**Transcript was automatically generated by artificial intelligence.**

Paul Martin

Good afternoon and welcome to another episode of Paul Martin's Crucial Conversations. So excited to have all of you here with us today. And we are really excited to have with us Guy Sansone. Guy, who is the chairman and CEO of H2 Health. H2 Health is a private equity backed company based out of Jacksonville, Florida, that currently has 118, but very soon will have 138 clinics. Guy it is great to have you with us today.

 

Guy Sansone

Paul, thanks for having me.

 

Paul Martin

So Guy comes to the physical therapy industry and brings a wealth of experience in health care management, leadership and consulting. I don't want to say over too many years, Guy, because you you still look like a very young guy and I don't want to age you at all. But trust me, a guy comes with a lot of experience to our industry. Where we're really glad to have him So, Guy, you know, when newer companies and age to health is really one of the newer companies into the industry, given the stop we had with COVID and et cetera, but often our clients and folks that we talk to, they ask us a few questions about a new acquire And the first that I'd like to ask you, Guy, is, is the strategy that you and H. Two Health is using to become a successful company in this industry? How does it differ from some of the larger legacy companies and the strategy that they're following.

 

Guy Sansone

Paul, that's a great question. I'm first going to go back in time, and many people who know me have heard this story. I first got introduced to this industry in 2003. There was a little company called HealthSouth. Many people may remember it. Many people in this industry still have legacy ties to HealthSouth. And during the fraud, my firm, Alvarez and Marcel, was brought in and I became the interim CFO of that company about five days after the fraud was announced. About six months after I took on that role, I was also asked to oversee the physical therapy division. And, you know, it was then that I really fell in love with the industry and the people I found it to be passionate, have passionate caregivers, entrepreneurial, creative people with with high degrees of energy and passion for what they do. And I always thought, even back then, that if there was a chance that I could return to the industry in some capacity, it's something I'd want to do. Over the years at A&M, I, you know, built a large consulting practice, and our clients included the therapies and the Fox rehabs and the and the athletic shows and so on and so forth. So we had tremendous exposure to understanding what works in the industry and with the people compared to maybe somebody else. That's just diving into the sector as a non P.T. So it's given me time to as we we purchased H H2, which used to go by Heartland Rehabilitation when it was owned by Manor Care to build what our goals for the organization are and what we found as we first purchased H2, we had 60 locations in like eight different states. And, you know, our goal was from the very beginning was to become a comprehensive of rehab, the comprehensive rehabilitation provider in every community that we serve. And that goes from pediatrics all the way up to seniors both in their home and in assisted living communities. So our goal was to build that concentration. And again, we started with 68 states today where we, we are just at 118 in nine states. So we haven't really expanded geographically, but we have over doubled in size and doubled in size approximately in the, in the states that we're in becoming that provider of all rehabilitation services to me creates concentration, it creates connection to the communities, it gives us the ability to take care of kids. We also branched into ABA services inside of the, inside of these communities and thus a connection to the community because as we know, direct to consumer and reputation is probably the most important thing in terms of creating a legacy in the served and the communities in the work you're operating in.

 

Paul Martin

Yeah. Wow. And I can imagine going all the way back to your time with HealthSouth seeing, you know, truly the good, the bad and the ugly. Yeah. That. You know, enables you to really see this industry through some very unique lenses and yeah, really interesting. And, you know, we we remember back to Heartland and they were very proud of the physical therapy services that they offered, but really never took that step to grow their outpatient it didn't seem like outpatient was what they really wanted. And what I failed to mention initially is that guy, you are actually a founder of H2 Health when you made that acquisition. So Guy was there at the very beginning, was not a CEO brought in later by the private equity group. You were there right from the beginning.

 

Guy Sansone

That's right.

 

Paul Martin

Yeah. So what what do you see that's going to be different in terms of your strategy compared to the big companies and the biggest of the companies in the industry right now?

 

