Good day, ladies and gentlemen. And welcome to the Q4 2013 Chemed Corporation Earnings Conference Call. My name is Alison, and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder this call is being recorded for replay purposes. I would now like to turn the call over to Sherri Warner, Chemed’s Investor Relations. Please proceed, ma’am.

Good morning. Our conference call this morning will review the financial results for the fourth quarter of 2013 ended December 31, 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 February 17 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 February 17, 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 fourth 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 the call for questions. VITAS conference revenue was negatively impacted in the quarter by a marginal mix shift away from high acuity care. High acuity care which consists of continuous and inpatient care represented 6.8% of our total days of care, a decline of 81 basis points when compared to the fourth quarter of 2012. This equated to a reduction in revenue in the quarter of roughly $6 billion when compared to the prior year. This modest shift of less than 1% in the level of care mix had an outsized impact on our revenue, given the fact that routine home care has a per dime rate of $163 and high acuity care has a per dime that averages $692. However, the cost to provide high acuity care is significant, resulting in high acuity care having extremely low margins. In many of our programs, the profit contribution from a day of high acuity care is less than the contribution from a day of routine home care. On a comparative basis to the fourth quarter of 2012, VITAS lost approximately $6 billion of revenue. However, after adjusting for the impact of sequestration, recognizing routine home care has a contribution margin of 53.8% in the quarter and high acuity care has a contribution margin of 11.5%. VITAS’ overall margin and profitability was positively impacted by about $1.5 million in the quarter. This is an improvement on our sequential basis as we adjust our high equity infrastructure cost for the slight decrease in demand for high acuity care. The key takeaway on our…

Thanks Kevin. As Kevin noted during the quarter, our hospice revenue growth was significantly constrained by a slight mix shift away from continuous and inpatient care, which refer to us high acuity care and into routine home care. The high acuity care declined to 81 basis points to 6.8% in the quarter against the routine home care per dimes average $163.13 and high acuity care average of $691.91, the mix shift negatively impacted revenue by approximately $6 million. In the fourth quarter of 2013, VITAS recorded a Medicare Cap billings adjustment of $3.8 million which related to two provider numbers. Our VITAS is 37 unique Medicare provider numbers, 33 provider numbers has a Medicare Cap cushion of 10% or greater during the most recent 12-month period. One provider number has a Medicare Cap cushion between 5% or 10% and two of our provider numbers have a cap cushion between 0% and 5%. VITAS generated an aggregate cap cushion of $267 million during the trailing 12-month period. The fourth quarter of 2013 gross margin exclusively impacted Medicare Cap was 24.1%, which is a 60 basis point improvement when compared to the fourth quarter of 2012. This increase was in spite of the 2% sequestration that was put in place in April 1, 2013, effectively lowering hospice reimbursement rates 60 basis points when compared to the fourth quarter of 2012. This margin improvement was accomplished primarily through a reduction of indirect field base report costs. Our home care direct gross margin was 53.8% in the quarter, a decline of 60 basis points when compared to the fourth quarter of 2012. Direct inpatient margins in the quarter were 5.0% and that compares to 10.5% in the prior year quarter and 1.7% in the third quarter of 2013. Occupancy of our 37 inpatient units…

Thank you, David. As we noted earlier, admissions were difficult during the quarter aggregating 15,445, which is 3.5% below the prior year. However, this is a sequential improvement from the third quarter where admissions decline 6.3%. As most of you are aware, CMS is discouraging the use of the failure to thrive and debility unspecified, disease classifications when determining the primary medical condition that results in a terminal prognosis. The final rule issued in August of 2013 eliminates failure to thrive and debility unspecified as the primary coding for terminal prognosis effective October 1, 2014. CMS encourages the documentation coding of failure to thrive and debility unspecified as additional medical support in reaching a terminal prognosis. Concerns regarding patient’s traditionally diagnosed as terminal from the use of failure to thrive and debility unspecified has disrupted referral patterns and our overall admissions. In prior years approximately 15% of our patients who admitted with failure to thrive or debility unspecified as the primary reason for a patient to have a terminal prognosis. This declined to 10.15% in the second quarter, 6.7% in the third quarter and was 7.1% in the fourth quarter of 2013. Total admissions excluding failure to thrive and debility unspecified actually increased 5.5% in the quarter. CMS will continue to allow admissions under these two categories through fiscal 2014. VITAS is in the process of refining a submission, coding criteria and educating its physicians and referral sources such that the number of patients admitted with the primary coded diagnosis of failure to thrive or debility unspecified will be eliminated by October 1, 2014. As of December 31, 2013, VITAS employees approximately 1,156 admissions personnel, which compares to 1,145 in the prior year quarter. During the fourth quarter of 2013, admissions from hospital referrals decreased 4.2%, nursing home admissions decreased…

Thank you, Tim. I will now open this teleconference to questions.

