Amedisys Inc (AMED) 2014 Q2 法說會逐字稿

Good morning, my name is Lisa and I will be your conference operator today. At this time, I'd like to welcome everyone to the second quarter 2014 earnings conference call.

(Operator instructions)

Mr. David Castille, you may begin your conference.

Thank you, Lisa. Good morning and welcome to the Amedisys investor conference call to discuss the results of the second quarter ended June 30, 2014.

A copy of our press release is accessible on the investor relations page on our website. Speaking on today's call from Amedisys will be Ronnie LaBorde, President and interim CEO and Dale Redmond, interim CFO.

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 a belief, estimation, projection, expectation, anticipation, intent or similar expression, as well as those that are not limited to 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 if circumstances change. These forward-looking statements may involve a number of risks and uncertainties, which may cause the Company's results or actual outcomes to differ materially from such statements.

These risks and uncertainties include factors detailed in our SEC filings, including our forms 10-K, 10-Q and 8-K. The Company disclaims any obligation to update information provided during this call, other than as required under applicable Securities laws.

Our Company website address is www.Amedisys.com. We use our website as a channel of distribution for important information, including press releases, analyst presentations and financial information regarding the Company. We may use our website to expedite public access to time critical information regarding the Company in advance or in lieu of a press release or a filing with the SEC disclosing the same information.

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 on the investor relations page under the tab, financial reports, non-GAAP.

Thank you. And now I'll turn the call over to Ronnie LaBorde.

Thank you David. Let me begin by thanking the entire Amedisys team for a spirited and concentrated effort that led to a significant improvement in performance during the second quarter. They focused on the task at hand and are a continuing inspiration.

Next, allow me to update you on the commitments to our investors that we outlined on our previous quarterly call. Our most important commitment and primary focus is to deliver care with clinical excellence. The next CMS home health compare data set is due any day now.

While we wait to see the results, our own internal data reflects sustained performance in most measures and improvement in two of the nine reported measures. Our care center teams remains focused on the quality of care and the quality of care we deliver for our 58,000 patients every day.

Second, our goal is to achieve consistent and sustained organic growth. In home health, our 316 care centers that makeup our core portfolio, achieved a 2.6% year over year same store increase in Medicare admissions and a 5.1% increase in episodic admits.

In hospice, we did not achieve positive growth. In our 80 care centers that make up our core portfolio, we experienced a 1% decline in admissions and a 2% decline in average daily census.

The third commitment we made was excellence in our core operations. This commitment refers to an efficient cost structure, both in terms of direct and G&A costs. On the direct cost front, our cost per visit in home health declined over $5 sequentially to $85. Home health gross margins increased 360 basis points sequentially and were flat year over year at 42.8%.

In hospice, volume declines and a slight increase in costs reduced gross margins by 120 basis points year over year to 46%. Additionally, consolidated G&A expenses, exclusive of depreciation and amortization and bad debt, decreased over $8 million year over year and $6 million sequentially.

Approximately half of this sequential decline relates to closed care centers. The remainder indicates that we are slightly ahead of pace from our previously announced target of an annual $10 million reduction in G&A expenses.

Due in large part to the operational improvements I discussed in the initiatives we previously announced, we generated of revenue of $305 million in the quarter and adjusted earnings of $0.25 per share. Adjusted EBITDA was $22 million or 7.3%, an improvement toward our goal of returning to at least industry level margins.

Included in the second quarter results is $2 million of negative impact from care centers that have now been closed or consolidated. In the third quarter, we expect little to no financial impact from this group of care centers.

Also included in the second quarter results, is $3 million in restructuring and consulting costs, which may not recur in subsequent periods at the same levels.

We are optimistic about the second half of the year. However, we would caution investors not to assume our second quarter performance is our new run rate. The second quarter is historically our best quarter of the year and there is still much work to be done to achieve our desired level of performance on a consistent basis.

While we believe the cost reductions are sustainable, we do not yet have the same visibility into top line growth. However, we are developing initiatives that we believe will help support organic growth.

