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Gentiva Health Services (NASDAQ:GTIV)

Q2 2014 Earnings Call

August 05, 2014 9:00 am ET

Executives

John N. Camperlengo - Senior Vice President, General Counsel and Secretary

Tony Strange - Chief Executive Officer and Director

Eric R. Slusser - Chief Financial Officer, Executive Vice President and Treasurer

Analysts

Darren Perkin Lehrich - Deutsche Bank AG, Research Division

Kevin K. Ellich - Piper Jaffray Companies, Research Division

Toby Wann - Obsidian Research Group, LLC

Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division

Operator

Good morning. My name is Laurie, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Gentiva Health Services Second Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, August 5, 2014.

It is now my pleasure to turn the floor over to John Camperlengo, General Counsel. Sir, you may begin.

John N. Camperlengo

Thank you, Laurie, and good morning, everyone, and welcome to Gentiva's Second Quarter 2014 Earnings Conference Call. Speaking on the call today are Tony Strange, our CEO; and Eric Slusser, our CFO.

We hope that each of you had a chance to review the company's earnings report, which was released this morning.

All statements made during this call relating to future results and events are forward-looking statements that are based on our current expectations. Actual results could differ materially from those projected in forward-looking statements because of a number of risk factors and uncertainties, which are discussed in our annual and quarterly SEC filings and in the cautionary statements contained in our press release on our website.

Our call today will be consistent with SEC's Regulation FD. We encourage participants to ask their questions during the call since we have certain limitations on comments that can be made in individual inquiries.

Today's call also conforms to Regulation G regarding the reconciliation of GAAP and non-GAAP disclosure. As a result, we will not discuss non-GAAP financial measures on this call except for those set forth in our press release.

You may access a telephone replay of this call later today through August 12.

A transcript of the call will be posted to our website and will be available for the next 12 months.

Following today's prepared remarks, we will open the call to questions. [Operator Instructions] And with that, I'll turn the call over to Gentiva's CEO, Tony Strange.

Tony Strange

Thank you, John, and good morning, everyone. Thank you for joining our 2014 Second Quarter Earnings Call.

Overall, I'm very pleased with our results this quarter and the progress that we're making on our key business initiatives. Our results this quarter were driven by strong revenue growth and margin improvement across our business as we're benefiting from the early success of One Gentiva and the strategic investments the company has made over the past year.

Based on these results and the continued momentum, I'm pleased to report that we have adjusted our guidance for 2014, bringing our adjusted EBITDA and EPS outlook to the upper end of our original range. Eric will have more on this in just a moment.

On today's call, I'll provide a brief overview of our operating results, our One Gentiva progress and our regulatory environment before turning the call over to Eric for further detail. This should leave plenty of time for questions.

Before I get into our results, I'd like to take a couple of -- make a couple of comments around our ongoing M&A activity. As you will recall from previous press releases, our board has received 2 conditional proposals to acquire all of the outstanding stock of Gentiva, one from Kindred Healthcare and one from a suitor that has requested to remain unnamed. Both parties have entered into customary nondisclosure agreements with standstill provisions and both will be given access to nonpublic information. As we mentioned in our press release on July 24, we do not intend on providing further disclosure around the process unless a definitive agreement is reached. As a result, I'll not be making any additional comments about the process, but rather focus our attention on our operating results, the progress that we're making on our strategic initiatives and our regulatory outlook. Rest assured that our board is fully engaged and is focused on maximizing the value for the Gentiva shareholders.

Turning to our results. Total company revenues for the second quarter of 2014 were $498 million and adjusted EBITDA was $54 million or 10.9%. EPS was $0.38 per diluted share for the quarter, up 73% from the $0.22 in the comparable quarter of last year.

Home Health revenues for the quarter were $269 million and adjusted EBITDA was $41 million or 15% compared to an adjusted 12% in Q1. Based on revenue growth and our tight cost control, our adjusted EBITDA increased by $11 million from Q1 following a $5 million sequential increase from Q4. Episodic admissions were up 11% compared to a year ago, including the Harden acquisition, which is consistent with the expectations that we discussed on our last call.

On the Hospice front, revenues for the quarter were $172 million and adjusted EBITDA, excluding closed or sold locations, was $26 million or 15%, again showing continued sequential improvement over Q4 and Q1. Adjusted EBITDA increased approximately $4 million sequentially, driven by the reductions in direct and other expenses as we discussed on our call last quarter.

ADC for the quarter was 12,900, up 4% year-over-year, excluding the closed or sold locations, as we continue to see stabilizing trends.

