Hanger, Inc.
Q3 2018 Earnings Call Transcript

Published: 9 Nov 2018

[Operator:]

Greetings, and welcome to the Hanger's Third Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Seth Frank, Vice President of Treasury and Investor Relations. Thank you. Mr. Frank, you may begin.

[Seth Frank:]

Thank you very much and good morning and welcome to Hanger's third quarter 2018 earnings conference call. With us today are Vinit Asar, Hanger's President and Chief Executive Officer; and Thomas Kiraly, Hanger's Chief Financial Officer. Some of the information discussed today will include forward-looking statements in the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause Hanger's actual results to materially differ from those we discuss today. Those risks include among others, matters we have identified in the forward-looking statements portion of our latest earnings release and in our filings with the SEC. Hanger disclaims any obligation to update forward-looking information discussed on this call. And with, I would like to hand the call over to Vinit Ashar, Hanger's CEO and President.

[Vinit Asar:]

Thank you, Seth, and good morning, to all of you, and thank you for joining Hanger’s 2018 third quarter earnings call. I will review the highlights of the quarter, Tom will give you additional insight into the numbers and then we will take your questions. Overall from a financial standpoint, our third quarter performance was largely as anticipated and generally consistent with the business trends we have seen year-to-date. Hanger net revenue totaled $263 million to just under 2% year-over-year and reflected growth in both our Patient Care and Products and Services segments. Adjusted EBITDA for the quarter was $31 million, an increase of just over 5% compared to the same period last year, outpacing the top line and benefiting from the positive flow through of revenue growth in our Patient Care segment. We're also pleased with the margin expansion and cash flow generation during the quarter and Tom will provide details on those metrics. Looking at the business by segment, Patient Care there was a standout from a profitability perspective this quarter. Patient Care segment revenue was $214 million and reflected 1.6% growth over the prior year. We have focused our marketing efforts with referral sources and patients primarily in the area of prosthetics. Prosthetics are a key growth driver of our business and we were pleased to see 3.1% growth in Q3. We have begun focusing on similar efforts to support growth in key customer product service lines as well. In addition, we are evaluating more efficient ways of delivering lower end products such as off-the-shelf orthotics, shoes and inserts where we have historically put very little focus. Separately, we also manage our clinic businesses regionally and we are encouraged to see that a majority of our regions have begun to show above market growth rates. We will continue to manage our business by our portfolio of service offerings, both prosthetics and orthotics and also given that healthcare is local, monitor and provide leadership and guidance to our regional teams. The Products & Services segment delivered results similar to recent quarterly trends achieving revenue growth of 3.2%. Segment revenue growth was driven by good topline performance in our distribution business. This was primarily the result of share gains and increased volumes from our client base of independent O&P providers. We have been pleased with the leadership and focus of the distribution team. There has been a significant enhancement of the sales force, an upgraded online presence, and an expanded product portfolio offering which we believe has contributed to the growth of our distribution business. Our therapeutic solutions revenue declined modestly in Q3 slightly better than our expectations. The team has been focusing their efforts on revamping the overall value proposition to their customers in long-term care. While we expect the decline in this business to continuing into 2019 we are hopeful that the efforts underway will help stabilize the business during the next year. Let's turn to an update on our strategic growth initiatives and some operational highlights. We had the pleasure in late August and September of re-engaging proactively with institutional investors in meetings and conferences around the country. We highlighted five pillars that we believe differentiates Hanger in the O&P market. These are our national network, centralized revenue cycle management, patient engagement strategies, our clinical outcomes agenda, and our enterprise supply chain. Taken together these strategic pillars form a roadmap for Hanger to become a disruptor and transformational force within the orthotics and prosthetics industry. During the third quarter we continued to make progress across these initiatives. Today, I'd like to share a bit more with you about recent activities related to two of these differentiating pillars; patient engagement and clinical outcomes. With regards to patient engagement, in September we hosted EmpowerFest 2018 just outside of Boston. This is one of the many patient engagement events we host around the country each year for individuals with limb loss and limb difference. At these events we invite Hanger and non-Hanger patients alike. The focus of this particular three-day event was on empowering patients by building peer support through their participation in a range of educational and physical activities. We hosted over 80 participants and their family members. We also invite [indiscernible] the feedback we received was exceptional. The post event digital exposure of EmpowerFest was also significant. We estimate through Hanger social media campaigns and content on our website over 212,000 people were reached. In addition, we have begun to see some non-Hanger patients that attended in EmpowerFest become Hanger patients as a result of the experience they had at the event. We are planning to hold more national and local events that target the needs of the very patient communities we serve. As a further action tied to our patient engagement