Chemed Corporation (CHE) Q1 2015 Earnings Report, Transcript and Summary

Welcome to the Quarter One 2015 Chemed Corporation's Earnings Conference Call. My name is Sally and I will be your operator for today. [Operator Instructions]. I would now like to turn the call over to Ms. Sherri Warner, Chemed Corporation's Investor Relations. Go ahead, Sherri.

Good morning. Our conference call this morning will review the financial results for the first quarter of 2015 ended March 31, 2015. 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 28 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 28 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; David 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 first-quarter 2015 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 generated $377 million of revenue in the quarter, an increase of 5.1%. Our adjusted diluted earnings per share aggregated $1.54 in the quarter which is an increase of 16.7% when compared to the first quarter of 2014. I'm extremely pleased with our operating results for the quarter. Both VITAS and Roto-Rooter generated solid operating metrics which translated into good overall profitability in each operating segment. VITAS provided over 1.3 million days of care in the quarter, aggregating into $270 million of revenue in the quarter and equates to a 3.5% increase in revenue when compared to the prior year. Our admissions increased 5.6% to 17,268 new patients, increasing our average daily census to 14,824 patients in the quarter. Roto-Rooter generated sales of slightly over $107 million. This is a revenue increase of 9.3%. This growth is the result of our decision to materially expand into the water restoration service segment. Water restoration is basically a remediation service, removing water and excess humidity from a home or business as a result of flooding. This service segment generated $10.5 million of revenue in the quarter, an increase of $8.9 million when compared to the first quarter of 2014. It is difficult to predict how significant this segment will become to Roto-Rooter's total service revenue; however, I anticipate water restoration will be a significant contributor to Roto-Rooter's revenue growth in 2015. With that, I would like to turn this teleconference over to David Williams, our Chief Financial Officer.

Thanks, Kevin. As Kevin mentioned, the net revenue for VITAS was $270 million in the first quarter of 2015 which is an increase of $9.2 million, or 3.5%, when compared to the prior-year period. This revenue increase was comprised of an average Medicare reimbursement rate increase of approximately 1.4%, a 3.5% increase in average daily census, offset by the impact from the Medicare Cap billing limitation, as well as mix shift and geographic region. In the first quarter of 2015, VITAS reversed $200,000 in estimated Medicare Cap billing limitations. This compares to $800,000 of Medicare Cap billing limitations reversed in the first quarter of 2014. At March 31, 2015, VITAS had 35 Medicare provider numbers, none of which has an estimated 2015 Medicare Cap billing limitation. Of VITAS' 35 unique Medicare provider numbers, 34 of these provider numbers have a Medicare Cap cushion of 10% or greater for the 2015 Medicare Cap period and one provider number has a cap cushion between 0% and 5%. Average revenue per patient per day in the quarter, excluding the impact of Medicare Cap, was $201.96 which is 0.3% above the prior-year period. Routine home care reimbursement and high acuity care averaged $164.72 and $702.36, respectively. During the quarter, high acuity days of care were 6.9% of total days of care, 15 basis points less than the prior-year quarter. The first quarter of 2015 gross margin, excluding the impact of Medicare Cap, was 21.1% which is a 27-basis point increase when compared to the first quarter of 2014. Our home care direct gross margin was 52.7% in the quarter, a decrease of 10 basis points when compared to the prior-year period. Direct inpatient margins in the quarter were 8.4% which compares to 4.2% in the prior-year quarter. Occupancy of our 34 dedicated inpatient units averaged 74.5% in the quarter and compares to 71.5% occupancy in the first quarter of 2014. Approximately 76% of our inpatient days of care are in these dedicated units, with the remaining 24% of our inpatient care utilizing contract beds. Continuous care had a direct gross margin of 15.9%, a decline of 70 basis points when compared to the prior-year quarter. Average hours billed for a day of continuous care was 18 in the quarter, a decline of 0.9 hours when compared to the 18.9 average hours billed for a continuous care patient in the first quarter of 2014. Selling, general and administrative expense was $22 million in the first quarter of 2015 which is an increase of 1.2% compared to the prior-year quarter. Adjusted EBITDA, excluding Medicare Cap, totaled $35.8 million in the quarter, an increase of 8.2% over the prior year. Adjusted EBITDA margin, excluding the impact from Medicare Cap, was 13.3% in the quarter which is 53 basis points favorable to the prior year. Now let's turn to Roto-Rooter. Roto-Rooter's plumbing and drain cleaning business generated sales of a little over $107 million for the first quarter of 2015, an increase of 9.3%. Our commercial drain cleaning revenue increased 1.6%, commercial plumbing and excavation increased 5.8% and water restoration increased 616% to $1.7 million. Overall, commercial revenue increased 6.9%. Residential plumbing and excavation increased 0.4%, drain cleaning declined 3.5% and water restoration increased 582% which equated to total residential water restoration revenue of $8.7 million in the quarter. Overall, unit for unit, residential sales increased 12.4%. Now let's look at Chemed's consolidated balance sheet. As of March 31, 2015, Chemed had total cash and cash equivalents of $28 million and debt of $161 million. To remind you, in June of 2014, Chemed entered into a five-year Amended and Restated Credit Agreement that consisted of $100 million amortizable term loan and a $350 million revolving credit facility. The interest rate on this facility has a floating rate that is currently LIBOR plus 112.5 basis points. At March 31, 2015, the company had approximately $248 million of undrawn borrowing capacity under this credit agreement. Our capital expenditures through March 31, 2015 aggregated $8.6 million and this compares to a depreciation and amortization during the same period of $8.6 million. In the first quarter of 2015, Chemed's Board of Directors authorized an additional $100 million for stock repurchase under Chemed's existing share repurchase program. These share repurchases will be funded through a combination of cash generated from operations, as well as utilization of its revolving credit facility. Chemed currently has $111.8 million of authorization under this share repurchase plan. The company did not repurchase any Chemed stock in the first quarter of 2015. Our 2015 full-year guidance is as follows. Full-year 2015 revenue growth for VITAS, prior to Medicare Cap, is estimated to be in the range of 3% to 4%. Admissions in 2015 are estimated to increase 4% and full-year adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 14% to 15%. Medicare Cap billing limitations for the calendar year 2015 are estimated to be $4.3 million. Roto-Rooter is forecast to achieve full-year 2015 revenue growth of 3% to 4%. This revenue's estimate is based upon continued expansion in water restoration services, coupled with increased job pricing of approximately 1%. Adjusted EBITDA margin for 2015 is estimated in the range of 19% to 20%. Management estimates that the full-year 2015 adjusted earnings per diluted share which excludes non-cash expense for stock options, costs related to litigation and other discrete items, will be in the range of $6.50 to $6.70. This compares to Chemed's 2014 reported adjusted earnings per diluted share of $6.07. With that, I'll turn this call over to Tim O'Toole, Chief Executive Officer of VITAS.

