Hanger Orthopedic Group CEO Discusses Q3 2010 Results – Earnings Call Transcript

Oct.30.10 | About: Hanger, Inc. (HNGR)

Hanger Orthopedic Group, Inc. (HGR) Q3 2010 Earnings Conference Call October 28, 2010 9:00 AM ET

Executives

Tom Kirk – President and CEO

Tom Hofmeister – Chief Accounting Officer and VP - Finance

George McHenry – EVP and CFO

Analysts

David MacDonald – SunTrust

Larry Solow – CJS Securities

Bryan Sekino – Barclays Capital

Michael Petusky – Noble Research

Dawn Brock – Kaufman Brothers

Todd Morgan – Oppenheimer & Co.

Operator

Good morning. My name is Kyle and I will be your conference operator today. At this time I would like to welcome everyone to the Hanger Orthopedic Group’s Q3 results conference call. (Operator Instructions). Thank you. Mr. Kirk, you may begin your conference.

Tom Kirk

Thank you, Kyle. Good morning to everyone and welcome to Hanger Orthopedic Group’s discussion of our Q3 results. Before starting the discussion let me ask Tom Hofmeister, our Chief Accounting Officer and Director of IR, to review with you our declaration on forward-looking statements. Tom?

Tom Hofmeister

Good morning. During this call management will make forward-looking statements related to the company’s results of operations. The United States Private Securities Litigation Reform Act of 1995 provides a safe harbor for certain forward-looking statements. Statements relating to future results of operations in this document reflects the views of management. However, various risks, uncertainties and contingencies could cause actual results or performance to differ materially from those expressed in or implied by these statements. These include the company’s ability to enter into and derive benefits from managed care contracts, the demands for the company’s orthotic and prosthetic services and products, and other factors identified in the company’s period reports on Form 10K and Form 10Q filed with the Securities and Exchange Commission under the Securities and Exchange Act of 1934. The company disclaims any intent or obligation to publicly update these forward-looking statements, whether as a result of new information, future events, or otherwise.

Tom Kirk

Thank you, Tom. In addition to Tom Hofmeister, I’m also joined this morning with George McHenry, our EVP and Chief Financial Officer. If we step back from the quarter on an overall basis I think there’s several noteworthy points. We grew our consolidated sales by 7.5% over the Q3 of last year. This sales performance combined with cost management yielded $0.37 earnings per share, excluding the costs associated with our relocation of our corporate office here to Austin and the costs associated with the diligence efforts surrounding Accelerated Care Plus. Now this earnings per share equates to a 23.3% growth over last year’s Q3, and this makes the 19th consecutive quarter where we have met or exceeded first call estimates.

In addition, I just want to note that we’ve completed our corporate office relocation to Austin on time and within budget, and we recently announced the signing of a definitive agreement to purchase Accelerated Care Plus. It certainly has been a busy quarter. Now let me turn this over to George who will review our financial results and balance sheet changes in detail.

George McHenry

Thank you, Tom. Good morning, everyone, and thank you for joining us. Q3 was really an outstanding quarter for the company. The important takeaways are as follows. Our adjusted EPS as Tom mentioned of $0.37 represented 23.3% growth over the prior year, exceeding street estimates. Our track record of consistent performance now dates back almost five years. We increased operating leverage excluding relocation expense by 60 basis points through a combination of healthy sales growth and control of spending.

We experienced accelerated growth through all lines of our business. Our sales growth accelerated overall to 7.5% from 6.4% in Q2 and 5.4% in Q1. Com sales and the patient care segment accelerated to a 4.1% increase, which was an improvement over 4% in Q2 and 3.6% in Q1, and our distribution segment reported a healthy 10.5% increase compared to 10.4% in Q2. So they’re doing very well. Our com rate of 30.7% is comparable to the prior year but slightly higher than the rate we expect for the full year.

We continue to do an excellent job managing expenses. Personnel costs were below budget amounts and generated a considerable amount of operating leverage. Operating expenses were below budget overall and also contributed to EBIDTA margin improvements. As I mentioned last quarter, our employees have to be commended for their efforts in this area because they really make this work.

We moved into our new headquarters as Tom mentioned on schedule on August 16th. In this quarter we recorded $8 million in costs. The largest single charge included in this number was a $5 million reserve for rent related to the abandonment of our old headquarters in Bethesda, Maryland. These expenses are non-recurring and are shown as a separate line item on our income statement. D&A increased by $0.5 million compared to 2009, which is commensurate with the run rate of capital expenditures over the last 12 months.

All these factors I just discussed led to the 23.3% increase in adjusted EPS for the quarter. Moving on to the nine months, overall performance for the first nine months was in line with our expectations in terms of sales and exceeded our expectations from an earnings perspective. Operating leverage has improved by 50 basis points which exceeds our goal of 20-40 basis points. Revenue growth improved to 6.5%, in the middle of our expected range, with HPO same center sales increasing by 4% and our distribution business increasing 8.5%. Our com rate of 30.4% was equal to last year and is in line with our internal expectations.

Excluding relocation costs, income from operations increased to 11.9%, a 50 basis point improvement. Year to date we have incurred $14.2 million of relocation costs which is in line with our internal projections and guidance to the street. D&A was $1 million higher than last year due to higher capital additions and our tax rate to date is approximately 37.3%. Some of that rate decrease was due to a FIN 48 release in Q2. Our rate for the full year should approximate 48%. Adjusted diluted EPS was $0.90 or an 18.4% increase over the prior year.

Moving on to the balance sheet and the cash flow, our AR balance was $104.6 million. We continue to do a commendable job collecting our cash. DSOs were 47 days, which is in the low end of the range we expect. We are comfortable with our reserve for doubtful accounts and our bad debt expense remains low at approximately 2%. Inventory increased by $7.3 million to $98.6 million from $91.3 million at the end of last year. Inventory turns were four times. Our sales backlog remained strong at quarter end and we believe that our inventory is at an appropriate level to serve our patients.

Capital additions for the quarter were $7.1 million, and $19.7 million year to date, which was $7 million higher than last year. We anticipate that our capital additions for the full year will be in the $25 million to $30 million range. Cash flow provided from operations for the quarter was $32.5 million; that’s a $7.1 million increase over the prior year. We had an excellent cash flow generating quarter. For the nine months cash flow from operations now stands at the $38.9 million, compared to $46.1 last year. The decrease is due to an increase in working capital and it was expected.

