環球健康 (UHS) 2007 Q1 法說會逐字稿

Good morning, my name is Jaime, and I will be your conference operator today. At this time, I would like to welcome everyone to the Universal Health Services' earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS) Thank you.

Mr. Filton, you may begin your conference.

Thank you and good morning. I'm Steve Filton. Alan Miller, our CEO, is also joining us this morning. Welcome to this review of Universal Health Services' results for the first quarter ended March 31st, 2007. As discussed in our press release last night, the Company recorded income from continuing operations per diluted share of $0.92 for the quarter. After adjusting for the gain on the sale of certain vacant real property, our adjusted income from continuing operations per diluted share for the quarter ended March 31st, 2007, was $0.89, representing a 22% increase over the $0.73 of adjusted income from continuing operations per diluted share reported during the first quarter of 2006.

During this conference call, Alan and I will be using words such as believes, expects, anticipates, estimates and similar words that represent forecast, projections and forward-looking statements. For anyone not familiar with the risks and uncertainties inherent in these forward-looking statements, I recommend a careful reading of the section on risk factors and forward-looking statements and risk factors in our Form 10-K for the year ended December 31st, 2006.

We would like to highlight just a couple of developments in business trends before opening the call up to questions. Revenues for the first quarter increased 16% over the prior year. Exclusive of the impact of new facilities, most notably Texoma, and the revenues related to a construction management contract, whereby we are building a new hospital for an unrelated third party, revenues have increased by 10%.

Effective July 1, 2006, the pharmacy services for our acute care facilities were brought in-house from an outsource vendor. During the first quarter, this transition resulted in an increase of supply expense of approximately $29 million or 240 basis points, and increased the salaries, wages and benefit expense of approximately $11 million or 90 basis points, and a decrease to other operating expenses of approximately $42 million or 350 basis points. The transition of our pharmacy services favorably impacted our pre-tax income by approximately $2 million during the first quarter of 2007.

On a same facility basis in our acute care division, revenues, less provision for doubtful accounts, increased 9.4% during the first quarter of 2007. The increase resulted from admissions growth and an increase in revenue per adjusted admission. Admissions to our hospitals owned for more than a year increased 4.9% for the quarter. On a same facility basis, revenue per adjusted admission rose 5.3% during the first quarter of 2007. Admissions growth was particularly strong in the Las Vegas market, where our hospitals have benefited from Sierra's termination of its contract with HCA.

We define operating margins as operating income or net revenue less salaries, wages and benefits, other operating expenses, supplies expense and provision for doubtful accounts divided by net revenues. On a same facility basis, operating margins for our acute care hospitals owned in both the first quarter of 2007 and 2006 were 15.3% in the quarter just ended, compared to 14.7% in the prior year's quarter as a result of the increased volumes in Las Vegas and better performance in certain other markets. On a combined basis, the total of bad debt, charity care and the uninsured discount as a percentage of revenue was relatively flat during this year's first quarter as compared to the same prior year period.

On a same facility basis on our behavioral facilities, admissions increased 3.2% during the first quarter of 2007 over the comparable prior year quarter and net revenue per adjusted admission increased 2.7%. Operating margins for our behavioral hospitals owned for more than a year were 23.2% in the quarter ended March 31, 2007, compared with 23.3% in the quarter ended March 31, 2006.

Cash flow from operations for the first quarter of 2007 was approximately $99 million as compared to $110 million during the first quarter of 2006. At March 31st, our ratio of debt, net of cash, to total capitalization was 38% and the ratio of debt to EBITDA was 1.97.

We spent $99 million on capital expenditures during the first quarter. Included in our capital expenditures were the construction costs related to our new 170-bed Centennial Hills Hospital in Las Vegas that is scheduled to be completed and opened in the fall of 2007, a new 171-bed hospital in Palmdale, California, that is scheduled to be completed and opened in late 2008, as well as a replacement facility for our Hartgrove Behavioral Hospital in Chicago and the major renovation of our Manatee Florida Hospital, both of which will be completed later this quarter.

