Surgery Partners, Inc. (SGRY) Q1 2016 Earnings Report, Transcript and Summary

Greetings and welcome to the Surgery Partners, Inc. First Quarter 2016 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mike Doyle, CEO of Surgery Partners. Please go ahead Mr. Doyle

Thank you. I’d like to welcome everyone to Surgery Partners’ first quarter 2016 earnings call. Joining me on the call today is Teresa Sparks, our Executive Vice President and Chief Financial Officer. I’ll now turn over to Teresa to review the Safe Harbor statement.

Thanks Mike. Before we begin, let me remind everyone that during this call Surgery Partners’ management may make certain statements that constitute forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. These include remarks about future expectation, anticipation, believe, estimate, plan and prospects. Such statements are subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such statements. Such risks and other factors are set forth in the company’s earnings release posted on the website, provided in our prospective and subsequently filed Form 10-Q as filed with the Securities and Exchange Commission. The company does not undertake duty to update such forward-looking statements. Additionally during today’s call the company will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of adjusted EBITDA to net earnings calculated under GAAP can be found in our earnings release, which is posted on our website at surgerypartners.com and in our most recent Form 10-Q. With that I’ll turn the call back over to Mike.

Thanks Teresa. I’m pleased to report that 2016 is off to a strong start, thanks to our dedicated physicians and employees. We are enjoying solid demand and favorable trends across our business segments, with total revenues up 19.2% over last year and same-facility revenues up 13.3%. Some other key highlights of the quarter were 18.3% revenue growth in our surgical facilities, same-facility case growth of 11.6%, with 1.7% associated with the extra day in the quarter, successful integration of facilities acquired in the fourth quarter of 2015, and successful placement of our $400 million of unsecured senior notes with a fixed rate to replace existing floating rate debt. In the first quarter of this year, we continued our strategy of integrating multiple service lines in our existing markets, while continuing to grow our operations through end-market transactions. Our performance demonstrates that our model is resonating with physicians, patients and payors, who all benefit from high quality care at a lower cost. As an example, we recently expanded an existing payor relationship in Florida, which provides our physicians the ability to perform joint replacement procedures, for that payors’ cover lied throughout our state wide network of surgical facilities. We continue to experience success through our dedicated recruitment team focused on introducing new physicians to our surgical facilities and ensuring we are fully accommodating our existing physician’s cases. The team continues to expand service lines such as spine, total joint and cardiovascular procedures. Finally, from a strategic perspective, we remain focused on providing solutions for physicians through employment and partnership opportunities, allowing physicians to maintain independence, while focusing on providing outstanding care to their patients. This strategy assisted us in securing strategic relationships with two healthcare systems during the quarter to develop surgical facilities in an existing and in a new market. I’d like to take a minute to review development activities. We remain very active during the first quarter, completing three end market transactions including two end market physician practices and one end market surgical facility. During the quarter, we also successfully relocated our hospital in Great Falls, Montana to our new state-of-the-art facility located on a shared campus with our physician practice and ambulatory surgery center. We continue to integrate our extended service line offerings in this market. Our M&A pipeline remains well balanced with opportunities in both surgical facilities and ancillary services. Subsequent to quarter end, we continue to focus on our end market strategy, completing a platform transaction in Jacksonville, Florida, significantly strengthening our presence in the market with ambulatory surgery center, an integrated physician practice with multiple locations, and related ancillary services. This expansion in the northeast Florida market enhances our strategic on providing multiple complementary service line in the five largest market in the State. With this latest transaction, we now own or operate a 102 surgical facilities including 97 AFCs and five surgical hospitals across 29 states. In addition, we own or operate 50 physician practices across multiple states, employing physicians in over a dozen specialties. Let me turn the call over Teresa now to review the first quarter financials.