Second quarter 2014 admissions were 11,900, up 6% year-over-year, excluding the closed and sold locations and including Harden.

And finally, in our Community Care division, revenues for the division were $57 million and adjusted EBITDA was $9 million or 15%, which was consistent with our Q1 results and in line with our expectations. As you will recall, the Community Care division provides services to the elderly, dual eligible population and one -- and was one of the driving strategies behind the Harden transaction. Given our limited geographic presence today in this business and the heightened state of interest in reducing costs for this fragile and costly patient base, we are very excited about the long-term financial upside this business provides for us as we execute on our plans.

Overall, I'm pleased with the performance of all 3 of our business segments given the reimbursement and regulatory headwinds that our operating team faces everyday. And while I'd like to accelerate our growth, I'm extremely pleased with our success on controlling expenses.

I'd like to spend a few minutes updating you on our progress on One Gentiva. For those of you new to the Gentiva story, in Q4, we adopted the One Gentiva operating model, which enabled us to integrate our 3 business lines under a general management structure at a regional level. Since adopting this model, we have fully implemented new organizational structures and incentive plans in the field.

With 2 full quarters of this new model under our belt, it is clear that One Gentiva is taking hold and should enable us to drive significant value over time. We're already seeing the margin benefits of the streamlined management structure in our operating results. Over time, we expect to see increased volume as improved referral source communication and patient care coordination between division translates into a more comprehensive patient care and increased admissions.

Briefly, let's update the status of things in Washington. From a Home Health perspective, the 2 events since our last call are the release of the 2015 rate proposal and the new legislation introduced that will eliminate rebasing. As you are aware, CMS issued its proposed 2015 Home Health Reimbursement Rule in early July. CMS estimates that the net impact of the market basket increase and the proposed reductions mandated by the Affordable Care Act will be a 0.3% decline for 2015. The final rule is expected to be issued late in September or October.

Additionally, Congressman Greg Walden and Dr. Tom Price recently introduced new legislation referred to as the SAVE Medicare Home Health Act. This important legislation would repeal the arbitrary across-the-board rate reductions required by rebasing and replace it with a value-based purchasing reimbursement system, which distinguishes between quality providers and those who are underperforming.

On the Hospice front, CMS issued its final reimbursement rule for 2015 late yesterday afternoon. The net impact of the market basket increase, the productivity reductions mandated by the ACA and the BNAF phase-in reduction is estimated by CMS to be a 1.4% rate increase for hospice providers for 2015. The final rule is slightly better than the proposed rule with an effective date of October 1, 2014.

As for Community Care, these services are governed on a state-by-state basis. We are expecting rates in the 4 states that we service to remain substantially unchanged.

In closing, I'm very pleased with our overall results this quarter and the opportunity our industry has to improve our nation's health care delivery system. Tonight, Gentiva will provide care to 110,000 families across 41 states. This care will be in the most cost-effective setting possible, their home. And best of all, this is the preference of the patient and their families. Health care services in the home are and always will be the most cost-effective care available for patients who meet that profile.

With the addition of community care services, Gentiva's Home Health and Hospice platform is well positioned to meet the needs of America's most frail population, including that of the dual eligibles. Providing more care and more services in the patient's place of residence has to be a solution for the rising cost of health care.

Before turning the call over to Eric, I want to first thank our shareholders for the support that you have provided over the past couple of months. Both Rod and I have spoken with many of you regarding the recent events, and we appreciate the support that you have provided to us and to our board. Rest assured, the Gentiva board and its outside advisers are squarely focused on doing the right thing for the Gentiva shareholders.

I'd also like to thank all of our employees for your ongoing commitment to our patients and our companies and the role that you play in making Gentiva the leader in our industry.

With that, I'll turn the call over to Eric for some further insights into our results. Eric?

Eric R. Slusser

Thanks, Tony, and good morning, everyone. I am very pleased with our financial results this quarter and the progress we continue to make with our One Gentiva initiative and the Harden integration. The quarter was highlighted by sequential margin improvement in our Home Health and Hospice divisions, strong earnings results and significant free cash flow generation.

Before I discuss our results further, I'd like to cover a few other matters to facilitate your review. First of all, you should note that our second quarter 2014 numbers include the full quarter impact of the Harden acquisition, which closed on October 18, 2013, and that prior year numbers reflect only Gentiva results, which impacts the comparability of our operating metrics and financial results between periods. Given the significant number of branch consolidations that have taken place between the overlapping Harden and Gentiva locations, we are no longer providing separate Harden results or our results, excluding Harden, as they would not make for meaningful comparisons given the consolidations.

