VistaGen Therapeutics, Inc. (VTGN) Q4 2007 Earnings Report, Transcript and Summary

Ladies and gentlemen thank you very much for standing by and welcome to the VistaCare Fourth Quarter 2007 Earnings Conference Call. During today’s presentation all parties will be in the listen only mode and following the presentation the conference will be open for questions. If you do need any operator assistance at any time during the conference, please press the star followed by zero on your push button phone. As a reminder, this conference is being recorded Tuesday, December 11, 2007. I would now like to turn the call conference over to Doug please go ahead sir. Doug Thank you operator and good afternoon everyone. Thank you for joining us for VistaCare’s conference call webcast to review financial results for the fiscal fourth quarter and full year which ended September 30, 2007. The news release announcing the fourth quarter and full year fiscal 2007 results we’ve issued as of close of market today and is available on the VistaCare website. Should you need to have a copy sent to you, please call our offices at 415-896-6820 and we’ll get one to you immediately. Before we begin, please note that we’ve arranged for a taped replay of this call which may be accessed by telephone. This replay will take effect approximately one hour after the calls conclusion and will remain available until Saturday, December 22nd Midnight Pacific Time. The dial in number to access the replay is 800-405-2236 or for international callers 303-590-3000. The passcode required to access the code regardless of the number you’ve dialed in on is 11103772 followed by the pound sign. In addition, this call is being webcast live with a replay also available. To access the webcast go to VistaCare’s website atwww.VistaCare.com. Before we get started, during the course of this conference call the company will make projections or forward looking statements regarding future events, its structuring efforts, the company’s beliefs about its operational outlook for fiscal 2008 and the process of exploring strategic alternatives. We wish to caution you that such statements are just projections that involve risk and uncertainties, actual results may differ materially. There can be no assurance that the review of strategic alternatives will result in any agreements or transactions. Factors that may affect actual results are contained in the company’s filings with the SEC including Form 10Q for the fiscal third quarter ended June 30, 2007 and Form 10K for the fiscal year ended September 30, 2007 which was filed today. In addition the factors underlying the company’s forecast are dynamic and are subject to change and therefore these forecasts speak only as of the date they are given. The company does not undertake to update them however, they may do so from time to time, if they do so chose to do so they will disseminate to the public. During the course of today’s call the company will discuss certain non GAAP financial information. Specifically, we have provided fourth quarter of fiscal 2007 pro forma net loss and earnings per share which exclude costs related to our restructuring activities. Such costs include severance, consulting directly related to our strategic initiative efforts and site consolidation. We are providing this information because we believe doing so provides a more meaningful and consistent comparison of our ongoing operating results compared with historical results. A table reconciling the GAAP financial information to the non GAAP information is included in the tables accompanying today’s release and is available on the VistaCare website. In addition, I’d like to draw your attention to an incorrect number in today’s news release. The number provided for ADC for the third quarter of fiscal year 2007 was provided at $5,039. The number should have been 5,089. Finally, we’d like to request that during the Q&A session today that we limit each questioner to two questions each and invite you to requeue. Now, with that out of the way, let me turn the call over to Rick Slager, Chairman & Chief Executive Officer of VistaCare.

Thank you Doug. Good afternoon everyone and thank you for joining us here today. With me is Henry Hirvela our Chief Financial Officer who will talk to you in a little bit. We made substantial operational progress towards achieving the goals of our restructuring plan during this fiscal fourth quarter. We grew net patient revenue despite several program closures. We generated sequential ADC growth in the core 42 programs and growth margin improvement while reducing patient care and SG&A salaries and related expenses. Total head count was reduced by an additional 5.2% during the fourth quarter and we consolidated three additional programs and, our EBTIDA loss was reduced by approximately 45% from the fiscal third quarter. The team here has worked very hard to obtain our operating performance during the fourth quarter. It was a financial performance that was hindered by a number of charges that Henry will review in a couple of minutes. These charges and expenses are expected to be behind us very soon following the completion of many of our restructuring activities. There were quite a number of positive operating trends in the fiscal fourth quarter compared with the third quarter and I’d like to thank our team for their dedication and focus. Average daily census increased 2% over the fiscal third quarter of the 42 core programs that we have identified as the ongoing VistaCare operations. And, we did see an overall slight increase in the financial ADC days during the quarter and despite a decrease in the number of programs during the quarter, net patient revenue increased 2.2% as compared to the fiscal third quarter. In the fourth quarter we reduced our head count by 140 positions and, we consolidated three additional programs. During fiscal 2007 we reduced total head count by 218, or approximately 8%. Sold, closed or consolidated nine programs and focused on operating efficiencies and processes improvements. We’re beginning to see the positive benefit through improved financial performance. For example, we realized savings in patient care and SG&A labor expense and in many non labor patient care expense categories. Despite this progress, we are still working to get our remaining sites in line with the VistaCare staffing model and, addressing process inefficiencies while minimizing the ongoing impact of the CMS medical reviews. We are addressing these challenges through continuing implementation of the restructuring plan and other initiatives. While we expect to continue to incur additional restructuring related expenses over the next several quarters we believe they will decline and the benefits of our efforts should be increasingly evident in our financial performance quarter-over-quarter. In addition, we continue to improve the management of our Medicare cap expense during the fiscal 2007 and achieved a 20% reduction compared to fiscal 2006 and, approximately a 60% reduction since fiscal 2005. Medicare cap for the fiscal fourth quarter and full year included approximately $1 million and additional fourth quarter accruals primarily for prior year Medicare cap proration adjustments and allowance for denial. At September 30, 2007 we had a total of 47 programs and six IPUs. Our target, upon completion of the restructuring plan program, consolidation remains 42 programs and six IPUs. The timings of the remaining closures will be impacted by the outgoing of the company’s strategic review process for the outcome of that process which is still underway and remains a high priority. We hope to have resolution of this process in the near term. During the quarter we generated an improved gross margin and EBITDA and we are making very good progress towards our financial target. During the entire fiscal 2007 year we implemented $17 million of the $29 million annualized net benefits targeted in the restructuring plan. As some of these benefits will take several quarters before we realize. As I previously mentioned, these benefits were offset in the fourth quarter by charges, as well as other expenses associated with the restructuring. We are continuing to aggressively implement the restructuring plan to achieve the targeted annual net savings. Now, I’d like to turn the call over to Henry for a review of the highlights of our fiscal fourth quarter performance. Then, I will talk further about our restructuring initiatives. Henry?

