LHC Group Inc (LHCG) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the LHC Group Third Quarter 2014 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I'd now like to introduce your host for today's conference, Eric Elliott, Senior Vice President of Finance. Please go ahead.

Thank you, Kate, and welcome, everyone, to LHC Group's earnings conference call for the third quarter and nine months ended September 30, 2014. Hopefully, everyone has received a copy of our earnings release. If not, you may obtain a copy along with other key information about LHC Group and the industry on our website at lhcgroup.com.

In a moment, we'll hear from Keith Myers, Chief Executive Officer; Don Stelly, President and Chief Operating Officer; and Jeff Kreger, Chief Financial Officer of LHC Group.

Before that, I would like to remind everyone that statements included in this conference call and in our press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements include, but are not limited to, comments regarding our financial results for 2014 and beyond.

Actual results could differ materially from those projected in forward-looking statements because of a number of risk factors and uncertainties, which are discussed in our annual and quarterly SEC filings. LHC Group shall have no obligation to update the information provided on this call to reflect subsequent events.

Now I'm pleased to introduce the CEO of LHC Group, Keith Myers.

Thank you, Eric, and good morning everyone. I'm extremely proud of the strong and well-balanced operating results our team delivered during the third quarter of 2014 and with our continued ability to execute on long-term growth strategy. Thus far in 2014, we have acquired 57 locations in 15 states which consisted of $105 million in aggregate trailing 12-month revenues at the time of acquisition.

As we look ahead to the remainder of 2014 and beyond, we are well positioned to continue increasing shareholder value by focusing on growing revenue and improving efficiencies and reducing cost.

We're in the final phase of our company-wide conversion to point of care technology, which is anticipated to be completed during the fourth quarter of 2014. In conjunction with this final phase of our point of care conversions, we're in the process of eliminating certain general and administrative expenses, consolidating a limited number of locations in service area overlap markets, and closing three underperforming providers during the fourth quarter of 2014.

These initiatives are estimated to yield an annual cost savings of $7 million to $8 million when fully implemented beginning in 2015. As part of these efforts, we expect non-recurring costs in the fourth quarter of $3 million to $4 million. In the fourth quarter, we entered the final phase of the conversion, which demonstrates our commitment to continuously improving in quality while becoming more efficient and reducing cost. We expect the completion of this plan will have a positive material impact on our results of operations not only in 2015 but for years to come.

Moving on, on October 30, 2014, CMS issued a final rule, effective January 1, 2015 regarding payment rates for home health services provided during 2015. The net impact of all policies in the rule is a reduction in Medicare payments of [three tenths of 1%] or $60 million. CMS estimates that freestanding proprietary agencies will have a [nine tenths of 1%] reduction in Medicare reimbursement compared with 2014 levels.

The proposed rule includes the following elements: A 2.1% net inflationary increase reflecting the formula of 2015 market basket estimate of 2.6% minus a productivity adjustment of [five tenths of 1%] and the 2.4% reduction associated with the $80.95 statutory rebasing cut.

CMS also afforded some relief finalizing its proposal to eliminate the face-to-face physician narrative requirement which is effective for episodes beginning on or after January 1, 2015. CMS will consider medical records from the patient's certifying physician or discharging facility in determining initial eligibility for Medicare's home health benefit. CMS also extended the proposed therapy reassessment timeline from 14 days to at least once every 30 calendar days.

The current policy calls for home health agencies to reassess therapy before the 14th and 20th visits as well as once every 30 days. After analyzing the rule, we estimate a net impact of all policies on LHC of approximately [one half of 1%].

I will now turn the call over to Don and Jeff, but before doing so I'd like to congratulate and thank our entire team for their unwavering commitment to excellence. Your ability to consistently deliver high-quality care to the growing number of patients, families and communities we serve is a testament to the collective talent, work ethic and experience of the growing number of healthcare professionals who make up our LHC Group family. Thank you for that.

Jeff?

Thank you, Keith and good morning everyone. For the third quarter of 2014 our consolidated net service revenue was $187.7 million, our net income was $6.2 million and our fully diluted earnings per share was $0.36 per share.

