Surgical Care Affiliates' (SCAI) CEO Andrew Hayek on Q2 2014 Results - Earnings Call Transcript

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 |  About: Surgical Care Affiliates, Inc. (SCAI)
by: SA Transcripts

Pete Clemens

Good morning. This is Pete Clemens, Executive Vice President and Chief Financial Officer of Surgical Care Affiliates. I want to welcome each of you to our Second Quarter 2014 Earnings Conference Call.

After our prepared remarks, we will open the call out for your questions. (Operator Instructions) This is called being recorded and a replay will be available for the next 30 days. You can find a link to the replay on our website at www.investor.scasurgery.com.

Before I turn the call over to Andrew Hayek, President and Chief Executive Officer, I will read our customary disclosures.

During today's call, we may make statements related to our future operating plans, expectations and performance that constitute forward-looking statements within the meaning of the federal securities laws. Any such forward-looking statements only reflect management's expectations based up on currently available information are not guarantees of future performance and involve risks and uncertainties that are more fully described documents filed with the securities and exchange commission including the risks described our most recent Annual Report on form 10-K.

Our actual results, performance or achievements may differ materially from those expressed in or implied by such forward-looking statements. We undertake no obligation to update or revise any forward-looking statements to reflect events or developments after the date of this call.

During today's call, we will discuss financial measures derived from our financial statements that are not determined in accordance with U.S. Generally Accepted Accounting Principles, including earnings before income taxes, depreciation and amortization or EBITDA, adjusted EBITDA less non-controlling interest or NCI, adjusted net income and operating cash flows less distributions to NCI.

These non-GAAP financial measures should not be considered a substitute for GAAP net income or cash flows from operating, investing or financing activities. Additionally, the non-GAAP measures presented by SCA may not be comparable to similarly titled non-GAAP measures used by other companies.

We will also discuss on today's call certain on non-GAAP systemwide operating metrics such as systemwide net operating revenue growth, which treat our non-consolidated facilities as if they were consolidated and which management uses to analyze our results of operations.

A reconciliation of each of the non-GAAP measures discussed on this call to the most directly comparable GAAP measure is presented in our earnings release. Andrew, I will now turn the call over to you.

Andrew Hayek

Thanks, Pete. On behalf of our teammates and our partners across the country, I also want to welcome you to our second quarter 2014 earnings call. As many of you know, SCA partners with physicians, health systems and payors to implement surgical strategies in markets across the country.

As of June 30, 2014, we operated in 34 states and were affiliated with 172 ambulatory surgery centers, five surgical hospitals, one sleep center, 14 hospital surgery departments, approximately 2,000 physician investor partners and 42 health system partners. Patient care has always been our first priority. We are very proud that we continue to achieve strong clinical quality results based on National Quality Forum endorsed metrics.

From a patient satisfaction standpoint, more than 97% of patients who respond to our surveys say they would recommend our SCA facilities to a family member or friend. Consistent with our commitment to patient safety, we have recently rolled out new tools to focus on medication administration safety. These tools are delivered to our teammates electronically via our clinical excellence universe computer kiosks, which are designed to meet specific learning needs of our clinical teammates. Our clinical results are a testament to the outstanding patient care provided by SCA teammates every day.

Turning to our second quarter financial performance, we are pleased with our results. We remain on track to achieve our full year 2014 adjusted EBITDA less NCI guidance and our development pipeline remained strong, evidenced by closing 11 strategic transactions subsequent to the end of the first quarter.

In the second quarter, we grew our systemwide net operating revenue 10%. We grew our adjusted EBITDA less NCI by 7%, which was in line with our expectations and we grew our adjusted net income significantly. Consistent with the flat second quarter same-site volume we referenced on our last call, our same-site case volume for the full second quarter was down two-tenths of 1% or roughly flat.

