Select Medical Holdings Corporation (SEM) Q2 2014 Earnings Report, Transcript and Summary

Good morning and thank you for joining us for today's Select Medical Holdings' Corporation Earnings Conference Call to discuss the Second Quarter 2014 Results and Company's Business Outlook. Speaking today are the company's Chief 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 highlights and then open the call for questions. Before we get started, we would like to remind you that this conference call may contain forward-looking statements regarding future events or future financial performance of the company, including without limitation, statements regarding operating results, growth opportunities and other statements that refer to Select'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 now turn the conference call over to Mr. Robert Ortenzio. Please proceed.

Thank you, operator. Good morning, everyone and thanks for joining us for Select Medical's second quarter earnings conference call for 2014. For our prepared remarks, I will provide some overall highlights for the company and our operating divisions and then ask our Chief Financial Officer, Marty Jackson to provide some additional financial details before we open up the call up for questions. Net revenue for the second quarter was $772.8 million compared to $756.7 million in the same quarter last year. During the quarter, we generated approximately 72% of our revenues from our specialty hospital segment, which includes both our long-term acute care and in-patient rehab hospitals and 28% from our outpatient rehabilitation segment, which includes both our outpatient rehabilitation clinics and our contract services. The results for both the second quarter of this year and last year reflect the impact of both sequestration and MPPR reductions that became effective on April 1, 2013. Net revenue on our specialty hospitals for the second quarter was $557.8 million compared to $559.4 million in the same quarter last year. In the second quarter we had over 330,000 patient days compared to over 341,000 days in the same quarter last year. All of the reductions in patient days were on our LTAC hospitals and a result of several factors, including two hospitals we closed, three hospitals we experienced some operational issues, and the retooling of our marketing program that we spoke about on our last earnings call. We believe the three hospitals where we had operational issues are back on track and we're making progress on our marketing plans. We expect these new marketing programs will provide additional compliant patients in the near future but will cause some variability in our senses as we implement the changes. Our occupancy rate was 69% compared to 73% in the second quarter last year. Our net revenue per patient day increased to $1,562 per day in the second quarter compared to $1,532 per patient day in the same quarter last year. We generated approximately 82% of our specialty hospital revenue from our long-term acute care hospitals and 18% in our in-patient rehab operations during the second quarter. Net revenue in our outpatient rehabilitation segment for the second quarter increased 9% to $214.8 million compared to $197.1 million in the same quarter last year. The growth was primarily the result of increased patient visits in our existing clinics and the addition of new clinics as well as the expansion of contract management services in our clinics and growth in our contract therapy operations. Net revenue in our outpatient clinic base business increased to $161.3 million compared to $150.8 million in the same quarter last year. For our owned clinics, patient visits increased 5.9% to almost 1.3 million visits compared to the same quarter last year. Our net revenue per visit was $103 in both the second quarter this year and last year. Net revenue in our contract therapy business in the second quarter increased to $53.5 million compared to $46.3 million in the same quarter last year. The increase resulted from new contracts and the expansion of services of existing contracts, which offset reductions from terminated contracts. Overall, adjusted EBITDA for the second quarter was $101.4 million compared to $106 million in the same quarter last year, with an overall adjusted EBITDA margin at 13.1% for the second quarter compared to 14% margin for the same quarter last year. I think it's important to note that during the quarter we incurred 3.9 million of startup losses, primarily on our newly opened LTACs. As we discussed during the last earnings call, we had to accelerate the opening of these startups, due to the recent legislation impending moratorium. Without these startup losses EBITDA would have been 105.3 million with an overall adjusted EBITDA margin of 13.6%. Specialty Hospitals adjusted EBITDA for the second quarter was $88.7 million, compared to $96.4 million in the same quarter last year. Adjusted EBITDA margin for the Specialty Hospitals segment was 15.9% compared to 17.2% in the same quarter last year. Outpatient rehabilitation adjusted EBITDA for the second