Good morning, ladies and gentlemen, and welcome to the Chemed Corporation’s Third Quarter 2012 Conference Call. My name is Emily and I will be your conference call facilitator today. Please note that today’s call is being recorded. [Operator Instructions] I would now like to turn the call over to Sherri Warner with Chemed Investor Relations.

Good morning. Our conference call this morning we will review the financial results for the third quarter of 2012 ended September 30, 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 October 29 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 October 29, 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’s VITAS Healthcare Corporation subsidiary. I will now turn the call over to Kevin McNamara.

Thank you, Sherri. Good morning. Welcome to Chemed Corporation’s Third Quarter 2012 Conference Call. I will begin with some of the highlights for the quarter, and David and Tim will follow with some additional operating detail. I will then open up the call for questions. Chemed consolidated revenue in the quarter totaled $354 million; the net income was $20.8 million. If you adjust for certain non-cash items and items that are not indicative of ongoing operations, adjusted net income for the quarter totaled $24.7 million and equated to an adjusted earnings per diluted share of $1.28. This is an increase of 6.7% when compared to adjusted earnings per diluted share in the third quarter of 2011. During the quarter our hospice business segment generated revenue of $268 million, an increase of 5.9% over the comparable prior year period and provided adjusted EBITDA of $39.8 million. This equated to an adjusted EBITDA margin of 14.8%. Admissions in the quarter totaled 15,539, an increase of 4.4% over the prior year. We have 3 new start initiatives in process that reported aggregate losses of slightly under $1 million. These losses negatively impacted the quarterly margin by 37 basis points. VITAS did not incur any Medicare Cap billing limitations in the third quarter of 2012. The Medicare Cap 2012 fiscal year is based upon Medicare admissions from September 29, 2011, through September 28, 2012, and is compared to Medicare hospice billings from November 1, 2011, through October 31, 2012. Based on admissions during this period, VITAS estimates that there will be -- there will not be any billing limitations for the 2012 Medicare Cap fiscal year. VITAS has 35 unique Medicare provider numbers, 29 provider numbers have a Medicare Cap cushion of 10% or greater during the 2012 Medicare Cap year, 2 provider numbers…

Thanks, Kevin. As Kevin mentioned, VITAS’ 5.9% revenue growth was a result of increased ADC of 4.5% driven by an increase in admissions of 4.4%, increased discharges of 4.5% and Medicare price increases of approximately 2.5%. Revenue growth was partially offset by a mix shift between routine home care and our high acuity care. Average revenue per patient per day in the quarter, excluding the impact of any Medicare Cap, was $204.03, which is 1.5% above of the prior-year period. Routine home care reimbursement and high acuity care averaged $162.90 and $706.19 respectively per patient per day in the third quarter of 2012. During the quarter, our high acuity days of care were 7.57% of total days of care, 15 basis points lower than the prior-year quarter. The third quarter of 2012 gross margin was 22.2%, which is equal to the gross margin in the third quarter of 2011, when you exclude the impact of the Medicare Cap in the prior-year quarter. Our home care direct gross margin was 52.5% in the quarter, 10 basis points above the third quarter of 2011. Direct inpatient margins in the quarter were 9.2%, which compares to 12.4% in the prior year. Occupancy of our inpatient units averaged 73.4% in the quarter and compares with 74.3% occupancy in the third quarter of 2011. There are currently 3 inpatient units classified as startup in the quarter. These startups negatively impacted our inpatient margins by approximately 140 basis points. Continuous care had a direct gross margin of 19.0%, a decline of 170 basis points when compared to the prior year quarter. Average hours billed for a day of continuous care averaged 18.9 in the quarter, a 3.6% decline over the average hours billed in the third quarter of 2011. Our selling, general and administrative expense was…