(Operator Instructions) First question comes from Darren Lehrich from Deutsche Bank.

Thanks. Good morning, everybody. I had a couple of questions. First, I wanted to just ask about your high acuity mix. It looks like it actually stabilized a bit sequentially. So, Dave, I know you mentioned in your remarks that you still expect that to decline in the guidance. So, I guess I want to understand how are you thinking about it from here, do you expect it to just be down year-over-year given that it doesn’t fully anniversary, or do you think sequentially it also still declines?

We expect it to be down year-over-year only because the Federal Register didn’t come until May of 2013, and that was kind of the beginning of the impact -- the DOJ investigation put a slight cooling in our high acuity care. But with that, Darren, quite frankly, we are indifferent. Yet, it impacts the topline which has up in near of an important metric. As long as we still have that day of care, we are indifferent. So, yes, it’s going to impact revenue. We expect it to stabilize about where it has. But quite frankly, it’s based upon the needs of the patients determined by the doctor within the program.

Darren, I’d probably just say a comment. I think that what we observed in the -- I’d say with a very significant level of scrutiny that maybe some of these subjective physician decision-makers were making at the time, we see that in the past and other context of an FMRs and what not, so it probably reduced. That you have these human nature efforts, we have effect under the subjective decision. We almost, a month later we saw this retreat to the mean as user has observed that. And if you ask me to if I were to guess things for the coming year, I would say we don’t encourage or discourage from an operating standpoint high acuity. I would say that use your trends analysis and the trend is that we’ve retreated to the mean and are going to continue under the space of that. I would not quarrel that. Dave’s point is it doesn’t make so much difference in his economic models. And the only other comment I would make which is interesting, when you’ve tried to analyze this whole situation is just to show you how little impact we have on from a business model standpoint. In the past six months, we’ve had a California program that was in cap. I’ve looked at through December 31st, the amount of continuous care that we are providing in that program, which is basically we’ve been providing it for free. And you might say, well that’s pretty expensive but it’s driven by the doctors and we provided 2.5% of patient days of continuous care in that program for that six-month period, which is when you look at the low national average of four tenths of one day, you might say, Oh! My god, that’s six times of the national average. Well, that’s what the patients require and again, from a business amenity, we are providing that for free but that’s what the physicians are directing so and that just gives you some indications of when I say, this is in the hands of physicians. I mean, it is in the hands of physicians and to answer your question, we will go either way. But I think the current trend analysis is you won’t be too far long.

Okay. And that’s helpful. I mean, we could certainly see the margin implication here. It’s really just from a revenue modeling perspective, wanting to get a little bit more inside that in the guidance. And then just from a margin standpoint, I guess I would be curios just to get a little bit more flavor for some of the things you’ve done, I think you’ve mentioned in prior calls that you will have to rationalize some of your inpatient infrastructure, where are you on that process, is that complete or we are seeing the result of that with these margins? And then just overall, as you think about visits per week, what are some of the metrics there, so you can just think about that as well?

Well, I will take a stab at it. The margins that we have did very well, and the mix of our business just didn’t change too much more. And yeah, we hope to grow our routine home care business as a bigger expense, as a bigger revenue growth area for us and that will make the high acuity smaller. As far as managing any infrastructure costs, that’s always ongoing and there is still work to be done there. We are looking at several inpatient units for making them more efficient and we will not in the future be having inpatient unit as loss leaders so to speak. Again, I think the trends in the fourth quarter with the mix will continue to go down just as our doctors do a better job of identifying the terminal disease without that category. And we have done a lot of good work with minimizing the infrastructure related to continuous care, so we only have infrastructure in our larger programs now and then we share some regional resources, which is minimized that cost structure. So, again, I think our margins are in pretty good shape. We will get through the first quarter, still taking the negative hit from the sequestration comparing year-over-year. But we feel very comfortable with our outlook for the year that our margins are stable.

And, Darren, one thing, my view of the visits per patient per week, it’s basic within rounding of a tenth of one visit, so those have remained stable.

Yeah. We’ve seen no change in that from our trends.

Yeah.

Okay. That’s helpful. And then obviously, weather’s a huge factor here in first quarter. And then I’m just wondering, I know you get lot of pipe burst and things like that that can impact business from a positive. I’m just wondering if you can help us just think about whether it is a net positive in your mind, has there been any disruptions in the ability to service customer calls, etcetera?

