Hanger Inc (HNGR) 2010 Q4 法說會逐字稿

Good morning. My name is Amanda, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Hanger Orthopedic Group's fourth-quarter results conference call. All lines have been placed on mute to prevent background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Tom Kirk, you may begin your conference.

Thank you, Amanda. I am Tom Kirk, President and CEO of Hanger Orthopedic Group, and with me this morning, I have George McHenry, our EVP and Chief Financial Officer, and Tom Hofmeister, who is our Vice President and Chief Accounting Officer and IR Director.

I would like to welcome you to our discussion of our fourth-quarter results, but before the discussion, let me ask Tom Hofmeister to review with you our declaration on forward-looking statements.

Thank you, Tom.

During this call, management will make forward-looking statements relating to the Company's results of operations. The United States Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for certain forward-looking statements. Statements relating to future results of operations during this call reflect the views of management; however, various risks, uncertainties, and contingencies could cause actual results or performance to differ materially from those expressed in or implied by these statements. These include, but are not limited to, the Company's ability to enter into and derive benefits from managed care contracts, the demands for the Company's products and services, and other factors identified in the Company's periodic reports on Form 10-K and 10-Q, which are filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934. The Company disclaims any intent or obligation to update publicly the forward-looking statements, whether as a result of new information, future events or otherwise.

Now, I will turn the call back over to Tom.

Thanks, Tom.

Let me start off with just a few introductory remarks. Overall, the quarter contains several noteworthy points. We grew consolidated sales by 10.4% over the fourth quarter of last year. This sales performance, combined with cost management, yielded an EPS of $0.52, excluding the costs associated with the relocation, refinancing, swap elimination, and the Accelerated Care Plus acquisition. This equates to a 40.5% growth over last year's fourth quarter. This makes the 20th consecutive quarter, or five years, where we have met or exceeded first-call estimates. And also during the quarter, we refinanced our bonds and Term B loan with great results, and completed the acquisition of ACP, which will provide an exciting strategic platform for us.

Now, I'll turn it over to George who will review our financial results and balance sheet changes in detail.

Thank you, Tom. Thank you everyone for joining us today. I want to apologize in advance if I cough in the middle of my comments, but I'm a little under the weather today.

Q4 was just a great quarter for the Company. In fact, it was the best we've ever had. The important takeaways are as follows. Our adjusted diluted EPS of $0.52 represents 40.5% growth over the prior year, which exceeded Street estimates. The quarter did benefit by $0.06 in discreet tax benefits, but even with that subtracted, we had a solid beat in the quarter. Our track record of consistent performance now dates back five years.

During the quarter, we incurred costs that were unique to the quarter and thus we added them back to the GAAP results, come to adjusted amounts that we disclosed. These costs include $2.2 million of relocation costs, and $4.9 million related to the closing of the ACP acquisition, and $14 million of costs related to the refinancing, and then $1.6 million loss related to the unwinding of the interest rate swap that we had in place on the old facility.

We increased operating leverage, excluding relocation and acquisition costs, by 110 basis points, which is really the best leverage we have ever produced in a single quarter through a combination of our best sales growth of the year and continued control on the expense side of the equation. We experienced solid growth in all lines of our business. Overall sales growth accelerated to over 10% for the first time this year. Comp sales in our core patient care segment accelerated 6.2%, which was the strongest performance since 2010. Keep in mind, we were up against a very strong comp in Q4. Last year, we were up 6.6% in patient care, if you recall.

Our distribution segment recorded a healthy 8.6% increase. Again, they we were up against a 12.1% increase in the prior year. So, that's exceptional results. Therapeutic services which includes ACP contributed $5.6 million in sales, which is in-line with our estimates. Our comp rate of 29.9% was higher than prior year as a result of -- as it was impacted by an adjustment resulted from our annual physical inventory and our revenue mix. The other thing that affected the comparison the year over year is that we did have a benefit in the inventory last year, so keep that in mind.

We continue to do an excellent job managing expenses, or improved operating margin, resulting primarily from increased leverage of other operating costs. Now that we moved into the new headquarters, our relocation costs dropped dramatically compared to Q3. The $2.2 million recorded this quarter relates principally to personnel moves as these costs cannot be recorded until the individual disposes of there houses and physically moves. We expect to incur a last $1 million to $2 million (sic - see press release) of cost in the first half of 2011. These expenses are non-recurring and are shown on a separate line in our income statement.

D&A increased by $1.5 million compared to 2009. The increase relates principally to the acquisition of ACP. During the quarter, we recorded discreet tax benefits on an adjusted basis equated to $0.06 of earnings. Going forward, we believe our normalized tax rate will be between 39% and 39.5%. In summary, all of the factors I had just discussed led to adjusted EPS for the quarter of $0.52 or $0.46, net of the tax benefits. This is a significant increase from $0.37 we reported in the prior year.

Moving onto the year, overall performance for the year was slightly below our expectations in terms of sales, principally due to the ACP acquisition, which distracted us from other O&P acquisitions, and we exceeded our expectations from an earnings perspective. On an adjusted basis, operating leverage has improved by 70 basis points, which materially exceeded our goal of 20 basis points to 40 basis points in our core business.

At end of quarter, we incurred costs that were unique to the year, and thus we added them back to the GAAP results to come to the adjusted amounts we've disclosed. These costs include $16.4 million of relocation costs, which is in-line with expectations, $5.4 million of cost related to the closing of the ACP acquisition, $14 million of costs related to refinancing and $1.6 million in loss related to that swap that we unwound.

Revenue grew by 7.5%, which is in the middle of our expected range with HPO same-center sales increasing 4.6%, and our distribution business is growing by 8.5%. Therapeutic Solutions business did not add significantly to the increase for the year due to the ACP closing occurring on December 1. Our comp rate of 30.3% was 30 basis points higher than the prior year. The increase is due principally to the revenue mix, and was in-line with our internal expectations.

Personnel costs as a percentage of sales decreased by 10 basis points. We saw it improved leverage on personnel, which was offset by higher benefit costs. Including the relocation and acquisition costs, income from operations increased to 12.6% of sales, a 70 basis point improvement. This was a result of improved leverage of other operating expenses and personnel costs, partially offset by the increased comp. D&A was $2.5 million higher than last year due to capital additions being at a higher-level, including the new corporate headquarters and the ACP acquisition that I mentioned a minute ago.

At end of quarter, our adjusted EPS includes approximately $0.06 in one-time discrete tax benefits, and the effect for these benefits and the effect of our one-time cost, our normalized tax rate for 2010 was approximately 38.8%. All of the factors above resulted in an adjusted EPS of $1.42 or $1.36, net of the one-time tax benefits, and that is a significant increase over the $1.13 we reported last year and exceeded consensus estimates.

