Amedisys Inc (AMED) 2008 Q2 法說會逐字稿

Good day and welcome to the Amedisys second quarter 2008 earnings conference call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Kevin LeBlanc. Please go ahead, Sir.

Good morning and thank you for joining us today for the Amedisys investor conference call to discuss [this morning's] 2008 earnings announcement and related matters.

By now you should have received a copy of our earnings press release. If you have not received a press release you may access it on the Investor Relations page on our website at www.Amedisys.com.

Joining me on today's call from Amedisys are Bill Borne, Chairman and Chief Executive Officer; Larry Graham, President and Chief Operating Officer; and Dale Redman, Chief Financial Officer.

Before we get started with our call, I would like to remind everyone that any statements made on this conference call today or in our press releases that express the belief, expectation or intent as well as those that are not historical facts are considered forward-looking statements and are protected under the Safe Harbor of the Private Securities Litigation Reform Act. These forward-looking statements are based on information available to Amedisys today and the Company assumes no obligation to update these statements as circumstances change.

These forward-looking statements may involve a number of risks and uncertainties which may cause the Company's results to differ materially from such statements. These risks and uncertainties include factors detailed in our SEC filings, including our Form 10-K and 10-Q.

Also the Company urges caution in considering any current trends or guidance that may be discussed in this conference call. The home health and hospice industry is highly competitive and trends and guidance are subject to numerous factors, risks and influences which are described in the Company's reports and registration statements filed with the SEC.

The Company disclaims any obligations to update information on trends or targets, other than in its periodic filings with the SEC. In addition, as required by SEC Regulation G, a reconciliation of any non-GAAP measures mentioned during our call today to the most comparable GAAP measures will be available on our Website at www.Amedisys.com on the Investor Relations page under the link, Press Releases.

Thank you and now I'll turn the call over to Bill Borne. Please go ahead, Mr. Borne.

Thank you, Kevin, and good morning.

First let me welcome each of you to this call. We appreciate the opportunity to update you regarding the Company's performance for the quarter and share our vision for Amedisys. Overall we are happy with both our presentation, our preparation related to the new payment system and the timing of our strategic purchase of TLC.

The new payment system is fundamentally based upon patient acuity and the level of services required to service a more chronic population. In addition, the purchase of TLC has helped us expand our national coverage network and migrated our services significantly in both the West and Northeast.

We had outstanding results for the second quarter, recording net service revenue of $313 million and earnings per share of $0.82, after adjusting for certain TLC integration costs. This represents growth of 85% and 44%, respectively, over the second quarter of '07.

Based on this performance and our expectations for the remainder of the year, we recently increased guidance for 2008. As stated in our July 17th guidance update press release, our increased expectations for the year are based largely on three factors -- our integration of TLC is ahead of schedule; our revenue per episode is increasing; and our rollout of our clinical programs is progressing very well.

During the quarter, we made one strategic acquisition which included five home health locations from a national hospital chain. The acquisition expanded our coverage in two [CON] states and furthered our presence in a third state. During the quarter we also opened four new home health agencies and three new hospice agencies.

As a result of acquisitions and de novo growth, we ended the quarter with [558], 458 home health locations, 162 more agencies, than the second quarter of '07. In addition we owned 46 hospice agencies at the end of the second quarter of '08, 29 more hospice agencies than the prior year.

With these acquisitions and startups we provide services in 504 agencies covering 35 states.

On the legislative front, both Chambers of Commerce have overridden the President's veto of House Medicare Bill, HR 6331, the Medicare Improvements for Patients and Providers Act of '08. The home health industry fared well with the passage of this legislation as our market basket increase was preserved through the end of '09.

The focus of our Company is on better meeting the needs of our chronic comorbid patients within our care. The number of Medicare beneficiaries is expected to almost double by 2030 to 79 million people. As I have stated on previous calls, our nation needs to develop a more efficient process for handling the health issues of the aging population in general and more specifically for the chronic comorbid population which are expected to require an increasing portion of our health care resources.

