德維特 (DVA) 2002 Q2 法說會逐字稿

Good afternoon, my name is [Indiscernible] and I will be your conference facilitator today. At this time I would like to welcome everyone to the DaVita's Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question and answer period. If you would like to ask a question during this time, simply press star then the number 1 on your telephone keypad. If you would like to withdraw your question press the pound key. Thank you, Mr. Whitney you may begin your conference.

Thank you [Indiscernible] and thank you to all of you on the call for your continued interest in our company. Certain statements included in today's presentation as well as in our press release and related supplemental information dated August 1st are forward-looking statements. These statements relate to the company's operations, economic performance, financial condition, revenue, volume, growth, DSO, bad debt expense, expense growth, planned capital expenditures, and earnings and cash flow guidance. They reflect management's current expectations and can be affected by numerous factors including the risk factors discussed in our 10-K, 10-Q and press release. These forward-looking statements are based upon information available to us at this time and we do not have any current intentions to update the forward-looking statements, forecast or guidance whether as a result of changes and underlying factors, new information, future events or otherwise. Comments today will follow our standard template established in previous quarters. Once again we have provided supplemental information attached to our press release. Four centered categories that we cover are number one second quarter results and year-to-date results, number two seven key business matrix, number three important risk factors and other developments, and number four financial outlook. We will take general Q&A at the end of the prepared remarks.

So starting with category number one the second quarter and year-to-date results. The reported second quarter results include the following: Nonrecurring income of 1.9 million from the recovery of 1999 accounts receivable which were previously written off. The $29 million after tax extraordinary loss resulting from the recapitalization transaction and $2.4 million valuation gains from recoveries on third party dialysis investments that were previously written off. Excluding these items consolidated EBITDA was $92.3 million, net earnings $35.1 million, and diluted EPS 41 cents per share. Continental EBITDA was slightly above consolidated EBITDA at $92.7 million for the quarter. For the six months ended June 30th consolidated EBITDA was $184.8 million, net earnings 69.8 million, and EPS 79 cents. These results exclude $4.1 million of receivable recoveries as well as the extraordinary loss and valuation gain.