Thanks Mike. As Mike mentioned, we are very pleased with the continued strong performance of our operations in the first quarter. Our revenues increased 19.2% to 267.1 million in the first quarter, while same-facility revenue increased 13.3% with case growth at 11.6%. Adjusted EBITDA growth was 6.8% over the first quarter 2015, and as anticipated, our EBITDA margin was 14.4%. The year-over-year adjusted EBITDA margin changed as approximately a 160 basis points was primarily driven by two factors. First, as we previously discussed, our results reflect the impact of the lab rate reduction from CMS, which should be viewed as having a one-year impact on our overall growth rate. The lab rate has an adjusted EBITDA margin impact of approximately 1.1%. Finally, an additional 1% of our adjusted EBITDA margin change resulted from the anesthesia platform transactions completed in the fourth quarter of 2015. As anticipated this service line has a higher, first quarter fixed salary component, which impacts overall margins. On the acquisition front, as Mike mentioned, we acquired one end market ASC that we merged with one of our exiting surgery centers, and two end market physician practices for a total of 7.7 million. The larger transaction that we completed in April significantly enhances our presence in our existing Jacksonville, Florida market. The purchase price for that transaction was 74.5 million, including 16.6 million of contingent consideration. The purchase price was funded with card of the proceeds from the recent debt offering. Our net operating cash flow including operating cash flow less distributions to non-controlling interest was 7.7 million for the first quarter. Free cash flow for the first quarter was 11.4 million, as normalized for merger transaction cost of 3.2 million. In addition, the integration of our Great Falls, Montana replacement hub sort of resulted in a one-time increase in accounts receivable of 5 million and capital expenditures of approximately 5 million, along with the integration related capital in the quarter of approximately 2 million. Another key accomplishment for us this quarter was further strengthening our capital structure without a significant impact on our overall cost of capital. We completed an $80 million expansion of our first lien term loan to fund identified transactions, one of which was closed subsequent to quarter end. The first lien term loan matures in 2020. We also completed an offering of 400 million in unsecured senior notes, maturing in 2021. The proceeds from this offering were used to pay down borrowings under the floating rate second lien credit facility, repay the outstanding balance on our revolving credit facility, and for general and corporate purposes. As a results, we ended the quarter with cash and equivalents of 135 million and availability of 146.8 million under our revolving credit facility. As expected, at the end of the first quarter, our ratio of total net debt-to-EBITDA as calculated under the company’s credit agreement was fixed on reflecting to financing a transaction cost. We expect to end the year with leverage below six times and target a ratio of 4.5 times by the end of 2018, driven by a combination of organic EBITDA and free cash flow growth, along with capital efficient acquisition. Overall, we are very pleased with our progress this quarter. With that, I would like to turn the call back over to Mike to discuss our 2016 outlook.

Thanks Teresa. As discussed in our call in March, we entered in to 2016 having completed more transactions than originally planned for the fourth quarter of 2015, and we continue to see many opportunities to grow our network of surgical facilities and related ancillary services. As demonstrated by our recent activity, physicians are increasingly interested in our strategy of engagement for employment and recruitment opportunities. We look forward to another strong year for serving partners, and we would like to reiterate our 2016 guidance for adjusted EBITDA in the range of 184 million to 191 million. Thank you for your interest and support, and thank you to our physicians and employees who deliver superior care to our patients every day. With that, I would like to turn the call back over to the operator to begin the question-and-answer session.

[Operator Instructions] our first question today is coming from Ralph Giacobbe from Citi. Please proceed with your question.

Obviously a strong revenue quarter, but may be you can give a little more sense of some of the drags, the timing of cost that maybe constrained even better margin performance. I know you talked about the lab rate reduction and then the anesthesia platform deals that you did. But anything else in the quarter that maybe caused a little bit of a drag and then maybe helped on sort of the timing, particularly on the anesthesia side as we move through the year.

This is Teresa. As you mentioned, impact on the margins as we discussed on the lab and the anesthesia in the first quarter which we expect to rollout of in the second quarter and improving second, third and fourth quarter from that front. Also we mentioned the Great Falls relocation that also had a slight drag on earnings on margins in the quarter. We’re ramping up new service lines at that facility, and that just the overall integration of that facility had a slight drag on earnings from a margin perspective.

I think just to add to that, we’ve also had - these were expected and planned for. So from that perspective, we continue to see how they play out to the rest of the year and have included that in our guidance in our thought process on how we expected the year to start.

Yeah, we expect to return back to margins in the 16.5 in that range as guided earlier in the year.

And there’s been a lot in the market around balance building and out of network. Can you just remind us maybe how much exposure you have here in terms of what percentage of revenue is balanced there and maybe what percentage is out of network at this point and just your general strategy around that.

