Good morning, ladies and gentlemen. Welcome to Chemed Corporation’s First Quarter 2012 Conference Call. My name is Fab and I will be your conference call facilitator today. Please note that today's call is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period. I would now like to turn the call over to Sherri Warner with Chemed Investor Relations.

Good morning. Our conference call this morning will review the financial results for the first quarter of 2012 ended March 31, 2012. Before we begin, let me remind you that the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 apply to this conference call. During the course of this call, the company will make various remarks concerning management's expectations, predictions, plans and prospects that constitute forward-looking statements. Actual results may differ materially from those projected by these forward-looking statements as a result of a variety of factors, including those identified in the Company's news release of April 19, and in various other filings with the SEC. You are cautioned that any forward-looking statements reflect management's current view only and that the company undertakes no obligation to revise or update such statements in the future. In addition, management may also discuss non-GAAP operating performance results during today’s call, including earnings before interest, taxes, depreciation and amortization, or EBITDA and adjusted EBITDA. A reconciliation of these non-GAAP results is provided in the Company's press release dated April 19 which is available on the Company's website at chemed.com. I would now like to introduce our speakers for today, Kevin McNamara, President and Chief Executive Officer of Chemed Corporation; Dave Williams, Executive Vice President and Chief Financial Officer of Chemed; and Tim O’Toole, Chief Executive Officer of Chemed VITAS Healthcare Corporation Subsidiary. I will now turn the call over to Kevin McNamara.

Thank you, Sherri. Good morning. Welcome to Chemed Corporation's first quarter 2012 conference call. I will begin with some of the highlights for the quarter and David and Tim will follow with additional operating detail. I will then open up the call for questions. Chemed consolidated revenue in the quarter totaled $353 million and that net income was $20.4 million. If we adjust for certain non-cash items and items that are not indicative of ongoing operations adjusted net income for the quarter totaled $23.3 million, and equated to adjusted earnings per diluted share of $1.21. This is an increase of 13.1% when compared to adjusted earnings per diluted share in the first quarter of 2011. During the quarter our hospice business segment generated revenue of $261 million, an increase of 10.7% over the comparable prior year period and provided adjusted EBITDA of $35.5 million. This equated to an adjusted EBITDA margin prior to Medicare Cap of 12.7%. Admissions in the quarter totaled 16,322 an, increase of 3.3% over the prior year. Our adjusted EBITDA margin excluding Medicare Cap did decline to 99 basis points in the first quarter of 2012. This is primarily the result of increased costs related to our new start initiatives, and inpatient unit expansion. We now have 5 new start initiatives in process that reported aggregated losses of $1.4 million. These losses negatively impacted the quarterly margins by 55 basis points. We also have 5 inpatient units under development. Losses for these inpatient units aggregated $500,000 in the quarter further reducing margins by an additional 20 basis points. During the first quarter of 2012 VITAS reversed $2.6 million of Medicare Cap liability that was recorded in the fourth quarter of 2011. This compares with $1 million of Medicare Cap reserved in the first quarter of 2011.…

Thanks, Kevin. The net revenue for VITAS was $261 million in the first quarter of 2012 which was an increase of 10.7% over the prior year period. If you exclude the impact of the Medicare Cap our VITAS revenue increased 10.1%. The revenue growth was a result of increased Average Daily Census of 6.1% driven with an increase in admissions of 3.3%, increased discharges of 4.1% and Medicare price increases of approximately 2.5% Revenue growth was further enhanced by an additional day of revenue due to the first quarter of 2012 being a leap year, reversal of Medicare cap liabilities, and a slightly favorable geographic mix shift within the patient base. Average revenue per patient per day in the quarter excluding the impact of Medicare Cap was $207.12 which is 2.6% above the prior year period. Our Routine home care reimbursement and high acuity care averaged $162.75 and $713.38 respectively per patient per day in the first quarter of 2012. During the quarter high acuity days of care were 8.1% of our total days of care. The first quarter of 2012 gross margin excluding the impact of Medicare Cap was 20.4%, which is a decline of 108 basis points from the first quarter of 2011. As Kevin noted earlier, this decline in margin is primarily the result of increased related to our expansion of start-up locations, as well as the increased cost associated with our continued build out of inpatient units. Our home care direct gross margin was 15.4% in the quarter, a decline of 70 basis points when compared to the first quarter of 2011. Direct inpatient margins in the quarter were 14.1% which compares to 13.0% in the prior year. Occupancy of our inpatient units averaged 78.3% in the quarter and compares with 76.8% occupancy in the first…