Moving onto the balance sheet and the cash flow. Our AR balance was $118.6 million. We continue to do a commendable job collecting cash. DSOs were at 52 days. We are comfortable with our reserve for doubtful accounts. Inventory increased by $6.9 million to $98.2 million from $91.3 million at 12/31/09. Inventory turns were 4.4 times. Our sales backlog remained strong at quarter end, and we believe our inventory level is at an appropriate level to serve our patients.

Goodwill and our intangibles increased $155.1 million to $647.1 million at the end of the year. The increase is primarily due to the ACP acquisition for which we added $97 million of goodwill and $47.1 million of other intangible assets that are principally depreciable. They include customer lists, patents, and other amortizable items. CapEx was $9.8 million for the quarter and $30.2 million for the year. This year was $8.9 million higher than last year due primarily to the buildout of our new corporate headquarters. We anticipate that our capital additions for 2011 will be between $40 million and $50 million, which will be used to do recurring projects on our patient care centers as well as to work on our new billing system, and support the ACP growth.

Cash flow provided by operations remain strong for the quarter and year. Cash provided from operations was $30.4 million (sic - see press release) and $70.1 million, which was significantly less than the $31.8 million (sic - see press release) and $73.1 million in the comparable prior year periods. The decrease is principally due to the cost incurred in the ACP acquisition, and the relocation of corporate headquarters, and if you added the cash elements with those back, we would be at roughly $87 million for the year. So, that's a pretty significant increase over the prior year. So, cash flow was strong and was within the realm of our expectations.

The debt refinancing, as we discussed before during the fourth quarter, was successfully completed. Our debt facilities were expanded by approximately $100 million in order to fund the ACP transaction. We successfully refinanced our senior notes which now total $200 million from a 10.25% rate to 7.125%. On the liquidity side, we utilized approximately $100 million of cash on hand to fund the ACP transaction, which is why our debt only increased by $100 million, and we've ended the year with $36.3 million in cash, which is above our target.

So, we have a total liquidity, when you include the $96.8 million in availability on our new revolver, a cash of $133.1 million. At year-end, our leverage remains modest at approximately 3.3 times which is, of course, below our internal projections. The move to Austin was completed on schedule. We will incur another $1 million to $2 million (sic - see press release) of relocation costs in the first half of 2011, as I mentioned previously.

For 2011, the Company expects full-year revenues to between $945 million and $955 million, and diluted EPS in a range of $1.63 to $1.68. As in past years, the Company has a goal to increase operating margins by 20 basis points to 40 basis points in our core business. Now, adding ACP is going to change that dynamic somewhat, and we're going to go back and analyze that and give you a number for the entire business. We'll have that available when we report first quarter. The Company expects to generate cash flow from operations of $85 million to $95 million, an increase over the $87 million pro forma number that I just mentioned, and plans to invest $40 million to $50 million in new capital additions to fund our core businesses, including ACP's continued expansion, and development of a comprehensive electronic practice management system.

That concludes my comments, and I'm going to turn the call back over to Tom Kirk, our CEO.

Thanks, George.

Let me add a little bit of color on each of our business units, in terms of how they performed for the quarter. Our patient care segment achieved $11.2 million increase in revenue, which translates back to a 6.2% same-center sales growth rate for the quarter compared to Q4 of '09. We estimate that approximately 1% to 1.5% of this increase can be attributed to price increases, which were really a result from the rollout of the fee schedule increases from 2008 and 2009 that we received from CMS. Now, the balance of that growth is attributable to volume and mix, and we estimate that is about a 50/50 split in terms of the remaining 5% of growth.

Programs that are impacting volume and mix are the following. First, the continued improvement in our Linkia book of business. Now, I say this, but I like to remind you that HPO is the primary vehicle for the delivery of most of the services under the Linkia contracts. On an overall basis, the revenue from Linkia designated contracts was up by 14.2% for the quarter, and 11.4% for the year compared to a comparable period in 2009.

This second methodology we use is to educate our referral sources on the enhanced life-like features of our higher performing projects such as the advanced suction suspension systems, microprocessor prosthetic arms, hands, knees, and feet components. For Q4, the revenues from these product lines were up by about 10% compared with Q4 of '09. Now, that is a bit below the number that I've reported to you in prior quarters, and the difference is attributable to a major government contract that we had at one of the Department of Defense hospitals where we did a lot of their upper extremity work, and the simple fact of the matter is that they have been hiring people and bringing that in-house.

Now, our team, that's our upper extremity team as well as all of our prosthetic practitioners are laser-like focused on finding other ways to rebuild this book of business. We're actually working with some outside manufactures right now. Some of which we have been working with and some new, to try to bring new products to market in this area, which can provide advanced functionality for our patients. We want to get that back up to more like the historic levels that we reported in the past.

This third mechanism that we use are our patient evaluation clinics, here's where we call our patients back in for an education session on the fit and function of their device. This is really a good way to provide outstanding patient care as well as providing some incremental revenue. Revenues from this source provided almost $5 million of incremental revenue for the quarter.

And the fourth mechanism that we use are our sales, marketing, and public relations efforts by our practitioners, and all of those that support them in identifying opportunities specific to the local businesses such as opening up satellite offices, and the launching a new marketing programs, which are designed to take some share, and at the same time, better alert our patients to our presence and the kind of value that we offer.

At the end of Q4 2010, the unemployment rate was at 9.4% compared with 9.7% at the end of Q4 last year. In January, we heard that this rate dropped to 9% which while improved, still makes it difficult for some of our patients to identify other sources of assistance on their reimbursement such as coinsurance and co-pay. Our practitioners continue to offer assistance as needed. They work with the patients to try and find alternative mechanisms to get this reimbursement, but the length of this recession and the amount of time that people have been out of work certainly are draining in terms of their hospital benefits. And is an increased burden for our patients with increased work for our practitioners, but we are dedicated to them to ensure that they get the device they need to have.

With the November elections behind us and the new 112th Congress in place, we are establishing relationships with the returning members of Congress, and making new contacts with the freshmen Representatives and Senators. It is our plan to reintroduce the three key pieces of legislation, and that is parity, the Medicare Improvement Act, and the Veterans Bill of Rights Act during this year. It is paramount that they and their new staffs understand that the cost of incomplete or no O&P care far exceeds the cost of the care.

Our partners in this effort are the Amputee Coalition of America, the American Orthotics and Prosthetics Association, the O&P Alliance, and the member advocate associations that serve their patient population in MS and diabetes, and this is really essential. We've put white papers together. We're meeting with the new staffers. We want to get this legislation back and reintroduced. We had a great start last year. We just ran out of time, and there was a lot of distraction toward the end of the year due to elections, and the lame duck didn't really help us. So, we are dedicated to getting this back in place.

