LifePoint Hospitals' CEO Discusses Q4 2013 Results - Earnings Call Transcript

Feb.14.14 | About: LifePoint Hospitals, (LPNT)

LifePoint Hospitals, Inc. (NASDAQ:LPNT)

Q4 2013 Earnings Conference Call

February 14, 2014 10:00 ET

Executives

Bill Carpenter - Chairman and Chief Executive Officer

Leif Murphy - Chief Financial Officer

David Dill - President and Chief Operating Officer

Analysts

Mike Newshel - JPMorgan

Josh Raskin - Barclays

Tom Gallucci - FBR

Darren Lehrich - Deutsche Bank

Frank Morgan - RBC Capital Markets

A.J. Rice - UBS

Gary Taylor - Citi

Ralph Giacobbe – Credit Suisse

Whit Mayo - Robert Baird

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the LifePoint Hospitals’ Fourth Quarter and Year End 2013 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded, Friday, February 14, 2014.

On today’s call, LifePoint will be making forward-looking statements based upon management’s current expectations. Numerous factors could cause LifePoint’s results to differ from these expectations and LifePoint has outlined these factors in its filings with the SEC. The company encourages you to review these filings. LifePoint also asks that you please review the cautionary language under the caption, Important Legal Information, in the company’s press release issued this morning. The company undertakes no obligation to update or make any other forward-looking statements whether as a result of new information, future events or otherwise. Also please visit LifePoint’s website for links to various information and filings.

I would now like to turn the conference over to Bill Carpenter, Chairman and Chief Executive Officer. Please go ahead, sir.

Bill Carpenter

Thank you. Welcome everyone to LifePoint Hospitals’ fourth quarter and year end 2013 earnings call. We hope you have had a chance to review the press release we issued earlier this morning.

I will start off by taking you through some of the highlights from the fourth quarter and full year. I will then turn the call over to Leif Murphy, our Chief Financial Officer for a more in-depth look at our results. Following our prepared remarks, Leif and I as well as David Dill, our President and Chief Operating Officer, will be available to answer your questions.

I will begin with some highlights from our solid fourth quarter. Revenues from continuing operations grew to $952.6 million, an increase of 6.6% compared to the same period last year. Adjusted EBITDA was $148.5 million, up 10.1% from a year go and diluted EPS for the fourth quarter was $0.75. Turning to the full year 2013, our revenues were approximately $3.7 billion, up 8.4% from 2012. EBITDA from continuing operations was $537 million, a 1.6% decrease from $545.6 million last year. When adjusted for the $27 million impact of the Rural Floor settlement on EBITDA in 2012, EBITDA increased by $18.4 million, or 3.5% and diluted EPS for the full year was $2.68. Leif will provide more details on our quarterly and full year results in a few minutes.

While in-patient volumes remained soft in 2013, we implemented a number of improvements that have positioned us well for 2014. We are positioning ourselves to drive organic growth and optimize the operating performance and profitability of our hospitals. We are implementing initiatives around pricing, outpatient imaging and exchange enrollment. Additionally, we are standardizing various business processes notably in our emergency department, where we are creating additional capacity without deploying additional capital.

We also continue to strengthen our supply chain and revenue cycle operations through our shared services agreement with Parallon. Approximately, 75% of our planned conversion hospitals have now migrated to Parallon and we expect to transition the remaining planned conversion hospitals in the first half of this year. As always, we remain focused on maintaining high standards of patient care and safety. In 2013, we made great progress in achieving our goals under the Hospital Engagement Network. And we have been recognized by CMS as a high-performing contractor.

In 2011, we accelerated our key strategic priority of implementing the culture of quality and patient safety when we were awarded a contract as a Hospital Engagement Network partner with CMS. The main goals of the program were to reduce preventable harms and readmissions. I am proud of the outstanding progress we have made and we look forward to comparing our results with the other 26 national participants. We plan to capitalize on the momentum that has carried us as we further our quality and patient safety initiatives. Our National Physician Advisory Board, which we have discussed with you in prior quarters, continues to….

Operator

Ladies and gentlemen, please standby. Your conference call will resume momentarily. Please standby. Your conference call will resume momentarily. Please do not disconnect your lines. Ladies and gentlemen, your conference call will now resume.

Bill Carpenter

Continuing our call, as always we remain focused on maintaining high standards of patient care and safety. In 2013, we made great progress in achieving our goals under the hospital engagement network and we have been recognized by CMS as a high performing contractor. In 2011 we accelerated our key strategic priority of improving the culture of quality and patient safety when we were awarded a contract as a hospital engagement network partner with CMS. The main goals of the program were to reduce preventable harms and readmissions. I am proud of the outstanding progress we have made and we look forward to comparing our results with the other 26 national participants. We plan to capitalize on the momentum that has been created as we further our quality and patient safety initiatives.

Our National Physician Advisory Board, which we have discussed with you in prior quarters continues to provide us with excellent insights and serves as an accelerator in advancing our quality efforts across the country. Another differentiator on the quality side is our Duke LifePoint partnership. Duke LifePoint is intimately involved in improving the performance of hospitals through clinical programs that advance care and enhance outcomes. Each of these initiatives is occurring against the backdrop of the Affordable Care Act. While it’s still too early to gauge the full impact of healthcare reform, we now project that coverage expansion in our states will have a positive impact on EBITDA of 4% to 5% in 2014. Leif will discuss this in more detail when he covers guidance.

In 2013, we continued to pursue strategic acquisitions to penetrate larger faster growing markets with a more diversified employer base. We made progress on several strategic initiatives aimed at expanding our footprint in key markets. During the quarter we successfully completed the acquisitions of Fauquier Health System, our sixth hospital in Virginia as well as Bell Memorial Hospital and Portage Health, which will expand our network in the upper peninsula of Michigan and advance our efforts to develop an integrated health system there. The process of on boarding these hospitals into our existing system is underway and going well. In addition, we are on track to close the pending acquisitions of Wilson Medical Center in the first quarter and Rutherford Health System in the second quarter. These North Carolina hospitals will be part of Duke LifePoint. Our partnership is also in various stages of development on several other potential acquisitions.

Going forward we see promising opportunities to grow our footprint, both independently and through Duke LifePoint. We believe the scale we have added through recent acquisitions and the resources of LifePoint make us the partner of choice for many community hospitals. We are also seeing an increased number of opportunities with non-profit multi-hospital systems and we expect this trend to grow.

