Select Medical Holdings Corp (SEM) 2011 Q4 法說會逐字稿

Good morning, and thank you for joining us today for Select Medical Holdings' company earnings conference call to discuss the fourth-quarter and full-year 2011 results and the Company's business outlook. Speaking today are the Company's CEO, Robert Ortenzio, and the Company's Executive Vice President and Chief Financial Officer, Martin Jackson.

Management will give you an overview of the quarter highlights, and then open the call for questions.

Before we get started, we would like to remind you that this conference call may contain forward-looking statements regarding future events or the future financial performance of the Company, including without limitation statements regarding operating results, growth opportunities, and other statements that refer to Select's plans, expectations, strategies, intentions, and beliefs. These forward-looking statements are based on the information available to management of Select Medical today, and the Company assumes no obligation to update these statements as circumstances change.

At this time, I would now like to turn the call over to Robert Ortenzio. Please proceed, sir.

Thank you. Good morning, everyone, and thank you for joining us for Select Medical Holdings' fourth-quarter and full-year earnings conference call for 2011.

For our prepared remarks, I'll provide some overall highlights for the Company and our operating divisions, and then ask Marty Jackson, our CFO, to provide some additional financial details before we open the call up for questions.

Earnings per fully diluted share were $0.25 in the fourth quarter and $0.71 for the full year. Full-year EPS included a nonrecurring loss on early retirement of debt related to the refinancing we completed June 1, 2011. Excluding this one-time loss and the related tax effect, our adjusted earnings per fully diluted share would have been $0.84 for the full year.

Net revenue for the fourth quarter increased 12.7%, to $718.4 million, compared to the same quarter last year. Net revenue for the full year increased 17.3% to $2.8 billion, compared to $2.4 billion last year.

During the year, we generated approximately 75% of our revenues from our Specialty Hospital segment, which includes both our long-term acute care and inpatient rehab hospitals, and 25% from our Outpatient Rehabilitation segment, which includes both our outpatient clinics and contract services.

Net revenue in our specialty hospitals for the fourth quarter increased 14.3%, to $534.2 million, compared to the same quarter last year. The increase was driven by both improved occupancy and rate during the quarter.

Overall, occupancy was 71% in the fourth quarter, compared to 66% in the same quarter last year. Our patient days in the fourth quarter increased 8.1% to 336,711 days. Specialty Hospital net revenue per patient day was up 2.5% to $1,494 in the fourth quarter, compared to $1,457 per patient day in the same quarter last year.

We experienced increases in both our average Medicare and non-Medicare net revenue per patient day in the fourth quarter.

Specialty Hospital net revenue for the full year increased 23.1% to $2.1 billion, compared to $1.7 billion last year. The hospitals acquired in the Regency acquisition contributed 63% of the increase in net revenues for the year. The balance of our Specialty Hospital revenue growth was the result of increased occupancy and rate.

Our occupancy rates increased to 71% for 2011 from 67% for 2010. Our patient days increased 18.9% to over 1.3 million patient days for 2011.

The full-year effect of the Regency hospitals was the primary driver behind the increase in patient days. However, excluding the effect of the Regency hospitals, patient days would have increased 6.2% over the prior year.

Our average net revenue per patient day was $1,497 for 2011, compared to $1,474 for 2010. The increase in our net revenue per patient day was principally due to increases in our average Medicare net revenue per patient day.

For the year, approximately 86% of our Specialty Hospital revenue came from our long-term acute care hospitals and 14% from our in-patient rehabilitation hospitals.

Net revenue in our Outpatient Rehabilitation segment for the fourth quarter increased 8.5% to $184.2 million compared to the same quarter last year. Revenue in our clinic-based business, including our own end-managed clinics, increased 2.5% in the fourth quarter compared to the same quarter last year.

For our owned clinics, our net revenue per visit increased 2% to $104 per visit and patient visits declined 3.3%, compared to the same quarter last year. The primary driver behind the decrease in visit was the transition of our Dallas outpatient clinics into the non-consolidating Baylor joint venture.

Revenue in our contract services business increased 29.8% in the fourth quarter, compared to the same quarter last year. This increase was a result of the addition of a new group of contracts. During the fourth quarter, approximately 74% of our outpatient revenue came from our owned and managed clinics and 26% from our contract services.