Even today, this chronic comorbid patient group that consists just of 12% of our Medicare beneficiaries accounts for 69% of our Medicare spending. Delivering high-quality cost-effective care to elderly patients with chronic conditions is our core business. With a nationwide footprint, a highly skilled and compassionate team of clinicians, best practices care management programs, and the best in class technology platform, our focus Amedisys is to be a key part of the solution to the health care crises in our country.

I would like to extend a warm welcome to all of the new employees of the agencies we acquired this quarter. We are very excited that you are part of the Amedisys family.

In conclusion, our competitive advantage is driven by the talented employees who individually and collectively make it possible for us to carry out our mission each and every day of providing cost-effective quality health care services to the patients entrusted to our care. We have a culture of hard work fashioned for service and a commitment to our core values and that intangible separates us from our competition.

I will now pass this call to Dale for his financial review. Thank you.

Thank you, Bill, and good morning. We followed first quarter of 2008 with another excellent quarter highlighted by record revenue and earnings. Our second quarter revenue grew 85% over the second quarter of 2007 to $313 million and for the six month period grew 63% over the same period of 2007 to $526 million.

Acquisitions accounted for approximately $101 million of this increase for the second quarter and $125 million for the six-month period. Our net income for the second quarter is $[20.4] million or $0.76 per share. This was a 33% increase over the $14.9 million for the second quarter of 2007 or $0.57.

Net income for the six-month period was $36.8 million or $1.38 per share while 2007 was $28.2 million or $1.08 per share, an increase of 28%. Included in the three-month period ended June 30, 2008 are certain TLC integration costs. These costs totaled $2.7 million or $0.06 per share and primarily consisted of severance costs and costs related to the conversion of the TLC agencies to our two our operating systems.

After having backed these integration costs, our adjusted earnings per share is $0.82 for the second quarter and $1.44 for the six-month period. Our gross margin was 52.4% for the second quarter of 2008, compared to 52.9% for the same quarter of 2007, and 52.5% for the six-month period compared to 53.2% for the same period in 2007.

As we previously disclosed, effective for the first quarter of 2008, we have reclassified certain benefit-related expenses from G&A to cost of service. Operating income increased 61% to $39 million or 12.4% of revenue for the quarter and increased 49% to $67 million or 12.7% of revenue for the six-month period. This compares to $24 million or 14.2% of revenue for the second quarter of 2007 and $45 million or 13.8% of revenue for the the six-month period of 2007.

Our G&A expense, including depreciation and amortization as a percent of revenue, remained flat at 40% for the second quarter and for the six-month period of 2008.

EBITDA for the quarter is $44.3 million, 14.2% of revenue versus $26.3 million or 15.5% of revenue during the second quarter of 2007. EBITDA for the six-month period was $76.6 million, 14.6% of revenue versus $49.9 million or 15.4% of revenue for the same period of 2007. Bad debt expense for the quarter was $5.7 million or 1.8% of revenue, compared to $2.8 million or 1.7% of revenue for the second quarter of last year.

Bad debt expense for the six-month period was $9.3 million or 1.8% of revenue compared to $5.4 million or 1.7% of revenue for the same period in 2007.

We generated cash flow from operations of $58 million during the first half of 2008. We spent $447 million on acquisitions and $12 million on capital expenditures and issued $395 million in new debt. During the second quarter of 2008, we reduced our acquisition-related notes payable by $40 million with cash generated from operations.

This debt reduction and our strong earnings for the second quarter caused our leverage ratio and our bank debt agreements to decline and will result in a 25 basis point reduction in our interest rate margin on our floating rate debt. After that reduction, the interest rate on this floating rate debt will stand at just under 4%.

At June 30th, our leverage ratio was 2.5 -- 2.05 times and our fixed charge coverage ratio was 2.71 times. We have $138 million available under our revolving credit facility at June 30th.

Days revenue outstanding at quarter end remained flat from the fourth quarter of 2007 at 51 days. As you know, on July 17th, we increased our revenue guidance to the range of $1.1 billion to $1.15 billion and earnings per share guidance to the range of $3.00 to $3.10 per share, based on an estimated 26.9 million shares. This guidance includes the anticipated results of our recently completed acquisitions after adding back the TLC integration costs. It does not include any future acquisitions.