Before I turn the call over to Leif, I would just like to say that the initiatives we have underway and our acquisition pipeline gives me and the rest of our Board of Directors confidence in our prospects for 2014 and beyond. To that end, today we announced that the Board has approved an additional $150 million share repurchase authorization, which will go into effect upon the completion of the current program. We are working to complete our current authorization by the end of the first quarter of 2014, which had $164.7 million remaining at year end.

With that I will now turn the call over the Leif for more detail on our fourth quarter and full year results. Leif?

Leif Murphy

Thank you, Bill and good morning everyone. As Bill said we had a solid quarter in line with our expectations. I will start by covering our fourth quarter results in more detail and finish up with a discussion of 2014 guidance including the impact that we anticipate from healthcare reform.

Starting with volumes on a same-store basis, the admissions in the fourth quarter were down by 7.6% versus the prior year, adjusted admissions were down 3.9% and total surgical volumes increased by 1.8% compared to the fourth quarter 2012. Soft same-store volumes in the quarter were primarily due to a 4.4% reduction in emergency room visits against the tough flu and respiratory comp in 2012 and a 14.4% decline in our 1-day stay admissions. Given the decline in 1-day stays, let me take a moment to discuss the 2-midnight rule. As you would expect, we have undertaken continuous provider and staff education as well as developed and implemented appropriate processes to ensure compliance with the new 2-midnight rule. We continue to receive additional guidance and clarification from CMS on the new program and we continue to study the issue and its potential impact on inpatient and observation care. Although we have experienced reductions in 1-day stays, we believe that they are generally reflective of industry trends toward outpatient services and not primarily the result of the new rule. Sequential decreases since the implementation of the rule have been small and we will report on any changes that impact our current perspective.

Turning to pricing, on a same-store basis, net revenue per adjusted admission in the quarter was up 5.4% from the prior year. Since we did not have them in the disclosure, I will give you the numbers. In the fourth quarter of 2012, revenue per equivalent admission, same-store was $7,338 and increased to $7,732. On a continuing operations basis, net revenue per adjusted admission for the quarter was up 6.2% compared to the prior year increasing from $7,608 to $8,082. The Medicare case mix index was up 3% on a same-store basis, reflecting growth in more advanced service lines and a reduction in lower acuity stays.

Moving to revenue, same-store revenues in the quarter were up by $9.5 million, or 1.2% reflecting soft volumes and offsetting rate improvements. Our fourth quarter revenues from continuing operations grew to $952.6 million, an increase of $59.3 million or 6.6% compared to the fourth quarter of 2012. Our revenues from continuing operations for the full year were $3.7 billion, an increase of 8.4% from 2012. Same-store bad debt expense for the fourth quarter was 24.7% of revenue, an increase of 520 basis points from the prior year. Same-store charity care write-offs were 2.8% of revenue in the quarter. Same-store self-pay admissions were up 6% in the quarter and represented 7.9% of total admissions.

On costs, same-store salary, wage and benefit costs increased by 1.1% in the fourth quarter compared to the prior year and reflected our continued focus on managing labor cost in a soft volume environment. Same-store supply costs were flat compared to the same period of 2012 as a result of our diligent focus on supply cost and procurement strategies. Other same-store operating expenses increased by 7.6% compared to the fourth quarter of last year, primarily due to professional fees and contract services associated with emergency department physicians in hospitals, meaningful use implementation and our conversion to Parallon. We recorded $27.4 million in meaningful use payments and have related operating expense of $7.5 million. This equates to $19.9 million in EBITDA in the fourth quarter and $41.9 million in EBITDA for the full year of 2013. Fourth quarter EBITDA from continuing operations of $148.5 million, represents an increase of $13.7 million, or 10.1% from the same quarter last year. For the full year, EBITDA from continuing operations was $537 million, a decrease of 1.6% from 2012.

Adjusted for the $27 million impact of the Rural Floor settlement on EBITDA in 2012, EBITDA increased by $18.4 million or 3.5% in 2013. We saw an increase in our effective tax rate in the quarter rising to 39.9% from 33.9% in the fourth quarter of 2012. Our effective tax rate was higher in the current period as a result of several factors, including the recognition of a $6 million valuation allowance against not net operating losses generated by our recently acquired Michigan physician practice operations. This allowance was offset by favorable adjustments of approximately $4.6 million. We are working to mitigate the tax issues in Michigan and we are anticipating an effective tax rate of approximately 38.5% in 2014.

Diluted earnings per share from continuing operations were $0.75 in the quarter as compared to $0.76 in the prior year. This decline was negatively impacted by approximately $0.03 in the quarter from the net impact of our tax items I previously discussed and by an additional $0.02 in the quarter as a result of interest expense on prefunding certain obligations with our successful high yield transaction that we completed in December. I will discuss this further in just a few minutes.

Cash flow from continuing operations for the quarter was $100.7 million, a decrease of $19.9 million or 16.5% from the same quarter last year. We invested $76.7 million in capital expenditures in the quarter including $41.9 million in capital projects. Depreciation and amortization expense increased by $5.7 million or 10.5% compared to the prior year driven by our recent acquisitions as well as increases in our spending on information systems as result of the HITECH Act.

Effective December 6, 2013, we issued $700 million of 5.5% unsecured senior notes due December 21, 2021. The proceeds of this issuance were partially used to repay $100 million of pre-payable term loans. In addition to debt repayments, proceeds from the issuance were used to fund $170 million in acquisitions closed in the fourth quarter. Year end cash of $638 million will provide availability to fund $110 million in acquisitions expected to close in the first half of 2014, complete our remaining repurchase authorization of $164.7 million and together with our revolving credit facility allow us to repay $575 million under our 3.5% subordinated convertible notes due in May.

We ended 2013 with $164.7 million available under our approved stock repurchase plan. We are working to complete this authorization by the end of the first quarter of 2014. As Bill discussed earlier, effective upon the completion of our existing authorization, our Board of Directors has approved an additional $150 million share repurchase authorization. In the first quarter, we are exploring our financing options. We expect to raise additional debt capital to provide liquidity for general corporate purposes including new acquisitions and our additional share repurchase program.