It’s been positive. As we’ve said and you can get, we have an ice storm in Atlanta. The office is closed. And so you have two days where you have literally no revenue. You have your board which is you not indicate and take additional service calls for a few days, and everyone is at full employment at that point. It seems like it is a net positive with very cold weather. When the office is closed, you don’t make it all up just because you can’t do the jobs and the jobs can’t be done within a couple days. So they find somebody to do it somewhere. So to answer your question, this is good weather for Roto-Rooter and it’s not an unalloyed blessing, but it’s a good and solid. And again that Roto-Rooter business is very predictable, I guess it was two years ago and we had no freezing, literally not a frozen pipe in all of our services areas. Unfortunately, I have had two frozen pipes in my house myself. So I guess I still call it a welcome change.

Last think here, I appreciate you taking the questions. Just Dave we would love to just get your updated thoughts on the timelines for any kind of proposals or rulemaking, whether this U-shaped policy is going to come out this year and how you guys are thinking about it?

It seems unlikely that it’s going to come out this year. There is a push through the NHPCO, the National Hospice and Palliative Care Organization that they are pushing hard for a demonstration project with any change in reimbursement, so you can look for unintended consequences. But with that said, we have no indication that it’s going to come out for, really now you are talking October 1 of 2014 which would be fiscal 2015. No indication is going to be coming out soon or by that period.

And in our thoughts Darren, as long as they don’t screwed up and as long as they supposed to be revenue neutral for year, we are looking our numbers, that can’t be bad for us. I guess I would see numbers that the average for-profit hospice has an average length of stay of 140 days. We got to be negative for that whole group, I mean anyone close to that. We are just looking at, as long as they do it correctly it should be fine for us, it’s something we welcome.

Great, okay. Thanks a lot.

Thank you. The next question comes from Frank Morgan from RBC Capital Markets. Please proceed.

Good morning. In terms of the programs that have a cap issues, is that -- could you characterize that, is that more a function of the drop in the shorter stay high acuity or is it just with volume trends and admit trends on routine business because of the drop of those two categories?

Frank, let me jump in here and Tim, if anything I -- if anything you disagree this is one of two occasions, I encourage you to correct me. But like I said this, we are basically talking about the significance of a large California program, it’s very profitable. I mean unfortunately or fortunately, the reimbursement for that program because of the high cost area is about 50% over our average, but the cap is the same number. So, I mean, you are starving buying the eight ball in a successful program like that. And frankly, what we had is call it one from a bad management as if your top sales people the size that they could do -- that they prefer to work elsewhere. We had some changes, brought some combination of factors, had some top sales people leave and they have returned. We’ve had administrative problem with the state of California which again we’re treading carefully. We don’t want get to the bureaucrat [med action]. So I think both of these situations had ameliorated, I’d say the two top sales people come back, its advantage. There is a block in tackling management issue I think coupled with the fact that it was in a very high reimbursement environment.

And I think that I would just agree with that and I mean the issues we saw there was not related to the debility issue was one of your questions, it was just an overall drop in business. As Kevin mentioned, we are making very good progress there and we are not concerned about the outlook there. And so we are making progress. At the same time as the year unfolds, the cap is volatile because of the issues Kevin mentioned, but at this point we are very encouraged.

Okay. And Tim, are you there, any thoughts or plans around this new upcoming drug reporting requirement I think CMS is talking about?

Well, yes, I mean, we are very focused on that and there maybe some movement they have that delayed as well, but we are prepared to understand which we do need to do stay is just going to be more precise. Drugs that are related to the terminal illness versus drugs that are not and we have been already putting infrastructure in to make sure that the drugs that are unrelated will actually be processed and not be in a bottleneck. So again, we are in very good shape to handle that. These are the type of regulatory burdens that are coming down, that are becoming very difficult for a lot of our smaller competition. So I would say we may have some extra cost because of this because we need to put technicians in the pipeline to make sure those are managed correctly and efficiently and be able to follow up, but we will handle it. We are not overly concerned about it, but we hope it gets delayed and we hope it gets clarified because some of the details up that are not helpful.

Okay. And then just any impact you see on the marketplace on palliative care programs and a lot of the growth going on in that area? And I am wondering to some degree, is that maybe also affecting your admission trend?