We are near the completion of our operating model review conducted by the Boston Consulting Groups. Several strategies are being developed that will be tailored to different regions of our operation. And we are confident they will enhance our ability to achieve improved and sustained operating performance.

As we announced earlier this month, we were notified by the SEC their investigation into Amedisys has been completed and they recommended no enforcement action. We are pleased this matter has been closed.

With respect to our AMS3 implementation, we are still in beta testing at our first site. Our next site is to begin testing on September 1, 2014. We will provide more updates on our implementation schedule as the testing process progresses.

Turning to our balance sheet, we amended our senior secured credit facility and closed on a $70 million second lien term loan. Going forward these credit facilities provide both flexibility to operate our business and adequate liquidity as we approach the second and final payment associated with our DOJ settlement in late October.

CMS released its 2015 proposed rules for home health earlier this month. Our preliminary estimate is a negative 0.8% reimbursement reduction. While we are still working to determine the ultimate impact, we do view some of the changes as incrementally positive for our business. Specifically the elimination of the physician narrative requirement for face-to-face encounters.

Finally, the search process for the permanent CEO continues. There is no color or other update that can be provided at this time. With that, I'll turn it over to Dale Redman, our interim Chief Financial Officer.

Thank you Ronnie and good morning everyone.

For the quarter we generated revenue of $305 million and earnings of $0.23 per share on a GAAP basis. This includes a $2.1 million gain associated with our previously disclosed divestiture of Idaho and Wyoming care centers. A write off -- an asset write off of $1.5 million associated with non-core operations, and a $1.5 million increase in reserve related to previously disclosed OIG self report matter.

Adjusting for these items, we earned $0.25 during the quarter. Adjusted EBITDA was $22 million with a margin of 7.3%, a sequential improvement of 550 basis points. Adjusted EBITDA was also up 13% year over year.

Going forward, we will be focusing on year over year metrics associated with our core portfolio. Because we believe the business has stabilized and these comparisons will become more meaningful.

However, we have closed 79 care centers since last June, which significantly affects the comparability of these statistics for the second quarter. So in total, home health revenue was down $7 million to $244 million in the second quarter. Total revenue admissions fell 8%. However, as Ronnie mentioned earlier, our core portfolio had 2.6% growth.

Revenue per episode was up slightly and cost per visit was up 1%. The recertification rate increased 100 basis points to 37.4%. Adjusted gross margin was 42.8%, which was flat year over year and up 3.3% from the first quarter. The largest component of the sequential improvement in the home health was our reduction in cost per visit, driven by a shifting of more clinicians to pay per visit model.

Some improvement was anticipated due to the absence of any weather related costs in the second quarter. And the impact associated with payroll taxes that are always higher towards the beginning of the year. For the quarter we performed over 1.6 million patient visits. And reduced our cost per visit by over $5 from the first quarter, translating into an incremental gross profit of approximately $8 million.

In hospice, revenue was down 6% year over year, average daily census was down 7%, and hospice admissions were also down 7%. Revenue per day was up 1%, cost per day was up 4% and the average length of stay was flat at 99 days. Hospice gross margins declined 120 basis points to 46%.

We ended the quarter with $11 million in cash on the balance sheet compared to $3 million at the end of the first quarter. Today's press release showed cash flow from operations of a negative $89 million. That number includes the effect of a $120 million payment to the DOJ.

Excluding the DOJ settlement and related fees, our cash flow from operations was $31 million, up from a negative $6 million in the first quarter, and down from $33 million year over year. We benefited from a two day reduction in DSO to 32 days. We made the first payment associated with our DOJ settlement, drawing the entire amount on our revolving line of credit in early May.

During the second quarter, we paid down $15 million on the revolver from excess cash flow. We had $3.5 million in capital expenses and $3 million in required term loan payment repayments during the quarter.

We have improved our capital structure with the amendment of our existing credit facility and a new $70 million, 6-year second lien term loan that will better support our capital needs going forward. Associated with the new capital raise, our senior credit facility revolver was down sized to $120 million and we gained flexibility under both credit agreements.

