美國醫院公司 (HCA) 2008 Q1 法說會逐字稿

Good day, everyone, and welcome to the HCA first-quarter 2008 earnings release conference call.

Today's call is being recorded.

At this time, for opening remarks and introductions, I'd like to turn things to Mr.

Vic Campbell.

Thank you very much and good morning to everyone on today's call, also to those of you who are listening on our webcast.

With me this morning for the call is Jack Bovender, our Chief Executive Officer; our President, Richard Bracken; and our CFO, Milton Johnson; our Investor Relations Officer, Mark Kimbrough; and several other members of senior management of HCA here in Nashville.

Let me remind you that today's call will contain some forward-looking statements based on management's current expectations.

Numerous risks, uncertainties and other factors may cause actual results to differ materially from those expressed in any forward-looking statements.

Many of these factors are listed in our press release, and they're also in our SEC filings, which we encourage you to review.

Many of the factors that will determine the Company's future results are beyond the ability of the Company to control or predict.

In light of significant uncertainties inherent in our forward-looking statements, you should not place undue reliance on these statements.

And, the Company undertakes the obligation to revise or update our forward-looking statements, whether as a result of new information or future events.

As a reminder, our call is being recorded.

Replay of the conference call will be available later today.

With that, let me turn the call over to Jack Bovender.

Thank you, Vic, and good morning, everybody.

Before I turn the call over to Milton Johnson, our CFO, I thought I would take this opportunity, being about a year and a half since the LBO, to give you an update on where we stand cumulatively on divestitures.

You will recall that, when we announced our LBO and went through the process of roadshows and met with many of you, there was some speculation out there about how divestitures would fit into our whole strategy and our model for the LBO.

In fact, there were some people saying that we would divest ourselves of up to 10% or 15% of the Company's assets and we told you at the time there was absolutely no plan, nor was it in our model to do any divestitures, but that we would be opportunistic if the right situation with the right strategic buyer presented itself.

So after a year and a half, we have, as you know, divested ourselves of certain assets in non-key markets to strategic buyers who were willing to meet our hurdle rate in order to acquire these hospitals.

So the totals right now stand at a gross sale of about $1.13 billion that we have done since the first October of 2006.

The after-tax proceeds from that were about $900 million -- $901.5 million, to be exact.

The EBITDA multiple on those gross sales was about 14.3%.

We have a couple of transactions that are still in process right now, and as soon as we have definitive agreements and signed documents, we will let you know about those also.

In addition to this, we had non-strategic sales of land and medical office buildings in 2007 of about $96.7 million.

So that brings you up-to-date on our divestitures.

As I've said earlier, we'll keep you up-to-date as others may occur from time to time.

With that, I'll turn it over to Milton Johnson to review our first quarter.

Good morning.

Each of you should have received a copy of our earnings release issued this morning.

Let me take a few minutes to provide several general observations before highlighting some details in the quarter.

We were pleased to see same-facility equivalent admissions growth of 1.1% in the quarter.

This is the highest quarter-over-quarter growth rate since the third quarter of 2005.

However, we did benefit from the extra day in the quarter, due to leap year, and strong flu-related admissions this quarter.

Notwithstanding the stronger volume this quarter, we saw a 1.9% decline in same-facility total surgery cases compared to the first quarter of 2007, a significant variation from recent trends.

Following a 1.3% increase in same facility total surgery cases through February this year, we saw a 7.7% decline in the month of March.

We estimate that a likely reason for the poor performance in March was due to the Easter holiday falling in March this year versus April of last year.

Turning to revenue, our consolidated cash revenue per equivalent admission grew 4.2% in the first quarter over prior year.

As a reminder, cash revenue is net revenue less bad debt expense.

This growth rate is somewhat softer than we have seen in recent trends.

Our analysis shows that the major factors contributing to this were, first, we saw a greater mix of Medicare revenue in the quarter than last year's first quarter; and, second, we saw a lower rate of growth in managed care revenue per equivalent admission than last year.

Our growth rate for managed care per equivalent admission grew 6% in the first quarter over last year's first quarter.

Last year's first quarter managed care revenue per equivalent admission grew 9% over the previous year's first quarter.

While we don't expect to see 9% growth each quarter, we do consider 6% growth to be at the lower end of our expectations.

Looking at managed care revenue per equivalent admission growth by month in the first quarter, January's growth rate was the most problematic at only 4.4%.

However, February and March each came in at 6.9%.