On January 1, we acquired certain assets of the Texoma Healthcare System located in Denison, Texas, including a 234-bed acute care hospital, a 60-bed behavioral health hospital, 21-bed free-standing rehabilitation hospital, and Texoma Care, a 34-physician group practice structured as a 501A. We plan to build a 220-bed replacement facility, which we will open in late 2009. During this first quarter, we acquired the land for this replacement facility.

Our behavioral facilities have operated at a very efficient 78% available occupancy rate for the quarter. These high occupancy rates are suppressing our admissions growth in certain markets, but we have multiple projects to add capacity to our busiest behavioral facilities. We opened a total of 98 new behavioral health beds at existing facilities during this first quarter. Also during the quarter, we opened the Highlands Behavioral Health System, an 86-bed facility in Denver, Colorado.

Subsequent to March 31st, 2007, we increased our revolving credit facility by $150 million to a total commitment of $800 million.

We also received the necessary approval to finalize the acquisition of St. Jones Center, a 50-bed behavioral health facility located in Dover, Delaware, and we expect to close early next week on that transaction. The new Dover hospital will complement and broaden the geographic coverage of Rockford, our existing facility in Newark, Delaware. Through this transaction, we plan to expand adolescent services and create additional capacity in the State of Delaware. We also expect to close on Foundations Behavioral Health, a facility in Bucks County, Pennsylvania, with 54 acute care behavioral beds and 48 residential beds, later this quarter.

We're pleased to answer questions at this time.

(OPERATOR INSTRUCTIONS) Your first question comes from Gary Lieberman from Stanford Group.

Thanks, good morning. I was hoping you could bring us up-to-date in Las Vegas in terms of what your perception is of what the negotiations are between HCA and Sierra, at this point.

Yes, I don't -- Gary, I don't know. I think Sierra, in their call, said that they were not having any current negotiations with HCA. Obviously, that's also now become somewhat contingent on how the proposed acquisition of Sierra by United progresses. And I think they're largely waiting for regulatory approval there. But we don't -- I can't say that we know anything more than that. We wait to see what everybody else is going to see in the market.

Okay. And then I guess just a quick follow-up; could you give us the uncompensated care numbers for the acute segment in the quarter?

Yes, our charity care was a $100 million in the quarter and our uninsured discount was $25 million in the quarter.

Okay, great, thanks a lot.

Okay.

Your next question comes from Darren Lehrich from Deutsche Bank.

Thanks, good morning. Just wanted to ask a little bit more about your volume growth, obviously very strong in the quarter. And hoping to parse out a little bit of the strength from Vegas and elsewhere. Steve, I think in your prepared remarks you said you saw some margin improvement due to certain other markets. And I think probably some of that's volume-driven. Is there any way to parse out volume strength across the portfolio, and a key in any markets, in particular? That would be helpful -- to put that into perspective.

Sure, Darren. I think from a volume perspective, exclusive of the impact of the incremental Sierra volume in Las Vegas in the quarter, our same store admissions would be up -- would have been up about 3% throughout the rest of the portfolio. As you would expect, there are hospitals that are up and down, but I think we had good volume performance in this in California and in Florida, in DC. So we saw strength throughout the portfolio. And generally, as you would expect, where we saw decent volumes we saw better margins.

And is there any way to just characterize the quality of the volumes, in terms of payor mix? I don't know that you provided that in the press release, but if you could give us a sense for what your mix was and the growth -- managed care and Medicare volumes, in particular?

Yes, Gary asked about our charity and uninsured discounts and obviously -- I mentioned this in my prepared remarks, when you take those numbers as a percentage of revenue, we're pretty much flat with the first quarter of last year. And I think what that implies is that our volumes are -- uninsured volumes, for the first time in awhile are rising no faster and maybe even a little bit slower than our overall volumes. The volumes of uninsured are rising no faster, and maybe a little slower, than our overall volumes. Payor mix looks to be good in the quarter. And again, I think that contributed to some of the margin improvement, as well.

