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US Physical Therapy Inc (USPH) Q4 2020 Earnings Call Transcript

By Motley Fool Transcribers - Feb 25, 2021 at 10:31PM

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USPH earnings call for the period ending December 31, 2020.

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US Physical Therapy Inc (USPH 6.15%)
Q4 2020 Earnings Call
Feb 25, 2021, 10:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the U.S. Physical Therapy Q4 2020 Year-End Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to hand the conference over to Mr. Chris Reading. Please go ahead, sir.

Christopher J. Reading -- President, Chief Executive Officer and Director

Thank you. Good morning and welcome, everyone, to U.S. Physical Therapy's fourth quarter and year-end 2020 earnings call. With me on the line today include Carey Hendrickson, our Chief Financial Officer; Graham Reeve and Glenn McDowell, our COOs; Jon Bates, our Vice President and Controller; and Rick Binstein, our General Counsel. Before we begin our discussion this morning, we need to cover a brief disclosure statement. Jon, if you would, please?

Jon. Bates -- Vice President Of Accounting & Controller

Thanks, Chris. This presentation contains forward-looking statements, which involve certain risks and uncertainties. And these forward-looking statements are based on the company's current views and assumptions and the company's actual results can vary materially from those anticipated. Please see the company's filings with the Securities and Exchange Commission for more information.

Christopher J. Reading -- President, Chief Executive Officer and Director

Thanks, Jon. Okay. I'm going to start this morning with some prepared comments and some color around select aspects of our year and our final quarter before turning it over to Carey to review the financials in a little bit more detail. First, let's talk about our finish to this crazy 2020 year. I am very proud of our team for the way that they led through this whole year. As we all know, we needed to make a lot of adjustments in the business early on. Those adjustments impacted people and those were hard decisions as a result. Our goal always is to help and we felt the best way to do that was to ensure that the company could get through this endemic in one piece and good shape, if that was possible. Our decisions were made. We gradually worked our way through the year, steadily picking up volume and maintaining very tight controls on the cost side of the business. As we entered the final quarter of this year, we continued to see a nice progression in volume recapture. October's visits per clinic per day increased to 27.7%.

That further progressed in November at 28.2%, which was essentially the point -- at the point where we were back to pre-COVID levels. In early November, our country experienced a strong resurgence to the COVID-19 virus. And as a result, created largely out of work exposures, we ended up with over 300 people in quarantine just for the month of November, more in that month and in the cumulative prior 6.5 months leading up to that. Those high quarantine numbers continued into December, which is in part why cost increased slightly for the quarter. In spite of this impact, we had a strong operating finish to the year. Visits finished in December within 0.25 of a visit per clinic in spite of the bump in virus numbers in quarantines. All in, our gross profit for the fourth quarter, excluding closure costs, was $29.1 million, an increase of more than $2 million compared to the 2019 fourth quarter. Gross profit percentage for Physical Therapy, excluding closures, was 24.9%, 230 basis point improvement over prior year.

Our management contracts business, which included a recent acquisition completed in the third quarter, also improved significantly to 22.2%, up 780 basis points compared to Q4 2019. And finally, our injury prevention business, which performed really nicely all year, finished the quarter at 24.6%, an improvement of 660 basis points over our year-end 2019 finish. Operating income for the quarter of 2020 also improved by $2.9 million or 19.1%, and our operating income as a percent of net revenue increased by 300 basis points from 12.5% in 2019 to 15.5% in 2020 despite the challenges brought by COVID. Other highlights to this year's finish was the completion of our second acquisition. As you know, we put deals on hold at the beginning of the pandemic and then started back up in the third quarter. This is a partnership with a great guy and a great team, and they have navigated this pandemic very, very well. That deal, which we previously announced, produced approximately 54,000 patient visits, and they have a great plan for future growth and expansion.

