quarter of 2019. Revenue per patient day increased 6% to $1,881 per day in the third quarter. Revenue in our outpatient rehab segment in the third quarter increased 14.4% to $275 million compared to $240 million in the same quarter last year. Patient visits were up 18.3%, with 2.3 million visits in the quarter compared to 2 million visits in the same quarter last year and 2.2 million visits in the third quarter of 2019. Our revenue per visit was $102 in the third quarter compared to $104 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 the related lockdowns in the third quarter last year, which is now normalized to a payer mix consistent with our experience prior to the onset of the pandemic. Revenue in our Concentra segment in the third quarter increased 12.8% to $442 million compared to $392 million in the same quarter last year. For the centers, patient visits were up 14% to 3.22 million visits compared to 2.83 million visits in the same quarter last year and 3.15 million visits in the third quarter of 2019. Revenue per visit in the centers increased $124 in the third quarter compared to $121 in the same quarter last year. Total company adjusted EBITDA for the third quarter declined 2.2% to $208.6 million compared to $213.2 million in the same quarter last year. Our consolidated adjusted EBITDA margin was 13.6% for the third quarter compared to 15% for the same quarter last year. We did incur onetime expenses during the quarter totaling $6.5 million. These included a write-down of PPE supplies, integration of costs of our Tucson acquisition and costs associated with the forced relocation of one of our hospitals. In addition, Q3 of 2020 included $3.2 million of EBITDA associated with the CBOC business, which we sold in August of 2020. Our critical illness recovery hospital segment adjusted EBITDA was $57.2 million in the third quarter compared to $88.8 million in the same quarter last year. Adjusted EBITDA margin for the segment was 10.8% in the third quarter compared to 17.1% in the same quarter last year. We continue to experience significantly higher nursing costs, which is being driven by an increase of both hours and rates of agency staffing. Salary, wages and benefits increased by 560 basis points on a same quarter year-over-year basis. Our rehabilitation hospital segment adjusted EBITDA declined 1.3% to $44.1 million in the third quarter compared to $44.6 million in the same quarter last year. Adjusted EBITDA margin for the rehab hospital segment was 20.7% in the third quarter compared to 23.7% in the same quarter last year. We've also experienced increased labor costs of clinicians in our rehab hospitals. Salary, wages and benefits increased on a same quarter year-over-year basis by 140 basis points. Our outpatient rehabilitation adjusted EBITDA increased 26.6% to $38.8 million in the third quarter compared to $30.6 million in the same quarter last year. Adjusted EBITDA margin for the outpatient segment was 14.1% in the third quarter compared to 12.8% in the same quarter last year. The increase in EBITDA is primarily driven by increases in patient visit volumes. Our Concentra adjusted EBITDA increased 23.9% to $99.8 million in the third quarter compared to $80.5 million in the same quarter last year. Concentra recognized $1.6 million of CARES Act payments in the third quarter this year compared to $400,000 in the same quarter last year. Adjusted EBITDA margin was 22.6% in the third quarter compared to 20.6% in the same quarter last year. The increase in EBITDA is driven by both increased patient volumes as well as COVID screening and testing services provided by our centers to on-site clinics located at employer work sites. Earnings per common share was $0.57 in both the third quarter this year and same quarter last year. Adjusted earnings per common share was $0.56 in the third quarter last year, which excluded nonoperating gains and the related tax impacts. I'll now turn it over to Marty Jackson for some additional financial details before opening the call up for questions.