agenda, we were also pleased to announce this quarter an exciting proof of concept launch, partnering with AT&T for the industry's first standalone network connected device for prosthetic limbs. Our prototype device is designed to attach to below the knee prosthesis and fixed directly to the cloud via AT&T's mobile network. This connectivity allows Hanger to receive data on patients' prosthetic usage outside of clinical settings. The potential implications for quality of care and data analytics are profound as we stall migration to a connected patient and the Internet of Things in healthcare. This companywide emphasis on patient engagement is just getting started as we continue to invest in this area to help drive sustainable growth in patient referrals. The second key differentiating pillar that we made notable progress on in the third quarter was on our clinical outcomes agenda. In a world of value-based care it is mandatory to demonstrate a quality and value equation that will be compelling to payers and referring providers. In the third quarter we launched our "Nothing Beats Me" campaign. This consists of direct to consumer and direct to referral sources illustrations of Hanger differentiated approach to clinical care by tracking individual outcomes measures for prosthetic patients. We are rolling this program out nationally. During the quarter we also continued to expand and leverage our electronic health records platform which is now rolled out at 88% of our clinics. This system provides data capture and analysis capabilities that help feed our ambitious outcomes-based agenda. To date this has resulted in the publishing of a number of significant medical papers and peer-reviewed research reports. During the quarter clinicians from Hanger's Clinical and Scientific Affairs team presented papers at the AOPA Annual Meeting and Scientific Symposia in Vancouver. Topics included quality-of-life and mobility as well as the impact of comorbidity in patients with lower limb amputations. Other major medical conferences where Hanger is presenting clinical work include the American Academy of Physical Medicine and Rehabilitation and the Society for Vascular Surgery Annual Meeting. The presentations at these meetings are targeted to national policymakers, payers, and perhaps most importantly, our referral source community. It was just over one year ago that we announced the publication of a landmark study in lower limb amputees known as the Mobility Analysis of Amputees or MAAT 1. This was the largest study of its kind to date that concluded there was a significant positive correlation of mobility to quality-of-life and patient satisfaction for people living with lower limb loss. We have continued to build in this body of literature. MAAT 2 has just been published in the November issue of the American Journal of Physical Medicine and Rehabilitation. Many times in the absence of evidence, referral sources and payers may believe that an amputee with comorbidities may not benefit from a prosthetic device and the publication of this study will help better inform these beliefs and allow for more thoughtful and outcomes driven patient care. I'm also pleased to announce the recent acceptance of the MAAT 3 study for publication by the Journal of Assistive Technology. MAAT 3 is a large-scale, retrospective review of outcomes for patients with lower limb amputations across over 400 Hanger clinics within the United States. The results showed when patients are matched with comorbid health those patients with a microprocessor knee had increased mobility over their peers that were provided in non-microprocessor knee. This particular study has three accurately matched cohorts of 150 patients each. In order to conduct a study of this magnitude and demonstrate statistical significance an expansive database of several thousand patients is required. At Hanger we are very proud to have assembled an outcomes-based database large enough to allow us to continue to understand the best treatment for our patients and likely the only outcome database in the O&P industry of its size. In addition to these studies I'm also pleased to share with you that Hanger has entered into research collaborations with premier medical and academic institutions around the country including the University of Washington, the University of Texas, the Veterans Administration in Salt Lake City, the University of Missouri, the University of Colorado Medical Center, and others, to further develop a robust foundation of evidence relating to the prescription and utilization of prosthetic devices. We will share more about these collaborations in the future. The bottom line is that our patient engagement strategy combined with Hanger's outcomes agenda enables us to continue to lead the industry with data and programs that will demonstrate the true value of O&P care in modern healthcare delivery and the distinction of Hanger as being the most capable provider of this care. The other area I know many of you are interested in is Hanger's growth strategy regarding clinicians and clinics particularly with respect to M&A. With a strong organic growth strategy in place, good cash flow, and a healthy balance sheet, we believe commencing a targeted in market acquisition strategy for O&P strengthens us geographically and further enhances access to care for our patients. We have a healthy pipeline of acquisition candidates that we are in active conversations with. We are pleased with the progress we're making on this front and while we cannot predict closing dates at the current time due to the nature of negotiations, we plan to provide you an update on our activities when we report our Q4 results. Now before I hand the call to Tom, I am delighted to announce that Hanger patients, associates, and friends of the company will participate in a celebration of our nation's veterans on Monday, November 12 when we ring the opening bell of the New York Stock Exchange. It will be an honor to pay tribute to our nation's heroes who we serve every day including some of our own Hanger veterans. And with that, I will ask Tom to go through the numbers.

