Good day ladies and gentlemen and welcome to the Q2 2013 Chemed Corporation earnings conference call. My name is Crystal and I will be your coordinator for today. At this time all participant are in a listen-only mode. We will facilitate a question-and-answer session towards the end of the presentation. (Operator Instructions) I would now like to turn the presentation over to your host for today, Ms. Sherri Warner, Chemed Investor Relations. Please proceed.

Good morning. The conference call this morning will review the financial results for the second quarter of 2013 ended June 30, 2013. 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 July 18 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 July 18, 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 William, 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 second quarter 2013 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 this call for questions. As most of you are aware, the government recently filed a False Claim Act complaint against the company and certain of our (inaudible) related subsidiaries. It is our intention to work closer with the government in an attempt to resolve these issues in an efficient and timely manner. With that said we will vigorously defend our approach to quality end of life care as well as ensure VITAS patients have access to entire range of hospice services that are mandated by the Medicare Hospice Benefits. One of the specific concerns the government highlighted in their complaint is our utilization of high acuity care. It is important to note that VITAS medical [decisions] including levels of care are determined by our field level based physicians and these decisions are tailored to the specific needs of our patients. As expected a result of this litigation is that high acuity care as a percentage of total days of care declined nine tenths of one percentage point or $6.4 million of the quarter. A doctor delaying decision for a patient to enter high acuity care by a single day has a noticeable impact on revenue. We estimate this mix shift in high acuity days of care negatively impacted contribution margins by approximately $2 million, the majority of this impact or $1.9 million is due to lower margins within the high acuity segment. Our inability to forecast prescribed high acuity days of care has resulted in excess cost and the inefficiencies within the care segments. This should be mitigated in future…

Thank you, Kevin. Net revenue for VITAS was $264 million in the first quarter of 2013, which is a decrease of six tenths of 1% over the prior year period. As Kevin noted, during the quarter, our revenue growth was significantly constrained by a mix shift from continuous and inpatient care which we refer to as high acuity care, into you routine homecare. Historically, VITAS has averaged between 7.5% to 8% of total days of care, in high acuity. This high acuity care declined 89 basis points to 6.9% in the quarter. So in routine home care per [DM] averages $161.8 and high acuity care averages $693.20, this mix shift negatively impact revenue at approximately $6.4 million. The second quarter 2013 gross margin excluding the impact of Medicare cap was 22.2%, which is the 54 basis point improvement when compared to the second quarter of 2012. Now let me turn to the Roto-Rooter segment. Roto-Rooter's plumbing and drain cleaning business generated sales of $93.6 million for the second quarter of 2013, an increase of 5.3% over the prior year quarter. Roto-Rooter's gross margin in the quarter was 47.1%, a 273 basis point increase when compared to the second quarter of 2012. Adjusted EBITDA in the second quarter of 2013 totaled $18.9 million, an increase of 31.1% and the adjusted EBITDA margin was 20.2% in the quarter, an increase of 398 basis points. Total unit-for-unit job count increased 1% in the second quarter of 2013 when compared to the prior year period. This consisted of residential drain cleaning job count increase of 5.8% and residential plumbing job count decline of 4.5%. Residential job represented 69% of total job counts in the quarter. Commercial drain cleaning increased $0.08 and 1% and commercial plumbing and excavation jobs declined 2.2%. Now let's look at…