Net revenue in our outpatient rehab segment for the full year increased 3% to $708.9 million, compared to $688 million last year. Revenue in our clinic-based business increased 2.3% for the year and contract services revenue increased by 5.4% compared to last year.

For our own clinics, rate increased 2% to $103 per visit, compared to $101 last year, and patient visits declined by 2.1% compared to last year. Again, the primary driver behind the decrease in visits was a transition of our Dallas outpatient clinics into the non-consolidating Baylor joint venture.

During the year, approximately 77% of our outpatient revenue came from our owned and managed clinics and 23% from our contract services.

Overall adjusted EBITDA for the fourth quarter increased by 39.6% to $93.8 million, compared to $67.2 million in the same quarter last year, with overall adjusted EBITDA margins at 13.1% for the fourth quarter, compared to 10.5% margins for the same quarter last year.

During the fourth quarter last year, we had some one-time expenditures that adversely affected our reported EBITDA, including $6.8 million in costs associated with the closing of the Regency corporate office and $900,000 of severance expense at Select's corporate office.

Overall adjusted EBITDA for the year increased 25.7% to $386 million, compared to $307.1 million last year, with overall adjusted EBITDA margin of 13.8%, compared to 12.8% last year. The increase is primarily related to the addition of the Regency hospitals we acquired, as they contributed $45.9 million of the increase in adjusted EBITDA.

Additionally, last year we had several one-time expenditures that adversely affected our reported EBITDA, including $9 million in costs associated with closing the Regency corporate office, $4.8 million in incremental healthcare costs; $4 million in workers' comp costs, and $900,000 in severance expense.

Select Specialty Hospital adjusted EBITDA for the fourth quarter increased 27.6% to $89.3 million, compared to $70 million in the same quarter last year. Adjusted EBITDA margins for the Specialty Hospital segment increased to 16.7%, compared to 15% in the same quarter last year. The Regency hospitals contributed $11.5 million of adjusted EBITDA and had a 13.6% adjusted EBITDA margin for the quarter.

Specialty Hospital adjusted EBITDA for the full year increased by 27.3% to $362.3 million, compared to $284.6 million last year. Adjusted EBITDA margins for the Specialty Hospital segment increased to 17.3%, compared to 16.7% last year. The Regency hospitals contributed $46.5 million of adjusted EBITDA and had 13.7% margins for the full year.

Outpatient rehabilitation adjusted EBITDA for the fourth quarter increased 9.4% to $18.6 million, compared to $17 million in the same quarter last year. Adjusted EBITDA margins for the outpatient segment increased slightly to 10.1% in the fourth quarter, compared to 10% in the same quarter last year.

For the clinic portion of our business, adjusted EBITDA was up 4.7% to $15.3 million and adjusted EBITDA margins were up 20 basis points to 11.3%, compared to same quarter last year.

For our contract services, adjusted EBITDA was $3.2 million and margins were 6.6% in the fourth quarter, compared to $2.3 million of adjusted EBITDA and margins of 6.2% in the same quarter last year.

Outpatient rehabilitation adjusted EBITDA for the full year increased slightly to $83.9 million, compared to $83.8 million last year. Adjusted EBITDA margins for the outpatient segment decreased to 11.8% for the year, compared to 12.2% last year.

For the clinic portion of our business, adjusted EBITDA was up 9.9% to $71 million, and adjusted EBITDA margins were up 90 basis points to 13% compared to last year. The primary driver behind the improvement in our clinic business was increased adjusted EBITDA and margin improvement in the clinics acquired in 2007 from HealthSouth and the increase in our net revenue per visit.

Our contract services adjusted EBITDA decreased to $12.8 million from $19.1 million last year, and margins were down 450 basis points to 7.8% compared to last year. The decline in contract services adjusted EBITDA and margin was the result of the significant contract we lost in the second quarter of last year and higher labor costs associated with regulatory changes that became effective last year.