Included in pre-tax earnings for the quarter was approximately $600,000 of acquisition and integration costs related to the Life Care acquisition which closed back on September 1, 2014. In the third quarter Deaconess HomeCare and Elk Valley Health Services contributed $17.1 million in revenue and $0.04 in EPS. The Deaconess and Elk Valley integrations continue to progress as expected.

The Addus acquisition contributed $8.4 million of revenue in the third quarter and a positive $0.01 of EPS, compared to $8.2 million of revenue and an EPS loss of $0.02 in the year ago third quarter of 2013.

Next I would like to review our operating results on a business segment basis. Our home-based segment revenue was $152.7 million for the third quarter of 2014 compared to $132.7 million in the same period last year. Our home-based segment is comprised of both home health businesses and our community-based services businesses. Home health revenue was $143.8 million in Q3 2014 as compared to $131.9 million in the prior year 2013 third quarter. Home health same-store revenue growth in the third quarter of 2014 was 1.1% as compared to the year-ago 2013 third quarter. Community-based services revenue was $8.9 million in Q3 2014, compared to only $823,000 in the year ago 2013 third quarter.

Our hospice services segment revenue was $17.1 million for the third quarter of 2014 compared to $14.1 million in the same period prior year, which included the 11.3% in same-store growth in Q3 2014 compared to the year-ago 2013 third quarter.

Finally, our facility based segment revenue in the quarter was $18 million compared to $17.8 million same period prior year. On a consolidated basis, our gross margin was 39.7% of revenue in the third quarter, down 80 basis points year over year from the 40.5% gross margin in the 2013 third quarter. The decrease in year-over-year gross margin was principally driven by the revenue reductions associated with the 2014 Home Health reimbursement rule.

On a sequential quarter basis, our gross margin of 39.7% decreased 120 basis points in the quarter from 40.9% gross margin reported last quarter Q2 2014. The sequential quarter decrease in gross margin was attributable to the acquisition and integration of the new life care locations which closed on September 1.

We expect our consolidated gross margin for the full year 2014 to fall between 40% and 41% of revenue. Our general and administrative costs in the third quarter of 2014 were 31.1% of revenue, down 110 basis points year over year from Q3 2013 and down sequentially 50 basis points from the second quarter of 2014. We expect consolidated G&A to fall between 31% and 32% of revenue for the full year 2014.

Our bad debt costs in the third quarter of 2014 represented 2.1% of revenue as compared to the year ago Q3 2013 bad debt ratio of 1.6% and the sequential second quarter 2014 bad debt ratio of 2.3%.

The year-over-year quarter increase in bad debt cost as a percentage of revenue resulted from an increase in our commercial revenue as a percentage of our total revenue. Our commercial revenue has an associated higher bad debt risk and therefore a higher bad debt reserve cost based on our historical collection experience. We expect our bad debt costs for the full year of 2014 to be about 2.2% of revenue.

Our effective tax rate for the third quarter of 2014 was 38.9% as compared to 41.7% same period last year. The reduction in the effective tax rate is due to a prior-year income tax benefit of approximately $300,000 that was recorded in the third quarter of 2014 which reflected additional income tax deductions, which we took on our 2013 tax filings. We estimate that our effective tax rate will fall between 41% to 42% for the full year 2014.

Regarding 2014 full-year guidance, we are raising our full year 2014 guidance for net service revenue which was issued on August 6, 2014 in the range of $720 million to $730 million to the new range of $725 million to $735 million due to the Life Care Home Health acquisition which was completed on September 1, 2014.

We are reaffirming our full year 2014 guidance for fully diluted earnings per share in the range of $1.25 to $1.35. This guidance includes the negative impact from the Medicare Home Health Prospective Payment System for 2014 of approximately $0.17 per diluted share. It does not take into account the estimated impact of the non-recurring costs in the fourth quarter of 2014 of $3 million to $4 million. It also does not take into account any future reimbursement changes, future acquisitions or share repurchases, if made, de novo locations if opened or future legal expenses if necessary.

That concludes my prepared remarks. I'm now pleased to turn the call over to Don Stelly.

Thank you, Jeff and good morning to everyone. I would like to start off by recognizing and thanking our outstanding team members. The manner in which you continually balance set priorities is what allows us to produce and report these results as well as lay the foundation for the years ahead.