[Thomas Kiraly:]

Good morning. I think we're pleased with Hanger's overall financial performance during the quarter. We believe there are three key takeaways in the results. The first is that expanded margins and related earnings growth from the Patient Care segment offset increased corporate expense to provide $1.5 million in overall EBITDA growth for a total of $31.1 million in adjusted EBITDA. Secondly despite ongoing headwinds in our therapeutic solutions line of business, the Products and Services segment as a whole produced generally stable adjusted EBITDA and thirdly that Hanger continued to report strong operating cash flow and increases in overall cash and liquidity balances. In my portion of this call I'll provide you with further background on our individual business segment and consolidated earnings trends. I'll also discuss our growing levels of cash flow and liquidity and will finish up with a summary of how these results line up with our expectations for the remainder of the year. First, let's spend a few minutes on the Patient Care segment. Patient Care reported 1.6% revenue growth for the quarter. When reviewing this rate of growth please bear in mind that we implemented ASC 606, the new revenue accounting standard earlier this year and that resulted in the reclassification of bad debt from expense to becoming an offset to revenue. Since we did not classify bad debt in this manner in 2017, on a pro forma comparative basis Patient Care’s underlying revenue grew at 2% in the quarter and 1.5% for the year-to-date. Our same clinic revenue grew at 2.1% in the quarter or 0.5% on a day adjusted basis. The day adjusted calculation isn’t necessarily useful when reviewing the third quarter results because the extra day we’re using in the computation was July 3, which given its lower than average volume was granted as an employee holiday and excluded from the calculation in the prior year. Within the underlying rate of 2% growth in this segment as Vinit discussed, we continue to show pronounce growth in prosthetics which grew a 3.1%. Prosthetics constituted 54% of our revenue in the quarter as compared to 53% in the same period last year. A final note on Patient Care’s revenue, while we do believe hurricanes can have an effect on our results, given the natural tendency for patients to reschedule around these weather-related events and the fact that they affected us in both years, it’s difficult for us to assess their net impact on third-quarter revenue. From an expense standpoint while the Patient Care segment did continue to show an increase of approximately 40 basis points in its materials cost rate as it has throughout the year personnel and other expense decreased as compared to the third quarter of 2017. These decreases came from an underlying decline in bad debt expense, benefits costs, and incentive compensation. Because of these expense trends Patient Care’s adjusted EBITDA margin increased to 17.8% as compared to 16.6% in the third quarter of 2017 and it stands 70 basis points higher than the prior year at 16.5% for the year-to-date. This margin expansion provided $3.1 million or 9% in adjusted EBITDA growth. In reviewing our Products & Services segment, growth of 6.9% of distribution services more than offset declines in revenue from therapeutic solutions, resulting in an overall segment growth rate of 3.2%. Looking forward, we anticipate a moderation of near-term growth in the Products & Services segment primarily due to a lapping of the higher than normal rate of growth in our distribution services and a continuation of the decline in revenue from therapeutic solutions. Income from operations and adjusted EBITDA from the Products & Services segment was reasonably consistent with the prior year. As we just discussed in past earnings calls corporate expenses continue to reflect growth over the prior year and increased by $1.4 million of the quarters compared with the same period last year. These increases primarily related to increased compensatory and professional costs. On a consolidated basis after including the beneficial effect of declines in third-party professional fees, associated with our continuing accounting process and controls remediation, and decreases in depreciation and amortization expense, Hanger reported a $6.4 million increase in income from operations. These favorable operating results coupled with reduced interest expense resulting from our refinancing earlier this year lead our net income to grow by $8.5 million from a $4.2 million loss in 2017 to a $4.4 million profit in the recent quarter. On an adjusted basis our earnings per share increased from $0.6 in the third quarter of last year to $0.22 in the current year period. When reviewing our cash flow the company produced $20.3 million in operating cash flow which compares favorably to the $5.3 million produced in the third quarter of last year. This increase in operating cash flow is the direct result of operating growth, declines in our payment of professional accounting and legal expense and reduced rates of interest. Capital expenditures were $7.7 million which continues to put us on pace to spend in the low $30 million range for the full-year. This free cash flow production resulted in a $12.2 million increase in our cash and cash equivalent balance and brought us to $61 million in cash and cash equivalents at the quarter’s end. We anticipate the cash balances will further increase during the fourth quarter as they have in past years, but would remind you that due to seasonality in the payment of our annual incentive compensation the company typically has a net use of cash for operations in the first quarter of each year. As Vinit discussed, we are in the process of recommencing our acquisition of orthotics and prosthetics practices and in addition to funding working capital swings we currently intend to retain cash for that purpose. When viewing our indebtedness net of cash, the company has net debt of $460.7 million or 3.8 times trailing 12-month adjusted EBITDA. Given that we have a $325 million six-year interest rate hedge against our term loan we don't currently anticipate significant exposure to rising rates and are paying an effective rate of 6.2%. Our plans are to continue to gradually lower leverage over the next 12 to 18 months into the 3.5 times range. Before I wrap up with a discussion of our trends for the full year of 2018, I'd like to spend a moment briefing you on our implementation of the new lease accounting standard, ASC 842. As you probably know, this new lease standard generally results in an overall increase in the assets and liabilities of companies having leases is they are required to determine the present value of their future lease obligations and establish a right of use asset and a commensurate liability. This new standard will take effect as of January 1, 2019. In our case while we are continuing to evaluate and implement the nature of the standard, we currently believe that this will result in an increase to our balance sheet of roughly $150 million. And due to the conversion of build to suit leases to operating leases will result in an increase in lease expense in the $2 million range with most being offset as a reduction in interest expense. We will share more in these effects in our conference call on the full year 2018 results in the first quarter. Now I’ll provide you with some perspective on how our results in the third quarter fit in the context of our overall 2018 guidance. With the $31.1 million in adjusted EBITDA we reported in the third quarter, Hanger now has a year-to-date level of $81 million in adjusted EBITDA which is reasonably consistent with the $80.8 million we reported for the year-to-date through September of last year. As you've seen from our results this year, with the exception of materials costs, our personnel, general and administrative and other cost structure does not necessarily respond to variation in revenue from one sequential period to the next and this can naturally introduce some quarterly volatility. We had favorable adjusted EBITDA growth in the first quarter and unfavorable comparison in the second quarter, and a favorable comparison in this most recently completed period. As such, we’d ask that you don't place undue emphasis on the rate of growth that we produced in the third quarter, but rather view Hanger in the context of its year-to-date results. With that, in mind in yesterday's earnings release we reaffirmed our 2018 outlook which is that we anticipate our revenue and adjusted EBITDA for 2018 will be generally consistent with 2017 results. Our current intention is to provide you with our guidance for 2019 when we release our final 2018 financial statements in the first quarter. Thank you for your attendance on our call this morning and with that I’ll turn the call back over to the operator to open it up for any questions that you may have.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from the line of Brian Tanquilut with Jefferies. Please proceed with your question.

