Addus Homecare Corp (ADUS) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter 2010 Addus HomeCare Corporation Earnings Conference Call. My name is Chris, and I'll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to our host for today, Ms. Amy Glynn of The Ruth Group. Please, proceed.

Thanks, Operator. Before we begin, I would like to remind you that certain matters discussed in this conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may be identified by words such as continue, expect and similar expressions.

Forward-looking statements involve a number of risks and uncertainties that may cause actual results to differ materially from those expressed or implied by such forward-looking statements, including changes in reimbursement, changes in government regulations, changes in Addus HomeCare's relationships with referral sources, increased competition for Addus HomeCare services, increased competition for joint venture and acquisition candidates, changes in the interpretation of government regulations, and other risks set forth in the Risk Factor section in Addus HomeCare's annual report on Form 10-K, which is available at www.sec.gov.

Addus HomeCare undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

With that, I will now turn the call over to Mark Heaney.

Thank you, Amy. Thank you, and welcome to Addus' second quarter conference call. My name is Mark Heaney. I'm President and CEO of Addus. I'm joined here today with Frank Leonard, our CFO, Darby Anderson, who is our division Vice President for Home and Community Services, and Greg Swanson, who is our Corporate Controller.

During the quarter we continued to focus and execute on all of the key priorities that we identified in previous quarters. These priorities include growing our census, developing our integrated service model, controlling our costs, and improving our collections. We believe that our second quarter results reflect the progress we have made in all of these areas.

Looking at our revenue in the second quarter, total company sales increased 3.4%, with Home and Community up 3.6%, and a 2.5% increase in Home Health. In Home & Community, census was up 2.2%, as we continued to focus on a more proactive sales approach in this segment. We also continued our efforts to control costs in the quarter, which led to stable growth in operating margins during the quarter.

In our Home Health segment we had record quarterly Medicare revenues and a 10.5% increase in Medicare admissions. This growth is a direct result of the investments we have made in sales and sales management over the past three quarters. We like what our people are doing on the sales side, and we look forward to their continued progress.

As expected, these investments continued to adversely impact operating margins in the quarter. However, we do expect that improved sales productivity, coupled with continued cost containment, will result in modest operating margin improvement in Home Health in the second half of 2010.

In terms of integrated services, we continue to work on the model. While admissions from integrated care are returning to historical levels overall, because of process modifications we are testing in our beta sites, we actually saw admissions from integrated services decline slightly in June and even in July. We are in the process of returning to our prior procedures in these sites and expect admissions to improve as we do so.

Integrating the social and medical models is difficult, even when you own both sides of the continuum, as we do. Essentially, we have our silos too. The number of consumers, however, that we serve who require or are receiving both social and home health services is significant. And the business opportunity presented makes it essential that we continue to develop this new approach to care.

I also wanted to comment quickly on CMS's proposed rule changes for 2011. With others in the industry, we think the proposed cuts are aggressive. We will work within the industry to educate CMS and Congress on the right approach to supporting home care services. Given that this is a proposal, it's subject to public comment and we look forward to an active and productive dialog with CMS.

I'd like to mention that the National Association for Home Care, NAHC, recently formed a taskforce of larger Medicaid provider companies to focus on Medicaid issues. This taskforce will be modeled after the alliance, which is a group of Medicare companies who have been very successful in working with Congress on many of CMS's proposed changes to the Medicare benefit. Addus is a member of the Medicaid taskforce, and we will have more to say about its efforts in future reports.

Looking back at our second quarter operations, we continue to focus on accounts receivable. We are on track to substantially complete the centralization of all the payers by year end, as we had earlier committed. This will obviously improve the effectiveness of our collections. Receiving payments from the State of Illinois for its overdue balances remains a challenge and a critical priority. We continue to work very closely with state officials on a number of important initiatives intended to resolve this continuing problem.