We used the proceeds from the new second lien term loan and excess cash flow to pay down $80 million on the revolver. In early May, we made the initial DOJ payment of $120 million. Since then, we have paid down $31 million on our revolving credit facility from operating cash flow. Today, our revolving credit balance sits at $25 million, and we have $74 million in available liquidity.

The interest rate on the second lien loan is LIBOR plus 750 basis points with a 1% LIBOR floor. There is no amortization and minimal call protection of 102 in the first year and 101 in the second year. We paid a 2.5% OID, and KKR Capital Markets was the arranger.

This refinancing provides us with flexibility in the terms of our financial covenants and in the uses of capital. At the end of the quarter our total leverage ratio was 2.7, well below the maximum level for the quarter of 3.5.

While, we're encouraged by our performance in this quarter, we caution investors against annualizing these results. As we stated previously, the second quarter is typically our best quarter and volume in revenue per episode may not be as strong in subsequent quarters. There's also some increase in costs associated with additional holidays, along with greater interest costs associated with our new term loan.

Lastly we are not providing guidance for the rest of 2014. This concludes our prepared remarks. Operator please open the call for questions.

(Operator instructions)

Your first question comes from Darren Lehrich from Deutsche Bank.

Hi, thanks. Good morning, everybody. A few things here: First, I wanted to ask about just the cost-per-visit trends. And obviously, you made some progress here in the quarter; you alluded to that in Q1.

What I heard you say, Dale, was that a lot of it was explained by the shift to pay per visit and the lack of weather. I'm just wondering if you can give us a little bit more detail on where you're at -- where you think you can take it to? Is this a more normalized cost-per-visit level or do you think it improves from here?

First of all, I think the $5 decrease from the first quarter -- about half of that we anticipated because of weather-related issues that we talked about in the first quarter. I think $2 million were weather-related issues. And then the first part of the year, you have more payroll tax issues.

The other half, I think, comes from not only the issues related to moving to more pay per visit, but other issues that we've done as we move through the process of improving our gross margin. Absent issues like weather-related issues and things that are seasonality like payroll taxes in the first quarter, we think the $85 is pretty -- is closer to what we'll see as a run rate going forward.

I would point out that, across the board, both G&A in terms of our operating expenses, our objective is to build the most effective and efficient platform that we possibly can. So, I think there is more work to be done there.

In addition, there will be an impact on cost per visit related to holidays, which we include in the concept of what that cost per visit is. So, having said that, I think this run rate is probably closer to where we will be in the near term, but we have more work to do.

Okay. That's helpful.

Then, just trying to isolate some of the things you mentioned, Ronnie, that may not repeat. I thought I heard you say a $2.5-million drag from care centers that you'll subsequently exit, and then the $3 million of restructuring. Was there anything else that you spiked out? I just want to make sure I have those numbers.

You do have those right, Darren. The $2 million from the closed care centers was pretty much in line with what we anticipated; we knew that it would be the third quarter before all of that would be gone. So, that -- the $4-million impact in the first quarter was -- now $2 million in the second. We think that's largely gone. So, that's kind of flowed as we anticipated.

And then also in this quarter, we ended up with $3 million of cost that -- our view is that probably won't go forward at the same levels, and may not recur in subsequent periods. But that's another impact to this quarter that won't necessarily repeat itself at that level for sure.

Okay, great. The last thing I have is really on the hospice side. So, revenue per day up 1%; cost per day up 4%. Seems like there's probably a little bit of work to do on the cost side as well, on hospice. Can you just talk to us about what you're doing there? And any trends that you'd want to highlight in hospice that led to a little bit of a softer result?

Well, this is a good question, Darren. Hospice -- we are not quite achieving yet the improvement that we're targeting. I think we have obviously an opportunity to -- and a clear focus to improve organic growth, improve admissions and regrow our census. So, that's certainly an opportunity.

On the cost side, we're working through the change in part D -- those medications. Overall, I would say my view in where we are is that hospice has been a relatively consistent performer, contribution-wise, over the last few quarters, but with an opportunity for improvement. So, we're working on now plans to how we really reinvigorate our hospice platform, and return hopefully the same profile that we're experiencing in home health, which is positive organic growth with better cost management. So, it's our opportunity that we'll focus on.