For your information, each 100 basis points in managed care rate yields approximately $30 million in additional revenue on a quarterly basis.

Additionally, our consolidated cash revenue per equivalent admission was adversely affected by bad debt hindsight adjustment for the quarter.

We increased our allowance for doubtful accounts by $57 million in the first quarter based on results of the hindsight analysis.

In the first quarter last year, the adjustment was $26 million.

In summary, although we were pleased with the overall volume growth this quarter, our financial results were negatively affected by lower surgical volumes and weaker than expected cash revenue growth.

Now, moving on to some other details on the quarter, net income for the quarter was $170 million compared to $180 million last year.

Interest expense decreased compared to last year's first quarter by $27 million to $530 million.

We reported on sales of facilities, a $51 million gain compared to $5 million in the first quarter of last year.

This year's gain related to the sale of Doctors of Columbus Hospital in Columbus, Georgia.

While we saw solid same-facility net revenue growth of 8.1%, fueled by net revenue per equivalent admission growth of 6.9% and same-facility adjusted admission growth of 1.1%, consolidated adjusted EBITDA declined 7.5% to $1.18 billion compared to $1.276 billion in the first quarter of 2007.

Normalizing for the following four items, consolidated adjusted EBITDA would have been generally flat with the prior year's first quarter.

First, the facilities sold since last year generated $16 million of adjusted EBITDA in '07 and a $2 million loss in this quarter.

Second, the Company reported $27 million of adjusted EBITDA from Texas UPL programs in last year's first quarter and zero this year.

Third, audits conducted by recovery audit contractors negatively impacted adjusted EBITDA by $15 million in this year versus $2 million in last year's first quarter; and fourth, our quarterly bad debt hindsight adjustment was $57 million versus $26 million last year.

As a reminder, adjusted EBITDA is reconciled to net income in the Company's earnings release.

Adjusted EBITDA margin declined 250 basis points in the first quarter to 16.6% compared to 19.1% in the first quarter of 2007, primarily due to an increase in the Company's provision for doubtful accounts of 220 basis points.

Salaries and benefits increased 20 basis points.

Supplies were flat, and other operating expenses increased 10 basis points.

Productivity and wage rates were generally in line with our expectations.

With respect to bad debts, our allowance for doubtful accounts represents approximately 90% of the $5.105 billion in patient due accounts receivable balance of March 31st, 2008.

Same-facility admissions increased 0.8% in the quarter compared to the prior year, while, as previously mentioned, adjusted admissions increased 1.1%.

Pulmonary or flu-related admissions increased 10.7% over the first quarter of last year.

Monthly volume trends during the quarter varied considerably and appear to have been impacted by the Easter holiday in March.

Looking at the monthly same-facility admission trends during the quarter, we were flat in January, up 4.4% in February with an extra day for leap year, and then a decline of 1.7% in March.

The good news -- April admissions appear to have rebounded.

As you know, admission trends vary among our markets.

We had several markets experience solid volume growth during the first quarter, such as New Orleans, up 10.7%; North Central Florida, up 8%; Las Vegas, up 6.4%; and Palm Beach/Dade markets up 4.4% and 4.9%.

Our largest admissions declines were in the Brownsville/McAllen market, down 16.1%; and South Carolina, down 4.3%.

During the first quarter we continued to see an increase in acuity measured by case mix, which increased 0.8% over last year.

Our average length of stay also increased 0.7%.

Both of these are based upon same-facility data.

During the first quarter same-facility outpatient surgical cases declined 2.7% compared to the prior year.

Same facility ASP surgical cases declined 0.8%, while hospital-based outpatient surgical cases declined 4% from the first quarter.

We did see most of the decline in same-facility outpatient surgical cases in March.

Outpatient surgical cases decreased 2.2% in January, increased 4.2% in February and decreased 9.5% in March.

Same-facility emergency department visits increased 6.8% in the quarter.

Same-facility uninsured admissions increased 5.3%, which compares favorably to a 12.4% growth rate in the first quarter of 2007.

Same-facility charity care discounts increased by $35 million to $388 million, and same facility uninsured discounts increased by $99 million to $411 in the first quarter.

Days and accounts receivable are 53, consistent with recent trends.

As we mentioned this morning in our press release, capital expenditures totaled $308 million in the first quarter.

Due to timing of certain capital projects, we now estimate capital expenditures for 2008 will be at approximately $1.65 billion compared to our previous guidance of $1.8 billion for the year.