Thank you, David. We continue to make investments in our sales and marketing efforts including training, education and recruitment of additional staff. Admissions at VITAS continue to increase at a healthy level. In the third quarter, we generated 15,539 admissions, an increase of 4.4% over the prior-year. On a year-to-date basis admissions increased 3.9%. As of September 30, 2012, we have 345 field sales and marketing personnel, 168 admissions coordinators, 375 admission nurses, 44 admission liaisons, 77 community liaisons, and 23 long-term care liaisons. Admissions increased in 3 of our 4 largest referral categories. During the third quarter, home-based admissions increased 9.4%, and our hospital referred admissions increased 4.3%. Assisted living facilities increased 18.7% in the quarter, and nursing home admissions declined 1.3%. VITAS’ average length of stay in the quarter was 78.5 days, which compares to 80.1 days in the prior-year quarter, and 74 days in the second quarter of 2012. Average length of stay is calculated using total discharges during the quarter. Median length of stay was 15 days in the quarter. Median length of stay is a key indicator of our penetration into the high acuity sector of the market. Our days of care totaled 1,313,472 days in the quarter, an increase of 4.5% over the comparable prior year period. Non-nursing home routine home care days increased 6.7% in the quarter, and nursing home routine home care declined 1.4%. Nursing home days of care currently represents 21.5% of our total days of care. On any given day approximately 22% of our average daily census, or about 3,000 of our patients, resided in a skilled nursing facility. Continuous care days of care increased 3.7% and inpatient days of care increased 0.8% when compared to the third quarter of 2011. At September 30, 2012, we had 3 programs classified as startups. Total operating losses for these startups totaled $1 million in the quarter, and compares to losses of $625,000 for locations classified as startup in the prior year period. We also had 3 inpatient units classified as startups at September 30, 2012, located in Florida, Georgia, and Kansas. VITAS expects to continue making significant investments in inpatient units, which are important to providing quality patient care. With that I’ll turn the call back over to Kevin.

Thank you, Tim. At this point it’s appropriate to receive questions.

[Operator Instructions] Okay, your first question comes from the line of Jim Barrett of CL King & Associates.

Tim, I think this is a question for you. With your average reimbursement rate in the current Medicare fiscal year being 90 basis points, what do you estimate your going-in inflation rate is in running that business, and how do you plan to address it if it’s more than 90 basis points?

Oh, very good. Well, Jim, we been understanding this is coming to us here for several years now, and so our planning is to be as productive as we can in all of our expense lines, especially the labor line, and match the rate increase. And, again, our strategy will remain the same; we are looking to protect margins with our corporate expense area growing at a slower rate than field, and I think we certainly need volume increases. So our goal is to have volume increases in the marketplace and grow share where we’re at and improve underperforming units. But, again, yes, you’re right that’s a challenge. Again, we look at our -- the benefits area, obviously fringe benefit compensation, all of the areas. For example in the labor line, and as well as in ancillary services, like our medical equipment, our medical supplies, our pharmacy, and all I would tell you is, yes, it’s our goal to keep all of those in line with our growth rate on the top line, and we feel pretty good about being able to do that in the near-term.

And Jim, also additional, keep in mind that what you are describing, generally, is something we’ve already have for the last couple of years. I mean, the budget neutrality factor has been a cut in reimbursement that really illustrates what’s called the industry inflation; that is hospital wage index and CPI combination to give us a “increase” in reimbursement reduced by budget neutrality factor. So we’ve been dealing with those forces now for couple of years. Now the last couple of years, in addition to the cut to the budget neutrality factor, there -- from a regulatory standpoint, there is a bit more labor hours demand, in the most expensive labor hours for us, doctor or physician hours for physician narrative and face-to-face, but so what you’re describing is, yes, I mean to the extent that we see real inflation in the industry being up 3%, we’re only getting 90 basis points increase. It’s not like it’s a 10% cut, it’s, I think, doable but requires everybody to roll up their sleeves. In fact, we’re having a meeting right after this call to -- some detail to address those issues. But you put your finger on the, what will be crucial for VITAS and any hospice company over the next couple of years.