Last quarter, we reported that payments under the Medicare dependent hospital and low volume Medicare extended program had stopped as of October 1, 2013. Before I summarize the year, I want to provide you with an update on these programs. In the fourth quarter, both programs were extended through March 31, 2014. While a permanent solution to this program remains unclear, we have been working diligently to make sure that congressional leaders understand the importance of these programs. As a result of these efforts based on congressional precedent, our full year guidance for 2014 will assume the extended programs are renewed for the balance of the year. To the extent that the programs are not reinstated, the lapse of the Medicare extended programs will have a negative impact of $10.4 million on our 2014 results.

To summarize 2013, we finished with revenue, EBITDA and EPS in our guidance range for the year. In patient volumes and equivalent admissions were soft throughout the year and lower than our expectations. Case mix and revenue per adjusted admission are both improving as we focus on expanding our advanced service lines and continue to benefit from more advanced services offered in our recent tertiary hospital acquisitions. We continue to actively manage our cost structure and we are progressing well on our shared services initiatives, with 36 of 53 revenue cycle conversions complete and 40 of 53 supply conversions complete. We expect to finalize our remaining revenue and supply chain conversions in the first half of 2014.

In regard to health reform in guidance, in our earnings release today we provide a guidance for 2014 revenue, adjusted EBITDA and earnings per share. We expect the revenues to be in the range of $4.0 billion to $4.1 billion for 2014. Our expected adjusted EBITDA range for 2014 is $560 million to $590 million and our expected EPS range is $2.38 to $2.78. Our 2014 guidance is the aggregation of a number of headwinds and tailwinds that we see as we look ahead into next year. On the headwinds side, we expect to see soft volumes continue in 2014. However, improvements in the unemployment rate in our markets, our continued success recruiting physicians to our medical staff and the acquisitions that we have made in larger markets give us confidence that we will see volumes stabilize. We forecast equivalent admissions in the range of down 0.5%, to up 1.5% in 2014. We will remain disciplined on the cost side of our business and continue to focus on identifying opportunities through enhanced efficiencies.

Also a headwind we will experience further Medicare cuts legislated under health reform. In 2014 between market basket reductions, productivity adjustments and disreductions we will see Medicare reimbursement update impacted by negative 1.1% or $12 million. Since the first cuts were implemented in 2010 we have seen reductions of negative 3.7% in aggregate. With regards to Sole Community in New Mexico we have anticipated a reduction of $6 million, down from $16 million in 2013 to approximately $10 million in 2014.

With regards to tailwinds, we expect a favorable impact from expansion under health reform in 2014. Although the health insurance exchange side of reform has gotten off to a slow start, there are a number of key factors that give us confidence in a favorable 2014 impact. Number one, we were successful in negotiating close to commercial rates in almost all exchange plans. Number two, we are participating in an exchange product in every market. In all those 90% of our hospitals we are participating in both the lowest priced bronze product and the lowest priced silver product. Third, seven of our 20 states have currently expanded Medicaid. We are working hard in each of our states to help foster a better understanding of participation and we believe that other states will ultimately expand the coverage. Four, in our seven states with expanded coverage, we estimate that roughly 80% of current self-pay patients qualify for Medicaid under the new rules. Approximately 35% of our self-paid volume was generated in these seven states in 2013.

Fifth, each of our hospitals will be qualified to use presumptive eligibility by March 31, 2014, helping to ensure a collection of new Medicaid enrollee clients. And finally and importantly we have the strategies and the infrastructure in place to get health insurance exchange eligible patients enrolled. As a result of these considerations we have included in our 2014 guidance a positive impact on EBITDA of approximately 4% to 5% from expansion. Our experience in January although early, suggest that our reform assumptions are reasonable. Our guidance also includes the expected results of our new acquisitions completed in 2013, but does not include additional acquisitions in 2014.

We have also not included the incremental share repurchase program Bill discussed earlier in our guidance. Depreciation is expected to rise by approximately $30 million in 2014 and interest expense is expected to rise by $15 million to $20 million in 2014. Additional information regarding our fourth quarter and full year results is available by reviewing our SEC filings including our 10-K, which we will file later today.

With that I will turn it over to Bill for some closing remarks.

Bill Carpenter

Thanks Leif. Before we open up the call for questions, I would like to share a few closing thoughts. In the face of a rapidly changing industry landscape, we fueling the growth – fueling the growth of our network and helping us to fine tune our service lines, so that we can provide the best hospital care to the greatest number of patients. We are implementing plans to optimize operating performance at every hospital, while maintaining high standards of patient care. As the dust settles around healthcare reform, I believe we will be well positioned to benefit from growing enrollment in both commercial exchanges and expanded Medicaid programs. This is an exciting time for LifePoint and I look forward to the many ways that we will create value for our shareholders.

With that, we will now take your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And our first question comes from the line of Justin Lake with JPMorgan. Please go ahead. Your line is open.

Mike Newshel - JPMorgan

Hi, good morning. This is actually Mike Newshel in for Justin. First, just on the reform guidance, I was wondering if you could give a little more detail, so what are your assumptions are there sort of what percentage of uninsured patients you think are going to get coveraged and what’s the mix between exchanges in Medicaid and whether you expect any uptick in utilization and volumes attributable just to reform itself?

Bill Carpenter

This is Bill. I will start. So the assumptions that we gave recognize that there are a lot of moving parts and that it is still early, but with respect to the tailwinds that we see, we have indicated that, 7 of 20 states have expanded Medicaid. We believe that 35% of our self-pay volume came from those patients, came from those states last year. We believe that 80% of the self-pay patients in these states qualified for Medicaid. Let me be a little different from some others. As we think in our communities, we may have a higher percentage of eligibility for Medicaid and therefore we see that as a possible accelerator for our ability to see the tailwind of reform sooner as those people get qualified sooner. Presumptive eligibility should help.

Mike Newshel - JPMorgan

So you think you will be able – potentially you will be able to sign up all those that qualify, especially with the help of presumptive eligibility?

Bill Carpenter

So we have been very successful over the years at helping people qualify for whatever program they are eligible for. And we believe that we will be able to help these folks get qualified for the expanded Medicaid program to the extent they are eligible and presumptive eligibility should help. With regard to the exchange enrollments, obviously, it’s been slow nationwide. We have all seen that. We have factored in the fact that we have achieved close to commercial rates in almost every market and the products that we are in and our markets are typically the lowest price products there. So those are some of the things, a little color on what we – the way we are looking at it. Leif, you may have additional comments that you want to make?