At the state Medicaid level, healthcare providers are facing challenges as the states struggle to balance their budgets. I think we're all aware of this; The New York Times just put a piece out on it. At present, we are working each state, on an individual basis in terms of education, communications and public relations that support our patients. Trying to educate these state legislatures on the same fundamental value and that is, it is a lot less expensive from a life-cycle costing basis to invest in the patients rather than allow them to become an ongoing ward of the state. So, here again we are working closely with all of the patient advocate associations to ensure that they receive the care they deserve. We are making joint visitations. We are working together on joint publications to keep our patients first.

Now, our practitioners recognize that in this kind of an environment there is a definite need to find new types of devices and services that they can deliver to their patients in their patient care center when they can be medically justified. So, we have as part of our marketing and our product development efforts, redoubled our efforts to identify products out there that we can bring in that may not be traditional to O&P, but they certainly are in an adjacency, and we have some good examples of how this is beginning to get traction.

Now, let's turn our attention to SPS. Their outside sales were up by approximately $1.9 million or 8.7% compared to the fourth quarter of last year. During this past quarter, SPS began to offer the expanded product line that they negotiated with one large supplier in Q3, and I mentioned that to you in the last quarter, and we're very pleased to have that business now reporting into our portfolio. They also expanded their electronic ordering capability, so that they may be more accessible to all customers, that's the Hanger customers as well as the independents. While they have got their East store, they are working with some outside entities to bring in other capabilities, so that we can be the provider of choice for all of these products.

And finally, the SureFit business continues to gain traction. You will recall that we made that acquisition in 2007, and they have revamped their product line. They've revamped their processes in manufacturing, and now they are offering comprehensive complete service. And they are really winning a lot of business from the Hanger practitioners, the independent practitioners, and of course the market segment that we targeted, which was the podiatrists.

Let's turn our attention to Linkia. They continue to execute and expand their dual-mission of building volume while negotiating a fair price for the services and the value they provide to their customers. Payors tell us that they recognize the value that Linkia brings to them in helping them control costs, and ensuring good clinical care and high levels of customer satisfaction. We've just completed our annual customer satisfaction survey with Linkia. I'm happy to report that this is the fifth year where our results have gone up, both in terms of our customer satisfaction and our referral source satisfaction.

Their book of business, as I mentioned earlier, is up 14.2% for the quarter, clearly a validation of their offering. Linkia is continuing to advance the pilots that I mentioned to you in prior calls where we are offering other services that could be incorporated into their business model such that they will provide benefit to the payors. One of these has been completed and it is in the process of being commercialized, and we will see more of that going forward this year. On the marketing side, they are continuing discussions and negotiations with key national and large regional health care management companies as well as firms in the workman's compensation segment.

Okay. Now, let's turn our attention to what we call Therapeutic Solutions, which consists of Accelerated Care Plus and Innovative Neurotronics. ACP's December was on target with our expectations, and the previously announced trends for the year 2010. We went into some elaborate detail, and they are very consistent with that and what we told you back in the beginning of December. We are in the final stages of integrating the key processes and systems, and this should be complete by Q1. And, of course, that's benefits, that's payroll, that's closing the books, and so that is an ongoing work.

We've sat down with the ACP folks, and we have identified several opportunities that can really produce good synergistic value. What we've decided to do is to take the first couple of these, and test them in a few geographic locations. We've targeted Arizona and Florida. So, we are putting those plans together right now. Once the approach and overall action plan is confirmed from these pilots, we will roll them out nationally.

But the largest focus for ACP in 2011 is to continue to build their business by using the mechanisms in their value proposition, which have worked successfully in the past. So, while we're anxious to go out and capture some of these synergies, we recognize that the growth of ACP does demand focus and finish, so that we can get through the year and they will meet the numbers that we have projected for them.

On the Innovative Neurotronics side, their sales for Q4 were up 30% than those of Q4 from last year, and they're up about 35% for the total year. During the year, they introduced a new, more user-friendly software for setting up the device, which our practitioners certainly appreciate, and they commercialized a new WalkAide cup, which is much easier for our patients to don and doff, and so the patients appreciate that one. And they were major accomplishments in terms of the usability of the device and the system in computer that controls the device.

Currently, we are continuing to work on the clinical sites to go through the IRB and the contracting process for our INSTRIDE pivotal clinical trial. We have talked about this in the past. We are in total working with 30 institutions and the enrolled patients are increasing. Now, this INSTRIDE trial will be much larger multi-center, randomized clinical trial than anything we have done in the past. We have been working with the FDA and CMS to ensure that the INSTRIDE trial proceeds appropriately to support reimbursement and provide meaningful clinical endpoints.

The trial is an FDA-, IDE-approved trial to enroll 1100 patients in 30 sites. Currently, we have 9 sites up and active. That is up from 4 at our last call, and we have retained an outside firm to assist us in recruiting patients. Currently, patient recruitment is up around 60, and we're bringing in patients into these last two sites that we've just started live with. In terms of the overall timeline, we anticipate complete patient enrollment in 2011, but obviously that is going to be dependent on site enrollment and how fast we can get these patients to go into these trials, and how fast we can get the other clinical test sites up and running.

Once the study is complete, we will submit to the appropriate peer publications and the regulatory agencies, and we are anticipating a 2012 submission of our data to FDA and CMS. And at the same time, we continue to work with our third-party payors to our reimbursement desk to gain authorizations for our patients. To date, we have been seeing about a 70% success rate, and that is consistent with what we had in the past.

So, the good news here is that for our patients, the ones that are coming through, we are enabling about 2/3 of them to get authorized and then to get reimbursed. So, it is a process as we have said where we continuously just work through that process to ensure that the third-party payors understand the efficacy of the device and the value it brings to the patient.

A few final words on our acquisition program. We pulled back a bit on the O&P acquisitions in Q4 due to the ACP acquisition, and I had mentioned that before because we wanted to focus on getting ACP complete and begin the integration. Now, as we look into 2011, we are renewing our efforts in the O&P space, and we've set the target back up to the $20 million to $22 million of annualized sales. This is comparable to prior years. As we have said in the past, the strategy is to look for tucking candidates that have strategic value to us in the form of location, quality practitioners, and/or favorable product service mix, and our pipeline is robust. So, that is our target, and we are executing on that as we speak.

So, in closing, let me again say that we do operate in a changing and challenging environment. With issues like stubbornly high unemployment rates, states trying to close budget gaps on the back of our patients and a myriad of federal regulations concerning healthcare and the new healthcare act. I am proud of our ability to grow the top line despite these factors. In addition, we have contained, and in some cases reduced costs without sacrificing clinical or operational excellence. With ACP now a part of the Hanger family, I see the opportunities for our businesses, our employees and our shareholders.