I think from the overall, very minimal amount of our revenue is less than 3% of our revenues are coming from another network or build as if out of network from a balance selling perspective growing compliance we understand the rules that really didn’t change any of our strategies, our thought processes. Our network approach is usually involved in a negotiation with the payor. It’s rare or if a payor has closed the network. But again they are very small amount out of network and continue to pursue in network contracts with all of our payors in all of our markets. When we do have that unique situation from a negotiation perspective where we have another network contract, we’re really focused on having those, that reimbursement it still looks like and feel like and in network rate. So pretty comfortable where we are, don’t see any affects or we will have neutral effects from on any changes around the balance (inaudible).

And then maybe just one more, can you give us an update on where you with the Symbion integration, how much synergy do you have left to capture and essentially over what period of time.

I think as we’ve always mentioned, the integration has gone well, but cost synergies have been implemented and really realizing the last portion of our cost synergies from the 15 million we had outlined as we began this year. So all of those are in place and we’ll continue to roll on with time. From a revenue perspective, we continue to have great success, as we mention we’d see those completed by the end of fiscal year 2017, may be rolling in to a little bit of 2018. So we’re having great success there. So with the implemented one or more ancillary services in eight of our Symbion markets having converted six anesthesia contracts in the Symbion markets. So as we expected, having the traction and really gaining the momentum of those types of opportunities. In 2016 we’ve had great success in the first quarter and continue to see that play out as planned over the next couple of years.

Our next question today is coming from Brian Tanquilut with Jefferies.

Mike you mentioned something about the joint program in Florida. Do you mind us walking us through how that works for you guys in terms of economics, and what drives referral flow and what incentivizes either the doctor or the payor to drive more volume in to outpatient setting such as your away from the hospital for joint replacements.

I think this is a very practical arrangement with our payor, as we continue to have discussions with all of our payors and really focused on new types of procedures that are gaining momentum in the industry, such as total joints. We’ve approached the payer and basically taking a look at the economics of the procedures and understanding that joint to specially have a unique characteristic of having a significantly more expensive implant, that’s involved in the case and taking a little bit more of our time. So we need a little bit of a different arrangement on these types of cases. So being very aware of that and the opportunity to have cost savings of payor was looked at addressing this from a state wide perspective with us, and allowing us to have the appropriate carve-outs for these types of procedures in our contracts across the state. Obviously for the payor being able to move outpatient appropriate joint procedures to an outpatient setting is significantly cheaper. From a patient perspective, obviously more convenient less risk of infection in our setting. And then from a physician perspective, just being able to perform these types of cases in a more efficient setting has again gained a lot of momentum. We have over 22-23 of our facilities that are now performing joint procedures on an outpatient basis, and we have to keep in mind that the way these procedures - that the payor doesn’t necessarily direct these types of procedures to our facilities. We really focus on giving our physicians the opportunity to treat their patients in the setting that’s most appropriate for their patients and by opening the opportunity of the payor being able to reimburse as appropriately for those types of procedures has really what allows the physician to have a choice of where to perform these procedures. So, again, really still focused on the volume of those procedures that are being driven by our physician partners and are employed physicians throughout the state by giving us the opportunity that these are the procedures that can be efficient economically as well as clinically in our existing facilities.

So Mike on an EBITDA per dollar per minute, if we look at it that way, you would say that these joint replacement procedures are coming in in line if not above your current rates?

So I would say from a dollar perspective, obviously we realize more dollars on these cases on both a per case basis but also on a per minute basis, but they are also a little bit more costly due to the implant. So they fall in line; usually these larger cases will have a slightly lower margin, but still from a dollar perspective any utilization will make a lot of sense.

You talked you’re interested in Jacksonville, so how should we think about pipeline for the rest of the year, considering that this was a flat burner acquisitions and balancing that with you capital structure and obviously the amount of leverage that you have in the balance sheet right now.

As we mentioned in our last call, and we talked about these platform acquisitions that we expected, as we had a little bit of a pent up pipeline through the Symbion acquisition and through the IPO of getting these things done and really working on these in-market transactions which obviously make a lot of sense, and each of these in-market transactions or platform transactions have the opportunity for us to grow upon them. So we continue to have success in our anesthesia company in Georgia, our physician practices that we’ve integrated, and continue to have growth in those markets on those platform acquisitions, which overtime will continue to decrease the effect of multiples on those. But we’ve been successful on bringing these platform transactions in at slightly accretive or neutral from a leverage perspective. And as we get in to our normal process of M&A, we continue to have a very balanced pipeline of both ancillary and physician practice opportunities on a smaller basis, not necessarily a platform basis in markets where we have surgical facilities, where we can really realize attractive and a leverage accretive multiple. So we’ll continue to see that throughout the year and expect to end the year under the six times leverage in that high fives.