[Brian Tanquilut:]

Hey, good morning guys. Thanks for all the detail. So first question for me is as I think about organic growth and [indiscernible] in detail but on the new onset in the quarter was July 03, but how should we be thinking about your view on where you can bring organic growth to on a volume basis relative to industry in average growth?

[Vinit Asar:]

I’m not sure I head you, you kind of cut out, can you repeat the last part of your question?

[Brian Tanquilut:]

Yes, how are you thinking about your ability to drive organic volume growth and then as you are going to factor, one factor of which is where the industry is growing?

[Vinit Asar:]

Sure, yes, I think the way to think about it is the efforts we are putting in on the various parts of our portfolio, the prosthetic marketing efforts that I just shared with you, I think those will certainly drive organic growth in the prosthetic side as we have seen already year-to-date. You know this past quarter we had a 3.1% growth in prosthetics. We would like to see that continue with the efforts we're putting in on the orthotic side and we're focusing a little more on the customer orthotics piece of it, so we're hoping to see some of that uptick in the coming quarters as well. And then regionally, we have some variation in the regions around the country the way we manage the country. We are focusing on some of the lower performing regions to make sure that the different needs they have are addressed because as you can imagine the different regions have different issues but the majority of our regions today are showing above market or above market organic growth and we expect that to continue in the coming quarter.