As a result of all the great work and sacrifice across the entirety of the company, we finished the year with approximately $11 million of net debt as well as a revised, updated and extended credit agreement with Bank of America with very favorable terms. We are pleased to announce the reinstatement of our quarterly dividend of $0.35 per share, which is an increase of 9.4% from the previous dividend paid back in April of 2020. Dates surrounding net dividend payment are included in our press release. In closing -- and I don't always do this, but I'm going to do it today. I know that with respect to our guidance, we -- there's a little disappointment out there. And I want to address a couple of things. Number one, and I can't state this enough, team that we have here, starting with our partners, their staff, our executive leadership team, operations team and all our support teams, they're literally the finest people I've ever worked with. They've made a lot of sacrifices to get us through this year, a very uncertain year, a year where we demonstrated a lot of grit, a lot of resolve, tenacity to work through the environment, which we had never been through before. I think we did that not perfectly by any stretch, but we made really good progress, and I think we laid down the great year, in my view at least.

This coming year, we're not done with the pandemic, although I think we can see the light at the end of the tunnel. We have the Medicare cut to deal with, less than what was potentially earlier prescribed, but still a meaningful cut. Our goal as a management team is to always be transparent with our shareholders. I feel personally that with this team, while we have a bit of a hill to climb this year and we always have our challenges, but we have the group in place that is ready to deal with what comes. We've had some extraordinary weather this first quarter. We had last week, including at home, no power, no water for a week. We had the entire State of Texas, a lot of the State of Tennessee shut down for a whole week. And so we have some challenges we're going to have to overcome this year. But there isn't a group of people that I would rather go to battle with than the team that we have right now. And we're going to do everything in our power to put down another good year. And so we're working hard to do that. I hope you can hang in there with us. And so that concludes my prepared and my off-the-cuff comments.

With that, I'd like to turn it over to Carey to cover the financials in a little bit more detail. Carey?

Carey P. Hendrickson -- Chief Financial Officer

Great. Thank you, Chris, and good morning, everyone. Today, we reported full year 2020 operating results of $38.4 million or $2.99 per share as compared to $36 million or $2.82 per share for the full year of 2019. Our 2020 operating results included $13.5 million of relief funds related to the CARES Act, which contributed $7.8 million to our operating results on a net basis or $0.60 per share. If you exclude those relief funds, our operating results per share for 2020 was $2.39. As Chris noted, our operations finished the year strong. For the fourth quarter of 2020, our operating results were $13.9 million or $1.08 per share, which did include $5.2 million of relief funds that we received in the fourth quarter.

The fourth quarter relief funds contributed about $3 million or $0.23 per share to our operating results. If you exclude those relief funds, our fourth quarter 2020 operating results were $10.9 million or $0.85 per share, which is $0.21 per share greater than the $0.64 that we reported in the fourth quarter of 2019. Our adjusted EBITDA, including relief funds, was $23.5 million for the fourth quarter of 2020 and $70 million for full year 2020. Excluding relief funds in the fourth quarter, our adjusted EBITDA was $18.3 million, which is up $3 million or 19.4% from the adjusted EBITDA of $15.3 million that we reported in the fourth quarter of 2019. Our full year 2020 revenues were $423 million compared to $482 million for the full year of 2019, which was a decrease of 12.2%. Our revenues in the fourth quarter of 2020 were $117.5 million, a decrease of 3.8% from $122.1 million in the fourth quarter of 2019. Our Physical Therapy patient volumes per day per clinic dropped at the onset of COVID-19, but then they continually improved from May through December. Our patient volumes per day per clinic were 26.2 in the first quarter of 2020.

They decreased to 18.9 in the second quarter. That was the trough. And then they increased to 25.8% in the third quarter and 27.7 in the fourth quarter of 2020. That fourth quarter 2020 volume of 27.7 was really back to pre-COVID levels, only slightly less than the volume per day per clinic of 28.0 in the fourth quarter of 2019. Our net rate for our Physical Therapy operations was $105.60 for the full year, which is down slightly from $105.90 for full year 2019. Our net rate in the fourth quarter was $107.05, which compares to $105.90 in the fourth quarter of 2019. The fourth quarter of 2020 included a slight adjustment to net rate for earlier 2020 periods. Physical Therapy revenues were $373.3 million for the full year of 2020, which was a decrease of 13.8% from full year 2019. Our Physical Therapy revenues in the fourth quarter of 2020 were $104.5 million, which was down 4% from $108 million -- $108.9 million in the fourth quarter of 2019. The fourth quarter decrease in our Physical Therapy revenue was primarily related to having 28 less clinics on average in the fourth quarter of '20 than we had in the fourth quarter of 2019 due to the sales and closures that we made earlier in the year at the onset of the pandemic. Our industrial injury prevention business was less affected by the pandemic in 2020 with full year 2020 revenues higher than 2019 by $1.7 million or 4.6%, including an acquisition we made in April of 2019.