Largely as a result of the $22 million payment we received in May, our DSOs for the State of Illinois improved by four days compared to March 31. During the quarter we also increased our credit facility with Fifth Third Bank with the addition of a new $5 million term loan component. This expansion reflects the continued confidence that Fifth Third has in our business and our financial position.

While we continue to focus on our plan, we are very aware that states across the country are facing budgetary challenges, and we expect that this will be the case for the foreseeable future. Our presence in this country is a broad one in that we're in 18 states. As you'd expect, some states have enacted measures to control Medicaid spending. With the exception of California, all of our states have 2011 budgets in place. The net impact of these budgets will not be material to our second half 2010 results.

Rather than go through here a list of increases or decreases in various states and programs, we'd be happy to answer any questions you might have about our various payers during the Q&A. Related and important, as you probably are aware the (inaudible) extension passed out of the Senate yesterday. That's very important to us. It's expected to pass the House and it's obviously very important to the states in which we serve.

I'd like to comment briefly on the acquisition of Advantage Health Systems, which we closed in July. Advantage Health Systems, which does business as CarePro, is a provider of home and community, home health and hospice services in South Carolina and Georgia. CarePro holds CONs covering the most populated areas of South Carolina, being Richland and Sumter Counties. They also have one location providing services in Georgia. These are both new markets for Addus.

CarePro has been providing -- has been in the home care business for 12 years and, like us, they got their start in personal care services. They expanded into home health about seven years ago. They have an outstanding reputation and a history of strong financial performance. Cash flow is positive, as most billing is paid by the state within a week.

Historically, CarePro has been -- the folks at CarePro have been very active in pursuing new business opportunities to enhance service to their consumers. They literally wrote the book on telehealth in South Carolina through a grant from the state. So successful was this program, that in 2010 the state formalized the service as a part of the Medicaid program.

They have also recently developed a hospice program, beginning services to Columbia clients in 2009. The hospice CON allows us to provide the service statewide and we look forward to working with CarePro to further expand the hospice program in South Carolina and potentially into other states. This is the first hospice operation for Addus.

Probably most importantly, the key leaders of CarePro, Valerie and Charles Aiken, are remaining with the business. They are firmly committed to executing on the plan that they have prepared to advance their position in South Carolina and Georgia markets. We're frankly very positive to have them continuing on our team.

Overall, we believe it's a very attractive opportunity and we expect the acquisition to be accretive to earnings by $0.02 to $0.03 per share in 2010. Again, I want to take the opportunity to welcome the employees and management of CarePro to the Addus family.

With that, I'd like to turn the discussion over to Frank, who's going to talk to us a little bit more about our financial performance.

Thank you, Mark. I would also like to welcome everyone to our second quarter conference call. In the second quarter of 2010 our consolidated revenues increased by 3.4% to $67.2 million, compared to $65 million in the second quarter of 2009. Revenue growth in both of our segments was entirely organic. Over the same period, our average weekly census grew by 2.1%.

Adjusted EBITDA was $4.2 million in the second quarter of 2010, compared to $5.1 million in the prior year quarter. Contributing to this decrease in adjusted EBITDA in the current quarter was higher Home & Community bad debt expense, public company professional costs and acquisition related expenses; the combined impact of which was $900,000.

Net income was $1.7 million, or $0.16 per diluted share, based on 10.5 million shares outstanding. We had an increase in shares outstanding due to the conversion of preferred stock and the completion of our IPO, both occurring in November 2009. Net income in the second quarter of 2010 also included approximately $200,000, or $0.01 per share, in acquisition related expenses.

Turning to our segment performance, in the second quarter of 2010 our Home & Community segment revenues increased by 3.6% to $54.1 million. Increases in average billable rates contributed 3.4% of the total growth, while billable hours increased by 0.02%. Home & Community gross profit margins remained constant at 25.3%, as we continued to focus on cost control.