Liquidity: the company currently has total liquidity of $159.1 million, comprised of $95.6 million in cash and $63.5 million in availability on our revolver. Total leverage for our bank calculations decreased to 2.5 times, which is a historic low. As Tom mentioned, our move to Austin is now complete and it was completed on schedule. As I mentioned earlier, we moved into our new space on August 16th. It’s pretty rare with construction schedules of this magnitude to be completed precisely on schedule. We will incur another $1 million to $2 million in relocation costs in Q4 as our remaining employees complete their moves.

We’ll move on to ACP and the refinance. We expect to close on the ACP transaction approximately on December 1st. We were extremely pleased with the market’s reaction to our bond offering which is expected to close on November 2nd. We expect to launch our bank financing next week. We will provide guidance for 2011 including the expected accretion from ACP and the refinance as we normally do when we release our Q4 results.

Moving on to guidance, we are increasing our EPS guidance and reaffirming our sales guidance for 2010. We expect net sales in a range of $815 million to $825 million – that’s a gross weight of between 7.2% and 8.5%. Our goal remains to approve adjusted EBIDTA leverage by 20 to 40 basis points during 2010, although at this point we will likely exceed that goal for the full year. Full year EPS guidance excluding costs of relocating our corporate office and the acquisition of ACP is being increased to $1.29 to $1.31.

Now I’m going to turn the call over to our CEO Tom Kirk to comment on operations.

Tom Kirk

Thanks, George. I’ll take a few moments to add a little bit of color on the business drivers from an operations perspective. First, our patient care segment achieved a $6.9 million increase, or 4.1% same center sales growth for the quarter compared to Q3 of 2009. We estimate that approximately 1% to 1.5% of this increase can be attributed to price, resulting from the roll forward of the fee schedule increases that we received in 2008 and 2009.

And the balance of that growth – 4.1% – can be attributable to volume and mix, and we estimate that that’s about a 50/50 split here. The key programs that are impacting volume and mix are the following: first, the continued improvement in our Linkea book of business. Let me remind you again that HPO is the primary vehicle for the delivery of most of the services under the Linkea contracts. On an overall basis, the revenue from the Linkea-designated contracts, is up by about 9% for the quarter and almost 10.5% for the year, compared to the comparable periods in 2009.

Second are our patient evaluation clinics, in which we call our patients in for an education session on their fit and function. This is an example of good patient care that provides incremental revenue. Revenues from this source provided more than $5.5 million of incremental revenue for the quarter. And third are our sales, marketing, and public relations efforts by our practitioners and all those who support them in identifying opportunities specific to their local business, such as the opening of satellite offices and the launches of marketing programs.

Just a few words on the general environment in which our patient care division resides. We’re still seeing high levels of unemployment. Currently unemployment stands at 9.6% compared to 9.8% at the end of Q3 2004. Our practitioners and administrators are continuing to work with our patients to identify other sources of assistance for their reimbursement, reinsurance and co-pays. This is a nagging problem that is beginning to take effect, and if any of you saw the 60 Minute program this past Sunday called “The 99’ers” there is a portion of the population in general that’s out there now that’s been out of work for 99 weeks. So this has become a fulltime task that our people are engaged in, helping patients find ways that they can cover their financial responsibilities.

We continue to work with the lawmakers and their staffs to educate them on the impact of the recently passed healthcare legislation on overall costs and patient care. We’ve developed white papers which clearly show that the cost of incomplete or no O&P care far exceeds the cost of the care itself. Our partners in this effort are the Amputee Coalition of America, the American Orthotics and Prosthetics Association, the O&P Alliance, and a number of the member advocate associations that sponsor care and support for patients suffering from MS, Diabetes, etc. This is a continuing effort that we have underway of making sure that as the legislatures, both at the state and federal level, look for ways to save money, that they don’t cut in the wrong place. Because our white papers, and some of the papers from the states themselves, such as Colorado, clearly show that the long-term cost of not providing care far exceeds the cost of the care itself.

Turning to the new legislation, there are a series of plusses and minuses associated with this new act. First, it does admit over 30 million new potential patients into the system, without rejection for preexisting conditions. Now this is a huge positive. We’re still trying to understand the interpretation and the implementation of some of the other provisions in the new law. At present we have House and Senate versions of the Custom Orthotics and Prosthetics Parody bill, and we’re working hard to build a broader support base in the Congress for these bills. In addition we have been a strong supporter and counselor to CMS in their efforts to reduce the cost of fraud and abuse in the system, and we’ve even worked with Shelly Berkley out of Nevada to introduce a bill into the House to mandate that payments for O&P services be limited to those that are licensed and/or certified practitioners.

And within the last couple of weeks I’m sure you all have seen where the OIG did crack down on a group of folks who were billing Medicare in excess of, $35 million was the amount that they billed Medicare and didn’t provide any services. So we have been advocating for some time that CMS and the OIG really initiate actions against these folks because they’re giving the industry a bad name and they’re sapping off funds that could be used for patient care.

Now let’s turn our attention to SPS. Their outside sales were up approximately $2.4 million, or 10.5%, compared to the Q3 of 2009. During Q3, SPS reached an agreement with a major manufacturer to expand the amount of their products that SPS will carry. This further reinforces SPS’ concept of hassle free, one stop shopping. In addition, they’ve inked a deal with an electronic supply house to supplement SPS’ own electronic purchasing system. This gives us two paths to reach the practitioners that are out there in much more user-friendly ways. So we believe that this will ultimately result in SPS’ ability to capture a higher percentage of the business to the independent practitioners.

Next, let’s turn our attention to Linkea. They continue to execute their dual mission of building volume while negotiating a fair price for the services and the value they provide to their customers. The payors tell us that they recognize the value that Linkea brings to them in helping them control costs while ensuring good clinical care and high levels of customer satisfaction. The Linkea book of business as I mentioned before is up by 9% for the quarter and 10.4% for the year, clearly a validation of their valued offering. Linkea continues to advance the pilots, offering other services that they could incorporate into their model to provide benefit to the payors.

Examples of these are building a mastectomy network, doing billing review for the payors to ensure that documentation is correct, and that the services that have been provided are in line with the doctor’s prescription. And on the marketing side, they are continuing discussions and negotiations with the key national and large regional healthcare management companies as well as firms in the workman’s compensation segment. The pipeline is full; as we’ve talked about in prior quarters it’s an ongoing effort to encourage these folks to understand the Linkea model and to sign up for either the preferred or the exclusive types of contracts that Linkea offers.