Great. Just maybe one more thing and I'll jump out of the queue here. But in terms of the benefit from the pharmacy in-sourcing move mid last year; can you just remind me how much benefit you started to see in third and fourth quarter last year? And whether the incremental savings in this first quarter represents sort of a proper run rate versus what you initially saw?

Yes, I think what we said was, in the latter half of '06, we didn't really anticipate any net benefit, mostly because we were paying some transition and consulting expenses for the first six months of the transition to help us through that process. So I think that the first quarter of '07, where we said we had about a $2 million benefit, is really the first quarter where we saw net benefit. I think we would expect that would continue in the second quarter of '07. Then we will see it in the latter half of the year -- that benefit will continue only because we will be comparing to a period in '06 where we had these transition, one-time costs that won't recur in '07.

That's great. Then I'm sorry, just one more thing in my notes here, in terms of transition costs. You mentioned the Highlands opening. What other start-up losses in behavioral do you anticipate throughout the year? Was that the primary one that was going to be impacting your start-up loss number that you previously guided to?

The other behavioral facility that we plan to open this year is in Orlando, we call it Central Florida. It will open -- right now, we're planning in June or so. And Highlands and Central Florida will be somewhat dilutive, although in fairness, the major dilution that we talked about and we said is embedded in our guidance has to do with the opening of Centennial later in the year in Las Vegas. And that accounts for most of the dilution we have embedded in our guidance.

Okay, great, thanks. I'll jump back in the queue.

Your next question comes from Christine Arnold with Morgan Stanley.

Good morning. Could you talk a little bit about your long-term CapEx plans, kind of post-Centennial? Will we looking at a step-down in CapEx in 08, might we get to some positive free cash flow? Then kind of your longer-term outlook.

Then could you give us kind of a revenue number associated with that incremental HCA volume? Thanks.

Sure, Christine. I think that when we talked in March about our capital spending guidance for '07, we talked about a $450 million capital plan. We indicated that about $150 million of that was for new hospitals, primarily the Centennial Hills facility in Las Vegas and the Palmdale facility in California, to a lesser degree, the finishing -- or the completion of our Hartgrove Behavioral Facility in Chicago and the purchase of the Texoma land, which we made in the first quarter. Obviously, Centennial will be done this year. We will continue to spend money on Palmdale next year. We will also start to spend construction dollars, in earnest, next year on Texoma. But I think from our perspective, the $450 probably represents sort of a peak in capital spending. It will start to diminish in '08 as we finish Palmdale, and then diminish some more in '09, after we finish Texoma.

And your second question was about revenues in Las Vegas -- Sierra revenues. I think that our best guess about sort of what the incremental impact of Sierra revenues were in the first quarter was probably an additional $15 to $20 million of incremental Sierra revenue in the first quarter.

Thank you for that.

Your next question comes from Tom Gallucci with Merrill Lynch.

Thank you. Good morning, everybody. I know on Sierra, it sounds like the volume was pretty strong for Vegas. In the past there's been -- it's been tough to sort of understand the relative pricing of a contract like that and how much that volume would contribute to the bottom line. The minority interest, I saw, was pretty high. Is there any way to quantify, more from an earnings perspective,the incremental benefit -- let's say from Sierra, specifically?

Tom, what we have talked about before, and I don't believe we feel terribly differently at this point, is that Sierra pricing is among our lowest pricing in the Vegas market. So we caution people about what the ultimate impact of all this incremental revenue would be. I think that we believe that the operating margin on this business is probably 20%, 22% or so. That's kind of pre-tax, post minority interest. So I think that gives you a sense of what the impact was in the quarter.