And then Mike shifting gears to Part D rule that has been proposed at CMS, how does that benefit or impact your pain management practices?

Really don’t have any effects from the practice perspective. These practices are for the most part independent one-off practices that are outpatient based, and really have not - don’t anticipate any issues from that perspective.

Our next question today is coming from Matthew [Bush] from Goldman Sachs. Please proceed with your question.

I was hoping you could just on the debt leverage you’re touching on there, what is your thinking at this point about where you with that in 2017?

As Mike mentioned, we’ve been able to complete these transactions, large platform transactions slightly accretive to leverage neutral. So below (inaudible) by the end of 2016 and then setting down with our target at the end of 2018 at 4.5 times. So really think we can get there, have a very clear path through these leverage accretive capital efficient transactions, overall growth in our EBITDA and our free cash flow and that would be sort of between the end of ’16, the end of 2018 stepping down to that 4.5 tons range.

And just on the very strong same store case growth in the quarter. I’m sorry if I missed something, can you just give it that really extraordinary, can you us a little bit more detail on the drivers of that any geographic variation and so forth.

I think from an overall perspective we’ve continued to have conversations around our unique approach to driving volumes in to our existing facilities. So it does sound like a fairly simple thought process, but a little bit more complex in implementation. I’m just having a dedicated team who day-in day-out job is to recruit new physicians in to our existing facilities. So we’re seeing a very good result across the country, no really one geographic area that’s standing out. The opportunity to recruit new physicians and bring in new types of cases in to our existing facilities is something that this team is focused on every day. So great success on that front, and continue that to evaluate the opportunities of acquiring practices in existing markets where we have surgical facilities. So really sticking to that process of not only recruiting new physicians in which obviously leads to opportunities for in-market transactions, but continuing to have a really focused approach to not only recruiting new physicians and new programs in to our facilities, but ensuring that we are accommodating our existing physicians as their practices grow and as we have new types of procedures that can be done in our facility. Really ensuring that that team is responsible for recruiting is really involved with those physicians from a marketing perspective.

And as you look at the volume, can you make a read through on where you think the volume environment is. We’re in a stage economically where maybe the anecdotes of increased demand or elective procedures, to what extent do you get a sense that you’re seeing some of that in the volume as well.

I think if you take a look at what we have from a specialty perspective, most of the things are not things that are really going to be pent up for any period of time. As you take a look at GI procedures which have, there’s a lot of diagnostic as well as other types of procedures and that’s specially from an ophthalmology perspective 97%, 98% being cataract surgery. These are things that continue to have a pretty even or pretty limited ability to delay them. From an orthopedic perspective, again some ability to delay them for a short period of time. But I think we’re really seeing that pent up volume. We continue to see strong employment which allows people to have insurance. I think we continue to see the ability per patients to have access to facilities and I think we’re seeing a little bit of a consumerism. So although for many years said demographics will continue to drive higher volumes and as patients get older they’ll utilize more healthcare, I think we talked about that till it really blew in the face and never really saw that come to fruition. And I think we’re seeing more of a consumerism perspective understanding that outpatient is cheaper, the higher deductible plans are drawing some more attention to that, and I think we’re getting more traction on that than necessarily pent up demand or even necessarily demographics pushing the elderly population in to our facilities.

Our next question today is coming from Chad Vanacore from Stifel. Please proceed with your question.

Just taking the other side of the same store revenue growth was very strong, but the other side of that is revenue per case was only 1.5%. So why were volumes so strong and pricing so weak.

Well I don’t think it’s really that pricing is weak. If you look at our net revenue per case on a quarter-over-quarter basis, it’s up $193 per case, with just on a consolidated basis 7.9%. We had some increase in lower acuity cases in our same facility mix. A little bit higher mix of those lower acuity cases in the overall growth rate for the quarter. But our focus on our orthopedics continues to grow. We’re still seeing that strong trend, still seeing a strong trend from our managed care pricing. But we did have a higher mix of lower acuity cases in the quarter and our same store results.

We should expect that maybe second, third, fourth quarter snap back to where it had been historically.

I think so. I think we’ll see that. Several quarters it was about 50-50 and then we put ourselves ahead this quarter with our case volume which is obviously a good indicator of our business model and our success in recruiting and employing physicians. And so those cases just happen to be a little more focused on lower acuity cases. So I think we’ll see that become more balanced in the next couple of quarters.