Thank you, David. As we noted earlier, sequestration reduced our Medicare hospice reimbursement rates of full 200 basis points on April 1. Although difficult, we still managed to generate an increase in our adjusted EBITDA and adjusted EBITDA margin. Admissions (inaudible) during the quarter, aggregating 15,721 which is 1.2% below the prior year quarter. On a year-to-date basis, our admissions aggregated 32,858 which is an increase of 1.9%. As of June 30, 2013; VITAS employees approximately 1,148 admissions personnel as compared to 1,090 in the prior quarter as consist of 351 sales reps, 162 admissions coordinators, 387 admission nurses, 79 community liaisons and 14 liaisons in the long-term care area and 70 admission liaisons. During the second quarter of 2013, admissions in assisted living facilities increased 3.6% and home-based admissions increased 1.1%, hospital referred admissions decreased 1.8%, and nursing home admissions decreased 2.5%. Our per day pharmaceutical cost average $7.55 in the quarter and a 9.1% favourable to the prior year. Our medical equipment per day cost total $6.56 in the quarter, which is 3.4% below the prior year period. This was accomplished through the expansion of our in-housed medical equipment program which provides us with dual benefit of lower cost and improved service levels. VITAS' average length of stay in the quarter was 84.8 days, which compares to 74 days in the prior year quarter, and 77.4 days in the first quarter of 2013. Average length of stay is calculated using total discharges during the quarter. Median length of stay was 16 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 1,335,834 days in the quarter, an increase of 4% over the comparable prior year period. Non-nursing home, routine home care days increase 7.5% in the quarter and nursing home; routine home care declined 3.1%. At June 30, 2013; we have three programs classified as start-ups. All of the start-ups are state licensed, accredited and certified by Medicare. Operating losses for these three start-ups totaled $465,000 in the quarter and compares to losses of $785,000 for the locations classified as start-up in the prior year period. With that I'll turn call back over to Kevin.

Thank you, Tim. Now appropriate to consider questions.

(Operator Instructions) Your first question comes from the line of Darren Lehrich from Deutsche Bank. Please proceed.

Just a several things here. I wanted to start with just the gross margin in the quarter, in the higher acuity settings, you know, obviously they fell off year-over-year and you talked a little bit about on something, do you think you can do to mitigate that. I guess I would be curious to hear how you plan to mitigate that and then as it relates specifically to continuous care and I think you have talked about that cost structures being fairly variable. So I am just wondering what you saw in the quarter that made it a little less variable?

Okay, I'll turn it over to Tim.

Yeah, it is largely variable; there is no question about that. But they are still, again when you are talking in terms of kind of the infrastructure to you know that exist and make sure that you can kind of change your schedule on the [dime], when that does exists is one of the thing that I will always say is there are reasons you know, quality and largely high acuity care that makes our breakeven on a program at a $1.50 and $1.20 when somebody in the industry he got a profit on to $0.40 I mean that some of those costs are the sticky costs, but, I mean, there are some specific I think in response to Darren's question.

Well, I mean, I think, the issue is that there was some changes in the mix of our business that occurred over a month or six-week period, normal situation and it takes some time to respond to that. So again, in the last period of weeks we've been analyzing all of the areas of cost structure in all these businesses and there's ways that we can minimize the administrative manager side of it, and with occupancy a little higher we are going to have the occupancy higher to be successful, the margin should be able to be in the range that they have been historically. So we have strong clients, we are in the middle of it, we expect it to improve. I'm very encouraged by our overall gross margin and the ability to maintain an increasing gross margin in the period, labor is under very strong control and again that's just fighting a 2% reduction right off the top. So things are going well and I think the margins are, with good admissions which we are working very hard to increase those a little bit, the referral patterns were modestly impacted in the last couple of months. The wonderful news is the strength in our census is pretty good, 4% year-over-year. Our major accounts is really, really supportive and the management team is working very hard, so it just seems like we've gone through the last couple of months quite well and I'm optimistic. So as far as your gross margin question, I hope that helped.

Thank you. It did. I'm really just trying to square really what Dave has talked about in some of the conferences relative to the $13 million or so EBIT exposure to continuous care with the $2 million shortfall in the quarter relative to a smaller shift in the mix, that's really works.