Category number two, seven key business matrix. Please note that the matrix relates to the continental US operation only. The excluded non-continental operations are immaterial and also during the quarter we did complete the divestiture of our remaining non-continental assets. That we will no longer have to distinguish between continental and consolidated results going forward. Also the matrix we are about to discuss excludes the nonrecurring accounts receivable recoveries, the extraordinary loss relate to re-capitalization and valuation gain. So metric number 1 is volume, treatment volume was up 3.7 percent sequentially reflecting more treatment days in the quarter as well as 1.6 percent increase in treatments per day. Nonacquired treatment growth was 4.5 percent up slightly from 4.2 percent in Q1 and year-over-year total treatment growth was 5.5 percent. In the near term we are forecasting nonacquired treatment growth in the 3 to 5 percent range. Metric number 2 is revenue. Dialysis revenue was up $15 million or 3.7 percent sequentially corresponding with the increased volume. Revenue per treatment was essentially flat for the quarter. Metric number 3 is expenses. Dialysis center and lab operating expenses were up to 3.4 percent sequentially per treatment operating expenses were down about 50 cents per treatment sequentially primarily as a result of improvements in labor productivity which were partially offset by higher labor rate. General and administrative expenses were up 12.4 percent per treatment. These expense increases reflect our often discussed plan to make significant investment in operating and information technology infrastructure and in the recruiting, retention, and development of our team. Also, increased legal and administrative expenses related to the subpoena laboratory payment dispute and other compliance initiatives contributed to the expense growth. General administrated expense growth was the primary cause of the 70 bases point deterioration in EBITDA margins to 21.0 percent in the quarter. Consistent with our previous guidance we expect expense growth and margin pressure to continue as we move throughout 2002. Metric number 4 is cash flow. Operating cash flow for the quarter was 61 million, precash flow is before share repurchases, acquisition and development spending was 43 million. Year-to-date operating cash flow and free cash flow were 146 million and 119 million putting us on track to achieve cash flow goals for the year. Metric number 5 is account receivable. Net accounts receivable at quarter end were up less than $10 million but DSO unchanged at 73 days. Metric number 6 is capital structure, net debt at the end of the quarter was approximately 1.2 billion up about 420 million as a result of the increased borrowings related to the recapitalization transaction completed during the quarter. During the quarter, the company purchased a total of 16.9 million shares at a price approximately $24 per share. In July, the company purchased an additional 3.5 million shares at an average price of $21 and 26 cents per share. Share is currently outstanding of approximately 64 million. Our current leverage ratio which is next that to EBITDA is 3.2 times, but it is in line with our long term target of 3 to 3.5 times although we may be above or below this range for certain periods of time. Metric number 7 is clinical performance. Our team of over 12,000 caregivers continues to provide outstanding clinical care to our 44,000 patients. For dialysis adequacy, during the quarter 89 percent of our patients had a URR greater than or equal to the benchmark level of 65 and 92 percent of our patients achieved a KT [overview] greater than or equal to the benchmark level of 1.2 with respective hematocrits which is a measure of anemia control during the quarter 80 percent of our patients had hematocrit greater than the benchmark level of 33. This concludes the reviewing of the seven key business matrix and we would now like to move on to category number 3, important risk factors and other developments. In this category, we will discuss certain legal items and pharmaceutical revenues as well as an update on the labs. So first legal [Indiscernible] of the subpoena in the lab with respect to the subpoena the company has now provided some documents to the government and will be providing more documents over the next several months. There are no other updates on this matter and it remains in our collective best interest not to speculate regarding the subject. However, we continue to expect that this process will take at least two to three years in full and unfortunately will cause millions of dollars in additional annual, legal, administrative expenses and thousands of hours of executive time. Training for the Florida Laboratory. Now you might want to get ready for this one because it is a little bit complicated. There are two primary developments. One is retroactive and one perspective. Each of which are directionally positive. Nevertheless, we are still frustrated by a total lack of clarity as to how much we will be paid for Laboratory Services going forward, so, first the retroactive development. The Medicare carrier has begun paying us for some claims that we submit. We have started submitting claims beginning from the period of June 1, 2001 and forward, and may collect over $20 million in cash by early 2003. However, the carrier has indicated that these payments maybe subject to [Indiscernible] upon post-payment review. The second item is the perspective item. In the third or fourth quarter of 2002, we will almost certainly begin recognizing some current period Medicare Lab revenue and it maybe in the range of $2 million to $6 million per quarter, unfortunately these amounts may also be subject to [Indiscernible]. So, this is all good news, however, it is important to note that fundamental question of what laboratory tests will be covered and what documentation and administrative expense will be required is still almost completely unresolved. The DOJ [Indiscernible] in the lab is also still pending. As a result, there remains of fair amount of uncertainty regarding how much cash we will receive and what is important is how much cash we will ultimately keep. So, as I said this will be complicated, but some of the questions that you might have maybe what time periods are covered by retrospective periods, and the answer to that question is it goes back as far as 1995, and the periods from April 1998 through May of 2001 are still under review by the carrier. Second likely question, why would the carrier begin paying you if there is any likelihood that they would subsequently recoup the money, and the answer to that question is well, I really don't know, however, it could be as since they have not defined their payments standard that they maybe in a better position to dispute the claims after they had implemented new guidelines of payment standards reported by their current study of dialysis laboratory services.