Thank you, David. I was very pleased with our admissions this quarter, totaling 17,268 patients which is an increase of 5.6% over the prior year. Admissions that are generated from hospitals which typically represent over 50% of our total admissions, increased 9.8%. Home-based referrals expanded 1%, nursing home admissions increased 2.6% and assisted living facility admission referrals increased 6.9%. Our per patient per day pharmaceutical cost averaged $6.50 in the quarter which is 10.2% favorable to the prior year. The cost for medical equipment per patient per day in the quarter totaled $6.41 which is 3% favorable when compared to the first quarter of 2014. VITAS' average length of stay in the quarter was 79 days which compares to 81.1 days in the prior year quarter and 82.7 days in the fourth quarter of 2014. Average length of stay is calculated using total discharges during the period. Median length of stay was 13 days in the quarter and compares to a median of 14 days in the prior-year quarter and 15 days in the fourth quarter of 2014. Median length of stay is a key indicator of our penetration into the high acuity sector of the market. Our days of care totaled 1,334,146 days in the quarter, an increase of 3.5%. Non-nursing home routine home care days increased to 3.8% in the quarter and nursing home routine home care increased 3.2%. At March 31, 2015, we had one program classified as a start-up and it is admitting patients. This new start-up is Medicare-certified and is billing under an existing provider number. With that, I'll turn the call back to Kevin.

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

[Operator Instructions]. Please stand by for your first question which comes from the line of Darren Lehrich from Deutsche Bank. Go ahead, Darren.

This is Josh Kalenderian in for Darren. Thanks for taking the question. Just a couple things here. First on the buyback, you guys authorized a new $100 million program, but just trying to get a feel for why you guys didn't do any in the first quarter here?

Primarily because we're still opportunistic in what we look at and it's a very short window, given when we release, or we basically go into quiet period and we don't buy shares from quarter-end until we release earnings. Of course, that happens starting January 1 through mid-February, so it's a very short window that we have in the first quarter. Beyond that, we fully anticipate putting a full $100 million to work in the year on share repurchase on a combination of opportunistic, as well as dollar averaging.

