Amedisys Inc (AMED) 2004 Q4 法說會逐字稿

Good morning and welcome to the Amedisys fourth quarter and year end conference call. At this time, all participants have been placed on the listen only mode and the floor will be opened for questions following the presentation. It is now my pleasure to turn the floor over to Brian Ritchie of Noonan Russo (ph).

Good morning and thank you for joining us today for the Amedisys investor conference call to discuss recent corporate developments relative to this morning's fourth quarter and 2004 year end earnings announcement.

By now, you should have received a press release. If for some reason you have not received the press release or are unable to log onto the webcast, please call me Brian Ritchie of Noonan Russo at 212-845-4269 and I will be happy to assist you.

Speaking today, we have the Company's President and Chief Executive Officer, Bill Borne, the Company's Chief Financial Officer Greg Browne, and the Company's President and Chief Operating Officer, Larry Graham. Management will give you an overview on the quarter highlights and then open the call for questions and answers.

Before we get started we would like to remind you this conference call may contain forward-looking statements regarding future events or the future financial performance of the Company including, without limitation, statements regarding operating results in calendar 2005, earnings per share in 2005, growth opportunities and other statements that refer to Amedisys plans, prospects, expectations, strategies, intentions, and beliefs.

These forward-looking statements are based on the information available to Amedisys today. The Company assumes no obligation to update these statements as circumstances change. For additional information, please see the cautionary statements included in Amedisys's most recent Form 10-Q or other public filings filed with the Securities and Exchange Commission.

At this time, I will turn the conference call over to Bill Borne. Please go ahead, Mr. Borne.

Thanks Brian. Good morning everyone. We want to welcome our shareholders and we are excited about the opportunity to share the Amedisys vision with a continually expanding group of investors. Management is committed to ensuring and maintaining its strategic direction and generating appropriate returns for all of our investors. This call will be reflective of the best operations and earnings growth year in the history of Amedisys.

The future of home nursing is very bright and Amedisys intends to take full advantage of our future growth opportunities. The Company continues to focus on our core strategic initiatives, which we have outlined over the past year. Primarily, our efforts are focused on internal growth, supplemented with acquisitions that meet our stated criteria.

Our success has been and will continue to be driven by our internal growth rate. Our 2004 internal growth rate of admissions is 28 percent over last year. Larry will comment in greater detail on our strong rate of internal growth; and I would like to give my thanks to the hard work of our entire staff that has made this possible.

We are pleased to welcome the employees of In-Home Care in Winston-Salem, North Carolina, Winyah in South Carolina and North Arundel in Baltimore, Maryland. These acquisitions represent our continued expansion in North and South Carolina, as well as our entry into the Maryland market.

I would like to review some of our 2004 accomplishments which is the result of hard work of our field and corporate staff. Over the past year we have grown our revenue from 142 to 227 million. In addition, our Q4 revenue run rate is approximately 260 million. Our bottom line has increased from 83 cents to $1.51 per share. Our market cap has more than doubled from approximately 240 million to 500 million.

Our balance sheet has increased shareholders equity from 51 million to 148 million with 90 million being available in cash to acquire assets.

In addition, we established a 25 million line of credit with GE Capital. Currently, we have available over 100 million in capital, inclusive of cash and available debt to take advantage of future acquisitions. Since the beginning of 2004, we have successfully completed and integrated 8 acquisitions, adding 30 offices to our marketing profile.

In addition, we have successfully opened 15 offices as new startups or piggybacks on existing offices, more effectively expanding our service area.

In 2004, Amedisys completed our first public funding raising $68 million. We are making significant progress to offset the impact of that dilution through aggressive internal growth.

We have also been very fortunate to add a new board member, Mr. Donald Washburn, expanding our board to six members inclusive of five independent directors. We are in the final stages of completing a new and very rigorous auditing process as it relates to Sarbanes-Oxley. We have made multiple compliant, clinical, accounting, and operational enhancements over the year that will allow Amedisys the opportunity for significant growth and revenue while maintaining proper oversight and controls.