So far in the third quarter, our same-site case volume is up roughly 1%. Our net leverage relative to our trailing 12-month adjusted EBITDA less NCI was approximately 4.1 times as of June 30, 2014, down from 4.8 times as of June 30, 2013.

Consistent with our view on our last earnings call, our acquisition pipeline remained strong and is ramping up in the back half of the year. Since the end of the first quarter, we have completed 11 strategic transactions. We acquired an economic interest in nine facilities, five of which are consolidated and four of which are non-consolidated and we entered into management-only agreements with an additional two facilities.

Nine of the 11 transactions are in partnerships with health systems. Three facilities that we converted from management only to an economic interest are included in the 11 transactions. In addition to these 11 transactions, we also merged or divested three facilities since the first quarter. As of today, including the transactions subsequent to June 30, our total facility count is 194 facilities.

Looking to the full year 2014, we reiterate our previous guidance that we expect to earn between $154 million and $158 million in adjusted EBITDA less NCI, which represents 8% to 11% growth over 2013. The business continues to operate as expected and while we do not provide quarterly guidance it is important to note that for the third quarter of 2014, we are expecting a modest growth rate in adjusted EBITDA less NCI accelerating to a strong growth rate in the fourth quarter. There are two principal reasons for this. First, the timing of our acquisitions, and second, the timing of certain corporate level expenses.

Pete will now share more details on our financial results. Pete?

Pete Clemens

Thank you, Andrew. In the second quarter of 2014, our systemwide net operating revenues increased by 10.2%, consolidated net patient revenue increased by 5.2%, primarily due to an increase in our consolidated case volume of 2.2% and an increase in our consolidated net patient revenue per case of 2.9%.

Management fees and other income were up primarily due to the impact of our acquisition of Health Inventures, which occurred on June 1, 2013.

For the quarter, equity income increased by 25.2%, primarily the result of a $1.7 million impairment taken as a reduction to equity income in the second quarter of 2013. Additionally, increases from acquisitions and deconsolidation transactions were offset by $900,000 increase in equity method amortization expense in the second quarter of 2014.

On a consolidated basis, our operating expenses increased by 9.6%, driven by consolidated acquisitions, higher volumes and continued investment in our enterprise services infrastructure to support our growth.

As you will note in the second quarter of 2014, our interest expense declined by $11.9 million from the same period of 2013 as a result of our decreased leverage with the reduction in the fourth quarter, 2013 from proceeds raised from our IPO. In addition, during the second quarter of 2013, our interest expense was higher by $7.6 million as a result of the de-designating our interest rate swaps as hedges and a resulting expense recorded through the income statement.

Given that our growth strategy involves partnership with physicians and health systems that we typically count for as non-consolidated affiliates, management analyzes systemwide metrics which include the revenues and expenses of both our consolidated and our non-consolidated affiliates.

The systemwide view was provided in the supplemental financial schedule included in yesterday's earnings release and will be more fully disclosed in our 10-Q which will be filed later today.

In the second quarter of 2014, our systemwide net operating revenues increased by 10.2% to $372.5 million from the prior year period, our adjusted EBITDA less NCI increased 6.7% to $37.3 million. In the second quarter of 2014, systemwide net patient revenues per case increased by 4.9% from the prior year period and systemwide case volume was up 3.5% to 178,000 cases.

On a same-site basis, our second quarter systemwide net patient revenue per case increased 2.0%, up from a decline of 0.1% in the first quarter of 2014. The growth rate in same-site net patient revenues per case resulted from increased case acuity and increased rates paid under certain payor contracts.

On a same-site basis, our systemwide case volume was basically flat declining by 0.2% during the second quarter from the prior year period. This reflects a more normal run rate than we experienced in the first quarter with the inclement weather. You may recall that our same-site systemwide case volume declined by 1.6% during the first quarter of this year compared to the prior period.