Let’s now turn our attention to Innovative Neurotronics. Their sales for Q3 were comparable to Q3 of last year, but they’re up about 22% on an overall basis for the year. We’re continuing to work with the clinical sites to go through the IRB and contracting processes for our InStride pivotal clinical trial. In total we’re working with about 30 institutions and the enrolled patients are increasing. I mentioned during our last call our pivotal study InStride will be a much larger, multi-center randomized clinical trial. We continue to work closely with the FDA and CMS to make certain that the InStride trial proceeds appropriately to support the reimbursement and to provide meaningful clinical in points.

The InStride trial is an FDA/IDE approved trial to enroll 1100 patients in 30 sites throughout the US. Currently four sites are active, and we hope to double this number by the end of the year. In order to populate the trials we have retained an outside firm to assist us in patient recruitment. In terms of a timeline we anticipate complete patient enrollment in 2011, but this is going to be dependent on site enrollment in large part but we think we can get this job done. Once the study is complete we will submit to the appropriate regulatory agencies and expect the data to be published in several peer magazines. We anticipate a 2012 submission of the data to FDA and CMS. At the same time, we continue to work with third-party payors to gain authorizations for our patients. To date we are still seeing about a 70% success rate and we do recognize that these are an iterative process, and sometimes we have to go through as many as four iterations and appeals before we actually get the authorization.

Now, a few final words on our acquisition program. With the pending acquisition of ACP and its subsequent integration, we’ve pulled back a bit on our O&P acquisitions in Q3 and we expect this’ll continue into Q4. We expect to end up slightly less than the normal $20 million to $22 million annualized sales. However, some of these deals in the pipeline will still close in Q1 of 2011. The pipeline remains active and we expect to come back to the $20 million to $22 million of annualized sales as a target in 2011. This’ll be comparable to prior years. As we’ve said in the past, the strategy is to look for tuck in candidates that have strategic value to us in the form of location, quality practitioners, and/or favorable product service mix.

As I mentioned in my opening comments, and George reiterated the point, we signed a definitive agreement to acquire Accelerated Care Plus, which we refer to as ACP. We expect this deal to close by December 1st. We view ACP as a new strategic growth platform. Historically, they’ve grown by 25% to 30% per year and we expect this to continue. The sources for this growth will be the 70% growth of the SNF market care segment that they do not currently serve, new products and clinical modalities that they will bring to the market, and the extension of their unique business model to other healthcare venues. We also see the opportunity to introduce Hanger’s traditional business offerings to their relationships and customers. All in all, these growth opportunities equate to more than $1.5 billion in revenue. It’s obvious that we won’t be able to capture them all, but even a small percentage of this will add significantly to Hanger’s shareholder value.

Finally I’d just like to mention that we continue to operate in a changing and challenging environment, with issues like a stubbornly high unemployment rate, states that are trying to close budget gaps, and dealing with federal regulations concerning healthcare. And throughout all of this I’m very proud of our ability to grow the top line despite this challenging environment. In addition, we’ve contained and in some cases reduced costs without sacrificing clinical and operational excellence. We expect these efforts to continue throughout this year and into 2011.

Thank you. Now, I’ll turn it over to Kyle who will open up our line for questions.

Question-and-Answer Session

Operator

(Operator Instructions.) Your first question comes from the line of David MacDonald of SunTrust. Your line is open.

Tom Kirk

Good morning, Dave.

David MacDonald – SunTrust

Just a couple questions. Tom, I was wondering if you can provide a little bit more detail, a couple of the things you talked about with SPS – I just want to make sure I heard it right, that they had reached an agreement with a major manufacturer to sell more of their existing products? Or is this a completely new manufacturer that you will start selling their products?

Tom Kirk

This is a well-known and existing supplier to the O&P industry, Dave. Currently SPS sells a portion of their product line and we have just reached an agreement to expand the number and types of products that SPS will handle. Historically they have opted to sell a portion of the product line that we just picked up exclusively through their own internal sales efforts, and I think what they’ve realized is that SPS has far better reach into some of the smaller independents and have therefore allowed this portion of their product portfolio to come over to SPS.

David MacDonald – SunTrust

And Tom, can you give us some sense of the scope of this? I mean were you selling a quarter of their product line before? Half? Three quarters and now it’s the full thing? Or just anything that can size it a bit for us?

Tom Kirk

Sure. I think your estimates are pretty much on target. I would, a rough back of the envelope estimate – we were selling probably about a quarter of their product line. And there’s two ways we can look at this, Dave – we could look at it in terms of the number of products or we could look at it from a revenue perspective in order to put those percentages on it. And if we’re looking at it from the number of products probably about 25% going to 50% would be appropriate. If we looked at it from a revenue perspective it would be a little bit smaller – maybe more like 15% going to 30% in terms of overall revenue, because they will continue to market and sell their higher end, the more complicated, sophisticated, higher price point products with their own direct sales force. But we’re very pleased with this because we think it really, these products are always in high demand, a very high quality product manufacturer. And we think it will broaden our overall offering while increasing our revenues.

David MacDonald – SunTrust

Okay. And then just the other question on SPS about the electronic supply house. Can you just explain in a little more detail exactly what that does for you?

Tom Kirk

Certainly. Traditionally SPS has used three mechanisms for securing sales: one is direct, face-to-face with their sales force; two is orally over the phone with the customer service, and you’ve heard me in the past talk about how excellent that is where the customer service folks will actually call the customer and remind them that “Perhaps you need to be checking, we believe your inventory’s maybe down.” And the third way is SPS has an electronic purchasing system, where practitioners can get on SPS’ website, and almost like an Amazon-style – point, click, drop it in the basket and then order. And what they have just signed is, there is a company that operates within the industry that is a provider of software to the industry, particularly appealing to the Mom & Pops. It’s a modular based practice management inventory control, billing, accounts receivables. So they have a number of different modules and they have been very aggressive in going out and marketing this to some of the smaller manufacturers who obviously can’t afford to put their own custom system in.

One of the modules is a purchasing module, and in conjunction with that purchasing module they have sort of a supermarket on the backend. And that supermarket allows various manufacturers to post up their products in an electronic catalog form, which then enables those folks that have purchased this software to go in and purchase from the supermarket. And SPS has just joined up with them, and we think that that’s going to be a nice help in terms of increasing the sales, because anyone that’s on that system prefers to just stay right within the system and purchase materials because it gives them an automatic link to the inventory management module – they’re connected. So we think that this is going to help SPS in their ability to reach smaller folks in a very user friendly way, consistent with their overall system that’s in place.