For example, we added a new HR automated system. This system allows us instant digital access to all personnel information. In addition, this upgrade has interfaced with our payroll and benefit-managed systems.

Finally over this last year, Amedisys has embarked on an unprecedented employee orientation, inclusive of the Amedisys Spirit initiatives, that has resulted in a corporate orientation to all new and existing employees Companywide. This initiative has allowed senior management -- including myself -- the opportunity to meet and greet each and every of the 3600 Amedisys employees. We believe this process has been instrumental in helping us to establish the Amedisys culture, which we feel is second to none in our industry.

Our enthusiasm and commitment of our Amedisys employees is by far our most strategic weapon, ensuring us a competitive advantage in the markets we serve. Looking into the future, simply put, you can expect Amedisys to do more of the same.

I'll now pass this call to Greg so he can provide his financial overview which will then be followed by Larry with a brief operational update. Following Larry's update, we will open the call to the Q&A session.

Thank you all for being with us this morning.

Thanks, Bill. I will now discuss financial highlights for the 3 and 12 months ended December 31st as with respect to the income statement and balance sheet as well as comment on reimbursement, Sarbanes-Oxley compliance, and guidance.

For the quarter, our revenues of 64.4 million represent an increase of 53 percent on 2003 and reflected the strong internal growth mentioned in the press release as well as the acquisitions of (indiscernible) Vicksburg, Freedom in Richmond and to a lesser extent the fourth quarter acquisitions in (indiscernible) and Winston-Salem. These acquisitions collectively accounted for approximately 8.5 million of the 22.3 million increase in total revenue out of the fourth quarter of 2003.

For the year, our revenues were 227.1 million, representing an increase of 84.6 min. or 59.4 percent on the previous year. Which, again, is accounted for by acquisitions and internal growth.

For the fourth quarter, our gross margin reflected a percentage of approximately 57.5 percent of revenue which was above the third quarter number of 56.1 percent. That's below the fourth quarter number from 2003 of 58.8 percent. The improvement in gross margin percentage over the third quarter is in general attributable to higher numbers for the recent large acquisitions, particularly Metro and Tenet (ph) that I referred to on our last call.

This was running at approximately 49 percent in the third quarter and rose to approximately 51 percent in the fourth quarter. We continue to believe that this represents an opportunity for the Company, as we bring the market margins associated with these acquisitions to a level more comfortable with our mature locations.

The Company recorded revenue per episode of $2542 in the fourth quarter, a slight decrease over the third quarter number of $2550. Amedisys now completes over 20,000 episodes of care each quarter and relatively small variations in revenue per episode can cause significant changes to revenue. These numbers will therefore vary from quarter to quarter. However, this slight rate decrease was offset by a decrease in visits per episode, to approximately 16.5 for the quarter.

For the year, our gross margin percentage was 57.7 percent below the 58.9 percent reported for the 12 months of 2003.

For the quarter, our general and administrative expenses at 27.1 million were higher by 2.7 million than from the third quarter of 2004. This increase is accounted for in part by cost as related to the newer acquisitions of approximately $600,000; significantly higher training costs attributable to the Companywide orientations referred to by Bill earlier; and higher salary and bonus cost for that corporate office.

General and administrative expenses were marginally higher from the third quarter on a percentage of revenue basis at 42.1 percent compared with 41.7 percent in the third quarter, although much lower than the 45.2 percent reported for the fourth quarter of 2003.

For the 12 months ended December 31st, our general and administrative expenses continue to move lower (ph) on a percentage of revenue basis at 43 percent when compared with the 48.8 percent reported for 2003, confirming the operating leverage discussed previously.

For the quarter, our operating income of 9.95 million was substantially above the 5.7 million reported in the fourth quarter of 2003. And for the 12 months ended December 31st totaled 33.4 million over 133 percent higher than the 14.3 million reported for 2003.

The most recent quarter and for the first quarter in many years, Amedisys reported a surplus in interest income over interest expense.

For the fourth quarter, our net income of 6.1 million is after a tax provision of 39.5 percent and represents an increase of over 82 percent when compared with 3.4 million in the fourth quarter of 2003.