I also want to provide a couple of updates since our third-quarter earnings call last November. In January, we opened, in conjunction with our joint venture partner, SSM Health Care, a new 60-bed rehab hospital in Bridgeton, Missouri. The new state-of-the-art facility will provide comprehensive in-patient rehabilitative care to patients with stroke, brain injury and spinal cord injury, amputation, and neurological and orthopedic conditions.

Also, as most of you are aware, Congress recently passed the latest installment of the Medicare SGR patch, sometimes also referred to as the Medicare doc fix. This latest extension will continue through December of this year.

Like other LTAC hospital companies, we had hoped that Congress would use this bill as an opportunity to do more in terms of LTAC hospital certification criteria and clarification of some outstanding regulatory issues. Unfortunately, the LTAC provisions were not included in the bill.

Our advisors have offered us a number of reasons for this result, with two recurring themes. First, Congressional leaders were determined to pass only a minimalist bill, and the latest doc fix had extended provisions for only those statues that had immediate expirations. Second, and related, since most of the LTAC issues do not face statutory expiration until December, Congress didn't sense much of the urgency around LTAC issues and continued to think that the LTAC hospital community had until December to deal with our issues. We remain hopeful that Congress will address our issues in the months ahead.

I would just note that in August of last year, six U.S. senators introduced bipartisan legislation that would implement certification criteria for LTAC hospitals. Since then, another five senators have co-sponsored that legislation and are assisting us in Washington.

Let me say, as I have said in the past, that the legislation would better define what types of facilities qualify to be LTAC hospitals and which patients should be admitted to them. The underlying policies of this legislation were developed by the American Hospital Association. We support the legislation and the effort to have the Medicare program adopt clearer LTAC standards.

Given the uncertainty in Washington, it is not really worthwhile to prognosticate on the bill's chances of adoption or to comment on some of the specific provisions since it's very likely to be changed numerous times. From a business point of view, if the bill was and implemented, it would be a positive development since it would help clarify the distinct role that LTAC hospitals play in the continuum of care.

I'll now turn it over to Marty Jackson to cover some additional financial highlights for the quarter and the full year.

Thanks, Bob. Good morning, everyone.

For the fourth quarter, our operating expenses, which include our cost of service, general and administrative costs, and bad debt expense, increased 9.6% to $625.7 million compared to the same quarter last year.

As a percentage of our net revenue, operating expenses for the quarter were 87.1%, compared to 89.6% in the same quarter last year. For the year, our operating expenses increased 16.2% to $2.4 billion compared to last year.

As a percentage of the net revenue, operating expenses for the year were 86.4%, compared to 87.2% last year.

Cost of services increased 10.8% to $599.7 million for the fourth quarter. As a percent of net revenue, cost of services was 83.5% for the fourth quarter, compared to 84.9% in the same quarter last year. The improvement in our cost of service in the fourth quarter was primarily attributable to the improved performance of the Regency hospitals when compared to the same quarter last year.

For the full year, cost of services increased 16.5% to $2.3 billion. As a percent of net revenue, cost of services was 82.3% for the full year, compared to 82.9% last year. The primary reason for the improvement in cost of services as a percent of revenue were improvements in our specialty hospitals, offset in part by increases in labor costs in our outpatient rehab segment. The increased labor in our outpatient segment was driven primarily by marginal cost increases in our contract services business.

G&A expense was $14.7 million in the fourth quarter, which as a percent of net revenue was 2%, compared to $20.3 million, or 3.2% of revenue, for the same quarter last year. In the fourth quarter last year, we incurred one-time expenditures of $6.8 million of Regency transaction costs and $900,000 in severance expense. Excluding these one-time items, G&A as a percent of net revenue would have been 2% in the fourth quarter of last year.

For the full year, G&A expense was $62.4 million, which as a percent of net revenue was 2.2%, compared to $62.1 million, or 2.6% of net revenue, last year.

During 2010, our G&A costs included approximately $9 million in expense related to the closing of the Regency corporate office, $4.8 million in incremental healthcare costs, $900,000 severance expense. During 2011, our G&A expense included $7.8 million in one-time expense related to the Columbus qui tam settlement and $5.4 million in a one-time gain from the sale of assets. Excluding these one-time items in both periods, G&A as a percent of net revenue would have been 2.1% and 2% in 2011 and 2010, respectively.