I'd like to also acknowledge the 124 LHC Group teams whose agencies have been ranked among the nation's best in an independent rating of home health quality and performance. The 2014 HomeCare Elite list, compiled annually by National Research Corporation and DecisionHealth recognized [us as] the top-performing and most successful home care providers in the United States. Only 25% of locations achieve HomeCare Elite status. So we are very proud of that 44% of LHC Groups that did so.

Continuing in the vein of distinction, I point out that all home health and hospice agencies, other than those acquired this year are now Joint Commission accredited, 56 of those locations going through survey inside of the third quarter of this 2014. Achievement of accreditation demonstrates LHC Group's ongoing commitment to patient safety, to continuous outcome improvement and to the reduction of unnecessary admissions to facilities outside of the home. Currently only 15% of the nation's home health agencies are accredited by the Joint Commission. So our commitment to this strategy underscores our intent to increase shareholder values with a drive of a quality-driven organization.

Moving onto a few key other points, we are winding down the process of converting our in-home services to point of care. As of today, we have converted 298 home health and hospice locations with only 13 left to be transitioned, a four-year long process coming to an end this December. And while this conversion and model shift has been a journey, it's allowed us to get to this point, a point of accelerating efficiencies, leveraging the technology to grow market share and to execute short and longer-term initiatives set forth, some of which we're discussing in the call today.

In brevity, I'd just add a little bit more color around our growth plans. In our 30-state footprint area, home health is licensed to provide services in 909 counties, hospice in 316 counties. Together these counties yield over 1.2 million admissions to those services. So our combined 8.5% market share lends the vast opportunity. Again, the distraction of point of care soon to be in arrears. We have the ability and intent to repurpose that time spent in better arming and guiding our sales team to more effectively develop prescriptive market development plans to capture synergies by our partners and other clinically affiliated entities.

So in summary, during our call held August 7, I stated that the Company had new approaches slated. From location consolidations to reconfiguring the organizational structure of the Company, those approaches are progressing as planned and will serve as the foundation for day-to-day operations going forward.

Thanks again to our team and thanks to you for listening to our prepared remarks this morning.

Kate, we're now ready to open the line for questions.

Thank you. (Operator Instructions) Ralph Giacobbe, Credit Suisse.

I guess first, Keith, I just want to make sure the 50 basis points that you talked about in terms of the rate next year, is that a cut or a positive adjustment?

I'm sorry, it's a cut. I'm sorry, decrease.

Decrease of 50 basis points. Okay. All right. That's helpful. And then can you flesh out at all the -- I guess the face-to-face and what kind of impact that that can have?

Yes, Don is probably better.

Well, it's kind of hard [to score] that Ralph. I will say this, we know that it's been part of the drive in our growth because we're extremely stringent on the adherence of that. Obviously, it's a tenuous situation, you got to go back to the physicians.

So I guess what I would say to that is when we come out with our full 2015 guidance, I think you will see us definitely think that's going to accelerate our growth and be part of what I said earlier. But right now, [be candid we haven't score that].

The only thing I'd probably add is longer term some of the feedback that I've heard from mainly from physician referral sources is that it was when they questioned what signal CMS was trying to send when they first came out with this and they almost thought that it was a signal discouraging utilization of home health. So what Don said, I think is very true, but I think there could be a bigger benefit just in the positive signal in sends.

And just let me add just a little bit more color. I don't want to come out with that right now because we're going to factor that into the budget that we're putting in and obviously we haven't been able to change practice patterns right now because it's not retrospective. So anecdotally I really believe it's going to help us in our growth efforts and honestly in our satisfaction efforts with referral sources compared to other providers. I'm just not right now ready to kind of put that growth expectation in there.

That's fair. And then do you guys have outreach efforts to your physician referral sources about this as opposed to them sort of acknowledging or understanding the changes to the rules? Obviously, they're busy with their own practices and things. I am just wondering how you've been in terms of the outreach?

So we haven't done it yet, but we definitely plan to do that, I mean, we will. We kind of don't want to get too far off ahead of it.

Yes, if we do that right now [it won't] stop.