Earnings per share of 39 cents per diluted share for the most recent quarter compares with 30 cents per share last year. For the 12 months ended December 31st, 2004, our net income of 20.5 million or $1.51 per diluted share was 144 percent higher than the 8.4 million or 83 cents per diluted share reported for 2003.

With reference to the balance sheet, as Bill mentioned, our cash balances totaled almost $90 million after making 4.3 million in cash payments for acquisitions during the fourth quarter. In addition, the Company made total debt payments of 2.5 million during the quarter. We expect the debt payments will approximate 2.1 million for the whole of 2005.

Our debt totaled only 3.1 million at December 31st, 2004, and Medicare liabilities remain materially unchanged from September 30th.

Day sales outstanding increased to approximately 40 days from the 34 days we reported on the last call. Although some of this increase was due to our slight earnings of collections over the holidays, most was due to a buildup in billing for hospice and for the Freedom acquisition, which I'm pleased to say has now started to revert to a more normal billing pattern.

In fact our day sales outstanding of generally 31st has been reduced to approximately 38 days. This number is likely to increase again, however, with the most recent Winyah acquisitions.

The Company paid approximately 1.6 million in cash taxes during the December quarter, although we expect to retain a somewhat lower amount in cash taxes in the current quarter, the expectation is that payments would approximate the tax expense thereafter.

Capital expenditure for the fourth quarter totaled 1.7 million -- approximately the same as in the previous quarter -- and our current estimate for routine capital expenditure for fiscal 2005 remains at approximately 7 million, which includes amounts for startups, asset upgrades for acquisitions, and particularly IP spending and increasing productivity.

Cash flow was strong with EBITDA at 11.4 million; cash flow from operations for the quarter at 4.2 million with the difference here mostly attributable to the increase in accounts receivables referred to earlier.

Reimbursement. To recap the current reimbursement environment, now that the market voucher (ph) for 2005, Amedisys expects their awaited average reimbursement for 2005 will be approximately 1.95 percent higher than for 2004. This is after taking into account the elimination of the rural add-on effective March 31st.

Sarbanes-Oxley compliance. We are pleased to report that, to date, we have not identified any material weaknesses in internal control that might impact the historical financial statements. Although the compliance work required under Section 404 of Sarbanes-Oxley will not be complete until we file the appropriate reports with the SEC. The Company plans to utilize the filing extension allowed by the SEC for management's assertions relating to Section 404 of Sarbanes Oxley although it intends to file the 10 K as required by March 16.

Guidance. Whilst the Company has decided to forego the practice of providing quarterly guidance, we are raising our annual EPS guidance for 2005 from $1.71 to $1.77 per diluted share on revenue of approximately 295 to 305 million. The diluted shares will total approximately 16 million for the full 2005 year.

This guidance includes all announced acquisitions.

As discussed in our press release, this guidance is after an increase in the expected tax rate to 39.4 percent. This increase in the tax rate has an impact of approximately 4 cents in 2005. However, this guidance is before the impact of expensing stock options after July 1st, which is anticipated to reduce EPS by approximately 4 cents in the second six months of 2005.

Larry will now comment on operations.

Thank you, Greg. Our operational strategic plan continues to center around our internal and external growth strategies. Due in part to our strict adherence to these strategies, our fourth quarter internal rate -- growth rate over last year in Medicare admissions is 27 percent. We are certainly pleased with this number and based on a market growing at least 7-9 percent annually, we're confident that our long-term abilities will deliver 15-20 percent growth in Medicare admissions.

Our total growth rate over the fourth quarter of last year in Medicare admissions is 47 percent. Our 2004 internal growth rate over last year in Medicare admissions is 28 percent and our total growth rate in 2004 in Medicare admissions is 48 percent. We see this industry growth trend continuing, as CMS recently published it, home health expenditures projections estimate that the Medicare home health expenditures are expected to double in 9 years.

Also, 8 percent of our fourth quarter growth rate and 6 percent of our 2004 growth rate was due to new locations, which were operating for less than 12 months. We continue to focus on growing our business through the implementation of a dual strategy centered on internal growth initiatives via same-store sales, startups, and external growth opportunities via acquisitions that meet our strategic criteria.