During the second quarter of 2014, our adjusted net income which adjusts for items that are either non-cash or non-recurring in nature was $18.2 million, up from $5.7 million from the second quarter of 2013. This increase was primarily the result of the lower interest expense in the second quarter of this year associated with the reduction of our debt during 2013.

Our interest expense in the second quarter of 2013 was also impacted by the de-designation of the of our interest rate swaps as hedges which I mentioned earlier.

Moving onto the balance sheet, our financial condition remain strong at the end of the second quarter of 2014. Our net debt leverage was 4.1 times as of June 30, 2014, unchanged from the end of 2013 and down from $4.8 times as of June 30, 2013. Our operating cash flow is $86.7 million for the six-month ended June 30, 2014, up 7.6% from the first half of 2013.

Operating cash flow less distributions to non-controlling interest was $37.2 million during the first half of 2014 compared to $28.3 million during the first half of 2013.

As Andrew mentioned, today we reiterate the guidance we initially established in March of 2014. We are expecting our 2014 adjusted EBITDA less NCI to be in the range of $154 million and $158 million. The business continues to operate as expected and it is important to note that for the third quarter of 2014, we are anticipating a modest growth rate in adjusted EBITDA less NCI, accelerating to a strong growth rate in the fourth quarter of the year.

There are two primary reasons for this. First, our expected acquisitions are weighted to the second half of 2014. Second, the timing related to certain corporate level expenses are expected to contribute to lower growth in the third quarter and higher growth in the fourth quarter. Essentially, we had a higher level of corporate expense that occurred in the fourth quarter of 2013, and expect to have the same occur in the third quarter of 2014.

Andrew, I will now turn the call back over to you.

Andrew Hayek

Thanks, Pete. All-in-all, we are pleased with our performance in the second quarter and our outlook remains consistent with our most recent calls. We expect 8% to 11% growth in adjusted EBITDA less NCI in 2014, and our development pipeline remains strong.

As always, on behalf of our teammates and our partners, we appreciate your interest in and support of SCA.

Bridget, please open the line for our first question. Bridget, let's go ahead and open the line.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question is from Josh Raskin, Barclays. Your line is open.

Josh Raskin - Barclays

Hi. Thanks. Good morning.

Andrew Hayek

Good morning.

Josh Raskin - Barclays

Just want to understand the commentary you made, Andrew, about the 194 center count and how we are getting from the 178 to the 194. It sounded like you had mentioned a lot of that activity since the end of the first quarter, but obviously didn't see - Well, I don't know what the underlying changes were in the three center count, but it didn't seem like there was a lot in the second quarter, so when is that 194 center count going to occur? Is that a year-end number or is that an actual count as of August 14th today?

Andrew Hayek

You bet. Thanks for your Josh. A couple of points, the 194 includes perioperative, which is 14 facilities both at the end of June and in the total current count as of today. As of the end of June, we had 192 facilities that includes 14 periop, the 194 also includes 14 periop, so the additional two facilities are coming through the consolidated equity and managed-only and those additional two are due to transactions that were subsequent to June 30th and include six additions or management due equity conversions net of facilities that would have been converted from one category to the other and net of transaction that we would have divested of a center or merged to a center, so the additional two since June 30th are a net addition, net of again mergers and divestitures as well.

Josh Raskin - Barclays

Got you, so that's today's count. Then you were talking about an accelerating pipeline of acquisitions et cetera, so do you guys have an estimate as to what today's 194 looks like by year-end?

Andrew Hayek

Josh, internally of course we do. We haven't provided that kind of guidance in the past and I don't think we are ready to do so today, but we do expect the pipeline to continue to remain strong in the back half weighting to the transactions for years as we described on earlier calls.

Josh Raskin - Barclays

Okay. Has there anything changed relative to your previous expectations? The language suggest that there is acceleration there. I want to make sure that was previously expected and growing in line with you had previously thought?

Andrew Hayek

Yes. This is as expected in line with what we had in mind on our last couple of calls as has been the EBITDA less NCI.