Leif Murphy

No, I think that really hits it. There are so many different factors that could be considered as you try to forecast uptake into either the Medicaid program or the health insurance exchange. The drivers that Bill just walked through and then I will talk through in our prepared remarks are really the drivers that we are looking at for estimating what type of rate of reimbursement, which will be close to commercial rates on the health insurance exchange and at the Medicaid rates in the expansion stage. The 80:20 split is reflective of the markets that we are in and then the primary assumption in the south there that we will have to continue to evaluate as we move through the year is within the 7 states that have expanded Medicaid, what will the ultimate uptake be in terms of the participation. And then as we move forward through ‘14 and into the future years, how many additional states will actually expand.

On the exchange side, the same thing across all of our states trying to make an assumption for what the expansion will ultimately look like. I believe that we have been conservative with the assumptions that we have used in our 7 states. We have assumed that less than 100% of Medicaid eligible folks will actually sign up and be effective this year. And on the health insurance exchange, we forecasted for a very low uptake in participation on that front. I think that as we look at six weeks of history now in the program. The assumptions that we’ve given were 4% to 5% of EBITDA are indicative of the results that we’ve seen, and as we look at 2014 with the closing of the enrollment period coming up. We think they’re going to be a good measure for how we perform this year.

Mike Newshel - JPMorgan

Okay. And just a last follow-up, what do you see your sort of core same-store EBITDA doing next year, sort of ex-reform acquisitions and any other moving parts like high-tech or the New Mexico funding?

Leif Murphy

There are number of moving parts in there are also. We talked about the headwinds of the pricing that’s coming out of the Affordable Care Act down $12 million. We talk about sole community being down $6 million. We’ve talked about the tailwinds of the expansion generating this 4% to 5% number then we forecasted, we will see improvements of $10 million to $20 million in our core businesses and then acquisition contribution of somewhere around $20 million. So, I think as we look at our year-over-year growth between in the development of the acquisitions that we have already made and improvements that we see going into next year that we will see good same-store growth.

Mike Newshel - JPMorgan

Okay, great. Thank you.

Operator

Thank you. And our next question is from the line of Josh Raskin with Barclays. Please go ahead. Your line is open.

Josh Raskin - Barclays

Hi, thanks. Just a quick qualifying question on the 4% to 5%, Leif, is that off of 2013 EBITDA or are you saying 4% to 5% of 2014 EBITDA?

Leif Murphy

Of our guidance range that we’ve provided – embedded in those numbers for EBITDA includes a 4% to 5% benefit from the expansion.

Josh Raskin - Barclays

Okay, so that’s – let’s call it something in the ballpark of $26 million or so at the midpoint. So I’m curious how much the impact differs in states, the seven states that expanded Medicaid versus the 13 that haven’t. I guess maybe another way to ask it, is of that $26 million is all of that expected benefit coming from those seven states?

Leif Murphy

From a Medicaid expansion perspective, I think you’re getting back at the question that Mike asked which is there an uptick in utilization that we’re seeing or that we’re forecasting, we’re not – we are not as said here today forecasting for any meaningful update in utilization around folks that have secured new insurance. We hope that will be an additional tailwind, but as we have to look at provide guidance. We have not forecast for that type utilization. So, on the Medicaid side, yes, all of the benefits in our assumptions is coming out of those seven states. And as you look at the absolute dollars and benefits we are forecasting for the large majority of the benefit of reform to be coming out of the Medicaid expansion stage. And so it has been beneficial that we’re seeing 80% of our populations of self-pay covered under the Medicaid expansions and it’s our goal to get the other 13 states expanded.

Josh Raskin - Barclays

Got you. So your base assumption is in the existing – in the states that are not expanding you are not looking for woodwork affect or anything, it sounds like you are just assuming status quo, no improvement?

Leif Murphy

We are looking for it, but we have not forecasted for it.

Josh Raskin - Barclays

But not for it, okay. And then just a follow-up on the high-tech, do you guys have an estimate for your ‘14 revenues and EBITDA impact?

Leif Murphy

We do, so as we look at 2014, we expected to be consistent with what we’ve seen in 2013 on the income side somewhere between the $60 million, $63 million contributing approximately $41 million to the EBITDA line next year.

Josh Raskin - Barclays

Okay, that’s perfect. And just last quick one, 1-day stays, I think you gave the percentage decrease, but what was the percentage of 1-day stays out of your total admits, how much of your – how many of your admits were actually 1-day stays?

Leif Murphy

Bear with me one second. We came out somewhere right around the 17% mark and I give you the exact number, the 17% of our total admissions.

Josh Raskin - Barclays

Okay, perfect. Thank you.

Operator

Thank you. And our next question is from the line of Tom Gallucci with FBR. Please go ahead. Your line is open.

Tom Gallucci - FBR

Thanks. Good morning, maybe just a follow-up on that last question, 17% or so of total admissions at this point the short stays, you all were I think pretty proactive on trying to get a handle on this topic a while back, as you are sort of thinking about the pressure point there, I think you had mentioned volume is a little bit more stable in ’14, what’s going on in this area in particular, do you sort of feel like you are towards the end of the deterioration there or the 2-midnight rule maybe didn’t sound like you had a big impact so far for you guys?

Bill Carpenter

Tom, this is Bill. Here is the way we look at it. We have dealt with changing regulations for as long as any of us can remember. We certainly have been focused on getting people in the right setting for care based on the rules as we understand them. For a while now, we have been dealing with the input that has come from CMS with respect to patients who should be on observation status versus the short stay status. And we have done an incredible amount of training with our people on that. That training continues and the 2-midnight rule is simply the next iteration of the regulatory change that we have been dealing with.

Just yesterday I saw a group of people here in our hospital support center, 20 something people from various hospitals around the country who are here training, further training on 2-midnight rule, so that they can go back into their hospitals and help get this right. So it has continued to have pressure, it continues to put pressure, but it’s just a further regulatory change. Quite frankly it’s one of those things that is causing more hospitals to consider looking for a partner, who look for the resources of a large partner like LifePoint Hospitals who can come and help them deal with all of this change. So Leif or David.

