Select Medical Holdings Corporation (SEM) Q4 2017 Earnings Report, Transcript and Summary

Good morning, and thank you for joining us today for the Select Medical Holdings Corporation’s earnings conference call to discuss the fourth quarter and full year 2017 results and the company’s business outlook. Speaking today are company’s Executive Chairman and Co-founder, Robert Ortenzio; and the company’s Executive Vice President and Chief Financial Officer, Martin Jackson. Management will give you an order – overview of the quarter and then open the call for questions. Before we get started, we would like to remind you that this conference call may contain forward-looking statements regarding future events or the future financial performance of the company, including, without limitation, statements regarding operating results, growth opportunities and other statements that refer to Select Medical 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 would like to turn the conference call over to Mr. Robert Ortenzio.

Thank you, operator. Good morning, everyone. And thanks for joining us for Select Medical’s Fourth Quarter and Full Year Earnings Conference Call for 2017. Before I outline our operational metrics, I’d like to provide you with some summary comments and updates since we reported last quarter. Our LTACs, Inpatient Rehab Hospitals and Concentra business segments had a very good quarter with strong double-digit adjusted EBITDA growth on a same-quarter year-over-year basis. We also realized nice volume increases in both patient days and visits as well as increased pricing. We continue to be pleased with the progress our LTAC operators are making since the transition to patient criteria. The fourth quarter was the first full quarter of comparable year-over-year results since all of our LTACs were operating under patient criteria. For the quarter, our admissions increased 4.2% compared to the same quarter last year. Our occupancy rate in our LTACs was 65.2% in the quarter, up from 62.6% in the same quarter last year. Our occupancy rate on a same-store basis was 66.4%. Our improved occupancy and continued focus on managing cost has resulted in a 240 basis point year-over-year improvement in adjusted EBITDA margin in our LTACs. Our LTAC’s adjusted EBITDA this quarter was up 24.9% compared to the same quarter last year. Our Inpatient Rehab segment continues to experience significant growth in terms of both revenue and adjusted EBITDA. On a same-quarter year-over-year basis, revenue grew 24.7% and adjusted EBITDA increased 65.1%. Our JV pipeline remains strong. Just after the first of the year, we announced the signing of a new joint venture partnership with Banner Health in Arizona. The joint venture with Banner will consist of both inpatient and outpatient rehab, with the ultimate, building of 3 new rehab hospitals in the market. In addition, as I mentioned on our last earnings call, we opened 1 additional rehab hospital in our Cleveland Clinic joint venture in October and an additional hospital with Cleveland Clinic in Akron opened in November. The Cleveland Clinic joint venture now has 3 hospitals with 180 total beds in operation. Later this quarter, we expect to open our joint venture rehab hospital in New Orleans with Ochsner; and some time later this year, our joint venture rehabilitation hospital in Las Vegas with Dignity. Concentra continues to exceed expectations with same-quarter year-over-year strong top line adjusted EBITDA growth of 7.9% and 28%, respectively. We should continue to see significant growth in the business segment over the next couple of years as we recently announced the completion of the acquisition of U.S. HealthWorks and the related financing transaction on February 1. This partnership enables us to expand our regional and national platform and build upon our success in occupational health. Our Outpatient Rehab legacy business continues to perform well with net revenue up 6.4% and adjusted EBITDA up 7% in the quarter compared to the same quarter last year. As we mentioned the last couple of quarters, we continue to experience some headwinds with several of the acquired physiotherapy markets as a result of changes we have implemented. Overall, the quarter, net revenue on our Outpatient segment is up 2.7% and adjusted EBITDA is down 2.8% to $30 million. As I’ve mentioned previously, we’re confident our operators will improve the performance of Physio assets during 2018. I’m sure many of you have noticed in our most recent earnings press release, we are now reporting separately our LTAC and Inpatient Rehabilitation Hospital businesses. Previously, these operations were combined as our Specialty Hospital segment. Our Outpatient Rehab and Concentra segments remain the