Okay, fair enough. And then just on the conversion to point of care. So you have talked about converting the 298 and 13 left to transition. I guess, just help us maybe understand the magnitude of savings because a lot of them already been converted. So I guess just the timing of how you get all those savings, what's that sort of switch that gets you all those savings starting next year as opposed to some of those savings not already having being captured with a large majority already being converted?

Really good question and all along we've kind of talked about the phasing of the savings and of the acceleration on the margin. I guess the biggest point simplistically is that you don't have any more that are dragging [there in conversion to self bound] the accretion from the previous bunch. They are all now in the stage of maturation obviously at different points in time. So the first point I would say is there is no more bucket of drag every single month, 8 to 12 agencies.

I think the next point is there has been a learning curve that we've seen to just mender the device and once we do that we've seen about four to six months post that learning curve really allow us to then enhance productivity. So those are the biggest two. And then the last is with the visual ability to now see all of our skill mix in the portfolio, we really think we can do a better job of moving the visits that do not need to be done by a higher discipline such as REM or PT. We know we can now influence that to get our skill mix more in line with the more mature agencies. So it's kind of a long way of saying those three components bake in that upside that we're going to see in 2015 and 2016.

Okay. All right. That's helpful. And if I could squeeze in one more, just given your relationships with your hospital partners, can you give us a sense of the opportunities to maybe expand those relationships even outside of home health? I guess, how are the community-based efforts progressing and are there other areas that you're currently looking into? Thanks.

Yes, that's a really good question. I mean, the short answer is yes, we're seeing the relationships. Our relationships with hospitals and health systems and the roles we're being asked to play shifting significantly in a positive way.

As you know, when we began hospital joint ventures back in the late 1990s, the objective was to come in and take losing assets that were a huge drag to the system and to make them more efficient and bring the quality standard up to best of class in the market and earn the business from the referral sources and case management as opposed to just kind of an entitlement type flow of patients. And we did that effectively. And the gain that they were looking for was of course to not see the negative impact in their financials from the home health operation. Today we still -- of course, they expect us to do that and our reputation and track record is solid we think and so they expect it of us and we do that. But in addition, we are being asked to assist in the overall management of their post-acute strategy, not to exclusively manage it in every situation, but to be part of that team. And that includes everything from participating in risk arrangements and being at risk to being compensated for care management and care coordination to help move patients more efficiently in the system. So it's a very exciting time to be involved in those relationships.

And I think -- as you know, I spend a lot of my time with those hospital relationships in that strategy and -- so I'm really encouraged about that and we look forward to those opportunities.

(Operator Instructions) Darren Lehrich, Deutsche Bank.

Just wanted to also ask about the community based services and I guess just really how the organization has evolved and how you see that business expanding into markets and what do you think the opportunity is at this point?

Thanks, Darren. And I just realized, I didn't touch on that in my response just now. So the community-based services is a part of the continuum that you hear us refer to as a trial level of care that plugs in really nicely. For us, we still view home health as the base of operation in every market. It's from not just the home health services we provide, but the clinical management team the goes in place when we set up home health in a market. And that's where the care coordination and everything comes from, but having hospice and home and community based services complete the package really nicely.

So we knew it would fit and we knew it was something that our hospital partners, especially, wanted us to have and we knew it was something important for us in a risk arrangement. What we didn't know going in was if we could operate that business profitability and have it be a meaningful contributor to the Company from an EPS perspective, that's probably the part that we've been most encouraged with.

I'll let Don go a little bit further with that.

Yes, Darren, I echo what Keith said. If you remember about three years ago we kind of sat with hospice as we now do with community based services. We saw at its very adjunctive but I was very open in saying that we were so traditionally centric to skilled home health that to do our role and do operations, we needed to make that into the fiber of the Company. And candidly with us being, I guess, about a $75 million portfolio now in hospice, it's extremely predictable, it's got double-digit organic growth.

I say that to get to where we are now with community-based services. We are in that same spot. It's a tremendously adjunctive business to our partners and to the communities.