And would you expect the industry and possibly VITAS to reduce, at least incrementally, the number of visits per week per patient?

Well, let me ask you this -- this is the question that I -- this is how I start that discussion with our operating people in field. I say if the government reduced reimbursement from a $170 a day to a $100 a day, would there be more visits, fewer visits, or the same number of visits, and I guess people usually say fewer visits. Well if the government reduces reimbursement 3%, would there be more visits, the same number of visits, or fewer visits? I think that ultimately whether they decide -- whether the industry decides that this year or next year or the following year it will reduce it slightly, hopefully imperceptibly, fewer visits. And it’s one thing to talk about what VITAS is planning on doing, and however that’s achieved, I think what we’ll observe in the industry is with so many hospice companies at the break-even level or below, what are they going to do when reimbursement continues to not equal their inflation? So I mean, they’re going to have fewer visits per patient per week, I believe. I believe that will be an observed event. It’s very difficult to engineer. Our visits are driven by plans of care, by labor available. I think that over time, our -- as you know, Jim, we have about 9/10 of a visit per patient, per week more than the industry effort. So we have a -- we have an advantage there as we’re managing that. And we also have an advantage in that we’re profitable, we’re not metal against metal. But yes, I think that will be something that this capitalism being what it is, I think that’s something that will be an observed event rather than planned.

Okay, and Kevin, either for you or Dave, there’s been a dramatic slowdown in your share repurchase this year. Is that a strategic intent? Are you looking to do more acquisitions? Can you comment as to why that has come about?

I’ll turn it over to Dave, but the answer is just, we try to be opportunistic, but Dave you want to put more color with that?

No, our attitude still is the best use of our cash right now, absent some attractively priced acquisitions, is in share repurchase. Nothing has changed in that regard. But we, as Kevin mentioned, we’ll be opportunistic, and we will take advantage of any strange pricing that seems to periodically happen within our stock.

And Jim let me just say that in talking to shareholders over the years, I would say, it is pretty hard to argue with a good stock repurchase program. And they always say, my only problem with it is companies always buy at the high, and they end up with too high of an average price. And I -- all you can do by that is just say, yep, that’s -- that has a way of happening if you’re not pretty disciplined on the opportunistic side of things.

True. And last and least, Kevin, will this hurricane activity give Roto-Rooter at least a temporary burst on the -- up and down the East Coast, based on your experience?

Well I’ll tell you this, based on my experience, if you can get around and there is power, that’s good, that’s very good. Until such time, it tends to be a total loss.

Yes, so the short-term negative is we don’t have trucks on the road, but once they can get on the road, then they’re going to have more business than they could possibly handle for a period of time.

Your next question comes from the line of Darren Lehrich with Deutsche Bank.

A few things, I just want to key into the last part of the question as it relates to capital deployment. And I guess I’m just curious as it relates to the Roto-Rooter initiatives that buy in franchisees over time, just given the anticipated changes in tax law, and we’re coming into the year end, anything short run that we should be expecting around that activity?

I would say, no, it’s something that if you look at -- I can just give you automatically we just recently prepared for some of our Board of Directors talking about our last 3 Roto-Rooter acquisitions, and their, how they done, basically, and they're all off the chart. I mean, we’d love to do more, but they just are not generally available until there is some kind of event like a death in the family. I will say that, again, I don’t want to feel we don’t report on acquisitions ‘til they occur, but I would say, we do and are engaging in discussions. But given the fact that we’re -- what I hope is, in retrospect, viewed as a disciplined buyer rather than an overly conservative buyer. I think that there is still a lot of work to be done on that regard, but it’s something we -- the upside is so good for Roto-Rooter, it’s something that gets a lot of attention for us.

And Darren, you are absolutely right. Financially, given the uncertainty on tax rates, this year would year be a better time from a tax standpoint to sell than next year. But for the franchisee, first and foremost it’s an emotional decision, and they have to cross that emotional bridge before they even consider the financial aspects. So again it’s not as rational as you would like.