Startups continue to play a role in our expansion. In 2004, we opened 13 new locations. For 2005, we plan on opening approximately 20 new offices. Our plan is to continue with our strategic branch expansions based upon local market opportunities. On the acquisition front, we acquired Winyah Healthcare in Augusta, Georgia on October 1st, In-home Care in Winston-Salem on December 1st, Winyah Healthcare in South Carolina on February 1st and North Arundel in Maryland on March 1st.

The acquisitions initiated in the fourth quarter have all had their system conversion and closed implementation follow-up and are in Phase II of transitioning with leadership oversight. The Winyah acquisitions on February 1st has completed their systems conversion and is in the stage of post implementation follow-up. We are pleased with the efficiency of our acquisition integration, as evidenced by our rapid system conversion.

As previously stated, we will continue to evaluate new acquisitions that need our strategic goals on a go forward basis.

On the disease management side, we have completed both the rollout of our product, obstructive pulmonary disease and better strength programs. We will continue to develop clinical programs that fit our market demographic diagnostic needs.

In summary, we are pleased with our fourth quarter and full year 2004 results. We continue to focus on being the premier low-cost, high-quality provider in home health. We believe that focus, execution, and commitment to clinical outcomes will separate us from our competition.

I would like to express our appreciation for the continued support of our shareholders, customers, employees, and vendors.

At this time, we will open the call up to your questions. Please limit yourself to two questions so that we may allow question time for everyone. Time permitting, we will allow for follow-up questions. Thank you.

(OPERATOR INSTRUCTIONS) John Ransom with Raymond James.

Greg, could you just expound on your comments about Sarbanes Oxley a little bit and kind of exactly -- I wasn't sure I quite followed what you were saying in terms of where you guys stand?

Where we are in the Sarbanes-Oxley process is we are still completing the compliance work that is required under 404. And to date we haven't identified any material weaknesses that might impact our historical financial statements and that we will file within the appropriate timeframe. Now the SEC has allowed companies -- certain companies -- 45 days, up to an extra 45 days, to file their assertions and the associated audit for our audits statement if you will from KBMG in our case. We will be taking advantage of that extension in relation to the Sarbanes-Oxley portion.

We will of course file that 10 K as required on March -- before March 16th.

Given this is the first time through this for a lot of us, what exactly will be the position of your auditor when you file your 10K? What exactly will be their position at that point? Is the filing of the paperwork a formality? Or are there any subsequent outstanding approvals that are needed?

The procedure is that when we file our 10K on or before March 16th that will include in that their audit report with respect to our financial status. A subsequent date, within 45 days thereafter, but management and KBMG will file their anticipation (ph) and consequent audit response with respect to internal controls and prices.

Was this 45 day extension something you anticipated would be the case or is this a little bit of a pushback, relative to earlier expectations?

I think it's fair to say we would have preferred to have it all completed on time but -- as you mentioned -- first time through for all of us. It has taken, I guess, more effort internally from KBMG than anticipated. And that is why we are taking advantage of that extension which is allowable by the SEC.

And again, you've identified nothing new from your little issues back in the fall, but nothing new? It's just a matter of getting through the process?

Correct.

The other question I had was the 20 centers that you are going to open this year. What is your best guess as of the cumulative impact of those centers from an earnings standpoint? Is there going to be a startup losses? What kind of startup loss is factored into your guidance?

This is Larry. The 20 offices will be opened quarter by quarter. I think we announced that we are projected to open five offices in the first quarter. And again, our kind of metrics for our startups costs about $250,000 to do a startup, $50,000 for capital needs, as well as funding losses. It takes about nine months to reach breakeven on a monthly basis and about 18 months for them to start looking more like an Amedisys agency, if you will.

So there will not be a substantial material impact to the offices this year. Obviously we have a strategy where if you go back two years, we opened eight offices. Last year 13, this year at least 20. And if you look forward to '06, '07 and '08 we are going to have a very aggressive startup plan. So we will begin to factor in as we go forward quite substantially.

This year we have built that into our announced guide.