And that kind of feeds in my next question, Teresa, you had mentioned about margin [risk] by the end of the year about 200 basis points. What’s going to drive that expansion and how do we get there quarter-over-quarter?

A couple of things I mentioned, obviously the lab rate is something that we’ll continue to see throughout the year. But the overall impact from the anesthesia business that’s sort of isolated the first quarter with those higher fixed cost salaries in the first quarter. You’ll start to see that, kind of normalize as we move out in to the rest of the year. Also the integration of the Great Falls hospital ramping up their service lines has been largely completed, so that will improve from a margin basis. As well as, we closed three platform transactions in call it the last two weeks of 2015 and so those were obviously in an integration phase in the first quarter. That heavy lifting has been completed and also just the transaction we announced in the second quarter will have a favorable impact on overall margins. So a lot of things that we have accomplished in the first quarter, and completing that transaction at the beginning of the second will aid with that overall margin expansion towards the end, re-improving throughout the rest of the year.

And just thinking about the anesthesia expansion, I think in the last update you were in somewhere around 30 plus locations of your ASCs, can you give us an update where you are now?

Yeah, we’re on 34 locations. The transaction we completed in the fourth quarter covered three existing markets and added other contracts in those markets. And then we picked up another location with the transaction we completed in the second quarter. So making good progress there.

Is that 34 locations that cover more surgery centers or is that just 34 --.

Well that’s 34 locations of our surgical facilities. But the transactions for example we completed in the fourth quarter have multiple contracts outside of our network. But the 34 is just referencing the number of anesthesia contract we provide to our network of surgical facilities.

Our next question today is coming from Kevin Fischbeck from Bank of America-Merrill Lynch. Please proceed with your question.

Maybe just to follow-up on that question, so as you think about the penetration between seasonally ancillary services in to your facilities, what percent are you penetrated right now or I guess how much of your revenue is coming from ancillary services as you kind of, you find 27% before rebouncing beyond where are you now.

If you look at it from that same comparison, that 27% on a historical basis as we spoke to the 27% included anesthesia and that same number on a comparable basis is about 15%. So that’s where we thought we would be within this year, as we completed these transactions in the fourth quarter and in the second quarter that has a higher focus on the anesthesia services and the physician practices. So we are right line with where we thought we would be this year as a percent of total ancillary services.

On a deal pipeline, you guys include [those] in your guidance, and you said you’re going to do probably a big deal this quarter. What percent of the M&A that was in your guidance have you completed so far?

So as we talked about the guidance, about 50% of the overall growth was coming from 16 new developments. About 70% of that total growth from new development was identified and the biggest component of that identified new development was the transaction that we closed in the second quarter in Jacksonville, Florida. So we are on our way to achieving those targets from a new development standpoint.

And then you said a little bit about multiples with (inaudible) in the market there.

I think the multiples as you look at both the ancillary businesses and the surgical businesses, I think the surgical businesses have been very consistent for many years, still seeing them in that seven times range. And from the physician practice and ancillary businesses, we’re seeing a wide range in that four to six times and again seeing very consistent year-over-year on the surgery side and the same in the ancillary side. So we’re really not seeing expansion of multiples, and obviously as we sort some lower economic times in ’07 and ’08 and we thought the multiples will go down, it would go down in that timeframe. On the surgery side they didn’t, so it kind of tests well on both sides. They don’t really have much downward mobility nor upwards.

[Operator Instructions] our next question is coming from John Ransom from Raymond James Financial. Please proceed with your question.

Teresa the big deal that you did in the second quarter, may be just a little color on revenue and EBITDA contribution in the second quarter moving forward, just for that (inaudible).

From a revenue standpoint, we’ll have about 8.5 million, 8 million to 9 million impact in the second quarter and about 3 million from EBITDA. So again, tracking well with that component of the 2016 guidance that was attributed to 16 new identified new development.

Could you just give a little more color as this mostly, you described this kind of integrated deal, could you just given a little bit more color on that particular acquisition.

One of places that we’ve already been involved with in the state of Florida didn’t have a big presence, it was in the Jacksonville market. So the ability to extend that transaction to include physician practice and other surgical facility, anesthesia services and other related ancillary services for that market, really gave us an expanded opportunity in the Northeast part of Florida. And as we take a look at what we’ve done in implementing and integrating ancillary services across the state, we’ve now been able to do that in five of the largest markets throughout Florida, and continue to have success in doing that. So we’re really working through in these major markets the ability to have an integrated approach by having employed physicians, when it makes sense, and in this case being able to have a large physician practice with nine locations, a surgery center and other ancillary services was a big addition to compliment an existing market that we already had a smaller physician practice and surgery center in.