Guy Sansone

You know, I think, Paul, a lot of people talk about creating alignment of interests It's a word that gets tossed around. I don't believe it's a word that truly gets exercised. In reality, we have made alignment of the interests with all of our employees. One of the keys to how we're going to succeed long term. We believe everybody in the clinic are partners. 90% of our employees have the ability to earn bonuses and achieve some level of success financially, as the company itself grows. So, you know, pushing that and aligning interests all the way through the organizations, the organization is extremely important. We also believe in a living wage. You know, we we we are taking all politics out of out of it. You know, we think it's important that everybody has can, can, can earn $15 an hour or at least have a path to earning that living wage. So, again, we think that creates alignment with our people. We we recruit on acquisitions, a lot of former owners. And while there's a lot of models out there, and we toyed with a couple of them very early on, our most successful model is where we bring in former owners that have gas in the tank and they truly want to take another bite of the apple and also want to grow with us and have a seat at the table. Our our model does not create the joint venture structure at the local level. We think that's inherently fraught with conflict and while we tried one of those at the beginning, we experienced that conflict. So you can see what does the the local entrepreneur who continues to own a piece of their business want to do and how does that work in concert with the goals of the organization? So what we've done, Paul, is we offer for most acquisitions, particularly those with people that want to stay on long term, an opportunity to reinvest just a portion of their purchase price and roll a portion at the holdco level at the parent company level. This aligns interests in ways that most people don't. And my best example of that, I can tell you right now is that we have an owners meeting coming up of just the employees that own equity. And we have nine former owners that are going to be sitting in that meeting with me as we go through this strategy for the next three to five years. And I have a seat at that table. And whether or not they rolled $100,000 or $1,000,000, they still have a seat. And to me, that creates the alignment. And I try to pull their entrepreneurs experience, their ability to feel like they're local owners, but at the same time, let them see the bigger picture. Let them see that we do have ABA services and pediatric services and at home and senior living services so that as we grow, they can also add on those services in their communities, thus becoming a more comprehensive provider. So that's I think that's how we are different. And why, why our phrase of alignment is probably more powerful than others.

 

Paul Martin

Yeah, very unique. And I think that, yes, the partnership model is out there, you know, started way back when with it with the US partnership model. They're still doing that partnership model today. What's interesting, though, is, you know, not you know, kind of taking away the opportunity of the local equity, but as opposed to just I have equity up in that parent company, I have no idea what they're talking about day to day. I have no idea what they're doing. What I heard you say is they actually have a seat at the table for our strategy to them to contribute to that strategy. Going forward for the company as a whole. And yeah, I would agree that that's a real significant alignment of interests.

 

Guy Sansone

Yeah. Yeah.

 

Paul Martin

Partnership. Yeah. Really, really great stuff. So what do you see would be some of the key characteristics of a company that would thrive by joining your company or by joining age to health?

 

Guy Sansone

So when I meet with an owner at the very beginning and I meet with every one of them very early in the process, so it's not just a regional business development person that is meeting with the potential partner or partner however you want to describe it. I meet with everybody and I immediate to point out and bring with us our culture statement and our mission statement, which we created right before we purchased the business. And we stay true to. And that that culture statement includes phrases like no B.S. We're straight, we wear our hearts on our sleeve. And what you hear from us, you get and you're going to get throughout the both the process on the acquisition and afterwards. And that's our hope and our goal. Our culture statement emphasizes entrepreneurship our culture statement emphasizes mission people, communities. We share that with the people who we are meeting with early in the process because that buy in is absolutely critical. You know, in my mind, either you want to be part of who we are or you don't, and it's OK if you don't, because I think finding people that are like minded and aligned and we have a phrase called like what you do, like who you do it with can make a difference. That's also part of our culture. And we meet and we emphasize that. We emphasize that when we meet when we meet as a group, either at our radio meetings or this owners meeting that I describe before we actually go through our culture and just reiterate it, make sure people understand what we're trying to accomplish because it is for a lot of people talk about it or to put a sign on the wall, not everybody tries to live it. So to me, making sure that that that alignment from the very beginning is there that you're a fit, this is a marriage, this is something that we're going to be in together for a period for some time. And that's how I think you build trust and you build the right incentives.

 

Paul Martin

So if we were to talk to one of those former owners that maybe joined the company, you know, a couple of years ago, what would they how would they describe the culture of each to health? If I heard your description, how do you think a former owner would describe it after being there a couple of years?

 

Guy Sansone

I would say collaborative, particularly at the beginning when we decide we're going to sign an alloy and this is the price, we're not sitting there trying to nickel and dime every guy, every penny, what can this do? What can't this do? And we're very collaborative and we work on the building that model together. I think once they join the organization, they look at our team as a service organization that's doing giving the resources that they need in order to execute both their existing plan and any go forward plans. We we we lay out very aggressive growth plans and noble plans. And this year, for example, I think we're planning on 26 in year three, so to speak, and that includes obviously the impact of COVID. And I think access to the people that make decisions. Right. It's not a hierarchy. It is not a long time ago one of my mentors said nothing stunts growth by over corporatize things, you know. So so to me we want to keep that that entrepreneurial spirit involved we obviously are stewards of money, both our private equity partners and our and our lenders. So we've got to keep that in mind. And we do that. But at the same point in time, I'll take the time to explain that to my partners so they understand if there are any things that are limiting our ability to invest here, invest there that they know, they know about it on the front end. So I think that's the difference. And I think every owner would say those things have happened and they have a trust factor with us.