Josh Raskin - Barclays

Okay. Then second question, I know the AAC business is really a lot different than the in-patient business, but we saw some relatively strong trend for some the acute-care hospital even around their surgery volumes. You know discussions around improving economy, I know, Medicaid expansion is kind of big deal obviously for you, but are you seeing any signs of economic recovery?

You know in July it sounded like your volumes were already up on more than what you saw; was there a sequential improvement in the months or any sort of improvement in the volumes to get you more towards a positive number?

Andrew Hayek

Yes. You bet, Josh. We mentioned in the script that quarter-to-date, which would include a couple of weeks of August, we’re up about 1%, which is of course higher than we experienced in the second quarter. Just cycling back to our last call, we had shared that quarter-to-date as of our last call we are about flat and the quarter ended up about flat. Quarter-to-date as of today, we’re up about 1% and that again includes both, July and a couple of weeks of August, so we are seeing a little bit of a pickup as described from going from flat to positive 1%.

That potentially is due in part to an economic recovery. I would also say that we have over the last few years continued to see an increasingly back ended weighting to our growth as a high deductible plans become more prevalent and patients increasingly wait to exhaust their deductibles, before seeking discretionary care, so it could be both - due to either of those plus normal quarterly fluctuations.

Josh Raskin - Barclays

Okay. Sorry for the last question here, but on the timing of the corporate expenses, could you just give us some examples and maybe the magnitude of what that specific item could be?

Andrew Hayek

You bet. Pete?

Pete Clemens

Yes, Josh. Examples of this are really the reserves, you know, IBNR reserves, medical IBNR that is, [GLPL] [ph] reserves, things that we adjust based on the latest claims experience. That's the primary reason; I am not going to get into amounts on those, because they are estimates and based on the latest claims experience we may have in September you never know it could move a little bit, but those are the type of items I am referring to, bonus accruals is another one.

Josh Raskin - Barclays

Okay. Should we think of 3Q adjusted EBITDA less NCI similar to what 2Q in terms of an absolute level? Is that a fair place to start?

Pete Clemens

No, just think of it as modest growth over the third quarter of 2013 and leave it at that. I haven't looked at it in terms of sequentially in my mind, so I would keep it at how we have defined it here.

Josh Raskin - Barclays

Okay. All right. That's all. Thanks guys.

Pete Clemens

Thanks, Josh.

Andrew Hayek

Thank you, Josh.

Operator

Thank you. Our next question is from Kevin Fischbeck with Bank of America. Your line is open.

Joanna Gajuk - Bank of America

Good morning. This is actually Joanna Gajuk filling in for Kevin today. Thanks for the question. On the following performance in the quarter, it seems like one item that was impacting Q1 had continued. I am talking about [inaudible] one of the larger orthopedic facility which you previously quantified you had $0.5 million impact to adjusted EBITDA less NCI in Q1, so is there a way for you to quantify the impact this quarter? I guess, you talked before about the fact that it's going to open in June, so I guess it was an impact in the quarter, so whether you can quantify the volume impact or similar to how you did last time about impact to EBITDA.

Andrew Hayek

Joanna, this is Andrew. I will kick off here. I don't think we are ready on this call to go into the level of detail to quantify the exact volume or EBITDA impact from reopening that facility as of June 1st, which it did reopen and to your point it occurred a couple months into the quarter, so it's a contributory factor of course to our EBITDA and to our volume, but we are not ready to go into that level of detail in terms of its exact impact.

Also, as you recall, we had a restructuring of a couple facilities that contributed to that first quarter number and those two facilities came back online with the health system partner as of April 1st, so those were fully in the quarter and that electrical fire facility was in for a month.

Joanna Gajuk - Bank of America

Great.

Pete Clemens

If I could just add to that just a point to make sure you understand. The facility with the electrical fire is not in our same-site count, because it was the facility that opened after June 30th of last year, so it didn't affect the same-site volumes, but Andrew is absolutely right. They contribute to the overall volumes.