Palliative care programs are expanding rapidly everywhere and most large hospice companies have palliative care initiatives which we do. And in certain cases you are working with the patients closer in the hospitals which may reduce actually the period of time they are with you if they come out of hospital, but these are the programs that we are working with either people talk about things like care of transition programs out of the hospital in the home care. So we are doing all those, I think they are very difficult again for a small companies to do because you have separate licensor and a lot of legal issues and a lot of scope for the resources or the billing. So we are very pleased with it. What we are doing we are involved in the big hospitals and some of the big systems because of our palliative care initiatives and we will expand those modestly, but it’s just part of the continuum of care, that’s pre-hospice services. So we want to be in that loop, so we are providing the great care for our patients there and be in the loop with our critical referrals that we can manage them constantly and get them in the right setting effectively through palliative care. So it’s working well for us I would say.

And Frank you followed hospice for a longer time, and you’ve heard us say for years that when we surveyed hospice patients and said why did you opt out of the curative setting and she was hospice. The number one reason they have given is then the curative setting didn’t do good job treating their pain and that’s always been the stock in trade for any good efficient hospice program. And so we said that the element for the curative setting are doing better job treating pain, that’s the issue really you are identifying and that has had an effect for last couple of years. And as Tim said rather than just the moment that VITAS has gotten very active in helping the curative setting provide that those palliative procedures and as such has been plugged into that system and it’s been a natural source for referrals. So the answer to your question is yes, I think palliative care has an effect overall on hospice. As Tim says we think it’s maybe just close it down rather than prevent it, but I think what we have done is tried to allow investment in palliative care services make sure that we have greater share of our referrals because we’ve already demonstrated how efficient and how professional we are at the end of that process, but it’s something that the whole industry has been dealing with.

Okay. One more and I will hop. Any additional startup, I think you said yes too many startups right now and quantify the drag on that, the $270,000, but how do you see your development rollouts schedule in the drag from part over the balance of the year? Thanks.

Well, I think, we’re probably seeing a similar amount of the drag as you say for the balance of the year. And it will be opportunistic when we look at these start-up service week. We’re going to be a little more aggressive, we kind of held back a little-bit for the last few years but we see the marketplaces offering some opportunities now. There is very few companies that are expanding which gives you a better opportunity. So we’re also going to be very quick to make sure that it is a good opportunity in the market place. And we might call it programs that we will develop and if they don’t work, we will find another avenue in that marketplace to have our business. So the point is we’ll probably have two, three or four more as the year unfolds and those opportunities I think will be good for us.

And then if you were giving a high watermark though, so we don’t lose that much money. I mean, we’re talking about a number that’s going to vary between $200,000 in the quarter and $800,000 in the quarter.

We’re going to manage those losses better than we have in the past because we’re necessarily going in right away and putting full infrastructure suggesting we’re going to always be trying to grow the program with 500 Census. We’ll be a little more conservative in the infrastructure which will minimize the losses and we won’t move ahead aggressively. And so we see that opportunity in the marketplace. But we’re in most of the big markets. There’s only about 10 cities that we’re not in that over a million of population in the country. And over half of those are limited by licensure. So, we’ll make progress and the one we’re not in uncertain.

Next question comes from Jay Hafner from Skystone Capital. Please proceed.

Hi, thanks for taking my question. Are you expecting and that’s the maybe flat to negative in the first half to the current changes and then up like 6% to 8% in the second half in order to heat your guidance. Do you think you’ll be able to mitigate at mid-pressure there even in the near term.

The biggest issue is exactly that. It’s the lapping in the first half of 2014 compared to the two first half of 2013. And then we fully expect to be recapturing these patients through an education process both internally and externally. So you’re exactly right relative to the admissions growth in the second half of the year.

And we look at the trends, the trends are all positive. And so we’re not waiting for the trends. The quarter was like that but the trends have already annihilated.

Got it. And then as a follow-up, the last couple of years you’ve offset inflationary pressure will just increase in productivity year. I should say the last couple of years, you’ve offset less than inflationary rate increases with productivity. This year we want to add in all the sequester and the rate, the defect, the cuts, all those things. You’re getting a little bit better than flat. Do you expect to do the same thing this year or do you have to do something different going forward to offset that low rate update from Medicare?

You’re exactly right. The last two years basically in real dollars we’re getting a cut. So I said differently, inflation is greater than the increase we’re getting out of Medicare. Through combination of sequestration as well as the healthcare reform also turns around and takes away from the market faster.

Much of the neutrality factors are?