David Dill

In addition to the training and education that Bill talked about I think Leif or Bill in their prepared comments. Tom, mentioned that the 2-midnight rule is not impacting volumes in any material way even though volumes sequentially deteriorated from the third or fourth quarter, we attribute most of that decline – sequential decline to flu related volumes. You see our ED visits off a little over 4% in the quarter and OB-related volumes in the fourth quarter as well. So when you normalize for those two, we haven’t seen much of an impact from the third and the fourth quarter as it specifically relates to the 2-midnight rule keeping in mind that we are only three months into it, there is still training and education that will continue to happen as we work with our medical staffs across the country, but four months in things appear fairly stable as it relates to the new regulation.

Tom Gallucci - FBR

Okay, thank you. And then maybe just two clarifications on the guidance, you mentioned I think in the prepared remarks Leif this financing expected maybe in the first quarter, if I caught that right and was that right and is that sort of already baked into your interest expense expectations or will that cause a change depending on what sort of deal you do there?

Leif Murphy

So that is baked into our interest expense expectations for the year. So as we look at that interest guidance that we gave we have got a couple of factors that are in there. One is the fourth quarter acquisitions have an interest component associated with that financing. And the second is pre-funding some of the maturity of the convert so a partial funding there. So when we look at first half cash flow from operations, first half capital expenditures, completion of the buyback program and then also funding some of the acquisitions that we are expecting for ’14 in the first half, we knew that we are going have a cash need in the first quarter. So we went ahead and did bring that in. Probably in excess of about $330 million from our needs will essentially go towards paying down the convert. So we are carrying about $7 million worth of interest expense into the convert maturity which is coming in May.

Tom Gallucci - FBR

Okay, great. And then operating cash flow or operating and free cash flow guidance for the year any thoughts there? Thanks a lot.

Leif Murphy

You’re welcome. So in terms of the guidance, moving down through that number, we would expect that our capital expenditure number is going to be between $250 million and $275 million depending on where we complete some of the different projects that we have underway.

Operator

Thank you. And our next question is from the line of Darren Lehrich with Deutsche Bank. Please go ahead. Your line is open.

Darren Lehrich - Deutsche Bank

Okay. Good morning everybody. I just wanted to ask about depreciation expense because it looks like it is probably one of the bigger deltas relative to how some of us may have been modeling it. Historically, you guys have run 5%, 5.5% of revenue on D&A and it looks like it’s going to be closer to 6% or 6.5% in the 2014 guidance, so I guess I just want to get a little bit more flavor for how you are thinking about that, I guess revenue relationship, or ratio on a longer-term basis. I am assuming a lot of this is related to the IT, but just want to get a sense for whether you think it will come down after 2014, or if that’s the new level?

Leif Murphy

Darren, this is Leif. It’s a good question, it is – as we look at walking depreciation from ‘13 from ‘14, the three primary areas are, one is the acquisitions that we’ve made here in the fourth quarter of ’13 and that’s an impact of about $12 million to $13 million on depreciation in the year. And so as we look ahead, we’ll see the revenues there, but to your point, there is an increase as a percentage of revenue, that’s being driven by shifting from a least datacenter to our own datacenter in the relocation of our HSC is a small component, but then is a much larger component, but short lives on those high-tech investments that we’ve made that essentially have a five-year life. If you went back and look at where do that spending start ‘14 really is the year that we still don’t have runoff of the investments that we’ve made in high-tech. And as we get out beyond that, I think that we have seen a plateau where as we continue to invest or to maintain the investments that we’ve made in IT. We’ll see equal amounts in depreciation that are rolling off of depreciation. And quite frankly, we’ve built such a solid platform and made such high investments that we would hopefully see more rolling off then we would see rolling in, in the years after the ’14 transition here.

Darren Lehrich - Deutsche Bank

Okay, so that’s really helpful. I guess just to clarify though, do you think that ratio, I know you’re not giving 2015 guidance, but will that ratio come down or do you think that the level of IT spend will just remain at a point where it stays above 6%, 6.5% of revenue on a kind of a longer-term basis?

Leif Murphy

So if I look at ‘13 we finished up about 6.2% of ‘13 and ‘14 guidance just about 6.4%, I don’t expect that number to grow from there. I would expect that it is more fixed assets roll off because they are fully depreciated then what we acquire in replacement or maintenance that we will see that number after ‘14 at worst case be stable and then hopefully start to move back on a same-store basis. There may be from an investment perspective, commitments that we make around new acquisitions that in lieu of purchase price, there may be deferred maintenance or expansion capital where we will make commitments and as we do that we’ll identify those for folks specifically.

David Dill

Yes, it’s David. The only small thing I would add to that, Leif’s taking about capital spent and the impact on depreciation we have built some infrastructure that allows us to continue to grow and expand as a company. So, as we continue to add hospitals, there may be some direct IT spend the needs to happen at the hospitals, but we can leverage the infrastructure that has already been invested in here across the new revenue base going forward. So that should also have an impact of stabilizing, not just kind of maturing out the IT spend that will flatten out, but also the chassis that it’s been built to add bigger and more hospitals in the system.

Darren Lehrich - Deutsche Bank

That’s real helpful. And then just the last thing I would ask is, you did reference that you’ve got six weeks of history here with the ACA, I know not a lot, but you are tying guidance to what you are seeing, so I guess I would be curious to get some flavor for what exactly are you seeing in terms of reductions of your uninsured mix in the first six weeks?

David Dill

Darren, it’s – I made that comment really to give folks a comfort that our assumptions are based on what we are seeing so far in the six weeks. I am very hesitant to give a lot more guidance right now on what we have seen specifically. And we will report on that detail when we finish up the first quarter.

Darren Lehrich - Deutsche Bank

I can’t blame you. Okay, thanks a lot.

Operator

Thank you. And our next question comes from the line of Frank Morgan with RBC Capital Markets. Please go ahead.

Frank Morgan - RBC Capital Markets

Good morning. You had a lot of detail in your guidance assumption, maybe I missed this, but if you call out high-tech, where do you see that number coming in, in 2014?

David Dill

Yes. On the 2014 side, we expect it to be very consistent with what we saw here in 2013 with an income number on the low 60s number and an EBITDA contribution around 40 or slightly higher.

Frank Morgan - RBC Capital Markets

Okay, so flat EBITDA basis around 40, okay, so flat there. And then just on the I guess I want to go back to the thought about you are not adding any incremental acquisitions in your guidance than the ones that were pending, I want to make sure I got that right, but also it sounded like there may not be anymore this year, it sounds like maybe your appetite there has changed in some way?