David MacDonald – SunTrust

Okay. And then just on Linkea, should we expect some additional managed care deals, clients coming on? And the other thing is, maybe you have in the past but I haven’t heard you speak a lot about the worker’s comp opportunity with Linkea. Can you just spend a minute on that?

Tom Kirk

Sure. Linkea as I mentioned continues to negotiate with some of the large regionals and the nationals to try and move them… We’re servicing them today, Dave, but not to the extent that we would like. And we would like to get them up on to a preferred or an exclusive basis. So they’re continuing to negotiate with those folks in trying to bring that value proposition to them so that they can see how this could save them some, quite a bit of administrative money while improving their quality of care.

So that remains the goal, and when we talk about Linkea’s growth rate of 9% to 11%, which they’ve been running for the last several years, that’s attributable to two factors: one is because those companies that we have preferred contracts with, they continue to give us more and more share of their overall book of business. For example one of them recently said “We’re not too pleased with what’s going on in a certain portion of the country. Will you take that over?” Linkea obviously would agree to do so and we’ll put the network in place to service those patients. So that’s one area of growth, is growing with our existing preferreds.

The second is by picking up new accounts, new folks where we can come in and provide the preferred or the exclusive relationship. We know that our overall market is probably growing in the neighborhood of 1% to 1.5% on an overall basis, so when Linkea’s growing at 11%, I mean just the math alone is a key indicator of the value they bring. It far exceeds the average growth rate, so that’s why they’re growing so much – they’re continuing to bring new folks on board and expand the existing ones. And we expect that to continue.

David MacDonald – SunTrust

Okay. Thanks, guys.

Operator

Your next question comes from the line of Larry Solow from CJS Securities. Your line is open.

Tom Kirk

Good morning, Larry.

Larry Solow – CJS Securities

Tom, I was wondering if you could just spend a few minutes – with the persistent high unemployment and the lagging or potential lagging impact of COBRA, have you guys seen any significant or material change at all in your business trends or how that’s impacting you.

Tom Kirk

I wouldn’t go so far as to say “significant,” but we certainly see some impact in our business because the discussions go on on a daily basis about handling financial responsibility. And the impact to us is that as I mentioned, we’re spending more and more time, Larry, just trying to figure out ways that we can get people into their device. And so we have for example a patient right now that, we’re working with this fellow who’s looking for a leg and we’ve provided documentation and information. He’s working with a state vocational rehab and his local church who are trying to do some fundraisers for him. So we are seeing one, the impact of people who have either lost their insurance, or secondarily of people who maybe don’t have the same level of coverage as they did in the past.

We’re seeing some of our 99 codes, utilization of those codes, which are primarily dedicated to maintenance, going up a bit. And there’s no question that if people can elect to delay by using more socks or other mechanisms, there is some of that going on and they’re trying to maintain the devices. At the end of the day, obviously, if an individual has to have an amputation that’s not elective surgery – they have to have it or there are going to be a lot more serious consequences. So in those cases we’re proceeding to work with them, figuring out how we can get them covered, but we’re seeing some people trying to stretch this out a bit, there’s no question about it. We’re at the cusp of the baby boomers beginning to hit and we don’t know yet if some of these folks are trying to stretch this out so they can get to be 65 and get on Medicare and get coverage that way.

But I think the tough economic times are taking their toll on people. I mean we’re not seeing a collapse in the business but I will tell you our administrators and practitioners out there are working harder for every sale, particularly with some of the troubled population that just don’t have the coverage that they did three or four years ago.

Larry Solow – CJS Securities

Gotcha. So it sounds like you’ve had this pressure or a little bit of resistance for quite some time and maybe it’s not getting any worse but it’s not necessarily getting any better.

Tom Kirk

That’s right. I think we’re all very anxious to try and see the hirings start picking up and the economic activity, but that’s a broader discussion. But it is impacting those who have been out of work for quite some time, and as I mentioned, the 60 Minutes special was focused on San Jose, California, where we all expect Silicon Valley to be a driver of innovation. And I was aghast to see the number of folks out there with degrees, Bachelor’s, Master’s, Doctorate degrees, all looking for work. And anything that can be delayed is going to be delayed in these environments because these folks are facing loss of home, etc., etc. So our folks are doing the best they can, and the manifestation of that is a lot more work on behalf of practitioners and administrators in trying to help people find alternative sources so they can get this done and cover their financial responsibility.

Larry Solow – CJS Securities

Gotcha. And in terms of, maybe you can give us a little more color just in the sense of the scope of the OIG and the CMS investigations, which clearly you guys welcome. I think there was a bit of controversy in the market in the last few months, but are their investigations broadening? Are they expanding this investigation? Or is it just sort of pilot, individual studies with potential expansion as we look out into ‘11?

Tom Kirk

I think the pilot phase is pretty much complete as we understand it. They did some pilots in Miami/Dade down in Florida and in Los Angeles, and they came away not at all upset with what I’ll call the traditional O&P industry. But it was a number of folks who had secured Medicare supplier numbers… They put investigators out in the field. They went to the actual sites that were recorded on the application and they didn’t find anything. They found empty storefronts, etc., etc. And then as they started digging deeper they found out that these people were sometimes organized into almost like crime rings where they were stealing identification numbers of doctors, social security numbers of patients, and billing Medicare. 60 Minutes had a special on that. One guy that they had tracked down was a former drug dealer; he hustled Medicare out of $20 million and openly admitted that he never provided one device.

They’re the guys that Medicare is going after. And that’s why of course we believe the best way to lock that down is to link it all back to the certifee’s number or the licensee’s number on the bill because in order to get those you have to be a reliable person. But there’s no question, certainly in our discussions. I mean Medicare rang us up and asked us if we’d spend some time talking about the industry so they could just understand how it works, and we marched them through what certification’s about, the educational qualifications, what licensure’s about, residency; and introduced them to how it all works, obviously trying to push them in the direction of supporting this legislation, saying the only true barrier here would be to link this back to certification and license numbers.

I think they get it now, and they’re starting to examine things on a more careful basis. And that I think is part of what led them to this Armenian-American roundup that they had a couple weeks ago, where they found out these guys billed $35 million and provided nothing. So I think we’re going to see the Medicare investigations increase. They’re going to be targeted at these fraudulent folks cause not only is it a source of embarrassment to Medicare when they don’t have money to provide what they need to provide, it is actually siphoning off dollars that should be going to patient care.