 

Paul Martin

You know, a lot of owners, when they're kind of getting ready to go through this process, the first thing they point to is there are people if you again, kind of looked at some of the acquisitions that you've done, some of your partners, how would their view on the operating scenario for their people be, you know, a year or two years into the relationship versus what they may have thought or kind of dreamed it would be when they entered into the relationship? What are the opportunities for their people?

 

Guy Sansone

That's an awesome question. I think they're mixed. And let me let me get to that, I think and to answer that in two different ways. One, we obviously have a labor shortage here in the United States. Right? So it is not our intention and we're not pricing acquisitions. If we can cut this, this, this, this, this out, we make this assumption that there is some element of scale. But our organization needs people just like everybody else. Builders are very important front office. People are very important. They're there. They're the portal to our patient. Credentialing is very important. So when we spy these people within an organization, we believe we point out that it is our goal that they can grow within our organization. And some people have already taken on more leadership roles in credentialing on a more corporate basis on a national basis than what they're doing inside their own organization. I think second, arguably more important, Paul, is the the the the belief, and it's part of our mission statement is I want everyone to feel like they control their own destiny. Right. And there is opportunity here, both for parties that want to become leaders and leaders that want bigger roles in the organization. We want to work with them and help build their long term strategic plan, personal strategic plan. Some people just want to work two or three more years, OK, we know where they're going to be and they want to move to Florida. All right. How do we find a spot for them in Florida? Because they may want to downsize. At the same point in time, we have a couple of acquisitions so I'll point out without naming names, one in an acquisition we did in northern Virginia at the end of 20, 20, that young man is now part of our merger and integration team and is looking to expand his role into more of a C-suite assistant role in terms of scheduling, oversight and making sure our schedules are filled and our productivity is good. So we've been able to take key employees out of some of the acquisitions and grow them where I think we've got to do better. And we're still a young organization or two years old building a more standardized org chart. That's important. But at the same point in time, those things sometimes stunt your growth and your opportunity entrepreneurial spirit. So we're trying to balance all those things as we grow.

 

Paul Martin

So so someone can actually see where they can elevate to. But as I spoke to my son just the other day, looking at he's working for a big company and he said, I don't want it to be too structured because then there's no room for, hey, you're just doing a great job. We're going to move you to this, you know? So, yeah, I, I follow that.

 

Guy Sansone

Yeah. And Paul, let me this is probably a good chance to branch off and broadly speak about our long term growth channels because bringing good people into an organization we're also going to offer them the opportunity to dove into some of our growth channels. Right. And what do I mean by that? Well, we have a group that focuses just on senior care. Is senior care your passion? Late last year, we purchased the pediatric and autism business that I mentioned before. Well, that was three clinics, but we're branching out throughout the organization. If your passion is in pediatrics, your passion is learning the ABA business, that can be another avenue of grass. Well, it's a growth channel for us. It's an avenue of growth for individuals that have that passion the third is, and we have just touched on this, I believe I believe, Paul, that at the end of the day, we're going to have to work more collaboratively with our with our payers in partnership. And if we think that if the industry thinks that we'll just be able to move along on a fee for service basis, forever and ever and ever. I think long term that is probably long term. And I'm talking ten, 15 years from now. But long term, that's probably a race to the bottom so we entered into our first risk based contract or first capitated contract. I can't name the name, but it's for about 11,000 lives in the state of Florida. And what we've done inside of the state of Florida is create a care management that is effectively supporting the delivery of care. And at this point one concentrated region where we have 25 clinics in northeast Florida, but it will evolve throughout and we're having conversations with other payers to do it in more, more local and regional levels. So if that's your passion, if care management, if not having the strain of putting your hands on people and taking care of patients because it's this is an industry that wears people out. We do it. We have that pattern. So I look at all these and then the traditional, as you pointed out, the traditional business, which which is still a large partnership. So we think we have a lot of channels for growth. And when we find good people, it's our goal is how do we figure out where to elevate that person, where are they going to fit in the organization long term and in some cases where they don't but make sure they understand those opportunities there.

 

Paul Martin

Sure. Sure, Guy. I can't tell you how often years ago physical therapy business owners would go into, you know, these partnership or go into a large organization thinking that there was going to be an opportunity for them to teach at a higher level or grow to a higher level and bring their skills and it just never happened. It just never happened. So those channels that you describe, I think are very I think it's attractive to folks who are not done that they still want to contribute. They still want to be a big part of something even bigger that they can see. That path, I think, is really, really important.