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

As a result, our operating cost, excluding closure costs, declined to $324.6 million in 2020, a decrease of 12.2% from 2019, and our costs remained at 76.7% of net revenues in both years. For the fourth quarter of 2020, our operating costs, excluding closure costs, were $88.3 million, down 7.2% from $95.1 million in the fourth quarter of 2019. Our cost as a percentage of net revenues were lower in the fourth quarter of 2020 than in the fourth quarter of 2019. They were 75.2% in the fourth quarter of 2020 and down from 77.9% in the fourth quarter of '19. So while our revenues were $4.6 million lower in the fourth quarter of 2020 than the fourth quarter of 2019, our operating costs were $6.8 million lower. So our gross profit increased $2.2 million in the fourth quarter of 2020 when compared to the fourth quarter of the previous year. Our gross profit margin was 24.8% in the fourth quarter of 2020, which is up 270 basis points from our gross profit margin of 22.1% in the fourth quarter of 2019. For the full year of 2020, our gross profit, excluding closure costs, was $98.4 million compared to $112.5 million in 2019, with a gross profit margin of 23.3% in 2020, which is the same as it was in 2019. Our corporate costs were $42 million in 2020, which is down $3 million from $45 million in 2019, with the same cost reduction and measures in place at our corporate office as we had at our operations. In the fourth quarter of 2020, our corporate costs were $800,000 lower than the fourth quarter of 2019, even with $1.1 million in CFO transition costs related to the accelerated vesting of stock for our former CFO. Excluding those CFO transition costs, our fourth quarter 2020 corporate costs were down $1.9 million or 16.2% from the fourth quarter of 2019. Other income net of other expense was $13.1 million for the full year of 2020, which does include that $13.5 million in relief funds. It also is net of $1.6 million in interest expense, which is down from $2.1 million in 2019 due to the reduced borrowings we had under our credit line at 2020 and then also a lower weighted average interest rate due to the decrease in LIBOR that happened in 2020.

Our weighted average interest rate in 2020 was 2.6%, down 130 basis points from the 2019 rate of 3.9%. Our noncontrolling interests were 16% of our gross profit, including CARES funds, for full year 2020, and 16.3% for the fourth quarter of 2020. If you exclude CARES funds, which had a higher profit -- excuse me, higher percentage related to the noncontrolling interest, the percentage of gross profit attributable to noncontrolling interest was 15.3% for both the full year of 2020 and the fourth quarter of 2020. Our balance sheet is in a strong position as we begin 2021. At December 31, 2020, we had only $16 million drawn on our $125 million revolving credit facility and we had almost $33 million in cash. Our cash includes $14 million in Medicare advance payments that we intend to pay back in 2021. We also deferred in total in 2020 about $8.3 million in payroll taxes under the CARES Act. We'll repay half of that balance by the end of 2021 and then the other half is due by the end of 2022. Speaking of our revolving credit facility, we're pleased to have amended and extended our facility for an additional four years through November 30, 2025.

We were able to maintain our favorable rate structure with just a slight increase in the undrawn fee at the lowest debt coverage level, despite the fact that the base of our agreement, LIBOR, as I mentioned, has decreased significantly from the time of the previous extension. We were also able to expand the accordion feature of the facility so that we now have access to $150 million under the line if we need it. We also raised the limit on dividends among a few other favorable modifications. In our release this morning, Chris alluded to the range that we provided of $2.40 to $2.5 for operating earnings per share for 2021. There are several things that impacted our thinking on that range. First, the Medicare rate reduction of 3.5% that went into effect on January one of this year, which we estimate will reduce our 2021 revenue by about $4.5 million. On a net basis, that equates to about $0.21 per share.