Okay. Great. Thank you.

Certainly, thank you for your questions.

Kevin Ellich from Piper Jaffray.

Good morning; just a few questions. Dale, starting with a follow-up to Darren's question on the cost savings and reduction we saw -- that $5. So, is it safe to assume you think we could get maybe $2, $2.50 of cost savings for the remainder of the year, if I heard you correctly? Or you were trying to imply something with the holidays, so maybe a little bit less than that?

No, what I said was that of the $5, about half of that we anticipated from weather related and payroll taxes coming from the first quarter to the second quarter. So, a lot of our initiatives to reduce costs going forward related to the transfer of some of our clinicians from salary to pay per visit. We will have additional work that we intend to do in terms of improving the efficiency of that operation, over time.

And you are correct that holidays going forward -- we'll have more of those in the third quarter and the fourth quarter than we did in the second quarter. That will have some impact on it. But coming off of the $85 run rate, I think we have more work to do, but that's probably a pretty good starting place.

Okay, that's helpful. And then, are there any elements of guidance that you guys could provide or want to provide at this point? Or are you still planning on doing that at some future point in time?

Here's where we are: We have what we think is pretty good visibility into our cost structure. As I mentioned a couple of times already, we have plans to continue to work on the efficiency of our Operation. What we don't have, at this point, is the same kind of visibility into our top-line growth.

I think you can look at what we've done over the last year. We've closed over 100 care centers or consolidated over 100 care centers in the last year. And so, there are some things to sort out there in terms of, particularly in the consolidation front, how much of that revenue are we going to retain into the consolidator care center. So, there are some things to sort out there, and we don't believe it makes sense to put numbers out there while we don't have that same visibility in terms of the top line. And we are continuing to work on the cost basis.

So, I think what we will tell you is that there are some things that will impact us going forward. Revenue, we think, probably will be impacted because of seasonality. As we mentioned, second quarter was our most -- has historically been our best quarter. We will have holidays; we will have increased interest costs associated with the new term loan that we put in place.

And as we move forward with AMS3, if that stays on schedule as we currently planned, then we'll begin to be putting some depreciation on the books as we move into the fall. So, those kinds of things give us -- that is about what we can tell you about where we're going.

Therefore, Ronnie had mentioned and I have reiterated, you cannot take the $0.25 that we're talking about on an adjusted basis and annualize that and assume that that's our new run rate. Having said all of that, we do believe that with the current consensus probably before this call, of $0.16 for the year, we think we're going to handsomely beat that number.

Okay. That's helpful.

Then, the underlying trends that you're seeing in the home health business -- we saw a nice improvement in admissions and recertifications on a same-store basis. Have you seen continuation into July, and what's your outlook for the year? Should we be thinking about low-, mid-single digit volume growth?

Well, Kevin, this is Ronnie. I don't want to get into an early look -- a specific early look into July. But I'd say we feel good about where we are in home health; certainly targeting single-digit organic growth. And pleased with the results of the second quarter, and have some momentum there with this portfolio going forward. So, our early view is that we're feeling good about it, with work to be done, but it's -- we're seeing some positive signs.

Okay, and then just going back to Dale real quick -- sorry for this one. I missed the CapEx and the mandatory debt payment this quarter. Could you give me that again?

Yes, CapEx was $3.5 million, and the mandatory debt payment is $3 million a quarter, which we made that payment at the end of June.

Got it, okay. Thanks, guys.

Thank you, Kevin.

And by the way, on that issue, I can elaborate slightly. The term loan that we had with our senior credit facility bank group has $39 million outstanding at the end of June. And that does amortize at $3 million a quarter, and nothing has changed on that facility.

Brian Tanquilut from Jefferies.

Good morning, guys; congratulations. Ronnie, a question for you. From when you did the last call, and we were looking at a $14-million EBITDA target for Q3. What changed in a span of, let's just say, two months for you to be able to get to this $20-million EBITDA this quarter?

Sure. Good morning, Brian. Thanks for the question.

We had a good quarter. Things went well. We got the call side of the direct calls. We got that down, which has been an intense focus. And we're a little bit ahead of where we thought we'd be on the G&A side and what we could achieve.