 

Guy Sansone

Yeah. Yeah.

 

Paul Martin

You know, you mentioned eBay. And for many of our viewers out there who do not participate or have pediatrics as a part of their business, they may not know a whole lot about what eBay is. We do. We're also very interested in that as an industry. Mom, talk to us a little bit about, you know, this marriage between ABA, physical therapy and how that is a big part of pediatric physical therapy that you guys do.

 

Guy Sansone

As a great question, I'm going to take a step back and at least directionally provide with certain statistics that we find interesting. And it's it's in today's world, one of about I think 52 or 54 kids in school require some element of ABA services. In addition one out of every four pediatric rehabilitation kids requires ABA. So when you start to look at the math and you say, oh my goodness, there is such a population and an underserved population here, I mean, I think the, the, the thing that will hurt growth is ability to find people and find people in the space because the demand is there. The business that we purchased and again, that owner role the significant amount of equity with us, the business that we purchased has a 60 person 60 kid waitlist just to get in his clinics, you know, and it's only the restrictions are only in our ability to find people. So understanding that's important. But I also think it's if you go into these clinics there's nobody in our industry because we're we're compassionate and passionate about what we do will not walk into a clinic and just feel like crying and happiness of what we're bringing to these kids every day. Yeah. Every day because if you're an ABA you might be getting 20 hours of services during the course of a week. So to me it just enhances who we are as an organization. And now I'm working with a group in, you know, in our Kentucky region or West Texas region or our, or our Roanoke Virginia region and says there's no ABA services within miles. Yeah. And the kids are going to need it. And how do we take this model and continue to roll it out with the same brand and basically culture? It's funny, if you look at our culture statement in the business that we brought 75% of the items were pretty similar or directional. And so we're so, you know, going in to the community, you know, there's need, you know, that there's going to be kids that have that need in the communities and then being able to bring a service that is so important to a community will give our organization, I hope, our employees a sense of pride that we're doing something really good.

 

Paul Martin

Yeah, for sure. And for any of you out there that may not be aware you know, ABA is very specific therapy to children on the autism spectrum and has really become a growing therapy on the job there. There are ABA certified therapists that are providing this, and in many cases, as with each to health along side of speech PD services. So really I think it could be a really great marriage with the future for sure.

 

Guy Sansone

Yeah.

 

Paul Martin

So Guy, someone that comes from a background like you, I'm sure in the other companies you've been involved in, you've looked at geography and how do you guys strategize around what geographies you'll acquire in what geographies you want, what you're specifically looking for in certain geography is talk us through that.

 

Guy Sansone

That's a great question, Paul. And you know, I on one hand want to share with you everything. And on the other hand, I don't want to make the world.

 

Paul Martin

Sure where you're comfortable with, you.

 

Guy Sansone

Know, on the on the on the broad, from a broad based perspective. And we are so let me tell you where we're concentrate. We are concentrated in northeast Florida, very concentrated nobody has more clinics in northeast Florida. We we I think we have 25 and I believe we'll be about 30 just in that region, not in the whole state, but just in that region by the end of the year. That is a benefit both in terms of branding that is a benefit, both in terms of concentration of benefit and in the aforementioned payer strategy side because we do have a reach that few have. So concentrations in important but concentration also leads to OK, how do I leverage that concentration into senior living or into pediatrics. So that's kind of the goal why concentration to us is so important. It's not about how do I have power over a managed care company. In my opinion, you'll never have it, so you shouldn't even have that discussion. They got to be our partners at the end. And that's that's how we look at them. And that's why taking risk and going to some sort of capitated care mandates with model, with, with home care, with, with telehealth is really important our concentrated areas, like I said, 25 going to talk going node near 30 by the end of the year. In Northeast Florida, we have 45 facilities right down the I-81 corridor in Virginia and West Virginia. We have another 19 right up I-81 into Pennsylvania. So we're really right along that corridor. That's our second major concentration our third major concentration is in is in southern Kentucky. We have about 30 facilities that stretch across from Paducah to Bowling Green. And right along the border we age up a little bit into central Kentucky, but not too much. So we're highly concentrated there and then our last strategy has been Oklahoma and Texas, and we are just touching on Oklahoma and Texas as we speak today. We have 11 clinics in Oklahoma and Texas. Talk to me in a month. That is probably 24 based on a pretty big deal that we have and we're trying to stay away from since we're trying to stay focused on growth areas of the country where the population is either growing or at least this state and where there's need and underserved communities. You know, I'll tell everybody, our strategy in Texas has nothing to do with the words Dallas or Houston, but we're going from Austin and we're going straight up to the panhandle of Texas, where we have existing clinics in Amarillo and in Lubbock. And so our goal is to go straight up there and service those, in our opinion, more underserved facilities communities where there is growth, where there is positive to stable people flow. And then and then lastly, where there are abilities to branch off that hurt services.