Bad debt as a percent of net revenue was 1.6% for the fourth quarter, compared to 1.5% for the same quarter last year. Bad debt as a percent of net revenue was 1.8% for the full year, compared to 1.7% last year. Our bad debt levels continue to be consistent with our expectations.

As Bob mentioned, total adjusted EBITDA was $93.8 million for the fourth quarter and adjusted EBITDA margins was 13.1%, compared to adjusted EBITDA of $67.2 million and 10.5% adjusted EBITDA margins in the same quarter last year. Total adjusted EBITDA was $386 million for the full year and adjusted EBITDA margins were 13.8%, compared to adjusted EBITDA of $307.1 million and 12.8% adjusted EBITDA margins last year.

Depreciation and amortization expense was $18.8 million in the fourth quarter, and included an incremental $1.5 million depreciation expense related to an asset we previously had held for sale, compared to depreciation and amortization expense of $17.4 million in the same quarter last year. Depreciation and amortization expense was $71.5 million for the full year, compared to $68.7 million last year. The increase in depreciation and amortization was primarily the result of the full-year effect of depreciation at the Regency hospitals.

Net interest expense was $24.1 million in the fourth quarter, compared to $25.3 million in the same quarter last year. Net interest expense was $98.9 million for the full year, down from $112.3 million last year. The reduction in interest expense is primarily related to the lower debt levels, lower interest rates on the portion to the debt that we refinanced during the second quarter of 2011, and the effects of interest rate swaps that expired in 2010.

The Company recorded income tax expense of $14.2 million in the fourth quarter and $71 million for the full year, which represents an effective tax rate of 38.6%, compared to an effective tax rate of 33.6% in 2010. Our 2011 rate was effectively due to a release of reserves on uncertain tax positions related to our NovaCare acquisition. Our 2010 effective tax rate was below statutory rates due to the reversal of valuation allowances previously recorded on capital losses and release of reserves on uncertain tax positions.

Net income attributable to Select Medical Holdings was $36.9 million in the fourth quarter and fully diluted earnings per share were $0.25.

Net income attributable to Select Medical Holdings was $107.8 million for the full year and fully diluted earnings per share was $0.71. As Bob previously mentioned, this included a nonrecurring loss on early retirement of debt related to the refinancing we completed during the second quarter, and excluding this one-time loss and the related tax effect, our adjusted earnings per fully diluted share would have been $0.84 for the full year, and this compares to $0.48 in 2010.

We ended the quarter with $1.4 billion of debt outstanding and $12 million of cash on the balance sheet. Our debt balances at the end of the year included $167.3 million of HoldCo senior floating rate notes; $345 million of the 7.625% senior sub notes; $838 million of term loans outstanding, which is net of the original issue discount; $40 million in revolver loans outstanding; with the balance of $65 million consisting of other miscellaneous debt.

Operating activities provided $73.2 million of cash flow in the fourth quarter and cumulative operating cash flow for the year was $217.1 million. Days sales outstanding, or DSO, was 53 days at the end of 2011, compared to 52 days at the end of September of 2011 and 51 days at the end of last year, 2010. This increase is principally related to the timing and the settlement of our Medicare accounts for services provided at our specialty hospitals.

Investing activities used $18.9 million of cash flow for the fourth quarter and $54.7 million for the full year. For the year, this includes $46 million for purchases of property and equipment, $15.7 million of investment in businesses, and $900,000 in net acquisition-related payments. This was offset, in part, by the sale of assets of $7.9 million for the year.

Financing activities used $52.5 million of cash for the fourth quarter. The use of cash primarily resulted from $41.1 million for repurchases of common stock under our share repurchase program and $10 million in net repayments under our revolving credit facility.

Financing activities used $154.7 million of cash for the year. Use of cash resulted primarily from the refinancing activities in the second quarter and subsequent net repayments on our revolving credit facility of $85 million.

Additionally, we repaid 72.8 -- we paid $72.8 million for the repurchase of common stock. During the fourth quarter, we repurchased 5,209,160 shares of our common stock in the open market for a total cost of $41.1 million. During the full year, we repurchased 9,858,907 shares at a total cost of $72.7 million.