Also the 2% sequestration relief on all Medicare payments we've had since May one, 2020, that will end on 31st March this year. And we estimate that will reduce our revenue beginning in the second quarter by about $2 million, which is about $0.10 per share on a net basis. And while we always have some weather-related impacts in the first quarter of each year, the weather-related events we had in our two largest states, Texas and Tennessee, over the last couple of weeks, were unusually significant.

We estimate that we lost about $2.8 million of revenue from those events, which equates to $0.13 per share. And then as Chris noted, there's still uncertainty related to COVID and its potential impacts on our operations in 2021, particularly in this first part of the year. While we're confident in our ability to respond to whatever may come our way, we continue to have a high number of employees out due to quarantine, and we don't know what impact, if any, that the new more contagious variance of COVID might have on our business. As usual, that range does not include any potential acquisitions that we might make in 2021. One of the things that's been strongly confirmed through the pandemic is the strength and resiliency of our employees and our operations. Our team has managed well through the pandemic and we've successfully managed through rate changes in the past, and we expect to do so this time as well. All things considered, we're pleased with our results in 2020 and with our strong finish to the year, and we look forward to a successful 2021.

Now, Chris, I'll turn the call back to you.

Christopher J. Reading -- President, Chief Executive Officer and Director

Okay. Thanks, Carey. Good job. Operator, let's go ahead and open the line for questions or comments.

Questions and Answers:

Operator

[Operator Instructions] The first question will come from the line of Brian Tanquilut with Jefferies.

Brian Gil Tanquilut -- Jefferies LLC, Research -- Analyst

Hey. Good morning, guys.

Christopher J. Reading -- President, Chief Executive Officer and Director

Hey, Brian.

Brian Gil Tanquilut -- Jefferies LLC, Research -- Analyst

Thanks for addressing the guidance right off the bat. As we think about what goes into that, I mean, we get the fact that you're facing Medicare headwinds and obviously, the weather has been tough in Texas and here in Tennessee as well. But how should we be thinking about cost offsets and the underlying organic growth assumption that you're expecting, obviously COVID in the background maybe drive some conservatism there? Just some thoughts on how we should be thinking about the moving parts.

Christopher J. Reading -- President, Chief Executive Officer and Director

Yes. So as we dissect it -- and Brian, I appreciate the question. When we look at our budget for 2021, we get back to actually a little bit ahead for the full year on a visits per clinic per day basis, ahead of where we were in '19. And we have a few less clinics, obviously. We expect to have a good clinic opening year in terms of de novos. We also expect to have a good development year, frankly. We have a number of things that we're working on that we expect to get done. When we look at the underlying fundamentals of visits per clinic per day, we expect to be back and a little bit ahead of where we were pre-pandemic. I can tell you, we started the year, January, a little slow, but January picked up sequentially. And while it wasn't fully back to pre-pandemic levels, it was low single digits within on a visit per clinic per day basis. And so the challenge for us is we took out so much cost in 2020, and not all of that was sustainable. Some of that we've had to bring back. Quite honestly, we have people running on less than fumes. And so we'll see -- I expect that we'll see some of that margin pickup as we go forward into this year. We know that 2021, it sounds like a little thing, has one less business day. So that's $0.06 or $0.07 of volume we expect to get back. And that is even considering the slow start that we've had in January -- January and February; we're going to have to crawl out of that hole. But the Medicare impact is real. And we're going to do our best to work our way through it and to come up with some offsets. But this is our best guess right now on a look-forward basis.

Brian Gil Tanquilut -- Jefferies LLC, Research -- Analyst

And Chris, I know in the past, you've talked about -- especially when you're facing the steep Medicare rate cuts, you've talked about potentially ramping up M&A this year as a way to offset, right? So where do you stand in that, I mean, with Medicare cuts being mitigated a little bit? And then I know you don't like to talk about pipelines, but how does -- how are the conversations going with potential targets?

Christopher J. Reading -- President, Chief Executive Officer and Director

It's good. It's good. I mean, I'm pleased that we got -- look, we always seek out the best folks. We've tried to. And we've done -- the deals that we've closed were just with phenomenal folks. The deals that we will close also with phenomenal people and the discussions we're having really, really good opportunities and good people. So I expect this is going to be a really busy year. We always have things in development. Sometimes they don't work out. Most of the time they do. But I expect this will be a busy year for us. And you will see us in the not-too-distant future.