Thanks Rick and good afternoon to everyone. And, as Rick said, we made strong progress in the quarter on improving our operating financial performance. Net patient revenue increased 1.2% in the fiscal fourth quarter of 2006 due to an increase in the Medicare reimbursement rate of 3.4% effective in October, 2006. We also had 11,000 more inpatient days in the fourth quarter as compared to the fourth quarter in 2006, or a 19% increase. These positive factors were partially offset by a decline in ADC of 237 patients before percent. The decrease in ADC was primarily the result of the closure or consolidation programs during the year. At the 42 core programs, ADC increased approximately $2 for the third quarter 2007. During the quarter we closed three programs and we also eliminated 140 employee positions. Patient care expense grew 1% from last year’s fourth quarter with improvements in several key categories limiting the increase. For example, labor, benefits and travel fell 3%. Durable medical equipment expenses were down 4% and pharmacy decreased 1%. Our gross profit margin in the fourth quarter fiscal 2007 increased 1% from the fourth quarter last year. We continue to make progress on SG&A expenses, reporting a 9% increase from the 2006 forth quarter. The decrease was largely a result of head count reductions which were part of the implementation of the restructuring plan. Both patient care expense and SG&A expense were affected by charges and additional costs associated with the restructuring. The most significant included $200,000 for severance, $100,000 for site consolidations and $100,000 for strategic initiatives. We continue to plan for the majority of the restructuring to be implemented by the end of the fiscal second quarter in 2008. At that time, we would anticipate a significant decrease in expenses associated with the restructuring as we enter the third quarter of fiscal 2008. The company reported a net loss on a GAAP base. It was a $1.8 million or $0.11 per share of the recent fiscal fourth quarter. This compares with a net loss of $10.9 million or $0.66 a share for the fourth quarter of fiscal 2006 and a net loss of $2.8 million or $0.17 per share for the fiscal third quarter of 2007. This represents a 84% and 36% decrease respectively in the fourth quarter compared to those prior quarters. Included in the net loss for the fiscal fourth quarter, there were severance costs totaling approximately $200,000, consulting and other costs directly associated with the company’s strategic initiative efforts totaling approximately $100,000 and costs associated with site consolidations were approximately $100,000. On a pro forma basis, excluding severance, site closure expense and costs directly associated with the company’s strategic initiatives efforts, the company generated a net loss of $1.5 million or $0.09 per share in the fiscal fourth quarter 2007. This compares to a pro forma net loss of $2.7 million or $0.16 per share in the 2006 fiscal fourth quarter. This excludes an $8.3 million valuation allowance for deferred tax assets and a pro forma net loss of $2.3 million or $0.14 per share for the fiscal third quarter of 2007. In addition, the net loss for the fiscal fourth quarter included legal settlement costs and related expenses totaling approximately $500,000 and approximately $1 million in additional expense primarily, for prior year Medicare cap proration adjustments and allowance for denials. For fiscal 2007 Medicare cap expense on a GAAP basis declined, as Rick mentioned, 20% from fiscal 2006. EBITDA in the fourth quarter improved by 69% as compared to the fourth quarter fiscal 2007 of a -$1.1 million. Turning now to sequential quarter comparison net revenue increased 2% from the third quarter due to a slight increase in ADC. Patient care expense increased 1% from the third quarter and was lead by lower patient care labor and related expense due to head count reduction that occurred during the quarter offset by higher bad debt expense for room and board which is accounted for as part of patient care expense. SG&A expense declined approximately 1% compared to the third quarter largely due to lower salary expense reflecting head count reductions. The GAAP net loss of $1.8 million compared favorably to the $2.8 million GAAP net loss for the fiscal third quarter. On a pro forma basis, excluding severance, site closure expense and costs directly associated with the company’s strategic initiative efforts, the company generated a net loss of $1.5 million or $0.09 per share in the fiscal fourth quarter 2007 compared to a pro form net loss of $2.3 million or $0.14 per share in the fiscal third quarter 2007. We ended the fiscal year with $43.2 million in working capital and had cash and cash equivalents of $29.4 million. And now, I’d like to turn the call back over to Rick.