quarter was $30.4 million compared to $26.1 million in the same quarter last year. Adjusted EBITDA margin for the outpatient segment was 14.2% in the second quarter compared with 13.2% in the same quarter last year. For the outpatient clinic portion of our business, adjusted EBITDA was $25.5 million in the second quarter, compared to $22.8 million in the same quarter last year. Adjusted EBITDA margin for outpatient clinics was 15.8% for the second quarter compared to 15.1% in the same quarter last year. For our contract services, adjusted EBITDA was $4.9 million for the second quarter compared to $3.3 million in the same quarter last year and the margin was 9.2% in the second quarter compared to 7.1% in the same quarter last year. We were very pleased to see another strong quarter of solid growth in our outpatient segment. Our reported earnings per fully diluted share was $0.27 in the second quarter of this year, compared to $0.20 in the same quarter last year. Our earnings per share for the second quarter of last year included non recurring loss on early retirement of debt. Excluding this loss and its related tax effects, adjusted income per common share was $0.27 in the second quarter of last year. I also want to provide a few updates since our first quarter earnings call in May. In conjunctions with our earnings release yesterday afternoon, the company announced that our Board of Directors declared a quarterly cash dividend of $0.10 per share and its meeting on August 6. The dividend is expected to be paid on or about August 29, to shareholders of record on August 20th. During the second quarter the company also repurchased approximately 1.3 million shares of stock at $14 per share for a total cost of $18 million. I'm also very pleased with the progress we've made related to new joint venture activity this year. Since our announcement of the Cedars-Sinai UCLA rehab joint venture at the end of last year, we have signed four additional joint ventures this year, including partnerships with the Cleveland Clinic in Cleveland, Ohio, Emory Healthcare in Atlanta, Georgia; TriHealth in Cincinnati, Ohio; and, recently, PinnacleHealth in Harrisburg, Pennsylvania. In addition, we expanded our services at our existing joint venture with Penn State Hershey Hospital expanding our rehab hospital with 22 additional rehab beds, as well as adding a transitional care unit. Over the past two quarters we have also added four additional LTAC hospitals comprising of total of 93 beds and added 21 beds to one of our existing facilities. We have several other LTACs currently in development that qualify in the moratorium on new LTACs and beds, which we expect to open over the next 12 months including as many as three additional new hospitals in the third quarter. These additional joint ventures and new LTAC hospitals provide us with the solid platform for growth in our specialty hospital segment over the next couple of years, as we prepare for implementation of patient criteria in our LTAC hospitals. During the past week, the final fiscal year 2015 CMS rules for long term acute care hospitals and in-patient rehab were released and were largely inline with expectations. There were several positive developments in the final rule compared with the proposed rule. But I should note that none of these positive changes are material this year but a good recognition, the agency does understand our perspective from time to time. For our rehab hospitals, CMS provides a lift – the lift of diagnostic codes used to determine presumptive compliance under the 60% rule. These changes to the 60% rule were delayed for a year giving us more time to comply with the new policy. For LTAC, CMS decided not to implement their new interrupted state policy which they proposed in May and they did eliminate the 5% readmissions policy from co-located providers as proposed. Also for LTACs, CMS decided that the LTAC rate should increase by 1.1% rather than the 0.8% that the agency proposed in May. Of course the big regulatory news on the horizon is the implementation of the new LTAC criteria, which will begin to take effect in the fall of 2015. We continue to prepare for the implementation of patient criteria in our LTAC hospitals, and the tougher, more restrictive definition of what patients are eligible for LTAC reimbursement under the criteria rules. As we mentioned on our first quarter call, this includes the analyzing market specific data around the types of compliant patients in the markets we serve. And determining the best way to ensure, we capture this patients referrals and provide the highest quality most cost effective care to those patients. We are continuing to explore our marketing to ensure we are well-positioned when criteria is fully implemented. While patient criteria implies a more restrictive environment in terms of eligible patient, it also provides certainty and clarity to a segment of our business that needed it. I'll now turn it over to Marty Jackson to cover some financial highlights for the quarter before we bring it back for some questions.