Brian Gil Tanquilut -- Jefferies LLC, Research -- Analyst

Okay. And then Chris, last question for me. I know you kind of slowed down the de novo strategy a few years back, but you just mentioned de novos again. So how should we be thinking about your commitment to de novos and the pace of development on that front?

Christopher J. Reading -- President, Chief Executive Officer and Director

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

Brian Gil Tanquilut -- Jefferies LLC, Research -- Analyst

Awesome. Sounds good. Thanks for that. And congrats. Thanks.

Christopher J. Reading -- President, Chief Executive Officer and Director

Thank, Brian.

Operator

The next question will come from the line of Larry Solow with CGS Securities.

Lawrence Scott Solow -- CJS Securities, -- Analyst

Carey, welcome, I guess, a public welcome to U.S. Physical in a couple of months, but first public call. I know you don't guide -- yes, my pleasure. I know you don't guide seats quarters. And clearly, cadence-wise, I assume we're going to start a much lower volume with the weather impact and the rising incidence of COVID. So just trying to get a better feel for the volumes. You said you sort of expect it to be -- we recovered the pre-pandemic levels at the end of the year, but it sounds like we're going to get a little bit of swoon here, at least in the first half of the year. So my first question is sort of what do you -- the cadence do you expect to be sort of above pre-pandemic levels in the back half of the year? And then as we look out over the next few years, can you just give us any idea of your thoughts on what the high unemployment rates and whatnot? How you sort of -- same-store lines have been great for the last five years. How do you view that in a post-COVID world, but relatively high unemployment? You think that will be a challenge?

Christopher J. Reading -- President, Chief Executive Officer and Director

Yes. So good questions. Appreciate that. So I personally expect us to be back or a little ahead of pre-COVID levels sometime in Q2. We're not that far off. Had the last week's apocalypse not happened here in Texas and a few other places, sub-0 temperatures with literally everything shut down, we would have had a decent February, but having -- I mean, knowing where we are right now, first quarter is certainly going to be light. I think second quarter and usually beginning in March, we begin to pick up steam. I expect that to happen this year. The team's very, very focused. We've got to know we have some ground to make up for the weather and for the rate, and they're working very hard. So we'll be a little bit back-end loaded. I won't say that we'll be fully back-end loaded. I think Q2 and forward should -- while we'll still have the pandemic, I think things should be steadier. In terms of the workforce, look, we have put up really good same-store numbers the last few years. I expect to get back to same-store positive once we get on the other side of this pandemic. I think we can move market share. This period of time, we've been through, has been hard on everybody, and we've come through it really in good shape. So again, I think it's about moving market share. Certainly, a full workforce and a robust economy helps everybody. But we've been through recession periods before, we've been able to grow. And I don't expect us to be in a recession. I expect us to be able to move market share and grow same-store like we have been, to be honest.

Lawrence Scott Solow -- CJS Securities, -- Analyst

Right. How about costs? I know you brought back some of your costs. You haven't brought back all of it. And you mentioned you started -- it feels like you're getting pinched a little bit, you kind of have to bring back some more staffing. So I suppose we'll see a rise in cost or at least the first half of the year. But my other question is, how does that interplay sort of with -- I think you mentioned you have 300 or so employees, I don't know what the number is today, but it sounds like some -- certainly some inefficiencies. And is that causing you to hire more temporary help and sort of temporary elevating costs even more?

Carey P. Hendrickson -- Chief Financial Officer

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

Lawrence Scott Solow -- CJS Securities, -- Analyst

And then just lastly, the industrial injury prevention business held up relatively well in 2020, I think it was actually flat or peaked out a small even revenue gain. What's your outlook as we head to '21 for that business?

Christopher J. Reading -- President, Chief Executive Officer and Director

Yes. I think we have a forward outlook. I mean, we expect a good year. I think our rate of change, one of the things will slow a little bit this year, and we're going to have to rebuild our -- and the group has been working on it. We're going to have to rebuild our opportunities pipeline. We've just had a lot of people kind of on pause, so to speak, during a lot of 2020. Our sales cycle for the IIP business is a bit longer. It takes up to about a year in discussion with some of these companies. But it's coming back and we made some good progress of late. So I expect that group -- I have tremendous confidence in that group. It starts the year -- started the year well for us this year in 2021. It's now our largest single partnership and ranking in terms of total contribution, and I expect them to put down a good year this year. But we're a little bit more flat-footed maybe than we have been in the past just because of COVID, but they'll pick it up.