The second risk factor is pharmaceuticals. As previously discussed, reimbursement for pharmaceuticals represents a significant percentage of dialysis, in the [Indiscernible] revenue and profits. To keep that variables include reductions in pharmaceutical reimbursement rates, changes in reimbursement policies, changes in physician practice patterns or changes in the prices we pay for pharmaceutical products. As you are aware and Amgen announced a 3.9 percent price increase for echo effective April 25th. This increase will not affect us until January of 2003. We are still in the process of negotiating with Amgen and cannot predict the outcome. As you know we typically do not comment on negotiations while they are in process. With respect to pharma generally, in the last three months there has been a small number of victories and defeats with respect to utilization reimbursement policies and practice patterns surrounding dialysis pharma. The net of it all is that for the balance of '02, we do not anticipate any significant upside or downside. However, for '03, the portfolio of pharma issues remains a major profit swing factor with more downside than upside. And now we would like to move on to category number 4, which is our financial outlook. As you recall, our guidance range is meant to capture 80 percent or so of the probable outcome. We are adjusting our 2002 guidance by moving the bottom of the EBITDA range up by 10 million. Therefore, a current forecast for recurring EBITDA is $360 to $380 million, operating cash flow of $210 to $250 million, and free cash flow before acquisition and development spending of $155 to $185 million. We are also not changing our capital spending guidance at this time. For 2003, we are increasing the bottom end of our guidance range to $360 million, for the EBITDA range is $360 to $380 million. Also, we hope that the lab [Indiscernible] will pick up some upside to our '03 guidance over the course of the next three to nine months. Other key swing factors for 2003 will be a Medicare rate increase, the ultimate impact is the [Indiscernible] price increase, [Indiscernible] reimbursement policies and try to pay [Indiscernible] amount of [Indiscernible] labor cost trends, medical direct retention and the availability of attractive acquisition. In addition, we are anticipating significantly [Indiscernible] on other expenses, which is relating to this [Indiscernible] throughout 2002, 2003 and beyond. This concludes our prepared remarks, and we will now turn to call over to [Indiscernible] the Q&A.

At this time, I would like to remind every one in order to ask a question please press star then the number 1 on your telephone keypad. We will pause for just a moment to compile the Q&A [Indiscernible]. The first question comes from Andres [Indiscernible].

Yes good afternoon [Indiscernible]. I was wondering if you could just go through the calculation of the EPS specifically you can [back into] it but if you, give me the basic and the diluted share count and then am I correct that since you had extraordinary charges in the quarter, the affect using the as reported net income was that the converts were not diluted and therefore when you reported it back in [Indiscernible] one time charges, we use the same share count.

Okay, Andres. The shares for basic EPS in the quarter was 79.8 million and the shares for diluted EPS were 98.4 million the converts were diluted net calculation. And the second part of your question.

If this diluted share count, what is 98.4 million

Yes.

After about 35.1 of net income.

Correct.

Okay, and could you also just give me where the share counts stand today?

Yes approximately 64 million.

With the same -- roughly the same numbers diluted options.

That's would just be the outstanding number of shares.

Right for basic.

Right.

And then roughly the same number to get to the diluted.

Yeah no significant change beyond the basic.

Okay and could you also just give some [color] may be [Rich] on specifically on the SG&A in the quarter, you know where there any one time sort of events that caused that to tick up is this - how much of this should we consider to be ongoing from this point?

Yeah, they really were -- there is nothing nonreoccurring in there. It's all reoccurring and is consistent with the expectations that we have laid out beginning three or four quarters ago.

Okay great thank you.

Thank you.

Your next question comes from [Gary Baird].

Hi. I have two quick questions. One, you had mentioned earlier in the call was the [Indiscernible] in the quarter since the last announcement. Can I get that number again please?

Sure. In July we purchased about 3.5 million shares at an average share price of 21, 26, in the quarterly numbers are disclosed in the press release.

Fine, great. And then also how much legal expense did you have in the quarter?

I don't have that [handy]. It certainly was a fair portion of the increase was related to legal and other administrative cost, compliance related to cost but I don't have the total amount of legal cost nor am I sure that it would be a particularly useful number.

Okay Thank you.

Thank you.

Your next question comes from Jeff [Indiscernible].

We have a couple of questions. First of all, on the development side. Are you still targeting 12 to 18 and all those for the year?

Yes, that is still our target and think the issue will be how many we get certified and [opened] we are very comfortable that we will be building a number that is [consistent] with that.

And is the current level of the SG&A that you are talking about is ongoing, is it that?. Is that a level that supports the current growth rate through the Company or does it support the higher growth rate?

We don't anticipate that it would necessarily support a higher growth [level] I'm not sure I'm following your question.

Well [Indiscernible]

Can you try that once again?

Did you the elevated level of CapEx I mean require - I mean are you running the SG&A?. Are you slightly ahead of where your company's currently growing?

Let me take a crack at it. Most of the additional G&A spending is not related to growth initiative, it's mostly related to building operating and other infrastructure -- we have a platform for the future and it's also related to [Indiscernible] compliant spending that [Indiscernible] subpoena.

Right were you clearing the decks for you know of stepped up acquisition program what are you seeing in the acquisition pipeline?