During the quarter, we closed one additional branch related to the One Gentiva restructuring and the Harden acquisition, bringing the total to 54 branches closed during the past 3 quarters. Net revenue comparisons for the second quarter of 2014 were negatively impacted year-over-year by approximately $10 million related to closed locations.

Finally, I want to remind everyone that, similar to previous quarters, we will be highlighting results from continuing operations during our discussion.

Now on to the results. For the second quarter of 2014, net revenues were $498 million, an increase of 20% compared to $414.4 million in the prior year. Home Health episodic revenues increased 14% in the second quarter to $236.2 million. Hospice revenues were $172.3 million in the second quarter, down approximately 4% compared to $179.2 million in the second quarter of 2013. Community Care revenues were $56.7 million in the second quarter of 2014.

Turning to our Home Health revenue metrics. During the second quarter of 2014, there were approximately 53,800 total admissions on an episodic basis and approximately 83,000 total episodes. On a year-over-year basis, excluding the impacts of branches sold or closed, PPS admissions increased approximately 12.6% and episodes grew approximately 18.1%. The number of episodes per admission was 1.54 for the 2014 second quarter, consistent with recent quarters. Revenue per episode for the second quarter was approximately $2,850, which was down approximately 2% year-over-year, largely due to reduction in Medicare reimbursement rates and the impact from the Harden acquisition.

On the Hospice side, excluding the impact of closed and sold locations, our consolidated average daily census for the second quarter of 2014 was 12,900, up approximately 3.6% from the second quarter of 2013. Our consolidated admissions for the quarter were approximately 11,900, which was up 6.2% compared with the prior year second quarter, excluding the impact of closed and sold locations. Our consolidated average discharge length of stay for the second quarter of 2014 was 107 days, up from 97 days in the second quarter of 2013. Our net patient service revenue per day in the second quarter of 2014 was $147, down from $154 in the second quarter of 2013. The mix in our levels of care for our billable days for the second quarter of 2014 was 99% for routine care and 1% for all other levels, which is similar to recent quarters. Our Medicare cap was $0.9 million for the quarter, similar to the comparable prior year period.

On the Community Care side, we had approximately 4.2 million billed hours and we had an average revenue of approximately $13 per hour for the second quarter of 2014.

Total company gross profit as a percent of net revenues was 46.3% in the second quarter, down from 47.2% in the second quarter of '13, due to the lower margins in our Community Care business, which offset increases in Home Health and Hospice. Gross margins for Home Health were 50.6% this quarter, up from 49.1% in the second quarter of 2013. Hospice gross margins were 45.1% this quarter, up from 44.6% in the second quarter of 2013. Community Care gross margins were 29.9%, up from 29.5% in the prior quarter.

Turning to our selling, general and administrative expenses. Excluding charges relating to cost savings initiative, restructuring, merger and acquisition activities and legal settlements, SG&A expenses in the second quarter of 2014 were $184.4 million, up from $161.2 million in the second quarter of 2013 due to the Harden acquisition. SG&A as a percent of net revenues declined 200 basis points to 37% for the second quarter of 2014 compared to 38.9% in the prior year period.

From an adjusted EBITDA perspective, earnings before interest, taxes, depreciation and amortization, excluding charges related to restructuring, merger and acquisition activities, legal settlements and losses from closed locations, were $54.3 million in the 2014 second quarter or 10.9% of net revenues. These results are up strongly compared to the $39 million or 9.4% in the prior year second quarter, driven largely from the benefits of the Harden acquisition and our continued focus on margin improvement initiatives.

Our effective tax rate on continuing operations was 39.9% in the second quarter compared to a tax rate of 41.2% in the second quarter of 2013.

Second quarter adjusted income attributable to Gentiva shareholders on a diluted basis was $0.38, up 73% from $0.22 a year ago.

Switching to the balance sheet. Cash and cash equivalents closed the quarter at $106.2 million, up from $62.9 million in the prior quarter. DSOs were 48 days for the quarter, down from of 50 days at the end of the first quarter. Capital expenditures for the second quarter were $2.9 million.

Second quarter net cash from operations was $50.4 million and free cash flow was a very strong $47.5 million, which was up from $25.9 million in the prior year second quarter.

From a debt perspective, we had debt outstanding on our term loans, revolver and senior notes of approximately $1.17 billion at the end of the second quarter. Our consolidated leverage ratio for the quarter was approximately 5.9 under our credit agreement. During the second quarter, we made $4.6 million in principal payments on our term loans.