Lawrence Scott Solow -- CJS Securities, -- Analyst

Got it. Okay. Great. Appreciate that. Thanks, guys.

Christopher J. Reading -- President, Chief Executive Officer and Director

Thanks, Larry.

Operator

The next question will come from the line of Matt Larew with William Blair.

Daniel Lawler -- William Blair & Company -- Analyst

This is Dan Lawler on for Matt Larew this morning. But just wanted to ask with the PT cut reduced to around 3.5% for '21, are you seeing anything to maybe having the remainder of the cuts come back in '22? And then quickly on the 15% cuts for PTAs and OTAs in '22, what levers are you guys pulling in your staffing model? And how should we be thinking about maybe the net impact to rate in '22?

Carey P. Hendrickson -- Chief Financial Officer

Yes. So the first part of your question is, do we see the remaining part of that cut coming in '21? I'm not sure. I'd be giving a total wild guess at this point, which I'm not inclined to do. So I hope not. I think they've gotten their pound of flesh. But we're going to be working hard within our APTQI alliance, as we did throughout the entirety of last year, to keep that at bay. On the 15% PTA reduction, we made a number of changes in staffing. It's been a couple of years ago, pre-COVID, where we actually -- we shed in a lot of our facilities, some of our PTAS. I don't want that to sound bad. Those are good folks. But we rebalanced our staffing somewhat. And I think the key for us is just going to be scheduling and making sure that our PTAs are connecting with other nonfederal patients. And I think we're at a level where we can do that pretty effectively. We may have pockets where we have to be a little bit more creative and we'll certainly work on that as the year progresses. But I think right now, we should be, generally speaking, OK, with respect to federal patients.

Daniel Lawler -- William Blair & Company -- Analyst

Great. Thanks a lot.

Operator

The next question will come from the line of Mitra Ramgopal with Sidoti.

Lalishwar Mitra Ramgopal -- Sidoti & Company -- Analyst

First, Chris, you talked about being able to grow market share organically. And I was just curious if you could give us some color in terms of, as a result of the pandemic, what you saw this past year in terms of a lot of maybe your mom and pop competitors?

Christopher J. Reading -- President, Chief Executive Officer and Director

Yes. It's a good question, Mitra, and good to hear your voice. It's mixed. We have on the mom-and-pop side some really good competitors. And I think PPP money helped a lot of them, the ones that applied for it and got it, and that was kind of the bridge to the other side. But we've also seen a huge increase in the number of small practices that aren't probably going to make it or need a home, and didn't fare so well and don't want ever to go through this again, what they went through in 2020. So I still think we're -- the big companies are much better resourced to move market share than the smallest of the group. So that doesn't mean there aren't a lot of really strong small groups out there. And a lot of those are people we end up connecting with and talking to about a deal at some point in time. But the other thing, Mitra, I think that 2020 did was for hospitals, which is also a big competitor of ours. Physical Therapy has probably been the 51st priority of a hospital here this last year. It's not high on the list. And so I think we've been able to move some business from the hospitals. I think we can keep that. And we're going to fight to do that. And we've put more emphasis in terms of looking for creative opportunities with hospitals. And it's early yet, but I think we'll see that play out as the year unfolds with us managing and having more creative opportunities with hospitals, because it's really not a strong focus of theirs right now.

Lalishwar Mitra Ramgopal -- Sidoti & Company -- Analyst

And kind of a related question, I guess, as it relates to de novos. Do you think the pandemic has maybe accelerated or maybe changed the mindset of some of the potential partners who are now more interested in joining with you maybe pre-pandemic?