We are looking at acquisitions actively. I think what one is to keep in mind is that this is a fairly consolidated business at this point in time, and so that we don't anticipate that acquisitions will be a significant contributor to our growth going forward, though we do hope to do -- to do some, and we hope that we will add a point or two to our top line growth.

Okay, can you briefly talk about the [Indiscernible] infrastructure as a split between [Indiscernible] and what your ability there under is to repurchase shares?

Sure we have a term A, term B [Indiscernible]. The term A is a $150 million all of which is unfunded at the current time. The term B is $850 million, which is fully funded and the revolving credit facility is $115 million, which is unfunded. The second half of your question is our availability for share repurchase?

Correct.

And our near term availability for share repurchase under the credit agreement nears the authorization we have from our board which is a total of $225 million over the next 18 months.

And the shares we bought back in July are the only thing that come out of that?

Shares that we bought back in July and 200,000 shares that we bought back at the very end of June after the spot tender, so we have -- see how much do we have left -- we have 150 million [Indiscernible].

What are the significant financial covenants in the new bank deals?

The typical leverage ratio covenants, fixed charge covenants, [Indiscernible] leverage covenant if you would like specific levels we would be happy to share with you in a separate call.

Okay [Indiscernible].

I believe the new bank deal was already filed with the last quarter.

Okay. Yeah and then this is the last [Indiscernible] question -- actually two questions [Indiscernible] with that amount in the quarter?

What can you repeat that?

You divested two facilities in Puerto Rico.

Yeah its essentially a non-cash transaction at this point in time because the transaction was more or less completed in substance quite a while ago, but we had some regulatory license transfer issues to take care of - to actually make it final, but the cash already changed hands.

Okay, the remaining question that or not, if I go to the [mass] and your free cash flow before development spending of 43 million and you take out 9.3 million of CapEx you have 33.7 million left and if you subtract your share repurchases of 407 million, you have $373 million use of cash, and you are not that changed by 419 million, so there is 46 million of other from what I can tell - breakdown on that other and its pretty big number.

Yeah its mostly related to transaction cost that we had -- financing fees in terms of raising the funding we also had a premium date to take up the tender or to complete the tender on the bonds and probably the other thing that may be missing from the calculation is interest expense, interest payments. I would like to-- if its okay I would like to open it up to give others -- questions now.

Yes.

Your next question comes from [Kelket Ros].

Hi. Your reviewed operations, can you talk more about why the second quarter EBITDA came in better than what you would have expected in the middle of May? I guess what surprised you?

Well I think it was reasonably consistent, our guidance in the middle of May was that EBITDA would be around the same level but could be down a couple of million. It actually wasn't down a couple of million, it was pretty much flat. So within that range of estimating it is more or less what we anticipated.

Okay, and can you give us an update on trend you talked about a few months back about the MRPs looking at payment for Epogen and vitamin D?

Sure, sure. As we briefly mentioned in the prepared remarks there is some positive movements and some negative movements, which is related to pharma and MRPs and in related matters. On the positive side, we have had CMS implementing their national policy which somewhat restricts the development of the MRPs by local carriers and it still gives them room to implement policies that are more restricted than the movements that they are currently operating under. Those are somewhat of a positive days, implementation of the policies for one year while they study the issue. That's what happened on Epogen over the last 90 days. Also the industry has made some progress on these costly alternatives to MRPs and on advancing the clinical arguments as it relates to those policies. On the flip side, we had some things go against this as well, for instance in one cost of drugs there have been a number of changes impacting the price we pay for the drugs as well as the new YSRs coming out, some changes in clinical practice, [Indiscernible] or which cost us about $1.7 to 1.8 million a month. But that was a negative the one against us over the last nine years, so there is a lot that is going on in pharma and as we said compared to markets to this point in time we don't see any additional major upsides or down sides over the [Indiscernible] of 2002 that is definitely a [Indiscernible] item as we move forward.

And can you give us an update on where things stand as far as the expected composite rate increase for January '03 and also I think there was a report due last month which regarding whether there should be an annual inflationary update for dialysis. Where do those two issues stand?