Thanks Henry. We continue to drive execution of our restructuring plan and actively pursue the strategic review process. With special committees, the Board is driving that strategic review process and working diligent with RA Capital in review the company’s strategic alternatives. A number of activities have taken place and we hope to have a resolution to the strategic review process in the near future. Meanwhile, we are continuing to drive improvements in our operating performance while continuing to deliver the highest quality care to both our patients and their families. We still have work to do including, driving additional efficiencies and increasing ADC to grow revenue. The fiscal fourth quarter is demonstrable proof that we have made strong progress in executing our plans. The trends continue to be positive. Again, I want to thank the VistaCare employees and staff for their hard work and dedication during a very difficult period for the company. They have been extremely professional focusing on the job at hand despite many distractions. VistaCare progress is a result of their commitment to our mission and our patients. Now, Henry and I would like to take whatever questions you might have so, I’ll turn it back over to you.

Thank you, sir. Ladies and gentlemen at this time if you have a question please press the star followed by the one on your push button phone. If you’d like to withdraw that question, please press the star followed by the two. And, if you’re using speaker equipment you’ll need to lift the handset before making your selection. We ask that you ask one question and one follow up and then requeue for any additional questions. One moment please for our first question. Your first question comes from the line of Kevin Fischbeck of Lehman Brothers. Please go ahead. Kevin Fischbeck – Lehman Brothers, Inc.: Okay. Great. Thank you. Good afternoon guys.

Hi Kev.

Hi. Kevin Fischbeck – Lehman Brothers, Inc.: Let’s see. I guess, I wanted to start off by asking to get a little more clarification about some of these one time expenses, where they are in the P&L. I guess, also including the half a million dollar legal settlement and, go over what that was.

Yeah. The half a million dollars legal settlement Kevin, is an SG&A expense under professional fees. Kevin Fischbeck – Lehman Brothers, Inc.: Okay. And, the other three one time items?

The other one time item, that was an SG&A expense also. Kevin Fischbeck – Lehman Brothers, Inc.: The $200 and other two $100 were all under SG&A?

If we’re talking about the pro forma adjustments? Kevin Fischbeck – Lehman Brothers, Inc.: Yeah.

If you take a look at the pro forma adjustments, the strategic initiatives the $100,000 amount would be an SG&A expense. The site consolidation expense was primarily lease termination for offices, office space that we had that was given up when we closed the programs. That would be part of SG&A expense also. And then, we had the balance of $200,000 associated with severance costs which we split between patient care and SG&A expense, primarily SG&A expense. Kevin Fischbeck – Lehman Brothers, Inc.: Okay. Alright. Great. And then, I guess the second question I would have for you would be about the, you know, head count initiatives. One point for clarification, the 8% decline in head count, is that a continued operations number? Or, is does that include the [inaudible] you closed?

Okay. That’s a total head count reduction, Kevin. If you take a look at the change in the quarter, in the quarter there was approximately 140 reduction in the fourth quarter. That was more heavily weighted to patient care labor reductions in the core programs. If you take a look at the total of 218 over the year, it’s a pretty even split between SG&A reductions, which are corporate office reductions and field reductions, most of which in the field was associated with site closings and consolidations and then, the balance was in patient care labor split between site closings and consolidation head count reductions and just general head count reductions in the core programs. Kevin Fischbeck – Lehman Brothers, Inc.: Okay. So, some of that is actually divesting facilities, or consolidating?

That is correct. That is correct. Kevin Fischbeck – Lehman Brothers, Inc.: Okay. And then, I guess, just one last quick one, if I can stick it in. You mentioned that you got $17 of $29 annualized net savings but, some will take several quarters to realize. Can you give some examples of what types of initiatives have delayed time wise? And, what percentage of that $17 million falls into that delayed recognition bucket.