What now we're challenged to do is make sure it's also part of the fiber, so across the spectrum we have a great foundation that allows it to grow without having to look back and pick up the pieces of problems. And we fully -- and I think last time, and don't quote me, I'd have to go back, but I think we had identified about 20 markets, 20 to 30 markets, that we fully expect to begin, and I alluded by the way to that in our prepared comments, we fully intend to begin developing that market to support the organic growth acceleration that we think we need to have in the next three years.

That's helpful. So the other part of the question I want to ask and just maybe picking up on the joint venture discussion you just had from Ralph's question, but it sounds like there is opportunities to go in different directions with the existing partners. I guess, just stepping back and thinking about joint ventures with hospitals, we've seen a lot of activity from a lot of different players in that space some increasingly in post-acute even with some of the physician service companies like Invision. So I guess the question here is are you seeing any kind of new level of competition as you look at prospective partners and does your opportunity set in your mind change at all from some of this?

No, I will start from -- our mindset hasn't changed. We see different people coming onto the scene with different strategies and I think there are certain types of hospitals and health systems where our strategy is more appropriate. But there are 5,000 hospitals out there, we're not all -- a lot of those are smaller ones, but guess what I am saying is this is a big market.

The ones that -- the hospitals that tend to be the right fits for us are those that have a strong brand presence in the market and that view themselves as a health system and as a health system being obligated, especially on the non-profits part, of having a hand in the total care continuum, not necessarily owning it all.

And so what I am really saying in short is that they want to see their brand in the market. So we come in and build the verticals, the three verticals that we specialize in, under their brand and then we provide operating capital and we manage the business and they have a minority stake in it, and they are the certain population that fits for.

Some of the other strategies we see is more of where what's being proposed is that the health system would sub contract, if you will, that to someone else, and just be handsoff and let them do it without having a seat at the table every day. So I just see -- I think there are customers for both strategies.

That's helpful. Okay, thanks a lot guys.

Toby Wann, Obsidian Research Group.

Hi, good morning guys. Thanks for taking the questions. Quickly, on the community-based services quickly kind of what's the driver there of that significant year-over-year increase in the revenue per billable hour?

Toby, this is Don. When we purchased Elk Valley, it really came with a different patient population, actually some of the pediatric patients and some of the skilled side that we hadn't seen in our small portfolio and that's a big driver.

Then I would say this and I would caution, although it's great and we have expertise that pediatric population truly going forward long term, at least as we sit today, kind of hidden in our fairway, remember.

Our desire is to take essentially the 65-year population and above and work through that trial level. But it's a good business and our team in Elk Valley does a tremendous job. But I want to go back to what I was, I think, alluding to Darren's first question, our company isn't built for pediatrics. I'm not saying it can't be, but right now I wouldn't want you to model in future growth into that same billable hour run rage because I don't foresee that.

Did that help, did I answer that?

Yes, that absolutely helps. I mean, it's a totally different patient set, subset, so, yes, that makes sense. And then just jumping on a little bit, I was a little bit late getting on the call, so if you guys have already touched on this, my apologies.

Just wanted to get a little bit of color on the higher cost of service in the quarter relative to kind of the previous run rate and relative to your typical stated guidance in terms of the percentage of revenue basis?

Sure. And I'll take that. And if Jeff needs to bail me out, he certainly can. I want to categorize that into three areas in the quarter. The good news in Keith's prepared comments he talked about how many locations and revenue that we dumped in there and it is, and it's going to be good long term.

Operationally what was challenging is that it was not profitable and so we've been inside of that acquisition and integration curve where we dump in this revenue and it's costing us a fortune to turn it around.

Number two, and very -- along that same line, we've had a 20% increase same period prior year compared in our non-Medicare census, mostly derived from those acquisitions. Just a little more granularity there. We added about 1,200 patients over that period and 1,000 of them came from four acquisitions that are represented into the quarter. So when you combine those two things, it really looks good on the revenue and it is one reason we raised revenue guidance without dropping it down. But it's in the maturity phase.

And then the last although not as big, I think I disclosed that we were embarking on a fleet management program. And in the quarter, and which was expected, we had a lot of cost for [entitlement], shipping and all of that. But the pay for it, and I don't want to get ahead of skis, is about a [two to three] EPS pickup in the year 2015.

So kind of end summary, when you add all those three up the acquisitions, the increase in non-Medicare census and then our fleet management by far that was the lion's share of the decade back to it.