Joanna Gajuk - Bank of America

Great. Then in terms of the price and performance, so I guess are we talking about the same-store net patient revenue per case up 2%, but is there any color you can give us in terms of the outlook for the rest of the year or longer term, because I guess it’s still not really at the level we saw in 2013. I understand there were some sort of one-time in nature impact from the contract rates you got last year, but any color you can give in terms of where we should expect the same sorts of pricing trending?

Andrew Hayek

You bet. On the road show, we talked about our long-term expectation of around 2% or 3% NPR per case growth that sits in consistent with about a third of our overall growth coming from same-site, so overall our long-term outlook has not changed since the road show and really hasn't changed over the last couple of years.

As you also recall during the road show, we described that last year we had a couple of fairly large contributors, we had a particular health system that was contributing in a meaningful way and we had a very significant managed care contract improvement in one of our largest states that was an unusually large contributor, so the 2% is a little bit lower than our long-term expectation, but not dramatically unusual and again is consistent with our guidance for the year and it is in the range of our long-term expectation.

Pete, anything you want to add?

Pete Clemens

No. I think that sums it up, Andrew.

Joanna Gajuk - Bank of America

Great. Just last comment on when you about accelerating the deal pipeline it is to refer to acquiring new centers? Could you comment about the pipeline for additional JVs?

Andrew Hayek

Yes. It in fact the pipeline is virtually 100% joint ventures either with physicians in SCA or physicians in health system in SCA and we continue to see that the strong majority of our transactions involve a health system and we wouldn't see a change in that going forward, so expect virtually all of them to be joint ventures of one nature or another and frankly most of them to have a health system partner in the mixed. That would be true for this year and true over the medium-term at least.

Joanna Gajuk - Bank of America

Great. Thanks.

Andrew Hayek

Yes. Thank you, Joanna.

Operator

Thank you. Our next question is from Justin Lake with JPMorgan. Your line is open.

Justin Lake - JPMorgan

Thanks. Good morning. A couple of things here, first, just want to make sure I am locked on the seasonality of the back half earnings. You are talking about flat versus 3Q another bunch of moving parts to get to adjusted EBITDA minus NCI. Pete, can you remind us what that number was in the third quarter that you are using to base that kind of flat to up slightly number up from?

Pete Clemens

Justin, I'm not sure I understand what you are asking. Could you repeat that?

Justin Lake - JPMorgan

Sure. Third quarter, last year, you basically talking about that third quarter this year is going to be flat to up slightly versus last year, right?

Pete Clemens

That's right. Yes.

Justin Lake - JPMorgan

Okay. I am just trying to make sure I've got the third quarter number locked in - the starting point?

Pete Clemens

Yes. One second, Justin.

Justin Lake - JPMorgan

Sure. While you are digging that up, let me ask my other question, which is on the volume side, you talked about a pick up here. We are hearing some places, markets where there seems to be some economic improvement. Taxes seem to be one of them for instance. Can you give us any kind of color on the local geographies, where you are seeing may be some signs of economic improvement? Are you seeing in Texas any others you might mention?

Andrew Hayek

I would concur that in general as we scan the country, a number of markets in Texas are growing very nicely. I would say though, Justin, our volume tends to be driven by a couple of non-geography factors, driven by the time the recent occasions. It's driven by the number of facilities that are in a ramp up mode say after opening de novo facility.

It's certainly driven by case mix and is a big picture phenomenon as pain procedures continue to go into the physician office and those are shorter cases at a lower reimbursement or bringing online higher acute cases like high end orthopedics, total joint, and spine cases. You can end up with a declining count of procedures and also end up in a better economic places as you are backfilling shorter, lower revenue procedures with a fewer number of more complicated higher revenue procedure, so that can often really drive a case count metric that again we could end up in a negative case count, but in a better economic place. Those types of factors tend to overwhelm here is a city or MSA growing versus shrinking.