Thank you, David. Our growth strategy continues to put a high priority on field base personnel in order to provide our patients and referral network with timely information and education about our services. In addition, we have an extremely responsive admission process including 24/7 call centers and highly skilled admission coordinators. As of March 31, 2012 we have 339 sales representatives, 163 admissions coordinators, 372 admission nurses, 102 community liaisons and 24 long-term care liaisons. We have expanded our resources in this area by 10% compared to the first quarter of 2011. This focus has resulted in VITAS generating 16,322 admissions in the first quarter of 2012, an increase of 3.3% over the prior year period. Admissions increased in 2 of our 4 largest referral categories. During the first quarter of 2012, home based admissions increased 12% and our hospital referred admissions increased 2.5%. Assisted living facilities declined 1.6% in the quarter and nursing home admissions declined 0.1%. VITAS' average length of stay in the quarter was 82.4 days which compares to 78.9 days in the prior year quarter and 79 days in the fourth quarter of 2011. Average length of stay is calculated using total discharges during the quarter. Medium length of stay was 14 days in the quarter. Medium length of stay is a key indicator of our penetration into the high acuity sector of the markets. Our days of care totaled 1,246,976 days in the quarter an increase of 7.2% over the comparable prior year period. Non-nursing home routine home care days increased 10% in the quarter and nursing home routine home care days declined 0.5%. Nursing home days of care currently represent 21.8% of our total days of care. Currently on any given day about 22% of our average daily census were about 3,000 of our patients reside in a skilled nursing facility. Approximately 80% of our total nursing home based hospice patients reside in a skilled nursing facility where we have 3 or less patients within that nursing home. This illustrates our diverse referral network. Continuous care and inpatient days of care both increased 6% when compared to the first quarter of 2011. At March 31, 2012 we had five programs classified as start-ups. Total operating losses for these 5 startups totaled $1.4 million in the quarter and compares to losses of $130,000 for locations classified as a start up in the prior year period. With that, I'll turn the call back over to Kevin.

Thank you, Tim. At this point it'd be appropriate to consider questions.

[Operator Instructions] And your first question will come from the line of Darren Lehrich of Deutsche Bank.

Couple of things here. On the Roto-Rooter segment, obviously understand the weather issue that you are describing. I guess the question is how easy is it for you to sort of parse out the residential impact from that, just the weather and could there be other factors as well still weighing on the business, just curious to really understand how your insights into the business trends feed up to you.

Let me start, Darren, and suggest that what we usually see is a bit of seasonality in the Roto-Rooter business and the first quarter is we usually see a bump up which we would see is often associated with extreme cold weather plumbing services. We've talked about the frozen pipes, thawing pipes and it's just a couple percent on the business but it was almost as Dave indicated, totally eliminated this year and so that was a couple percentage points. We'd also saw one of the things that we can really do something about it on the commercial side, a little more direct, active market that has more of a short-term effect and that was fairly good for the quarter but to really answer your question is do we see something else other than just this the absence of a positive bump in the first quarters on the frozen pipes. Yes, we see continued relatively demand in consumer demand on the residential side, particularly in the Midwest and West and if you said what that predictable and one of the things that we said all along was if you look at our business over the last 30 years, on Roto-Rooter the best indicator for residential demand for our services is unemployment rate and if you really follow that you might see the unemployment rates improved a little bit but it's basically improved by changing the numerator. I mean, it's just that the number of jobs aren't being created so much as they are reducing the number of people looking for work. So do we continue to see reduced call counts on the residential side? Yes, we do. So there is a little bit more to it but it's nothing that again is of great worry. Any time your business is lower than expected in the quarter, you expect to say that's going to be, are you continuing from just a lower base in the following quarters and we pretty much have not seen that, I would say to the extent that the shortfall was attributable to the lack of freezing temperatures. Our observation has been that the decline was kind of limited during that period and the regular businesses is achieving results close to expectation with a one caveat as yes, it's still we don't have ebullient demand on the residential side. Dave anything you want to add to that?