Let me take [Indiscernible]. With regard to the second question and the fact that Congress addressed to the CMS to complete both a study on an annual update factor for dialysis composite rate as well as a study on the idea of bundling the items that are outside of the composite rates into the composite rates. The compulsion of both of those studies is falling behind schedule. It is difficult to predict when it will go to Congress and [Indiscernible] people are saying it will not be before the Congress before the late fall. We anticipate that in respect to the bundling study they are going to say that June may [Indiscernible] and to take a lot of more detailed work that she gave out, and then the decision will be either they are allocate recourses to pursue that. With respect to the annual uptake factor we don't know what they might say, we are not hearing a lot of whispers about it about it on an fact that we think they are going to have to say, it is doable and roughly speaking how it did and now yet to decide kinds of how you going to address it to do it or not. So that's the timing is already once, it could [Indiscernible] again. With respect to composite rate increase the bad news is as you probably already know the [Indiscernible] is not included in '03 increase in the composite rates. It did however include a 1.2 percent increase in the composite rates for '04. Now we are working in the Senate and [Indiscernible] the Senate explains [Indiscernible] positive one because the Senate is somewhat blessed [Indiscernible] in the prospects of getting prescriptions [Indiscernible] done this year. There is a feeling among many Senators that's more likely that they will vote [Indiscernible] more dollars available for providers. No one can predict for certain of course which way all this is going to go. Ultimately, the Senate will have a bill and the Senate and House will get together and so we go through, I guess, the same three filters I did in the last call, search what is the probability that there will be medicare bill agreed to by congress and signed by the administration in 2002. And the odds of that have some kind of new terrorist attack remain well above 50 percent. And the second filter is were the odds that that medicare bill will include some provider rating fees because sometimes when they can't fleece a lot of people they decide to include no increases so they don't have to be saying yes to some and no to others, which is many ways is critically more difficult than saying no to everyone. The odds that a bill would include a significant provider rate increases are also well over 50 percent if there is not a prescription drug thing attached to it, if prescription drug passes that consumes so much money then it is a little bit of closer call, probably 50-50. The third and final filter on this very important incremental issue is if there is a bill and if there is provider money in it or the odds that dialysis will be included and I think that one is probably 50-50. So two are more than 50 percent, one is right at 50-50, and you can connect [Indiscernible] at this point as well as any one.

Thanks.

Your next question comes from [Frank DeAncho].

My question was answered thank you.

Your next question comes from [John Ransom].

Good afternoon, could we just very quickly make sure we understand the capital structure of, you got a billion three in total debt and 850 of that is bank debt I believe at liable of +3. Is that our floating rate, the bank debt, have you fixed any other?

It's all floating down.

And could you just remind us the please of your remaining roughly 450 million debt, what the terms are on that?

Sure it is $470 million in total convertible debt and it's in two trenches, 125 million of 5-5/8th convertible and 345 million of 7 percent convertible.

Okay.

Your next question comes from [Blake Garner].

Yes, thank you. Just two quick questions, in respect of the guidance that you provided, what is that include regarding your assumptions for fourth [Indiscernible] lab, potential payments, talked about, you know, potential numbers per quarter but there haven't [Indiscernible] to the guidance include any benefits on the [Indiscernible] lab front?

You know, I would say, this will probably include some but it is hard to be that exact, its we are still uncertain that we are likely to come out, and the impact of 2002 at this point of time is likely to be minimal and any event - I would say consider to be included but minimal.

Okay and then I know you [ceded] that your CapEx guidance for 2002 and 2003 is unchanged, can you reiterate for us, you know, what that guidance is perhaps break that down to maintenance and development CapEx, thanks.

Sure, for 2003 we haven't provided specific capital spending guidance at this point. And for 2002, routine and information technology spending of plus or minus $55 million and then development spending, which is new centers and relocation and expansion that spending with total quarter minus 25 million.

Great, thanks.

Thank you at this time, if you would like to ask a question, please press star then the number 1 on your telephone keypad. Your next question comes from [Etheney Culoris].

Hi, can you tell me your cash taxes, cash interests, cash transaction expenses including [Indiscernible] premiums that was paid for the quarter in terms of CapEx I might have missed this. Can you just breakdown that to know on maintenance components? And then finally on the working capital side, [Indiscernible] to use of cash flows so let's go to liabilities, I think it's a $27 million use of cash, a decline from $125 million as of Q1 to about $98 million in Q2? Thank you.

