Ensign Group Inc (ENSG) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to The Ensign Group fourth-quarter and fiscal year 2009 earnings call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time. (Operator Instructions). As a reminder, today's conference is being recorded.

I would now like to introduce your host for today, Mr. Greg Stapley, Executive Vice President. Sir, please go ahead.

Thank you, Karen, and thank you, everyone, for being on the call today. Yesterday we filed our 10-K and issued a press release highlighting key financial results and other developments for the quarter and the year. Both are available on the investor relations section of our website atwww.ensigngroup.net. A replay of this call will also be available there until 5 p.m. Pacific on Thursday, February 25.

As usual I will start with the standard housekeeping items. First, any forward-looking statements made today are based on management's current expectations, assumptions, and beliefs about our business and the environment in which we operate. These statements are subject to risks and uncertainties and could cause our actual results to materially differ from those expressed or implied on the call. Participants should not place undue reliance on any forward-looking statements and are encouraged to review Ensign's SEC filings for a more complete discussion of factors that could impact our results.

Except as required by Federal Securities laws, Ensign does not undertake to publicly update or revise any forward-looking statements or the changes that arise as a result of new information, future events, changing circumstances, or for any other reasons.

Second, any Ensign facility or business that we may mention today is operated by a separate wholly owned operating subsidiary that has its own management, employees, and assets. References to the consolidated company and its assets and activities as well as the use of the terms we, us, our, and similar verbiage is not meant to imply that the Ensign Group, Inc. has direct operating assets, employees, or revenue, or that any of the facilities and service centers, the hospice business or a captive insurance subsidiary are operated by the same entity.

Third, we supplement our GAAP reporting with EBITDA, EBITDAR, adjusted net income, adjusted EPS, and other non-GAAP metrics. These measures reflect additional ways of looking at our operations which when viewed with other -- with our GAAP results provide a more complete understanding of our business. They should not be relied upon to the exclusion of GAAP financial measures. A more ample discussion of these non-GAAP measures as well as a reconciliation to GAAP is available in yesterday's press release.

I would also mention that we have no meaningful new information to report regarding the ongoing DOJ investigation since our last earnings call. We long ago learned that these things usually move at a fairly glacial pace. In the meantime, we and our regulatory counsel remain in a cooperative posture with the US Attorney's office.

With that, I'll turn the call over to Christopher Christensen, our President and CEO. Suzanne Snapper, our CFO, will then discuss the financials, and then we'll open up for questions. Christopher?

Thanks, Greg. Good afternoon, everyone. I am excited to say that our incredible local leaders and teams have not only put up another solid quarter and another record year but Ensign has grown yet again since we the last spoke with you.

I am pleased to report that at $542 million, 2009 revenues were squarely within the Company's revised guidance range. More importantly, I'm even more pleased to report to you that an adjusted $1.60 per fully diluted share, our earnings per share was also well within the unrevised guidance range.

A few key metrics that contributed to this result. Just in case anybody is worried that he might be burying something in the adjustments, these are all GAAP numbers. Fourth-quarter revenue grew over 18%. Fourth-quarter EBITDA grew 21%. Fourth-quarter net income grew almost 11%, while in 2009 skilled revenue grew 14%. 2009 same-store skilled revenue mix climbed to 50.8%. 2009 EBITDA grew 25.5% and 2009 net earnings grew by more than 18%.

Then with the non-GAAP and California third-quarter retro adjustments, which provides us a much more accurate picture of how we did operationally and a much more useful comparison to our own past performance, fourth-quarter EBITDAR grew 24%, fourth-quarter EBITDA grew 29% and adjusted EPS jumped 13% for the quarter. While 2009 EBITDA grew 26%, 2009 EBITDAR grew 20% and 2009 adjusted EPS grew by more than 20%.

These achievements are a direct result of our locally centered one facility at a time business model. We have consistently said that with intelligent and empowered leaders at the head of every operation, we remain extremely nimble and ready to adjust to nearly any challenge market by market and facility by facility regardless of the uncertainties these markets may present.