No, except when we code out jobs Darren, we code out for the procedures performed, when you replace the faucet you put down, you replace the faucet. We don't put down what caused it. So to have a direct correlation of frozen pipes, it's very difficult except usually if a pipe freezes, it creates a lot of damage, occasionally it's rare that we catch a pipe just as it froze and the only thing we do is thaw frozen pipes. It obviously is just a small fraction of the work that we get when a pipe bursts because it's frozen, but we saw an 81% decline in thaw frozen pipework which leads us to believe the problem when a pipe freezes and it cracks a faucet that cracks the pipe and of course that will be coded out, repaired interior wall for a hose bib. We'd lose that work. So an 81% decline in thaw frozen pipes clearly is a leading indicator that we lost a lot of repair work but we can't pin it down specifically.

The other question I had, if there was a tiny little bit of acquisition related CapEx and the cash flow statement, so I am just curious what that was and any broad commentary that you would give us at this point on just what you are seeing from an acquisition opportunity in either segment.

Yes, that was a small, what we call an independent contractor. So small Roto-Rooter territory we acquired. Beyond that, Kevin, in terms of…

Yes, I'd say on the acquisition front, with both companies it's as quiet as I've seen it in the last couple of years.

Okay. Last thing, just housekeeping-wise, I know you had a big cash flow quarter ending last year. Is it just the seasonality in this quarter, anything that you call out from the working capital standpoint?

No nothing actually to call out at all. Literally of course, in the fourth quarter of 2011 we had like $66.4 million of cash from operating activities and that was because a huge reduction in receivables because at December 30 of 2011 was a PIP payment. The end of this quarter we actually fell in between the 2 PIP payments so it's just a timing of that and it really does work its way out over a 4-quarter period but basically whenever you have a strong cash flow period, it's either because you proceeded at week one or the impact of the next one is going to be a buildup of receivables and that's what we saw in this case.

And generally speaking it continues our free cash flow. It's just about equal to our net income and that remains the case. That's exactly right.

Your next question will come from the line of Jim Barrett with CL King Associates.

Kevin, I head the commentary on plumbing. The drain cleaning segment was down 9.9%. I assume that would relate to tree roots and debris rather than pipes freezing or unfreezing. Could you just clarify what happened there?

First of all Jim, it's freezing pipes as well. There is a carryover just as far as our coding out, but generally speaking I would say, and which I mentioned, I don't want to suggest that coat volume is in any way improved. It's tough. I'll give you an example; I don't see much political implication but was particularly tough in Ohio. A key swing state when you [indiscernible] and Ohio is one of the states where they would say that the unemployment rate has fallen a little below, the rate is a below the national average. But I would just say that there is some pockets in the Midwest where call counts are really down and there is no indication as far as market share, there is no indication we are losing any market share but it's just a little bit tougher than you would expect, but again it's to the extent that you see a decline like that without ready explanation but you do have something that has been very disruptive on the normal, call it January and February operations. That is cold weather related work. It's too early, I'll be speculating at this point because there is no other explanation for it. It doesn't seem that worrisome to us. I mean, the Roto-Rooter remains, they are making headway in their internet placement, they are - continue to do an excellent job retaining workers and plumbers so it's one that we are. We didn’t see the bump, we normally get in the first quarter, there is no way to, I don’t want to shrink from that observation and coupled with couple on top of that is overall lack of robust call volume. It just something they are dealing with, I think they are a very efficient company, every one of those hurdles I think they do a great job in addressing.