Thanks Bob, good morning. For the second quarter our operating expenses which include our cost of services, general and administrative expense and bad debt expense, increased 3.2% to $673.4 million as compared to the same quarter last year. As a percentage of our net revenue, operating expenses for the second quarter were 87.2%, compared to 86.2% in the same quarter last year. Cost of services increased 2.7% to $642.9 million for the second quarter compared to the same quarter last year. As a percent of net revenue cost of services was 83.2% compared to 82.7% in the same quarter last year. The primary reason for the 50 basis point increase in our cost of services, as a percent of net revenue was the incremental startup cost associated wit the new and recently expanded specialty hospitals which Bob mentioned. In addition, the decline in volumes and revenues in our specialty hospital caused increase in our cost of services as a percent of revenue which was offset by improvements in growth in our patient segment. G&A expense was $19.4 million in the second quarter, which as a percent of net revenue was 2.5% compared to $17.9 million or 2.3% of revenue for the same quarter last year. The growth in G&A resulted primarily from increases in compensation expenses in the second quarter of this year compared to last year. Bad debt as a percent of net revenue was 1.5% for the second quarter, compared to 1.2% for the same quarter last year. The increase in bad debt expense was attributable to an increase in our specialty hospitals. Total adjusted EBITDA was $101.4 million and adjusted EBITDA margins were 13.1% for the second quarter. This compares to adjusted EBITDA of $106 million and adjusted EBITDA margins of 14% in the same quarter last year. Depreciation and amortization expense was $17.2 million in the second quarter compared to $15.9 million in the same quarter last year. We generated $1.2 million in equity and earnings of unconsolidated subsidiaries during the second quarter, this compares to $600,000 in the same quarter last year. These increases are mainly the result of contributions from our joint venture partnerships with Baylor Institute for Rehabilitation and Ohio Health. Interest expense was $21.7 million in the second quarter. This is down slightly from $21.9 million in the same quarter last year. The reduction in interest expense is primarily related to lower interest rates on borrowings in the second quarter of this year compared to last year. The company recorded income tax expense of $23.8 million in the second quarter. The effective tax rate for the quarter was 38.5% compared to an effective tax rate of 39.8% in the second quarter of last year. Net income attributable to Select Medical Holdings was $35.3 million in the second quarter, and fully diluted earnings per share was $0.27, this compares to $27.8 million of net income and fully diluted earnings per share of $0.20 in the same quarter last year. During the second quarter of 2013, we incurred a loss on early retirement of debt related to refinancing activities. Excluding this loss and its related tax effects, adjusted income or common share was $0.27 in the same quarter last year. : Operating activities provided $58.2 million of cash flow in the second quarter. Day sales outstanding or DSO was 53 days at June 30, 2014 compared to 55 days as of March 31, 2014 and 48 days at December 31, 2013. The change in DSO was primarily due to the timing of the periodic interim payments we received from Medicare for services provided at our specialty hospitals. Investing activities used $23.3 million of cash flow for the second quarter. The use of cash was primarily related to property improvements and equipment purchases of $23.2 million. We continue to see accelerated capital spending this year due to the LTAC development projects and the additional rehab joint ventures we have signed. We have added seven new rehab joint ventures since last June. Financing activities used $36.4 million of cash in the second quarter. This includes $18 million used to repurchase common stock and $13.1 million in dividend payments in the quarter. As Bob has mentioned, during the quarter we repurchased approximately $1.3 million shares. Under the share repurchase program, we have spent a total of $301 million of the $500 million authorized and have repurchased 34.9 million shares with an average price of $8.62. I would like to reaffirm the financial guidance for calendar year 2014. This includes net revenue in the range of $3.05 billion to $3.15 billion. Adjusted EBITDA in the range of $365 million to $385 million, income per common share which excludes the loss from retirement of debt and it’s related tax effects for the full year 2014 to be in the range of $0.89 to $0.97, and fully diluted income per common share for the full year 2014 to be in the range of $0.88 to $0.96. This concludes our prepared remarks, and at this time, I would like to turn it back over to the operator, to open the call for questions.