What sort of number would you look at from an accumulative loss startup for '05?

This is Greg. Because of the timing of the startups, which should be approximately throughout the year, we wouldn't anticipate that there would be material startup losses. Relation to those 20 this year.

So no material startup losses? Thank you.

Eric Gommel with Legg Mason.

Can you give me what your depreciation and amortization for the quarter and the year was?

Yes. Depreciation and amortization for the quarter was about 1.1 million collectively and for the year was about 4.1 million.

How about Medicare as a percentage of revenue for the quarter and year?

Yes. Medicare was about 93 percent both ways.

My larger question relates to reimbursement. How do you see the Medicare managed care model that is part of the MMA coming into play in 2006? How do you see that changing the reimbursement environment and the environment for homecare? Are you currently discussing the potential first contracts with managed care providers at this point? Or what do you see as the outlook with Medicare managed care?

Just in relation to that, of course, Medicare managed care is not a major factor in a lot of our markets. Obviously with the exception of Florida and to a certain extent Texas and a couple of other metro metropolitan markets, it is not a major factor. We do anticipate that, over the next few years, that the enrollment in Medicare managed care will accelerate. And whilst we haven't necessarily got any specific discussions underway with respect to that, we anticipate (indiscernible) making a renewed push towards decapitated (ph) contracts in certain markets.

Anton High (ph) with Jefferies & Co.

Still got quite a bit of capital available to NOAs and acquisitions. I wonder what other geographic regions do you see going into and if we could drill down on the revenue size in each of those as far as opportunities to moving into new regions or adjacent regions?

We have an acquisition pipeline that we are constantly evaluating. I will tell you, generally, how we look at acquisitions. Obviously we like acquisitions in Certificate of Need states as evidenced by our recent acquisition in South Carolina. There are some other Certificate of Need states and if the opportunities arose we would like to get into. A few examples would be Kentucky, the state that we are not in that borders Tennessee, obviously, Certificate of Need state. North Carolina, we just did a small acquisition in Winston-Salem so now we have two locations in North Carolina. That is a state that we would like to see more acquisition opportunities.

We have taken a stance that we don't really articulate where we are at in all of these acquisitions because you and I both know you can't predict when an acquisition is going to close. But we will continue to pursue. We have a lot of them that we're looking at various sizes in the past as you well know that our acquisitions have been in the $2-20 million range. We have several of those we are continuing to look at as evidenced by the four acquisitions we completed in the last six months.

Have you seen any change in the multiples being paid?

Slightly, yes. If you go back a couple of years we would have articulated about a 3 1/2 multiple. Now I think it's more reasonable to say that the range in the 4 to 5 with the 5 being in Certificate of Need states. The one thing that we certainly have seen is in some of the larger acquisitions, $50 million plus the multiples have creeped up. That is why you're seeing a lot of private equity firms coming in and they seem to be paying a higher multiple for some of the larger acquisitions.

You had a pretty strong, obviously, a pretty strong internal admissions growth number in the fourth quarter but there was some -- a little bit of a sequential decline in that. Is there anything we should be reading into that? Also if we could talk about the year ago or the first quarter of '04 was a little lower than 2Q, 3Q, 4Q, so should we see -- do you think in the first quarter of '05, you'd see a number that would be beyond your long-term 15 to 20 percent (indiscernible) internal admissions growth number?

At this time we are not going to give the precise first quarter. What we have given you as a long-term guide is 15 to 20 percent and what you're talking about if you look at last year, the first quarter I think was around 22 percent. And then it was very strong in quarters 2, 3 and 4 and the longer-term guideline of 15-20 percent is just we believe more prudent for us to announce that whilst we are continuing every effort to aggressively grow internally and doing everything we can as evidenced by startups under these management programs and those types of things.

(OPERATOR INSTRUCTIONS) Pete Underland with Titan Capital.

As Larry said you made a number of acquisitions you could call beachhead acquisitions in Certificate of Need states. Can you generalized about those states all those Certificate of Need states not just the ones you're in as to whether it is feasible a company can get its own Certificate of Need from scratch? Or are they kind of like liquor licenses? That there is a fixed number of them. How does that generally work?