Sure, I’ll be glad to do that. One good example of that is the head count reductions in the patient care labor area in the core programs. Those were initiated in the fourth quarter. A little bit earlier than what we an initially anticipated in the restructuring plan, and all of these comparisons are to the June 27th press release when we announced the restructuring plan and the numbers associated with them. So, we were a little bit earlier in making the patient care labor reduction in the core programs but, those savings, those total savings we started realizing during the quarter. All of the head count reduction did not occur in the first day of the quarter, they occurred throughout the quarter. So, we will start receiving the full benefit of those reductions taken in the fourth quarter in the first quarter. So, it’s timing issues such as that. It’s program closures, many time the program closure activity will [inaudible] your quarter. We began in the second quarter this year, fiscal 2007, making a number, taking a number of steps to close and consolidate but, a lot of those closures did not occur until the third quarter. The completion of the closing activities did not occur until the third quarter. So, we initiated in the second quarter so, we did not realize the benefit, actually the full benefit on those until the fourth quarter because, we were still closing in the third. So, it’s just the passage of time to implement and to take care of winding up the operations, to close programs and to implement the reductions, and staffing reductions.

Thank you, sir. Your next question comes from Eric Gommel with Stifel Nicolaus. Please go ahead.

Hey Eric.

Hey, how are you doing? I just wanted, a couple of question, on the Medicare cap ex, I just want to clarify so, for the fourth quarter, the current [inaudible] for the current period would be about $700,000? Would that be about correct?

Well, I think, the way to look at this, if I could, we take a look at the total, looking at the total cap expense that is associated just with 2007, our total cap expense for 2007 was about $4.5 million and the balance of the GAAP cap expense in the year was associated with a prior year adjustment because, Rick mentioned, we received our assessment letters and part of the assessment letter review is to do a final calculations proratons and this if for activity on patients who were all on services September 30, 2006. The prorations are calculated in to 2007 based on information that develops during the 2007 fiscal year and one year anniversary. We receive the assessment letter that reflects the full information relating to those prorations and that number for 2006, that additional assessment, primarily prorations were about $1.1 million and we had a number of other adjustments associated with 2006 and prior years which brought us to the net cap expense for the year.

Okay. So, $4.5 is the net for this current year?

That is correct. And, again, take a look at the total booked expense, it was round numbers of about $5.3 million so, net about $800,000 or so associated net with the $1.1 million for the additional assessment for 2006 and then the prior year adjusting entries both pluses and minuses.

Thank you, sir. The next question comes from the line of Ryan Daniels with William Blair. Please go ahead. Ryan Daniels – William Blair & Company, LLC: Yeah, good evening guys.

Hi Ryan.

Hey, how are you? Ryan Daniels – William Blair & Company, LLC: Good. A quick broader question, I guess, a follow up to Eric’s question on the cap. We’ve been hearing a lot more about the potential for legislation to do a stay on cap for a couple of years, or some broader reform because, so many providers are hitting this and having to pay back cash and it’s really starting to hurt access to care. Can you talk a little bit about what you’re seeing maybe from the NHPCO, or a little more broadly about getting some cap relief in the near term?

Sure. Brian, I’m actually chairing the committee on the cap reform for NHPCO so, I’ve got a pretty good handle on where we stand. There are basically two proposals that are on the hill at this point. The first proposal is a moratorium, it’s been brought by not NHPCO but, another group that has been particularly hit hard in Oklahoma which is a state that’s had the tremendous cap issues now for quite some time. The other proposal that is on the hill is not a moratorium but is a relook at cap from several different perspectives. One in terms of area; one in terms of trying to use prior year’s credits against future year potential shortfalls. It’s taking a really hard look at the whole proration issue which, even MedPac has viewed as being something that is not only impossible and difficult to calculate but has some really unfair advantageous to it. So, it’s a pretty broad based approach to try to change the cap that’s not as broad as strictly a moratorium which is viewed by NHPCO and others as something potentially very difficult to get through congress given congress is looking for every dollar they can find for healthcare. So, there are two programs. The hope is that we have something that attaches to this upcoming legislation here at the end of the year and that there is some relief that is granted. The NHPCO piece is not total relief but, it is relief on a number of different fronts that would have significant impact to most providers out there. Ryan Daniels – William Blair & Company, LLC: Sure. Is that, the potential for that changing your thought process on the restructuring, i.e. looking at the non core side up for potential closure? Does it make you want to wait, you know, on those initiatives to see if something would change here and make those potentially more profitable sites?

Well, I can tell you that of the six programs that are still remaining in our portfolio that we would be looking at potentially doing something with, four of those are heavily impacted by cap. We have been, the unfortunate thing here Ryan, is time. The reality of it is if we don’t see some movement happening fairly quickly, you’re looking at a whole other year before you’re going to get relief and quiet honestly, those sites have been a drain for quite some time. Not because they aren’t good programs, not because they aren’t really good people and not because they haven’t done the right things in terms of providing care to [inaudible] patients. But, it has been just, for all of us in Oklahoma, I can tell you, it has just been a real trouble problem that is just not getting the relief it needs. We are slowing down our process on our end, in fact, we have several potentially interested parties with regards to our Oklahoma properties. But, it has slowed down a bit of the process as we’ve tried to work out a solution. I just, I’m not given it a high likelihood that it will happen this year.

Thank you, sir. The next question comes from the line of Darren Lehrich with Deutsche Bank. Please go ahead with your question. Darren Hi guys, it’s [Pete [Inaudible]] for Darren Lehrich.