Right, great, thank you. And then on -- just your outlook, I think in the last couple years you have had pretty good first halves and not changed the guidance. And that's worked out okay. Do you see anything different about your outlook at this point?

No, I think that you have it right. As you know better than most, the last few years have been difficult ones for the industry. Particularly, I think the most volatile dynamic has been the level of uninsureds. We're encouraged by our own experience in the last couple quarters, as well as what our peers seem to be reporting, in terms of numbers that seem to suggest a who moderating trend in the levels of uninsured. And we're certainly hopeful about that. But we would certainly like to get another quarter or two of experience before declaring that a trend and thinking about revising our numbers.

But I think it's all fairly transparent in the sense that the dynamics that have contributed to our strong performance in the first quarter, the increased Sierra business, the moderating uninsured levels. If those continue, we would hope that our positive performance can continue. So I think we will continue to track those dynamics and we will talk through those as we continue to talk and the year progresses. But we're not going to do anything but reaffirm our guidance today.

Okay, then one final one, if I could. Persistent topic of conversation for you all is the unlevered balance sheet. I think at this point, some of your competitors are not -- it doesn't seem like they are going to be as active on the acquisition front, there may be even some divestitures. Is there any game plan, at this point, for what you might do incrementally, either on the acquisition front or otherwise, in the capital structure?

Well again, those who are following have seen that over the last few quarters, our leverage has been creeping up as we bought back a large number of shares in the latter half of '06. We bought Texoma in the first quarter of '07. We have, as Christine asked about, a fairly aggressive capital plan in '07. If you adjust our leverage for our lease expense, which virtually all of our creditors do, we have got a debt to EBITDA ratio of about three times, currently. And that will probably inch up as the year goes on and we continue to implement our capital plan.

I think, Tom, as you sort of suggested, our plan is to take a look at the landscape out there, see what opportunities might be out there. If there are opportunities to grow the business -- further grow the business through cap spending or acquisitions, we will act on those. Otherwise, we will probably continue to execute shareholder-friendly transactions like we have done over the last few years. So I think we're going to continue along much the same path.

Great, thanks for your color.

Your next question comes from Adam Feinstein with Lehman brothers.

Okay. Good morning, everyone. Just a few questions here, Steve and Alan. Just with respect to Las Vegas, Steve, and clearly you guys have had a lot of strength there, that market continues to drive a big portion of your earnings in the last 10-K, I think it was something like 30% of pre-tax earnings. After the quarter, is that a similar number? I know you guys will be filing your 10-Q and you will have more details; but just curious in terms of what percentage of your business Vegas is now accounting for, on both the revenue and earnings point of view?

Adam, to be perfectly honest, I haven't done that calculation for the first quarter. But my instinctive reaction is that that percentage will go up a little bit just because of the surge in Sierra volume and the [tendon] surge in earnings in Las Vegas, which is probably now growing faster than other markets. I don't know that the number will change terribly dramatically, but it probably will go up a little bit.

Another question on Vegas before we move on to another topic. Can you talk a little bit about -- do you have any concerns about staffing the new hospital? I guess the labor market in Vegas is always a tricky one. So any preliminary thoughts -- I know it's not till later this year, but just curious in terms of any initial thoughts?

Well, you're right on point, Adam, in that Las Vegas is probably one of, if not our toughest labor market. We probably incur more temporary nursing or registry expense in the less Vegas market than in any other market. Obviously, the surge in volume has exacerbated that challenge for us and we have seen a rise in registry expenses at some of our hospitals. The opening of Centennial will create a further challenge. But we will meet it. And the good news about it is we have plenty of advance notice, we know when when we're opening, we're planning, we have been recruiting nurses already. So I mean the answer is it will be a challenge, but we will certainly overcome it. But I think salary expense and staffing and finding enough qualified nurses is a challenge in Las Vegas and it will continue to be, because the demand will continue to grow in that market.

Adam?

Yes, hang on.