So I think you’re going to see it intensify and frankly we welcome that because it will put some sanity into the industry. And the reason why prosthetics and orthotics are part of what this investigation’s all about – these are high ticket numbers. And so why bill for an ordinary walked or a piece of DME equipment for $800 or $900 if you can bill a $15,000 to $35,000 prosthetic leg? It’s where the dollars are. So I think you’re going to see more and more action around this but I don’t think you’re going to see it focusing on the actual traditional providers in the industry because the system provides for quality care. It’s the guys who aren’t providing any care and are illegitimate that they’re going after.

Larry Solow – CJS Securities

Okay. And if I just looked at your guidance, you didn’t change your revenue guidance – $815 million to $825 million. That sort of implies a pretty nice acceleration. I mean for the low end it would only be about 9% revenue growth but in order to hit that high end it would imply almost 15% year over year revenue growth. Does that seem a little bit aggressive?

George McHenry

Yeah. We’re likely to be closer to the low end of our range.

Larry Solow – CJS Securities

Right, which is fine and I think most of the analysts out there are sort of estimating towards the low end, okay. Just a couple housekeeping questions. George, on your tax rate, 38% now for the full year is your guidance and it’s been closer to 40% in 2008 and ‘09. Do you think it’s closer to this 38% or is it sort of too early to tell as you look out into ‘11 and beyond?

George McHenry

Well in Q4, by signaling that we’re going to be closer to 38% we’re expecting to return closer to 40% in Q4. And we haven’t seen anything yet that says our rate’s going to change dramatically. The acquisition could have some impact but it’ll take some time to evaluate that.

Larry Solow – CJS Securities

Okay, so we’ll keep it sort of close to the 40% historical rates and maybe this year was a little bit of an aberration.

George McHenry

I think 40% is safe for right now.

Larry Solow – CJS Securities

Gotcha. And you’re still comfortable with your cash flow from operations guidance for the full year?

Tom Hofmeister

We are. Our cash flow accelerated in Q3; we were pretty pleased with that, and exceeding the prior year. We think we’ve incurred most of the working capital costs that we need to incur to run our business. We got a big benefit out of AR in the past and that is stabilized, so we are building some working capital. But we don’t expect a lot in the Q4, and we think that we should be able to get to the guidance that we have out there.

Larry Solow – CJS Securities

Gotcha, great. Okay. Thanks a lot, guys, I appreciate it.

Tom Hofmeister

You’re welcome.

Operator

Your next question comes from the line of Bryan Sekino from Barclays. Your line is open.

Tom Kirk

Good morning, Bryan.

Bryan Sekino – Barclays Capital

Hey, guys. Quick question on the guidance. You mentioned the ACP close is on December 1st; is there anything in the guidance based on having a month of ACP?

George McHenry

No there’s not. We’re not going to change our guidance for ACP until we close the deal, cause obviously there are a lot of variables in closing a transaction like this and we’re not absolutely certain what day it’s going to close. So if it does have impact, it could have some impact on our sales but in one month we don’t expect it to have a material impact on our EPS guidance.

Bryan Sekino – Barclays Capital

And a follow up on Tom’s comments earlier regarding the pressure – you see patients extending the use of the device. And as I look at your same store growth rate of 4%, you see a 3% to 5% range. Do you see it coming in at 4% versus the high end of the range, really that’s the impact that the economy’s having? And maybe your real same store growth rate is maybe 5% to 6%?

Tom Kirk

I think it’s two things, Bryan. One is certainly what we’re seeing, this sort of tendency to use the maintenance codes or the tendency to delay. That’s built into that 4%, that’s already in there. And the other factor is, we called it that we did not receive a price increase from Medicare this year so we’re really living off of the 1% to 1.5% that’s reporting into that growth rate that is the roll forward of the increases from prior years. So if it were not for the economic conditions and if we had even a modest increase of 1% to 2%, in the past couple of years we’ve been as high as 5% – even if we were able to secure that, that certainly would put us at the high end and maybe even take us over. So right now this is a battle for market share and product mix that’s going on, and it’s all about how you can build stronger relationships and get patients referred to you by going out and providing higher levels of service, and that’s the only way you win the business.

Bryan Sekino – Barclays Capital

Got it. And in terms of, you mentioned the nagging impact of the economy on co-pays and co-insurances, is that going to put bad debt expense under some pressure going forward a bit?

Tom Hofmeister

No, we don’t think so. Tom’s talking about things that we’ve been dealing with for some time, and I think the comment we’ve made in the past that unless unemployment gets worse we don’t expect it to affect our run rates on things like bad debt or AR. But I think what he’s describing is a battle that we fight every day in order to help our patients get their devices. And we’ve been effectively doing it to date. Our backlog still looks consistent with what it has been in the recent past so we don’t see, we don’t have a view at this point that it’s going to negatively affect our business.

Tom Kirk

And the success in collecting those amounts is largely determined by how much work you put in up front, in working with the patient to handle that financial responsibility. Clearly if you let it go to the end and then try to come back, you’re not successful. And what you see, even in doctors’ offices now they have really put this forward such that you’ve got to make your co-pay before you can even see the doctor. It used to be on your way out of the office you would take care of the co-pay. So it’s there realization that you’ve got to take care of that discussion and secure those funds, or find a method of securing those funds up front, and that’s exactly what our process that we put in several years ago does. It’s a little more work for our people but it certainly pays dividends in terms of reducing bad debt.

Bryan Sekino – Barclays Capital

Okay, great. And just one more from me. This is a bit of housekeeping. On the operating costs coming up a bit year over year, I know last quarter you had some variable comps shifting around between this line and personnel costs. Is there something else going on this quarter with that kind of reversing?

George McHenry

I’m not sure I totally understand your question. You’re looking at operating…

Bryan Sekino – Barclays Capital

Yeah, other operating costs were 20 bps up year over year, and last quarter they were I guess down about 40 bps year over year.

George McHenry

The acquisition costs I believe were in there, that’s part of it – that $600,000 that we adjusted out of the number. That’s part of it, but I don’t think there’s anything material going on there.

Bryan Sekino – Barclays Capital

Okay. Okay, thanks a lot.

Tom Kirk

You’re welcome.

Operator

Your next question comes from Mike Petusky from Noble Research. Your line is open.

Tom Kirk

Good morning, Mike.