Hey, Pete. [Peter [inaudible]] – Deutsche Bank: A couple of quick question for you. We notice and uptake in patient account receivables this quarter. Can you tell us what occurred with the DSOs? And what the normal DSOs should be going forward?

Well, I think we saw an increase in receivables primarily tied to the impact of the medical reviews that are being conducted by Palmetto on behalf of CMS because, if you look at the receivables at the end of the third quarter, approximately 22% of those receivables were associated with receivables for programs under medical review. At the end of the third quarter we had 10 provider numbers and approximately 18 programs under review and review began just about over a year ago and it started having the inevitable impact on receivables as it continued through the year. It’s been a long process. We have been working the request very diligently and very responsive and have been, as has everyone in the industry, this medical review is impacting the entire industry. It has gone on so long and some of these programs have been in the review process for so long that with sequential billing we have seen a significant increase in the accounts receivable balances. Working capital has not changed much during the year quarter-to-quarter but, the cash balance has been impacted as we have had these receivables associated with the medical reviews build up. If you look at the end of the second quarter, under 5% of our receivable balance was being impacted or was the result of the ADRs. That, in the third quarter, the end of third quarter growth was just under 20% and at the end of the fourth quarter into the fiscal year was about 22%. Today, five provider numbers, five of our provider numbers are under review, approximately eight programs and we are working diligently to collect the receivables and catch up the sequential billing. This stuff can take a few months, it can’t be done quickly but, we’re working it as quickly as we can. We should see cash balances and receivable balances return to more normalizing levels as we move into the end of the first quarter, beginning of the second quarter this year. [Peter [inaudible]] – Deutsche Bank: Okay. Then, a quick follow up on that one. Can you give us a little more color on why there was a delay in the closure of these five programs you talked about last quarter? Was there any updates on these closures?

The only delay that we’ve experienced is that as we’ve reviewed our strategic options, strategic initiative options, there’s the potential that several of these programs are, actually are, turning the corner and are potentially should be part of that review process. So, part of this is that. The other is that rather than closing those programs which we had initially thought we would do, we actually have interests in those programs by others and we’re negotiating with them at this point and time to potentially have a very positive outcome for both the company, as well as for those programs to continue to provide services to the community.

Thank you, sir. Your next question comes from the line of Dawn Brock with JP Morgan. Please go ahead with your question. Dawn Brock – JP Morgan: Hi there guys. Two quick questions, the expenses on the restructuring side, I mean, from here what do we have going forward and through the first half of the week?

I think Dawn, the expenses associated with the sale consolidation of the remaining programs, or closure of the remaining programs and their expenses, depending upon what the final outcome and resolution is for those programs, it is going to two scenarios are going to generate additional charges to terminate leases and to provide severance and transition pay for our impacted employees. If the programs, of course, are sold, or if somebody else takes over the operations there will be foregoing that. But, clearly, that’s one area. The other area on the process improvement, although we are working with the current legacy systems we had in place, the IT systems, we are making process improvements in three major areas and, in case you care, claims and billing, in a process we call FastPay which is the [inaudible] reimbursement mechanism for paying for room and board for our patient residents in nursing homes, it’s primarily a Medicaid pass through mechanism in most of the states in which we operate and have patient residents in nursing homes. Then also, in our purchasing and procuring area, there are incremental expenses. They are not large in the overall scheme of things but, we do have implementation expenses as we modify our systems and we bring in specialist to deal with certain aspects of the process and IT system changes that we are making on the current systems to achieve these costs savings. So, those are basically where we’re going to see these expenses. I don’t anticipate that the expenses are going to be particularly large but, they will be something. Dawn Brock – JP Morgan: Henry, down the road do you see, and I know that you’ve talked about it in the past when it comes to IT and the infrastructure. Do you see possibly replacing the current system within, say within the next 12 months? Do you think it is a fiscal 2008 event? Or, do you think that it will be pushed off a bit from there?

Well, I think Dawn, the way I view this is that we need to take this one step at a time and I believe that we are awaiting the board’s determination, based upon the outcome of the strategic initiatives we’ve viewed, we’re waiting on their decision on that and at that point in time we’ll be making a decision on systems and we’ll certainly let you know as soon as we have something more to say on it. Dawn Brock – JP Morgan: Okay. Great, I’ll hop back in. Thank you.

Thank you ma’am. The next question comes from the line of Ross Berner with Weintraub Capital. Please go ahead with your question. Ross Berner – Weintraub Capital Management: Hey guys. Just a quick question, I know you’re probably limited to some degree in terms of what you can say about the process on the strategic review. Whatever you can say, could you sort of elaborate a little on that and, you know, in terms of where do you feel you stand in the actual process it self. Are there still interested parties that you’re talking too that need to kind of see where this whole thing shakes out in terms of restructuring.