And then we've noticed that your Corporate SG&A has ticked up a little bit over the last few quarters. Just trying to get a feel for if this $7.5 million to $8 million is the EBIT range going forward or if there's something else in there, like LTIPS, for instance, that's maybe put that up a little higher than normal and we could see it come back down a bit?

Well you really have to take a look at the impact of the rabbi trust. The way that rabbi trust works is every time -- if the stock market is going up and we have deferred -- basically, employees have deferred some of their income, goes into that trust. As it earns returns, that increases your G&A expense. You're going to find a schedule in our earnings release that basically backs that out, so you have to pro-forma it out. So we have an increase in other income and we have an increase in SG&A expense and the exact opposite happens when the market is underperforming. It artificially reduces your SG&A expense and then it actually artificially -- it actually goes the other way. And the LTIP also impacts it, so on a comparable basis, actually, it was up modestly for the quarter-over-quarter.

And then just on the legal costs, it looks like that ticked up a little bit here, too. Can you give us any flavor for what's going on there, any update on the DOJ investigation? I know the legal costs tend to come in a bit lumpy, so was it just--?

What I would say on that is yes. There's a lot of depositions being taken now on both sides. It's in the, I would say, a little path to the start of the discovery process but it's preliminary. No significant developments, just a lot of fact finding on both sides. I think the government is getting some pretty good clarity in the fact that some of their more sensational allegations don't have much to them; they are plucked from the whimsical pleading of some of the early whistle-blower suits. But the fact of the matter is any company that takes a dollar of reimbursement for the Federal Government has got to stand ready to justify it and I stand behind it and we're really going through that process. We're comfortable with how the process is proceeding. With regard to your question, yes the discovery period has started; that's where the real expense is because you have people flying all over the country to prepare witnesses, to have the depositions, to reschedule them, then to have them go in a second day and whatnot. So yes, the answer is they come in a little lumpy. The period a little bit higher this quarter. If you ask me to look at the court schedule and say well how long would that discovery period persist, the course schedule doesn't have it proceeding all that long. There could always -- the expectations is there can always be extensions to that, but we're -- it's proceeding at pace. We're getting a lot done on both sides with regard to that. The only thing if you ask me -- in other words, the best way to say it is the fact witnesses are in pretty good position now that both sides' expert witnesses will be doing a lot of work in developing theories and then being deposed and whatnot. So we're in no means near the end of it, but for a company the size of Chemed, we aren't used to seeing numbers like this, that again it's nothing that we allow to pass without notice, but it's something that's in pretty good control. We're represented by one of the top firms in the country covering these type of cases and with that expertise, comes a high level expense.

And then just one last one here. On the VITAS side, it looks like that labor costs of the $339.37 is down about 3% year-over-year. What's driving that?

Fuel. It's a fuel based number, I'm sorry?

In your release you have labor costs as $339.37?

Yes, the inpatient margin driver.

Well again. To answer your question, there's nothing material. It would be various expense items in there period-over-period. What I would say is the VITAS expenses on the labor side are under great control. We're always increasing our ability to have better productivity with systems and making sure we don't over-provide the labor. So again, we had a very strong quarter in all the areas of expense control, so to answer your question, nothing of any material nature in that regard.

No, but there is always a little bit of noise in all these numbers because it's geographic specific. For example, labor rates are higher in San Francisco than Cincinnati, they're higher in Broward County than other locations, so where the patient days were incurred also can impact this number.

And I have to say, anything related to inpatient is going to be driven by occupancy rates, but to the extent the occupancy is higher, you have more labor, or lower, you're stuck with the skeleton crew at the very least. But in any event it's a number that is not a significant number that has attracted Management's focus, let's put it that way.

Your next question comes from the line of Frank Morgan from RBC Capital Markets. Go ahead, Frank.

You made comments earlier about the growth in admissions from skilled nursing facilities and assisted living. I'm curious, could you also state that number as a percentage of your total business, like what percentage of your census is attributable to people in these institutional settings, be it skilled nursing or assisted living? Thanks.

We've actually talked about what it is on a relative basis for nursing homes, because that's gotten a lot of attention, but in general we don't release those detail metrics, Frank.

There has been no material change in any percentages of our business in any category, would maybe be helpful to you.