Pete, do you want to circle back on the third quarter and the modest growth we are expecting?

Pete Clemens

Absolutely, yes, Justin just to reiterate both the first two quarters, $34.5 million in the first quarter. We had $35 million even in the second quarter and we have 35.5 million in the third quarter 2013 and $38 million even in the fourth quarter, so the modest growth rate is of the $35.5 million Q3 of 2013.

Justin Lake - JPMorgan

Okay. Just to make sure then. You have get $70 million in the first half of this year give or take. If you 35 or maybe a little better than that, you are looking for close to 50 in the fourth quarter to hit the full year years. Is that ballpark?

Pete Clemens

Yes. It depends on your assumption there if you are the mid-point or wherever you are, but you are doing the math correctly.

Justin Lake - JPMorgan

Okay. Just to make sure, because I mean that's a pretty big step third quarter to fourth quarter. I know there's a lot of seasonality in the business, but beyond that to think about a run rate number coming out of the fourth quarter, is that I assume building a fair amount of also benefit from completed the old will happen you know late in the third quarter into the fourth quarter?

Pete Clemens

Yes. Just, I would say without talking about run rate, I would say that obviously with the acquisitions back end loaded you are going to get more of a pickup there for 2015, so that definitely sets us up nicely. I would also say if you went back for the last couple years and looked at our quarterly progression for 2012 and 2013 and the amount of EBITDA less NCI that came in by quarter, you would say that this year is looking a lot like 2012.

You know, 2013 had a little bit different trajectory, because timing of some of the acquisitions were earlier in the year, so if you think about that and go back and look at those percentage and how that distributes over the quarters, I think it will help you get a feel for it. Seasonal, that has been factored as you point out.

Justin Lake - JPMorgan

Pete, 2012, though, didn't it have a number of kind of one-time-ish benefits in the fourth quarter?

Pete Clemens

It did in the fourth quarter. I mean, it's in the range, Justin.

Justin Lake - JPMorgan

Okay.

Pete Clemens

(Inaudible).

Justin Lake - JPMorgan

I guess I was really asking there has never been one-time in the fourth quarter that we that we would be thinking about as not run rate?

Andrew Hayek

One thing I would mention, Justin, is in the fourth quarter of 2013, we had some corporate level expenses that hit that led to a lower amount of earnings in that quarter in the fourth quarter of '13 and we are having a similar thing we anticipate the third quarter of '14, so that does affect the relative growth rate, but I just reiterate what Pete is saying. As we look at this, the distribution quarter-to-quarter over the long-term of the business. We don't view this as highly unusual in terms of the distribution.

Justin Lake - JPMorgan

Got it. Thanks for all the color there guys.

Andrew Hayek

You bet. Take care, Justin.

Operator

Operator

Thank you. Our next question is from Gary Taylor with Citi. Your line is open.

Gary Taylor - Citi

Hi. Good morning.

Andrew Hayek

Good morning, Gary.

Gary Taylor - Citi

Just going back to something Pete had said earlier just about a couple of the items for the fourth quarter, IBNR reserves and some other reserves. I guess, I was thinking as you described them both of those would probably be in other operating line is that where we would see those changes?

Andrew Hayek

Justin, the IBNR, given that it's a medical benefit would be in the salaries and benefit line.

Gary Taylor - Citi

Okay. When you talk about IBNR, you are talking about your own estimates for healthcare cost for your own employees?

Andrew Hayek

That's correct.

Gary Taylor - Citi

Got. Okay. Then secondly the perioperative facility count looks like that was new this quarter. I don't think it was in the Q last quarter. I know we have talked before that at this juncture those were not yet generating material economics to the companies.

I guess, one, I just want to clarify those are facilities, where you are providing perioperative services only? Two, is it including those in account is that signaling that some of those are becoming more material piece of economics of the economics of SCA?