And I want to try to take on piece by piece -- I think here [Indiscernible] I will break down their capital spending for you and in terms of the other detailed cash flow items I think what I would ask if you give us call afterwards for or you watch through the details of those, I can try to take care of every body through it, but for Q2 the total maintenance CapEx was about $18 million and that includes information technology and then developments pending was about 9 million.

Your next questions comes from Dominic [Indiscernible].

Good afternoon. [Indiscernible] single use guidelines [Indiscernible] same thing in it work with financial impact about the.

We have made no significant move toward single use. We are not doing so because [re-use] and single use are clinically equivalent and single use is more expensive. In one or two markets there are some doctors and there are patients groups, who have [Indiscernible] made some noise around preferring single use, but there has been no significant amount of that yet. Did I respond to all the parts of the question?

Absolutely thank you.

Your next question comes from Michael [Stasky].

Yes, could you just [call] me on the over all attitude as far as how aggressive you will be in the market buying shares on the ongoing program please?

Michael I think it is probably difficult to answer that question. It depends upon the circumstances that you know as they enfold to make those decisions and we will be reporting them to you quarter by quarter. When we talk on these calls.

But [Indiscernible] assume that they had given the rate that we saw in July is kind of rate that you see going forward.

I do not think that you should assume that is the rate going forward or that's not rate going forward, because we haven't been made a specific decision as it relates to that, it all depends upon the circumstances.

Let me state [Indiscernible] we [articulated] for a long time our deeply held but nevertheless [generic] thinking about how to deploy excess cash and the answer to it is always help with these situational and can change very quickly and so we have been straightforward and [Indiscernible] consistent with [Indiscernible] our actions are fully disclosed and so I think the best guidance for any shareholder or perspective shareholder or that holder of perspective of that holder is to look at our historical actions since this is a best guide toward what we might or might not do in the future.

Thank you.

Your next question comes from [Chuck Russ].

Is spending part of CapEx will that decline after a while I know when you first came in you talked about needing to up grade that significantly but is there a point of which the upgrade is done and therefore you can cut that back to a lower level.

Chuck was your question on IT spending.

IT part of the CapEx. You said that maintenance in the IT portion of the CapEx this year will be about 55 and I know that part of that is maintenance and part of it is IT. My understanding is some of that has [catch up] on the IT and therefore I am wondering if that part of the CapEx is going to fall sometime in June?.

Okay. Thanks for clarifying that. Yeah, we do expect that IT spending would decline in those three particularly [Indiscernible] think about in awhile as closely as we finish the upgrades of [persistence] that are currently underway.

Okay.

And that number is in the neighborhood of $10 million reduction in IT spending. Of course we will continually be spending on IT as we go forward, but this looks certainly a major undertaking that we're in the midst of right now.

Okay and as far as EPOGEN you are currently in discussion with Amgen. Is there -- when do you expect you have some sort of resolution, good, better or whatever I mean do you expect, be done talking and having something signed soon or is just seem to be dragging on for ever?

I couldn't predict when we would be done but the discussions are continuing and we are making progress.

Thanks and lastly, are there any - is there anything going on with AWP [Indiscernible] at this point, that's is really a non-issue for you?

Yes. It can't be dormant, I guess you can't forget that it is lurking there, particularly when you think about all three, but it is quite dormant for industry specific than for more genetic reason much of Congress has given up on doing anything about AWP. I think when defeated by the mechanical challenge and the protocol challenge and secondarily even if they did something it is a much smaller percentage of our Medicare revenue in profit than it might be for some other people. So right now it appears for the next four, five, six months that there is not much to think about that there.

Right, thanks a lot.

Your next question comes from [Otto Henderson].

Hi, I was wondering if you could tell me on the patient dialysis revenue per treatment the number that we saw this quarter was pretty much the same as it was in last quarter, is that something that we will continue to see it though this level or do you expect some contract increases, you know later on in the year?.

With respect to revenue of treatment you are right, it was essentially flat if you look forward there is a very good chance it will stay flat and then if you forced us to say if it were to move, it is more likely to move up a bit or down a bit over the next six months we would say up a bit.

On the dialysis and lab facility cost for treatment I saw that you got some improvement there and I am wondering what was going on to cause that to decline, may be we recover that but could you just repeat that?