Home & Community pre-corporate adjusted EBITDA of $6.1 million in the second quarter of 2010 was flat with the prior year quarter. Our Home & Community bad debt expense increased by $300,000 to 1.8% of revenues in the current quarter, compared to the year-ago period. This was in line with our expectations.

In our Home Health segment, second quarter 2010 revenues increased by 2.5% to $13 million. We had record quarterly Medicare revenues of 8.6% -- of $8.6 million, an increase of 9.6% from the year-ago quarter. A major contributor to this increase was the growth in Medicare admissions of 10.5% in the current quarter, compared to the prior year period.

Year-to-date, our Medicare admissions were up 10.8%. This reflects an adjustment we made to the first quarter admissions as we identified some duplication in first quarter Home Health admissions. Removing these duplicated entries corrects our first quarter admissions to 2,081, still up 11% year-over-year. We are confident this duplication in our systems input process has been corrected for and that we will not see similar issues going forward.

Home Health pre-corporate adjusted EBITDA for the second quarter of 2010 was $1.8 million compared to $2.2 million in the second quarter of 2009. Home Health operating margins declined largely due to a 1% decline in gross profits associated with higher travel related cost, medical supplies and employer related benefit costs, as well as higher operating expenses for investments related to the expansion of our sales force and related sales management.

Net interest expense decreased by three-tenths of a million, or 28.6%, to $0.8 million in the second quarter of 2010. The decrease was due to lower debt levels resulting from our IPO and lower interest rates on our new credit facility. Our effective tax rate for the second quarter of 2010 was 34.4%. The increase reflects year-to-date -- a year-to-date change in our 2010 estimated annualized tax rate to 33% due to a lowering of expected job tax credit.

Our accounts receivable net of reserves and deferred revenues were $74.2 million as of June 30, 2010, compared to $68.3 million as of December 2009. Total company DSO was 101 days at June 30th compared to 96 days at the end of the year. Illinois receivables accounted for all of the $5.9 million increase in receivables since the end of calendar 2009.

While Illinois receivables remain a very high priority for us, we are also focused on improving our collections of non-Illinois receivables. Non-Illinois DSOs at June 30th were 58 days compared to 60 days as of December 2009.

At June 30th we had total debt of $49.6 million, compared to $49.2 million at year end. At June 30th our senior debt leverage ratio was 2.55 times adjusted bank EBITDA. We also had $0.9 million in cash as of June 30, 2010 compared to $0.5 million as of the end of the year.

At June 30th, our availability under our revolving credit facility was $8.4 million. With higher levels of state Illinois payment activity since the end of the second quarter, our availability under the revolving credit facility as of August 4th was $14 million.

Also, on July 26th we amended our credit facility with the Fifth Third Bank that provided a new $5 million term loan component. Proceeds from the term loan were used to fund the acquisition of Advantage Health Systems.

At this time, I would like to turn back the discussion to Mark for closing comments.

Thank you, Frank. If there are any -- I'm going to turn it over for questions and answers, Amy. So, go ahead.

Operator, you can turn it over to Q&A.

(Operator Instructions)

Our first question comes from the line of Whit Mayo of Robert Baird. Please, proceed.

Hey, thanks. Good afternoon. Wanted to start with the comment, Frank, that you made in your opening -- or your prepared remarks about the duplications in the Home Health admissions. Just wanted to make sure I understand that it sounds like that was just an error in aggregating the statistics and just want to, in fact, confirm that there were no revenue implications there.

That's correct. It was just with the metric. And there is no impact on revenue.

Okay, that's fine. And maybe secondly, just wanted to kind of throw out a bigger picture question. Mark or Darby, if you could maybe go through some of the bigger states and just update us on any changes with the programs with regards to rates and billable hours utilization. Just has anything changed one way or the other since last quarter with all the states setting budgets and just kind of looking more bigger picture and what looming changes you see over the near term.

Darby -- and I would like Darby to answer that. And, Darby, let's -- the big issues and then you can kind of summarize as to how you see it.