And you couple that with kind of some normal seasonality on volume side that flows into the second quarter, and it just all kind of came together and much better performance in the quarter with respect to that EBITDA level. As we go forward, and as we're trying to provide caution [to you] let's not just annualize this rate -- that without giving a forecast to that, the first-quarter visibility was kind of what might be in our core operations going forward. And, of course, that was a third-quarter view that we talked about.

So, I think all said and done, things came together well in the second quarter with some seasonality. And we feel good about that going forward with the things that we've accomplished to date -- with work to be done.

Ronnie, to that point, you took out sequentially $12 million on the salaries and expense line, or salaries line. Does that impact your ability to grow the Business going forward? And do you think that you've cut to where you didn't cut it to the bone at this point?

No and no. No, it does not impact. A big piece of that reduction is related to the closed care centers and the downsize in the portfolio. So, that's kind of a direct G&A impact to that, which we've been working on and will continue to work on to make sure our G&A is right sized with the size of our Organization to properly support our operating units.

And also, as you asked, to respond to the ability that we can continue to grow the Business, I don't think we've cut to the bone. I think we've just made necessary improvements to -- in our supporting G&A costs. And we feel very good about what we certainly are positioned to do going forward; we just have to do it on a sustained and consistent basis.

Okay, and then, given the improved financial performance, and even the cash flows are looking better, what is your view on M&A at this point given what seems to be an active acquisition pipeline for the home health industry? Do you feel like you need to get bigger again at this point? Or are you staying on the sidelines for now?

Well, Brian, good question. And I'll tell you that, while pleased with the second quarter, we're going to stay focused on the task at hand, and that is to improve our performance, and do that on a consistent and sustained basis. The opportunities that may come in M&A, downstream, I just want to help -- and our focus is to make sure that we're in the best position to -- from an operating performance, to act on that, if and when that comes.

So, near term, our posture is the same. We're focused on improving our performance. I think we have, while a good first step, work to be done. And the rest, strategic opportunities that will come, we'll just be in a better position to entertain those and think about that downstream.

Our objective in the short run is to continue to delever the Company, as we've talked about in terms of cash flow over the last two or three months. But the additions and the changes we've made to our capital structure does give us a lot more flexibility as we go forward to think about those issues. But, as Ronnie pointed out, that's downstream. Our focus today: to build the most effective and efficient platform we possibly can.

Got it. And then last question for you, Dale. As we think about the volumes, how do you guys differentiate between the external drivers -- we see utilization pick up at the hospital level, volumes in the hospitals are trending better -- versus market share gains or basically the benefits of the different initiatives you guys have put in place? As you analyze that internally, what kind of conclusions are you coming up with at this point?

I think we've said before, and continue to believe, that about 40% of our admissions in home health come from hospitals, and about 40% from doctors and 20% from sort of everything else. From a business development standpoint, we continue to focus on those facilities and the doctors that provide us patients that match our 80-, 81-year-old patients. So, we continue to look at those kinds of issues.

I think your question really is a business development-related issue. How do we approach that? That's the way we are thinking about it. We are also in the process of trying to get as smart as we can on those kinds of issues.

I don't know if that answers your question, but that's kind of where I am. I don't know, Ronnie, do you want to comment on that?

I think we're keenly focused on the effectiveness of our BD staff. And we'll continue to work with that, to do that and respond to the change in the referral sources and how that market moves.

The other part of our volume equation that is now stabilized that we remain keenly focused on is our readmission rates. And as we've seen now in the first couple of quarters of this year, that it's really more of a stabilized platform. We'll still work to do that consistently, and patient by patient, as always. But put all that together and we think there's an opportunity to enhance volumes, and while being more effective in responding to our referral sources.

Got it. Thanks, guys.

Okay, Brian, thank you.

Whit Mayo from Robert Baird.

Thanks. Good morning. Just back on the cost per visit for a second; just want to make sure I understand this clearly. Was that really down due to the absolute growth in shifting more clinicians towards a pay-per-visit model or because you employ fewer nurses on salary? I'm trying to differentiate between strategically shifting your comp model versus a reduction in FTEs and headcount.