Thanks, Bob, and good morning, everyone. For the third quarter, our operating expenses, which include our cost of services and general and administrative expense, were $1.34 billion or 87.1% of revenue. For the same quarter last year, operating expenses were $1.22 billion and 85.4% of revenue. The increase in our operating expenses as a percent of revenue was primarily driven by the increased staffing costs in our critical illness recovery hospitals and rehabilitation hospital segments. Cost of services were $1.3 billion for the third quarter. This compares to $1.18 billion in the same quarter last year. As a percent of revenue, cost of services were 84.6% for the third quarter. This compares to 82.9% in the same quarter last year. G&A expense was $37.9 million in the third quarter. This compares to $35.5 million in the same quarter last year. G&A as a percent of revenue was 2.5% in both the third quarter this year and the same quarter last year. As Bob mentioned, total adjusted EBITDA was $208.6 million, and the adjusted EBITDA margin was 13.6% for the third quarter, which compares to total adjusted EBITDA of $213.2 million and adjusted EBITDA margin of 15% in the same quarter last year. Depreciation and amortization was $50.1 million in both the third quarter of this year and the same quarter last year. We generated $11.5 million in equity and earnings of unconsolidated subsidiaries during the third quarter. This compares to $8.8 million in the same quarter last year. Interest expense was $33.8 million in the third quarter. This compares to $34 million in the same quarter last year. We recorded income tax expense of $27.7 million in the third quarter this year, which represents an effective tax rate of 21.6%. This compares to the tax expense of $31.6 million and an effective tax rate of 23.2% in the same quarter last year. Net income attributable to noncontrolling interests were $23.3 million in the third quarter. This compares to $27.5 million in the same quarter last year. Net income attributable to Select Medical Holdings was $76.9 million in the third quarter, and earnings per common share was $0.57. At the end of the third quarter, we had $3.4 billion of debt outstanding and $748 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 and 6.25% senior notes and $74 million of other miscellaneous debt. Net leverage based on our credit agreement EBITDA was 2.6x at the end of the third quarter compared to 2.51x at the end of the second quarter and 3.48x at the end of last year. Operating activities provided $99 million of cash flow in the third quarter, which includes the repayment of $92 million of Medicare advances. As of September 30, 2021, we have $159.5 million of Medicare advances remaining on the balance sheet. We expect this remaining balance to be recouped now through April of '22. Our DSO was 54 days at September 30, '21. This compares to 54 days as of June 30, '21, and 56 days at the end of December, December 30, 2020. Investing activities used $69.1 million of cash in the third quarter. The use of cash included $48.9 million in purchases of property and equipment and $21.9 million in acquisition and investment activity in the quarter. We also generated $1.8 million in proceeds from the sale of assets in the third quarter. Financing activities used $85.4 million of cash in the third quarter. This included $64.4 million in the repurchases of common stock, $47.5 million of which constituted repurchases under our Board authorization repurchase program. This also included $16.9 million in dividend payments and $7 million in net payments and distributions to noncontrolling interest in the quarter. The company repurchased over 1.38 million shares for a total cost of $47.5 million during the third quarter under our Board-authorized share repurchase program. Since inception, the company has repurchased close to 40 million shares for a total consideration of $404 million. As Bob mentioned, our Board authorized a $500 million increase in availability under the program and extended through December 31, 2021. Our total available liquidity at the end of the third quarter was over $1.34 billion. This includes $748 million of cash and close to $595 million in revolver availability under the Select credit agreement. Additionally, in our earnings press release, we provided updated business outlook for calendar year 2021. For the full year 2021, we now expect revenue in the range of $6.05 billion to $6.15 billion, expected adjusted EBITDA to be in the range of $980 million to $1 billion and expected earnings per common share to be in the range of $2.98 to $3.09. 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 additional questions.

[Operator Instructions]. Our first question comes from the line of Justin Bowers with Deutsche Bank.

So LTAC, just in terms of the labor situation, I mean that's not a surprise for anyone in health care services these days. But can you just talk about some of the tactics and the strategies that you guys are doing to mitigate the situation and just making sure you guys have enough capacity?

Sure, Justin, we'd be happy to do so. As you might suspect, there's a number of things that we're doing to make sure that we're -- we will have appropriate clinical staffing in place to take care of volume increases. And a lot of that has to do with really focusing on consistently evaluating each of the markets, to upgrading or to increasing pay as the market demands. I think we're spending a lot of time on agency. I think you and I have talked about it before that the PRN pool has basically disappeared. Most of those have gone to agency. So we're taking a look at making sure that we have longer-term contracts with the agencies over a period of months and not weeks. We're also working on our CNA programs, trying to increase CNA -- our CNA population. So there's a number of things that we're doing. I think some of those also include technology. We're taking a look at our telemetry units and some of our nurse centers where we can use technology to address those so we can use the nurses on the floor.