same. Let me next take you through some of the operational highlights for the fourth quarter and full year. Net revenue for the fourth quarter increased $68 million to $1.1 billion compared to same quarter last year. Net revenue for the full year increased $158 million to $4.4 billion compared to last year. Net revenue on our LTAC segment in the fourth quarter increased 2.1% to $432 million compared to $423 million in the same quarter last year. Net revenue per patient day increased to $1,724 in the fourth quarter compared to $1,689 the same quarter last year. Patient days increased 1% to 249,000 days compared to 246,000 patient days the same quarter last year. For the full year, net revenue in our LTAC segment decreased $29 million to $1.76 billion compared to $1.79 billion last year. The decline in net revenue for the year was primarily related to decrease in patient days as a result of hospital closures. Patient days decreased 3.6% to just over 1 million patient days compared to last year. Net revenue per patient day increased 2.7% to $1,735 for the year compared to $1,690 per patient day last year. The higher net revenue per patient day was primarily due to a higher-acuity patient population resulting from full implementation of patient criteria. Net revenue in our Inpatient Rehab segment for the fourth quarter increased 24.7% to $171 million compared to $137 million same quarter last year. Patient days increased 22.3% to just under 74,000 patient days compared to 60,000 days the same quarter last year. Net revenue per patient day increased to $1,667 in the fourth quarter compared to $1,500 per day same quarter last year. For the full year, net revenue in the Inpatient Rehab segment increased $127 million to $632 million compared to $504 million last year. The increase in net revenue is related to several new hospitals that we opened in 2016 and 2017. Our patient days increased 24.4% to just under 270,000 patient days compared to 217,000 patient days last year. Net revenue per patient day increased 9.8% to $1,609 for the year compared to $1,465 per patient day last year. Net revenue on our Outpatient Rehab segment for the fourth quarter increased 2.7% to $256.4 million compared to $249.7 million the same quarter last year. Patient visits increased to 2.06 million visits in the fourth quarter compared to 2.05 million visits the same quarter last year. Net revenue per visit was $104 in the fourth quarter compared to $102 per visit same quarter last year. For the full year, net revenue in our Outpatient Rehab segment increased 2.6% to $1 billion compared to $995 million last year. The acquisition of Physiotherapy on March 4, 2016, was the primary driver in the increase in net revenues compared to last year. These increases were partially offset by the sale of our contract therapy business on March 31, 2016. Patient visits in our Outpatient Rehab clinics increased 5.6% to 8.2 million compared to 7.8 million last year. Net revenue per visit was $103 this year compared to $102 last year. Net revenue in our Concentra segment for the fourth quarter increased 7.9% to $255 million compared to $236 million in the same quarter last year. For the fourth quarter, revenue from our centers was $222 million and the balance of approximately $333 million was generated from on-site clinics, community-based outpatient clinics and other services. For the centers, patient visits were 1.86 million and net revenue per visit was $120 for the fourth quarter compared to 1.73 million visits and $119 per visit in the same quarter last year. For the full year, net revenue in our Concentra segment increased 3.3% to $1.03 billion compared to $1 billion last year. For the year, revenue from our centers was $904 million and the balance of approximately $113 million was generated from on-site clinics, community-based outpatient clinics and other services. For the centers, patient visits were 7.7 million and net revenue per visit was $117 for the year compared to 7.4 million visits and $118 per visit last year. Total adjusted EBITDA for the fourth quarter grew 27.6% to $124.6 million compared to $97.7 million same quarter last year with consolidated adjusted EBITDA margin at 11.2% for the fourth quarter compared to 9.3% the same quarter last year. For the full year, total adjusted EBITDA grew 15.5% to $538 million compared to $165.8 million last year. adjusted EBITDA margin at 12.1% for the year compared to 10.9% last year. As previously mentioned, our LTAC segment adjusted EBITDA increased 24.9% in the fourth quarter to $58.4 million compared to $46.8 million the same quarter last year. Adjusted EBITDA margin for the LTAC segment improved 240 basis points to 13.5% from the fourth quarter compared to 11.1% in the same quarter