It varies by state and I will give you a couple of examples; and it is important to note that most Certificate of Need states do it on a county by county bases. State of Georgia, for example, we've been in for a number of years since 1999. Number of years ago they opened up certain counties based on demographic needs, allowed competitors to apply to operate in that county. We entered that process and have received several counties over the year that we've been able to open and do startups in.

South Carolina, a state that we recently did an acquisition in. As far as we know, the last 10 years they haven't opened up any county to be able to do business in. North Carolina is pretty much like South Carolina. It's very tight. In the states that we are in, the 13 states we are in, I think there's 8 Certificate of Need states and 5 non Certificate of Need states. Maryland that we just entered is a Certificate of Need state. So the real answer it depends -- but on an overall basis, Certificate of Need is very tight and it's on a county by county basis (MULTIPLE SPEAKERS). Just assume that you are going to buy something and be able to expand your coverage.

Do you think it is likely that in the interest of making better healthcare available that some of these states will move in the direction of more liberality of granting CONs?

Right now I think out of 50 states there is approximately 17 Certificate of Need states. The only example that we have on a state moving out of that is a state of Florida, several years ago. Opened it up and it was a Certificate of Need state, it's not. Currently, we're not aware of any other states that are on the verge of doing that.

John Ransom with Raymond James.

Just as a reminder, talk us through the Medicare pricing changes that come about this year as a result of the rural add-on and just approximately how much you think that is taken out of your back half earnings?

We are currently enjoying a rural add-on of 5 percent which will expire, as I said, on March 31st. That is applying to approximately 27 percent -- say 26-28 percent of our Medicare (indiscernible). So it's about 135 basis points on 3/4 quarters of our revenue for this year.

So in terms of the top half that you would have around 210 million times appointment quarter. So whatever that works out to -- I don't have it in front of me. So it's about 2.5 between $2.5 and $3 million. Off the top line. But of course that is included in our guidance.

Are you going to do anything in your rural markets from a productivity standpoint to try to offset that? Or is it you have assumed nothing on your guidance at this point in that regard?

Our productivity guidelines are standard across the entire Company and not attributable to geographically where they live. Because as you recall John we do everything on a disease management protocol. So a wound care patient in a rural market and a wound care patient in a metropolitan market is going to get treated the same for utilization. So there's no built-in, I guess, utilization reduction for a rural market in relation to the rural add-on.

Which would be the argument that people use to Congress extending the rural add-on, just because they live in a rural area you can make the argument that it is more expensive to serve them because they're more geographically dispersed.

Anton High with Jefferies & Co.

If we could stay on reimbursement for a second. What percentage of your total revenue is coming from episode care where there's more than 10 therapy visits? I'm trying to get at that if we see a cap or any kind of change in that therapy visit going as payment (inaudible).

I will give you a couple of key stats. 60 percent of the episodes of care we provide have some form of therapy in them. Whether it is occupational therapy, speech therapy or physical therapy. Half of the 60 percent or 30 percent of our total exceeds the 10 visit threshold. So about half of the patients we service that have therapy exceed the 10 visit threshold. So 30 percent of the total episodes in our population exceeds 10 visit threshold.

I also want to make another comment about 10 visit threshold. There is a reason in my mind why, early on, when they started PPS, they came up with a threshold. I don't know exactly why it was 10 but obviously they must feel it is cheaper to provide therapy in the home than other settings. While there may be some tweaking of that in the future, I believe the fundamental reason why they provide a higher reimbursement for therapy remains the same.

I missed the comments regarding the reimbursed or the revenue per episode in the visits per episode.

The revenue per episode in the fourth quarter was approximately at $2542 and in our visits per episode for the quarter approximately 16.5.

Eric Gommel, Legg Mason.

Question on options and expense. When we look at the trendline on options expense, carried from 2005 to 2006 is it simple enough for us to take the 4 cents that is impacting the second half of '05 and look at that as -- just double that in 2006 or does the trendline go down on options and expense going forward?

I have to confess I haven't done that number for 2006. I think it is likely to be somewhat less based on what we know today. But I would have to come back to you on that.