Absolutely. From the bigger picture perspective, obviously Illinois being a large concentration of our states, we see no changes to utilization or client eligibility in programs in Illinois. There is the $0.91 rate increase, which of course is included in our forecast. So that's a big positive on the column of budget changes.

Idaho is a state where we're seeing some utilization decreases. Of course, California is just kind of a big unknown. No changes at this point. Although what we're hearing so far is the budget could go as long as after the election. So, we're still kind of waiting and seeing on that.

Lot of little changes, positive and more so negative. But they're pretty small and immaterial. And net-net, as mark described, we really don't see any significant increases in -- or decreases in utilization revenue or rates that are going to have an impact on us for the second half.

I think you should mention San Joaquin.

Oh, yes. It's really not a state budget issue, but the county of San Joaquin, our contract was due to expire in September and we were in negotiations with the county to extend that contract. During the course of those negotiations we were informed that due to budget shortfalls within the county, they elected not to renew that contract and not to put it out for bid. So essentially ending contract agency services in San Joaquin County.

Although the annualized revenue of that contract is about $3.3 million, it is very low margin business and from an operating income perspective, won't have any significant impact on our results.

Okay. Maybe a sense just for how many billable hours that incorporates in that contract? I don't know if you have that handy.

I don't really have the units handy, Whit. It's about $840,000 a quarter. I can certainly get you the unit --

Dollars.

$840,000 per quarter in revenue. I can certainly get you the units on that. Just got to figure out what the actual rate is.

It's around 50,000.

Okay. And it looks like one of your competitors, albeit fairly small, in Illinois has cancelled a contract, I presume, with the Department of Aging. Darby, just like to get your opinion on kind of what's going on there and whether or not there's an opportunity to pick up some patients and whether or not the pressures in Illinois are -- whether or not this is -- you're seeing this in more than just one circumstance.

There certainly is that opportunity, Whit. We're actually seeing -- I know of three in the last quarter, some very small and a couple of larger ones. We've picked up case load as a result of providers just not being capable of weathering the cash flow delays. So we don't see -- we see that expecting -- we expect that to continue in the second half and until the state starts paying its bills more timely.

And is there any update on the dialog you're having with the Department of Aging at this point?

We got a lot of initiatives. Really what we're focused on is the acceleration of submitting matching claims to the feds so that the comptroller can get those federal dollars in faster and then hopefully determine that paying us is a better use of his dollar than perhaps paying somebody that doesn't leverage -- or providers that don't leverage federal funds. So we're still engaged in those conversations.

We've got a lot of other efforts in place for alternative financing. We're meeting with the administration in a couple of weeks to talk about some other options. As you, I think, you're aware we recently got added to the pool of providers that receive prompt payment interest for our services. So, after 60 days we're entitled to get 1% interest per month.

The problem with that promise of interest payment is it's about the last thing the comptroller's going to pay out of the line of bills they have. So accounting rules don't really let us recognize that at this point. But that's an incentive for the state because if they're paying us 8%, 9%, 10% interest payments on -- because they're not paying our bills, that's an incentive for them to maybe do some creative borrowing that's cost effective for them and get us paid faster.

So, lots of irons in the fire. Nothing I could say concretely is going to solve the problem in the near term. But that's a fluid situation.

Sure. That's helpful. Maybe, Frank, maybe one last one here. Just wanted to get the details on the term note, just the rates and the terms there. And maybe can you talk some about the conversations you're having with the banks right now and whether you have any opportunities to give yourself a little bit more breathing room or to potentially bring in some more banks in your syndicate?

Sure. On your first point, the term, the way it's set up is that there is no payment on the term for the first 180 days. And then after that, it retires equally over the next 24 months. So I think it's due to be repaid in January of 2013. The rate is the same rate that we have on our existing credit facility, which is basically LIBOR plus 460 basis points.