Okay. And then just a follow-up on to your answer there about the increase in the non-Medicare patient census, is that also then -- you guys alluded to it on your prepared remarks, is that the exact driver behind the increase in bad debt expense, those are two are kind of together [is that the] way to think about it?

I'll be short and sweet, yes.

Whit Mayo, Robert W. Baird.

I guess I was first looking to get an update just on your LTACH assets. You've signaled I think maybe a thought or a desire to kind of look at strategic alternatives. So I guess maybe one is, is there any update on that and two any additional thoughts on patient criteria and an idea of maybe what percent of your Medicare patients qualify under the vent and ICU criteria now?

Okay. So I'll try the first half of that [then I'll give it] back to Don. So on the strategic alternatives, we began looking at the full range of possibilities. Now we've zeroed in on the operational side and developing different strategies for each market where we have existing assets. And I have to tell you the strategy varies market to market depending on the needs of the market and the relationships we have with the hospitals.

But I think that the short answer is we think we continue to operate those assets. We like the forecasting in the models we're coming up with. I don't want to get into -- I'll let Don get it more [statistics if he] wants to. But in one market, for example, it looks like we'll operate LTACH (inaudible) all in the same market where we have existing home health. And we're looking at the effect of all of those services and comparing that to just the LTACH where we are today.

So, Don, do you want to pick it up?

Absolutely. And Whit I'll be global and if you want a little bit more color on some of the specifics, please feel free to maybe call Eric and he can walk you through.

One of your questions was on the criteria. I mean if we just blink our eyes right now about 50% of all of our admissions would be fine under that criteria. Going back to what Keith said, we obviously looked at what would be best is to exit or not and because the individual hospitals are so different, the mitigation for some range from dealer with site neutrality payment and the associated length of stay that we think we can manage to. And others range from what Keith was saying, actually continue along that and build upon it.

So just a real quick specific example there, in our North Louisiana facility, we wouldn't be hurt hardly at all because we're so intensive. So to bolt on what Keith was saying on these (inaudible) it actually takes that to a different place.

So in one aspect it sounds so crazy. The configuration change made us look fresh at some of these opportunities and we're going begin to try to see that. And all of this is to say -- and this is kind of what I would really press hard on, when we execute, we scored at a 25% risk, 50% and a 75%. Everything that we're going to talk about from this day forward is even if we execute to only 50% we believe we can continue the run rate as is as we mitigate these changes on our LTACH. So because of that and because where we are on our balance sheet, we simply didn't see the need to go in in a different direction as Keith alluded to in the earlier part of the year.

Okay. Now that's helpful. And I guess maybe one question around the 50% compliance level or, I guess, the 50% that would not be impacted under the site neutral, does that include your short stay outliers as well within that 50%?

I don't think so, but I'll have to get Eric to clarify that in the plan. I just don't think so though.

Okay. And I guess maybe along that same topic, should we be thinking about any capital that you might need to allocate to your facility based assets in 2015 to sort of get prepared for criteria? Is there anything notable to think about to add new clinical programs and any capital equipment?

No.

Okay. And I guess maybe for Keith, I was just kind of curious, we obviously have the SGR coming up again at the end of the year and just any thoughts there what you're hearing from your legislative guys and just any new advocacy updates from the industry?

No, not really, Whit. I mean, of course we know that's out there. I mean, we haven't gotten any signals or new news. I don't know if you connect with Eric Berger and keep up with him. I always like to refer people to Eric at the partnership for the most up-to-date information. But as you can imagine everything became new on Wednesday morning. So I really haven't had an update from (inaudible). Our Board meeting is next week so they'll be in it and I'm sure we'll get a new perspective.

Okay. That's fine. And then maybe just one last one and you may have already updated your or extend your credit facility, I can't recall, but I think that I thought it was maturing next August and just maybe wanted to think about the size of that and do you think about maybe adding some more permanent term debt going forward, just maybe any thoughts on the capital structure given some of the consolidation opportunities that you've got in front of you?