Thank you. (Operator Instructions) Your first question comes from the line of Frank Morgan representing RBC Capital Markets. Please proceed.

I was interested -- it's sort of a contrast between the volume growth that you saw or relative to say what Kindred produced, 3.1% admission growth in the quarter, and they specifically called out growth in business and certain payer classes, mainly Medicaid and managed Medicaid. I was curious did you see anything like that or not see anything like that? And if not, maybe just a little bit more color on the three hospitals where you called out as having issues. And what gives you confidence those are turned back and where do you see volume trends or what would you anticipate to see out of volume trends in the latter part of the year?

Thanks Frank, let me try to address that. Let me take the first part of that question and let me articulate it in the context of our strategy and then I’ll return and then compare to, I think maybe what you saw with the Kindred volume growth. With the upcoming criteria, Select's strategy for our assets, for our LTAC assets, is a strategy that's going to focus on the high acuity LTAC compliant patients, not what they refer to as the site-neutral patients in the legislation. And in order to do that, in order to focus on that, that’s going to take some, a little bit of retooling of our marketing program, although, as you know we have some time to do that. So, to give you some context to that Frank, while we’ve always had an approach as a company to have high acuity patients which is reflected in our case mix index, it was always a subset of patients that were not just three day ICU or vent patients, so we know they're high acuity patients that are not going to qualify in our new criteria. So, when we’ve had that opportunity, it really allowed us to market our services to a large array of referral sources in acute care hospitals. Under the new criteria, it’s going to require us to be a little bit more narrowly focused to some of the larger hospitals that have the bigger ICU complements or the pulmonary patients and alike. But our focus will be to go after the high acuity or the compliant patients, pretty much exclusively, not the site-neutral payments. And the reason for that, is when you look at our base of LTAC assets, they tend to be smaller hospitals, mainly hospital within hospital. So, the focus will not be on getting the site-neutral payments. If you look at Kindred's strategy which is absolutely the right one for their base of assets. I think they're more focused on, in addition to the high acuity patients to getting the site-neutral patients, that could be those that would - maybe would be Medicaid or those that are coming out of the ACA's and it doesn’t surprise me that they would see an uptick of volume, although those patients are going to have lower revenue per patient day. So, again, I think you have to your first question, you have two good companies that both take high acuity patients but under the new criteria we'll have subtly different strategies, where ours will be to focus because of our smaller hospitals and pretty much exclusively the LTAC compliant patients and not the site-neutral patient. The other thing on the – I'd have like to see in the volume, a little higher in the LTAC this quarter but I don’t see anything that systemically wrong. We took at look at it and probably well over half of the volume shortfall. And I want to comment, we also had a tough comparison quarter last year's second quarter was exceedingly strong quarter for us, so it made the comps tough. So we look back over and we had just a couple of hospitals that normally are big providers for variety of reasons, just had less volume this quarter. But, that just focus that where we're on and I think that we'll be able to take care of that. Frank, did I hit all of your questions, I know you had a multipart question.

Yes. I think that's got it. And I just have one follow-up and maybe just for Marty on the startup that you called out, the $3.9 million startup cost in the quarter, is that a good run rate? Should we be thinking about that number for the balance of the year or is there should go up or down on that front?

Frank, that's probably not a bad number. I mean we another three LTACs coming on, on this third quarter. And I think we got a lot of development activity both on the LTAC side and also on the rehab side.

Okay. Thanks.

Sure. Thank you.

Your next question comes from the line of A.J. Rice representing UBS. Please proceed.

Hi. Yes. Hi everybody. Maybe just to ask on the outpatient clinic side, that number -- I know you've referenced having some new clinics, but it looks like if I'm reading the document right -- the release right, you only really were up two clinics. Was there some closing down of clinics first of all underneath that maybe? And I'll ask you a couple other questions about the outpatient as well?

Yeah A.J. you're right, its two clinics sequentially. But when you take a look at the year-over-year comparison, it was actually 29 wholly-owned clinics and two additionally managed clinics, so it was really 31.

Okay. All right. Going back and obviously all we can do is compare you to what we see some of the others reporting; it seems like there's some of the others are showing growth in the contract therapy side, and I'm just curious, what's happening underlying that in your contract therapy in the outpatient rehab division?

We actually saw some nice up tick on the contract therapy side also. We saw some increases in the contracts, and you saw a nice increase on the topline basis EBITDA increased and the margin expand.

Okay. And just to understand that 5.9% in-patient visits then, I guess I have to go back and calculate -- is there underlying sort of same clinic growth that somehow picked up? And what would you attribute that to I guess?

The 5.9% you're talking about is on the outpatient side right?

Right.

Yeah. No, I mean the majority of that is coming from the same-store perspective. The operators have done a great job. Now, quiet candidly I certainly wouldn’t burden them with saying, yeah, we expect to continue to see that growth that way, but again they've done a great job in growing those visits. As you know A.J. you've been around this for a long time. We've got a very seasoned mature outpatient management team and they just continue to do a great job.

And then maybe just stepping back on the JVs, obviously you've had some nice acceleration over the last 12 months, certainly in the pace has stepped up dramatically. Can you give us some sense -- is there -- was that just sort of a bolus that just happened to hit at the same time, or is there an expanding pipeline of JVs out there? And is there something that's driving a willingness to talk more about that right now than maybe was true a few years back?