We made these changes to our 2008 guidance primarily for the following reasons. First, the integration of TLC continues to be ahead of schedule thus creating synergies sooner than we had projected. Second, we shared -- as we shared with you in our first quarter conference call, TLC's revenue per episode has proven to be higher than we originally projected. As a reminder, TLC coverage area of the West and Northeast expands our geographic footprint into higher wage index markets.

And, lastly, the rollout of our political programs under our new Specialty division is ahead of schedule and producing positive early results.

Now I'd like to turn it over to Larry for his operational comments.

Thank you, Dale. The hard work and dedication of our entire workforce is certainly paying off with the excellent results we reported today. Growing the business, both internally and through acquisitions, becoming as efficient as possible and delivering high quality home health care continues to be our strategic focus.

This focus has consistently generated strong results for the Company. Before the quarter, our internal growth rate over last year and episodic based admissions was 13%.

We define internal growth as growth from startups and agencies we have owned over 12 months. We refer to this group of agencies as our base startup agencies. We are very pleased with the rebound in our internal growth rate metric, compared to the last few quarters.

We put a more concentrated focus on admission growth this quarter, including revamping our incentive comp plans, increasing the use of sales promotions, and holding Companywide conference calls to keep our business development staff focused on building the business.

On the other hand, we are disappointed in the number of startups for the quarter. We continue to have a large number of startups in the pipeline, but are experiencing third party application processing delays and seeing them opened.

However we continue to target 40 new home health agencies for the year and are maintaining our internal growth rate target of 10% for the year. Our internal growth rate of episodic-based revenue grew 28% year-over-year.

We believe this metric is more indicative of the Company's true growth performance. The components of this metric include internal admission growth, revenue for episode growth and internal recertification growth. Regarding hospice, we opened three new hospice agencies in the quarter and continue to target five to six hospice startups for the year.

During the second quarter we made a strategic acquisition that expanded our footprint in two [CON] states, Mississippi and South Carolina, and further our presence in the non CON state of Missouri. These agencies were converted to our operational platform including point of care technology in June.

Our acquisition pipeline is robust and we will continue to analyze potential opportunities as they become available. However, in the near-term, our focus is on the successful integration of the businesses we acquired in the first half of this year with a clear emphasis on TLC.

Our quarterly revenue and contribution margin are broken down as follows. Contribution margin is pretax and [pre] corporate overhead. $194 million in home health revenue related to agencies we have owned longer than 12 months with a contribution margin of 33%. $8 million in home health and hospice startup revenue, related to startups opened less than 12 months with a [9]% contribution margin.

Also in the quarter, we incurred approximately $3 million in costs associated with home health and hospice agencies we plan to open in the future; $10 million in hospice revenue related to agencies we have owned longer than 12 months with a contribution margin of 19%; $101 million in home health and hospice acquisitions revenue associated with acquisitions completed during the last 12 months with a contribution margin of 20%.

As Bill referenced, the integration of TLC is ahead of schedule. The wind down of TLC corporate staff is going quicker than planned. From approximately 210 employees at the time of acquisition, TLC's corporate staff was 69 at quarter end.

The schedule to convert TLC's agencies to Amedisys systems remains on track. We have converted 47 agencies through the first week of July. We expect to convert all agencies by October. As agencies are converted, they are rolled onto our billing system. As this occurs, we will sequentially close the four billing centers TLC operated. The first of these billing centers located in Florida was closed in July. We expect to close the California billing center in August.

Additionally the impact of the 2008 reimbursement changes on TLC's business has been less negative than expected. During the quarter, revenue from TLC's home health and hospice agencies totaled $75 million and contributed a 22% [NIPO] margin.

TLC's average revenue per episode has historically been significantly higher than Amedisys, due to its presence in higher weight index areas of the country, like the Northeast and California. As a result, the acquisition of TLC contributed significantly to the higher average revenue per episode we witnessed in the second quarter. The expansion of our Specialty division with its higher average revenue per episode also contributed positively to this growth.

In total, our average revenue per episode increased to $2,852 per episode. (technical difficulties), a 7% increase compared to the second quarter of 2007.