We will be the only hospital in that area. There's a lot of housing going in, a lot of moderate priced housing, so we have an advantage in terms of nurses up in that area that want to work in a hospital. So you get that benefit.

Okay. All right. Thank you. Just another question here. Maybe just on the psychiatric side -- just wanted to get some perspectives there. It's probably be best -- question for Debbie at some point. But just in terms of what we're seeing there, this quarter, all the psychiatric hospital companies have seen some slowdown in growth. Clearly, it was a difficult comp with last year being very strong. But just seeing some moderation in the growth rate. Just curious if you have any thoughts in terms of the overall business environment for the psychiatric hospital business? Do you think a lot of same trends that we have been talking about in the last few years continue to be very prevalent? And have you seen any change in other business?

We were actually pleased with our behavioral results in the quarter. We had firm volume growth and moderate pricing growth. We did have a tough comparison, specifically because in last year's first quarter we had had a couple of million dollars of positive Medicaid adjustments in Texas which didn't recur this year. We had some bad debt recoveries in our KeyStone facilities in the first quarter of last year, which by definition, didn't recur this year. And that probably is what -- those two items together is probably what kept our operating margins flat with last year.

But generally I think, Adam, we continue to view the underlying dynamics of the behavioral industry favorably. I think we said this going into the year, I mean -- the 6 and 7% same store admissions growth numbers that we saw for a few years were not likely to be sustainable. But we think we can sustain the kinds of numbers we saw. As you have heard us talk about, and you've heard Debbie talk about a lot, we are focused very much on capacity expansion program in a number of facilities. And we have to execute that to keep that growth going. But it's well underway. And I think we feel like, if we stick to our [knitting], we will be able to maintain that.

Okay, thank you very much.

Your next question comes from Matthew Ripperger with Citigroup.

Hi, thanks very much. Just a couple questions. On the Texoma acquisition -- in the cash flow it disclosed $73 million of spend in the quarter. Could you just clarify if that was all related to Texoma?

Secondly, can you give a sense of how much it's going to cost to build the 220-bed replacement hospital?

Matt, I think, all but a $1 million or $2 of that $73 is Texoma related. We estimate -- I mean we certainly still have to do definitive plans and whatnot, and obviously contracting; but we estimate that the cost of building the 220-bed replacement hospital will be in the sort of $125 to $130 million range.

Great. Secondly, I want to see if you could comment on McAllen; just to see whether you're seeing any stabilization in that market?

And then secondly, can you comment on who you're selling the land to and why?

The land sale is in McAllen. It has to do with our existing or old behavioral facility, which we actually acquired five or six years ago in the Charter bankruptcy. They had a closed facility in McAllen. We wound up moving our behavioral operations out of our acute care hospitals in the market and into this older, frankly somewhat rundown and small, stand-alone behavioral facility. We, as you know, have built a new -- frankly doubly-sized behavioral facility, which we opened last June or so. And we simply sold the real estate to a commercial developer, it's a well-positioned piece of real estate. But I'm sure the plans are to tear down the old building and to build some sort of commercial development down there.

As far as the operations in the McAllen market, they remain challenging for us. We certainly have seen stabilization, we're not seeing the -- obviously the dramatic decline in earnings that we have experienced over the last few years. But the flip side is, we're not seeing any great improvement in that market, as well. Despite the fact that volumes have rebounded some, etc., the main challenge for us in that market remains getting back and regaining some of the market share of that better paying, better margin business. And while we employ a bunch of techniques to do that, we find that it's taking a while and we're working hard just to gain an inch every day.

So as we said two months ago in our year-end call, and as we look forward to 2007, we thought that McAllen was a market that wouldn't impact us negatively in any measurable way in 2007, but also probably wouldn't provide a lot of upside for us. And I don't think our thinking on that has changed much.

Great. And the last question I had is; just looking at the cash flow, there were a couple items that sort of were use of cash year-over-year, specifically other working cap items, which was down $16 million and sort of other, which was down $8, and receivables were up year-over-year. Can you just give a little color as to what's going on there and whether there is a recurring trend?