Okay that was helpful, and can you give us an update on your legal activity specifically as it relates to San Antonio?

The update I have is there has been no development, no significant development related to us. I will say that there was a development and that the if you remember the case, part of the claim was where there was some conspiracy between, some other company to send patients our way and inappropriate patients and we would treat them and whatnot, that other company has been dropped from the lawsuit so I imagine that’s tied up with some of these quote conspiracy, unquote charges but they have been dropped from the lawsuit but with us no significant developments we don’t really anticipate any significant developments in the short term. But we are still comfortable, and I mean Tim can jump in at any time but we are still comfortable we make every effort to make sure that every patient we serve is an appropriate patient, and I mean the only thing I will say one thing I will add something to it and we are an unusual business in that, in virtually every case the patients that come to us. We don’t give them the terminal diagnosis, I mean they come to us with a terminal diagnosis, so I mean that’s one of the benefit if this is the Achilles' heel of any hospice business, I mean given the fact that we get you know such a high percentage of referrals from doctors that are from related to the patients whose doctors we have no connection with whatsoever it's one of the benefits of our business. But no with regard to so there is so many no significant developments, if I just some of the other cases that we report on in our 10-K the only other development you may have seen the Brinker case in California, [indiscernible] break, wage hour, cross action there which you know which has been proceeding pretty well. The California Supreme Court decided 9 to 0 basically in favor of the employer in that case so that’s probably a good development in the only other significant case we report on is the again a wage hour case class action case involving Roto-Rooter that’s been fully briefed, we are waiting for the court to make a preliminary ruling on that case but other than the lot of work, our reported results, lot of expense is behind us and we are waiting for some results there but. Again we have a company that makes no effort to, we are in this for the long run, we make no effort - we want to comply with the law and improve one year over, another year over another year. You know one of the comments I made was recently is if we have that orientation you expect good results and litigations because you just don’t have evil intent because it's not a good strategy if you are looking to be here for the long run.

Agreed and, Tim, can you tell us how many startups you plan over the next - rest of the year over the next 12 months?

Well we went into the year expecting to have one new start open each quarter of the year and we pretty much accomplished that through the first quarter. So right now we have 5 locations as we mentioned that we are working on and I think we will allow those to mature a little bit in the next quarter or so, so I don’t think we will see any new start necessarily in the next quarter but in the second half of the year at least one and probably 2.

But generally our plan is not to have that expense of losses associated with new starts be a burgeoning number. It's a number that we are happy with…

The number in this quarter is kind of all in for us, we wouldn’t not expect those losses to increase but we would like to add several more as the year unfolds and as we've mentioned you know we see the opportunity to have new starts develop our own business with own practices it is very stable opportunity compared to the acquisition markets which as we mentioned are kind of slow and we haven’t been successful there and the new starts are a great opportunity for us a result.

Understood and then finally Dave, can you explain what underlies the capital expenditures of $12 million in the quarter?

Yes it'd be a combination of things both from Roto-Rooter and VITAS, I think the jump was inpatient units was the unusual jump and obviously we think we are a little front-loaded probably for the first time in a while on our CapEx. We expect the CapEx to end up the year around $25 million to $30 million would be the rough estimate but equal to our depreciation and amortization for the year.

Your next question will come from the line of Brendan Strong with Barclays.

Just going back to the startups what’s the right base to compare that off of, I mean it's not the 52 programs I don’t think.

The right basis as far as the number we are expanding?

Yes, the 5 that you opened in the first quarter, I mean what’s the right way to think about that in terms of the size of the business?

Well, I mean as far as the number of locations they would - all of these out of those 5 I believe that’s 4 provider numbers as far as new provider numbers. So you can compare that to the 50, so those would be included in the results this time expect for the ones we don’t have a provider number for yet which is 3 of the new starts. So you would see the locations probably go up by 3 over the next 3 to 6 months as those provider numbers get processed by the intermediaries.