David Dill

Absolutely, not. So our appetite has not changed and I will let Bill comment on that in a second. In terms of the forecast and what we have forecasted in guidance consistent with past practice, we forecasted for the transactions that closed in the fourth quarter of 2013, where we have not included in our guidance any contribution from acquisitions in 2014, all of which that have been announced remain on track. And our appetite continues to be strong for doing other transactions.

Bill Carpenter

Yes, absolutely, Frank. Strategic M&A is an important part of our strategy. It has been important for us. We think we are very well-positioned both financially and alongside our quality partners to take advantage we think in a very differentiated way of the opportunities that exist, the scale and resources that LifePoint alongside our Duke LifePoint partners really does, we think make us the partner of choice for many community-based hospitals. And so we are actively involved in a number of very high-quality opportunities and we expect to continue to be involved there.

Frank Morgan - RBC Capital Markets

That’s certainly what I thought, but maybe I just misinterpreted the comment you made, so fair there. And then one last then I will hop off, on the, you had called out physician employment expenses as a hopeful declining trend for you in 2014 on a same-store basis. I am just curious if you could give us an update there what you expect to see in the same-store base? And then what will be the need to some of the non same-stores and I will hop off? Thank you.

Bill Carpenter

As we look at operations, as we look at our same-store market growth, an important part of shoring up and developing and creating the organic opportunities has been on the physician recruiting side. We will continue to incur losses on that front although we feel like we have made significant investments that they get us to a plateau, where hopefully we will see those losses decline as a percentage of our total revenues over the course of ‘14 and ‘15. It’s gotten harder and harder to break out those specific numbers. And so we are not breaking those out and instead look at physician losses as a part of the overall operation in each one of our markets.

Frank Morgan - RBC Capital Markets

Okay, thank you.

Operator

Thank you. And our next question is from the line of A.J. Rice with UBS. Please go ahead. Your line is open.

A.J. Rice - UBS

Yes, hi everyone. Couple of different questions if I could. Going back to the ACA, I know one of the things we’ve talked about in the last couple of months is that you guys have delayed some of your outreach, throwing a lot of money behind your outreach efforts as the ramp-up on the exchanges was slow and there was confusion, you sort of felt like you had one shot at a lot of people that you were targeting. Is that now in full force? And sort of how has that progressed as you’ve done that? And I know you were also looking at the issue of premium support and looking for clarity around that, give us an update on where you stand on that?

Bill Carpenter

Sure, A.J. This is Bill, I will start and David, you may want to add in to this. We have reached out as we said we would – when there was more stability around the exchanges and around the website we reached out to those 35,000 frequent utilizes there that we talked about. We have conducted what I think is a successful educational outreach with respect to them. We are continuing to be involved in conversations with them, the 350 certified application counselors that we talk about in a previous call that we have trained and ready to help people with the enrollment process have been actively engaged in these conversations. We do see as Leif discussed we are seeing 80%, approximately uptake into the expanded Medicaid. And so, our folks are able to help people through with that. But we are not selling down on the outreach that we have been involved in. We are continuing to work hard on that.

With respect to premium subsidies, we are looking for ways to help more people to get coverage. We have in addition to the CACs we are working through this with people, we are taking a very hard look with our legal advisors on this point and to what we can do in order to help and comply with the sort of ever changing guidelines and guidance that we get from CMS. In addition of that, we are also focusing very carefully on state insurance regulations, which could have an impact on there. So, we’re going to be careful as always, but we are absolutely looking for ways to help people get more coverage.

David Dill

I don’t have anything to add to Bill’s comment on premium support as it relates to enrollment which obviously tracking enrollment, movement has been greater into Medicaid now and we’re tracking enrollment we’re actually seeing a conversion of the Medicaid and Leif will go into this more detail at the end of the first quarter as he was answering a previous question. We’re beginning the second outreach program comprehensive about outreach program, this month to continue the education process on the health insurance exchanges.

A.J. Rice - UBS

Okay. And to ask you maybe about the recent, the big acquisitions over the past couple of years, where anything to call out in say a Marquette, or other properties that are they trending along the lines of your original expectations when you bought them, anything to highlight there either positive or negative?

Leif Murphy

A.J., it’s a good question and I think that we are all very proud of what we would accomplished in Marquette, which is now been on board for over a year, but because of our new store convention, same-store convention, remained in new stores operations as we look at 2013. But consistent with the guidance that we’ve always given of acquiring things in that low single-digit moving up into the high single-digit by the end of the that first year and then hopefully the low double digits in ultimately to LifePoint type margins. We are on that track and we’re in the high single digits in Marquette have got a great operating plan in place for 2014 at a very similar expectations as we look at Fauquier, Portage and Bell closed in the fourth quarter of 2013 and our expectations for those as we look into 2014 in particular the back half.

A.J. Rice - UBS

Okay, alright. And maybe just a final one to squeeze in, all of the discussion about the moving parts in the first quarter, obviously there is everything around the ACA, whether in some markets people pull forward care into the fourth quarter, whether they may delay it into the first quarter and you have obviously got weather in many parts of the country that’s impacting, I know you guys don’t give first quarter guidance, but would you have or give quarterly guidance rather, but would you have anything to highlight about the way we should think about the first quarter that’s worth at least directionally pointing us, pointing out to us?

Bill Carpenter

It’s early into the first quarter. We don’t make any comments on the first quarter and I don’t think we will start here.

A.J. Rice - UBS

Okay, alright.

Operator

Thank you. And now our next question is from the line of Gary Taylor with Citi. Please go ahead. Your line is open.

Gary Taylor - Citi

Hey, good morning guys. A few questions, but I think most of them are quick. First, Leif, I think you have stated, when you said 17% of all admissions are 1-day stays, that’s a all-payer figure, that’s not your Medicare figure correct?

Leif Murphy

That’s correct, as a percent of total admits.

Gary Taylor - Citi

And Medicare would be materially lower, I think?

Bill Carpenter

Yes, on the med, if we look at it specifically over Medicare, it’s about 14% of our Medicare admits would be on the 1-day stay side.

Gary Taylor - Citi

Okay. And then when you talked about the ACA benefit and I followed everything you said about 7 of the 20 states expanding, 35% of the self-pay volumes in those states, etcetera, I don’t think you meant to imply that you weren’t assuming any other benefit in the other 13 states, just from exchange enrollment, obviously if states are not expanding Medicaid, but there is going to be some exchange pickup there. So you had said you have made conservative assumptions around exchange pickup. So there is some benefit in those other states in your guidance?