Regarding the Specialty division, we have successfully launched the Specialty Care program in 96 locations through the end of June. As a reminder, Balance For Life is the first program in this division. It helps the elderly with their balance through more intensive therapy sessions and, as a result, reimburses at a higher rate than our average episode.

The goal of this division is to provide patients with a better quality of life and to reduce fall incidences that also result in admittance to higher cost care facilities. We are very excited about the clinical outcomes associated with this program. 70% of patients studied reduced their fall risk functional category from high moderate to moderate to low levels. And 99.3% of patients studied demonstrated a reduction in fall risks upon discharge.

This clinical program is very important to our population. As a reminder our average patient age is between 80 and 82 years old. The statistics on patient (inaudible) is significant in our population. People 75 and older who fall are four to five times more likely to be admitted to a long-term care facility. Nearly 85% of death from falls in 2004 were among people 75 and older.

In conclusion, I would like to extend my thanks to all of the operations management and staff for their efforts during the quarter. They have continued to generate great results for the Company, even as we are in deep in the integration of our largest acquisition to date.

I would also like to single out the TLC -- now Amedisys -- management and operations staff. Being acquired is no easy task, but this group has shown great character by positively embracing the changes they are going through and continuing to generate strong operating performance. We remained focused on being the premier low cost, high quality provider in home health. We believe that focus, execution and commitment to clinical outcomes will continue to separate us from our competition.

I would like to express our appreciation for the support of our shareholders, customers, employees and vendors.

At this time will open the call to your questions. Please limit yourself to two questions so that we may allow question time for everyone. Time permitting we will allow for follow-up questions. Operator?

(Operator Instructions) Darren Lehrich with Deutsche Bank.

A couple of things here. Wanted to just drill a little bit further into the internal revenue growth rate that you are disclosing. Obviously a very strong result and I heard what you had to say, Larry, about volume, on the volume side some of the things you've done there.

Can you just maybe shed a little bit more light on the 15% pricing side? I guess it would sort of relate to recertifications and higher mix. Can you give us a little bit of a sense for how that splits? And maybe if you could just comment anecdotally about the pricing that you are seeing, the revenue per episode you are seeing in the 96 locations you've implemented specialty by the end of June.

Thanks for your questions. A couple of stats just to remind everybody. Our internal growth rate in admissions was 13%. So that's volume. Our internal growth rate in episodic base revenue was 28%. So that's revenue. Again, that's made up of three categories, admission growth, revenue per episode growth, and recertification growth.

On the recertification front, as a reminder, when we do startups, obviously, they don't have recertifications at the beginning. Maybe a year later they are doing significant recertification. So a lot of our recertification growth is due to that.

Also a lot of the acquisitions we do, do not have the clinical protocols or the point-of-care technologies that make sure we're providing consistent care. And at the end of (inaudible) the discharge, if the patient has had a change of medication, a change in doctor's orders or variance in clinical track, then they are appropriate for recertification.

So at times we see recertification rates go up with our acquisitions.

On the revenue per episode, we have honed in on three areas that we have hit upon that have increased our revenue per episode. I won't go over them again because I think Dale went over them. And I also went over them. What other follow-up would you like me to articulate?

I guess just maybe if you could shed a little bit of light on the revenue per episode differential that you are seeing in the 96 locations that have some specialty. Maybe just help me there and then I just want to clarify something you said in your prepared remarks.

The revenue run rate for TLC is $300 million, and I think I thought I heard you say 22% contribution margin. Are you still targeting 30% ultimately there?

You are correct. We did $75 million of TLC revenue in the second quarter with a 22% contribution margin. Ultimately, we plan to drive TLC closer to our Company average.

But as a reminder the back half of this year, we are still converting agencies. We are still unwinding corporate headquarters. So I think that margin improvement is more of an '09 story than a back half of '08 story.

On the revenue per episode on the higher acuity patients in the Balance For Life program, obviously, that plays a part in driving our revenue per episode up. It has always been an initiative of Amedisys to have internal initiatives to drive acuity. We have always taken care of higher acuity patients and we will continue to do so.