Maybe on that point, could you just give us some color on why they're focused on this area and what are they missing or what are they getting right? Thanks.

I'm sorry who is getting what right and who is missing what?

Are you referring to the CMS report that came out regarding assisted living facilities, Frank?

Yes, just that focus of regulatory bodies or policy bodies with regard to this worry they have over institutionalized use of hospice?

Right. There was an OIG report, as well as CMS comments earlier in 2015 and they did focus on assisted living. The OIG noticed that there's a relationship in terms of assisted living facility-based patients appear to have a longer length of stay than the overall average hospice patient.

Which we could have told them.

Which is correct because if your condition is such that you can be in an assisted living facility, there's a greater probability you aren't in extreme -- have extreme high acuity, so if you are, you tend to transfer out of the assisted living facility and do maybe a [indiscernible] or a nursing home. With that said, though, what we did look at is our nursing home patient base, as well as our assisted living facility base and if we have a patient in a facility, over one-half of those patients, they are the only patient in that ALF. If you look at 75% of the assisted living facilities that we have one or more patients in, 75% of those facilities, we have three or fewer patients which is another way of saying as, we don't have any high concentration of patience in a single location, both in nursing homes or assisted living facilities.

In other words, there's no logistical support for an argument that reimbursement should be reduced because costs are reduced for the provider of those services. But with regard to your question, what are they getting right, what are they getting wrong? We're big fans of them getting at something that they like to do and that is stop gaming of the system. A hospice like VITAS that has no control over any referral source, we don't have nursing homes where we have de facto control over which hospice the internal patients go into, we couldn't game the system if we like. To the extent they seem to be doing what they do and that is sniffing out any gaming in the system, they're starting to get it right with regard to nursing homes that control the destiny of a lot of patients, more significantly in the gaming of the system. They are starting to look at facilities with high live discharge rates and the fact that, that creates a huge hole in the bucket for controlling costs from the whole hospice program. A full service hospice like VITAS has a higher expense level because we're prepared to provide high acuity, whether its inpatient or continuous care on a moment's notice. It's a lot cheaper to have a hospice that says we're only going to do the home care, we're only going to do easy stuff and suggest the patients rescind their election go into an emergency room if they get really sick. That is a problem for the government. That's what they are starting to look into. That's what they are getting right from my perspective. So that's -- all we can do is keep our nose to the grindstone and say, we're all for the government keeping an eye on this, but if they do and they do it right, it's probably re-down to the benefit of the full service hospices that are not gaming the system.

Frank, it is interesting. You look at CMS's comments, as well as MEDPAC and Senate Finance and they seem to be very thoughtful in terms of, as they're trying to analyze what's going on in hospice, it's clear that we have one-half of our patients who pass away in 13 days or less. We broke even or lost money on a lot of those patients. And then the one out of 10 patients who lives past six months are basically subsidizing those 50% of patients that were very expensive to take care of. Everyone is looking at this issue. What is more interesting now is there seems to be a direction going in, to the extent there's economies of scale is cost effective to deliver appropriate care to certain settings, that there should be a sharing of those cost savings. For example, if you have 10 patients in a single location, sure it's less expensive to deliver care for that 10th patient than the ninth. On the other hand, if you only have one patient in a nursing home, it's just as expensive to deliver care to that nursing home as a single-family dwelling. So to the extent that you're building up and you have a large census in the single area, there probably should be some reductions, very similar to how physical therapy works, in terms of Medicare reimbursement. So we think looking at those areas is appropriate and we'll provide whatever data the different stakeholders need to help them assess what makes the most sense when they eventually rebase hospice.

Your next question comes from Jim Barrett from C.L. King & Associates. Go ahead, please, Jim.

Dave, you commented last quarter, water remediation margins were slightly lower than the business's overall average. Is that remaining the case, given the 200-basis points improvement in your EBITDA margin in Q1?

It is and again, this is still a learning curve and it's fairly volatile on the margins; however, there are certain fixed costs within the field and a branch location, as well as within the Roto-Rooter corporate overhead structure. So what you're seeing is leverage relative to those costs that allowed us to deliver a 20% EBITDA margin, or adjusted EBITDA margin which typically we don't get that margin until the fourth quarter, so although the gross profit margin, contribution margin is slightly lower, those fixed costs leveraged and resulted in the overall margin for Roto-Rooter that you saw.

Okay. And is that business ultimately, at this time of year, driven by the heavy snow, the harsh winter in areas such as the northeast?