Thank you. I will now open it up for questions, and turn the mic back over to Amanda.

(Operator Instructions) David MacDonald, SunTrust.

It sounds like with ACP now having access to the Hanger balance sheet, there will be more investment in that business than there was historically. A, is that correct, and if that is the case, could we even see their historical growth rates accelerate, now that they have got frankly a bigger checkbook behind them?

I am not sure we would be comfortable saying accelerate, but here's what is going on, David and why George had mentioned in his comments that we wanted to continue to fuel their growth. They are introducing new products, and the one that we had mentioned back at the time of the acquisition was the Omni VR flat screen TV with an infrared camera, which the patient becomes an avatar, and that is the way they get their exercise and it has an automatic recording device on it. So, bringing that product line out, which by the way has been piloted and met with great success. The official launch this year is going to take some capital. As they bring back product line in, we will continue to develop products, so that they can go back and not only put it in the facilities where they already have a presence, but they can make it available for those where they don't. That's going to take some capital,

But in our overall growth trajectory that we put together and the things we told you about, we had factored that in. So, we still continue to see that trajectory hold, dependent upon the acceptance of that product and few others they have. We might be able to stack up a few more revenue gains, right now, we think we've built out the budget looking at their product mix and looking at their penetration of customers that they serve. So, I would not say we are going to accelerate beyond that, but that's where our capital is going, and why we are going to allocate some more to them, so they can get us products out there.

Okay, and then can you guys just spend a quick minute on the electronic practice management system, and what you expect that to be able to do for you, and what will be some of the benefits that flow out of that?

We call this project Janus. As you know, Janus is the two-headed god here, so we want to look back and capture the best of the past, and look to the future and bring in new capabilities. Now, while our OPS system that we are currently using is a billing and collection system, Janus is much more than that. It's almost the beginning of electronic medical records.

So, patients can do their scheduling. They will be able to register in online in advance. They will be able to come into the facility, and we will have all of their information with automatic links back to the insurance companies. When they then sit down with the clinician, rather than filling out cumbersome paper charts, you will be able to use a handheld device and click off the procedures and the diagnosis, which would automatically be transported up to the front desk. So, that office administrator could begin to understand what the financial responsibility of the patient would be, and then have that discussion with the patient.

Once the clinician has done the appropriate diagnoses, it would automatically link over to the materials and devices that would be necessary to fabricate the device, so that we could have automatic ordering through SPS. Then ultimately, when the materials come in and the device is delivered, the 5 pieces of documentation that we insist all of our practitioners have before we bill, would all be electronic. That would facilitate the electronic billing, and then the management of that receivable, and so we can relieve the receivable once payment is received and payment would come in through electronically.

So, when it's all fully built out, we hope to have a paperless office where we're not going to have charts and folders. Everything will be electronic, gooey interfaces to make it very user-friendly. It's going to take us several years to build all this thing out, but we see not only better patient care because people can access this thing remotely, we also see the opportunity for cost savings and productivity increases. And we know with the demographic out there, there's going to be a lot more people showing up on our door with 10,000 baby boomers turning 65 every day now. This is going to allow us to better utilize our people so they can be working smart instead of managing a lot paper.

Okay. George, couple of housekeeping questions. One, with ACP only in for part of the quarter, can you give us a sense of D&A? What is a good run rate starting point for 2011? And then also, I would assume that it's fair to say that the growth rates in 1Q relative to the total year will be a bit lower just given the weather that we have seen across the country?

First on D&A, we expect D&A to be between $28 million and $29 million for the entire entity. In terms of first quarter, certainly everybody is being hit by this weather. I think they just had 2 feet of snow in Arkansas today, and it is a worse winter from a weather standpoint than last year. Now, we do not really know what the impact on the quarter is yet. March is always our best month of the quarter, and you guys know after the number of years that you've covered us that Q1 is traditionally our weakest quarter because of the seasonally low sales. I would say that you should not expect big growth in first quarter this year, and that's traditional compared with prior years, and we might be a little bit weaker than we have been in the past with the snow because that has without doubt more severe than it was last year.

Okay. Thanks, guys.

We have not been able to see a break in the action. We know that ultimately, they are going to have to come in to get the services they need, but the way these snows have been coming, it never gets clear. So, they haven't been able to get in, but that means that once the things start to clear up, we're going to see those patients returning.

Okay.

Brian Sekino, Barclays Capital.

Quick question, follow-up on the growth rate for 2011. Clearly, the same-store growth in Q4 was strong at 6.2%, especially in spite of what you said were some weaker growth in the high-priced components. Can you just parse out maybe what you are expecting for 2011? If it is continued expectation that there will be delays in replacements, or just some color on your expectations for the growth.

Brian, included in our guidance is the expectation that patient care will grow at 3% to 5% again this year. Now, the dynamics always change. Some things that remain constant. You reckon an increase from Medicare because of the low CPI and the new productivity charts that they are applying across the spectrum to healthcare. We certainly have concerns about the Medicaid situation. Several states were having budget issues. There's been a lot of press about that, but we factor that into our guidance and into the budget that created this guidance. We do expect, on the positive side, that we know that we are going to get reasonable increases from our commercial payers. We have renewed several of our large contracts with 2% and 3% increases, and we expect price to still be about 1% included in that 3% to 5% guidance for patient care. So, that is what we expect in our core business.

Okay. Thanks, and just on ACP, when you announced the acquisition, you had said that were about 4000 nursing homes that were using the product. Do you have an updated number on that, and maybe some of the goals for 2011 for ACP?

We know, Brian, that there is about 70% market potential out there because there are 15,000 of those, and ACP's mission is to go out and get as many of those as they can. So, that statistic just for competitive reasons and also to protect the SNFs, we do not disclose that on a regular basis. We will give you updates occasionally, maybe annually, but we want them to stay very focused on going out and getting the new installs and bringing the equipment in. And they have some internal goals that are linked back, obviously, to the sales force and management. But at this time, we do not want to confuse them and take them off focus by worrying about a number. We want them to go get all that they can. It is consistent with the overall growth that we've talked about. If you remember we said that these guys had a strong track record of growth and we would be expecting them to continue that probably in the 20% range. We have built it all back into that. So, we will give you updates on the overall growth rate on the revenue line, and rest assured we want them focused on getting more installs and bringing in more pieces of equipment.

Fair enough. Okay. And then just on the nursing homes that you are in, would you say that there is an opportunity within the 4000 that you already announced that the acquisition to further penetrate those, or is the real opportunity to penetrate that 15,000 further?