So let's talk about that. So we lost just enrolled revenue because we get obviously only about $160 per day of routine care as opposed to between $650 to $750 a day for inpatient and continuous care, so clearly there is a revenue of that. But as we've always said, we're basically, from a care standpoint we think high acuity care is very critical. From a business standpoint, we're actually indifferent what level of care patient sits at. As a matter of fact, we would make more money if a patient stated routine homecare versus going in to an inpatient unit, but obviously we provide that very complex and very expensive day of care in inpatient unit because the patient needs that. So, based on that, we basically from the business model standpoint are completely indifferent from a financial profitability standpoint, whether a patient is in continuous care, inpatient care, or routine homecare. And just the 89 basis points decline we had in high acuity care versus our total care, it only impacted our profitability a little over $100,000. As we talked about, as Dave referring to, we lost $1.9 million in contribution margins because within those silos of level of care, continuous care and inpatient care, they took a several hundred basis points hit in the margin in the quarter and that was primarily because we were going through a bit of a paradigm shift. It's difficult for us to predict what the current demand level is as our doctors prescribed high acuity care for the needs of the patients. We now have a shift in real uncertainty and we weren't able to shift across structure quick enough. Once we have enough clarity on what that needs are going to be, we will be able to better manage within those high acuity silos our overall cost.

One point Dave, big backup, but you have to remember that say with regard to this high acuity and in continuous care, say our average episode is six days, median is five days. I mean, if a doctor just waits one day to say I have been under a microscope, it's subjective decision either making is now under a microscope and I will just watch one more day before I decide whether to have the high acuity care. At the 25% impact on in that episode and that you can see how that making over saying is that does prove some real challenges on the administrative side to have to deal with that, in that episode I just gave a 20% reduction in the care. And that's a fairly farfetched example. It's just it's the type of thing that dealing with and I think you will see a couple of things, you will see that with regard to behavior you will see retreating to the mean and you will see enhanced efficiency within VITAS. And then we also said that what days are doing, days weren't different kind of what we have been maintaining all long. We (inaudible) continuous care to patients go inpatient for instance, I mean when you look at the profit margin, we lose five continuous patients, but one of them goes into inpatient, that's a tie for us. I mean, that's one of the advantages and one of the upside that we are dealing with. But I just want to make that point, but it's not something we manage, I mean what we manage is the effects of the medical decisions, we don't manage the medical decisions.

That's very helpful. Maybe just one more line of questioning just to help me further in the understanding of continuous care cost structure, just in terms of your continuous care days, what percent are in the skilled nursing facility setting versus the in the patient home and do they have any different cost structure if you think about those two settings if you will?

Well, there is no difference in the cost structure. And as far as we don't break those figures out and there has been no material change in those mixes though I could suggest. And the normal logistical advantage you might anticipate with what might be several patients under one roof, you wouldn't get in the continuous care because it would be episodic and you just wouldn't have many under the same roof.

But remember basically about 70% to 80% of all of our patients overall that were in the nursing home, we have three or less patients under that roof, and I think it's close to half is the only patient in that facility. We also don't like make a distinction Darren when we talk about nursing homes that includes still nursing facilities as the combination. So, we actually don't even make a distinction because it doesn't drive our care model, it doesn't matter us whether in the nursing facility or scale nursing facility, so we don't follow that metric.

Okay. And then just last thing, so clear in terms of that the admissions guidance you know it's up roughly 2% year-to-date, you have updated your admissions guidance overall, but you clearly had some deterioration over the course of the second quarter. So Tim, maybe just get some thoughts from you what is embedded in that assumption that referral patterns get back to normal by Q4 and any visibility into some stabilization there?

Well, all I can say as you know we are pressing very hard, we are feeling very good about where we at. And over the last few months, we have been able to get very close and speak to a lot of our partners and referral sources and seems to be going well. So this is our view to have the little modest improvement from our current run rate the last couple of months. And I have every expectation, you know we are pulling all the strings, we are putting new opportunities up on our people, bringing new people in the new company. So I would expect that we will moderate up from here a bit and so no reason I think that won't happen.