Bill Carpenter

We did. So as we looked at it and analyzed it, we look at the expansion stage for benefits in both Medicaid and the exchange. And as we look at our other 13 states, we are only looking to the exchange for benefits.

Gary Taylor - Citi

Got it. And the CapEx jump from $185 million this year to that $250 million to $275 million the highlights on that are?

Bill Carpenter

If you might recall, we had originally given guidance on finishing up this year around $210 million. And so there are some projects that are flowing over into the first quarter. So some of the dynamic is related to that and some of the dynamic is related to the capital investments that we have committed to makeup in Marquette in Michigan. And so those two combined are the bridge from one year to the next.

Gary Taylor - Citi

And is Marquette fully in the same-store stats this quarter?

Bill Carpenter

It is not. So in our convention, Marquette will be in our same-store in 2014 for the first time.

Gary Taylor - Citi

Okay. And then last question, can you just help me think about sources and uses of funds in 2014 and maybe just more specifically kind of size this additional financing that you are contemplating? You ended the fourth quarter $638 million of cash, with the higher CapEx it kind of looks like maybe $100 million to $150 million of free cash flow, so that’s in the year, so that’s kind of $750 million to $780 million, the converts are $575 million. I guess, if you are assuming you are going to have to finance the repo even though the repurchase isn’t in the EPS guidance, that’s $890 million. So there is a couple of hundred million dollar differential that I think could go on the revolver. Also you have a couple of the acquisitions, but you are saying that you are explicitly assuming a market financing outside of the revolver? So I guess, it seems like the interest expense line assumes that you complete the repurchase and that drives the need for the financing, but it sounded like you said the benefit of the repurchase wasn’t in the EPS guidance. Am I confused?

Bill Carpenter

I don’t think you are confused. Let me walk through a couple of the numbers in here. So we finished with a year end cash balance of $630 million something. And inside of that cash balance, we have a core need that we have to keep on the balance sheet at all times for deposits and transit, float, etcetera, that will always be inside of that number, so call that $150 million. When we look at the first half, cash flow from operations minus our first half CapEx assumptions, minus the buyback and then minus that first half acquisition number, there is actually a net cash need of about $175 million. So, that leaves of that cash balance at year end about $350 million. With the convert comes due, the convert is $575 million. And so we will need to refinance that convert and so we’ll do that we left over the cash balance and then we’ll need to find additional dollars to bring that in. Our goal is to leave that revolver as availability and that availability is there to fund acquisitions. It’s also there for a piece of mind as we go through a very significant revenue cycle conversion of Parallon. So, making sure that we have the liquidity there at our fingertips if there is any short-term disruption. We will also be thinking hard about that as we go through an ICD-10 conversion next year. So, that’s the role forward for us as we anticipate refinancing the $575 million in converts once we have funded first half CapEx, funded the buyback, and funded the acquisitions in the first half that leaves about $350 million, which is by itself insufficient to payout the converts.

Gary Taylor - Citi

And the first half buyback is kind of half of this roughly $315 million that’s authorized or half of the prior authorization where there is $165 million left?

Leif Murphy

So we have a prior authorization at $164.7 million that as Bill mentioned in his remarks we anticipate completing by March 31st.

Gary Taylor - Citi

Okay, I missed that. And so is that repurchase and that share reduction in the EPS guidance though, maybe that’s what I misheard?

Leif Murphy

So, in our guidance we have look at what we believe it’s kind of known part of the repurchase which is the current authorization. We have not put in anything in our guidance that relates to the incremental authorization that Bill announced today.

Gary Taylor - Citi

Okay, that’s the hole I was missing. And then my last follow-up is on the convert, my understanding – obviously I think it's a 3.25% or 3.5% coupon, but the effective interest rate running through the P&L, I thought was closer to the 7%. So even a permanent financing or a 10 year piece of paper presumably would be well inside of that as was your last financing, am I correct in that generally?

Leif Murphy

It is closed. So, I think our effective cost on that convert is closer to 6%. So, we look at the high yield transaction we completed at 5.5% that money is that type of number would be favorable to us and anything that we do shorter on the maturity scale would be even more favorable.

Gary Taylor - Citi

Okay, great. Thank you.

Operator

Thank you. And our next question is from the line of Ralph Giacobbe with Credit Suisse. Please go ahead. Your line is open.

Ralph Giacobbe - Credit Suisse

Thanks. Good morning. I was wondering if you could help us with what the historical success rate has been on getting people signed up to Medicaid that qualify….

Operator

(Operator Instructions) Ladies and gentlemen, please standby. Your conference call will resume momentarily. And ladies and gentlemen, the call will now resume.

Bill Carpenter

So, we had an open line with Ralph. Ralph, are you still online?

Ralph Giacobbe - Credit Suisse

I’m here. Can you hear me?

Bill Carpenter

Yes, sorry about the disruptions we’ve had some reason, technical difficulty, it’s the second time our line has disconnected.

Ralph Giacobbe - Credit Suisse

Did you hear my question?

Bill Carpenter

I did.

Ralph Giacobbe - Credit Suisse

Okay.

Bill Carpenter

So, we have historically had very good success as it relates to getting folks enrolled into Medicaid prior to the expansion. Interestingly where we had not always had perfect success is on ultimately getting someone to complete an application and to ensure that we don’t have bad debt associated with folks that present in the emergency department should qualify for Medicaid. We get improve through the lion share of the application. But for whatever reason we never get the final application done and get them enrolled. And so we have had exposure in the past to payments for claims submitted where ultimately we didn’t see an application completed.

So under the new rules with presumptive eligibility we will have much better visibility in all of our states on making sure that we are paid for the services that are provided. We have also very, very carefully operationalized our approach to getting folks enrolled on the Medicaid programs. And so we would expect our success to be even higher. As we look at January, as we look at the statistics there, our capture rate in terms of the self-pay patients have Medicaid has been very good. I think our exchange side has been less than what we would have hoped, but the two have mitigated one another as we have looked at our January experience. So we feel good about the guidance range we have given for reform. As we finish up the first quarter we will give more perspective on what we have actually seen.

Ralph Giacobbe - Credit Suisse

And did you say the capture rate of 80% is what you guys were using or did I not understand that percentage correctly?