A little bit. A little bit. It's any time you have a broken pipe, it's any time there's water in the basement which is not necessarily driven by heavy snow, but it could be driven by the heavy rains. Or just again, broken pipes and the type of things that Roto-Rooter typically runs into, if you ask me to predict, I would say the arid summer months are likely to have a little less demand, but it's not all that cyclical. We aren't going to be laying off workers or anything like that. It's something in the normal cyclical range of the Roto-Rooter business and that -- I know you've been around a long time in this story to know it's a little higher demand in the winter and spring months and tapers off a little bit the rest of the year.

Okay and then finally, Kevin, is the service now being offered throughout the network?

Basically, yes. Basically, yes. There are a couple programs where it's in its very earliest germinal stages. But yes, there's no impediment in any market to offering this. It's more of a function of, as Dave said, it's still going on a learning curve, but it's -- we've seen that if you want a program to hit the ground running in this, it's very important to have the right person in each branch who is spear-heading it. And so some of the delays have come from making sure we had that right person available in each branch and holding off until we did. But at this point and I'm going by a meeting we had following the quarter-end results, I believe we're providing services in each of our branches.

And then one question for you, Tim. Going on memory and years gone by, the number of start -ups seemed more than you are reporting currently, the one start-up in the quarter. Is the one start-up the new normal or would you just see that number vacillate over time depending on markets and opportunities?

Well, no. It will vacillate over time, but we aren't that focused on it. There could be a couple, two or three a year. We could announce a new one before year-end, but that opportunity is not large. There are some cities we could probably go into. We would also, as you know, look for acquisitions that make sense. We're spending a lot of time building out our palliative care initiatives right now which is a little supplemental business to the hospice and it's working very well to provide that bridge service transition care to our hospital partners. That's really what the marketplace is very focused on right now, so as we build that out in the Organization, that will give us some good growth and solidify our hospice relationships. And over time, there may be a couple, two or three a year, that we would look at, as far as new starts, but not really substantial.

But Jim, my impression, I'm not saying contrary to Tim's, but first of all, we'd open up any new start-up that became available. That's a significant need state, so we're always on the prowl for that. The push for -- where I see new starts coming in the big cities where we're not is maybe down the road a little bit where our national or regional alliances that we might have with a few big healthcare systems firm up a bit, out of the sets, that's the direction of things. To the extent we could go into a very difficult market, Phoenix, for example, where there's a lot of hospice, there are a lot of competitors, but if we had the backing of a major player, a major health care system, we change our opinion as far as what we could get out of a new start in a city like that, that would likely, just on our own, would have very difficult competition for a several year period. As Tim says, we wouldn't get much from it and it takes a lot of effort and to the extent we're working on a lot of initiatives, we're just looking at the marginal utility of those type of activities.

The next question comes from Toby Wann from Obsidian Research Group. Go ahead please, Toby.

Just a couple of quick items. Number one, the disclosure on your admissions and 80 average daily census by major diagnosis. I noticed you guys are breaking out cerebro now. Maybe, could you give us a little more color on your decision to do that, as well as maybe some historical perspective on that throughout, say 2014 and how that trended over time?

As a general overall statement is with what CMS put out on debility and failure to thrive, obviously that changed in terms of some of the -- where those 15% of our admissions went to, as well as within certain categories, you also had within, say neurological debility unspecified as an option, we eliminated the utilization of those. That resulted in a reordering of where our admissions came relative to our disease, so it's actually difficult to do a comparison until we start lapping all these issues.

And then maybe you guys could talk briefly about what you're seeing in terms of pricing for M&A activity, both on acquiring some of your franchisees on the Roto-Rooter side, as well as maybe the hospice side? Things seem to be stable there, price increases, what seems to be the M&A appetite out there, in terms of what sellers are expecting?