Yes, I think the answer to your last question is, I don't think there's any recurring trend or any sort of pervasive issue. We spend quite a bit of time analyzing that. The other asset accounts is across the balance sheet, it's nothing significant. On the receivables side, I think most of the increase in receivables -- our days in receivable are only up a couple of days. And most of that increase we see is in markets like Vegas, where we had a surge in volume, and in a couple other markets where we had a big pick-up in volume and we just haven't collected all the cash yet.

No, I don't think there's much of anything really notable. When we, again, spoke a couple months ago, we guided people to operating cash flow for the year, about $350 million. And our first quarter numbers certainly have us well on pace to meet that number.

Great, thanks very much.

Your next question comes from William Bonello with Wachovia.

Good morning. Just a couple of questions. Can you give us your thoughts on the proposed IPPS rule, in particular, the sort of adjustment for code increase?

Bill, I think our reaction just -- the federation has reacted, the the American Hospital Association has reacted -- our reaction is much the same. CMS has said okay, we're going to implement the severity adjusted DRG's and because we assume everybody will upcode, we're going to drop the blended rate by 2.4%. There's just, from our perspective, no evidence to support that. And in our mind, that's a cut. So we sort of anxiously await to see how the proposed rule changes or doesn't change before it's final implementation later in the year. But we're concerned that that 2.4%, which they sort of call a behavioral coding adjustment, is really a reimbursement cut. And we're going to watch that very carefully.

Are you very optimistic, in terms of that changing significantly between the proposed rule and the final rule?

Well, now you're asking me to sort of predict exactly what CMS is going to do, which if I had to make a living doing, I would not be doing very well. The only thing I can say is, as you know, there were significant changes last year between the initial rule and what was finally implemented. The only thing is -- interestingly, CMS has said that they're not releasing any of the detailed sort of implementation regulations that would go along with this change until they issue the final rule, which I view as, perhaps thought on their part, that there may be significant changes. But I don't know if I'm reading something into it or not. But last year, as you know, there were significant changes between the preliminary and the final rule.

Okay. And then just -- can you tell us what you're seeing, in terms of commercial contracting? And if things are pretty steady there, in terms of pricing, or improving or getting tougher?

I think that the commercial managed care environment remains fairly strong, from our perspective. The dynamic that we remain most concerned about is where there is payor consolidation. Obviously, the Las Vegas market at the moment is the market where that's, at least for us, most visible. But I think payor consolidation is always going to make providers anxious because it threatens to change the leverage in the negotiation dynamics. And so we watch that carefully. But other than those instances where we're seeing consolidation, I think that -- our general sense is that managed care rates and managed care contracts are holding in pretty firmly.

Okay, great, thank you.

Your next question comes from Matthew with Goldman Sachs.

Hi, this is Shelley Gnall for Matt Borsch. I would like to follow-up on that last comment. Could you comment on the recent payor consolidation in the Pennsylvania market -- the Highmark and Independence Blue Cross merger? Any expected impact on pricing for your behavioral health facilities in the Pennsylvania market?

Shelley, most of our behavioral reimbursement in the Pennsylvania market runs -- runs through subcontracted, managed care payors -- the Magellans of the world, etc. I don't know that the merger of Independence Blue Cross and Highmark will have a significant impact on our behavioral facilities. So it's not something I think that we have any great concerns about.

And it also -- I would just take this time to comment on -- it reinforces what we think is a very important part of our operating strategy, which is to have significant concentrations of business, as we do in -- from a behavioral perspective, in the Philadelphia market, so that we bring a lot of leverage to the table in negotiating rates.

Okay, great, thank you.

Your next question comes Kemp Dolliver with Cowen & Company.

Hi, thanks. A couple quick nuts-and-bolts questions. The other revenue, looks like that nearly doubled in the quarter. I assume the construction business you referenced earlier is a net line item?