Understood. And then is -- 4Q, typically, that's a seasonally strong quarter for the LTACs. And historically, there's been some benefit with incrementals. Is that -- and understanding that's probably not going to be the same pattern in terms of order of magnitude. But should there be some type of margin benefit as volumes step up? Or is the labor situation kind of going to eat into that historical kind of benefit when volumes increase?

Yes. You're absolutely right. The fourth quarter is typically, we see a bit of a pop in census, and we are seeing that. Having said that, we're also seeing labor increases. So we would hesitate at this time, Justin, to say that there's going to be margin expansion in the fourth quarter due to the volume increase, specifically because of the additional labor costs.

Got it. And then just the $6.3 million in onetimers that you guys called out, was that most -- all in LTAC? Or was that in any other segments as well? And then just but...

Yes. It was mostly all in LTACs. I think it was $5.5 million to $6.5 million was in LTACs.

Okay. And then with all the new beds coming online, which I think is roughly 200, is there any other thing that we should be keeping in mind in terms of start-up, ramp-up or any onetimers for the segment in 4Q?

Yes. That's a great question. I think there's going to be some -- as we usually have some additional integration costs associated with Acuity -- with the integration of Acuity. And I think that should -- we should see that in October and maybe a little bit in November. But post that, I think it's full steam ahead.

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

Is there -- just curious, getting more specific on the implied fourth quarter guidance. Is there anything that you're building in? Are you assuming any improvement in the LTAC? Or basically things stay just as they are? And then the rest of the businesses, IRFs and outpatient and Concentra to continue to improve and make up that shortfall? Is that the way you're thinking about it? Or is there any other consideration that you're thinking about in the fourth quarter for LTACs or for critical care recovery hospitals?

Yes. Frank, I think from our perspective, we're really taking a look at LTACs probably being in that same ballpark. Again, it's really a question of the negotiation with the nursing agencies and what the rates are.

Got you. And on that, can you give us any kind of color around what's the difference between, say, contracting on a weekly basis versus a monthly or a 2- or 3-month basis? Is it a meaningful difference there in terms of price?

As far as the pricing is concerned, the pricing is really not that much different. It's just getting the guarantee that you're going to have those nurses over a longer period of time. And as you -- and as I'm sure you know, fourth quarter, we start to -- we've seen some nice increases. And in the first quarter, you really see a pop in the first quarter. So we want to make sure that we have the staffing in place to take care of those patients.

Got you. But this is literally all staffing. There's no other moving around -- units opening or closing or transitioning during the quarter. You would attribute most of this to basically this nursing issue.

We would.

Got you. And then I'm just curious over on the IRF side. Good pricing growth, presumably, that's mostly Acuity. Just curious your thoughts on how sustainable that type of rate growth is as we start thinking about next year.

Yes. We think that we'll continue to see those same types of increases, Frank.

Got you. And just curious, obviously, this news out of Pfizer today, but I know we're not a large-cap pharma analyst. But how does that news strike you? Do you think that's a good thing for your business? And that it certainly, hopefully, would help on the labor side. But just any initial reactions to how you think that would affect providers?

What's that -- a little more specific, Frank.

Well, I'm sorry. Yes, just the...

We prepared for our earnings call. I'm not like -- we're not out on the pike.

So supposedly, Pfizer has an old pill that is highly effective in reducing hospitalization for COVID and requesting quick approval on it sort of...

Yes. No. Okay. That -- yes, sure, that's going to be a game changer, of course. It's going to be strong. I don't -- I see it as a positive. I see it as a positive for staffing. I see it as a positive for the -- all of health care. So I think that's a great thing. The more therapeutics that we get, the better off we're going to be. I mean I'm not concerned that there's not going to be enough LTAC patients for our hospitals.