Those gifted and dedicated operators have once again and against enormous odds proven that that model is right. Suzanne will discuss the numbers in more detail and then share our 2010 estimates with you in a moment, but first I want Greg to briefly discuss our growth over the last year and the last quarter. Greg?

Thanks, Christopher. 2009 was a tremendous growth year for Ensign and Q4 was a busy quarter. We have added six more facilities since our last earnings call, bringing our acquisition count for the period from January 1, '09 to today to a total of 17 new facilities plus one hospice business.

As you know, early in the quarter, we purchased Golden Acres, a 300 plus bed campus in Dallas, Texas. We are pleased to report that despite some significant transitional inertia that might always be expected in a facility of that size, Golden Acres is moving along and poised to do well.

That acquisition included a small but well-regarded stand-alone hospice business which we view as an excellent entry platform into a service area which is related to our core business. We are now studying that business from the inside out and we see promise there.

As you also know, on the same day we also acquired three very interesting facilities in Salt Lake City, Provo, and Price, Utah. As expected, these three facilities were initially mildly dilutive earnings. I'm happy to report that they are turning on schedule and we remain very positive about their long-term potential.

Since we last spoke to you, we have also acquired SunView Care Center, a 127-bed skilled nursing facility in Youngtown, Arizona which is adjacent to the popular Sun City retirement area just northwest of Phoenix. I am pleased to tell you that SunView is off to a quick start and looks like it will do very well in 2010.

We have also acquired three wonderful skilled nursing facilities in the Rio Grande Valley of Texas, Grand Terrace in McAllen, Alta Vista in Brownsville, and Veranda Rehabilitation & Healthcare in Harlingen, with their combined 288 beds have joined our outstanding Village Care Center in McAllen to greatly increase our reach and reputation in that part of the country. They are collectively running ahead of pro forma and should be accretive this year.

And in Idaho, Ensign acquired Emmett Care & Rehabilitation Center, a 72-bed skilled nursing facility in Emmett, and Parke View Rehabilitation & Care Center, and 86-bed skilled nursing facility in Burley. Now just over 45 days into operations, both are off to a good start and both should be solid contributors this year.

We also note for your information that in December Ensign purchased the underlying real estate and other operating assets of Paramount Health & Rehabilitation Center, an 85-bed skilled nursing facility in Salt Lake City. An Ensign facility subsidiary has been operating Paramount under a lease to purchase option since December of 2008.

These acquisitions bring Ensign's growing portfolio to 79 facilities, 49 of which are Ensign-owned and another eight of which carry purchase options. As these options generally reduce our occupancy costs over time when we exercise them, we do expect to exercise most or all of them in due course.

Industry observers will note that we at Ensign have been largely contrarian in our acquisition approach growing both opportunistically and strategically when the senior's housing market cools while heading for the sidelines and mainly focusing on organic growth when the market heats up. Combined with our talent-first growth model, this acquisition strategy has served us well over the years.

For the present, we are actively seeking additional opportunities to acquire both well-performing and struggling long-term-care operations across the Western United States and we expect to continue our pattern of disciplined growth in the near term.

As we have reported, in Q4 we reloaded our acquisition fund with a $40 million term loan from GE Capital and we still have an untapped $50 million credit line in our hip pocket. We also have 28 facilities that we own free and clear with well over $150 million in leverageable equity in our portfolio. All of these resources can be used to finance additional growth as opportunities arise.

With that, I'll hand it back to Christopher.

Thanks, Greg. Before I turn the time over to Suzanne to discuss the financials, I think it is important to punctuate our numbers with at least a brief discussion of some of the people and events behind them. After all, these results don't generate themselves.

As I have often noted, even more than our strong balance sheet and solid operating history, it is the strength of our talented leaders at the local level which makes such results possible quarter after quarter. It is the character of these leaders who push in their individual markets to find, acquire, and take advantage of compelling external and internal growth and performance opportunities that others simply miss or can't handle, which makes Ensign unique. They are Ensign's true success story.