Christopher J. Reading -- President, Chief Executive Officer and Director

Well, I'm not exactly sure if I'm hearing your question right. But I think when you look at the partners that we've acquired, the partners we're talking to about creating a partnership together, they're very bullish on the future and they're very bullish on growth, and they're very bullish on development. That's organic development as well as tuck-in opportunities and full-on further acquisitions within their partner groups. And so we have a lot of people working on those things locally, along with our development team. But yes, our strong partners are not afraid and they see a lot of opportunity out there and so do we. So we just need to make it happen.

Lalishwar Mitra Ramgopal -- Sidoti & Company -- Analyst

That's very good. I was just also curious if, say, you're seeing in terms of your de novos pipeline, more interested parties as a result of realizing how difficult it is to sort of deal with the environment solo as opposed to partnering with you?

Christopher J. Reading -- President, Chief Executive Officer and Director

Yes. I got you. So our de novos are solely and exclusively satellites now of existing partnerships. We're not doing and haven't for many, many years any one-off, stand-alone, single site partnerships. And so when we have somebody that comes to us like that and is interested, most typically they're being referred into or tucked into an existing partnership somewhere. We're not doing any sole single site one-off partnerships from the ground up. All the things that we're doing, de novos, are all satellites at this point.

Lalishwar Mitra Ramgopal -- Sidoti & Company -- Analyst

That's great. And then I know in terms of the Medicare reduction, I was just curious in terms of -- if you might have the peer mix handy, Carey, as it relates to maybe what percentage of the business is Medicare exiting 2020?

Carey P. Hendrickson -- Chief Financial Officer

Sure. You bet. Yes. So in 2020, our Medicare was 27.2%. There are some contracts that are also kind of tied to that Medicare rate. So we estimate about 31% of our business is tied to the Medicare rate in some way. Overall, there wasn't a whole lot of change in 2019 to 2020 in the payer mix. Commercial insurance was 47.6% in 2020. Medicare, like I said, was 27.2%. Medicaid was 4.4%. Our workers' comp was 13%, and then our personal injury and self-pay combined was 7.8%.

Lalishwar Mitra Ramgopal -- Sidoti & Company -- Analyst

Okay. That's great. Thanks again for taking the questions.

Christopher J. Reading -- President, Chief Executive Officer and Director

Thanks, Mitra.

Operator

The next question will come from the line of Mark Juvenile with Copeland.

Mark Juvenile -- Copeland -- Analyst

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

Christopher J. Reading -- President, Chief Executive Officer and Director

Carey, you want to take a run at that first?

Carey P. Hendrickson -- Chief Financial Officer

Sure. You bet, yes. So when we look at the dividend, obviously we have a strong balance sheet. So we feel great going into 2021. We feel good about the health of the business and where we're headed. We'll take some of these things and stride related to the Medicare reduction, those kinds of things and work hard to mitigate them. But we're very committed to the dividend. We wanted to increase it in the normal progression. So it was $0.32 last time we did it. We generally increase it 9% to 10% per year, and we did that with this increase from -- going from $0.32 to $0.35. But I would say, as a company, we're very committed to it. And we have increased it like that. Really, I think we started the dividend in 2011, and we've increased it every year since then, absent the suspension we had in the first quarter of 2020, but we've resumed it at the higher rate.

Mark Juvenile -- Copeland -- Analyst

You did mention a number of headwinds to cash flow in 2021 as well as the earnings. What type of cash flow kind of call was that do you see based on your projections? What percentage of free cash?

Carey P. Hendrickson -- Chief Financial Officer

From a dividend standpoint?

Mark Juvenile -- Copeland -- Analyst

Correct.

Carey P. Hendrickson -- Chief Financial Officer

Yes. So well, we really -- I don't want to speak too much to the cash because there's uncertainty. We have this range of $240 million to $252 million. Obviously, it would be -- it's a higher percentage than it would have been in 2020 or 2019, but we feel very comfortable with it.

Mark Juvenile -- Copeland -- Analyst

Okay. Thank you.

Operator

[Operator Instructions] The next question will come from the line of Mike Petusky with Barrington Research.

Christopher J. Reading -- President, Chief Executive Officer and Director

Hi, Mike.