Andrew Hayek

Gary, this is Andrew. You are correct. They are not material contributor to our economics. They are far more of a strategic nature with their houses partners in particular. Adding them into account is not intended as a macro signaling of a shift in thinking. It's just adding more color for you.

Gary Taylor - Citi

Okay. One other small question for Pete, on my Page 8 of the of the release and it came out, may not be your Page 8, but when you are getting to the adjusted EBITDA less NCI calculation of the $37.3 million that you reported for the quarter.

Pete Clemens

Right.

Gary Taylor - Citi

The last line item in that table is other and that's a 0.2, add back and I know it's pretty small, but I was just wondering what that was?

Pete Clemens

Yes. Gary, it's things that I probably shouldn't just call out on the call, but it is other non-run rate items that we expensed during the quarter's.

Gary Taylor - Citi

Is there any certain line item with P&L that's in or would it be various…

Pete Clemens

It would in other.

Gary Taylor - Citi

Other expense, got it.

Pete Clemens

Yes. That's right.

Gary Taylor - Citi

Okay. That's all I had. Thank you.

Pete Clemens

All right. Thanks, Gary. Take care.

Operator

(Operator Instructions) Our next question is from Brian Zimmerman with Goldman Sachs. Your line is open.

Unidentified Analyst

Hey, this is Ambrish filling in for Brian. Just wanted to know if there is any change in the case mix that you saw into 2Q or in quarter to-date, in the current quarter?

Andrew Hayek

Overall the case mix is fairly consistent with what we have described in earlier calls. We do continue to see a growth in some of the higher end procedure types, be them, higher end orthopedics or spine, total joints, but those are a base of very small numbers, and so I'd say overall we are seeing consistency.

Unidentified Analyst

Okay. Just as a follow-up, on the payor mix, have you got an contracts kind of locked in for 2015 or any particular rates that you know that probably we can model for the 2015?

Pete Clemens

Overall, I think, our viewpoint on our managed care contracting and our rate outlook, remains quite consistent with what we've been describing since the road show, so we don't have any particular guidance, but I would step back to say that we are seeing a lot of consistency in the business with what we have been describing since last fall.

Unidentified Analyst

Okay. My last question was regarding the divestment of those three facilities in 2Q. Was that like something in the general business sense or was it because of the underperformance of those facilities. Just to end it, would it be - is it possible that we see that going forward or this is just a one-time items?

Andrew Hayek

Sure. I will kick off and hand it to Pete. Overall, very normal in our business, so a couple things to mention. Number one is, sometimes we merge facilities, so those facilities are dropped out of our facility count, but in fact we are taking the same group of physicians and performing cases and one less facility which helps us drive more scale and efficiency.

Then secondly, we still have a number of the facilities that are non-strategic in nature, don't fit our long-term strategy that would have been part of the initial carve out and we have been cycling through those types of facilities for the past six-and-a-half years that I have been here. That will continue although, obviously, that will decrease over time, but we still certainly have facilities that we are strategically exiting as the opportunity arises. What we saw in the second quarter was very normal with what we have seen and what we've been describing since the road show

Pete, anything to add on that?

Pete Clemens

Andrew, I don't think so. I think that sums it up.

Unidentified Analyst

All right. That's it from my side. Thank you.

Operator

Thank you. I'm not showing any further questions. Mr. Hayek, please proceed with any closing remarks.

Andrew Hayek

Bridget, let's give it another 15 seconds here just to see if anyone else has a question.

Operator

Not a problem. (Operator Instructions) I am not showing any further questions.

Andrew Hayek

Okay. Thank you, Bridget. Well, thank you, again, for your interest and support. We look forward to talking with you next quarter. Please don't hesitate to call us with any questions in the interim. Take care.

Operator

Ladies and gentlemen, this does conclude the program. Thank you all for participating. Everyone, have a great day.

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