I mean, obviously Ross, we are somewhat limited in kind of what we can say at this particular point. What I can say is that the special committee of the board has worked very diligently with RA Capital Advisors. And, are there interested parties? Yes, there are interested parties. They have worked diligently with them. There are a number of issues, obviously, to address and they’re being addressed. And, I think, I will tell you from this VistaCare’s perspective, I think, bringing some certainty to our field and to the staff is a critical issue for us because, this has really got, I know Henry does two, tip our hats to the field and to everybody here that continues to operate under a scenario of some uncertainty and yet continue to perform at the level they’re performing. So, I can tell you there’s, I know on behalf of the management here, there’s a genuine feeling of let’s get to the right solution, as I know there is with the special committee and RA Capital. So, I mean, I’d love to talk more about it but, I think anything beyond what I’ve just said is, you know, we start to get into areas that I’m just not ready to discuss at this point. Ross Berner – Weintraub Capital Management: Okay. I mean, if you can’t that’s fine but, is part of it that people want to see where margins stabilize out on a normalized basis? Would you say that’s part of it? Or, I guess, I’ll leave it at that.

No, I mean, the only thing that I would say is that when we entered this process and announced to you all in June, kind of what the process we were going to pursue, you know, the first part of that and, we thought we were fairly clear, was really taking that hard, hard look at the company and putting together the restructuring plan and then really putting that plan in place and beginning to execute on that plan and taking a look to see the results of that plan. And, I think we’ve been very encouraged, as we said on the phone, on how that’s progressed. Once that progressed, it’s obviously, we open the door for the special committee to really take a look at what are the real options now that we’re seeing the progress that’s being made. So, I think from our perspective, it’s taking its normal course and I think that we’re going to get to a very good solution. I think we’ve done the right thing and I think it certainly takes, the feeling from all of us, is it’s taking longer than any of us would like but, good things always do. So, we’re taking the time I think everybody needs to make sure we make the right decision.

Thank you. The next question comes from the line Gabe Hoffman with Accipiter. Please go ahead with your question. Gabe Hoffman – Accipiter Capital Management: Thanks. My question on DSOs was answered. It sounds like you guys are, you know, committing to getting them back to the normal range either end of first fiscal quarter into the second fiscal quarter which, is good news. Thank you.

You’re welcome.

Thank you, sir. Once again, ladies and gentlemen if you’d like to ask a question, please press star followed by one on your touchtone phone. If you’d like to withdraw that question, please press the star followed by two. As a reminder, if you’re using a speaker phone please lift the handset before making your selection. The next question comes from the line of [Emmett [Inaudible]] with Weintraub Capital [Emmett [Inaudible]] – Weintraub Capital Management: Hi guys, can you hear me?

Yeah, [Emmett [Inaudible]] . [Emmett [Inaudible]] – Weintraub Capital Management: I just wanted to quickly clarify, the $500k in legal costs, what exactly was that and why was that not pro forma out? Or, said differently, should we back that out to try to get a sense for the underlying, you know, earning potential of the business on a go forward basis?

Yeah. [Emmett [Inaudible]] , I think the pro forma adjustments we made were consistent with what we had historical pro formed out. And, typically, we will focus on severance and restructuring associated charges. These were not associated with that type of activity. We wanted to provide the disclosure, the additional disclosure, I think really to give investors owners a more clear picture of what some of the charges were that impacted the quarter. So, we wanted to disclose those and talk about those. Certainly, we and all public companies, all companies in general do deal with litigation and the settlement expenses that come out of those and the other expenses that come out of it. This one was arguably a fairly substantial settlement amount and we felt it warranted some additional disclosure. We’ll just leave it, I would think, the best thing for us to do is to leave it with investors as we disclose it to deal with it as they see fit. Clearly, it was an item that impacted the fourth quarter and we did not have similar expenses of that nature impact the first three quarters of the year. [Emmett [Inaudible]] – Weintraub Capital Management: Okay. That’s helpful. And, the other question really relates to, of the core hospices that you’re aiming to, and you’re getting closer, can you give us a percentage? You had said before what percentage of your hospices had reached, you know, acceptable EBITDA targets? Or maybe, another way to approach it is to give us a sense for the range of EBITDA at the individual site levels so we can get a feel for how that’s progressing.

As of the quarter we had about 34 of the 42 sites really hit the targeted number. And, there were, obviously, a large percentage of those were well above the target. So, a good portion, 72% I believe is what it breaks out to be.

Yeah, 72 is on the base of [inaudible].

[inaudible] so, it’s actually a little higher. [Emmett [Inaudible]] – Weintraub Capital Management: Thank you sir.

This time we have a follow up question from Eric Gommel. Please go ahead with your question.

I just want to clarify on, I think, five programs that you still have remaining that you’re still trying to consolidate, what’s the census of those five programs?

The current census in total runs is about 200 and I’d say 20.

So, if I was looking out over the next couple of quarters and you were trying to consolidate or close those programs, relative to where your census was in fourth quarter, do you think you’re going to kind of carry a flat census going forward? Or, should we account for maybe this 200 patient dip in census? I just want to make sure we’re modeling that accurately.