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

This is Courtney on for Kevin. So I guess one quick one first. You guys called out in your prepared remarks and also in the press release that LTAC occupancy was down sequentially quarter-over-quarter as well as year-over-year. So could you just talk a bit about your occupancy in markets that are seeing higher COVID disruption versus markets with lower COVID disruption?

Yes. Courtney, we'd be happy to do that. I think at the -- when we had our second quarter earnings call, I think we talked about -- in the second quarter, we had a number of hospitals that were on bed hold. And that was really the direct result of us not paying agency fees. We stopped at a certain -- we capped the agency fees at a certain dollar amount. And what we decided to do was moving forward, we were going to stop that. We were going to continue to pay additional dollars to the agencies. And so in essence, what we saw was you saw a 65% occupancy rate in July, 68% in August and then 70% -- I think it was 70%, 71% in September. That's really a function of -- we just couldn't flip a switch and make those changes. We were making those changes basically in August. So you saw a little bit of a pop in August, and then we're seeing that 71% in September. And that occupancy continues to remain in that 70-plus-percent range.

Okay. That's super helpful. And so I guess you guys talked about how you restarted the share repo program this quarter, and the Board authorized a larger program that's double the size of what it was before. So I guess, just generally, how are you guys thinking about share repo now? And obviously, you guys reiterated your long-term growth CAGR. So was this always a lever that you plan to use to hit that 17% to 20% EPS CAGR? Or is this like an upside lever?

This is really an upsize, Courtney. I mean what we decided to do was we went through -- we were at $404 million of the $500 million repurchase program. And we wanted to make sure that we're in a position to be opportunistic.

Yes. When you -- also, Courtney, when you look at toward the end of the year or the beginning of next year when we do our final purchase of Concentra, the company will become a very significant cash generator. So we're just putting all of the bullets in our gun to take advantage of opportunities that might present themselves through next year.

Yes. That makes sense. And then I guess one last quick one, giving you guys a break from the labor question. I guess what would you say is the ongoing role of telehealth and telemedicine for Select now that it seems like patient care has really largely returned to the actual health care settings and actual facilities itself? And if you could give any segment-level color.

Both in the outpatient rehab and in particularly at Concentra have -- really have the capabilities to do a lot of telehealth. And in fact, during the height of the pandemic, both segments had -- saw dramatic increase in their telehealth. But that has really come down pretty dramatically, and I'm not -- I don't think that we see that as a trend in our business. Now that may be different in other segments, but in occupational medicine and in outpatient rehab, we see that coming back down to more normal levels that we saw prior to the pandemic.

Our next question comes from the line of Bill Sutherland with The Benchmark.

So I just want to think a little bit more about the staffing issue. And I suppose it's a little more acute at critical illness than IRF because of the profile of the employees. In other words, more therapists at IRF, and I guess that's not as tough a situation as the nursing picture.

That's absolutely true. I mean the rehab hospitals are -- while they have nurses, it's very therapy-driven. And our critical illness recovery hospitals are not only more heavily nurses, the level of training and sophistication for that nurse population that we employ is higher as well. So we really compete often with hospital -- acute hospital ICUs for the nurses that we need. So that makes it even more difficult so -- for us to keep the levels of nursing that we need at the critical illness recovery hospitals.

So Bob, when you look at the last year or 2 and the mix of your staff at critical illness that are contractors, can you give us a sense of the change in percentage of total over a year or 2?

Yes. Bill, historically, agency has been in that 10% to 13% range. And what we've seen over the past year is really in that 22% to 25% range. So a significant increase in -- and I think a lot of that has to do with -- what we historically have done is we've used our fully employed nurses, and then we would go to PRN and then we would go to agency. PRN, for all intents and purposes, has disappeared. Most of those have gone over to the agency.

Just because of economics, I mean for you.

Yes. Absolutely, Bill. As you know, I mean, the economics here are very, very significant.

And is part of the issue also that you just had more turnover in your permanent employee base, and are you taking any strategies? If that's the case, are you taking any strategies on that as well?