last year. The adjusted EBITDA results for the LTAC segment includes startup losses of approximately $400,000 for the fourth quarter this year. For the full year, LTAC segment adjusted EBITDA increased 12.5% to $252.7 million compared to $224.6 million last year. Adjusted EBITDA margin for the LTAC segment improved 180 basis points to 14.4% compared to 12.6% last year. The increase in adjusted EBITDA margin for the year are primarily due to an increase in our net revenue per patient day while maintaining a consistent cost structure. The adjusted EBITDA results for the LTAC segment includes startup losses of approximately $600,000 this year. Inpatient Rehab adjusted EBITDA increased 65.1% in the fourth quarter to $28 million compared to $17 million in the same quarter last year. Adjusted EBITDA margin for Inpatient Rehab segment improved 400 basis points to 16.4% in the fourth quarter compared to 12.4% same quarter last year. Adjusted EBITDA results for the Inpatient segment include startup losses of approximately $3 million for the fourth quarter compared to $2.4 million same quarter last year. For the full year, Inpatient Rehab adjusted EBITDA increased 58.2% to $90 million compared to $56.9 million last year. Adjusted EBITDA margin for Inpatient Rehab segment improved 300 basis points to 14.3% compared to 11.3% last year. The increase in adjusted EBITDA margin were primarily the result of improved performance in the new hospitals that we opened in 2016 and 2017. Adjusted EBITDA startup losses were $7.5 million for the year compared to $21.8 million last year. Outpatient Rehab adjusted EBITDA for the fourth quarter was $30 million compared to $30.8 million the same quarter last year. Adjusted EBITDA margin in the Outpatient segment was 11.7% in the fourth quarter compared to 12.3% same quarter last year. As I mentioned, continue to experience operational challenges in a few of our Physio clinic markets, which is a primary driver of the decline in adjusted EBITDA and margin in the quarter compared to the same quarter last year. For the full year, Outpatient Rehab adjusted EBITDA was $132.5 million compared to $129.8 million last year with Adjusted EBITDA margin for the Outpatient segment was 13% both this year and last year. Concentra adjusted EBITDA for the fourth quarter was $31.9 million compared to $24.9 million same quarter last year. Adjusted EBITDA margin improved 200 basis points to 12.5% compared to 10.5% in the same quarter last year. For the full year, Concentra adjusted EBITDA was $157.6 million compared to $143 million last year. Adjusted EBITDA margin improved 90 basis points in 2017 to 15.2% compared to 14.3% in 2016. Earnings per fully diluted share was $0.75 for the fourth quarter compared to $0.15 for the same quarter last year. Adjusted earnings per fully diluted share was $0.31 per fully diluted share for the fourth quarter compared to $0.12 per diluted share for the same quarter last year. Adjusted earnings per fully diluted share excludes the effects resulting from federal tax reform legislation for the fourth quarter of 2017 and a nonoperating gain and its related tax effects for the fourth quarter of 2016. For the full year, earnings per fully diluted share was $1.33 compared to $0.87 last year. Adjusted earnings per fully diluted share was $0.97 per diluted share for the year compared to $0.61 per diluted share last year. Adjusted earnings per fully diluted share in 2017 excludes the effects resulting from federal tax reform legislation and loss on early retirement of debt and its related tax effects for the year. Adjusted earnings per fully diluted share in 2016 excludes the nonoperating gain and loss on early retirement of debt and their related tax effects last year. Before I conclude, I wanted to note that the Bipartisan Budget Act of 2018 included some provisions related to LTAC hospitals and outpatient rehab that I thought I should mention. For the LTAC, the act included a provision for the continuation of blended payments for site-neutral patients for an additional two years. The continuation of the blended payments is being paid for via reduction of the IPPS, or short-term acute care per diem rate, used as part of the blended payment calculation. Because Select is focused on taking criteria- eligible patients only, this rule change does not really impact the company, and Select remained at neutral on support for the rule. For Outpatient Rehab, the act also included a provision for the repeal of the therapy caps on Outpatient Rehab services. Select was supportive of this legislative change that was seen as long overdue by the industry. I’ll now turn the call over to Marty Jackson for some additional financial details before we open the call for questions.