It is really both. That is an excellent point. As ACP is constantly bringing out new pieces of equipment and developing new clinical modalities, our clinical program managers go back into the existing 4000 facilities and introduce the new modalities and the new piece of equipment. Case in point this Omni VR, which really has benefits beyond just the therapeutic side. It really also allows the facility to optimize their resources. From that perspective, they are going right back after the 4000. In terms of the 11,000 that are out there, that is all prime territory. So, they are also going out and getting those 11,000, and when they get those not only do they want to put in the base suite of equipment and procedure modalities, they also want to bring in the new technologies. So, it's sort of a double-breasted campaign. Go out and bring more value to the ones where we currently have relationships and go get the new ones. In both cases, we are looking at incremental revenues.

Okay. And just one more for myself and I will jump off here. As you look at 2011, you said it's going to be a year of just making sure the transition goes smooth with ACP. When you start looking at the cross-selling opportunities, what do you see as the biggest low hanging fruit? Is it using ACP's connections and serving those patients' O&P needs? And if that is the case, where were those patients previously getting the service?

Probably the lowest hanging fruit is the one you have identified. Using their relationships and going in and providing O&P service. Historically, those patients needed service. So, one of two things was happening. Either the burden fell to the PT if it was a rather simple off the shelf device, or the local DME kind of dealer to bring in off the shelf bracing or rather simple devices. For the more custom devices, I am certain that they were going out and finding services from O&P practitioners, some of which by the way were probably Hanger people because we are already into some of those SNFs, providing those kinds of services.

I think as we look to the future, it's going to be displacing probably either off-the-shelf kinds of supply, relieving the PT of the burden of fitting that, perhaps putting in more clinically-based services instead of just the DME supply house that would bring around a device, and quickly fit it up. And as we know, it is a battle for market share. On the more customized, complex devices, we want our clients, meaning the SNFs that think of us as having full-service capability along a continuum of care that includes O&P. It also includes the delivery of the clinical education that they need and the clinical modalities to help their patients. What we're really out there selling is a complete package, and so we hope that that's going to be influential enough to bring us incremental revenues and steal some share away from a few other people.

Okay. Thanks a lot.

You're welcome.

Brian Tanquilut, Jefferies.

Good morning guys, congratulations. Great quarter. Tom, you talked a lot about Medicaid and, obviously, that is a risk. If you don't mind just giving us an idea on what you're seeing in terms of patient mix. Are you seeing more Medicaid patients with unemployment being stuck here right around 9%? And also, if you do not mind identifying just what states we should be looking out for just in terms of which legislators have been looking at O&P as a potential source of funding?

Sure. We talk about in our press release, we give a split on the payment side. As you can see from that, it's down in the 5% or 6% range of our total revenues. While this is a factor, it is not a huge factor that certainly CMS or the third-party payers would be. I would say it is pretty flat. You can go back and look at this statistic over the past few years because we have reported it. You are going to see that it is going to be in the 5.5% to the 6.2%, 6.3% range, and it has been that way. So, we are not really seeing a great influx into the Medicaid ranks.

When we were speaking about some of the difficulties that people had who have lost their benefits through unemployment, that is more on the wanting third-party side because, as we know, you're benefit is secured normally through employment, and when you lose your employment now you have got to go out and find additional ways to finance your healthcare costs. So, that is where our practitioners as spending time with our patients to find alternative mechanisms to get reimbursements, whether that is working with a charitable group or a church group or whatever, and there's a lot of them out there. Just look at the Shriners, or you look at the Elks, they maintain national programs to help people that do not have this capability, and we work with them to get that.

Okay.

In terms of which states should we be mindful of, the first one out of the chute was California, and then we mounted an effort out there. Through our education, we were able to get that one relieved and pulled back, so we did not see the cuts. The second one out of the chute was Arizona, and Arizona came out and in a midnight session passed this bill to help them balance their budgets, which withheld healthcare from a number of healthcare providers, and mental health is in this, speech therapy, and other things. And that legislatively went into effect on October 1. So we really lost the ability to provide under Arizona Medicaid, to provide orthotics for patients over 21 in that state.

Great credit to our practitioners in that state because they dug right in, recognized they had to make up the revenue, and they did. So, we did not see the hit on the revenue line and that was this program that I mentioned to you about going out and finding alternative devices and services that are in line with the medical need of the patient. And they found them and obviously what we are going to do now is take their learnings and spread that to our entire organization. Another one that is up for consideration right now is Nevada. We have mounted a campaign. We even have PR advertisements out there in strategic places around Carson City just to alert the legislators that this is going to cost you more money. You do not put a leg on that patient, you take a chronic patient and don't give them their brace, their mobility is gone. They may end up losing their job, and now where are they going to go to? So we want all the facts to come out. Nevada is one.

New York has been talking about it. Texas has made a few statements around this. What they are saying, we believe, is that yes, these things are issues. I am not sure they are all going to go the same route as Arizona and just strike the line out, and say -- we're not providing it.

This is, in essence, a pushback on the federal program where the Federal Government financed this at a pretty high percentage of subsidy. They pulled back on that percentage so as a result the states are having to foot more of the bill, and at the same time the Federal Government under the Medicaid program has jammed more patients in it. For example, the fact that dependents can now stay on these programs until they are 26 years old. So, in my mind, what the states are really doing is recoiling from a burden that is getting bigger and bigger because the federal government has pressed it down. And, as in the case of the state of Texas and some other states, they have said -- well, maybe what we need to do is withdraw from the Medicaid program and develop an alternative mechanism that we can better fund and better afford.

So, in the middle of all of this you have got the budget, you've got some changing views about how care should be delivered at the state level, and then, of course, you have our response to all of this which is, provide good service and find other products and services to deliver. They are the key ones. Nevada and New York are probably the next ones up, as I've just said, but you hear rumblings in all of the states because once an idea starts to get some traction, everybody's interested in exploring it.

Thank you for those comments. Those are very insightful. My next question, commodity prices seem to be going up. It's that something that worries you as it relates to the price of O&P products going up and your ability to pass on price increases later on to your managed care payers?

The best to say is absolutely yes because we use resins that go into plastics. We use a variety of metals and alloys. So, as we see the price creep from the commodity side, it ultimately is going to report into the materials. The good news is that our SPS division works very closely with their suppliers, and as a result of that, we are looking at ways to mitigate that price increase. Perhaps by dedicating volume in a different direction, so that we can help our suppliers by a little smarter. We're not engaged in any kind of hedging programs, or anything like that. That is really not our business, but it's something that we absolutely watch all the time and meet with our suppliers regularly, so that we can help them through product selection, through the design of the products, that we can help them manage the cost increase so it does not get passed onto us. But we recognize that ultimately, it has to flow downstream, and it is going to come somewhere. So, we are very attuned to it.