Well, we couldn’t be more pleased with the growth of the JVs and David Chernow, our CEO has done a great job of shepherding a lot of those through. In terms of the pipeline, we think we do have a great pipeline A.J., and we don't know what we - we contribute that to a lot of things. But I think when you get as a company, when you get partners like UCLA and Cedars and Cleveland Clinic and Emory and Baylor, that I think it becomes a great calling card. I think what we've demonstrated now over the last couple of years, is that we really are a great partner that some of these good JVs, were not one-off, but we consistently add partners that are just the gold standard. And so, I think that that's going to continue to help us bring other partners to the table with the willingness to talk that. I'd also point out that, it's not just the JVs that we've signed, but I think that we have seen incredibly robust growth inside virtually all of the joint ventures that we've signed. So, these are not just deals that just get done and then are static. The growth inside the JVs has really been one of the great success stories of the company and it's enabling us to grow the rehab pretty well. So, we expect to see more joint ventures, the six in the last year, we all know that we could ever say that we'd do six a year, I mean there was time we were saying, we're going to do one to two a year. And so they have come kind of that for the last, the past 12 months, but we're pretty optimistic and I really feel good about our growth in that area.

All right. Thanks a lot.

Your next question comes from the line of Kevin Fischbeck representing Bank of America. Please proceed. Kevin Fischbeck - Bank of America/Merrill Lynch: Great. Thanks. Just wanted to follow-up on the commentary around volumes and the fact that you think that the marketing changes are impacted. Can you talk a little more about that? I guess why would you be dialing back, how broadly you're doing your marketing this far in advance of the criteria? In fact I think you might want to just kind of add new resources rather than dial things down. And if that's something that we should expect over the next couple of years, how much volume do think you have to kind of pull away from before you can backfill it on the new criteria?

Yes. Kevin, Marty and I'll both address that. First of all, hope I didn’t give the impression that we’re dialing back on anything. We're not dialing back on resources, we're not dialing back on marketing, and if there’s anyway that I said that, that was mistake. But I think that what we're looking at is because in the future the change in where we’re going to have to approach and the method that we go about identifying the patient population that is going to be compliant. We’re just making some changes in that area and Marty has been doing lot of work on the data collection information, let him comment on that, try to give you little bit more color on it.

Kevin, as Bob said, it's not dialing back, it is really taking more narrow focused approach to where we need to direct the marketing. And it's really, - as we really focus, as Bob said on these complaint patients, those are really going to be found, those types of patients are going to be found in the ICUs and the CCUs. And it's really going to be in the larger hospitals that are out there. We've had a broad array of facilities that we would go in and market to. And I think what you’ll see is instead of having a shotgun approach like that, really kind of direct it more in a rifle shot approach.

But to the extent - to finish that up, to the extent that why we're doing that process, we see reduction of otherwise the volume, that is an intended consequence of the efforts that we’re doing, we’re not a year in advance drawing down on or purposely reducing our senses. Kevin Fischbeck - Bank of America/Merrill Lynch: Okay. So I guess that makes sense. So if you think about then -- I don't know if there's any way to think about the draw down, because it's not like you're saying you're narrowing your scope, so is there way to think about the volume that is coming from the broader scope? That is, that may potentially be a loss, or are you saying you're still going to keep that generally speaking, it's just adding new volume in the narrower scope? I guess…

I don't really think there is a different way to think about it. Kevin Fischbeck - Bank of America/Merrill Lynch: Okay. And then you mentioned that on the rehab side, the 50% rule of the delay -- there it gives you more time to adjust to it. Is there a big adjustment for you that you need to make to be compliant with that criteria?

No, I don't think a big adjustment but you have to be focused, you have to be focused on it because it’s a compliance issue. So, I am not prepared to, and I don’t, I couldn’t tell you because I really don’t know that if that was in place right now, what kind of impact it would have on our side, I don’t have any idea. Kevin Fischbeck - Bank of America/Merrill Lynch: Okay. And then this will be the last question around the startup costs. How do you think about -- is 2014 going to be the biggest year of startup losses? Or would you expect 2015 to be the same or even higher as you bring on some new facilities?

I think in terms of the LTAC development, that will be 2014, Kevin. I think on the rehab side, there’ll be startup losses associated but rehab - because a number of those JVs are going to, are being constructed right now. So, they actually won’t open up the doors until the third and fourth quarter of 2015. So, you will see some startup losses then. Kevin Fischbeck - Bank of America/Merrill Lynch: Okay. Great, thanks.