Turning to our outlook. For 2014, we now expect full year net revenues to be in the range of $1.96 billion to $2.0 billion. Additionally, we have raised the lower end of our full year 2014 adjusted EBITDA guidance to $183 million to $195 million and our adjusted income attributable to Gentiva shareholders to $0.95 to $1.15 on a diluted per share basis. This outlook includes the full year impact of the Harden acquisition and the final 2014 Medicare Home Health and Hospice reimbursement rates issued by CMS, but excludes any ongoing losses from closed or sold locations as they are wound down and any acquisition-related expenses.

In summary, I am very pleased with our results this quarter and the progress we are making with our key business initiatives to drive shareholder value.

That concludes my comment. Operator, let's open the call up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Darren Lehrich of Deutsche Bank.

Darren Perkin Lehrich - Deutsche Bank AG, Research Division

Tony, I know you've said you want to steer away from any specific comments around the M&A process. So I guess, I was just looking to get your commentary about how you think the company might fit in to a larger post-acute care organization, and in your view, what would be some of the advantages or disadvantages of having that type of structure?

Tony Strange

Darren, I'm not going to comment about Gentiva or where we are in this process or any of our suitors' strategy. As we've all said that we think Home Health and Hospice plays an important role in the post-acute care delivery system and offers a cost-effective alternative to more costly settings, and we think Gentiva is well positioned to be a major player in the post-acute care space. But that's about all the insight I can give you.

Darren Perkin Lehrich - Deutsche Bank AG, Research Division

Okay, I tried. So let me ask the question just about the quarter here. Eric, you're obviously giving us the numbers, including Harden, and I understand the consolidations are distorting some of the metrics that you may have provided previously just on a same-store basis. But if we think about just the core trends in both Hospice and Home Health, can you give us any flavor for, just directionally, how much the organic growth rate accelerated from what you saw in the first quarter? Any kind of flavor for just underlying trend.

Eric R. Slusser

Well, Darren, again, it's -- with the closures, it's really difficult to get a good picture and clarity on that. I guess, I would limit it to saying we continue to see Home Health performance pretty similar to what we've seen in previous quarters from an admissions perspective and no different in Hospice. We continue to manage the margin, manage our initiatives around that business and looking to find volume growth in the business. It's moderated somewhat from what we have seen in the prior years from the reductions, but we're still focused on those initiatives to grow that Hospice business.

Darren Perkin Lehrich - Deutsche Bank AG, Research Division

Okay. And then just, lastly, on the Hospice commentary you've given, how much, if at all, has some of those diagnoses that have been disallowed? Has that had any impact? I know you've said it hasn't in the past. Just want to get an update on that.

Tony Strange

Darren, I think if you look at individual patients today, I think we've digested the impact of those patients with unspecified diagnosis like adult failure to thrive, dementia, those types of things. I think a broader look at that is that is really the overall impact that it continues to have on the hospice industry. I think, maybe unintentionally, we have sent physicians and referral sources mixed messages about hospice. With all the chatter about Part D drug benefits with the removal of the certain diagnosis codes from hospice, the additional regulatory burden of face-to-face and the documentation required, I think some physicians and referral sources are wondering, are we really trying to send the message that we don't want folks to use hospice. And I think we're overcoming that with education on a day-to-day basis and I think that's going to continue to take time. I'm reminded of 2011. We went through this same process in the home health industry and it just takes time to move that thought process back. So from a specific patient, we have digested all those changes. But overall, I think the market is still feeling the pressure of all the regulatory burden.

Operator

[Operator Instructions] Your next question comes from the line of Kevin Ellich of Piper Jaffray.

Kevin K. Ellich - Piper Jaffray Companies, Research Division

I hopped on a little late and if I had missed any of this, I can go back and take a look. But looking at the guidance, it sounds like you guys plan to maybe close a few more locations. Just wondering if you quantified that or if you could give us any more guidance on what we should expect.

Tony Strange

Well, Kevin, if you missed part of the call, we'll be happy to catch you up later, if that's helpful. We haven't announced -- we haven't had any other plans about additional closed or sold locations. So I don't really think that plays into our guidance at all. So if there's other things that we can help you fill in the blanks, we'd be happy to.

Kevin K. Ellich - Piper Jaffray Companies, Research Division

Sure. Just, I guess, updated thoughts on the regulatory reimbursement environment, Tony. Yesterday -- I think last night the hospice rates came out. And then also you are making some pretty nice progress on One Gentiva. Just wondering, is this in line with your expectations of where you thought you would be now? Or are you tracking ahead?