In the budget, neutrality factors, it was -- it's been there for now five years which is about 60 basis points. So your observation is correct. So before where we were actually getting nice productivity increases when we’re getting a full market, that’s not become more difficult. So the challenge really is to have increase productivity to try to maintain on all the things on constant the same margins. Now what you’re also seen though on a go forward basis is volatility in our margins because of the mix shift to a reduction in -- a slight reduction in our high acuity care. So if you factor that out, we’re fighting to keep margins flat as slightly positive.

Got it. Thank you.

Thank you. And the next question comes from Jim Barrett from C.L. King & Associates. Please proceed. Jim Barrett - C.L. King & Associates: Good morning everyone. Tim, question for you on the Medicare Cap. Is the ‘14 outlook for Medicare Cap, is the assumption that two programs that are experiencing issues, continue to experience issues throughout the year and the cap issue are confined to those two programs?

Well, that would pretty much be our current thinking. At the same time, there are other programs we have that are close to a cap, if we’re not successful. And again, the way the numbers pan out, we feel very good for the quarter we are in. We’re seeing very good success. And then, we project out our results and we must think that we will be stable in the summer months. And then we’ve talked about it. Last year, we had a issue on our fourth quarter which is the first quarter of the next fiscal year. That issue will be determined based on the progress you’ll make between here and there. So, again, to answer your question, yes, the two that we’ve focused on, we’re continuing to focus on. We don’t see any others falling into the situation and we’re very pleased with the progress of this two. So, I hope that helps.

And Jim, let me say, we would have guidance as little over $5 million of cap. We would have $5 million in our guidance in any of that. We are going to have to see, do we have? As Tim really thinks, do we have more than a realistic hope of having no cap in those two programs this year? The answer is yeah. It’s a realistic hope. It’s a hope based on trend analysis, but we have the $5 million in our guidance and that’s what. Jim Barrett - C.L. King & Associates: Understood. And, Tim, reimbursement trends aside when you look out three to five years, what would you expect your admission growth to be per program given the longer-term demographics and industry trends.

Well, I mean to answer your question, I think those long-terms trends are working for us with demographics. There is more individuals that are in the elderly categories and three and five years than they are today and that should help us. I think all the things that we've talked about that we are doing at VITAS with palliative care initiatives, increasing the breadth of what we do, we are always increasing the value of our systems. And so, yeah, I would expect to get some advantage three to five years out from those overall trends and we are continuing to improve our company dramatically constantly. So, I think we will continue to do well in future

And, Jim, I’d tell you, demographics always work for hospices, if you say that it’s rationing of care, which is what obviously the system needs, that’s definitely a good factor. But I would say, a bigger factor that we’re seeing is economic and regulatory issues with our competitors. And of course, a number of relatively high-profile competitors just to disappear. And to the extent that that continues and accelerates slightly that, that could have a bigger impact on our admissions than demographics. Jim Barrett - C.L. King & Associates: So in other words, you would obviously expect to pick-up market share under that scenario?

Exactly. Jim Barrett - C.L. King & Associates: Okay.

We expect the pressure for consolidation to be growing.

Not necessarily by acquisition either. Jim Barrett - C.L. King & Associates: Right. Understood.

Basically, small hospices are having a difficult time of it. Jim Barrett - C.L. King & Associates: Well, that should benefit you greatly then. And then my last question, Kevin, you've spoken during the housing recession about the fact that plumbers weren't building new homes, they were competing against Roto-Rooter. With homebuilding now recovering and I know it is in the early innings, are you seeing any reversal of that trend of competitive plumbers going back into the new homes space as opposed to competing with Roto-Rooter?

Yes. And Jim, there’s couple of factors here. Number one, there is a little less overly tough competition on the commercial side. In other words, these plumbers, they can’t really put a big add in the yellow pages, they can’t be on the Internet. So it would be fairly easily. So that less makes the force that you just described a little less significant. But to the extent as they get involved in new home construction, that’s more profitable for them, they prefer that, that eases competition a bit. But again, with Roto-Rooter, we have to have performers to the extent that they can be competitively and profitably engaged in that pursue that is going in this homes, that means slightly fewer of them are available for us to hire. So if you ask me the net, it’s a positive to us. But again, that like, (inaudible) like those factors that cut the other way. But it’s a good thing, I mean, we prefer to have those plumbers out of the repair forming field. Jim Barrett - C.L. King & Associates: Understood. Okay. That was all very helpful. Thank you very much.

Very good. I think that’s our last question. So, I thank you for very thoughtful questions and we are already, obviously engaged in the first quarter and when we get to conclusion of it, we’ll have a call of similar to this and I thank you for your attention.

Thank you for joining today’s conference. This concludes presentation. You may now disconnect. Good day.