Yes, so we're building a hospital for another not-for-profit chain, Kemp. And we're recording the construction expenses and operating expense and the revenues up in revenue. And there's a very small margin in the quarter associated with that. But it's grossing revenues up -- probably in the quarter by $17, $18 million.

Okay. And so that will continue through the course of the year? Hello?

Yes -- I'm sorry, Kemp. I said yes, it will.

Oh, sorry. Okay, great. And where did you have the real estate gain in the income statement?

It's an offset to other operating expense.

Okay, thank you. And I think I'd seen that you all had a -- it may have been a very small acquisition of another -- of a behavioral operation called Foundation, recently. Is that of any consequence?

It's a relatively small facility here, in the northern suburbs of Philadelphia. And again, it just -- sort of tagging on to Shelley's question -- it just, I think, reinforces what is already a strong position for us in the Philadelphia market. In and of itself, it's not a material acquisition, by any stretch.

But we need beds in this market and that's the main point.

That's great, thank you.

Your next question comes from Gary Taylor with Bank of America. Mr. Taylor, your line is open.

Sorry. Just two quick questions. One, what do you think the revenue contribution for the full year from that construction project will be -- for the non-profit?

I'm sorry, Gary. It's a little hard to know, since construction is influenced by a lot of different factors. But I would think about it running, frankly, at the same rate that it ran in the first quarter. So $17, $18 million a quarter is probably as good a guess as any.

Okay. So in the next two, three and 4Q?

Yes.

And then most of my other questions were answered -- so I'll just end with this one. You had mentioned -- I think you had said ex Las Vegas, your acute same store admissions up three?

What I said was ex the incremental Sierra volume. But yes, ex the incremental Sierra volume, our admissions are up three.

But that includes Las Vegas, just ex the extra?

Yes. I'm not sure it makes a huge difference, but I just want to clarify.

Okay. And you has talked about good volumes in California, Florida and DC. So you have got some public competitors who aren't doing nearly as well, particularly in California and Florida. So I just wondered if there was any color you could provide on how, just the last few quarters, you have seen this nice volume pick up? Do you attribute it to anything else than having well-placed assets and the benefits of some of the CapEx spend coming through? Is there anything else that you might just add on that?

No, I think, Gary, you're right on point in terms of what contributes to it. We're not in Florida in a big pervasive way, we're not in California in a big pervasive way. But we're this those markets in sort of very strategically placed locations. We don't have a lot of teaching hospitals, but we have GW. And all those facilities have performed well. And again, I don't think this is anything new, necessarily, for UHS. I think that certainly over the last five, six, seven years our volume growth has tended to outpace the industry in general. And I think we have seen that over the last few quarters as well.

Okay, thanks.

(OPERATOR INSTRUCTIONS) Your next question comes Margot Murtaugh from Snyder Capital.

Yes, hi. You mentioned some dilution from Centennial and other projects this year; can you give us an idea what kind of dilution that is for this year?

And also will next year, how quickly does Centennial and the other projects ramp up? And what kind of contribution can we expect?

Back in our year-end call in March, we had talked about $0.09 or $0.10 of dilution embedded in our guidance, related to the opening of Centennial and the two behavioral facilities, although we said most of that was related to Centennial. We expect that our Centennial experience will be fairly similar to our experience in opening Spring Valley, which was our last hospital in Las Vegas that opened in the fourth quarter of 2003. And that is, there will be some cannibalization of business from our existing hospitals, there will be some start-up losses. But in relatively short order, in the space of three or four quarters, if the Spring Valley experience is instructive, and I think it should be, our expectation is that Centennial will be up -- and if not running sort of at our average margins, at least running at solid margins in the market.

Okay. Thank you very much.

You're welcome.

There are no further questions at this time.

Okay. We thank everybody for their time. And we look forward to speaking with everybody next quarter.

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