Yes. I will let Jeff give you a little bit more detail. But it's really just a need, I mean we're in a -- our balance sheet is such that we now we have access to capital. We're just -- we don't want to move the credit line up until we see the need for it and right now some of the larger acquisitions that are taking place out in the market where we can't see ourselves stepping up to the kind of multiples that we're seeing for larger transactions. So we continue to focus on transactions that are smaller, south of $100 million in annual revenues generally speaking. Not to say, we wouldn't go past that. So that's what I would I'll tell you at a high level. Jeff, do you want to talk about that?

Yes, I wouldn't add much more, Keith, other than we did actually go through a refinancing this summer and we previously had $100 million credit facility, we've more than doubled to $225 million. It's a five-year credit facility. So it doesn't expire until summer of 2019. We were offered the chance to look at some term debt. We chose not to at this time, but we have had interest from lending institutions on that.

Okay, now I got that. I thought you did something, I couldn't remember, my notes were just a little stale. Okay, thanks guys. I appreciate it.

Thank you, Whit. [Have a good one].

Kevin Ellich, Piper Jaffrey.

Hey guys. I jumped on a little late, so if any of these questions have been addressed, I can go back and listen to the replay or check the transcript. But just wondering if you provided an update on some of the larger acquisitions you closed in the last couple kind of year-to-date and also specifically how Addus is doing?

Kevin this is Don. I did allude to that because -- I think it was maybe Darren that asked the question about our gross margin in the quarter. The gross margin was attributable to some of the larger acquisitions that we did. In summary, essentially we don't like, as Keith said in his prepared comments, a whole lot of revenue in there. But in the quarter the gross margin was 25.3% for all of those. So that's the bad news. The good news is is they are improving sequentially week over week and plan for integration is working [good] and they will pay good dividend for us as we go forward. And I can answer if you want to more specifically a little later or Eric can cover that in.

Specific to Addus, during the last call I was extremely open with you all and said that, and I'm glad now by the way, that I made the decision and the team supported it to convert that way sooner than we had in the plan. And so that really caused Addus's improvement trajectory to be flat for much longer than we had anticipated a pro forma. Now, that's behind us. Finally, we had it doing what we thought it would do but it's just about four or five months late.

I can't say enough about the opportunity for Addus, AseraCare, Deaconess and even Life Care. Life Care is the tough one right now for us, but those four are really going to prove to be some pretty substantial contributors in 2015 and 2016 for us.

So I guess the summary is is we're hurting a little bit right now while we convert these. But I think it's going to show very, very well and we'll be pleased with the performance as we go through the latter part of this year and into 2015.

Great. That's helpful, Don. Appreciate the color. And then just wondering if you can give an update on kind of the trends you're seeing in the community-based services and then I remember a while back you guys talked about expanding services into maybe some skilled nursing or managing skilled nursing for some customers. Wondering where you stand on that front and I guess is there any activity to give us an update on?

Again we alluded to that a little bit earlier too, but I will tell you again Elk Valley and that service line that came along with our Deaconess acquisition has really given us clarity and confidence on this trial level of care. And I talked a little bit earlier about a question of can we expect that rate per billable hour. Elk Valley is probably more encompassing of a community-based services than will replicate going forward. But I can assure you that, and Keith alluded, when we have substantive home health presence with or without a partner, we fully intend to bolt-on hospice and community-based services so much so that we created an internal heat map that really guides through data where we prioritize those markets and at what point through the spectrum because some will be through de novos, some will be through acquisitions and we need to be very careful of continuing to obviously leap over our prior quarters without dragging that.

So I think it's going to be really important to help earnings, but more so to capture the organic growth that we see in the markets. And kind of like I said in our prepared comments, it's a great thing that we're in almost 910 counties, but we got to be much more prescriptive on how we grow that and just kind of quick beat the same drum so to speak and we have some pretty good plans to do that.

Great. Okay. Thanks. I'll go back and check what you guys said in the prepared comments.

Sounds good, and again if you have any follow-ups please feel free to reach out to Eric, myself or anyone of us.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Keith Myers for closing remarks.

Okay, thank you. On behalf of all of us here at LHC Group thank you once again for taking time to listen in and participate in our call this morning. As always we are available to answer any questions that may come up between our quarterly earnings calls. Have a great day and thank you for supporting and believing the mission of LHC Group.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a good day.