Earlier this week, our Board of Directors authorized a $100 million increase in our share repurchase program to $250 million of capacity. Through December, we have spent a total of $116.9 million of the now $250 million authorized under the program.

I would like to close by reaffirming our 2012 business outlook initially provided in our January 6 press release. This includes net revenue in the range of $2.85 billion to $2.95 billion, adjusted EBITDA in the range of $390 million to $410 million, and EPS in the range of $0.86 to $0.94 per share.

This concludes our prepared remarks, and at this time we'd like to turn it back to the Operator to open up the call for questions.

(Operator Instructions). Frank Morgan, RBC Capital Markets.

Just was hoping to get a little bit more color on the strong volume growth. I'm certainly not complaining here, but just any additional color. I know you implemented some new changes in your marketing initiatives, I believe in the third quarter. But how much of this do you think is the result of that versus just overall trends in the markets that you serve?

And then, on the rate side, obviously good rate growth there. Anything above and beyond acuity that might be driving that? Thanks.

Thanks, Frank. This is Bob. In terms of the increased volume, I really can't give you a lot more color. I just would say that it's really not so much the medical trends as I think it has been the increased, renewed, and focused strategy of our hospital operating group has just done a very good job of working in the local markets.

As we talked about it over this past year, that was a renewed focus and I think we're seeing the results of it.

On the rate side?

On the rate side, Frank, the increase of the rate -- we had both increases in our Medicare and our non-Medicare rates. Obviously, the increase on the Medicare side was really a function of acuity. On the non-Medicare, it's really a function of continuing to negotiate hard on the commercial rates.

Okay, thank you.

A.J. Rice, Susquehanna Financial Group.

A couple questions, if I might. Thanks for the commentary around the doc fix. I wondered -- I guess the next indication we might get on anything related to the [mimcia] expiration would be the proposed rule which will come out in the spring. Have you guys got any sense of whether CMS is likely to address anything regarding the expiration in that proposed rule, or will they wait to see if legislation takes place this fall?

A.J., it's a great question and I would say that we have no idea. The rule the last couple of years has been relatively routine with some re-weighting and some other things.

The fact that the current legislation expires in late December, I guess, could move CMS to make some commentary around that, but what they would say, we would have no idea.

As you know, there are some provisions from the old CMS reg back in 2007 that come back in automatically with the expiration of the rule -- the expiration of the legislation. So, I really have no sense of that, and probably will not.

As you know, those rules are sometimes routine and they sometimes have surprises in them. But they're always subject to a comment period before they go final.

Right. And I guess, obviously the industry probably would most prefer to have the patient criteria bill or certification, LTAC certification, provision, a workable one, implemented. Another scenario, other than just seeing everything expire, that has obviously happened before, is just to have the current state of affairs extended for a year or two further.

Is there any movement afoot at this point? Or when would people take that up? Are people talking about that at all this point?

Yes, I think they are in the industry. They are taking some time, I guess, post the doc fix that just passed for the industry to regroup, for the AHA to have some discussions, to have the various larger and smaller LTAC companies to talk about the prospects to really make an assessment of what the prospects would be to get patient facility criteria passed, or in the absence of that, perhaps an extension.

As I have said consistently, at the end of this year I can only see three possible scenarios -- two that you've mentioned. One is the criteria legislation passes. The second is that there is an extension. And third is that there is just an expiration of the legislation.

I think the third is probably the least preferable to everybody. And so, it would just be a question now over the next month or so to figure out what kind of initiative should be undertaken and trying to measure the prospects of success.

To switch gears, talk operations for a second. Obviously, your outpatient business turned in a good performance this quarter, certainly relative to expectations. I guess buried within that is the contract services business. We've seen some other guys who have contract services struggle because of the changes that were implemented in the nursing home industry October 1. Can you comment on -- it seemed like overall performance in that division was good, but was that subsegment impacted by what you saw, and what is the state of play in contract services these days?

A.J., that's a great question. We have seen an impact due to two particular issues.

Number one is the RUG-IV changes that happened. The operators have done, I think, an outstanding job preparing for that, and I think they've done a good job implementing that. Having said that, there's still some negative impact associated with that.