Tony Strange

Let me take the regulatory question first and I'll come back to One Gentiva. You're right, the hospice final rule came out last night. We had -- CMS had predicted in the proposed rule that it would be about a 1.3% increase for hospice providers for '15. In the final rule that came out, the market basket actually went up from 2.7% to 2.9%. But in addition to that, the productivity adjustment mandated by that ACA went up from 0.7% to 0.8%. So that's what drove the now estimated 1.4% increase. And as everybody remembers, those rates actually take effect on October 1, 2014, for '15 -- for the '15 hospice year. So in line with our expectations, some people would argue slightly better than anticipated. On the home health front, the Home Health Proposed Rule came out in early July, and as you recall, had several moving parts. It has a 2-point -- the market basket update's about 2.6%. It has a similar productivity adjustment. It has some -- so the rebasing impact in that. So if you net all those out, CMS predicts that for home health agencies, for '15, the rates will go down by 0.3%. And given -- and looking at what the Street has modeled, I would argue that, that is slightly better than the Street had predicted. We won't know what those final rates are until late September or October. And given that it's an election year and given kind of the status of the proposals, I would expect that number to be out before the election -- or the final rule to be out probably before the elections and then we don't anticipate much change from a community care perspective. Going back to the One Gentiva front, I would tell you that I think we're in line with our expectations. I don't think that if we were well ahead, I could tell you that we're getting cross referrals and our C3 [ph] initiatives were producing huge results. I think that's just going to take time with the referral education. I think David and the operating team -- division team here, Jeff and the 5 presidents in the field, I think they have done yeoman's work in getting out ahead of the costs on the cost side of One Gentiva. So I think from a cost perspective, I would tell you that we are where we expected to be or even further along from where we expected to be. I think from a revenue synergy side, I think we're probably right there we said we would be and that's just going to take some additional time. Hopefully that helps.

Operator

Your next question comes from the line of Toby Wann of Obsidian Research.

Toby Wann - Obsidian Research Group, LLC

I had just a couple of quick questions, sort of housekeeping items. The recertification rate for Home Health, do you guys have that data handy?

Tony Strange

Well, we don't give that data, Toby. What we do talk about, Eric mentioned it in his comments, is that we look at the number of episodes per admission and that number for Gentiva runs about 1.5 episodes per admission and it's been running that way for, I don't know, 5, 6, 7 years. It hadn't change -- it hasn't changed a lot.

Toby Wann - Obsidian Research Group, LLC

Okay, that's helpful. And then just kind of moving on, can you provide a little bit of color on the significant kind of change on the year-over-year average length of stay in Hospice, and then also kind of tease out maybe the year-over-year decline in the revenue per patient? A function of that is also going to be sequestration impact, but just kind of want to get a little more color on both of those on the Hospice front.

Tony Strange

Well, let me go first and we'll see if we answer your question. If not, well, Eric, you can chime in. There's a couple of things that's driving the length of stay. As you recall, in our previous calls and go back to the third and fourth quarter of '14 (sic) [ '13 ], we talked about exiting some markets and specifically some business and in that was a significant number of the general inpatient -- stand-alone general inpatient units where the length of stay was extremely low. So if you're closing those locations, taking out high admission numbers, very low length of stay, that's going to have an impact on your overall length of stay. The other impact was the Harden acquisition, which did no general inpatient and Harden's length of stay was longer. So when you combine those 2, that gives us kind of a number that's in the low 100s today compared to a number that was in the mid-90s or so a year ago. In terms of the revenue per patient day, I think you can look to the same type of explanation. If you look at a revenue per patient day in the general inpatient setting, that number is 5x or 6x that of the home care reimbursement rates. So when you take that number of days out, you would see a corresponding decline in the average revenue per patient day. Eric, is there anything you would add to that or...

Eric R. Slusser

No, I think that's the big thing. You have things at any one time, data requests that you get on an individual branch that can impact it. We had a couple more of those this year in Q2 that impacted it, but by no means on any material basis. But those are kind of the moving pieces that caused it to decline.

Operator

Your next question comes from the line of Whit Mayo of Robert Baird.

Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division

Just a couple of questions. I was just hoping maybe you could comment briefly just on the volume trends in the quarter. Clearly, it's been choppy for some time now and I'm just kind of curious if you can tell whether any of the strength came from referrals from physicians or whether or not any of this came from hospital discharge planners and I guess I'm specifically referring to Home Health.