Now I will turn the call over to [Keith Geiger], our VP of Corporate Finance.

Typically, this call would be turned over to David Anderson.

Unfortunately, David is under the weather this morning and couldn't attend the call.

But Keith will give us an update on the balance sheet and cash flow for the first quarter.

Looking first at the balance sheet, our cash balance at the end of March was $471 million or an increase of $78 million from the end of last year.

The increase is primarily related to $62 million of investment securities at HCI that have been -- additional securities that have been reclassified as cash and cash equivalents, and a $14 million buildup in our international cash balances.

So at the end of March, our cash balance can be broken down as follows.

We have $171 million in overnight investments and deposits in transit.

We have $102 million in international cash, $81 million at our joint ventures and $117 million of investment securities at HCI that are classified as cash and cash equivalents.

Looking at our long-term debt balance, our long-term debt including current maturities at the end of March was $27.489 billion, an increase of $181 million from the end of the year.

Our leverage as measured by debt to EBITDA was 6.11 times at the end of March, an increase of 0.16 times from the end of December.

This is primarily attributable to the increase in debt, as I just mentioned of $181 million and a decline in LTM EBITDA of $96 million.

Our floating-rate debt percentage at the end of March was 19.5% or a total of $5.3 billion at floating rates.

In February, we entered into $1 billion of paid fixed interest rate swaps at an average 2.98% rate, giving us a total of $9 billion of floating rate debt that has been swapped to fixed rate.

Our liquidity position at March 31st remains strong.

Our ABL revolving credit facility of $2 billion is now fully drawn.

However, our cash flow revolving credit facility of $2 billion is entirely undrawn, leaving us $1.9 billion of liquidity after letters of credit are considered.

Looking at the cash flow statement, our cash flow from operating activities for the first quarter was $227 million, which is a decrease of $125 million from the first quarter last year.

This is primarily attributed to the timing of tax payments.

If you look at the first quarter of 2008, you will note that we made $127 million of net tax payments this quarter, whereas the first quarter last year we had $149 million of net refunds.

If you factor out the taxes, we actually had an improvement in operating cash flow in the first quarter of $151 million.

Looking at our cash flow from investing activities, we used $227 million in our investing activities, net of which $308 million was related to capital spending, down slightly from the first quarter last year.

We spent $24 million on acquisitions, primarily the acquisition of a small hospital in Florida.

We received $107 million in divestiture proceeds, primarily related to the sale of Doctors of Columbus Hospital, in Georgia.

Looking at the cash flows from financing activities, you can see we repaid $575 million of long-term debt during the quarter.

$500 million of that was related to the bond tender that we completed in March, where we repurchased some near-term bonds in the 2010 to 2012 timetable.

The net purchase price of those bonds after fees and expenses was at about par.

They had an average maturity of about three years and an average coupon of approximately 8%.

The remaining long-term debt repurchased or retired was $54 million in bank term loan amortization and $21 million of capital lease and other debt amortizations.

You'll note that the revolving credit facility increased by $650 million.

That's primarily related to the bond tender.

I'll turn back over to Vic.

Keith, thank you very much.

Augusta, we'll bring you back on, and we'll go to Q&A.

(OPERATOR INSTRUCTIONS) Miles Highsmith, Credit Suisse.

Just trying to get a general sense from you.

I guess a few moving parts in the quarter related to leap year, Easter, flu, et cetera, and not even with a specific number.

But X-ing out all those less recurring items, are we still running closer to flattish or slightly positive, or have maybe some of the ASC initiatives kicked into a little better volume growth?

Just any comment there would be appreciated.

Milton, do you want to take that?

Sure, Miles.

I'll try to give you a breakdown.

Based on, again, our total admission growth, same facility, was up 0.8.

We had about -- roughly 4300 admissions increase attributable to the flu.

That would be an impact of 110 basis points positive.

The leap year impact was about 4500 admissions, which again is also about 1.1% positive.

Then, factoring out the Easter holiday impact, probably a negative 0.3%.

When you do the math and all that, it would show that our admissions excluding the flu and leap year and Easter would've been down about 1.1%.

On an adjusted basis, it probably would have been -- the decrease would have been less than that when you're factoring the outpatient activity, but that would have been the reconciliation on admissions.

Lawrence Weiss, Citigroup.

Just one thing I wanted to flesh out on the surgery side.