The other issue that they had was, and to a certain extent, it's really not an issue. They've brought on a substantial amount of new business. And when you bring in new business, you really have to fine-tune how you basically operate with that business.

So, in essence, I suspect over the next couple of quarters you're going to see some nice improvement in the contract therapy side because they're fine-tuning how they staff that business.

Thanks a lot.

Kevin Fischbeck, Bank of America Merrill Lynch.

I was wondering if you could maybe quantify some of the impact of these items that might come back in if we don't get an extension of the moratorium. What would the impact to the Company be of a 25% rollup limitation, the short-stay outlier issue, and the budget neutrality adjustment, we would have to know what the numbers CMS was thinking on that, but I guess maybe the first two?

Kevin, usually it's our practice to really not try to quantify the things that are proposed or have some uncertainty to them.

And I think as we go forth over the next couple months, we'll be continuing to think about that and do some more analysis than here. Obviously, as we march closer to the 12/31 expiration of the current legislation, then we probably will need to give a little bit more guidance around what impacts could be and what mitigation factors.

At this point in time, we're really not comfortable putting -- hanging a lot of numbers on those because it's just really quite soon after this most recent doc fix. And we're going to continue now over the next couple months to analyze it.

So at this point, I don't think we're going to be putting definitive numbers on that. And when we do, they'll have a little bit more detail around them about what the gross impact would be, and then also what a mitigation strategy. I'm not comfortable putting out one without the other at this point.

I guess that makes sense. I guess the 25% rule, though, I believe that some of that provision may actually be in earlier in the year, based upon the fiscal year of the facilities. Do you have any facilities that would potentially see that crop up before a doc fix could be reached?

We do. We have some facilities that start to phase in under that starting July. And I think we would say at this point that while there will be some impact, it's not material.

(Multiple speakers). Kevin, as a follow-up to that, we're comfortable with the guidance that we proposed, and that would incorporate that also.

And could you just give how many facilities would transition over in July?

Actually, I -- we actually don't have that. We looked at the financial impact, and as Marty said, it's baked into our guidance. But I couldn't tell you at this point how many of our 110, 111 LTACs actually that impacts.

And then, the bad debt provision that was included in the doc fix, what kind of impact does that have on you guys?

It's really not significant.

Okay, so it's not a big item. And then, just any update, color, on the JV program that you have going on, anything you could say about Baylor, and then what the pipeline looks like for additional deals?

Well, I could tell you we continue to be very pleased with the progress of all the joint ventures, Baylor included, which is probably the biggest market that we are in in a JV, and we continue to see growth in that market.

We're very pleased, as with SSM and Penn State, and we're looking to continue to do and add more services in each of those JV markets.

As far as the pipeline, as you know, we've been frustrated with the pace to get new deals signed. We do have a number in the pipeline and we continue to focus on those, but it's just difficult to predict when some of those may get across the finish line. And so, we continue to work on them and we continue to have what we think are some good opportunities out there.

Okay, great. Thanks.

Gary Lieberman, Wells Fargo.

This is [Ryan Halsted] on for Gary. Just a follow-up on the impact of the RUG rule change on your contract services business. I could appreciate the new opportunities. I was just curious, what was the impact or what kind of impact have you seen from the OMRA assessment changes? How has that affected your therapists?

I have no idea.

Is there any incremental costs that you're seeing? Has it been -- is there any type of additional work that's involved that you've -- that's been a challenge?

When you take a look at Q4 for contract therapy, the RUG-IV we've talked about, and any other impact is all incorporated into that and it's also incorporated into the guidance for 2012.

Okay. I guess, then, as far as your capital going forward, what kind of leverage do you anticipate going forward in 2012 as you think about share repurchases and use of capital?

We're going to be very opportunistic with the share repurchases. We're generating a substantial amount of free cash flow, and whatever is not used for either share repurchase or potential acquisitions will go to pay down debt. And we continue to delever the Company. So we're pretty comfortable with that.

Thank you.

Miles Highsmith, RBC.