Michael Petusky – Noble Research

Good morning. A couple questions. Tom, just I think on the last call you had said that your expectations from the CMS pricing was up about 1%. Is that still the guess there or do you have any better clarity on that?

Tom Kirk

We don’t have any validation of that number, Mike, and we obtained that number just by going to the Bureau of Labor Statistics and looking up the growth in CPIU year over year, because that is the mechanism that drives our fee schedule increase. Normally about September or October at the latest we get official confirmation; this year we’ve not received that. What we believe is that they are holding off until after the election, and we’re not certain what the logic is behind this but we know that there are a number of issues that are facing CMS, not the least of which is this doctor fix, or the “doc fix” as they call it, which was pushed forward and will expire November 30th.

And you’ll recall this was a 5% annual decrease in the doctors’ fee schedule that began roughly about three, almost four and a half years ago. It’s never been implemented, and if you tally it up to where we are today it accumulates up to something like a 23.5% rate reduction for the doctors. No one knows how this is going to get fixed. At one point, when Bacchus was doing a lot of the markup on the Patient Protections bill, the Obamacare bill, they tried to put the fix in for the docs’ fee schedule reduction, and it added billions of dollars and they recognized that it was going to take it over the mark of around $1 trillion that had been set by the administration. So they abandoned it.

So they are facing some real problems out there in terms of how to handle these fee schedule increases and/or decreases, and I don’t think they wanted to come out with any proclamations before the election simply because it would be very controversial and would raise the hair on the back of the neck of AMA and a number of the healthcare providers. So we haven’t seen any validation of that. In the absence of having validation, I’m still running with the assumption that we’re scheduled to get a 1% to 1.1% increase for next year, with the caveat that we also recognize- Remember my comments about this new legislation, that there are some things in there that have not been totally defined, one of which is empowering the Secretary… I think the exact words are “The Secretary of HHS shall study productivity trends in the United States and take that into account in setting fee schedules.”

We don’t know what that means. There’s no formula, there’s no logic, it’s very subjective. So how all this is going to play out, we’re as anxious as other providers in the healthcare space to figure out what this is going to mean. But certainly not having a fee schedule increase in ‘10, we feel that we deserve one in ‘11. We’re a small industry and as I mentioned before, the work that we do really saves government and payors money in the long term, because the cost of not providing that care is a lot more expensive. So we have been lobbying that we’ve already given over the years since the Medicare fee schedule had started. Overall inflation’s gone up about 108%, 109%, and we’ve received fee schedule increases in the 37% to 38% range. So the mechanism is already built in for us if we just look at a long term history – we’ve had to find other ways to improve productivity and take cost out of the system. So that’s a much longer answer than I know you expected but it’s a complicated issue and we’re active on it and trying to appeal to the legislators so they know and understand the issues.

Michael Petusky – Noble Research

I appreciate the detail, I’m sure everyone else does as well. Do you guys have… I have a note from last year’s Q3 that WalkAid revenue was about $1.9 million and I think you said something that it was comparable. Is $1.9 million a good number or is there some other more exact number we should use as far as WalkAid?

Tom Kirk

No, it’s right in that ballpark – like $1.7 million, $1.8 million, somewhere right in there.

Michael Petusky – Noble Research

Okay. And do you guys, I’ve a little bit lost track – do you guys have an absolute revenue number for Linkea for the quarter by any chance?

George McHenry

Linkea’s running about $100 million a year, so their number for their quarter in their book of business – remember, they don’t deliver anything themselves – it’s probably in the neighborhood, if we factor the growth into it, around $24 million maybe for the quarter.

Michael Petusky – Noble Research

Okay, and then just a couple of questions back to WalkAid. Tom, I have a note from last quarter where you guys had said there were three sites operational in the InStride and that there were four in the final stages. And I guess given that comment I guess I’m probably slightly disappointed that there were only four sites now operations. Can you just comment on what’s going on there? I know this is not the easiest process in the world, but can you just elaborate I guess on that?

Tom Kirk

Sure, sure. Well, those other three sites are still in the pipeline, and as you know, the process to try to get the IRB approval is the one that we’re working on. As I mentioned we’re hoping to have eight or nine sites go live by the end of the year, which is an indicator that the other sites that are in the pipeline are very close to completion. And so as we try to slug through this that’s our expectation – that we’re going to wrap up this year with hopefully eight. We’ve got four live now; a couple are just right on the cusp. Actually I had hoped that we would be able to report those today but they didn’t come in as we had planned. But we think we’re going to be at eight or nine, and then there’s a number of them right behind that we expect are going to flip in Q1. This patient enrollment is the nagging issue in terms of trying to get this clinical trial launched in an official way, and the key to making that happen is to try to get these sites up and ready.

Michael Petusky – Noble Research

Let me ask you – in terms of your ultimate submission of the data to CMS, do you need to have all 1100 patients run through or would CMS be willing to kind of take an early look if you had say half of those or a quarter of those, or two thirds of those through? I mean is there any out for you in terms of that or do you have to have all 1100 run through the trial?

Tim Kirk

We have strong indications, Mike, that when we get to the halfway point that we can tally up the data. And obviously if the results are overwhelmingly in favor of the WalkAid I think we’ve proven our point. We don’t have that in writing, I wish we did but you know, the government doesn’t give you anything in writing. So there is a possibility that if the results justify the end we may be able to submit earlier. And we certainly have fond hopes that we can make that happen, which would allow us to move on and secure coverage, and then ultimately reimbursement at an earlier stage than waiting till sometime out in 2012. So that possibility exists and we are focusing on trying to make that happen.

Michael Petusky – Noble Research

Okay, and then just last question on the… I just want to make sure I understand the way you define these terms. When you say 70% success rate on WalkAid on the commercial side, does that mean essentially, roughly, of the claims you put in roughly a third of those ultimately are rejected and the other 70% you get approval? Maybe that’s obvious but I just want to make sure I understand what you’re saying there.

Tom Kirk

I think you have the correct interpretation. At our reimbursement desk we receive a number of claims. We screen through them for completeness, documentation, etc., etc., and does the WalkAid really fit the patient’s needs? Some are excluded at that point, but the vast majority make it through the process. And just as you have suggested, the ones that enter into the process, about 30% of those through that iterative appeals process fall out for one reason or another; and it may be just the bias of the insurance company, it might be patient-specific information. But make no mistake – we’ll go the full route in being advocates for our patients. 70% do result in getting authorization and moving forward.