In regards to other options, we are actively exploring other financing options, as Darby mentioned, some of which are dealing directly with Illinois receivables to create the additional financial flexibility for the Company. We have active discussions with Fifth Third to actually expand to a second bank, and they're actually feeling that the market for additional banks into the group is actually improving. So we continue to work that end to try and expand our existing credit facility.

Okay, great. Thanks a lot. Nice job, guys.

Thank you, Whit.

Our next question comes from the line of Andreas Dirnagl of Stephens Inc. Please, proceed.

Hi. This is Ellen, I'm on for Andreas today.

Hi.

Hi. How are you?

I'm good. Good quarter, guys. I just have -- Whit asked a couple of the questions that I had. Actually I had a question on the Advantage acquisition. It's obvious that you've had success with the transition of the centralized billing so far.

And in regard to that acquisition, just curious, are you buying the accounts receivable there? Are they staying with the seller? And have you kind of scrubbed those accounts, are they agency level or that -- centralize? And if you are buying them, just how you plan to integrate those into your current billing structure.

Ellen, this is Frank. We did not buy the receivables. Actually, we did not buy the working capital. We are buying the operations and certain basically non-current assets. So we have -- we have a team on the ground at -- in Columbia working with the CarePro team to actually do the transition to the McKesson system, as well as our payroll system. And I can just say both sides are working tremendously well together.

Great. And again, just to clarify, you did say that everything is on track to have your structure transitioned over to the centralized billing platform by the year end?

That's correct.

That's correct.

Great. Okay, well, that pretty much wraps it up for me. And good quarter again. Thank you.

Thank you, Ellen.

Our next question comes from the line of Gregory Macosko of Lord Abbott. Please, proceed.

Yes, thank you. Could you talk about -- you mentioned hospice with regard to CarePro. How aggressive do you figure you're going to be in terms of rolling it out elsewhere or is there a timeframe you'll follow with regard to that? And what do you see as the synergies or advantages of getting involved there?

Gregory, this is Mark. Hospice program in South Carolina is a small one and relatively new. And we are going to learn it, work with the operators down there to develop it as appropriate. There would not be immediate plans to expand outside of where they're currently doing the business until we feel like we're confident with it, and then we'll gradually roll it out.

Okay, good. That sounds fine. And then with regard to Home Health, just so I understand the Home Health versus the Medicare side and the admissions there, what -- how does the -- how do I tie the 2.5% revenue growth there to the 10.5% increase in Medicare admissions? There's kind of a little disconnect there. What -- is there a difference there that I should understand to get to that 2.5% versus the 10.5% admissions?

Sure. This is Frank. We actually had a decrease in our non-Medicare business from the second quarter of '09 to '10. And we know where that occurred, so actually I think it was down about -- the non-Medicare business was down about 9% quarter -- current quarter over prior year quarter.

And what is that? Give me a description of that, what it is.

It would include, like, the Veterans Administration --

(inaudible - microphone inaccessible)

-- Medicaid. It would --

-- Medicaid business, commercial business that was low margin and slow paying. And we have been carefully reviewing over the past several quarters the low margin business and asking ourselves why we're doing it and what's the benefit in doing it.

Then why did the gross margins go down?

Well, on the Home Health side or on the -- on the Home Health side or overall, Gregory?

No, I meant the Home Health side. You mentioned the --

(inaudible - microphone inaccessible)

I think you said they went from 47.4 to 46.4. I mean it's only 100 basis points, but give me a feel for that.

And some of that I referenced, it was travel related costs and --

Oh. Does that relate to the sales and marketing or --

No, no. That would be related to our field staff actually going between consumers.

Yes.

We had -- we had -- there's just certain costs that went up. There were some costs like travel costs, travel time costs, costs associated with supplied. So, there's just a --

Okay.

-- a number of those kinds of here and there. And by the way, we're addressing that also just as a part of an overall cost review program.