The decreases you said that had to with Easter.

But I just wanted to know if you were actually able to give us -- you said that just regular admissions were up in April.

Would you be able to give us a March and April for surgeries for this year versus last year, so we can actually X-out the issue with Easter?

That's a great question.

We don't have that data.

We close our books and get the statistical details this weekend.

So we don't have the details on surgery for April.

We have, obviously, overall volume look.

Again, we have seen a good bounce back in April.

I think that your analysis of looking at March and April together to really understand the trend is probably a good way to look at it.

We're waiting to get those numbers here at the management team and do the same analysis.

Rishi Sadarangani, Alliance Bernstein.

Could you kindly comment on the fact that, relative to peers, your bad debt trends over the last couple of quarters seem to be accelerating?

And that, I think, has led to, I think, for the first time after several quarters, because of the decline in EBITDA, a decrease in your -- a deterioration in your leverage ratio.

So could you just kindly comment on that and what you are seeing there and if that's -- what kind of priority that is and how that might be reversed?

Milt, you want to lead off there?

Sure.

One thing, the last two quarters, we have recorded hindsight analysis results that $61 million in the fourth quarter last year that we talked about and then $57 million this quarter.

As we go through our quarterly hindsight, again, a very detailed analysis of our collectibility.

What's been driving that has not been, really, I think, any sharp decrease in collections.

As a matter of fact, upfront cash collections have remained around $80 million a quarter, but it's more attributable to -- when you look at the total self paid book, more of the total book is made up of true uninsured accounts versus co-pay and deductibles.

As a result, the entire self-paid book has deteriorated in collectibility and that's really what has been driving the hindsight.

But keep in mind that bad debt is just one of, really, three factors of uninsured compensation.

The other two would be charity write-off and uninsured discounts.

So when we look at the total impact as -- when you look at net revenue, adding back discounts and charity and looking at it as a percent, our total uncompensated care in the first quarter, 21.3%.

And it's actually down slightly from where we were at the end of the fourth quarter.

If you compare that statistic to the other companies that have released, we're generally comparable.

We are higher than a couple and probably slightly below a couple, so we are in the ballpark relative to total uncompensated care.

But again, bad debt is just one piece of that total picture.

Adam Feinstein, Lehman Brothers.

The question here is an industry question.

There has been a lot of noise recently about just a lot of dislocation in the non-for-profit world.

Just curious in terms of what you're seeing in terms of the competitive landscape.

Have you seen competitors cut back on projects?

Do you think we'll see that?

So I know it's a broad question, but I just would love to get any thoughts there.

Richard, do you want to lead off?

I'll take a shot and that, and maybe the group guys can't add to it.

From our vantage point, while there might be some press about our competitors pulling back a little bit, we don't see it in a broad-based way across our markets.

We're certainly not going about our business expecting a downturn in their growth activity.

So there are spots where we've seen some projects slow or be put on hold, but for the most part in our market, I'd say the competition is pretty robust.

Guys, anybody, anything to add?

Richard, I think they I'll agree with you.

Duncan Brown, Wachovia.

You talked at the beginning about the divestiture activity and that color was appreciated.

I wonder if you could talk a bit about your appetite for acquisitions, if any at all, and then what you're seeing in terms of multiples on the secondary market, if that's up or down.

Jack, do you want that?

Yes.

As we've said before, we are opportunistic when it comes to acquisitions, like we are for divestitures.

We would certainly be very interested in any system or large hospital in markets that are our kinds of markets, that is, higher-growth markets.

If we could find another Health Midwest, we would obviously go for that the time.

So we're out there.

We're keeping our eyes and ears open for possibilities.

Sometimes we get some very opportunistic situations.

It was mentioned briefly in Keith's report about an acquisition, a small one, in Florida.

It was actually a smaller hospital located near our Largo medical facility, which is in the Clearwater, Florida area, just about two or three miles away.

We were able to buy that one out of bankruptcy for $19.7 million.

Our first two or three months experience with that has been incredibly good.

Not only does it give us access to a patient population, it also gives us access to a very viable and very well-known osteopathic physician residency program with several specialties, which we will use and consolidate into our operations in Florida.

So those kinds of things, obviously, we're interested in.

But we're also interested in larger acquisitions such as a Health Midwest that we believe we could bring synergies to improve the earnings and move the needle on our growth in and of itself.

Then, the other side of that, again, is we continue to expand on the outpatient side.