Thank you, Bob. Good morning, everyone. For the fourth quarter, our operating expenses, which include our cost of services, general and administrative expense and bad debt expense, were $998 million. This compares to $953 million in the same quarter last year. As a percentage of our net revenue, operating expenses for the fourth quarter were 89.4%. This compares to 91.9% in the same quarter last year. For the full year, our operating expenses were $3.9 billion as compared to $3.8 billion for the prior year. As a percentage of revenue, operating expenses for the year were 88.4% which compares to 89.6% for the prior year. Cost of services were $947 million for the fourth quarter. This compares to $910 million in the same quarter last year. As a percent of net revenue, cost of services decreased 210 basis points to 84.9% in the fourth quarter compared to 87% in the same quarter the prior year. For the full year, cost of services was $3.73 billion. This compares to $3.66 billion last year. As a percent of net revenue, cost of services decreased 150 basis points to 84% for the year. This compares to 85.5% in the same period last year. The decrease in cost of services as a percent of revenue is primarily due to improved operating performance in our startup Inpatient Rehab hospitals and relative cost reductions achieved by our LTAC and Concentra segments. G&A expense was $30.6 million in the fourth quarter. This compares to $25.7 million in the same quarter last year. G&A as a percent of net revenue was 2.7% in the fourth quarter. This compares to 2.5% of net revenue for the same quarter last year. During the fourth quarter of this year, we incurred $2.8 million of U.S. HealthWork acquisition costs that are included in our G&A expense. Excluding these costs, G&A as percent of net revenue would have been 2.5% in the fourth quarter this year. For the full year, G&A expense was $114 million. This compares to $106.9 million last year. G&A expense as a percent of net revenue was 2.6% compared to 2.5% last year. G&A expense this year includes $2.8 million of U.S. HealthWork acquisition cost and $3.2 million of Physiotherapy acquisition cost last year. Excluding these costs, G&A as a percent of revenue was 2.5% this year versus 2.4% last year. Bad debt as a percent of our net revenue was 1.8% in the fourth quarter. This compares to 1.7% in the same quarter last year. For the year, bad debt as a percentage of net revenue was 1.8% compared to 1.6% last year. Beginning in 2018, the majority of the expense we have historically categorized as bad debt will now be included as a component of net revenue and reflected as a reduction to revenue on the income statement. As Bob mentioned, total adjusted EBITDA was $124.6 million and the adjusted EBITDA margin was 11.2% for the fourth quarter compared to the adjusted EBITDA of $97.7 million and adjusted EBITDA margin of 9.3% for the same quarter last year. For the year, adjusted EBITDA was $538 million and adjusted EBITDA margin was 12.1% compared to adjusted EBITDA of $465.8 million and an adjusted EBITDA margin of 10.9% last year. Depreciation and amortization expense was $40.4 million in the fourth quarter compared to $37.4 million in the same quarter last year. For the year, depreciation and amortization was $160 million. This compares to $145.3 million last year. We generated $5.4 million in equity and earnings on unconsolidated subsidiaries during the fourth quarter. This compares to $5.5 million in the same quarter last year. During the year, we generated $21.1 million in equity and earnings of unconsolidated subsidiaries compared to $19.9 million last year. We also recorded a $19.7 million in loss on early retirement of debt this year and $11.6 million last year related to our financing activities. During 2016, we also recorded a non-operating gain of $42.7 million. This is primarily related to the sale of our contract therapy businesses. Interest expense was $38.5 million in the fourth quarter and $154.7 million for the year. This