As I think about the extension of some of the [mimsie] provisions versus having patient facility criteria put into place potentially towards the end of this year, I know an extension would not be your first choice. But as I think about that, if you as an industry were able to make that a modest saver with a moratorium on new LTAC bills, am I right to think that that would be a pretty reasonably doable outcome to just have that extension, instead of -- if for some reason, patient facility criteria were not put into place towards the end of this year? Or has -- maybe have some things changed or should there be some other things that I should be considering that maybe weren't in place back when the last extension was done with mimsie.

That one was for Bob, I guess. And the second one, just for Marty. If we're calculating loosely here, restricted pay capacity, I think we're coming up with still north of $500 million even after the $41 million of repurchases this quarter. Is that the right zip code for that? Thanks.

This is Bob. Let me go first. Your question is a good one. Let me try to answer it two ways, one from a Company preference.

Yes, we actually prefer criteria. But failing that, an extension to give us much time to work with various stakeholders and the government to get criteria, an extension would be a solid second preference.

If your question, and I'm sure part of your question, is, which is easier? Is one easier than the other, a greater possibility of getting it accomplished, I think it's hard to handicap that right now.

Yes, the current doc fix was, you could argue, a slimmed down, must-do bill that -- of reasonably short duration to the end of the year. But when you consider that there's an election coming up in November; the doc fix expires again the end of December; we don't know whether you're going to have a lame-duck administration or whether it's going to be a continuation; you don't know who are going to be the new committee chairs in the new year, if perchance either the Republicans or the Democrats take over one or the other chamber that they don't control right now.

And so, there's so many of those cross-currents that I think it's hard to handicap what the appetite will be for the legislators come December. And I can think of lots -- you could have a scenario under which it's just difficult to get anything done between the November election and the end of the year, in which case we've seen some precedents where things have been kicked over into the next year and then made retroactive. It certainly happened with the doc fix, which was a hard deadline at December 31 of last year, but yet was not passed until well into the new year.

So that's why I made the comment at my prepared remarks that it's really -- it's difficult to know. So, we are going to stay close to it, but our preference is, one, criteria, two, extension. I do believe that long term for the industry, patient facility criteria is the right thing to happen. And as long as that takes, it is certainly still worthwhile to pursue it.

In the interim, if we can get extensions in order to give us more time to do that, that's really the main reason for an extension is really a bridge to criteria, and that was the goal back in 2007. And that was the direction of the Congress at that time, which was to provide a moratorium and a hold on some of the more draconian regulatory provisions until -- to create a bridge toward the patient facility criteria.

I think the AHA has done a very good job, and they'll continue to go back to work. But it's a difficult environment right now and it's hard to predict.

(Multiple speakers). Miles, with regards to the baskets, your calculations on the bonds is a little generous. It's more in the $350 million range.

Thanks a lot, guys.

Whit Mayo, Robert Baird.

Whit Mayo Most of my questions have been answered, but I've got one that maybe it's fair, maybe it's not. But if my math is right, it looks like your public float now is in the low 30 million share range. And let's just say that your stock sits in the $8 to $9 range. At that level, you can take down roughly half of the public float with the upsized authorization. And personally, I think it's a fairly savvy move, but obviously you'll have very limited float at that point and effectively a $100 million market cap.

So maybe, Bob, if you could help us think about the strategy and how we should interpret the elevated buybacks. It sometimes feels like you're just going private slow. So I just want to make sure I understand the thought process and the overall strategy here.

The thought process is -- and it's really, I think if you look at the history of the Company, with our capital, we've always been opportunistic.

And if you look back even the last 10 years, we have made acquisitions with our capital even as recently as Regency. We're opportunistic. You've see us do a significant acquisition maybe every two years. You've seen us buy back debt at times. We bought back the debt bonds when they were trading at $0.55 on the dollar. And we buy back the stock when we think that's underappreciated.

So, we'll continue to do that. I think the increased authorization by the Board is a signal of confidence that we are prepared to use our available cash and capital to buy back stock, but we wouldn't hesitate to pivot and use our cash flow to make a thoughtful, smart acquisition or to buy back the debt, if it was called upon.

So we're constantly looking at the various valuations out there. We're always looking at acquisitions. And we go through periods where acquisition prices are just really outside our reach. And we get bounced out of processes all the time because we're just not willing to pay the kind of multiples that either private equity or others are willing to pay.