[Brian Tanquilut:]

Got it and then as I think Vinit about your move to reduce your exposure to the commodity prosthetic, how much longer do we have in that upgrade in terms of just lapping that initiative and how it is [indiscernible]?

[Vinit Asar:]

Well, we actually, if you think about it, if you rewind back we started that effort maybe a couple of years ago we used to be heavily invested in initiatives like cares and [indiscernible] which were primarily that part of the product portfolio which we've exited from now. And as we continue to look forward, it's not just, it's more about figuring out how to deliver those lower end products in a more efficient manner. I mean what the focus is at this point.

[Brian Tanquilut:]

Got it and then as I think about Medicare range for 2019 you said [indiscernible] is already out there, how are you thinking about that and how does that flow through in the commercial setting of your business?

[Vinit Asar:]

Yes, I think it's a good question, so as we all know the CPI came in at 9% the year-to-date through June which is the base factor that CMS will likely use for reimbursement. They're going to pull a productivity factor off of that traditionally that in the recent years it's been about 50 to 60 basis points. So we'd probably be anticipating a low 2% rate growth for 2019 in the Medicare area of our business. Now that rate is used as a reference rate by commercial carriers and Medicaid, but I would say that they're said dampening of the flow through because not this contracts, some of them referenced the rate automatically but many of them it's more of a delayed response or something they have to negotiate too. So there will be some moderation down into the mid 1% to 2% range on that rate, but that's still favorable to the rate we have this year which would have been significantly lower than that.

[Brian Tanquilut:]

All right, then last question from when I think about the disallowance I know that's something that you have been focused on for a while, if you don’t mind just giving us, going ahead an update on where are you there and if you think you could bring us down further, I know you already brought quite a bit over the last few quarters?

[Thomas Kiraly:]

Yes, I mean so first of all let me start by saying that the disallowance rate did pick up slightly in Q3, but when you look at it on the year-to-date context it's very similar year-over-year as we talked about. It was, it's we're sitting at about 4.5% year-to-date compared with 4.4% last year, we consider that to be pretty much flat. And at the time, for the time being we continue to see that being relatively constant going forward. We don't see a trend one way or another, although we are incentivizing and encouraging proactive action in our revenue cycle group. The other thing I want to share with you is when you look at bad debt and disallowed together, we've actually had quite a big improvement on a combined basis in the quarter bad debt in disallowed on a combined basis went from $11.8 million down to $11.3 million or 5.4% down to 5. So we had some nice improvement in the quarter and in the year on a combined basis for those two factors. But certainly it's something where I wouldn't go to anybody and ask them to model further improvements in either as we go towards 2019.

[Brian Tanquilut:]

Alright, got it. Thanks guys.

[Vinit Asar:]

Thanks Brian.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from the line Dana Hambly with Stephens. Please proceed with your question.

[Dana Hambly:]

Hey, good morning. Tom, I wanted to go back to the day adjusted growth, I want to make sure I understand this, you're saying the better indication of the underlying growth is the 2.1% not the 0.5%, could you just help me understand that?

[Vinit Asar:]

Certainly in 2017, July 3, which is pretty much a non day for us came on a Monday and July 4 was a Tuesday and so the company has a holiday that it grants a floating holiday and they granted it on July 3 last year. So everybody had the day off and it wasn't a business day. This year July 3 was a Tuesday. we had it as a business day, but as you might imagine patients don't really want to schedule on July 3 because they're seeing it as a holiday and our employees take holiday pretty heavily on that day. So it's really not an effective business day and if you take 62 business days in a quarter one of those days adds up to 1.6%. So we put some noise on that day adjusted calculation in this particular quarter normally the cal I think works pretty well.

[Dana Hambly:]

Got it. So it's not like you lost those days, lost those visits last year, it would have been just patients rescheduling correct?

[Vinit Asar:]

Exactly.

[Dana Hambly:]

Got you. Okay, and just Vinit, did you, I think in your prepared comments talked about something on the off the shelf orthotics, you've had historically little focus. I wonder do they continue to be a little focus, are you trying to exit that business or are you putting more focus on it, I wasn't sure what you were saying?

[Vinit Asar:]

Yes, I appreciate the question. We don't plan an exiting the business, but really in the past we haven't focused on it much in terms of marketing to referral sources. Going forward we believe the right thing for this business is to figure out more efficient ways to deliver it. So we will focus more on the delivery of the lower end of the shelf products as well as shoes and inserts make it more efficient is what we believe we have to do, because the referral sources would still want us to be able to provide a full suite of products and off the shelf orthotic shoes in source would be a part of it. So the focus will be on delivering it more efficiently because today that's low margin product.