compares to $42.4 million in the fourth quarter and $170.1 million last year. The decrease in interest expense is primarily related to the reduced rates we were able to achieve and the refinancings we completed during the first quarter of 2017 as well as the refinancing of the Concentra term loans we completed in the third quarter of 2016. The company recorded an income tax benefit of $18.1 million for the year. This compares to income tax expense of $55.5 million last year. The tax benefit in 2017 includes the effects resulting from the federal tax reform legislation which caused us to revalue our tax reserves upon the enactment of the legislation. Net income attributable to Select Medical Holdings was $177.2 million for the year and fully diluted earnings per share was $0.33. The effects resulting from the federal tax reform legislation increased our earnings per share by $0.45 for the year. At the end of the year, we had $2.7 billion of debt outstanding and $122.5 million of cash on the balance sheet. Our debt balance at the end of the year included: $1.14 billion in Select term loans, $230 million in Select revolving loans, $710 million in Select 6.38% senior notes, $619.2 million in Concentra term loans, $44.2 million in unamortized discounts, premiums and debt issuance cost to reduce the overall balance sheet debt liability and we had $43.5 million consisting of other miscellaneous borrowings and notes payable. Operating activities provided $108.2 million of cash flow in the fourth quarter and $238.1 million for the year. Our days sales outstanding was 57 days as of December 31, 2017, which compares to 60 days at the end of September 30, 2017, and 51 days at December 31, 2016. We recouped approximately $30 million of the previously discussed underpayment in our periodic interim payments from Medicare in our LTAC hospitals. This was during the fourth quarter of this year. We have collected the balance of the estimated underpayments at December 31, 2017, of approximately $15 million during January and early February. Investing activities used $23 million of cash in the fourth quarter. The use of cash was related to $59.4 million in purchases of property and equipment and $9.3 million in acquisitions and investments during the quarter. This was offset in part by $45.8 million in proceeds from the sale of assets in the quarter. A substantial portion of the proceeds from the sale of assets included a recapture of capital expenditures related to one of our Inpatient Rehab development projects where Select financed the interim construction cost. Investing activities used $193 million of cash for the year. The use of cash was related to $233.2 million in purchases of property and equipment and $40.1 million in acquisitions and investments during the year, offset in part by $80.4 million in proceeds from the sale of assets during the year. Financing activities used $59.9 million of cash in the fourth quarter. The use of cash primarily related to $90 million in net payments on revolver loans and principal payments on term loans of $2.9 million, offset in part by $13.5 million in net borrowings of other debt and $10.5 million and an increase in overdrafts. Financing activities used $21.6 million of cash for the year. The use of cash primarily related to $40 million in net payments on term loans, $9.9 million decrease in overdrafts, offset in part by $14.7 million in net borrowings and debt issuance cost on revolving loans and $26 million in net borrowings of other debt. Additionally, our earnings press release, we reaffirmed our business outlook for calendar year 2018 provided earlier this year. We expect net revenue to be in the range of $5 billion to $5.2 billion. Adjusted EBITDA is expected to be in the range of $630 million to $660 million and fully diluted earnings per share expects to be in the range of $0.97 to $0.12 in 2018. This concludes our prepared remarks. And at this time, we’d like to turn it back over to the operator to open up the call for questions.