I mean, I would account for the 220. I mean, I think we’ve said all along, I think when this whole process started, there were about 300, I think we said 350 was the total in the programs that we were either selling, consolidating or closing and the number of programs is now fewer in that we’ve already done the other programs. These particular programs, you can imagine what happens when you make those kinds of announcements. You do have a drop in the census. So, they’re down to total now of a little over 200, 225, 220 or so and, obviously, depending upon the timing of that, that will impact the ADC. There’s a, you know, the reality of it is, as I mentioned earlier with regards to one or two of those programs is they’ve actually started to come back and it’s one of the things we’ll be evaluating with regard to the census. But, I would be looking at, you know, 200 less census going forward.

Okay. Great. Thank you.

Thank you. The next question is a follow up question from Dawn Brock. Please go ahead. Dawn Brock – JP Morgan: Hi there. I think I’d just like to follow up on the last two questions getting down to the program levels, the site level. Of the 42 programs, you’re saying 34 hit the target EBITDA range. Can you just remind us what that is?

Yeah, it was 17% EBTIDA contribution. Dawn Brock – JP Morgan: Okay.

Dawn, that’s the minimum. That’s the minimum contribution. That’s the threshold, the minimum threshold. Dawn Brock – JP Morgan: Okay. Excellent. And, is it possible for you to give us a profile of the 42 companies? So, 34% at that EBITDA level but, what size are the programs? And, maybe you can give us an idea where cap is in those programs.

It’s over 70%. Its 34 programs over 47. My denominator was the 47 remaining programs. If you take a look at it just on the basis of the 42 core programs, we’re talking about something just over 80% of the programs are at or above the minimum 17% threshold for EBITDA. Dawn Brock – JP Morgan: Gotcha.

If I could just answer on cap and then I’ll turn it over to Rick for some of the other specifics on the program. We anticipate that cap as a percentage of revenue will decline. It will probably be somewhere in the range of 1.5-2% of revenue compared to the 2.5-3% that we have been running because, as Rick mentioned, the remaining programs, a couple of them have [inaudible] cap sites and a number of the other programs that we have either closed or consolidated were also cap site. So, it’s a combination of better cap management and reducing the number of programs that have cap exposure.

And then, the final thing that I would say is just in answer to your question, these programs range in size from, you know, you’re 60, 70, 80 to 300 and all in between. So, it’s a wide variety of programs size. Dawn Brock – JP Morgan: Rick, would you be comfortable saying that the majority of these programs are above break even at this point when it comes to just, you’ve probably answered that with the EBITDA number but, I guess what I’m trying to get at is from the perspective that you had certain leap frogs that actually came on over the last couple of years in order to mitigate cap. I guess, the question is where are we as far as the last, say 20% of the programs that need to get to that threshold level? You know, where are they in their growth cycle?

Well, a number of them, what we gave you is kind of a snap shot in time. The reality of it is that there isn’t one of those programs that has not been in that plus 17, and some of them well plus 17. It might have been the quarter, it might have been a set of circumstances, it might have been that they got hit with cap somewhat unexpectedly in the last month of two. There’s a variety of reasons. Predominately the two areas, all the 42 that we have laid out as the core sites moving forward have all demonstrated very great profitability in the past and should continue to show that. You know, that 17% was something we had laid out, you know, you kind of get stuck with it once you do it and we kind of laid it out there probably four, five, six quarters ago and now have been reporting on that. That certainly is not the, that’s our, as Henry said, that’s the low and certainly most of them are operating well above that and then, obviously, before corporate and some of the SG&A items that have to hit it. But, these programs, these 42 programs will operate very profitably and we believe, they’re the core programs that we believe will take us to the, you know, high single low double digit EBITDA, year and a couple of quarters from now. So, that is the group that will take the company to that level. Dawn Brock – JP Morgan: Thanks so much. That’s great color.

Thank you ma’am. The next question comes from the line of Kevin Fischbeck with Lehman Brothers. Please go ahead. Kevin Fischbeck – Lehman Brothers, Inc.: Thanks. I just wanted to follow up a little bit on one of the answers to the last question. As far as the cap goes, how many sites currently are hitting the cap?

Hold on a sec.

We have about, in fiscal 2007, we had approximately 10 sites that had some cap exposure. Most of it was modest. We had a few that had a disproportionate share, disproportionate amount. So, it was weighted more to a handful of sites, three or four sites. Kevin Fischbeck – Lehman Brothers, Inc.: Okay. And you mentioned that some of the improvement year-over-year was from site closures and consolidations. On a same store basis, do you know what the year-over-year improvement in the cap exposure has been?

I’m going to say that probably, if you take a look at just looking at cap expense as a percentage of revenue. Let me just stay with that and, if we look at the actual of 2006, 2007 years for comparison purposes after we’ve taken into account the assessment letters for 06 that we received in September, it was about 2.9% of revenues, cap expenses 2006 on that basis was about 2.9% of revenue. In 2007, the cap expense for 2007 was about 1.8%. So, it was about a 1.1% point improvement. I would say that the amount that contributed to the program closures is probably about half, about half. Kevin Fischbeck – Lehman Brothers, Inc.: Okay. Great. That’s helpful. Thanks.