Okay, fine. And then finally, just with regard to the 2.2% weekly census in Home & Community, what should we kind of expect there or is that -- has -- I don't know what the trend has been, but what is your expectation there with regard to that weekly census?

Well, if you don't mind -- when you say weekly census, if you don't mind, I'd prefer to look at it as, say, monthly or quarterly census.

Fine.

And your point, of course, is you expect to see your business continue to trend at or above or even lower than history.

Darby, on the Home & Community side, you're best to answer that.

Yes. The -- I think the census number you're talking about, the 2.2% is the growth in our census in Home & Community this quarter over a quarter a year ago. I said that in the last couple of quarters we've seen increases in our census and most of that being attributable to the answer I gave to Whit on his question. And that is we're seeing a lot of providers go out of business.

We're also starting to see traction in our northwest offices where we had seen declines in the third and fourth quarter of '09 as a result of some legislative action that was taken last year. So we're starting to see those census levels rebound. We're actually starting to gain market share in our northwest offices, Washington, Idaho, Montana and Oregon.

Also seen a bit of a flattening in our western region. We had serious caseload decline there over the course of consecutive quarters. And we're starting to see that flatten out a bit first quarter, second quarter of this year. Lot of moving parts, but overall I expect to see the census overall within the division continue to climb and can't put a percentage on it, but 2% per quarter wouldn't certainly be out of the question.

Let me -- I'd like to just -- hearing that, I want to -- this is Mark. I want to be sure that we communicate the right thing. The -- overall, the Home & Community business will continue to grow and has been growing, affected, however, by [in] census.

When Darby talks about declines, he's really referring to in the past year there have been -- there's situations where the government in Washington and a couple of county governments in California have taken steps to lower the use of agency directed care, what we do, and converted some consumers over to independent care where they weren't with a home care agency.

Washington did that last year and we've seen a steady decline of -- a steady decline for that reason in California. However, when -- what are we doing to counter that? Well, we're increasing our external marketing. We are -- in those locations and others, we are pursuing private duty business. We are pursuing veterans services. And so, when Darby talks about a flattening, frankly, that's a positive when you consider that a large program might go down, but you replace it with new organically developed business.

And then also it's important to point out that where our payers have not reduced -- imposed a reduction in census, overall your -- because of your external marketing programs, you're seeing steady increases.

Absolutely.

And then finally, with regard to integrated services, you said you changed back to the procedures you had in April and earlier this year, I guess. Is -- are -- you are still offering that or how has that changed?

We are, yes, continuing to offer integrated services, or continuing to integrate care is what we are doing. What I referred to is that we are working on the development of this model. We may do, and I'll just throw a number out, we may do 200 starts of care a month out of integrated services, or 250, whatever the number is.

The potential is much greater, by multiples much greater than that. Much, much greater. Now, the question becomes, how do you go from your 200, 250 and increasing that a little bit at a month to capturing the significant growth that is there to be had? And we're working -- we're developing the model, Gregory.

We are -- we have a program for where our Chicago area is our beta site where we're testing new ways to improve our integration, increase our starts of care. And what we did in June is we made a decision regarding, I don't want to give too much detail here, but we made a decision regarding the way information was coming from the home to the home health agency. And we changed the way we did it because we thought it would expedite information flow.

It didn't. It lowered information flow. Took us two months to figure that out. Starts of care went down, which is evidence that we weren't getting reports from aids consistently. We said, okay, that's not going to happen. So let's not change the chemicals in the secret sauce because people don't like the taste of the secret sauce. So we're going back immediately to the prior methodology. Where -- outside of the beta sites, where we did not change the methodology, the referral patterns remained the same or improved.

Okay. So the point is you're continuing to experiment with that integrated services and how you can increase the number of admissions or starts there and you'll continue to refine it and the idea is to try to get that to continue to increase.

That's correct.

Okay. Thank you very much.

Thank you, Gregory.

Our next question comes from the line of Whit Mayo of Robert Baird. Please, proceed.