It was a shift in the comp model. We had more clinicians last fall on salary, and shifted a number of those into pay per visit. And going forward, we're focused on the pay-per-visit model.

Okay. Can you update us with your -- you gave some savings expectations for shutting down branch locations and G&A -- maybe I missed that. In my notes I have $16 million and $10 million, respectively, for each bucket. Obviously, you're probably tracking above that. But can you update us with those targets?

No, Whit. And good morning. Appreciate the question.

So, we are -- on the care center -- negative impact from closed care centers -- that went from a negative [$4 million] again in the first quarter to negative [$2 million] in the second. We think that's substantially gone now, with those being all closed. And so, that's happened about on pace.

The $10 million in G&A costs that we anticipate getting -- we're slightly ahead of pace on that. So, I think we're -- what we alluded to was the $6-million sequential decline in G&A costs -- about half of that was related to these closed care centers. The other half reflects that we're a little ahead of pace on what we thought we would achieve there. So, that's how I would talk about those two items, if that responds to your question.

Yes, they are kind of merging together in my brain right now. But should we still think about the $16 million being a reasonable number over an 18-month time frame to capture from exiting these unprofitable branch locations? And $10 million from G&A? Or are those just absolute stale numbers? I'm just trying to get a sense of how much you have penetrated these opportunities so far.

The $16 million you're talking about -- when we talked about that in the first quarter, there was $2 million of weather-related issues, and $4 million from the closed -- the care centers that we were closing. And we anticipated $10 million of reduced G&A costs.

So, the $2 million of weather-related costs is not going to reoccur, we don't think, in the second and third quarters. Of that $4 million -- of the $10 million of G&A costs -- so, $2.5 million a quarter -- we think we probably got somewhere in the neighborhood of $3 million or so in the second quarter.

So, as Ronnie mentioned, we're a little bit ahead of pace. But we're still on target to reduce the G&A costs on an annualized basis by at least $10 million. And most of the costs associated with the closed care centers is gone by the end of the second quarter. So, we do not see that as a go-forward cost to the Company.

Okay. And with respect to the proposed rule from CMS, there were several changes to the case weights. Dale, does that have any material impact to how you are thinking about pricing next year?

Well, part of what you have to do in looking at the CMS changes is to get down in the weeds, as you have obviously done, and look at the case weights that are associated with various diagnoses. And ultimately, determine if that has any impact, at least on our marketing efforts.

It certainly will have no impact on our care of our patients, but it may have an impact on marketing areas where CMS decides to put additional dollars and it essentially is encouraging you to go take care of particular kinds of patients. But that's a marketing effort; that's not a care effort. We take care of our patients the same way we do all across the board.

I guess one last one here is: When I look at the press release, there's -- I'm just curious why there is more revenue in the third quarter of last year than what you reported then. It seems like there should be the opposite, given some of these closures. I understand there's some restatements, but it does feel like you have been shrinking more than growing.

Probably the biggest part of that -- it is disc ops. When we declare something to be discontinued operations, you one-line it in the income statement, and you don't show it broad with all the pieces.

But in the prior year?

Yes. You restate prior year still on the same basis.

Okay. Well, I guess that's kind of my point. I'm curious why there's more revenue? It would seem it would be the opposite.

Let's talk about that offline. I'm not sure I'm exactly following you. Maybe we can talk about that offline.

That's fine, thanks.

Thank you, Whit.

Next question comes from John Ransom from Raymond James.

Dale, welcome back.

Thank you.

Just to make sure we got our amounts right, what do you think the level of EBITDA is with the new capital structure and new base of operations. What level of EBITDA do you think you need to break even on a cash flow basis?

I don't know that we're going to project our EBITDA, John. (multiple speakers)

I'm not asking you to project it, but I'm saying what do you think the minimum break even EBITDA is? I'm not asking you to project EBITDA; I'm just saying how much cash do you have to generate to keep the Business going?

Well, I can give you some pieces. We have $3.5 million, round numbers, in CapEx. We have $3 million in term loan payment.