The Ensign operating model depends on a different kind of leader that is typically found in the industry and it affords these local leaders the latitude they need to be nimble and respond to the demands of their unique markets. Ensign simultaneously supports them with world-class systems, technologies, and specialists. While we certainly share best practices across the organization and monitor both financial and clinical performance in these distinct operations, we do not attempt to impose a set of top down one-size-fits-all operating methodologies across each market. The discipline inherent in this model continues to produce superior operating results in spite of general market conditions.

The results these leaders produce build up over time as they and their operations mature and grow to dominate their markets. Let me share a couple of examples comparing current performance to selected financial results from just a couple of years ago.

At our Summerfield facility in Santa Rosa, Northern California, CEO Matt Rutter and COO, [Brenda Pescarita], have taken a small, old, and very challenging facility and turned it into a showcase of wonderful care. The quantitative results of this qualitative transformation are nothing short of spectacular. Since 2007, Summerfield's occupancy has grown nearly 800 basis points to a statistically full 97% with EBITDAR margins of 22% and net income growth for the same period of over 45%. We firmly believe that financial he performance follows clinical quality and Summerfield's results are pretty convincing.

In another example, Coronado Care Center in Phoenix, Arizona, CEO Jim Guschl and COO Jackie Greene have led what was formerly the state of Arizona's most clinically challenged facility with occupancy in the 60% range to a 91% occupancy level, making it one of the most popular and sought-after facilities in the state.

Because of our longtime partner Jim's leadership and passion for his caregivers and staff, since 2007, the Coronado team has grown EBITDAR margins by more than 400 basis points to 22% and has driven net income up by over 35%. We firmly believe that employees who are truly valued are the key to creating a truly valuable business and the Coronado leadership team has done just that.

At Lemon Grove Care and Rehab in San Diego, California, the leadership team of CEO Scott Kirby and COO Shawn Laird have grown occupancy in this once bankrupt and obscure facility to an incredible 93%. Since 2007, they have grown revenues by over 36%, EBITDAR margins by 51%, and net income by an astounding 195%. More importantly, Lemon Grove is one of the most clinically sound and reputable facilities in Southern California. We believe that skilled nursing is a local business and Scott and Sean has become well-known and widely respected leaders in their local healthcare community.

And finally at little Rose Villa in Bellflower, Southern California, the leadership duo of CEO Clay Gardiner and COO [Vicki Oblong] have earned the confidence and trust of their community, which has translated into 91% occupancy. Since 2007, they have grown EBITDAR margins by more than 1000 basis points to more than 26%, increased revenues by 41%, and raised net income by 190%. We believe that becoming the facility of choice in the market requires concerted effort and excellence over time and the resulting market dominance that Clay, Vicki, and their team have achieved shows in their operating results.

There are so many other stories like these across the Ensign universe and we expect to see more as we faithfully continue to grow and support our outstanding leaders.

Perhaps even more interesting is the fact that we have many, many more facilities and leadership teams which are merely in their infancy operationally, especially following the huge growth year we have just had. And we see many great things for them in the future.

That leads me to mention again something that Greg already alluded to. With so many recently acquired underperforming facilities in the mix, we believe that the opportunities for organic growth across the Company's expanding portfolio are more compelling than ever. These opportunities become successes as our local leaders continue to focus on becoming the providers of choice in their markets and consistently grown occupancy, revenues, and earnings even in market cycles when our acquisition growth slows or when, like in 2009, overall reimbursement rates are slashed.

We will continue to remain vigilant and respond to this as changes occur. In the meantime, we remain financially sound, with the lowest debt ratio and strongest balance sheet in the industry, a solid cash position, and very manageable real estate costs.