Then on the reimbursement. What are your thoughts about the return of a rural add-on? I mean it goes away but what experts are there out there to try to either extend it or have a return of the rural add-on. Then, talking about these therapy visits as it relates to episodes of care. What do you think is the potential impact of refinement of the HHRGs that could happen this year on your operations?

Your first question, return of the rural add-on. I know there has been a bill introduced in the House to extend that and historically they have extended it. Internally we are not counting on that. So I don't feel that that's a high probability, although it is a possibility. I can't predict it.

The second thing, on your therapy question, I do not believe they will be any therapy tweaking in this fiscal year '05. When they come out with something, I think they'll announce it and they'll allow a comment period and there will be plenty of foreshadowing of what that may be. There has been no detailed discussion of what that could be. So that is all we know on the therapy side. But, again, nothing in '05.

The other thing I just want to what we're getting from our industry sources, it will likely be '07 before you see that.

(OPERATOR INSTRUCTIONS) Craig Leiden with J.P. Morgan.

Quick question. The revenue for episode in the fourth quarter of '03. Could you just remind me what that was?

The fourth quarter of '03? Hang on one second. It was approximately the same, it was about 2538.

If you have it on the same page is this per episode?

This is per episode. We were approximately 17.

The Tenet acquisition. I guess you gave some details on the profitability of the overall acquisition group and I think you mentioned or you highlighted that Tenet Metro. The 51 percent. Did that specifically relate to Tenet Metro or was that the whole group?

That was in relation to the whole group which includes the Tenet acquisition and the other ones done in 2004 and the reason I included the Metro acquisition, which of course was done in August of '03 in the number, was because we discussed that specifically on the last call for the third quarter.

I wanted to expand that discussion and just ask you specifically about that property but I guess more generally about the class of 2004, the acquisition class of 2004, that is. What your goals for profitability are? A nice sequential uptick. But where do you hope that group can get to?

I think, Craig, in general of course, we would expect for the -- particularly for the homecare acquisitions here that, over time, they should be comparable with our more, I think the words I use more mature (indiscernible). Which gives us some room for improvement as we go into the new year. The hospice, the two hospice locations which do have a little impact on our or some impact on the overall margin. I think gross margins are unlikely to reach the level of our homecare operations based on what we see, but with respect to homecare operations that we acquired, hopes are to that would eventually reset level.

In terms of the referral patterns at something like Tenet, you talked about some immediate drop-off and then I guess you're rebuilding that. Could you just discuss that particular pattern and what you're seeing there?

I think what you're referring to is when we acquired Tenet they had little or no sales activity especially outside of the hospice environment. We had subsequently added salesforce in each and every location. And we are beginning to see some improvement in our Medicare admission growth related to all of our acquisitions, which is one of the reasons why when we talk about our acquisitions we state that for the first quarter of an acquisition, you don't expect a whole lot of change. Second quarter, maybe a slight improvement. Third quarter, a little bit better and maybe by the fourth quarter, they start looking more like an (indiscernible) agency so we are beginning to see improvements related to admission growth and our Tenet acquisition site.

I think initially there was some drop-off, that some of the hospice referrals maybe went somewhere else and I think you're looking to rebuild that book? Is that accurate?

I think what you are referring to is we noticed that several months prior to us closing the acquisition the referrals were dropping off. So they started out a little lower than we anticipated. Probably because the news of the acquisition and the difficulties with Tenet and those types of things.

But there was a fairly quick tossing of that and then you're starting to rebuild that and that affects the profitability, I would think.

That's a pretty accurate statement. We fairly quickly stabilized it and now we are on the uptick.

Last question since you brought it up. The overall salesforce, I think, couple of months ago, you talked about 150 or so. Where are you now?

Between 170 and 175.

There appear to be no further questions. At this time, I would like to turn the floor back over to management for any closing remarks.

We certainly appreciate everyone's interest in questions on the call this morning. And we are excited about this year and we are looking forward to our first quality report in just a couple of months. Thank you all for calling and we will chat with you all later.

Thank you for your participation. This does conclude today's teleconference.