Okay, and all right. That’s interesting, and I apologize I joined the call late, Tim, did you say anything about the cost in the first quarter I mean is it, I mean it seems like it's more than just the startups driving the cost of goods higher for the fourth quarter?

What we spoke about is the start-ups which incrementally added about 50 basis points or reduced our margin by about 55 basis points and probably 25 to 30 basis points for the investment in some new inpatient units. So we did speak about it in the commentary those 2 figures and other that really the margins are pretty consistent with the prior year, the other investment would have been in the admissions area. So, again the admissions area our costs were up about 14% year-over-year and our headcount up about 10, so again we are investing heavily in admissions to drive the business and support its growth, so those are the investments. I feel very good that the labor is in pretty good shape as far as the care giver labor and the field were doing a good job there so these admission cost and the startup cost and the IPU cost you know they will work their way through over time and we will eliminate those.

Brendan, keep in mind that we are fighting a little bit of a headwind in terms we got a 2.5% increase from Medicare but inflation was really running at the low 3% range. So, that’s the headwind that goes through the model and we fight like heck to be more efficient to try to offset that.

And Dave, is there anything else that’s seasonal in the first quarter that there is some extra expenses that come in extra taxes, anything like that?

First quarter for both Roto-Rooter and VITAS has a lot of unemployment, the unemployment for federal and state gets reset on the calendar year so it takes the first quarter before we get caught up with most of those.

How can I think about that in terms of absolute dollars, is there any number you can give me on that?

About 50 basis points, Tim.

Yes about 50 basis points in the first quarter that will go away in the second quarter. It pretty much goes away by March it's mainly the unemployment taxes that are on a lower wage based and the total wage base that we have to book in the quarter.

And I put probably - I probably got more like 60 basis points on the Roto-Rooter side because of the peer commission and the way we are structured.

So you get some natural leverage from that in the second quarter on your cost plus you get other areas of leverage. So cost I mean we should be expecting, the cost of goods sold as a percentage of revenue to trend lower throughout the year?

Yes and that's actually been the pattern over the last 10 years, the first quarter is the toughest margin quarter, the fourth quarter is your best margin quarter for both operating units.

Okay. And then my last question is I mean I don’t know if you would be willing to speculate on this but at what point, as you think about next year, all right with the potential for you know certainly much lower Medicare rate increases and than the 2.5% you are getting this year. At what point do you really worry about, I mean is it anything above 0, hey we will still try to manage to it, if it's a cut that’s when it's a big issue, how are you guys thinking about that conceptually.

Conceptually, I can tell you we are historically we have been in the game of increasing margins in VITAS. Our goal here is maintaining margins at VITAS and we have one thing that works to our advantage is in the last 10 years in each of last 10 years we have had central support cost grow at 1/2 or less of the rate of the top line. So that has given us a little bit of advantage there for growth. We are going to continue that this year, on the central support cost and then the whole game then becomes managing labor cost. You can’t have your labor cost go up on a labor cost per census basis, you can’t have them go up more than the rate of increase, one way or the other and you say to each other - worry about it, will it be tough? Will it be difficult? The answer is yes, but you know in the very short to mid-term the numbers have to be in equipoise. I mean there is just no way around it. It's not like I am upset, the answer to the question is if it was 10% or 15%, you would say well it can’t be done and the industry has been changed and you know forever, but that’s not what we are talking about. We are talking about you know a percentage point and a half here or there and you just got to - one of the biggest advantages we have is we literally do one patient visit per patient per week more than the national average and that’s an advantage that we would like to maintain as long as possible but again that’s a huge operational advantage that we have.

] And there are no further questions in the queue. I would now like to turn the call over to Mr. Kevin McNamara for closing comments.

Comment is limited to thank you for your kind attention, and we will see you soon. Thank you.

Thank you, all, for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a wonderful day.