John Ransom with Raymond James.

Good morning. Larry, can you see any difference in the TLC branches that have gone through the conversion? I know it has only been a month or two, but can you see any difference kind of pre and post conversion in their revenue picture?

You know, we've got an interesting phenomenon going on. Because we have half of the agencies on TLC's system and have the agencies newly converted to our system.

So it is probably too early to articulate a difference in revenue per episode. Pre and post, we will probably get more clarity on that as the year goes on. I will say that we have learned a lot from past acquisitions. We are much more structured on the timeframe of delivering agencies to what I will call our staffing model, converting appropriate people to the per-visit model.

So we are doing things more timely than we may have in the past. In the past we focused on just the point of care conversion and making sure that happens. Now we are also focused on the staffing model and the per-visit pay model.

Simultaneously we have added some resources and we are aggressively tracking admissions on a monthly basis on the TLC agencies, which they were used to doing and very comfortable with. And we have given them a target number to hit on a monthly basis and weekly reminders of where they are at.

And I think that has helped focus the sales force and kept the volume at TLC even during the conversions.

Then, I guess my other question looking at your revenue, just thinking about your revenue per admission which is the higher recertifications, where are you running now in terms of episodes per patient?

I know, historically, it was kind of in the 1.6 range. Has that number gone up, I would assume?

Give me one second so I can give you an accurate number. I think it is about 1.75 but we are looking for it right now.

I guess the real question is how high can that go? I mean at some point when your revenue per episode levels off without a constant feed from new acquisitions, I would -- it's logical to expect your internal revenue growth can't sustain the numbers that you have now. So how high do you think -- how high can that go?

Historically, it hasn't moved sequentially year-over-year. Obviously when you do acquisitions or a lot of startups that moves it. So it is a slow growth. So I don't think it is going to move that significantly. It's about 1.9.

Okay. So it's moved up from 1.6 to 1.9? But, is it reasonable to assume wherever that number levels off then that's when your episodic revenue growth should slow I would expect at that point?

If we stopped doing acquisitions and stopped doing startups, you would see that level off. And as a reminder under the new payment system, it matters whether you are in the first, second, third or fourth episode. How many therapy visits you do in each.

So in my mind the new payment system recognizes higher acuity patients and longer link of stay and the appropriate reimbursement for those patients.

David MacDonald with SunTrust.

Good morning. Just a couple of questions on the Specialty programs. Larry, can you talk a little bit about -- I know it is in 96 right now -- what we can kind of target toward the year end. And should we expect the rollout of any additional clinical programs in 2008?

I will answer the first part. Around [150] by year end give or take a few. So we are at 96 now, so you can do the math over the next six months. And we are constantly studying and evaluating clinical protocols whether that has to do with wound care or diabetic patients or [CSF] patients. And we haven't articulated when we will rollout.

I had rather wait until we have a formulated plan to where I can put some numbers around that. But we will cost only and continually roll out clinical programs in our Company.

Then just Larry when I look at -- or Dale, I guess -- when I look at just the second quarter run rate and I look at the full year guidance, should we think about the back half of the year just kind of -- is that integration costs and some things still with TLC? Just because if I run rate out the $0.82 signed towards the high end of your guidance already?

Where we are, as you know we have had very positive results to this point. We've got a long way to go with TLC and we are continuing to roll out our clinical programs.

So at this point I think we are comfortable with where our guidance is and as time and circumstances change, we will think about it at that point.

Thanks, guys.

Brian Tanquilut.

Congratulations on a great quarter. Dale, just to follow up to David's question, is there any reason why the revenue progression in the back half will be different from historical (inaudible), sequentially goes up. You did [312] obviously in Q2.

How should we think of the revenue progression or what would be the driver for that to decline sequentially in the back half of the year?

I think the revenue sequentially often has to do with the timing and integration of acquisitions. So we have got one quarter of it we fully have TLC, HMA on board. And I think our revenue progression probably will pick up to some extent as we go into the last half of the year, but not -- I don't think it is going to be a great deal. With the caveat that we don't do any more acquisitions.