Michael John Petusky -- Barrington Research -- Analyst

So I wanted to ask a little bit about salaries and related lines. So I think it was 59 -- I'm sorry, 55.9% of overall revs in the fourth quarter. And I was just wondering with the quarantine, the employees and all the rest, did you guys sort of try to assess -- and maybe I missed it, maybe you've said this, but I missed it if you did. Have you guys tried to assess essentially what that number would have been sort of in a non-COVID environment? I know you're essentially working at times with two therapists to deliver care to one patient due to the quarantine stuff.

Christopher J. Reading -- President, Chief Executive Officer and Director

Right. I haven't -- Mike, and we probably need to, and we can probably offline pull that together. I don't know that I have that at my fingertips at this point. I'm not sure Carey does either. Most of those 300, they weren't all clinical folks, but a high percentage were. And you're right, there's a redundancy that gets created there with having replacement staff in a lot of cases. But it's going to be an estimate if we do it, because I don't have the ability on a pieces parts basis to tell exactly who we brought in and replaced or whether somebody just worked more or what the iteration was in each and every example of that, but we can probably do a back of the envelope estimate offline.

Michael John Petusky -- Barrington Research -- Analyst

Okay. So you said that there were 300 people, employees, quarantined in November and then I think you characterized as that issue continued into December. Do you have any sense like currently or in January, what the upper end of quarantined employees was?

Christopher J. Reading -- President, Chief Executive Officer and Director

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

Michael John Petusky -- Barrington Research -- Analyst

Okay. And then -- so where I'm going with all this is, I'm sort of wondering, are you guys assuming sort of COVID continues to be an issue for your employees in terms of some redundancies and that sort of thing? Is that sort of baked into the guidance?

Christopher J. Reading -- President, Chief Executive Officer and Director

Absolutely. Yes, we're -- I mean, we're in a COVID environment right now. And I expect we will be fully for a pretty good chunk of this year, to be honest. So now I said earlier, I don't expect to have as many people in quarantine as we do right now just because of vaccinations. But we know just statistically, both from talking to hospital friends and looking at our surveys of our own employees, we know there's a certain percentage of employees who aren't going to get this vaccination. That's true of local hospitals here in Houston as well as in our subgroup. And if you follow the science, with the variance and the other things that are happening, we're expected to kind of be in a COVID environment at least for the next few quarters, so, if not for the year. So yes, it's baked in.

Carey P. Hendrickson -- Chief Financial Officer

And Mike, I have the quarantine numbers in front of me for January. And Chris noted they were highest in November. They came down in December, and they're at a pretty similar level in January, slightly higher in January than they were in December.

Michael John Petusky -- Barrington Research -- Analyst

Can you give us number?

Carey P. Hendrickson -- Chief Financial Officer

Yes, it's in the mid-200s.

Michael John Petusky -- Barrington Research -- Analyst

Okay. That's still pretty high. Okay.

Carey P. Hendrickson -- Chief Financial Officer

It's still pretty high. Yes, no doubt, it's definitely high. Yes.

Michael John Petusky -- Barrington Research -- Analyst

And I'm assuming the majority of those folks are clinical?

Christopher J. Reading -- President, Chief Executive Officer and Director

Yes. I don't think we have a breakout exactly by position, but I think the majority of those folks are clinical, yes.

Carey P. Hendrickson -- Chief Financial Officer

Yes.

Operator

[Operator Instructions] We show no further audio questions at this time.

Christopher J. Reading -- President, Chief Executive Officer and Director

Listen, thank you, everyone. I appreciate your time and attention. We appreciate your questions and your interest. Carey and I are available after the call if you have further follow-up. And again, thank you. STAY safe and stay well. Take care. Bye now.

Operator

[Operator Closing Remarks]

Duration: 49 minutes

Call participants:

Christopher J. Reading -- President, Chief Executive Officer and Director

Jon. Bates -- Vice President Of Accounting & Controller

Carey P. Hendrickson -- Chief Financial Officer

Brian Gil Tanquilut -- Jefferies LLC, Research -- Analyst

Lawrence Scott Solow -- CJS Securities, -- Analyst

Daniel Lawler -- William Blair & Company -- Analyst

Lalishwar Mitra Ramgopal -- Sidoti & Company -- Analyst

Mark Juvenile -- Copeland -- Analyst

Michael John Petusky -- Barrington Research -- Analyst

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