I don't know, [Bruce], if you want to talk about some of the new facilities and acquisitions we've done over the last few months.

This is Bruce Moore, who heads up our outpatient effort.

We continue to look, and I think in the last call we talked about we are doing fewer greenfields, or where we're actually developing that, most of the markets we are in are fairly saturated.

We've got a couple of new centers coming up in Richmond, but we're really looking at acquisitions.

So what we are starting to see is some of the out-of-network models and some of the physician-owned, 100% owned, surgery centers looking to affiliate or align with a bigger provider.

So we've got a pretty robust pipeline of acquisitions that we're looking at, really, all the way across all of our portfolios.

Erin Blum, Goldman Sachs.

Can you please provide some more detail on the reduction in the CapEx budget?

I'm wondering if there were very specific projects that were delayed by, say, like regulatory review?

Or, is it just that you expect the opportunities might be better a year from now?

Or what led to that decline?

Richard Bracken is going to take that.

Our capital planning is pretty much consistent with what we've been saying over the last 18 months.

We noted in our release today that there will be a slight adjustment this year and it's only a timing difference on the project; it's not a slowdown in what we're doing or where we're spending our money.

It's just simply a timing difference on our construction spend.

We continue to have a lot of really good opportunities for capital investment in our properties.

And, as we think about our long-term capital plans, we're incorporating that logic into it.

But right now, our capital spending is spot-on with our plans, and we are very comfortable where it's at.

Henry Reukauf, Deutsche Bank.

Could you just comment generally -- I think you mentioned something about JVs with maybe ambulatory surgery centers or specialty hospitals coming up for -- becoming available.

I know you haven't, but is there any interest in particularly the specialty hospitals joint venturing with doctors?

Then, in terms of hiring physicians, is that something that you've increased recently, or basically are you not hiring them?

Let me take the first one, which is or joint venturing specialty hospitals.

We have been very public about being opposed to that.

We are working as hard as we can to get legislation that bans the construction of new facilities like this because we believe it is a significantly bad medical policy in this country.

So the answer is an affirmative no, a very strong no, that we're not interested in joint venturing specialty hospitals.

Surgery centers, Bruce?

We are interested in -- all of our surgery centers are joint ventured.

We have a couple that aren't, but typically, the physicians have a minority ownership and we have the majority and are the managing partner in those.

So we're clearly interested in doing that.

Relative to the question of employed physicians, employing physicians is a piece of our overall recruitment strategy, and we are employing physicians at an increasing rate and see that as an important vehicle to develop the primary care networks in our market.

Janet Sung, Loomis, Sayles.

Well, I know it still a bit early, but even after the refinancing of some of your near-term maturities, you still have a sizable chunk coming due in the next two years or so, close to $1 billion.

I was just wondering what your preliminary refinancing plans might be, given the market conditions aren't quite as ebullient as they once were.

Then I have a follow-up on the basket for dividends.

Keith, do you want to take that question?

Yes, I'll take that.

If you look at our maturity schedule, we have, I think, over the 2008 and 2009 time frame, I think there's about $300 million a year of debt maturities.

So our maturities don't start building up to any significant degree until 2010.

So we've got some time before we need to worry about refinancing our existing indebtedness.

We certainly know that that is a major issue for us to consider if we move down the road.

But for the time being, we are, I think, in pretty good shape, from a liquidity standpoint.

Janet, you had a follow-up?

Yes.

Well, just to go into a little detail, I understand it's toward the end of 2010.

But I just didn't know whether you were going to continue to utilize your revolver, your other $2 billion cash revolver, asset sales or a combination thereof.

A plan would be to use the revolver to fund the maturities that Keith mentioned.

Also, of course, if we have additional asset sales, which, as Jack mentioned, is likely if we find the right strategic opportunities, then that also could be used to help fund those maturities.

So again, we're comfortable with our liquidity, as Keith said here, looking out over the next couple of years.

Hopefully, we'll see a better market.

Part of our strategy would be, when we see a better market, we'll be looking to possibly go to market at that time.

But there's no current urgency about that.

But is still an exit strategy by tapping the equity markets -- is that still part of your integral strategy going forward?

Well, this early in the transaction, we don't have an exit strategy identified from the LBO, so that's not something that today we're concerned about.

Our concern today is trying to grow operations, growing EBITDA, improve the Company.

At the risk of maybe offending some of the equity analysts that maybe on the call, we like just being private.