Let me just kind of add, historically we haven't given guidance or forecasted our revenue per episode. But what I can tell you is you are seeing our clinical migration to our chronic care management provider.

We have told investors over the last few years that we were trying to migrate in that direction. And last year, as you recall, we brought up 33 beta sites in our Balance For Life program. We studied that population extensively, we tracked the outcomes. We published our outcomes.

You will continue to see us build our systems in infrastructuring and programs to support the most chronic Medicare beneficiary.

Okay, so I guess that means that the guidance appears -- still, that there is still upside to the guidance I guess is what --?

Again we don't forecast the revenue per episode. But I am telling you that we will continue to focus on the chronic population.

Okay and then, Larry, just question gas prices. Are you seeing impact on back and what percentage of your cost structure does fuel represent?

As a reminder we pay per visit mileage rate. So gas prices affect us when we decide to up our mileage rate. In the second quarter, we did up our mileage rate from $0.37 to $0.42. So we will continue to monitor that throughout the remainder of the year.

But the only time it affects as on a quarterly basis is when we increase our mileage rate.

Derrick Dagnan with Avondale Partners.

Good morning and great quarter here. I was going to ask a couple of questions. One, on the G&A with the changes that you made to how you are structuring the items in your G&A, has that changed anything with respect to your acquisitions? I think historically when you did an acquisition, you thought that the incremental revenue would add about 7% incremental G&A there as far as percentage of revenue.

And so with the changes you made to the G&A structure, did that change that dynamic at all?

A couple of points there. We look at the larger acquisitions on an individualized basis and actually estimate how many [FTEs] we are going to add here at our corporate headquarters versus the reduction and their expenses.

As a generic rule, your 7% or about half of what our G&A has been running is what we've used to model out on the smaller acquisitions. But anything larger, we actually take a look and do forensics on that particular acquisition. And I can tell you, TLC, we originally estimated $30 million corporate overhead and we were going to add up to $15 million. We are running slightly better than that right now.

Okay. And let's talk a little bit about cash from Ops and CapEx. Looks like you generated around $25 million of free cash in the quarter. And could you give us a rundown of kind of your plans for uses of cash and thinking about the target leverage ratios that you would like to be at? And maybe a view on timing of that?

A view of the uses of cash, basically, we are going to focus on the TLC integration as our major thing for the rest of this year. That does not mean we won't do some small acquisitions. And those are -- happen when they happen.

Absent acquisitions, our highest and best use of cash is to pay down the floating rate debt that we currently have out there. So we will continue to focus on that. We are at about two times leverage right now.

We intend to have that number decline potentially over the rest of this year. And we are not uncomfortable at all with the leverage ratio in that range.

And one other quick one. When you talk about the rollout of the Specialty programs, with the (inaudible) you've completed so far, is there a strategy that you have as to where you go? Is it a regional focus? Is it a market-sized focus?

It has more to do with the operational strength of the agency and the market demographics. So if that is a mature agency and they are ready for a specialty director and full training on it and fully staffed, we look at that heavily as well as the market demographics of that particular agency.

Thanks.

Newton Juhng with BB&T Capital Markets.

I wanted to ask you a quick question on the revenue per episode this year-over-year sequential uptick here. Could you provide us a breakout of how much of that is coming from the addition of TLC versus the other factors that you cited?

We haven't given granularity. Nor do we plan to give granularity further that we have already given on revenue per episode, which is a 3 macro results.

We just don't see the internal benefit of trying to break down revenue per episode, how much is coming from an acquisition versus internally. So we will just stick with the Specialty programs, TLC's historically been higher as a common theme.

I guess we were looking at it from a perspective that the Specialty programs won't anniversary, but TLC will at some point and at which point we would like to get a better idea as to what kind of growth you have going forward from that point on. But understanding that if you don't want to provide that right now (multiple speakers).

Yes and it is going to take a little while for us to convert all the agencies and get a better understanding of postconversion where TLC revenue per episode is going to be in totality.

Without putting numbers on it, I think there is upside through our Specialty program as Larry has talked about; and with TLC's NIPO at 22%, we believe that over time there is upside in those numbers.