And operationally, we anticipate making money as we go forward. I alluded to that earlier in terms of being in excess of the $0.15 per share anticipation consensus estimate that's out there today. I'm not going to give you a specific answer on that issue, but I think you can see the pieces just like we can.

So, $24 million in CapEx and principal, and then your interest payments.

Yes.

Anything else to think about -- working capital? Any other areas of cash outflow that we're not thinking about?

The biggest thing that impacts our working capital is DSO. And at this point, we don't really anticipate big changes in DSO, as we go forward. That is probably $4 million a day, round numbers, if it moves either way. That's probably the biggest issue going forward.

Okay. And at this point, how many agencies do you have remaining that are not profitable?

John, this is Ronnie. What we have is -- it's really a group that I would characterize as our low-volume group. It's less than 20%. For the second quarter, that group collectively was slightly positive.

So, the profile of that group from the first quarter to the second went from slightly negative to slightly positive. So, it's a relatively small group of care centers with a positive contribution in the quarter, collectively. So, I don't want to get into the specifics of individual care centers, but certainly I would look at it, and do look at it, that way.

So, Ronnie, when you say slightly positive, you mean EBITDA or earnings?

No, EBITDA.

EBITDA. That's [pre-red]. And lastly, you mentioned you have cut costs by $10 million. Is there any other areas of corporate overhead that you think are untapped opportunity?

We still have some, certainly, that we'll continue to focus on to right size. I think we're a little ahead of our pace in what we thought we could achieve, but that doesn't mean we're finished. So, we'll continue to work to be more efficient with our G&A costs.

And we have areas targeted, but none that I want to -- or it would be premature to articulate specifically. But just our view that we still have opportunities and we'll continue to work toward achieving that.

John, as I mentioned earlier, we've taken out over 100 care centers over the last year because they didn't fit in our core portfolio going forward. So, we made significant efforts, as you can obviously see, in terms of working on G&A. But you don't get all that right absolutely the first time you do it. So, it's an issue that we will continue to work on being as efficient as we possibly can because that's the nature of being in this business.

A couple of years ago, Humana put you back on a -- took you off the episodic way to pay, and went more to a rate per visit. Is there anything else going on in your managed care book one way or the other in terms of how they're paying you? What's this approximate breakdown between the rate-per-visit contracts and the episodic contracts?

I would say, generally, the rate-per-visit contracts tend to be a little bit lower than the episodic. So, as we disclose that, we present the non-Medicare portfolio. And the rate per visit there, just collectively, which would include some episodic, is a little lower; certainly, lower than the Medicare.

No big movement that I would point to. Certainly, there's -- with different relationships, there's always that -- structuring that in the negotiation over rate. But no big trends that I would point to. Other than just -- it's something that has a little bit of an ebb and flow. I think that it's an important piece of our platform that we work to be the most efficient we can.

I'm just looking here at a note -- I was just thinking. In our -- if we look at -- on the non-Medicare side, our visit, if you look at what our disclosures are, visits are just over $100 a visit versus a Medicare of $155 to $160, in that range. So, it looks a lot -- significantly lower.

But I will say embedded in that non-Medicare piece is both the part that's contracted and non-contracted, and the non-Medicare is kind of the catch-all. It's probably everything but what's presented as the average. Some of it we have pretty good, albeit lower margin -- good steady business at higher rates than what's reflected at the $108 or just north of $100.

So, said another way: The move into Medicare Advantage, which is about a third of Medicare, that hasn't been a significant headwind? There's no move from the MA plans to move you more to a per-visit type of reimbursement?

Again, different relationships have different perspectives on that. We certainly want to be in a position to be a solution for our referral sources. And our view has been to find a way to efficiently provide care for those patients at rates that make sense to our referral sources, and also makes sense for us.

Obviously -- and that just -- again, it's case by case. No overall trend that I would point to, to say it's going -- really tilting one way or the other. They have different views about that at this time.

Okay, thanks so much. Good job on the turnaround.

Thank you, John. As we are talking here, I want to, and we'll get back to the G&A, maybe just in closing before we take the next question, I would say that as we do that, I want to go back to the fact that as we work on improving our performance. As previously stated, we're working on all the parts, both direct, cost and G&A, and we acknowledge that we have been lagging in performance -- EBITDA performance against perhaps the industry. And we want to certainly get back to at least that level.