 

Paul Martin

Yeah, you know, right back to the very beginning, you had talked about one of two health you know, biggest values is going into a community and then serving that community. That seems to then tell right into the geographies if you can go into a community and serve that community maybe in more than just one way. And that's a community that you will consider and grow into.

 

Guy Sansone

And like you said, I mean, early on, we recognize when it's not going to work because we don't have that strength in numbers. We had seven clinics that we originally purchased, you know, from the original 60 so many respects we've gone from 60 to 118 going to 130, 35. You know, we really went from 60 to 53 to 118 because we were in southern New Jersey and we didn't have size, we didn't have scale, we didn't have concentration. And we knew right away that this was a better fit for some of the many more powerful platforms that are in New Jersey. And we, we saw those, those seven facilities very early in the they're very early in the process. So, you know, in our, in our opinion, if you don't have an ability to make a difference in the community is not a whole lot of reason to be there.

 

Paul Martin

Sure. Sure. All right, Guy, last question. And this has been great. I can't tell you this has been awesome. So companies out there that are looking to enter into this market. What do you think is most important as far as them and their preparation I think.

 

Guy Sansone

You know, my advice first is be prepared for a process that you've never done before. And we try to on the front end explain to sellers, listen, the the financial diligence, the legal diligence process, this is what goes into it. And this will run very smoothly if you're both prepared and we're doing this collaboratively from the beginning. It's not us versus you. We're trying to all get to it. So to me, that's important. I think the cultural fit, the alignment of interest is the second thing that they have to think about. And third, and we haven't really touched on this is is infrastructure. I'm a I'm a huge believer that you have to be on one platform. You can't be running this business with two billing systems, three billing systems a couple of payroll systems. You know, maybe, maybe where we're on, you know, one accounting system and the local office is on QuickBooks or something like that. Is that that that's just the recipe for disaster. My my team laughs at me because I have a phrase and it's my phrase, it's not anyone else's but we got to make sure our walls are strong. And if the walls aren't strong, everything, the house will crumble at some point. So the newest thing that we've done in this process is introduce a concept to to sellers, to entrepreneurs and sellers that says, we've got to a point. We're ready to sign, we want to sign. We are now legally committed to this transaction at this price, but the transaction doesn't close until the following three things happen. One, the payroll system and the payroll human capital system has been transitioned to ours. That's the easiest of them all, by the way. But it does but it does require that people take the time and to understand what is what the new human capital system is going to be. That's about a week long process. But it's important that we can pay everybody on one system. And the second is we transition to our are billing and billing system. I don't know if I could say that billing system, but our billing system and we go through that entire transition and training and make sure things are up and running. And then third, which comes easier because it's integrated is where I want accounts, right? So everything gets integrated into the accounting system and that's the day that those three things are complete. And we've got a seamless transition. We close and we move on, we close and we move on. So it's it's a little different. I think when when sellers are worried about tax issues and task tax receipts and there's a race, it's made that more difficult. But, you know, we've been finding a way to do it. And I think it makes our transition while more hectic on the front end, more seamless on the back.

 

Paul Martin

Sure. Yeah. And, you know, many, many business owners out there, look at all that as as, you know, torture torture. But when you put it in those three things and we're going to work on them kind of one at a time, we're going to get it all done. 60 days, it'll be all done. Then we move forward as as, you know, together makes a lot of sense.

 

Guy Sansone

Well, how many times how many times you end up doing a deal and you say, OK, we're going to go to one platform and you know, you close the deal and six months later you still haven't done it because it's not a priority. We make it a priority as part of the process that this is the timeline that we've got it.

 

Paul Martin

Absolutely. Absolutely. Guy. This has been really, really great. And you have given my self as well as our audience, a lot of great information about H to health as well as how you guys really look at opportunities and a lot about the company that I'm sure a lot of folks really don't know so I thank you for your time today and I really appreciate you coming on with us.

 

Guy Sansone

Thanks, Paul. Appreciate it.

 

Paul Martin

And for all of you out there, if you have any questions about the conversation that I had with Guy today, just click below and let's talk. Thanks and have a great day.