And let's state I mean we just finished the quarter where we had a bad press which never helps and also another thing to keep in mind, that it's something we just follow we would consider it, now ways in this regards but if you find the issue on prognosis of failure to thrive or debility, I mean that's causing some uncertainty in the field. And it causes some of the late admissions because you might have a patient that comes to us with a terminal diagnosis from the doctor but no one has no one has taken the extra step and said oh, my gosh, they've got 10 things wrong with him, you know they've kept cascading organ failure which is going to be the first organ to fail. I mean there's move by the payors to say we want more specificity in that in the overall catchall, or failure to thrive or debility is -- as a prognosis is something I think is provides some noise or upsetting a bit the admission statistics.

Our next question comes from the line of Jim Barrett from C.L. King & Associates. Please proceed. Jim Barrett - C.L. King & Associates: Tim, just so that I clearly understand the admissions issue. So it's more of a company specific challenge as opposed to an industry challenge that physicians are being more hesitant to refer patients?

Well, I think there's number of patients out there. Well I think there's issues on both sides of it, so company issues Kevin just mentioned, obviously a big public event and then, we have this issue going on in the industry as well on the debility. So some are our issues and some of it is industry issues. And the referral sources are the ones that are also trying to understand this. So as Kevin says if the referrals, not even our doctors are little more reluctant just to make sure because there's been all this press around it. That happens and I think over time that usually moderates because we educate people. People then understand the debility is not an issue that they don't want patients on hospice. They want you to try to identify the underlying disease and that's for information and for quality management. We're very good with it. We're working with the industry and everybody to make sure that it's put in place in a way that there's not restrict or limit the appropriate access of patients to the benefit. So it's not a big deal but on the edges, has it affected 1% or 2%, trend of admissions, I think probably. But bottom line, I'm so encouraged that our major accounts are totally solid and of course the event needs to be talked about but they see the great care, they understand it and I'm very pleased with sort of where we're at. That's my view of it. Jim Barrett - C.L. King & Associates: Okay. And Kevin, my reading of the core documents is that it appears as if the law suit the government is concluded sometime in calendar 2014?

No. Jim Barrett - C.L. King & Associates: No?

These things grind slowly but exceeding fine. I mean the government, it goes through a process of call it motion practice and amendment [practice]. We haven't answered the complaint yet at this point, I mean there is still, Jim Barrett - C.L. King & Associates: Understood.

We're not - it's not in a position to answer, but we'd talk about resolving, (inaudible) how these things go. Jim Barrett - C.L. King & Associates: Yeah.

You'd like them to always resolve, but if we went to the government, tomorrow if they look, this is drag on our stock we wanted to resolve this. So it's okay, give us a gazillion dollars, I mean you have to, you have to let them play out, you have to demonstrate to them what's at stake. And then let me just take a minute as a (inaudible) if you read most recent [MedTech] report, I mean talk about mixd signals, MedTech has gotten on to the fact that so many 55% of hospices don't have any continuous care, it not and 15% of them don't have inpatient unit, and what they're saying oh my gosh, we're getting killed with expenses associated with patients who becoming a crisis their hospice provider doesn't have any high acuity facilities for them. So they ever revocation and go into a hospital run up a huge bill and then either die, or go right back in the hospice upon their release from the hospital. And they said this is just a huge problem, we've got to come up with the way to keep the people in hospice and not revoking, of course the answer to that is high acuity care. Particularly, continuous care but again that, when you say from our, we'd like that to play out before so that the government can understand the role of continuous care. And what happens when you don't have continuous care, and basically what happens, when you're encouraged continuous care, one of the things I am going to be following over the next quarter or two, is just you know to the extent that there are -- continuous care is under a microscope and our patients are marginally, less likely to have it or have as much of it. Again it's to the extent that revocations increase that's those (inaudible), but they each one probably cost the revocation with admission to the hospital probably cost on average in excess of $10,000 to the federal government. So, we'd like those, one of the reasons we're not anxious to rush to settling any cost is I think when they capture all these, some of these trends, it will give them better understanding of the role of hospice and the role of a in lowering over our costs. Jim Barrett - C.L. King & Associates: Okay. Hey, well that's very helpful of it. Thank you both.

Okay. Now I think there's no more questions. So we'll just conclude this -- the discussion at this point. And look forward to talking to this group in about three months.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.