Will asset sale proceeds -- is that go to the dividend basket?

Do you recall, for distribution?

No, it does not.

Proceeds go to pay down debt.

By the bank loan provision?

Well, by our own provisions.

This is Keith.

The asset sale proceeds do not, that I'm aware of, increase the size of a basket that would allow us a larger dividend, if that's what your question is.

And in fact, the bank debt has provisions that require, if certain conditions are met, for proceeds to be used to pay down debt.

(OPERATOR INSTRUCTIONS) Sheryl Skolnick, CRT Capital Group.

Thank you very much, and I don't take offense at all at the fact that you like being private.

I would, too.

My question is -- with brilliant timing.

My question is this.

Can you break down for us whether or not you're seeing any kind of trends in commercial managed care volumes that might indicate that patients are either delaying their elective procedures because of concerns about job loss or accelerating some elective procedures, maybe different market by market; that's why I'm asking -- in anticipation of loss of insurance.

Why don't we start -- Beverly Wallace, who does our managed care contracts, and then I'm going to look to the group presidents, if they want to add anything.

Sheryl, we are not seeing any impact by (inaudible) in our numbers to date.

We're not hearing it from the managed care payers, and we are not hearing it within our divisions or markets.

So I don't think that is the driver there today.

Anything else?

I'm getting nods from the group Presidents, Sheryl.

Okay, so really no impact of the changes in the employment situation to date that you can see?

No, none whatsoever.

Matthew Armas, Goldman Sachs.

Two quick questions.

One, can you comment on -- the trend in salary and wages per equivalent admit seems to be accelerating.

Was there any unusual item there?

Also, can you just comment on the time frame for the look-back for the AR true-up charge?

Richard, you want the salary wage side, and then Milt, take the other one.

Just to refresh the numbers, on the consolidated statement, last year our SW&D as a percent of net revenue was at 39.6, 39.8 for the first quarter of this year.

That's, of course, with the bad debts above the line.

I am generally very pleased with where our salaries are at the Company right now.

Of course, we have some markets where there's some opportunities.

But on balance, when I look at our hospital-only productivity and wage rates, they are generally favorable.

We did leave a little productivity on the table in the month of March, but really we expect that to come back in April.

Our productivity levels in our hospitals are really very solid.

We're funding our wages in the marketplace commensurate with the competitive environment and feel good about that, so we do have some dollars increasing there, but consistent with our plan.

The other thing comes into our salary and wage number that we think is very important is that we have invested dollars in our growth agenda, whether it be in our sales force, whether it be in our service line strategies, our quality initiatives, our electronic health records.

So being able to do all this and keeping the SW&B relatively consistent, we think, is a pretty good measure now.

On best SW&B, I will also point out that when you look at it, salary wages and benefits, per APD of adjusted patient day, which takes account of length of stay increase, up 6.5%.

That's pretty much in line with our expectations, maybe slightly higher.

Again, that impact was really at the March impact as well.

On the timing of the true-up charge, was that just the quarter, or was that a 12-month look-back?

It's a 12-month look back.

Again, it takes about a year, approximately, to really understand the disposition of self-pay accounts.

So this was looking at the balance sheet, self-pay accounts as of January of '07, looking at the collectibility or disposition of those accounts over the past year to determine the flexibility factor applied to this quarter's self-pay accounts.

Would like to remind you, though, that we do this every quarter.

We do the last, the 12 trailing months, but we do it four times a year.

To my knowledge, we're the only ones in the industry who do that.

As a result of this, do you tweak your up-front write-off, or do you just -- have you not changed that policy?

What we do -- you mean the discount policy or -- ?

No, actual bad debt recognition.

How we recognize it on a current basis is we have this uncollectibility factor which, today, is, say, approximately 90-91%, and apply that to the balance sheet, each -- the total self-pay accounts on the balance sheet at the close of each period.

And then any adjustment resulting from that runs through P&L and that's really how we determine the bad debt.

So any change in volume or growth due to volume, our rate is captured on a month-by-month basis.

What's really causing the hindsight is any change in that actual uncollectibility percentage is really what drives the actual hindsight charge.

Great, thank you very much.

Augusta, we have time for about one or two more questions.

(OPERATOR INSTRUCTIONS) Mr.

Campbell, we have no other questions.

I want to thank everybody for being on the call.

We appreciate it, and we'll talk to you soon.

That does conclude our call.

We'd like to thank you all for your participation.

Have a great day.