Even after last quarter's $40 million mortgage financing and even after a very robust year of acquisitions whose EBITDARs have yet to catch up with the new debt, Ensign's adjusted net debt to EBITDAR ratio is still only 2.2 times. And as of December 31, we still had almost $39 million of cash on hand. We remain committed to keeping our cash flow strong and our debt relatively low, and we continue to commit capital to our ongoing acquisition and renovation programs as we look to the future.

We expect based on our history and experience to be able to continue delivering solid returns and superior patient outcomes regardless of changes in reimbursement regulation and the like. In an environment where the market is looking for modest increases at best from the industry, Ensign has shown steady double-digit growth in its key metrics.

As always, the credit for our performance goes to my partners, our local leaders and their teams. As we've mentioned before, long-term care is first and foremost a local business. These local leaders continue to take the diverse challenges and opportunities facing their individual facilities and markets and surpass all expectations.

With that, I will turn the time over to Suzanne to provide more detail on the Company's financial performance and our guidance regarding 2010.

Thank you, Christopher, and good afternoon, everyone. This quarter we set another record for revenue. For the quarter ending December 2009, total revenue was $146.6 million, up 18.3% over the prior year quarter. Our revenue growth was mainly attributable to improved higher acuity mix in our same-store facilities, which grew their skills and mix to 51.9%, solid growth in our transitional facilities which grew revenue 7.2% with skills revenue climbing 162 basis points to 46.1% and the addition of 15 new facilities across 2009, and as well as ongoing performance improvements in our 2008 acquisitions.

The Company reported GAAP net income for the quarter off $8.7 million, compared to $7.9 million. Diluted GAAP earnings per share were $0.41 compared to $0.38 per share. The GAAP results for Q4 2008 and 2009 include revenue and expense adjustments to reflect the retroactive change in the California reimbursement rate and quality assurance fees which relate back to August 1, but were taken in the fourth quarter.

When combining the removal of a retro Q3 impact in our adjusted quarterly financials, net income increased 22% to $9.1 million or $0.43 per diluted share. EBITDA increased 39% to $20.3 million and consolidated EBITDAR margins grew to 16.3%.

We are pleased to report our performance for the year ended December 2009. Total revenue was $542 million, up 15.5% compared to $469.4 million for the prior year. Same-store revenue was up 4.9% for the year and our transitional facilities grew their revenue by 9.9%. We achieved these revenue increases and other operational improvements even though same-store occupancy remained relatively flat for the year.

Our same-store skilled mix increased 77 basis points to 50.8%. As we continued to strengthen our critical offerings and raise our acuity levels at immature facilities, we expect our skilled mix to increase over time. This has been demonstrated by the movement in our transitional facility skilled mix, which improved 406 basis points to 46.6% for the year.

As we typically acquire underperforming Medicaid-focused facilities, we anticipate that during and after periods of acquisition growth, our consolidated skilled mix and occupancy will be diluted by lower occupancy and mix in the recently acquired and transitional facilities.

Consolidated EBITDA for the year grew 25% or $14.5 million to $72.2 million. Overall EBITDAR margins increased 57 basis points to 16%. GAAP net income for the year grew $32.5 million. Diluted GAAP earnings per share were $1.55 compared to $1.33 and when adjusting the GAAP numbers for the removal of the acquisition expenses, the amortization of acquired patient base and the operational results for the previously disclosed Q3 lease expirations, our adjusted net income was $33.4 million or $1.60 per diluted share, an improvement of 20.3%.

In reviewing the strength of our financial position, as of December 2009, cash and cash equivalents were $38.9 million. The Company generated net income -- net cash from operations of $46.3 million, of which $32.5 million was attributable to earnings, $19.7 million was related to non-cash items including depreciation and amortization, provision for doubtful accounts, and stock-based compensation.

Net operating assets and liabilities grew by $5.9 million, which was primarily attributable to the growth in accounts receivable. [As] revenues grew particularly in recently acquired facilities, which typically experience collection delays of up to six months or more as we await completion of a change of operations process by state and federal agencies. Net income used in the investing activities during the 12 months was $80.5 million, which was primarily related to business acquisitions and purchase of PP&E.