We certainly are. I mean we're very focused on turnover. I know the operators have spent a significant amount of time on retention, on mentoring programs. So it really -- and there's a whole host of programs that they have in place to do that.

So you're hopeful you can get a better handle on that. I mean that's the other way you get -- you can bring down this problem with the agency costs, obviously.

Yes. No, I think that's right.

Okay. And then last one, how are you looking at the outlook for the compensation increases into next year just given this whole labor picture and benefits for that matter and insurance?

Hey, bill, when you say the labor cost, are you talking about what we just talked about, the staffing?

No. I'm thinking more about your permanent ranks and kind of what you're thinking about as the -- what you're going to be looking at as far as inflationary kind of impact.

Well, I think what we've done is we're probably in the 2.5% to 3% range across the board for next year, is what we've been planning for.

Okay. I just didn't know if you're seeing more pressure on that as well. That was the point of the question.

Yes. I mean the only pressure is coming from the clinical staff.

Right. And is that kind of in line? Or is that also creeping up to permanent?

No. That's certainly creeping up. That's -- and it's a function of both the full-time employees plus the agency. So I mean the way we take a look at it is on a combined basis.

Our next question comes from the line of A.J. Rice with Crédit Suisse.

So not to beat a dead horse here, but to ask on the labor. I mean some of the other providers are talking about the fact that during the COVID surge or Delta surge, they had nurses out on quarantine, and that sort of exasperated the problem. And -- but on the other hand, that might be more of a temporary issue than some of the long-term dynamics that may persist. Have you drilled -- I mean, how much of the labor issue that you're dealing with do you think was related to maybe just the aftereffects of the surge and might dissipate versus sort of something that's going to persist for a while?

I wish it was the case, A.J., but I would tell you that we don't really see that.

Okay. Okay. Let me ask you about the vaccine mandate. Where are you guys at with respect to your employee base? And do you think that's going to be a further challenge in the fourth quarter here? Or have you absorbed most of whatever is going to happen as a result of that?

Well, I think the vaccine mandates are going to be a challenge for all health care providers to meet. And we're certainly on it. And while we have not mandated, we certainly have encouraged and educated, and we've continued to get more and more of our employees vaccinated. But with the new federal mandate, we'll move quickly, like everybody else. And quite honestly, it will be easier when you have it required across the board than hospitals making their own decisions in markets. Because it causes a very -- it has the potential to cause very disproportionate issues in some markets where one would mandate and another institution would not.

Right. Obviously, you had good performance, both in the Concentra business and the outpatient rehab business. I guess I would have thought that those might have gotten adversely impacted by fallout from the Delta surge. It doesn't really look like that happened much. Did you -- was there anything -- I guess it would be more of a reopening issue related to Concentra if there was any fallout. And it would be step down on people coming out of elective procedures or something on the outpatient side. But it's hard to see in the numbers that you had much impact. Did you feel like there -- when you guys assessed it, did you feel like there were -- there was any impact from the Delta surge in the third quarter on those businesses?

We did not, A.J. We felt -- to use Marty's term, it was full speed ahead on both of those segments with increasing volumes. And we're not able to track any negative to the Delta surge.

Yes. A.J., I mean, the great thing that we feel very good about is that when you take a look and compare '21's volume numbers to '19, which is before all the COVID started, we're well ahead of that. And that's a very good signal.

Yes. Just last then, I wanted just to ask you about the development activity. It seems like maybe there's a little bit of a pickup in activity. I guess I was wondering, did the -- in the aftermath of the pandemic, either in some of the stuff you're doing with the critical access facilities or the IRF JVs, are you seeing more urgency, more interest? People understanding your capabilities more and saying, "Hey, I'd like to do a partner there." And then also with the outpatient things you're doing, that's sort of new. What is the opportunity to pick up the branding of a strong hospital system in the local market with those outpatient relationships? Or what is the driver behind doing the JVs on the outpatient rehab side?