Okay. And then my last question. We all have heard about how ACP has very good relationships in the post-acute world especially in the SNFs. We just saw a big M&A announcement there, Kindred by RehabCare. How should we think about that in terms of the opportunity for ACP, or the risk for that matter, now that you're seeing consolidation in the SNFs base or even in the post-acute world.

Both of those firms are very valued customers of ACP. They have a little different business model as we all know. So, we see that consolidation as a way that they can service a broader patient base and obviously to maybe achieve a little bit of productivity around this whole thing. We think that as that need for productivity, which is revenue management, and cost control comes into play, we think that ACP is very well positioned to assist these firms in providing better outcomes to their patients, understanding how reimbursement occurs, so they can help them put together a rehabilitation plan that optimizes revenue consistent with their patient needs. And they have consistently been able to demonstrate overtime, and we checked this out when we were doing are due diligence that the utilization of the modalities and the technologies that ACP brings, helps them control costs.

So, it is sort of a win-win. If they are on a drive for productivity and better management and revenue expansion, that is right in the sweet spot where ACP positions all of their programs. They're good for business and they are good for the clinical side. So, we want to continue to service them and continue to penetrate into those organizations by bringing that kind of value. We know one thing at the end of the day, and that is that there is a number of patients out there that all need care. So, whether the organizations combine in different ways, that flow of patients still has to be seen. We also know that from a federal perspective, they are trying to get those patients out of hospitals sooner because hospitals are perhaps the most expensive venue in some cases, and get them into the step-down and sub-acute locations for the 30 to 90 days.

With these dynamics in place, we believe ACP is right there with the programs that can help either on the geriatric side, the step-down, and as they reposition their portfolio, and as they are looking for ways to manage their revenues through different patient populations, we think this is the perfect thing for ACP to come in and add value in the organization. So, I guess I do not have an overall view on the consolidation industry, but I think with the macro trends we're seeing, we are in a good spot.

Got it. Thank you so much, and congratulations again.

Dawn Brock, Kaufman Brothers.

I do not usually say this, but I think it goes without saying that this was a phenomenal, phenomenal quarter. I have a couple of questions around, number one, Tome you gave us a lot of color on WalkAide and what you're looking at. I wanted to know if you would go a little bit deeper. I know that you hired a consultancy group to basically make sure that everything was on track. Can you talk a little bit about your targets as we move through 2011? The number of clinics and patients that are up and running as of right now?

As of this moment, we have got 9 sites that are up and running and about 60 patients that are enrolled. Of course, we do not have visibility into the individual results, so I can't report back to you for some that have matriculated through this how they're doing because that would invalidate the study. But you are absolutely correct. We recognize that we wanted to augment our skill sets bringing in people who do this for a living.

So, we are out there and our consultants are out there working with the 9 that we have in place to ensure that the protocols are well understood, that the people are fitting the devices are in place because, as you know, it is a WalkAide and it's an AFO. So, fitting the AFOs, we want to make sure that our practitioners or other local practitioners are there and doing it the right way. We just really want to ensure that the existing trials are coming off appropriately. We also use the group to work with new facilities where we are going to put some trials in place, getting the IRBs off, getting them approved. If there's any questions that come back from their lawyers that they are in place, and they've answered them.

We expect our people to be running the business, and they are not experts in clinical trials and that is why we have these people in place. On an overall perspective, I do not know where we will end of the year. Our target is 30. We would like to have 30 facilities up and going by the end of the year. It may end up being 28, may end up being 32, but that's our overall target. From a patient population, depending on how fast we can get the patients, our goal is to be fully populated by year end, and that is this 1100 number that I have put out there.

The possibility exists which we do not know at this time that we might be able to get statistical significance based on the results with a smaller population. And, of course, we are monitoring that as well through this outside agency. But our overall goal is to make sure by the end of year, we have fully populated those trials to the extent that we need to. Keep in mind that we do have frequent conversations with CMS and FDA just to keep them informed as to what is going on and how this is all working. So, I do not know that I have all of the granularity that you are looking at, but certainly those are the goals that we have for this year. Are you there, Dawn?

I am sorry. I was on mute. Thank you very much. That was exactly what I was looking forward. Maybe I can just ask if CMS itself has its own timeframe, so that it's not just Hanger that wants to be able to complete all of the patient entries and the clinics being up and running, but actually that CMS has, not necessarily a drop dead, but at least a timeframe.

I am not aware of any timeframe that they have, Dawn. Actually, when I look at our trial compared with some of the other things that they have on their plate right now, even though these things to get compartmentized, we are pretty small potatoes compared to what they have going on. So, they have not expressed any kind of a timeframe, and traditionally what folks tell us is that they do not. It's really the burden is on the supplier or provider of service to demonstrate the efficacy, and they are there to review what you submit to them, but they really do not have a view on the subject. Their view is to be more of a clearing house to ensure that the device is unique, which is the code, that it is doing the job which is coverage, and to examine the health economics to come up with a number that they will reimburse. So, they are not out trying to drive the process. They are much more in a reactive mode. Just waiting until we present them with information, or we go talk to them. So, they are in a little different role.

Okay. That is fantastic. Secondly, I wanted to ask, when it comes to ACP, you guys have mentioned during the analyst day that only a mid single-digit number of the ACP facilities were using Hanger for O&P at the time that you came together. Can you give us an idea of whether or not you've formulated a target number or a target penetration for you to move into some of those facilities for O&P only?

As I mentioned, we have these projects going in Florida, and the other one is in Arizona, and the projects are designed to do a couple of things. One is, I said we really wanted to go in and talk to those folks that are the decision-makers about the combined offering. We are putting materials together that represent that combined offering describing our capabilities. So, that is part of it. The second thing is to go in and to understand of all of the services that these facilities need, which one can our O&P be most effective in? Is that stroke recovery? Is that contracture management? How do we want to accurately position this because these facilities do have some degree of specialization?

They are not all doing all the same things. So, trying to understand where we bring value relative to their patient population is essential for setting targets of penetration. So, that is what we are doing right now on these two pilots, so that we effectively know and understand it. We also have to keep in mind of the 4000 they have, some of them are very large and others are very small. Depending on how much volume it may be, and the specific type of volume that may be required, will determine what kind of the staff that we put on this to go after penetration, and what kind of staff we put on this to go after providing the service. So, they're all the things that we're looking through right now. We really do not have a target number, but we would like to get as much of it as we possibly can.

Certainly, and thank you for that. George, this one is for you. On guidance, I just want to make sure I am looking at this the right way. Typically, or at least for the last several years, you have been very comfortable putting out at least an earnings number from a growth perspective of the low double-digits to mid-teens as your base. Can you just confirm for us that is indeed what you did again this year on the core business, and then we can extrapolate from that what the impact for ACP is?