Okay and then, I guess just a maybe a few others questions on Roto-Rooter, and I wanted to focus a bit on VITAS, but, Kevin, you expressed disappointment, obviously in the flattish EBITDA outlook for this year. It seems to be a bit of a disappointment on the margin side, and you mentioned health expense. Some of that you can’t control of course. But can you just talk in general terms about margin productivity, and what do you think might be missing this year relative to your original plan?

Very good question. As we’ve said, tough first part of the year, for a couple reasons, we hesitate to say it, but we said a lot of weather-related issues, and we tried to -- we certainly saw, maybe everyone else saw, kind of a stabilizing in some of the elements of demand in the business. Which, I mean, if -- there was some stabilization, not as much as I thought, but this on the issue of margin is a complicated issue. But there -- my understanding of the number, if I remember, the -- our margin at Roto-Rooter was down 223 basis points compared to the previous year’s quarter, 200 points of that was healthcare expense. So the question is, and you say, well to a company like Roto-Rooter, what is healthcare expense? We’re self-insured. It’s not the $300 or the $2000 or $3,000 claims, it’s big claims. The -- we have had more big claims than we’ve ever had before, and the big claims are more expensive than previously. I had -- we’ve made significant changes in the stop losses and what not for next year. We’re -- we’ll be able -- we’re making some tough choices in that regard. But when you talk about a quarter that’s already kind of a tough one, with unemployment still very high, consumer demand still just -- one good week out of 4, which is up from no good week out of 4, it’s tough to have a situation where you have a negative comparison of 200 basis points in margin.

Yes, and Darren, just to put that in a perspective. So last year we had about $19 million in healthcare costs for Roto-Rooter, and this year it’s going to be $23 million. And as Kevin said, driven really by large claims. We haven’t seen -- we have to go back 2 or 3 years, I think, before we saw something like that before. We are actually, for next year, going to forecast somewhere in between the 2011 and 2012 years. But -- so really in 2012, there is a combination of soft demand on the top line, coupled with just bad time, and when we have these large unpredictable claims that really took, instead of 2012 being the second best year ever, it’s basically putting us flat with 2010. But that really points out what Kevin and I’ve been saying for quite awhile now. Roto-Rooter, absence of any inflation in the business model, so in real dollars, we kind of operate in this corridor between $58 million, $59 million of EBITDA and about $65 million of EBITDA, and we kind of -- and then with depreciation and amortization equaling about our CapEx. So absence of any acquisition, that’s kind of the range I think you expect in the cash flow we expect to generate out of the Roto-Rooter business model. We certainly want it on the higher-end, but it’s unpredictable. But within our business model, of course, we have a commission labor force. So if the labor doesn’t happen or if the revenue doesn’t happen, the labor doesn’t happen, but there are other expenses within the business model that are unpredictable like healthcare. We have worked -- there’s a lot of activity happening below the surface in trying to offset some of those expenses in other categories, but it just too big of a nut for us to overcome completely, and that’s just the nature, unfortunately, of Roto-Rooter.

Yes, makes sense. Thanks for the color on the health expense claims that put that in perspective. The other questions I had just are around the hospice business. And I guess you commented a little bit about how you’re trying to manage expense growth with sequestration a possibility. I guess I wanted to hear a little bit more about how you expect to manage through that. We had a $1 million of startup expense in the quarter, are there things like that you can, I guess, put off for next year that, maybe, just help us think about how you’re going to maneuver through potentially even deeper cut in your Medicare rates?