[Dana Hambly:]

Okay and then some comments on M&A, so glad to see we'll be hearing more about that soon. As you look at targets, how should we think about these, are these performing assets, are these non-performing assets or is it kind of one facility at a time or clusters of facilities, could you just help us think about that?

[Vinit Asar:]

Sure, certainly we'd be focusing on assets or businesses that are performing that are healthy. We'll be focusing on businesses that align with us culturally as well as align with us in terms of compliance standards. And certainly geography is an important part as well. Today we have a pretty robust database of what O&P dollars are being spent by payers around the country for every CBSA, So we know where the gaps are in our coverage. So that's how we begin to look at what the targets should be or where we should go for M&A activity. In terms of size, we're looking at the gamut of sizes depending on the geography, small, medium, and large, I mean it will be businesses depending on what our needs are.

[Dana Hambly:]

Okay, last for me Tom. CapEx, I thought you had targeted maybe $30 million to $35 million I think year-to-date, you're around about half of that, has that target come down or is there are you going to make it all up in the fourth quarter?

[Thomas Kiraly:]

Yes, don't forget that when we're talking about CapEx, we're certainly describing both line items, both the CapEx line item on investing activities as well as the purchase of therapeutic program equipment.

[Dana Hambly:]

Okay.

[Thomas Kiraly:]

And so when you put those two together, I think you'll see us much - trending much closer to the numbers we're describing. We see it both as capital expenditure, but we just break the one out for more transparency around the therapeutic services program.

[Dana Hambly:]

Got it. As remind me what level is related to the therapeutic?

[Thomas Kiraly:]

Yes, so for example in this quarter we spent about $2.6 million on the therapy equipment and we'll be at about $6.4 million for the year-to-date, so that will be up around $8 million or $9 million by the end of the year.

[Dana Hambly:]

And that's part of that $30 million to $35 million.

[Thomas Kiraly:]

It certainly is.

[Dana Hambly:]

Okay, thanks for that clarification. I appreciate it.

[Vinit Asar:]

Thanks Dana.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from the line of Larry Solow from CJS Securities. Please proceed with your question.

[Larry Solow:]

Good morning guys. Thanks for taking the question and a nice another good quarter. I just have a couple of questions on the outlook for on the cost side, I know you discussed a little bit on the revenue on topline side. Equipment cost seemed to be somewhat stable a few quarters. I know you guys have talked about the desire f certainly to continue to invest in the business, but do you think you're at an adequate level on that side and going forward could you, you maybe start getting a little more leverage as we look out to 2019 and 2020 and beyond?

[Vinit Asar:]

I think from my perspective we are at an adequate level. I don't see a significant uptick from here on and we certainly have increased the spend this year compared to last year, but I believe we're at the optimal level.

[Larry Solow:]

Got it. And then just on the acquisition front, just a follow up to that, obviously with the tremendously increased reimbursement requirements and paper trails and all that needed, I imagine there are a lot of companies out there who are performing well on an operations basis, but maybe back office and dealing with reimbursement stuff is putting some strain on the business and perhaps more opportunities out there than there were five years ago, is that a fair statement?

[Vinit Asar:]

It's fair, but just as we invested in our back office operations there are good businesses out there that are also looking at reengineering their own operations the same way. So I would say the pipeline is about the same or maybe slightly better, but the businesses we're looking at are the stronger businesses.

[Larry Solow:]

Got it. Okay, great.

[Thomas Kiraly:]

Yes, Larry I'll just add that when we go through the diligence process so it's obviously a key part of our diligence and integration process is to make sure that net-net when we bring our administrative practices to bear that we're net better off.

[Larry Solow:]

Right. Okay, great. Thank you.

[Vinit Asar:]

Thanks Larry.

[Operator:]

Thank you. We have reached the end of our question-and-answer session. I would like to turn the call back over to Mr. Asar for any closing remarks.

[Vinit Asar:]

Yes, thanks everyone for joining this call. Just a reminder, we're just excited to be able on Monday morning to be able to ring the New York Stock Exchange bell in honor of our nation's veterans with our veterans and patients as well as employees with us. So we appreciate your interest in Hanger. Thanks very much.

[Operator:]

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.