The next question comes from the line of [Jeff Culmer with Culmer Consultants]. Please go ahead. [Jeff Culmer – Culmer Consultants]: Yes, I noticed, I’m not sure I fully understood what you said there but, as I recall, you indicated that you had add debt in the patient room and board account in excess of $1 million for the quarter and I presume that is Medicaid related and I’m wondering is number one, what states it came from? What were the causes for it? And, was it a one time, or do you anticipate additional issues in 2008?

Well, we did have an increase in the expense accrual for room and board bad debit and these are all Medicaid claims. Those claims were the result or, as of the additional reserve that was taken was the result of review of our claims account receivable agent bucket. And, we did have staffing turnover in the claims billing area that did cause us to get a little bit behind in the second and third quarter this year and we are beginning to turn that situation around now. We do have additional claims that we are working that are aging of debt and we’re in the process of collecting those claims and addressing what additional actions, if any, should be taken. But, we did need to increase our reserve in the fourth quarter. We do not anticipate, as we move into 2008, for this situation to continue. We anticipate as we move into the second quarter to see that come back into historical comparisons from the standpoint of allowance as a percent of claims collect for reimbursement in this area. [Jeff Culmer – Culmer Consultants]: So, as I understand it you’re saying it was the result of turn over and missing filing deadlines for claims that caused some of this $1 million and that’s a one time event.

That was part of the issue and, we had that hit in a number of states. We had experienced staff that were hired away, it’s a very competitive market. Individuals with expertise and state Medicaid billing are very difficult to find in the Phoenix market. Case in point would be Georgia. Difficult to find in Georgia Medicaid claims billing expert that has hospice experience in this marketplace. And, in the case of Georgia, we did have a staffing issue. We have addressed that. We are making great strides in electing these claims but, we’re still dealing with the after affects of that. It took us some time to be able to make the adjustment and changes to get that on the right force. That has now been accomplished. As matter of fact, it was accomplished three months ago. So, we’re in the process now of working through all of this. [Jeff Culmer – Culmer Consultants]: Thank you.

We have a follow up question from [Emmett [Inaudible]] – Weintraub Capital Management. Please go ahead with your question. [Emmett [Inaudible]] – Weintraub Capital Management: Hi. Two quick follow up questions. In light of the results in the restructuring can you tell us what quarter in 2008 you expect to be EBITDA positive if you exclude restructuring charges. And, the second question is, you’d previously mentioned a 10% EBITDA goal for the fourth quarter of fiscal 08, I believe. Can you give us a sense of whether you still feel like that’s insight.

Well [Emmett [Inaudible]] as you know from the press release we put out announcing the restructuring program, we gave, we didn’t really give guidance with regard to the companies overall profit performance going forward. But, we did give specific benchmarks and goals with regard to net cost savings and also the quarterly impact in that quarter of the initiatives that had been undertaken. And, I think, that’s pretty much the guidance we’re going to be staying with as we go forward. But, if you look at the release you’ll see that we had $17 million in net costs savings identified for completion and that is annualized costs savings, the full amount, on a full amount basis. The timing, of course, on these initiatives is going to be spread out over the year both upon implementation and then as we report out the quarter. So, if we have a $4 million annual reduction in patient care labor, we’re going to realize $1 million a quarter and you start reporting a full quarter with that reduction in it. So, I think that’s how to look at the $17 million. We also indicated in that release a $3 million positive impact to the fourth quarter 2007 which is the cumulative effect of the restructuring charges that have been taken up to that point in time. So, that’s the fourth quarter benefit. And, I think as you look at the rest of the guidance, if you will, that’s contained in there with regards to the restructuring program, you’ll see that the impact is rolling out and increasing as we move into 2008. We still do have as a goal a 10% EBITDA margin. That still remains our goal and we’re going to work very diligently to continue the successful implementation of the restructuring plan and push hard to get to that goal. We did review with you on this call, a number of the items that impact us in the quarter and we continue to work intensively to remediate issues that cause these to happen and we will continue to do so as we go forward. [Emmett [Inaudible]] Thank you.

Thank you, sir. Gentlemen at this time there are no further questions. I’d like to turn it back to management.

Thank you and thank you all for being on this call. We had a good interchange and hopefully, you saw that the progress that we have made here and the fact that we do feel that we’re on the right track and we’re diligently working the restructuring plan and certainly hope to be able to update you in the not too distant future with regards to the strategic alternative initiatives that the special committee has been reviewing with RA Capital. So, again, thank you for joining us on this call and certainly should there be additional questions, Henry and I will be available the rest of the week so, go ahead and give us a call. Thank you.

Thank you, sir. Ladies and gentlemen this does conclude the VistaCare fourth quarter 2007 earnings call. You may now disconnect. Thank you for AT&T teleconferencing.