So, when we put it all together, and where our opportunities are, we're just not going to stop till we have sustained performance that's at least consistent with industry levels. And that's the way we'll view it, and how we'll attack both direct and G&A.

Toby Wann from Obsidian Research Group.

Hey, good morning, guys. Congratulations on the continued progress.

Quickly, with the new credit facility, are there any restrictions associated with that, with regards to CapEx or M&A activity -- any of those sorts of activities? I know that the old credit facility did have some restrictions on that.

In terms of CapEx, there are no practical limitations. There is a limitation, but it has no impact on us. It's way above what we intend to spend going forward.

On an M&A issue, as we delever the Company and our ratios get to where they'll be in a relatively near term, and given reasonable accretive transactions, there is really no practical limit.

Okay, that's helpful. Then, in terms of any change in terms of the acuity level of the patients you guys were seeing in the home health?

No. Really no fundamental change, no.

Okay. And then just quickly, I know AMS3 has been talked about a lot in the past. Any update on how that rollout's going? When we expect to get all that complete, et cetera?

No, our first beta site -- we've had a few more challenges than anticipated. We're working through that, and responding to some of that, with some updates that have gone out.

With that installed, our plan is the next beta site, which will be the second, will go live September 1. And if it works like we think it should, then we're looking to begin rolling out later in the fourth quarter. And so, pace -- the extent of that and the pace will be determined by -- really as we get deeper into it. But rollout is now anticipated not to start until the fourth quarter.

Okay, and then remind me what's the total CapEx involved in developing and deploying AMS3?

The CapEx was $70 million -- $65 million, $70 million in development costs. And what we've talked about before, we're carrying, what -- $12 million a year of overhead costs that will help us and we'll utilize to roll out the system. When that system is completely rolled out, those costs will go away.

Okay. And we expect to have it completely rolled out, what, next year?

At this point, we still -- we've talked about from time of launch, really it's a two-year process. Again, that's -- we think that's on the outside. If we're good at it, we think we can trim that up, but we're still thinking at this moment in terms of probably a two-year rollout.

Okay, thanks for taking the questions, and congratulations on the continued turnaround.

Thank you, Toby.

Frank [Gone] from RBC Capital Markets.

Frank who? Frank Morgan here with RBC.

We didn't know you had an alias.

I didn't either. Just a couple of questions on the hospice side. You talked about the admits being down a little bit. I'm wondering how much of that is attributable to this final phase-in movement toward the -- no longer being able to use debility unspecified as a primary diagnosis. What are you down to as a percentage of the total there in terms of total admits? And talk a little bit about any cap exposure changes.

And then finally, this part D rule that just looks like it may have switched back the other way. I'm wondering how much of a positive that would be relative to what you saw in the original rule? Thanks.

Thank you, Frank. So, we have zero admissions in the quarter on debility unspecified and failure to thrive. And again, we transitioned that last May 1. We've been now a year -- over a year into it. That is completely out of our system. We made that transition.

Probably has comparably a little bit of an impact, but effectively that's out of our system. It's not what I would call a material contributor. I think it's -- overall our decline, I would more point to -- I think we just -- it's an opportunity to revitalize our hospice platform.

And while, again, consistent performer -- relatively consistent performer, in contribution I think we can grow top line and get more efficient. I don't have, at the moment, great visibility on the part D, and the ebb and flow there. But we'll certainly, as part of what we can do, I think there's an opportunity to get more efficient there and respond to those changes.

On the cap exposure, we haven't seen any change particularly in that. We've got a little over $4 million in what we estimate our cap exposure to be.

Okay, thanks.

Thank you, Frank.

There are no more questions in queue at this time.

Well, in closing, let me again thank our Amedisys team for really a great effort in the second quarter. We appreciate the opportunity to share these results with you. Appreciate your interest and questions about our results, and look forward to updating you at the end of our third quarter. Thank you, and have a great day.

This concludes today's conference call. You may now disconnect.