[Operator Instructions] Your first question come from the line of Kevin Fischbeck from BoA Merrill Lynch. Your line is now open.

This is Catherine Anderson on 2015 before criteria? We’re just trying to get a sense of where margins could rebuild to.

Yes. If you can hold on just for a second, we’ll look that up. Catherine, we are looking at 12.6% for the year of 2017.

Okay, And could you give more details on the progress on Physio margins? Last quarter, you indicated it would take about 6 to 9 months to get them back to historical levels. Does that timeline still hold?

Yes. We’d certainly be happy to do that. With regard to the Physio integration, we have identified a number of markets where we have some issues. And we certainly monitor that on a weekly basis. And we are seeing some nice traction in some of the areas. We still have a couple of specific geographical locations where we need to work on. And we think that 6 to 9 months is truly the appropriate time frame where we will see some nice improvements.

Okay, that’s helpful. And then lastly, what will be the incremental cash flow from tax reform? And how do you plan to use it?

Yes. I mean, the amount. Yes, I mean, we really have not quantified the total dollar amount. As you know, we’ve talked about our effective rate’s typically in that 38% to 40% range. We believe it will be in the 27% to 28% range for 2018and beyond.

And for the allocation of that capital, primarily, it will go to the rehab joint ventures. And other than that, we’re really focusing on 2018 and 2019 as a delevering period for the company. So I wouldn’t look for much in the area of M&A, certainly, nothing significant. And a lot of our free cash will go toward the rehab joint ventures.

Okay thank you very much.

Your next question comes from the line of Peter Costa from Wells Fargo Securities. Peter your line is now open.

Can you contrast for us the – how you expect the performance of U.S. HealthWorks to go relative to the tremendously good improvement that you had at Concentra from that transaction, versus the Physio transaction, where it’s, a little bit, been weaker here. Can you talk about how you see U.S. HealthWorks progressing going forward?

Well, I mean, I think there is – we’re coming off a very successful integration of Concentra post the acquisition from Humana. And those numbers have been out there, and we’re certainly very proud of the work that the Concentra – the new Concentra management team did since the acquisition from Humana. The U.S. HealthWorks is a mirror-image business. And I think we’ve been open about what we think the synergies can be. We have a very detailed plan. I think it’s worth noting that most all the synergies that we’ll see in 2019 are mostly all cost synergies. They have been pretty detailed and identified by the management team, and we think that the execution of those will be very well done. So we have a lot of confidence that the plans are detailed, and we think it’s – we believe that, at least currently, it’s gone very smoothly.

And then can you go through the $14.1 million benefit in taxes this quarter from the prior operating loss? What was that? And can you talk about that a little bit?

Yes. That has to do with the NOL associated with the Physio acquisition, Pete. I think there was – $14.1 million is a tax affected number. So I think we were – I think the non-tax affected number was in the $14 million range.

Okay thanks.

Sure.

Your next question comes from the line of Chris Rigg from Deutsche Bank. Chris your line is open.

I just wanted to ask about Concentra in the quarter. Definitely tracked better than we had expected. Can you give some color on the results there?

Sure, Chris. You’re absolutely right. I mean, it – the Concentra operators have done a great job. And what you’ve seen is you’ve seen not just a price, nice price increasing, but you also saw an increase in volume. And especially during this period of – the fourth quarter is typically the low quarter for the occ med business, and they really did a great job increasing volume.

Does flu impact at all? Or is that not a factor in that business?

It really – from our perspective, it really doesn’t impact it all that much.

Flu has, really, a bigger impact on the LTAC operations than in the occupational medicine business.

Got it. And then just on the accounts receivable. Can you give us a sense for what’s going on with some of the Medicare collections there? Just been a thorn in the side pretty much, at least the latter 2/3 of the year.

Well, I think what you’ve seen, Chris, is you’ve seen a reduction in the DSO by three days from Q3 to Q4. And a large part of that has to do with getting the repayment of the underpayment on PIP. And we continued to do that in the first quarter. You’re right, it’s something we’ve talked about. And a lot of this was really – a lot of this really occurred due to going into criteria and the reduction of the volume in how PIP actually works. So what we’re doing is we’re getting back to a state of normalcy which, I think, will certainly benefit you analysts to make sure we don’t have this fluctuation.

Understood, thanks a lot guys.

Sure.

Your next question comes from the line of Bill Sutherland from The Benchmark Company. Bill your line is open.