So we watch the bonds; we watch the stock; we watch the M&A market.

So I think that that's what you can continue to expect from us. When we think the stock is undervalued, we won't hesitate to be aggressive in purchasing it. And the same thing with an M&A transaction, if we find one. We think that we've demonstrated with virtually all of our acquisitions that we've proven that they create a great value for the Company. And I don't think -- if you see the results of the Regency transaction and the EBITDA that it generated and where we said it was going to be and what we paid, I think we've demonstrated that as well.

So the word on that is really opportunistic.

And yes, you do make a good comment, and we get questions from time to time, about the reduction in the float, but that really can't be our primary focus. Our primary focus is to allocate the capital where we think we're generating the best return for the shareholders.

I agree. Like I said, I think a very savvy move. I guess maybe a couple of just housekeeping items. Marty, what's a good tax rate for 2012 and what's in guidance?

I think in the 41% range, Whit, is a good number.

And is there a spot number for cash flow and CapEx?

CapEx, you should think somewhere in the range of $60 million to $70 million.

And cash flow, is there a good number to think about, or I guess another way, is there -- should we -- think there's some working capital changes we should be aware of?

No, I think if you're looking for free cash flow, probably somewhere in the neighborhood of $150 million is probably a good number.

Perfect. Thanks a lot.

Doug Simpson, Morgan Stanley.

I hope you can hear me okay. Marty, a lot of my stuff has been asked, but just as you think about some of the comments around reimbursement and the uncertainty, maybe just an update on the conversations on the potential JV front, how you see those opportunities in light of some of the uncertainty around reimbursement, looking out with the election and everything.

The uncertainty of reimbursement, the election obviously plays a factor in all providers' decision on what they do.

So, I would say that in general, large acute-care hospitals and systems are continuing to have a focus on their post acute-care delivery system. The readmission penalties will begin to start to layer in. And so, that is a focus.

On the other hand, there is uncertainty around healthcare reform and accountable care organizations and bundling and demonstrations. And there may be some that want to take time before they make a big move until they have more visibility on what the future is.

But that's the push and the pull always in healthcare. And for the kind of systems that we want to do transactions with, they are large, and thoughtful, and have strategic plans, and have lots of constituents that weigh in. So, that's just our challenge that we need to overcome and sell the value of doing a transaction with us in the rehab, LTAC, post-acute, and outpatient.

And as I said before, the good news for us is we think we've been successful in the deals that we've done. And they are really great advertisements for doing future deals. But having said that, they still proceed slowly.

That's very helpful. Then maybe just one comment, I didn't hear you address the weather, and I know it's not a huge issue, but just the mild winter we're having. How do we think about that for Q1 in terms of year-over-year volume differential? I'm thinking, obviously, more about the outpatient side.

I'll have Marty comment on it, but the weather this year certainly helped the outpatient. Usually by this time, we have had some real significant lost patient visits because of weather, and certainly last year was a big example of that. We had a lot of weather-related lost visits. And this year, we had less of those.

Yes, we have seen a nice uptick on the volume side, Doug. And I think a lot of that is attributable to the lack of severe weather.

Great. Thank you.

[Robert Stevens], Pinebank Asset Management.

Thanks for the question. Most of my other ones have been answered, but just one quick one. Just given the state of the current capital markets, have you guys thought about addressing your 2015 maturities, the 7.625%s and the floaters?

Yes, Robert, we're always taking a look at what's going on in the capital markets and how that pertains to changing what our capital structure looks like, in particular to the 7.625% and the HoldCo floaters.

The 7.625%s have really performed quite well over the past couple of months, and as I said, we're currently evaluating that. The floaters, we think, are a very good deal for the Company right now. And I suspect we'll leave that in place for a little while longer.

Okay. Thank you.

Having no further questions in queue, I'd now like to turn the call over to management for closing remarks.

We're pleased with the results of the fourth quarter and the year-end, and we thank you for joining us on this call and look forward to updating you after the end of the first quarter.

Thank you for joining today's conference. That concludes the presentation. You may now disconnect and have a great day.