Leif Murphy

So I think there are a couple of data points there. Our split is 80-20, so as we look at our states about 80% is where we expect to capture from our self-pay population into Medicaid. In terms of that 80% what are we actually seeing captured will hold off on giving detail, but it’s not going to be far from that number.

Ralph Giacobbe - Credit Suisse

Okay. So just to be clear on the Medicaid, I mean just to walk through the numbers, you said 35% of your self-pay volume comes from the seven states that are expanding Medicare – Medicaid?

Leif Murphy

That is correct.

Ralph Giacobbe - Credit Suisse

Okay and then of that 80% you estimate should qualify for Medicaid?

Leif Murphy

That’s right, would be eligible for Medicaid.

Ralph Giacobbe - Credit Suisse

Right and then of that will – there is some assumption maybe like 80% or whatever number we want to use around there, a high percentage would then sort of flow down to you in terms of actually getting covered on Medicaid?

Leif Murphy

That is correct. And that 80%, I am hesitant to give that number today, but it will be in our estimation somewhere 60% to 80% or hopefully even higher as we use some of these new tools that are available to us.

Ralph Giacobbe - Credit Suisse

Okay, that’s helpful. And then, can you maybe just give us an update on managed care pricing just in general maybe how much of the book is done at this point, what’s the average rate that you are getting? And then on the exchange pricing, has there been a negotiation on specific exchange pricing or is the reason that you are getting or expect to get close to managed care rate is because that business is essentially just rolling into your current managed care contracts?

Leif Murphy

We have had good success in looking at our managed care assumptions. We have forecasted for increases on the managed care side that are consistent with increases that we have seen in the past. As it relates to the exchange, typically the exchange providers are offering an exchange product in addition to their existing commercial products. And so as we have entered into those negotiations for what does the rate look like under the exchange product, it started with our discussion of the rates that we already realized on the existing products. And so that has facilitated getting those contracts done and it is facilitated getting them done at existing commercial rates.

Ralph Giacobbe - Credit Suisse

Okay, alright. That’s helpful. And if I could squeeze in just one more, I do want to go back to the organic growth question, I think that was asked earlier and I guess when I look at the guidance for 2014, at the midpoint, it looks like you expect about $ 26 million from reform, I think you already said that you are expecting about $20 million from deals that have already been done, so I am already at sort of $46 million of EBITDA and so when I back that out I would assume flat to negative underlying organic growth and the only offset seem to be the New Mexico, sole provider tax that was about $10 million. Even if I add that back it’s flat, so any hope on how or where I am missing in terms of what the underlying expectation is for your organic growth? Thanks.

Leif Murphy

I think the two drivers in there that are missing is – one is the reduced updates that we have seen out of reform. So, the $12 million number that I mentioned in the call is a headwind. And then we have been very conservative with the volume forecast that we have put in place for 2014 with the assumption that we are down 0.5% to 1.5%. And so as we look at the investments that we have made in medical staff expansion as we look at some of the trends on an employment, as we look at the things that we are doing on the acquisition side to expand into higher growth markets, we hope that we will see things on the more stable to positive side of that range. But when you are working with the governmental cuts on the reimbursement side and a flat volume number we are having to really drive our same-store operations out of efficiencies, out of new initiatives, etcetera. So, we have our fingers crossed for good tailwinds as we made these investments on the volume side, which will translate to stronger same-store operations.

Ralph Giacobbe - Credit Suisse

Okay, thank you very much.

Operator

Thank you. And we have now come to the end of our scheduled time for questions. Our last question will come from the line of Whit Mayo with Robert Baird. Please go ahead. Your line is open.

Whit Mayo - Robert Baird

Alright, thanks. I will keep it at one. If we could just go back for a second maybe to the 2-midnight rule, can you talk about how that impacts your strategy around what you are doing with short stays, if I recall maybe a few years ago, you started using outside physicians to review the attending physicians order. And I am just wondering why do you need the outside medical reviews if the 2-midnight rule is there or does it place more emphasis on that going forward?

David Dill

This is David. It will place less emphasis on using those services going forward, but we will still use a lot of those services when needed just to our normal compliance work, when there is needs at the hospital, but you are right, as these rules and even some of the clarification happen that make it more clear on what to do. Then we will not need those outside resources that probably all hospital companies have used, but certainly we have used over the last couple of years.

Whit Mayo - Robert Baird

Yes. I mean, is there any way to think about what the cost of those medical reviews have been or is it not really that material?

David Dill

It’s a big number and we will see some of that number tail off in 2014, but it won’t go away and it won’t go away immediately just because I want it to be a resource for our hospital case management teams, for our physicians in our communities and then just for our compliance teams here in Nashville. So, I expect to see a decline in that utilization. There will be a slight tailwind for us in 2014. And as the rule continues to get clarified like I expect it to will be even a bigger tailwind, I think in ‘15 as those services wind down.

Whit Mayo - Robert Baird

Okay, anyway to clarify maybe or elaborate more on what big is?

David Dill

No, I am not going to get into the details.

Whit Mayo - Robert Baird

Alright.

David Dill

Because as the rules continue to get clarified, I want to make sure we got that flexibility.

Whit Mayo - Robert Baird

No, I understand. Thanks a lot guys.

David Dill

Yes.

Operator

Thank you. And Mr. Carpenter, I will turn the call back to you now.

Bill Carpenter

Right. Thank you, Elaine. As we conclude our call today, I do want to thank you all for your time and apologize for the technical difficulties that we have had a couple of times. I hope we have got that in order and won’t be a problem going forward. I also want to thank our more than 31,000 employees and physicians across the country. A.J., I think you mentioned when you spoke about the winter and it’s been a harsh winter I know many of you are dealing with that today where you are. It’s been a harsh winter in many of our communities.

And our people have really demonstrated an unwavering passion and commitment to delivering the high-quality patient care that we deliver everyday. They are also dedicated to the execution of each initiative that we have in place under our strategic plan. And it is their dedication that creates the success that we are having in bringing new hospitals into our portfolio and our ability to operate our hospitals efficiently and our continuous improvement of quality care. Our focus on the strategies of qualities and service, growth, operational excellence and talent development is what positions us for success in this era of change and this era of healthcare reform. These are the strategies that will allow us to continue to the lever shareholder value. Thanks again for joining us on the call today. Thank you for your interest in LifePoint Hospitals.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.

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