Thank you. Good morning everybody. On the IRFs, can you guys give us a sense of the capacity growth that you’re going to achieve based on the two Cleveland facilities in Q4; and then Ochsner, I guess, Q1? And then I think you’ve got something in Q3 coming up.

Actually, Bill, we’ve got something in Q4 coming up on Vegas. I think what you ought to do is – I think you’ll start to see breakeven on the Cleveland and the Akron hospitals probably in the third quarter of this year. And then you’ll see operating losses associated with Ochsner probably through the balance of the year, and you’ll start to see losses associated with the Las Vegas hospital in the third and the fourth quarter.

And then your plans with Banner, can you go through that? And I know that’s not going to be – that’s not a majority deal for you guys.

That’s correct, it’s not. The Banner is a joint venture in both the Inpatient Rehab and the Outpatient business. It’s recently – it was recently signed in January of 2018. And while we have plans to construct three new rehab hospitals, those plans are unfolding now. I mean, recently signed deals. So we have architectural, we have site identification, we have all that work to be done. So we’re pretty excited. As many of you who follow healthcare know, Banner is one of the premier systems in the country. So we’re engaged with them now in the planning process of these three hospitals and are working to integrate the outpatient part of the joint venture. I can’t give your really a lot more detail than that at this point.

But as far as impact on your numbers, it sounds like it’s probably more 2019

Yes, 2019, 2020, Bill.

Yes.

Yes, no question. And so you have such tremendous top line growth in IRF in 2017. And so I’m just getting a sense – I want to get a sense of just how much growth you kind of have automatically there just due to more capacity expansion. I guess I don’t know the bed sizes or the relative sizes of the facilities.

Yes. You can assume, Bill, that most of the hospitals that we’re building are in the 60-bed range.

Okay. Nothing major at this time around?

No, no. You’re right. I mean, and it’s a very valid question, especially considering California Rehab. That was by far the largest hospital that we’ve constructed and that was 130 beds. So all of these – all the beds were talking about are really 60 beds per hospital.

Did – I’m just trying to make sure I had my occupancy numbers correct for LTAC since you’re giving out the new level of detail. Did it – did occupancy go down 1 point in 4Q versus 3Q?

No.

It did not.

No, okay. So it stayed around 66% since 2Q, is that right?

Yes.

Okay. So is that just – is there seasonality at work here? Or are you just sort of at a level and then you’re going to go to a next step, stepped-up improvement in the current year?

No. We certainly expect – as we indicated, we expect to ultimately see us back at that 70%, 71% occupancy rate.

Okay, I just wanted – since you leveled off for three quarters, I just wanted to make sure that, that was the case. And then lastly, to that first question that you guys looked back in, for pre-criteria EBITDA margin for LTAC. Are you sure it was only – I think you said 14-something percent, which is what you did in the

Well, you know what, yes. You know what, if the question was, I think, the 12.6% that we gave was actually on – that was on – that was 2015, right?

That’s 2015. Yes, yes.

2015, I think, was – 2015 was north of 14%, I think.

Yes.

Yes.

I mean, I have the consolidated Specialty Hospital number. Actually, the biggest year was 2012, and then it stepped down from there towards criteria.

Well, yes, 2012 was pre-sequestration. If you take a look at, sequestration occurred both in – it was 9 months of 2013 and then full year in 2014. Total impact there was – I think it was $40 million in 2013 and $60 million in 2014.

$40 million to what, Marty?

$40 million to $60 million.

Right, but to – is it on EBITDA? Is that what you’re

yes. It’s really both, right? Because sequestration hits the revenue line, but then it drops straight to the bottom line.

Okay. appreciate all the caller. Thanks guys.

Okay, well thanks.

There are no further questions in the queue. I would like to now turn the call back over to management team for closing remarks.

No closing remarks. Thank you, everyone, for joining us. And we look forward to updating you again in May.