Let me take the first one -- your first part of your question, A.J., which is in terms of what's the demand for the joint venture and the development. And I would say that since the pandemic, the demand for joint ventures in critical illness recovery hospitals or the LTAC segment has increased. I think that's because the pandemic has given a very significant recognition of the importance of having that level of service to decompress ICUs, which are in short supply in most acute care hospitals. So that recognition has driven a lot more incomings on maybe putting a -- one of our specialty critical illness recovery hospitals in a market that maybe does not have access to them. So that has been an increase since the pandemic. On the outpatient side of the business, it's been a natural outgrowth of successful joint ventures and relationships with a very significant partner. So we may have started a partnership with a rehabilitation hospital, and adding on outpatient just becomes natural as we deepen the relationships that we may have, and we start having discussions about the opportunities. And yes, it is absolutely the case that we feel it benefits us being able to take care of -- or being able to take advantage of the branding of a local dominant health system. I mean I mentioned in the prepared remarks today about our new joint venture partners with Cedars. They're just a very significant player in Southern California, and being able to develop and put up new centers with their brand, I think, is very helpful. And that's been repeated across a number of our areas. So there's -- some of those joint ventures are snap-ons to existing joint ventures, and a few that are just -- are new. But obviously, you'll see more and more of that.

How many of your outpatient clinics are now in the joint venture? And where do you see that going potentially over time?

Yes. I'm going to say 40% of our outpatient business is -- comes through joint ventures. I have to check that number. Don't hold me to it, but I think that I had to think about what it was. It's probably close to that. And where do we see it going? We see it growing on both sides. We have a pretty robust acquisition pipeline for small outpatient acquisitions that would not be partnered. And then we will certainly use opportunities to partner with large systems, many of those that we already have partnerships with and some new ones.

Our next question comes from the line of Justin Bowers with Deutsche Bank.

Just wanted to follow up on the -- on 2 things. With the LTAC pipeline, is that -- how does that look with your kind of traditional hospital in hospital model versus like newbuilds, is the first question. And then I wanted to follow up on Concentra.

Yes. Justin, could you repeat that question just so we understand?

Yes. So I'm just -- in terms of the LTAC pipeline, like if you look at the portfolio now, it's mostly hospital in hospital. You've done a couple -- a little bit of a mix in the back half of this year. So I'm just -- as you look forward, looking ahead and your pipeline and kind of the builds that you have, is it more -- is it going to be more of that traditional hospital in hospital? Or is it going to be more kind of newbuilds or freestanding?

Yes, Justin. Yes, thanks for specifying that. Yes, it is all associated with, for the most part, HIHs. So depending on the circumstances, I mean, we may do a newbuild. But for the most part, it's -- we're very focused on HIHs.

Okay. And then just wanted to circle back to Concentra again, just because I think this has been -- in terms of volumes, it's probably a record quarter for you guys. So I was wondering if you could just give us a little more color on some of the strength that you're seeing, where that's coming from. And then as we think about 4Q, there's usually a little seasonality of the business. So how should we think about kind of the -- is some of that strength going to overcome some of the typical seasonality? What are kind of the puts and takes as we think about 4Q with the business?

Well, Concentra right now is pretty much hitting on all cylinders. I mean they -- with the return of employment, they're seeing a lot more of their preemployment stuff. As more people are working, you're seeing more injuries. They continue to have some testing. So that business has -- I mean you just look at the numbers. They've just been incredibly strong. They also will do a very good job on M&A, picking up new locations and new centers. So all the fundamentals in that -- in the Concentra business are there and are strong. And so we continue to be pretty bullish on the performance of Concentra.

Yes. Justin, what we've seen is, when you go into the specific areas, we've seen growth in hospitality. We've seen growth in airlines. We've seen growth in the schools coming back online, and actually, state and local governments coming back online. So those areas were pretty dormant over the past year, but we've seen some nice increases there.

Okay. Got it. So it sounds like part recovery, part picking up share as well.

I'm showing no further questions at this time. I would now like to turn the conference back to the management for their closing remarks.

Thanks, everybody, for joining us, and we look forward to talking to you next quarter. Thank you.

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