Well, there is a number of factors affecting guidance this year. Some savings from the move to Texas. The normal growth we would expect in our core business. We are making some investments this year in the clinical trials, and the new system that we are working on. And the interest, some amount of interest savings from the transaction will due in the -- the previous numbers we had talked about was only the bonds and did not include the refi of the term loan, which worked against that. So, there's not a lot of savings there. That was still a great refinance. To try to answer your question, I don't really think I'm back into that. I think there's probably too many factors, but we can tell you, unequivocally, it's an accretive transaction and we're happy with the accretion. It's right in line with what we expected. For competitive reasons, we do not want to give an absolute number because, as Tom mentioned before, we do not want ACP management to be focusing on all the wrong things. We just wanted to run their business as they have, and if they do, we will be very successful.

Okay. Thank you very much. I appreciate your color.

Larry Solow, CJS Securities.

George, just a follow-up on the question of next year's guidance, the margin expansion, the 20 bp to 40 bp, which is your usual target. There is plenty of moving parts to that, so that's just your base business excluding ACP? That's the first question that I have. And then, I assume that does include the corporate relocation. So, if I include the equivocal accretion, which is probably going to add, based on your prior assumptions there, about 30 bps by itself. So, does that say that the rest of your base business will be flat on a margin basis, and maybe because of some of these additional investments will flow through the channel?

Okay. Let me try to answer your question. First of all, the 20 bp to 40 bp goal is in our core business. I think I mentioned in my initial comments that we have to go back and give you all a number for the entire entity with ACP included, or it's going to be very confusing to kind of track that. And we're going to do that, and we will have it available for first-quarter comments when we release those results, so you'll know exactly what that is. It is going to be higher than that number with ACP included. Now, on the effect of the relo, that's not 30 bps. That is about $2.5 million in savings on that $900 million in sales.

So, it's pretty close to 30bp, right? Am I doing the math wrong there?

Yes, I guess it is. I had not really thought of it that way. Yes, you are going to see a higher number. I would say the 20 bps to 30 bps probably excludes that goal, but we will reconcile all of that for you for the first quarter. Obviously, this is a little more complicated this year with all of the things, and you know, we accomplished a lot of things last year.

Right.

You have to factor those into that one piece of guidance. The playing field has been changed somewhat. So, we will reconcile all of that for you guys, but I would expect that number is going to be a bit higher.

Got it. Okay. And then just looking at Linkia a little bit. You had a pretty nice acceleration for the year, and certainly for the quarter close to 15% or 14.5%, and 11% for the year. Is it just essentially blocking and tackling and execution? Is it momentum building in the business, or anything you could specifically cite, and any more color on this new pilot that will be commercializing? Could some of that actually move the needle over the next few years?

With respect to gaining on the book of business, Larry, I think your description of blocking and tackling is a very accurate one because what we have seen here is that over the years, Linkia has consistently, and I say this all the time in the quarterly comments here, has consistently gone in, made proposals to folks saying either -- let us manage your network, or let us become your preferred provider, and here's the benefits to the that. And there's a lot of back and forth in that as we customize these approaches.

So, I think what we're seeing is the result and the fruit of labor and probably work over the past 2 to 4 years with some of these third-party payers where we have really fine-tuned and customized a program to assist them in providing better benefit to all of their membership. And to assist them in achieving some degree of administrative cost reduction because we do manage a lot of this, and it's a lot easier when you have got one bill, and it's electronic, and you only have to do one remittance and someone else takes care of diffusing that out to all of the providers.

I do not think that anything glamorous to this, and there certainly is not any new hitch in the overall program. It is really the culmination of a lot of hard work by some good people. I would be remiss if I did not say that I think the concept is being accepted better within the payer community, given all that is going on in terms of their world, and recognizing what a small piece of the action O&P is to them, it would just make sense, as we have said all along, for them wanting to find someone to relieve this burden, and take it away from them. So, I think that is what is happening there.

With respect to the pilot that we have out there, we do not want to go public with it just yet, but what it is, it is a service to help the payers better understand the billing process and the invoices that are coming in, in terms of is the documentation complete, is the coding the appropriate coding, is the coding consistent with what the doctor's prescription was? Again, such a small part of their business, but a very elaborate one when you think that we have got over 200 base codes and 600 add-on codes. Knowing what is the appropriate combination of those codes, it should be showing up when you look at a doctor's scrip is a lot of science, and they do not want to dedicate the resources to doing that. So, this service really helps them understand that.

I think what we will see with this service, it's not going to be a game changer. It's another way for us to add value to these payers, but I am not sitting here now say this is going to add $10 million of incremental income. I would be delighted if it did, but right now we have signed up one of the payers and we are working with the others. This is just going to be in the germination stage, and we will see it mature over the next few years. But the big benefit is that it's providing a lot of value to the third-party payers, and we hope it is something that all of our payer customers would want to endorse and sign up for, in which case then we could some really good traction on it.

Okay. Great. One last question. Does your top line, your revenue guidance, just to clarify, does that include a pro rata ratio of some of your expected acquisitions? In other words, I think you said expect $20 million. Are you including a $10 million number in there?

There is some expectation in our sales guidance of about $8 million in O&P acquisitions impacting the sales.

Got it. OkayGreat. Thanks a lot.

Mike Petusky, Noble Research.

Congratulations. Real quickly, I did not catch if you mentioned it, the breakdown of the 6.2%, did you guys give a pricing and volumes mix break out of that?

Our price is pretty consistent. This is the fourth quarter of 2010. So, we are still collecting some of the benefits from the '08 and '09 price increases. Excuse me, in '09 we did not have a price increase, and in '10 we didn't have one. That's right, I'm sorry. I've got it backwards. '10 and '11 we don't. So, it's '08 and '09. We are still getting the roll forward with some of that plus some of the benefits that Linkia has been able to achieve with the third-party payers. So, what we are estimating is 1.1% to 1.5% comes as a result of price. And then the balance, so you might say this is roughly 5% split, 2.5% to volume, 2.5% to mix.

And I just want to absolutely clarify. So, the category or the segment that you are calling Therapeutic Solutions, essentially then that is ACP and that is IN, is that correct?

That's right.

That is correct. It is only the IN sales that they are making through their distributors. The other WalkAide sales that originate in HPO, which is most of the sales, and the SPS sales to there outside customers are reported through those entities.

Okay. That is great clarification. And while we're on that, do you actually have a hard figure for ACP revenue in the quarter and WalkAide in total? Or a round number that you can give us?