Well let me just start by -- the easy one is Roto-Rooter and that is price doesn't seem to be the key factor. Unusual, but most of our franchisees that hold significant franchises and they're nearing retirement and they are second generation. They have had the franchises since the 1940s or 1950s. What usually causes one to be on the market is a death in the family or somebody retiring and before that, the franchises are generally just not for sale and really not available for any reasonable price. The rationale is they've been in the family for several years. It's all they know. They worked in it all their life. They have a great service market and a very low franchise fee that cannot be adjusted under our agreement and under Iowa law, so they have a very good deal. They're reluctant to move on it and generally speaking, our history has been when one does come for sale, we're able to buy it -- effectively, for us we end up buying at 4 to 6 times EBITDA. It a great deal but it's just not available. If we said, okay, we'll pay 8 times EBITDA, they'd say well what would I do? I'd have to pay taxes on the money and I wouldn't have anything to do during the day, so that's an easy one. We buy those when we can and to the extent -- when those -- what comes available, we have no idea. With regard to hospice acquisitions, you first of all have to separate in two pots. Some of the ones you see, some of the ones that you see publicized where, at least where a price is disclosed, you have to say is that a platform acquisition? You have to look at the acquirer and in order to acquire a platform for offering hospice, they're willing to pay more money. Of course, we don't compete on those because even though they might have a few programs where we would be interested in getting involved, we're not going to pay for a platform because we already have one. So you have to almost separate those. With regard to the other hospices that become available, generally speaking, they're usually a concatenation of a bunch of small hospice programs. That is, almost in all cases, under 100 census per location and for a lot of reasons, I hope they're tied to things that make sense, our breakeven is just simply higher. We have a lot more systems, a lot more redundancies. We have full hospice staff that is from all disciplines available day one, in every location. We offer high acuity services in all of our locations. The net effect is, our breakeven, depends a little bit on the geography, is over 100. So to the extent that, what would we pay for a hospice that says they're making money and they have five programs with a 90 census, we wouldn't pay a lot. So that's another -- so in the first group you say you've got to look at who the buyer is, are they buying a platform? And the second is, you say, whose the seller? Are they selling a bunch of relatively small programs that they're making money by offering hospice-light and by that I mean a stripped down version of only offering home care. So the answer is, when you look at hospice pricing, superficially you would say hospice acquisitions still are pricey and they seem to be highly sought after, but to the extent that when you break it all down, they don't necessarily present a great opportunity to us. If you look at our projections and our expectations and our history, our growth hasn't really come from acquisitions and we're not likely to see it until we see a change. The biggest change, we have said over the years, is there are a lot of not-for-profits out there with pretty good single-site census -- there is a lot of 500 and 600 census not-for-profit hospices that are part of a healthcare system or even standalone or disassociated with one. They are probably not making any money, but they're happy providing the service. Those are starting to struggle and you're -- something I see every month, every week, a lot of the not-for-profits are merging. They're just not -- the first step is merge with another ailing hospice. Maybe the second or third or fourth stage is going to be let's look for professional operator that might be able to ride the hospice service even with higher quality and maybe even pay us for it. So we're not there yet, but that's until we get there, I don't think that VITAS will be real active in the hospice acquisition. Would you agree with that, Tim?

Absolutely.

And then just one last question for me and then I'll hop back in queue. You guys have put up three consecutive quarters of mid-single-digit growth in both your admits, as well as your average daily census, while some of the other hospice operators out there have struggled on their average daily census numbers. What is it about your all's business that allows you guys to put up mid-single-digits while it seems like a lot of the other guys were struggling. What are you guys doing differently?

I don't think we're doing anything differently this quarter than we have in the past, but as we've talked about, we put a lot of resources into the marketplace. We provide all levels of service, all areas of the communities we serve and hospice right now is very favored from the large referral sources. We talk about hospital systems and we all know that the reimbursement for them has changed where they are severely penalized for readmissions. Also, some of these groups are taking risk and they realize that hospice and palliative care are the correct management of the case and lower expenses in certain cases, so the trends are good for us. As Kevin said and we've told you before, some of the smaller players in the industry can't compete in this environment, so we're probably picking up a little market share and we're improving on every front. It's very important to have good systems. We're working diligently to have better systems on the admission end, better systems to timely get our labor and caregivers in the right place to better serve the patient base. And so again, we're doing these things. We have a lot of physician involvement in the company now. That's setting a good pace for us. The VITAS resources are making a difference. So again, we're taking market share. I think that will continue. VITAS is very well-positioned for all of the things that we've talked to you about over the last several years, the way we run a hospice versus some of the companies in the marketplace can't provide the high level of service we do. So we're doing well and we're taking a little market share and I expect that to continue.

What I would add to Tim's comment is yes we're taking market share, but we're in markets where that market share amounts to something. In other words, we're very strong in Florida, Texas, California, big strong markets. And to the sense that you do well competitively in those states, it really shows up on the bottom line.

Very well. That seems to be all of the questions that are in the queue, so I thank everybody for your attention and we'll -- same place in about three months and we'll discuss our results at that time.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect.