Amedisys Inc (AMED) 2005 Q4 法說會逐字稿

Good morning, ladies and gentlemen. My name is Carly, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Amedisys fourth-quarter, year-end 2005 conference call. (OPERATOR INSTRUCTIONS). It is now my pleasure to turn the floor over to your host, Mr. Brian Ritchie. Sir, the floor is yours.

Good morning, and thank you for joining us today for Amedisys’ investor conference call to discuss recent corporate developments relative to yesterday's fourth-quarter and 2005 earnings announcement.

By now, you should have received the 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.

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

Before we get started, we would like to remind you that 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 2006, earnings per share in 2006, 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, and the Company assumes no obligation to update these statements as circumstances change. For additional information, please see the cautionary statements included in Amedisys' 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.

Good morning. We want to welcome our shareholders and appreciate the opportunity to share the Amedisys vision and spirit with our investors. The Company continues to focus on our core strategic initiatives of internal growth supplemented with acquisitions that meet our stated criteria.

I would like to start this morning by outlining the progress made by the Company in 2005. Our internal growth in Medicare admissions has exceeded 18%. We've completed 25 startups during this year. We've completed eight acquisitions in this year, which included the conversion of 84 individual locations. We have nearly doubled our total number of physical locations, going from 112, adding 109, for our current total of 221 offices. Our revenue growth was 68% for the past year. Our net income grew by 50%. And our earnings per share grew by 25%.

Despite these positive and significant full-year highlights, for the first time in three years, our quarterly results have not met the high expectations we set for ourselves and our investors. I would like to take a moment to detail the reasons for our fourth-quarter shortfall.

Most significantly attributing to our shortfall has been the cost impact of the integration of our recent acquisitions, particularly Housecall and Spectracare. Every one of our new locations added via acquisition in the last six months, 78 of them in all, has been [Amedisized]. That is, we have completed the task of orienting and training all of the clerical, clinical, and administrative staff. We have completed the conversion of all clinical staff to a full visit pay rate as well as completed the full installation of the Briggs and HQS or [Asys] documentation protocols.

We have completely overhauled many operational locations, especially in the Florida market, by hiring new sales staff, agency managers, and regional leadership where necessary. In addition, we have completed the initial stages of a full payer [mix] conversion in the state of Florida.

All of the above was achieved in addition to ensuring complete accuracy in the conversion of data -- automating the payroll input, installing new circuits and computers while moving a number of locations. This was achieved currently while winding down the Housecall corporate staff in an appropriate manner, and building our own corporate resources in Baton Rouge, currently in three separate buildings.

Now with the benefit of hindsight, we should have realized that one further impact of the third-quarter hurricanes was to push more of these transitional activities and costs into the fourth quarter, which ultimately delayed some of our operational initiatives. What remains is the task of fully operationalizing the acquired locations while ensuring they perform to the level of our existing locations.

I have spent two days earlier this week at business development training for former Housecall and Spectracare employees, which included all agency managers and sales staff. It is clear from these meetings that while all of our initial efforts are complete, the task ahead will take longer due to the degree of internal change and payer mix changes specific to Florida we have imposed on these locations. That being said, I am very encouraged by the overall morale and attitudes of the staff, and feel absolutely confident we will achieve our objectives in these markets.

We initially hoped we could have these acquisitions performing fully within the Amedisys model by the end of two quarters. We now believe it will take until mid-2006.

While hindsight is always 20/20, after an exhaustive review, analysis, and reflection of our current results, while constructively second-guessing all of our 2005 strategic initiatives, management has concluded that we would not have changed the course of any of our recent activities, inclusive of the acquisitions, as well as the intensity of the conversion mandates. However, our regrets are we should have more accurately evaluated and predicted the impact of these acquisitions while preparing the market by better clarifying expectations as a result of these Company-altering acquisitions.

While we were disappointed with our fourth-quarter numbers, we remain firmly committed to the strategic approach that has produced overwhelmingly positive results for Amedisys over the past three years. The key elements of this strategic approach are as follows -- to grow into the leading Medicare home nursing company in each market that we service; to utilize technology where possible for efficiencies; to emphasize outcome-driven patient care; and to build disease management capabilities.

All of these efforts are aimed at being the premier home health company in the markets we serve, and delivering appropriate returns to our shareholders. Over the past three years, this approach has been quite successful, and we intend to continue executing on these strategies in 2006.

I would like to take a moment to review with you the progress we have made on outcomes. We are a homecare organization with a distinct southeastern footprint. The patient population serviced in our area -- more chronic in nature, and due to our disease management focus, we actually service the high acuity patient within the region itself.

Despite the chronic state of our population, if you would compare our outcome to all other providers rolled up in the 16 states we service, we lead in all ten publicly reported categories. Our hospitalization rate, emergency care rate, and all other outcomes exceed all other providers in our footprint and [geographies].

We will continue to hone, develop and refine our clinical disease management system. Our clinical goal is to exceed all national standards in the southeastern region.

As I have said before, the enthusiasm and commitment of our Amedisys employees is by far our most strategic weapon, ensuring a competitive advantage in the markets we serve. With that being said, I would like to extend my heartfelt thanks to all of our Amedisys staff whose dedicated efforts have helped us every day to carry out our mission.

Before I pass the call on the Greg for his financial overview, which Larry will then follow with a brief operational update before opening the call to the Q&A session, I would be remiss if I didn't acknowledge and thank Greg for his hard work over the past four years.

I also believe it is natural for the market to overanalyze the reason for Greg's departure. The reality is there is no rest of the story. Both Greg and the Company realized that the skillset going forward in the financial officer's role will require a CFO with a different profile. Our relationship with Greg remains positive and firm, and Greg will be with us through this transition.

As mentioned in the press release, we have already engaged a professional recruiting firm to assist us in finding a replacement for Greg. A snapshot of the profile we're seeking would be a CPA that has CFO-level experience within a $1 billion company.

Greg's financial leadership has contributed greatly to our substantial growth over the past four years. Now, I will turn the call over to Greg.

Thank you, Bill, for those kind words. I will now discuss financial highlights for the three and the 12 months ended December 31st, both with respect to the income statement and balance sheet, as well as comment on reimbursement and guidance. Our revenues of $118.9 million represent an increase of 85% on 2004, and reflect continued, strong internal growth, as well as our major acquisitions of Winyah, Housecall and Spectracare. All acquisitions completed in 2005 accounted for approximately $38 million of the $54.5 million increase in total fourth-quarter revenue over 2004.

The impact of the Deficit Reduction Act recently passed was to eliminate the market basket -- in addition, the rural add-on is only taking effect after January 1st. The revenue associated with our episodes in progress, therefore includes nothing for either market basket or the rural add-on, thereby reducing EPS by an approximate $0.03 per share in the fourth quarter from what was originally expected.

For the year, our revenues of $381.6 million represent an increase of $154.4 million, or 68% on the previous year. For the quarter, our gross margin reflected a percentage of 55.8% of revenue, below the third-quarter number of 56.3% and also below the fourth-quarter number from the prior year of 57.5%. The decline in gross margin percentage over the third quarter is in general attributable to both the number of holidays in the quarter as well as the recent large acquisitions, particularly Housecall and Spectracare.

The gross margins for our 2005 acquisitions were approximately 50% in the fourth quarter. We believe that this represents an opportunity for the Company as we bring those acquisitions number more in line with our more mature locations. By way of comparison, our gross margin without all of the 2005 acquisitions totaled approximately 58% during the fourth quarter.

The Company recorded revenue per episode of $2,569 in the fourth quarter, an increase over the third-quarter number of $2,542. However, this was offset by a small increase in visits per episode to approximately 16.7 for the quarter from the 16.5 recorded in the third quarter.

As we now complete over 36,000 episodes of care each quarter, relatively small variations in revenue per episode have caused significant changes to revenue. These numbers will therefore vary from quarter to quarter.

For the year, our gross margin percentage was 57.3%, marginally below the 57.7% reported for the 12 months of 2004.

During this quarter, our general and administrative expenses at $54.5 million were higher by some $5.4 million than the third quarter of 2005. This increase is accounted for in part by increased staffing of local management and salespeople at the Housecall locations; the costs related to a full quarter of the Spectracare acquisition of $900,000; significantly higher travel and training costs attributable to those acquisitions of over $1.2 million; higher-than-expected health insurance costs of approximately $600,000 relating to the now-terminated Housecall health insurance plan; the costs associated with providing acquired agencies with Briggs forms, HQS access, and new marketing material, approximately $800,000; and costs associated with software conversions of $500,000.

Clearly, not all of these expenses will drop off in the first quarter. But we do believe that travel, training, marketing and other conversion costs will be significantly lower. Further, the ongoing corporate expenses of Housecall, including severance costs of $0.5 million, totaled $2.9 million in the fourth quarter. We expect this number to be $2 million lower in the first quarter of 2006.

Our general and administrative expenses were higher from the third quarter on a percentage of revenue basis at 45.9% compared with 43.8%, and higher than the 42.1% reported for the fourth quarter of 2004.

For the quarter, our operating income of $11.8 million was higher than the $10 million reported in the fourth quarter of 2004, and for the 12 months ended December totaled $50.1 million, over 50% higher than the $33.4 million reported for 2004. Other expense net of $700,000 reflects net interest expense.

For the quarter, the Company recorded a lower-than-expected tax rate for the quarter, as well as for the year -- so for the year, it totaled 38.24%, mainly due to Hurricane Katrina income tax credits. And all of that was adjusted in the fourth quarter. Those credits will also drive the 2006 tax rate to an anticipated 38.8%.

Our net income for the quarter of $7.3 million, or $0.45 per diluted share, compares with $6.1 million or $0.39 per share in the fourth quarter of 2004. And for the 12 months ended December, our net income was $30.1 million, an increase of 47% when compared with the $20.5 million recorded in 2004.

With reference to the balance sheet, our cash balances totaled $17 million, approximately, at December 31st, after making $3.2 million in cash payments for acquisitions during the fourth quarter as well as paying off the revolving credit facility by some $10 million during that period. The Company made scheduled debt payments of $1.8 million during the quarter, and expects to make payments of approximately $10 million throughout 2006.

We were able to take advantage of certain payroll tax deferrals during the fourth quarter, which amounted to some $19 million at December 31st, and which have continued until today. These also relate to Hurricane Katrina. On Tuesday, February 28th, next Tuesday, these payments will be made to the IRS.

The Company paid nothing in income taxes during the December quarter. And although we expect to be paying a minimal amount in income taxes in the current quarter, again, primarily due to the Katrina credits, the expectation is that payments would approximate the tax expense thereafter.

Medicare liabilities were reduced from September 30th by $2.1 million as certain matters related to prior-year cost reports, partial episode payments, and [MO 175] recoveries were either finalized or clarified.

Our days sales outstanding continued increase to approximately 62 days from the 58 days we reported at September. Most of our increase over the December 2004 number of 40 days relates to our large acquisitions this year. Without the acquisitions of Spectracare and Housecall, our days sales outstanding number would be approximately 48 days, including some lingering Katrina issues.

With respect to Spectracare, no billing had been done prior to December 31st due to delays in receiving the change of ownership paperwork from CMS. I'm pleased to report that as of today, all of this paperwork has now been received, and billing has commenced.

Housecall days sales outstanding at approximately 100 days reflects our need to ensure that all billing now converted to the Amedisys system is 100% accurate prior to being sent. We expect to see the overall DSO number reduced to approximately 50 days over the period to June 30th.

Capital expenditure was particularly heavy for the quarter at over $5 million, as the Company spent considerable amounts on the acquired and startup offices. Most of that work is now complete. Our current estimate for routine capital expenditure for fiscal 2006 remains at approximately $8 million, which includes amounts for startups and IT spending aimed at increasing productivity. In addition, we expect to spend approximately $7 million commencing in the second quarter on tablet PCs for our point-of-care system.

Cash flow was strong with EBITDA at $14.1 million for the quarter and cash flow from operations for the quarter at $12 million, with the difference here attributable to the increase in accounts receivable referred to earlier.

Reimbursement -- to recap the current reimbursement environment, the market basket has been eliminated for 2006, and a rural add-on of 5% for all episodes commencing on or after January 1st has been added. Amedisys expects that our weighted average reimbursement for 2006 will be approximately 0.8% higher than for 2005.

Guidance -- our earnings per share guidance for 2006 is as stated in our February 8th press release -- $2.33 to $2.43 per share on revenues of approximately $510 million. And the diluted shares will total approximately [16.4] million for the full 2006 year. This guidance is after a change in the expected tax rate, as I mentioned earlier, and after the impact of expensing stock options.

With respect to my departure, as Bill mentioned and we have announced that I will be stepping down as CFO when a replacement has been named, probably within a few months. When I took on the position four years ago, Amedisys already had an excellent foundation, and was just beginning the extraordinary growth we have experienced, and Sarbanes-Oxley did not exist.

We have accomplished a lot in four years. Clearly, I would have preferred a stronger quarter to exit on, but the timing is still right. My career has been built around transitions. And now, Amedisys is ready for a more process-oriented approach.

The Company continues to be very well positioned, not only in the hand-held space, but also from a future disease management perspective. Amedisys will undoubtedly continue its success in the future.

Larry will now comment on operations.

Thank you, Greg. Our operational strategic plan continues to center around our internal and external growth strategy. Due in part to our strict adherence to these strategies, our fourth-quarter internal growth rate over last year in Medicare admissions is 16%. We are certainly pleased with this number, and based on the market growing at least 7 to 9% annually, we're confident in our longer-term ability to deliver at least 15% growth in Medicare admissions.

Our total growth rate over the fourth quarter of last year in Medicare admissions is 69%. The 2005 internal growth rate over last year in Medicare admissions is 18%, and our total growth rate in 2005 in Medicare admissions is 57%.

We will 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 2005, we opened 25 new locations. For 2006, we plan on opening approximately 45 new offices as mentioned in the previous quarter call. Our plan is to continue with our strategic branch expansion based upon local market opportunity.

Clearly, our topline growth remains strong. However, on the acquisition front, while the systems integration of the Housecall and Spectracare acquisitions are complete, Amedisys-wide performance, as Bill noted, will not be seen until mid-2006.

Operationally, we undertook a significant number of integration activities in the fourth quarter that had a larger impact on our margins than we anticipated. And it has become clear to us that the results of these activities should begin to take hold in late second quarter.

Specifically, we added dedicated sales staff and agency leadership to many acquisition -- locations, giving them an adequate infrastructure to support the anticipated growth. We also removed certain agency-level managers and restructured the pay scale from salaried to per-visit for the nurses.

In addition, as referenced above, we completed systems integration at all Housecall and Spectracare locations, software and hardware. We also replaced all marketing materials at these locations.

And of course, we completed a substantial amount of training in order to ensure all newly acquired employees were onboard with the Amedisys policies and protocols. The various training includes business development training to the sales force, AMS2 system training, [MultiPRO] payroll training, clinical management training, and new employee orientation training.

Beyond this, we undertook the task of restructuring several, what we felt were unfavorable, managed care contracts inherited from Housecall. In certain instances, we opted to completely exit certain managed care contracts. As you would imagine, each of these tasks are time-consuming and have certain costs associated with them.

Clearly, our acquisitions completed last year have substantial improvements in operational metrics to be recognized over the next few quarters. For instance, Housecall utilization at the time of acquisition was 21.6 visits per episode, and currently are at 18.8 visits per episode. And Amedisys utilization is at 16.7 visits per episode. This improvement alone over the next several quarters will save approximately $2.9 million in labor costs annually.

Our strategic goal over the next several quarters is to realize a $10 million annual improvement to our acquisitions by implementing all of our clinical processes, procedures, and protocols. Stating simply, if those improvements would have been in place in the fourth quarter, our margins would have been $2.5 million better.

We're confident in our ability to realize these improvements while improving quality of care. Our overhead structure will also recognize efficiencies over 2006, as we in effect had two corporate offices for Housecall as we transitioned their corporate functions from Knoxville to Baton Rouge.

With all of this said, we remain confident that last summer's acquisitions will prove to be as accretive as first anticipated, and are committed to working to achieve that goal as quickly as possible. Clearly, the softness seen in the fourth quarter was cost driven. And as I have just explained, we've taken steps to restore our margins and bring the recently acquired locations up to the performance level of our existing locations. Our business fundamentals continue to be very strong, and we're confident that our shareholders will reap expected benefits from the Housecall and Spectracare purchases.

In summary, we're pleased with the full-year 2005 growth and the opportunities that lie ahead in 2006. We continue to focus on being the premier low-cost, high-quality provider in home health. We believe that focused 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 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.

(OPERATOR INSTRUCTIONS). John Ransom, Raymond James.

A couple of things. Greg, if we add up all the costs that were in the fourth quarter that you don't think will recur in the first quarter, what is that total difference? I know you mentioned the severance and the $2 million in Housecall overhead, but what is the total number to make sure we've got that right?

The other costs that I mentioned -- I don't mean to imply that all of them are going to drop out in the first quarter. But clearly, the $2 million in corporate expenses at Housecall that I mentioned will, along with -- we would expect a lot of the marketing material, training and other software conversion costs which added up to about $2 million.

Now with respect to the Housecall health insurance, obviously we would hope to see a better improvement once they're on our health plan, but that's by no means guaranteed. And some of the other costs will take longer to drive out.

I think the other thing that I want to reinforce is what I said, and also what Larry said, is the gross margin differential between the Housecall and other acquisitions and our existing locations. (multiple speakers) gross margin differential, once it's fully operationalized, is going to add $2.5 to $3 million on a quarterly basis.

Sure. But are you saying, then, that –- is it as high as $4 million of costs may drop out between fourth quarter and first quarter?

It could be as much as that, but clearly we are still going through it, as Larry outlined -- and some of that will take until the second quarter.

So it's $2 million at the low end, and $4 million at the high end -- okay. The second question is, and maybe this is for Larry -– but what is the organic growth looking like at Housecall if you strip out the managed care contract changes? In other words, what's their Medicare growth now, and where do you think you can get that by, say, third quarter or for the back half of 2006?

Housecall admissions have remained about where they were prior to the acquisition, which may sound a little funny, but I'm actually pleased with that, because we changed out the sales; we changed out the operators; we put them through extensive training; we gave them new marketing and collateral materials. I expect over the six- to nine-month period this year that you'll start seeing growth. But we didn't see any deterioration.

At the same time we exit managed care contracts, which can be troubling in a market, if you can imagine. But I'm confident that in the next six to nine months with our new sales force and training them on our clinical protocols, we will start to see good organic growth.

And the other thing I'd like to mention, John, that we highlighted earlier on is we took over 29 locations in Florida. Most of them were very small, [expensive] locations. They had a lot of managed care business. And they didn't have a good growth track record. We had spent a lot of energy and effort retooling those and replacing people and training the existing people. And I'm confident with the people we have in place, the people that move forward with us at Housecall that we can grow Florida over the next six to nine months.

So you're saying that the Medicare volumes are flat at this point, but that should move up when you get going.

They're just a tad up, but they should move forward -- upwards, now that we've done all this.

And then finally -- I guess this is for Greg, the DSO -- how much of -- I know you mentioned a DSO number in the middle of the second quarter. But have you collected some of these Spectracare -- now that you've got your numbers, have you actually in fact collected some of these receivables, or is that still out there?

What's happened is two things. The answer to your question is we have collected some, and we have started billing for the preliminary payment, which is called the [RAP]. What happened is Medicare after the hazards of the Deficit Reduction Act had to go back to basics to figure out how they're going to adjust for the market basket (multiple speakers). And they put -- I think it was on the 25th or the 28th of January, they put all final payments on hold for about two to three weeks. And they're starting to come in now.

So the answer is we're starting to collect Spectracare, and we're starting to improve our collections on the Housecall and get them down. By way of comparison, the Housecall Medicare receivables at December 31st were about 72 days compared to our number of about half that. So we would expect their number to come down considerably over this period. Spectracare will revert back to a normal thing, and then of course the other business.

I would also just add that December was a very strong collection month for us. January was the best we've ever had. And February, actually, was doing pretty well -- apart from this hiccup from CMS over the rates.

Balaji Gandhi, Oppenheimer.

Good morning. I just had a couple of questions. The first one is about '06 guidance. The revenue and EPS guidance that you gave would suggest that margins would be somewhere around 15% -- EBITDA margins. Is that a right -- kind of the normalized margins you would expect over the longer-term?

Well, I'm hopeful that if you interpret I think our call today, we expect our margins to improve as 2006 progresses. And hopefully by the end of '06, margins will be on an EBITDA basis about 15%. What happens after that, obviously, we will have to look at '07 when we get there, and we have a look at what the reimbursement outlook is, as well as the other factors that might go into that. But I do think it's fair to say that we should be able to achieve that sort of number higher than 15% on a go-forward basis.

Next question is regarding Spectracare and Housecall. I'm just trying to understand what happened in the fourth quarter. You broke out some of the metrics -- DSO and gross margin. But Housecall was pretty much in the whole quarter for the third quarter. And Spectracare, I believe, closed in August. So can you give us at a sense for DSO and gross margin for those businesses in the third quarter, and -- it looks like it probably got worse. Is that the right answer?

In terms of DSO, we really hadn't done much billing on Housecall at the end of the third quarter, because we were still going through the systems conversion phase.

With respect to the gross margins for Housecall, their gross margins between the Housecall specifically on the third and fourth quarter were pretty much the same, although a little bit less because of the holidays that you see in the fourth quarter in terms of gross margin. But a lot of the costs, of course, were in the back office of those locations, which affect our G&A line. And those are the things that Larry outlined in the call.

So your third-quarter results included no billings from Spectracare or Housecall?

They included revenue -- you asked about DSO, I thought.

Well, yes -- I guess I was asking about both. You included the revenue, but there was -- you weren't -- didn't you say you weren't billing for Spectracare at all and for the most part Housecall?

We included the revenue for Housecall for the third quarter -- (multiple speakers) fourth quarter, Spectracare was included for two months in the third quarter, and three months in the fourth quarter. But bills weren't submitted at that time, although it's always appropriate to accrue the revenue.

Okay. And then on the balance sheet, we saw a big spike in accounts payable and accrued expenses -- just looking for a little bit more color.

With respect to the accounts payable, we included in there the deferred payroll taxes that I referred to in my comments, which accounted for about -- I guess almost all of the increase in accounts payable between the third quarter and the fourth quarter.

Okay, and then the accrued expenses?

With respect to the accrued expenses, there really wasn't all that much change in that between the third and the fourth quarter. But I have -- if you wanted to get some more color on that, I'd happy to talk with you about -- talk it over with you afterwards.

P. Jay Fortner, Cochran Caronia Waller.

Just wanted to see how your startup initiatives have been going in the early going here, with 45 targeted for the year. Are those kind of progressing as you would expect in the early going, and furthermore, I guess, how are last year's, which are now ramping up, coming onto the P&L?

Let me start with last year. Most of our acquisitions last year were done towards the back half of '05.

Acquisitions or startups?

Startups -- we've done an analysis of startups, and I will go over the metrics again. It costs about $250,000 to do a startup. That includes fixed assets and losses you incur. About month nine, they break even on a monthly basis; month 18, they are -- you have recouped your whole $250,000 investment, they’re producing maybe $1.5 million in revenue, and producing about a 20% bottom line.