Michael Petusky – Noble Research

Okay. And shouldn’t that number go up over time since you probably will get a sense of what insurance companies will make what decisions based on a particular patient’s condition, etc.? I mean that number probably should actually go up over time, right?

Tom Kirk

We would expect that. I think that’s reasonable to assume that that’s going to be going up over time. And the other thing that we’re learning is that as the insurance companies become more familiar with the device and the benefits that it offers, and I think I mentioned this on a prior call, there’s a willingness to open the process up where one insurance company actually came and said “This is a little absurd. You’re wasting a lot of time, we’re wasting a lot of time, we’re spending a lot of money. Why don’t we just sit down and negotiate a deal, a contract price for this device sort of off the schedule? And let’s just make it official, and if the patient has these conditions then we will supply the device.” And so we’re trying to get other insurance companies in that same frame of mind.

Michael Petusky – Noble Research

Very good. Thank you, guys.

Tom Kirk

Thank you, Mike.

Operator

Your next question comes from the line of Dawn Brock with Kaufman Brothers. Your line is open.

Tom Kirk

Good morning, Dawn.

Dawn Brock – Kaufman Brothers

Good morning. Good morning. You have given great color; I’m going to ask for just a little bit more on the mix of sales between orthotics and prosthetics.

Tom Kirk

Overall, and a good rule of thumb for us, Dawn, is that it’s about 50/50; that our revenues derived from the orthotics business are about equal to that coming from the prosthetics business. There’s a little ebb and flow. The prosthetics seem to go through a bit of a cycle every once in a while where we’ve taken care of a big population with microprocessors, and remember, too, that about 50% of our business is recurring. And so we’ll see a little ebb and flow on that side, but not enough to try and get more sophisticated around the number. It’s about a 50/50 split.

Dawn Brock – Kaufman Brothers

Okay, that’s great. And I think the reason that I was really specifically asking this quarter is it looked like the com rate was a little bit weaker. And I just wanted to get a little bit of your take on that. Was it on the material side because there was stronger higher-end prosthetics sales in the quarter?

Tom Hofmeister

No, it was principally the strong results by our distribution business. They have a higher com rate so it affects the overall com rate.

Dawn Brock – Kaufman Brothers

Okay. Okay, perfect. And then second, on ACP, would you be willing to provide some additional color on the current penetration? And by that I mean in the 22 of the 25 largest (inaudible) where they already are, can you give us an idea of whether there is additional organic growth there? And then of the 11,000 SNFs that are not “touched” by the company today, what is the average number of facility additions that the company has seen in the last twelve months just ballpark?

Tom Kirk

Sure. Of the large providers, those that have the vast number of sites in their network, they are roughly about 37% penetrated into those sites. That means if someone has 100 sites they’ve got 37 of them, meaning that there’s about 63 yet as targets. So a lot of room to grow with the big ones. In the big ones, they count for roughly about 50% of ACP’s overall customer mix. And that makes sense if you think about the method of selling, which is to go into the ones that have large operations, sell at the C-suite level, get people convinced of the value proposition. Once you do that, that gives you a license to hunt and then you can go out and start systematically into those individual SNF locations by building on the credibility that you’ve established in other parts of the organization.

And so it’s an effective way of selling, and once they receive the sort of corporate mandate or the corporate blessing it makes a lot of sense to just continue through the entire organization. And that’s why that’s been the target, and that’s where as I mentioned about 50% of their overall revenues are coming from the large ones, and the other 50% are coming from smaller ones. But of the 4000 sites that they have as I said about 50% are in the large side and the other 50% are going to be in the smaller side. But I think the good news is that there’s a lot of room to grow.

Dawn Brock – Kaufman Brothers

Yeah, clearly. Tom, could you actually go one layer deeper? And I know that on the original call last week we talked about the fact that an average site has four to five machines. Is four to five machines for an average size SNF kind of the right number, or is that an introductory package or program? And how does that fit into where the penetration is from a program perspective?

Tom Kirk

What we’ve seen, Dawn, I think I like the terminology you had – the “introductory package.” As ACP goes into a facility, that’s what they bring – an introductory package – and that provides then the base lease rate for that package. Once the operation, if you remember the multitude of services that they bring, part of it is optimization of the resources and building what we call a rehabilitation plan. Once that plan is put in place, what we find is that facilities generate a need for additional pieces of equipment depending on their patient population. And at that time they will come back and add to that initial introductory package, and as they add in additional pieces of equipment that provides incremental revenue.

So a great deal of this is predicated on the size of the SNF, how many patients they have, how many beds they have, as well as what does the patient mix look like. And what we’re seeing is that a number of these SNFs are really changing their patient mix to accommodate the fact that the Patient Protection and Affordable Care Act is trying to push people out of hospitals sooner. So they’re dedicating some of their capacity to people that are in the 30 to 90 day stay who are being rehabbed from say total knees or other kinds of issues directly out of the hospital. That’s a different patient mix, you need different modalities to treat them as compared to the senior living or the geriatric population.

So I guess the short answer is the introductory package is the starter, and then based upon patient population and the optimization of the resources within the SNF we anticipate bringing in additional pieces of current equipment as well as, and the company is very active in developing new pieces of equipment. I think I mentioned on the call that they have a device out that’s a flat screen, virtual reality and it actually captures the image of the patient, presents them as an avatar on the screen, and then they go through a series of exercises where it’s actually fun – “Catch this ball,” and the patient has to reach over to the left, right, up or down in order to capture the ball that’s falling on the screen. That’s just one example.

That piece of equipment is not in the introductory package; it is just being introduced right now. It’s out on pilot. We’re expecting the formal launch after the 1st of the year but that would be another incremental source of revenue and another piece of equipment. So introductory package supplemented by more of the same devices that are in the introductory package, and then further supplemented by new products that the company is developing and bringing to the market.

Dawn Brock – Kaufman Brothers

Okay, that’s perfect. My other question, and this is kind of based on what you just said about post-acute care settings, is of that $1.5 billion market that you kind of outlined as the pie, where are they right now (i.e., ACP) in penetrating the in-patient rehab facilities or the long-term acute care hospitals, or any of the alternative care sites that kind of fall into that post-acute care family?

Tom Kirk

They are currently developing their marketing plans to go after those facilities, but to date they’re exclusively focused on the skilled nursing facilities, the SNFs.