Hey, thanks. I just wanted to follow up on a couple of things. Just back to the Medicare admission growth being up 10%, just want to make sure I understand this. How much of that growth was -- it sounds like not much of that growth came from the integrated care strategy. And then you mentioned that June and July were down.

I'm guess I'm just trying to flesh out what those two specific trends look like. Were you saying that your overall Medicare admissions softened or just that was continued weakness from the --

Yes, it's a good news, bad news answer. But you're correct. In the quarter and specific to the quarter, the overall trend is that the organic -- or the salesperson generated referrals continued to increase, steadily increase. Integrated in the first portion of the quarter continued to come back. We made this change, it dropped off, and so obviously it did not help us with Medicare referrals.

So organic -- the good news is that our investment in the sales program continues to bear fruit. We're generating more organic Medicare starts of care from our sales force. Good news. We continue to work on the integrated program. And as I mentioned, in the end of the quarter they dropped off a little bit and we got to get them back.

Okay. So, any read or any -- can you give us any thoughts about maybe what you're seeing in July right now just for your overall Medicare admissions? Has that strength continued?

I'm going to turn it over to Frank in just a moment. But I have one other sentiment I just want to make and that is we, as a goal, have -- and you may recall we've talked about increasing the percentage of Medicare and Medicare as a portion of our mix and we continue to do that. Medicare is increasing as an overall percentage, which was a goal of ours. And frank, the answer with regard to --

Yes, we don't have it. We're still in the July close, Whit, so I just don't have that information available right now.

Okay. And just a few other ones. Is it safe to assume that given the $0.91 per billable hour increase that you received in Illinois for the 2011 fiscal year that we should at least see your second half revenue per billable hour go up when you kind of aggregate all the other states together?

Revenue per billable hour.

Yes, your pricing number in the Home & Community base segment.

Yes, that would go up.

Okay. And maybe, Frank or Darby or Mark, whoever wants to take this, maybe help us out and talk about some of the seasonal patterns in the second half. I just want to make sure that we're all thinking about that appropriately as we look at our models.

Darby, any protection for seasonality?

I'm going to start while he thinks about that answer and tell you I'm not a big one for seasonality. People need home care all the time, so we don't want to use that as an excuse.

Sure.

Other than our historical seasonal patterns, there wouldn't be anything this year that would be different. Holidays impact us and inclement weather. But [one are] standards and one's unpredictable.

And those are the comments we make about seasonality. There isn't anything else to kind of really kind of factor in.

Okay. And maybe the tax rate. I just want to go back and poke around that topic for a second. Frank, you made a lot of comments about some changes. Just wanted to see if you could talk a little bit more about that. It was a little bit higher than we though and I --

Sure.

Can you go back and confirm what the statutory rate is? I thought it was, like, 38%, 39%. And then what the non-taxable items were.

Sure. The federal statutory rate that we use is 34%, and then the state tax net of federal would create another 4.6%. So the basis that we always kind of use as a starting point is a combined federal and state statutory rate of 38.6%. And the biggest reconciliation that we have to our effective tax rate is the job tax credit.

And I did indicate that in every quarter we do have to update an annualized effective tax rate and in that process for the second quarter, upon review of the expected tax -- job tax credit that we see for 2010, we saw a need to decrease that number. The impact on the quarter was about a $75,000 increase in tax expenses.

Okay, what's the -- what's your projected annual expense there for the tax credits?

What --

(inaudible - microphone inaccessible)

-- we look at -- more at the blended rate and the effective rate that we see going forward for the remainder of 2010 is 33%. So that -- the job tax credit and other reconciling items would be all factored into that 33% rate.

Okay. That's it. That's all I got, guys. Thanks a lot.

Thank you for your questions, Whit.

There are no further questions at this time.

Operator, thank you. And thank you all very much for participating. We appreciate very much your interest and support of the Company. Thank you very much.

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