Net cash from financing activities for the year was $31.7 million, largely generated by the $40 million of new term debt. This five-year loan is secured by fixed facilities. The average interest rate on this loan is approximately 8%. We have already used a portion of the loan proceeds to fund recent acquisitions and we expect to use the balance to support additional growth in renovations.

In addition to the GE loan, seller financing was placed against four of our buildings. For the 2009 acquisitions and our financing activities, the number of facilities we own free and clear has grown to 28. Over time, we expect to leverage the unencumbered equity in our real estate portfolios to fund further expansions. And we continue to maintain our five-year $50 million revolving credit facility with GE, which was untapped at the end of 2009.

We believe that with our current cash balance, strong cash flow, the equity of our existing real estate portfolio, and the availability in our credit lines, we are well positioned to continue executing on our disciplined growth strategy in 2010.

As we published in yesterday's press release, we are currently expecting 2010 revenues to range from $605 million to $615 million and diluted earnings per share of $1.75 to $1.79. The guidance is based on diluted weighted average common shares outstanding at $21.4 million. No additional acquisitions or dispositions made beyond those to date (inaudible) aggregate 1% projected decline in overall reimbursement rates for fiscal 2010, some of which have already occurred.

No material increase in state rates. The therapy [cap] exception being retroactively extended, and no negative impact associated with the anticipated implementation of RUGs IV and MDS 3.0.

In getting these numbers, we remind you again that our business can be lumpy from quarter to quarter and year to year. Due to the unpredictability in government reimbursement systems, delay in state budgets, seasonality and skilled mix, the impact of the general economy on our census and other factors, performance is also impacted by fluctuating stock-based compensation expense, the cost of being a public company, and other matters that have little to do with operations.

In addition, during periods when our opportunistic acquisition activities are accelerating in both common -- it is both common and expected to see some short-term pressures on earnings and margins until we can begin to develop the long-term potential we believe is inherent in those opportunities.

But as you can see from these projections, we continue to believe there is ample opportunity for additional improvements across our entire portfolio. We are excited for 2010.

I will now turn it to Christopher to wrap up.

Thanks, Suzanne. I hope this discussion has been helpful to all of you. Like many of you, even before last year, we saw storm clouds building on the horizon. State and federal budget uncertainties turned into serious reimbursement headwinds in the latter half of the year, prompting us to reduce our revenue guidance midway through the year. However, despite skepticism from some and unlike many others, we refused to lower our earnings expectations.

This left us and our operators with a rather daunting operational mountain to climb in the final months of the year and they had to make that climb at same time that we were taking over a large number of underperforming assets, which not only took many of us away from day-to-day operations but which were expected to be initially dilutive to earnings.

But then there's always something going on, a new challenge, another wrench in the works, a bigger hurdle to clear, and that was especially true in 2009. So rather than be overwhelmed and latch onto any of the many available excuses floating around in the industry and the larger business world last year, our unique operators simply performed. Because they have proven over and over that they can, we remain confident that our unique operating model is well suited to and will even thrive in uncertain operating environments as it did in 2009.

The risks inherent in our business aside, based upon the outstanding performance of our local leaders in 2009 and over time, I have every reason to expect that they will continue delivering solid returns and superior patient outcomes regardless of changes in reimbursement or regulation.

As always, I want to conclude by thanking these great clinical and operational leaders and their teams for a solid fourth quarter and a great year. I also thank the service center, who serves them well. It is an honor to serve with them, it is inspiring to watch their diligence, and they all take their stewardship very seriously, as do I. I also wish to thank our shareholders again for their support and confidence.

Karen, can you please let us know how you want us to handle Q&A?

(Operator Instructions) Eric Gommel, Stifel Nicolaus.