Dawn Brock – Kaufman Brothers

Okay. My only other question was around your battle for share and product mix, and I found that to be a pretty interesting quote. And George, you said that there’s a solid backlog in line with historical levels. Again, are you guys seeing any sensitivity around the higher-end prosthetics in that backlog? As we move into the Q4, that’s typically a pretty strong quarter for device placement and device demand simply because the people who do have insurance are trying to satisfy those co-pays and deductibles. So can you just give us an idea of the trends right now as we move into Q4 associated with that backlog?

Tim Kirk

We’re still seeing, I mean if we compare where we are this year to where we were last year, we’re still seeing that insurance companies recognize the value of the higher-end device. Keep in mind that each one of those devices brings higher levels of functionality, and that may just be the ability to ambulate. But in addition to that, part of that functioning is to do it in a more stable fashion, a safer fashion.

And so I think the groundwork, and certainly our practitioners would attest to this – the groundwork has been laid with Medicare. I mean they’ve provided thousands of these things with the insurance companies. These are not luxury kinds of items. As a matter of fact, we put together a scoring document which we call the TAVET, it’s an acronym but it really talks about patient evaluation, and we score the patient on that TAVET. Depending on that score, that equates to whether they get a higher end device at all, and then which one in the family. There’s a hierarchy of these things so there’s just not one of them. It’s all based upon justification and adding value to the patient, and saving the insurance company money in the longer-term.

So I think, and most of the insurance companies have now adopted the TAVET, and whether the patients a Hanger patient or coming from someone else, they’re not even going to look at the file unless there’s a TAVET in it. And we have licensed it to insurance companies on a no-charge basis because we think it’s good patient care. So with that as a background, I think the insurance companies recognize when a patient presents for one of these devices. It’s well-documented, they can see the results. So we’re not seeing pushback, them saying that they don’t get a microprocessor – put him in a standard safety knee. Every once in a while we certainly have to go to appeal but that’s all part of the process, we’ve been doing that for years.

So I would say characterizing this year’s demand versus last year’s demand, it’s continuing to increase. We’re not seeing any pushback and I would actually say, and I was just having a discussion on this last night, that our penetration into this market in terms of patients that we’ve put on the higher performing products as a percentage of our overall patient population is higher this year than last year in terms of our utilization of these devices. So I think the acceptance is there. The key to all of this is to get more patients in and then apply that percentage conversion and that’s going to yield more revenue.

Dawn Brock – Kaufman Brothers

Tom, this TAVET structure or scoring system, is that something that CMS has looked at or is open to looking at as far as best practices in their evaluation?

Tom Kirk

Absolutely. It’s on every file that we submit. They recognize the value and it’s a definitive document that clearly you can draw the line from the document and how they score to the type of device they should be in. As I say it’s all based on clinical principles and aptitude of the patient.

Dawn Brock – Kaufman Brothers

That’s excellent. I mean is that something that they could at some point actually roll out as a requirement for the industry?

Tom Kirk

Sure. The insurance companies have, third-party insurance companies have done that.

Dawn Brock – Kaufman Brothers

Excellent. Thank you so much.

Tom Kirk

You’re welcome, Dawn.

Operator

Your final question comes from the line of Todd Morgan from Oppenheimer Company. Your line is open.

Tom Kirk

Good morning, Todd.

Todd Morgan – Oppenheimer & Co.

Good morning. You talked about same store sales or same center sales growth rates, which obviously continue to be strong. How hard is it going to be to continue at or above this level? I mean for example, you’ve talked a little bit about the price increasing trends, but if you don’t get a 1% or so price increase how much really opportunity exists with Linkea, the blending in of those revenues? And how much share is out there for you guys to reach for easily? Thanks.

Tom Kirk

We estimate our market share to be around 25% of which I think the half full glass translation of that is there’s 75% out there that we currently do not receive. The way you receive that is at the very local level. While healthcare is perceived to be national, the battles are really fought at the local level, and it’s to get out and work with referral sources to convince them that you can be responsive to the patient’s needs, you can communicate with the doctor.

Another key factor is that you can provide those patients with superior care in terms of latest technology products. I think this is an area where Hanger really excels; because of our scale and size we’re the natural outlet for manufacturers that develop products to come to Hanger and say “Let’s work together to commercialize this product. We understand the design and manufacturing, but you guys are the clinical experts, so let’s work together.” That gives us a leg up, so to speak – sorry about the pun – to get into the marketplace sooner and do it either at a best pricing basis or on an exclusive basis. And so convincing the docs is what it’s all about, and we’ve done surveys on this to understand what is it that they’re looking for. I think we understand it.

So when we come back to our overall growth rate, I think in the absence of any fee schedule increases we’re going to have to continue to slug it out and we’ll be around that 4% level. Actually it’ll go up and back down a little bit, but we believe at that level, with an overall industry growth of 1% to 1.5%, we think we’re taking some share away from folks. We also recognize that this is the way they put bread on the table. We have seen through our acquisition studies that some of these folks have gotten to the point where they don’t have the competitive strength or the operational economics so they’re laying people off – technicians, etc. – and the owner/practice manager is dedicating more time to the practice, coming in in the evenings, at night, trying to make this thing still work.

So at the end of the day we think we’re in a good position. I don’t want to discount the tenacity of these folks at all, but we think that we can survive and continue to automate, improve productivity. So just around that 4% same store sales level is certainly achievable on a go forward basis.

Todd Morgan – Oppenheimer & Co.

Great, thanks. That’s helpful.

Tom Kirk

I guess that must be all that we have, Kyle?

Operator

There are no further questions at this time.

Tom Kirk

Okay. In closing I just wanted to mention that we are hosting Hanger Orthopedic Group’s first analyst day, the first time we’ve done this, in New York on Thursday, December 2nd. And on this day what we intend to have is a half a day dedicated to review of each one of our operational divisions. We will have some of our corporate staff there along with the division presidents from SPS, HPO, Linkea, etc., to talk about their business, the opportunities, the issues they see, so that we can help you better understand what Hanger is all about and project that into your spreadsheets; and also hopefully give you some sense of what our overall strategic plan is on a go forward basis.

So if you have any interest in attending please give Tom Hofmeister a call or his assistant Angie Houtz. Both of them can be reached here in our corporate offices or drop him an email. In Tom’s case it’s thofmeister@hanger.com and Angie is the same way – ahoutz@hanger.com. They’ll be happy to answer any inquiries and get you set up with all the information you need.

And so with that let me close, and wish you a very good holiday season. And we’ll be back talking to you in February when we’ll have our year end wrap up and results, and hopefully we’ll see a number of you at our analyst day on December 2nd in New York. Thank you.

Operator

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

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