I’ll turn this over to Tim. But I -- from my perspective, it’s, well, it's 2 things, Tim’s already mentioned one. We want central support costs to grow at a rate lower than the top-line for each of the previous years. That, that growth has been less than half of the top-line growth. That gives some cover and some margin protection on it. But my second point would be controlling labor. And there is 2 ways to control labor. By the hourly rate that you’re paying to the person providing the service. That is you pay less to lower echelon nurses than higher echelon nurses. You try and be more productive. You have fewer labor dollars. Sometimes, as I said earlier, that may result in the industry in slightly fewer visits per patient, per week. But 2 things I would say and, Tim, I -- feel free to disagree with me, but I’d say really from my perspective, from a headquarter perspective, we’re focusing on making sure we get that leverage from the SG&A growing a little slowly and controlling labor costs on a daily, weekly, monthly by program basis. Tim?

I mean, I echo that, I mean, basically, as Kevin said, all costs are being focused on for control, and in the corporate area you can dial those numbers back and certainly have some choices there. In the field, as you said, we’ve had a lot of startup activity in the last year, 1.5 years or so. We picked up that activity about 1.5 years ago because we saw the market give us that opportunity with a better chance for a timely survey from both the State and the Medicare billing survey, which seems to be a little better, but not much better. So again, what I would say is, yes, we’ll probably have less start-up activity next year. All of the markets are saturated. It doesn’t seem like any great opportunities. We’ll mature the ones we have. There are still are several big markets that we’re looking at that we would move into at the right time. But, yes, we’ll probably have less start-up next year. But that -- the long-term issues are controlling your labor costs and all of your attendant costs in your corporate area. And again, your costs seem to come in line when your volume is growing nicely. So our challenge will be to grow our volume nicely. One of the other opportunities we have, which is good, is we’re in large markets. It’s one of our strategies to mainly be in large markets. When you’re in large markets, you have better opportunity for volume gains and productivity and you have good opportunities there. So again, we’re watching everything. We understand the pressure on the top line. If sequestration would kick in across the board, which we don’t know, that will put more pressure, and we would take more action. So we’ll be monitoring everything monthly and weekly.

Yes, okay and then just last question I had on VITAS. Any updates on the investigations. I know in the 10-Qs, we’ve been getting some fairly regular disclosure. But anything to say about, I think, the ongoing stuff, and has anything been wrapped up or close to being wrapped up?

Yes, I’d say, there is no significant development. So you can see, I mean the comment you are going to hear from me now and, hopefully, from me next year, the following year, what not, is going to be that, look we’re in the -- VITAS is in the business of providing services that the federal government pays for. We’re always going to be -- there is a whistle blower and a bounty on us, basically. There is always going to be that pressure of -- and hospice has another unusual element, and that is that about, okay, this is hospice industry-wide, 11% of patients who are given a terminal diagnosis by their own doctor and who come to hospice end up being in the program for longer than 6 months. If the question is, who knows -- don’t really know who the 11% are initially, but they exist. And it leads to a situation where layman can say, look there is a patient who’s been in hospice for 2 years. That is obviously fraud, the government paid for that, I’m suing. That situation is not going to go away as long as there is hospice, so we’re going to continue to be talking about this, and we’ll continue to -- we just think we have good systems. We will -- we are going to just continue to fight the issue, because we are not going to settle a case like that, because that is hospice. Now to answer to your question specifically, no, no significant developments. The one -- the case that’s gotten the most publicity -- San Antonio case has not been served on us, the government has not joined in the action. There is -- the only thing that’s happened is, in that case is the other defendants have been dropped from the case. So to answer, really, your question from a public disclosure standpoint, no, certainly no significant developments, and I would add to that by saying there weren’t any development that were a close case that wasn't disclosed or not either.

I would now like to turn the call over to Kevin McNamara for closing remarks.

The closing remarks are simple. We’re looking forward to our fourth quarter, that’s usually our most profitable quarter. You can see from those range that Dave gave as far as our expectations, it’s a fairly broad range. But that’s likely because it’s our most profitable quarter, and there is a little more volatility in our fourth quarter but it’s a one where, again, I think that we’re well positioned and energized. So thanks for your attention. And we’ll -- we scheduled one of these in about 4 months. Thank you.

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