Mike this deal you did in Florida with a payor for joint, is this a global price for certain procedures where you (inaudible) them facility fee, the doctor, the anesthesia, are you taking risk or is it discounted fee for service. How are these new arrangements evolving?

The arrangements will be different, and again these aren’t necessarily at risk arrangements, it depends on the payors. So we have some of these deals that we’re doing with specific payors in specific location that they want a bundled payment, and we have risk in those. This one was a little bit different; it continued to be a fee-for-services arrangement, where they did not a great mechanisms in the contract to provide for implant reimbursement and allowed for them to be economically sound for the surgical facility to do. So we basically addressed, although all of our contracts are written on separate paper, we work with the payor to provide an opportunity for all of our facilities to have the ability economically to perform these procedures and then allow our physicians to have the option to bring their patients that are appropriate, but not patients setting for a total joint in to our facilities. So, just one here was a big step forward with this particular payor to allow these types of procedures to be done in our facilities.

So is this a payor that you formally had a relationship with, so this is an expansion or is this a new payor relationship altogether.

In pretty much all of our locations, we have payor relationships, we have payor contracts. So this is just enhancing an existing relationship we have with the payor, where we are coming to them and saying, we need to add something to the contract that will be mutually beneficial. So I get it, its continuing work with the payors on a facility-by-facility, state-by-state basis to ensure that all procedures that can be beneficial for our facility, but also for the payor from a cost savings perspective are economically sound for us to be doing in our setting.

Just last one for Teresa, on your M&A spend, how much were you thinking you’ll have to spent by the end of the second quarter. I know I think you said you’re going to spend 150, 160 for the year. So how much of that will be done by the middle of the year.

Yes, we spend about 8 million in the first quarter and then the Jacksonville transaction was about 74.5. Now that had about 16.6 million of contingent consideration. So that takes us, excluding that contingent consideration we’re about 69. And on the outside ones, support the remaining 80 million, and I think with the exception of one transaction that will be more heavily weighted towards the third - in to the third and fourth quarter of this year.

Our next question is a follow-up from Brian Tanquilut from Jefferies. Please proceed with your question.

Teresa just a question sequential payroll tax expense, how should we think about the sequential change in payroll taxes like [FX].

Sequentially going from fourth to first or kind of rolling in to --.

Sorry, its Q1 to Q2?

I think we’ll see some overall improvement there just from a payroll tax standpoint, but also those salary cost are fixed than usually matched with lower volumes. When you think about that what I mentioned earlier that we picked that contracts not only at our facilities, anesthesia contracts at our existing facilities, but other contracts to other providers in the markets that maybe didn’t have the same level of good volume that we had in the first quarter. So you’re seeing those payments associated with or that revenue associated with a higher fixed cost. So we’ll see that improving in the quarter, probably maybe 50 basis points, 31.5%, 32% in that range of salaries and benefits as a percent of revenue.

Last one from me, provisions of doubtful accounts went down a decent amount during the quarter. Is there anything you want to call out there that we should be thinking about?

No, I think it’s just unusual from the standpoint of just some higher collection at some particular facility. I think you know a normalized rate for us is 2% to 2.5% and we’ve been pretty consistent in that range. So I think it’s just an unusually high collection quarter for us. In the quarter, about last quarter we were 2.3%, and I think we’ll stay in the 2% to 2.5% range.

Our final question today is coming from Mick (inaudible) from CBC. Please proceed with your question.

Just one quick follow-up, you had mentioned Mike your multiple range for acquisitions sort of in that 4 to 6 times range. Is that fully integrated, meaning you have the full benefit of improvements or is that growth just when you get the acquisition.

That’s pricing multiple.

We’ve reached the end of our question-and-answer session. I’d like to turn the floor back over to management for any further or closing comments.

I appreciate everyone for taking the time today and getting up to speed on our most recent. Again very excited about what the year has to offer, and we’ll look forward to talking to you guys again next quarter. Thank you, Alberto.

Thank you. This does conclude today’s teleconference. You may disconnect your lines this time and have a wonderful day. We thank you for your participation today.