Tony Strange

Yes, I think what I would characterize our Home Health business as being relatively stable. That business, we have been talking now for a couple of years, really since the -- really since the Affordable Care Act came out and the kind of the changes that we've all seen in health care utilization is that if those trends remain constant, where you've got hospitals and physician practices flat or slightly growing or slightly declining, that we would think that number is going to be in that low single-digit range. And I would tell you that I think, today, I think our Home Health business, despite some of the headwinds that we're seeing in the industry, continues to produce growth and is going to continue to grow in that low single-digit range until we see health care utilization change, if it does change, back to where we saw it prior to 2010. I think the leading indicator in our Home Health business will always be physician practice volumes and then obviously hospital volumes.

Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division

No, that's helpful. And just -- you may have talked about this earlier, but maybe I missed it. Just on the Home Health regs, there were some noticeable changes in recalibrating the case weights and you had some time to analyze that. Does that have any material impact on you guys one way or the other? Just curious how you're thinking of it.

Tony Strange

Well, your observation is correct. There are 2 more -- there's 2 more moving pieces that go into rate for Home Health. We talked about the market basket update, we talked about productivity adjustment, we talked about the impact of rebasing. And all those things are calculable from CMS. The other couple of moving parts are the changes to Wage Index, which is by MSA. And the last -- to your last question, is the changes in the case mix weight, moving dollars within the case mix weight. In order to understand the impact of those 2 proposed changes, you have to go back, provider number by provider number, and reassess every single episode. And that number can change from quarter-to-quarter based on the mix in that provider number. So historically, we have not -- we -- historically, we have not given that kind of information or made that kind of information publicly until such time we evaluate it and then we bake it into our 2015 guidance as to the impact -- the overall impact of the rate. So that's a very difficult thing for folks to model as -- because it is different for every single provider number. The other thing that's worth mentioning, and I appreciate you asking the question, was that there was 2 other components of the proposed rule that I think is meaningful. One is, in the proposal, CMS discussed the possibility of removing the physician narrative in the face-to-face documentation. While that doesn't take any burden off of a home health agency from having to go chase this documentation, so the process doesn't change, but what it does do is eliminate some of the workload or the burden on the physician. And I think CMS is signaling that they have gotten a lot of feedback from physicians about the regulatory burdens that they're having to bear related to referring patients to home health and the hospice and I think CMS is signaling that they've heard that and they're going to try to find ways to make it easier on physicians. The second thing in the proposed rule that I think is significant is that the industry has long struggled with the burden of the therapy reassessment on visits 13 and 19. And CMS, in an effort to try to address that, has proposed that they change that regulation to just be every 14 days as opposed to on these odd numbers of visits. So I think, again, we're seeing some signs from CMS that they recognize that the industry's been under a pretty heavy regulatory burden and trying to find some ways to help soften that a bit. So hopefully, with all of that, that answers your question.

Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division

No, it does, very thorough answer. And just one last one and I'll hop off. Just CapEx has been running pretty light for the first half. Can you just comment, Eric, on expectations for the second half? And just what's your bank leverage at the end of the second quarter?

Eric R. Slusser

Yes, Whit. CapEx, probably expected to stay fairly consistent. We're kind of in that $3 million-a-quarter mode. There's a little bit of increase, but moderate. As we have talked about, we -- the last piece of our integration work is to convert the Harden Home Health over to our GentivaLink system in the third quarter. By no means is that a significant amount, but that's a moderate increase for Q3, as that is completed this quarter. Other than that, when I look at what's in there and the expectations, I don't see anything significant beyond that roughly $3 million, $3.5 million a quarter. From a leverage, I talked about that in my script. The leverage at the end of this quarter under our bank agreement calculation was 5.9, again up just slightly from last quarter despite the significant increase on our EBITDA really because we continue to incur costs for closures and M&A and things that we can't add back to the agreement. So that's really been the drivers of that increase.

Operator

There are no further questions at this time. I would now like to turn the floor back over to Tony Strange for any additional or closing remarks.

Tony Strange

Thanks, operator. And I'd like to once again congratulate our operating team. These guys have done a phenomenal job in helping us produce these results. I'd like to also thank all of our employees for what you do every single day. And lastly, thanks, again, to our shareholders for all of your support. And we'll look forward to updating you when the time arises. Thanks, operator, and thanks for joining the call.

Operator

Thank you for participating in the Gentiva Health Services Second Quarter 2014 Earnings Conference Call. You may now disconnect.

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