You commented on the rate pressures and I was just curious if you could give us an update sort of in your key operating states -- any new developments perhaps in Texas or Arizona relative to long-term care rates?

You know, Eric, our updates would be suppositions only, and so I guess I want to clarify that. We don't really know about Arizona. So far it looks like it would just be flat. Texas is tossing around a 1% reduction, but we have no idea whether that's going to come to fruition or not. As you probably know, the rest of our reductions have already -- we've already had them in our financials for some period of time.

And within your guidance, you didn't really -- you said that -- I guess you make no assumption for impact on RUGs IV and I am assuming that's because you're making the assumption it is a budget-neutral kind of event or it's really moving dollars around amongst a new set of RUGs. I'm just curious your thoughts if you have any updated thoughts on the implementation there.

That's partially true. It's hard to put it -- it's hard to describe in an earnings call what we really built in. I think our assumption is, if there is any effect between that and what we have already experienced in Ensign anyway, the 1% we think is a fairly conservative estimate of what the overall impact would be because we haven't had anywhere near the 1% reduction in Medicare reimbursement year-over-year.

So there is a bit of allowance in there for any small impact that there may be or miscalculation in the budget neutral changes that may be heading our way.

And are you comfortable with your implementation of the MDS 3.0 at this point or I'm assuming you started that process of training and things. But do you feel you have enough time to get that implemented companywide?

Yes.

Okay. Just a couple other questions. Greg, you talked about the potential stepping to the sidelines on acquisitions. I mean, are you starting to see valuations move up again or is that what you were saying in the release or are they still -- are there still attractive valuations out there in properties?

We are still seeing attractive deals out there. We haven't noticed a spike in valuations yet. The only reason I mentioned our overall strategy is that our crystal ball in this is never more than about 1.5 to 2 quarters deep and I don't want anybody to think that we're just going to blow and grow through the whole 2010. Right now we are seeking and seeing acquisition opportunities that we think look pretty good.

Okay. And then my last question and I will hop off, but I think you kind of answered it, Christopher. But you appear very comfortable with I guess the buildout of your clusters given the addition of these new facilities that you don't maybe have to add any more infrastructure than your local leadership, the facility sort of centric model is working and you can still leverage that model.

Yes, you know, a good -- with the exception of maybe three operations, our facilities are very well clustered now and so we probably do have a bit of excess infrastructure in those facilities that are loaned. But that only represents, what, 3%, 4% of our portfolio and we will certainly be working feverishly this year to cluster those so that we don't have that excess infrastructure anymore.

I guess just -- so you won't even -- in the clusters where you have more focus, you are comfortable with sort of the infrastructure you have there that you can handle those clusters well? I guess I was thinking about the ones where you've built out more.

Yes, we certainly added field resources in those areas to support them well. Some of the acquisitions that Greg mentioned, we have added some resources in Texas and some resources in Utah in particular where we had the most significant growth.

Okay, great. Thank you.

Brian Williams, Avondale Partners.

Guys, thanks for taking my call. As an operations question, as a result of your acquisitions, occupancy still is slightly lower, yet skilled mix has been well maintained. Can you discuss opportunities to improve these metrics going forward, especially with the 17 new facilities that were added since 2009? What consolidated levels do you think you can get to by the year-end 2010?

I'm not sure I've ever been asked this on such a short time line. But it's a good question. I guess with our existing portfolio, we are running currently right around 79.5% across the entire portfolio. Obviously the newer acquisitions are in the -- I think they are averaging in the low to mid 60% census and that's where the vast majority of our increase will -- our improvement will follow in terms of -- actually in terms of both skilled mix and census.

And I would guess excluding any new acquisitions, Brian, obviously I think we would be disappointed if we didn't move from where we are today to about the 81% mark by December, which only gives us 10, 10.5 months to get there. But we are a little bit higher than our January number already in February. So I think that's a conservative estimate and I think we would be disappointed in ourselves if we didn't get to that number.

Okay, great.