Thank you.

Your next question comes from the line of Gary Lieberman representing Wells Fargo. Please proceed.

Good morning guys, thanks for taking my question. I don't know if it's possible but is there -- do you guys know what percent of the patients that would've been compliant with the new criteria?

That are in our hospitals now?

Yes, in the quarter.

Yeah, we look at that but we haven't given any guidance on that or we haven't given out any of that date and information.

Okay. So I guess is the plan with the marketing do you guys have an internal goal of at different points in time where you want to be on that compliance?

Not from a numbers standpoint at this point. As you can probably appreciate, when you look at our 100 and some hospitals, and you look at their various levels of compliance, it's going to spend, it's going to look some like a bit of a bell curve. And so our focus is going to be focus on those hospitals that need to modify some more or less dramatically their referral sources and their patient profile. And we'll go into those markets with the date and information that's available to us and we'll help them kind of to turn the ship toward making sure that they can move toward getting the compliant patients, then our marketing in those venues and locations where those patients reside, in other words the ICU, - the three-day ICU patients or the pulmonary patients. So, it's really more like a strategic plan for each hospital rather than at this point in time hitting any kind of numbers goals.

I think the other thing to really focus on Gary is that, you have to remember it’s a process. We talk about marketing but it's really an educational process that we have to go through. And so it’s continuous.

Okay. Any impact from reform? It seems like Kindred maybe felt a little bit of benefit from Medicaid expansion. Did you guys see any of that?

We did not. We saw a little bit, just a very slight uptick in our Medicaid payer mix percentage but we don’t think we can attribute that to the exchanges or the expansion Medicaid.

Okay. So is that in line with your expectations or did you expect to see something different?

No. I might think that’s totally in line with our expectations.

Okay, great. Thanks very much.

Thank you.

Your next question comes from the line of Whit Mayo representing Robert Baird. Please proceed

Hey, thanks. You've pretty much covered all my questions. Just Marty maybe any sense of what we'll see in terms of buyback activity, just the pace and timing of it for the back half of the year?

Good question, Whit. As we say, - we're pretty opportunistic. And to the extent that we think the price of the stock right now is pretty fairly priced and we think that there is some other opportunities for use of cash right now.

Okay. Can you elaborate a little bit more on priorities of capital spending?

Again it’s being opportunistic. The JVs right now have really taken off as we talked about seven in the past year. We'll be spending some cash on those.

Okay.

If you look at the return profile for used capital, when the stock was at eight, it was a pretty compelling return profile, as Marty mentioned in his prepared remarks, that - our average buyback price. So, that was compelling. If you look at the rates or return we’re getting on the joint ventures, it’s very high and that should be an absolutely very high priority for use of capital. The LTAC development is also similarly good right now. Now, we’ve really got what we can on that because the moratorium is going to prevent us from doing any others. So, we're more than happy to put capital into the new LTACs that we were able to get in under the moratorium. Certainly outpatient acquisitions or allocation of capital to the outpatients you've seen from the results, not only this quarter but consistently over the last couple of years, so the outpatient is just incredibly solid business for us with good returns and which certainly allocate capital there as well. And then, finally we're always contemplating and looking at acquisitions. And if we've found anything that had some good return characteristics to us, we wouldn’t hesitate to do an acquisition.

Great, thanks.

Your next question comes from the line of Chris Rigg representing Susquehanna Financial Group. Please proceed.

Hi, this is Josh on for Chris. I just had one kind of clarification question. In the first quarter, you raised the amount of additional beds that you expected in the 12 months from 150 to more than 300, just kind of wanted an update of how that was going. And then if you expected that to kind of be completed in either the first or second quarter of 2015. Thanks.

.:

Okay.

And the reason that change is because the legislation had one, the LTAC legislation in 2013 had some guidance on when the moratorium would take effect. And then when CMC came out with some clarifying regulations, it was a different time period and we found that some of the ones that we thought we were going to be able to put in by virtue of the legislation at the last quarter, we found that we had to dial some of those back because we couldn't get under the wire for the new CMS guidance.

Okay, thank you for the color. Appreciate it.

Thank you.

There are no further questions this time. I would now like to turn the call back to Mr. Ortenzio, for closing remarks.

No closing remarks, other than to thank you for joining us for the call. We look forward to updating you after third quarter results.