That's very helpful. Then with regard to -- you've got 458 agencies now. You talk about the 96 or so that you have that are currently with the Balance for Life. Can you talk a little bit about what kind of penetration you can get within that 458? I mean I know you probably are evaluating all of them.

It's too early to tell exactly how many of the 458. I can tell you that we plan to have at least 150 up and running by year end and the rollout will continue into '09. So I can't give you a magic number.

Again it's based on market demographics and the operational readiness of the agency.

Okay. So no target at this time?

That's correct.

Thanks for the answers.

Ralph Giacobbe from Credit Suisse.

Just real quick, going back to the revenue per episode here. I guess I just want to get a sense for and maybe in the context of just pure price. In the past you had talked about the reimbursement change having a sort of less than or right around 1% sort of [pure] price impact. Is there any change to that number?

We haven't updated the impact from '07 reimbursement to '08. Last call we said that would be the last time we got it into that because literally you'd have to run July under '08 reimbursement and then rerun it under '07 reimbursement.

We don't see the value in that. Obviously you can see the uptick and we've given the reasons why we believe that we've increased revenue per episode.

So, obviously, it is better than a minus 1 but we haven't updated and we won't update in the future.

Okay and I think you talk about you are on track for your new startups in terms of the number 40. But you talked about some delays or some issues there. Can you maybe just provide a little more details around that?

Sure. It's really regulatory processing delays. We had a pipeline full of startups; and we are continuing to add to that pipeline.

What we [can] articulate is exactly what quarter they will open. I spoke about $3 million in cost in the second quarter related to agencies we haven't opened yet and we are still targeting 40. A lot of it -- we are waiting on surveyors. Sometimes we are waiting on fiscal intermediaries to go through their paperwork. Sometimes they have changes in personnel.

It is not -- in our minds it's not a question of win, it's not a question of if, it's a question of when. And we think we will get to 40 or somewhere around there by year end.

This is my last one. You talked about the TLC employees getting cut from 210 down to -- corporate staff from 210 down to 69. Was that -- has that been sort of a process since the beginning of the integration or has more been done recently? Do you have any timing on that?

That was the exact number. We met with all of those employees at the four regional building centers and the corporate headquarters the very first day we announced. And we have individually given them timeframes and severances.

So that has always been the number so that hasn't been changed. It's happened a little more rapidly than we initially anticipated because we mapped out which month we thought people would exit. Some have exited a little quicker, but the numbers haven't changed since we started.

Whit Mayo with Robert W. Baird.

Good morning. Larry, just any sense for how your same-store Medicare business visits trended in the second quarter? I mean, I would think clearly that that should be higher than your same-store admissions statistics just given the recertification rate.

Yes, I think our business prep started running in the 17.5 range and last call, I said they would stay within a visit or so of that. That's a slight uptick, not too significant. So around 17.5 is our visits per episode. (multiple speakers) Again, we got a lot of moving parts because you've got a huge acquisition in there that is affecting that number.

Okay. We will talk about that off-line a little bit, but just over -- just thinking about TLC a little bit, how would you characterize the turnover in your clinicians so far at their legacy agencies? Has that been surprising one-way or the other?

The short answer is no. Obviously, in certain markets with the conversion of the point-of-care you've had some turnover, but nothing too alarming to date. TLC, as you guys know, was owned by private equity, so most people in their organization knew that eventually they would be sold.

And I believe in totality they are happy they have been sold to someone that is an industry leader and is going to stay around for a while.

If I could just ask one quick one. Just [stay] with interest rates where they are. Have you guys locked in any of your floating rate debt with swaps at this point?

The floating rate debt swap. Have we swapped a lot?

No, we have not at this point. It is something we will continue to evaluate.

Perfect. Thanks, guys.

This concludes the question-and-answer session today. At this time, I would like to turn the conference back over to Bill Borne for any additional or closing remarks.

Thank you. We certainly appreciate everybody calling for our second quarter results; and we look forward to sharing the third quarter. We are excited about the operations and the progress of the Company. And we look forward to chatting in several months. Thanks for calling.

This concludes today's conference. We thank everyone for their participations. You may now disconnect your lines.