On the skilled mix side, I didn't answer that question, sorry. You know, our same-store skilled mix is relatively high but our overall skilled mix, again I think because of the number of new acquisitions we have and because of the low skilled mix at which they came into the portfolio, which you'll see if you look at the detail surrounding our new acquisitions, our skilled mix is very low in the combination of those new acquisitions. We would be disappointed if we didn't move that overall number in the range of 100 basis points.

Again, the vast majority of that, all of that coming from -- I shouldn't say all, almost all of that coming from the new acquisitions.

Right, and then moving kind of onto the P&L, can you give me a little bit of detail on your expense management programs and how much more opportunities do you have here particularly on the cost of service line?

Our folks have been doing a great job of finding ways and this isn't just the leaders. This goes all the way down. They've been trying to find ways to adjust to what they see as a short-term reimbursement change. And so there are a lot of things that we haven't even put into effect that will be put into effect in the next 30 days surrounding some of our vendor relationships, surrounding some less important benefits to them, we are not touching anything that is most important to them and frankly not touching things that they say they don't want to touch. And those decisions are theirs.

But I don't have a number for you. I can tell you that we are learning to take better advantage of our task position with vendors and such, and so we've received a number of discounts by offering to pay earlier, which have resulted in hundreds of thousands of dollars of savings and frankly has made them happy because they get their money sooner. But I don't have a number for you. I'm happy to talk to you off-line and --

We can talk, Brian, if you want some additional details.

Brian Williams. Sure. And then one just one last one and then I will jump back in the queue. Kind of looking forward from 2010 to 2011, what are your expectations on your organic operations for both revenue and EPS growth? Do you think there is realistic, say, revenue 5%, EPS growth somewhere in the upper single digits?

For 2011, is that we your question is (multiple speakers)?

Yes, 2010 to 2011 range.

Oh, I'm sorry, I didn't understand that. Can you ask that again? What are we looking at in terms of --? I was thinking 2010.

Yes, just looking forward kind from 2010 to 2011, what your expectations are just on your organic operations for the other revenue and your EPS growth.

You are trying to get us to give guidance here.

Yes.

You know, we have historically -- let me answer it this way. We have historically done very well in our organic growth after a year of acquisitions like we had last year. This is something that we have repeated over and over again. This is about our fourth cycle. And so I would expect us to have a much larger than usual organic growth both in terms of revenue and earnings, not that we won't have acquisitions, but again based on history, this should be a great opportunity for us organically.

(Operator Instructions) James Bellessa, D.A. Davidson & Co.

Good afternoon. On the acquisitions that were made on January 1 of 2010, have those acquisition expenses and amortization of patient spaces already been taken through your income statement or is it yet to come in the first quarter of this year?

Jim, those would come after the acquisition occurs, so those are often in the first quarter of this year.

Did you hear that?

I did. Thank you very much.

Thank you, sir. There are no further questions in queue at this time. We do have a follow-up in queue from the line of Brian Williams, Avondale Partners.

Just one on the CapEx. Just thinking about the facilities that you've purchased since 2009, do these require a lot of work in the coming years? And kind of what are your expectations around CapEx there? And then also how do you plan to use your free cash flow in the coming year?

I'll answer, then Greg may have some more to add. We -- as we buy these things, Brian, we price in what we expect to spend in terms of our CapEx and I would guess that this will be a little bit bigger CapEx year, not significantly bigger because we worked on our existing portfolio so significantly over the last three years. But it will be most likely a slightly larger CapEx year than the prior three years. And your second question again was --?

Just how you plan to use your free cash flow in the coming year?

We will continue to use most of it on making -- we do have some good acquisitions out there, possibilities out there that we feel comfortable that some of them will close and obviously we will spend a significant amount of that cash on the renovations that you mentioned.

Great, thanks.

Thank you, sir. There are no additional questions at the moment.

Thank you, Karen, and thanks, everyone, for joining us today. We appreciate it.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great afternoon. Thank you.