The pick up there was primarily driven by improved productivity in the field hard earned productivity increases by our team.

Is it that you are still implementing from the corporate side, it's causing that.

Please clarify for me.

I was just wondering if there are certain productivity initiatives that that you are spearheading from the corporate side or is that just, you know, center level improvements that are going on?

We are making distinction like that and it is the non-field people working together that have done it.

Okay, al right. Thanks.

Your next question comes from [Frank Viago].

Hi, to which your target for share repurchases, is there a point where you stop buying that shares and to start hopefully using a cash flow to grow or is it, you have to find an acquisition that is suitable, [Indiscernible].

Yeah, well we have the total authorization of 225 million from the quarters what we have at the present time and then I think in order to answer that question we probably just have to step back and say that our financing strategy or point of view on how this business should be financed as that we should some where between three and three-and-a-half times total leverage and of course we could be above that, we could be below that for periods of time, but that's our target range. Then you have to serve [Indiscernible] business with generating cash and what you can do with it, except there are attractive acquisitions, they stay with our portfolio and provides adequate returns on capital, we would spend cash on acquisition, strengthening for new center and the extent we have any left over share repurchases and one of the few other uses that we have for capital.

Gotcha. Okay thanks.

At this time there are no other questions. I am sorry we do have a question from [Mark].

Hi can you call it please on your please on you ability to get price increases from non-government resource?

The last two or three years have been pretty good pricing environment, I think it helped us generally, but certainly it has been our experience, plants are getting double digit increases from employers and of course while it is transferred dollar for dollar to us certainly does make the pricing environment easier than it would be otherwise. Going forward it is hard to say how that will change and when it will change other than we know that this pricing environment has existed for the last few years, is unlikely to continue for ever and that's certainly have been the history of how these things go, so good tail wind now, which has certainly helped us on the non-governmental side and going forward we expect it to be more difficult to get the kinds of increases that we have been experiencing. Thanks.

Okay, secondly can you comment your ability to increase [same-store] treatment growths specifically the data points coming from renal care group, your competitors, they have been operating at about six percent, you guys are in the mid 4's. What's the ability to close this gap?

I will take that one, we hope to improve our same-store growth and we have said that for the past couple of years, we also said it would time and we have also done it to some extent. With respect to the specific company you mentioned, our portfolio [Indiscernible] has been handling different both from a geographic point of view and from a physician contracting point of view, and that we have a certain number of contracts that we inherited that do not have [non-compete] tails at the end and so we will lose some of them upon renewal and to lose one percent of your business because of a non-renewal is not necessarily major in terms of the evaluation of the enterprise, nevertheless to put a huge dent in your same star growth when you are talking about the difference between 4.5 and 6. We got probably 8 or 9 different operating initiatives that all have same-store growth in mind and we also can never tell exactly how other companies measure it and we tried to give the two different definitions to know exactly what is going on and try to incorporate [Indiscernible] our same-store growth and when they are relevant to it. So, we are hoping over the next couple of years the number bumps up and I guess beyond saying that I will just ask you if you have any other sort of followup question on the subject, and then what else to say.

I don't, you have answered my question. Thank you.

Thank you.

Your next question comes from [Tony Rosenthal].

Hi guys, can you give us some color on how these system enhancements are going at the center level?

The short answer is well and we are picking up the tremendous benefits in compliance that we promised you, we are, filling up some of the caregiver time particularly for nurses from paperwork to be able to be more focused on the patient, which should help us on the patient care side, so the short answer is well, those are the two primary reason and next reason after that would just be better access, faster access to more accurate data of every sort, clinical, financial, and otherwise we now have implemented the clinical documentation and management system in slightly over 200 facilities, it is an absolutely a stunning amount of work, because every operation is changing in every center and for [Indiscernible] company every center was different so we never know until we show up exactly what we are displacing so I hope you don't mind the expansion but the short answer you got in the first 15 seconds is that it is going well, I guess the thing I would ask you is the automatic qualifier, which is because 200 are in and up and running and going well does not mean that we might not hit a speed bump here as we try to go forward.

Well thanks very much, I don't think I have ever heard you say the word well in a conference call before, thanks so and keep up the good work.

At this time, there are no further questions.

I thank you very much for your time and attention. We aim to serve. Have a good day.

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