Well, they WalkAide in total for the quarter was $2.1 million, and that is entity-wide. We are not going to disclose separate numbers for ACP, but you can back into those.

It would be fair to say that that is the vast majority of that 5.3 million?

Yes.

Okay. And I guess, Tom, another question I had, on the 70% success rate on the WalkAide, why doesn't it break your way? And the second part of the question is, are you guys at this point with all of the experience you've had with it able to dial in -- hey, if we put a 30-year-old woman with MS in front of this payer for WalkAide, we are likely to get this through, or if we have a stroke victim at this payer. Are you dialing in such that that 70% figure should go up?

We're certainty building a library of expertise around which patients are more likely, let's say, to get authorized versus to get denied. It really comes down to a patient by patient discovery here when we try. We obviously, do not want to submit for patients that are so far out of line that we will end up frustrating the insurance company and will lose our credibility. So, we do some upfront screening, and talk to the patient in terms of what is the likelihood they are going to be able to get this versus -- let's face the facts, maybe you just have to settle for paying for this by yourself on a cash pay basis.

So, we are building sort of a library around the way you say, and as I've mentioned, for the ones that are coming through, we're pretty consistent with this 70%. We want to try, as I said, we want to try for them all, but we do not have a library or the database so refined that we can look at a patient specific and say they will get it versus, no they will not get it did, and it varies by insurance company too. There is a whole host of co-morbidities that may go along with this as well, so it is somewhat tricky to interpret. We can see where the bright line is, and we do not have visibility into the gray line. So, if you can across the bright line, we going to go ahead and foul if for you and go through the whole appeals cycle if need be to and get reimbursement for you.

Great. This last question on the accredited facilities, any goals as far as how you get from 9 to 28 or 30? Is it going to be mostly back-end loaded, or equally distributed, or hopefully, all of them coming in the first quarter? Can you just talk about that?

Mike, help me understand when you say the accredited facilities, what are you thinking of?

Didn't you say that there were 9 now that were enrolling patients? On the WalkAide trial?

I apologize. I was thinking of accredited more with respect to like ABC accredited.

Sorry for the confusion.

You said it the right way. I just had a different mindset. In terms of the IRBs, I think it's going to be linear through the year. As I mentioned, we just not too long ago picked up 2, and we will just keep adding to that throughout the year. So, I don't think we are going to be back-ended or front-ended. We have got a lot of irons in the fire, we didn't say -- let's just get 2 or 3. We've started discussions. We are well down the road with securing the IRB approval on a number of these facilities. Some of it's into their legal, some of it they're analyzing capabilities versus other kinds of clinical work that they want to have, and our best estimate at this point is a linear progression through the year.

All right, great. And congratulations, wonderful year.

Thank you. I appreciate it.

(Operator Instructions) Daniel Owczarski, Avondale Partners.

Thanks. Good morning and congratulations. Just a couple of quick follow-ups, George. I think you touched on this. I was going to ask about the acquisition revenue, going to get back to the $20 million to $22 million, and whether we might see it more in the front of the year, since you did pause in the back of 2010. But it doesn't necessarily sound like that, or do you have some deals queued up right away?

In terms of our prospects for this year we are going to return to our goal of trying to do somewhere in the $15 million to $20 million range for acquisitions this year. When we moved the separate team that we have working on those O&P deals over to assist with due diligence for ACP, it clearly impacted what we are able to do last year. We ended up more in the $11 million, $12 million range last year for acquisitions, simply because the that. And frankly, we got that thing done in December when we were finally able to release them towards the end of the year. It left them a little bit behind, and they have to go back and revisit the deals that they have out there. None of them have gone away. That's the good news. There's a couple decent-sized out there that we might have a shot at. I think it is going to be as it has been in the past. You'll start seeing some of the deals close in Q2, and maybe a small 1 or 2 in Q1, and then in the second half will be most of the activity.

Dan, might approach in the second half 60% to 70% of the activity with the balance being in the first half.

I think I mentioned before, we had about $7 million to $8 million included in that sales guidance that we gave that ties right into that kind of scenario.

Okay. And then Tom, you talked about patient evaluation clinics responsible for about $5 million in revenue. I think it was the same number last quarter. Can you just clarify, do you get paid for evaluation, or is that revenue generated when the evaluation leads to a fitting?

It is the latter. We do not get paid for the evaluation. It is a service to the patient, but we call our files. We send out invitations informing the patients that we are going to have either a renowned national figure available in their area or a local figure who has an outstanding reputation. So, it is more like a consultation. We'll come in and we'll talk to them about what should be done and what is needed to be done. We will document that, and then we request that they go back to their physician and we will go with them, if they desire, to explain to the physician exactly what services, and what is going on here. And then it's up to the physician to make the determination if he believes that our assessment is valid. He will write a script and then they will come back and see us, and then when we fulfill that script is when we record that revenue.

Okay. And then just one last bigger picture question around ACP, talking about Medicaid, talking about healthcare reform. One of the more specific types of themes that we have heard is moving patients more towards home health, and out of the SNFs earlier. And trying to think if that helps or hurts or what kind of impact that would have on ACP, whether it frees up the capacity for the type of patient they would see, or if it would simply move patients out that they would treat out to a lower acuity setting. Or specifically SNF to home health, is there an impact on ACP?

Certainly we're seeing the shift from hospital to SNF, and they're well-positioned for that. One of the things that we mentioned when we did the acquisition is that they have been concentrating here to date almost exclusively on SNFs. But in the background, they have been developing programs to go into alternative venues, and it is there goal to follow that migration, providing that same kind of clinical input to whomever the caregiver is. If the PT, for example, is an external PT, meaning he or she goes around and goes into the home environment, and I have a daughter-in-law that does this, and she is affiliated with a major hospital. It is ACP's view that they can go after those kinds of hospitals, for example, where they have the inpatient where my daughter works, and provide the same kind of clinical expertise to those PTs such that when they go into the home health environment, they are fully equipped to utilize the equipment, the equipment is portable, the modalities work, make a few changes depending on the patient population. But it is absolutely their intent to follow those patients in that migration, whether that goes to sports medicine, whether it goes to LTACS, whether it goes into home health. The SNF is not their exclusive target. They want to expand out from that, and that's one of the things that we liked so much about them when we looked at it.

Okay, thanks, Tom.

There are no further questions at this time. I turn the call back over to Mr. Kirk.

Thank you, Amanda. Thank you all for being with us, and thank you for those kind compliments. We know what our responsibilities are vis-a-vis our shareholders, and as I said, it is a challenging environment, but I am confident that our employees will do the right thing and pull it through. So, I look forward to talking to you at the end of the first quarter, and I hope you all have a good day and do not get caught in the snowstorms. Thank you. Bye.

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