The ones we did at the back half of last year are all on track with those metrics. I will say that again this year, the startups are backloaded, you'll see a lot of startups in quarter three and quarter four. We have slated to do nine startups in quarter one.

Nine in quarter one. And has your -- I think in the past, you've kind of mentioned that startups are going to be more of a focus this year in place of acquisitions. Is that still the case, or are you more apt to do acquisitions at this point -- just maybe I'm reading a little too much into the press release language?

From a generic sense, we would probably not do a large acquisition -- no earlier than the back half of this year. We still want to get Housecall and Spectracare going. We will continue to do acquisitions, some of the smaller ones we've seen, hospital-based -- we have an acquisition pipeline that's full. And we have decided that with our dual strategy and the metrics that I just gave you on startups it makes all kinds of sense to ramp up our startup strategy.

All right. Lastly, maybe I missed it, Greg, in the prepared remarks. But do you have the depreciation and amortization number for the quarter handy?

As a matter of fact, I do. Depreciation and amortization was approximately $1.9 million during the quarter. And we would expect that rate to pretty much continue through, with a bit of a tailoff towards the end of '06.

The rate in absolute numbers or as a percentage of revenue?

The dollar --

The dollar numbers -- okay. Great, thank you, guys.

Arthur Henderson, Jefferies & Company.

I'm having just a little bit of trouble understanding where SG&A is going this year. I know you talked about some costs coming out here in the first quarter. But given what your comments are about kind of where margins are going to end up in the back half of the year suggests that there is going to be some incremental SG&A that's coming in in the first and second quarter that's going to depress numbers. Can you comment on that a little bit?

We didn't mean to give the impression there would be incremental SG&A coming in. But what we did want to suggest was that you're not going to see all the improvement in Q1. This wasn't like a shelf that -- drop off the shelf at December 31st. And we would expect to see ongoing improvement throughout 2006. And in terms of our forecast, we expect to improve both gross margins, agency contribution, and overall SG&A costs on a quarterly basis throughout the year.

Let me add to that. I mentioned that we inherited 29 locations from Housecall in Florida, and they were very small census. A Housecall director may have managed three offices, because they were so small. And our philosophy is we have a leader in every office. So we would go in and put a director in every office. They may have had one salesperson covering two or three small markets. We would have a salesperson in every single market. We put our clinical managers and our BOMs in place.

So we may have added in the short run to operational SG&A to position them to grow in the future. And that's a little bit -- if you're talking about incremental, that's where we invested in is in the field to make sure that each agency has a staff and salespeople to grow, because Housecall Florida has been stagnant for a while.

All right. I think that makes sense. Sort of following off that, I guess what's troubling for me, and I think for a lot of other people, is just the fact that you were kind of blindsided this quarter to some extent, or it sounds like you were blindsided by costs coming out of these acquisitions. And I guess in all honesty, I don't know how to get comfortable with the fact that there's not going to be these things popping up.

And I don't know -- you can sort of paint a picture that -- the way this has all sort of unfolded and seeing sort of the reaction in the stock today suggests that if there was something that you guys missed in the course of your diligence, there was something that you guys missed in the way that you've managed the financial aspects of this Company -- I don't know.

There's -- it leads -- I think there's just a lot of questions out there about how to get comfortable with your ability to foresee costs and then somehow manage through them. And then of course, the communication of these issues -- I assume that you didn't calculate the fact that you were $0.10 off in your earnings just last night. This was probably something that you knew when you preannounced your guidance a couple weeks ago. I just have a hard time understanding how you wouldn't have done this all in a more formal process -- or not really formal process, but something a little bit more constructive, where it just hasn't sort of undermined the investment community.

I just want you to address all those things that I've asked there. And I know it's a multipart question, but I just don't feel like people are comfortable with your ability to manage the business right here, and then your ability to track the costs. Could you kind of go through that a little bit?

Let me start. And first of all, I think with the benefit of hindsight here, and Bill referred to it earlier, a lot more of the integration costs from our acquisitions was telescoped into the fourth quarter than we really anticipated. And that, I readily admit, was somewhat of a surprise to us. And it really shouldn't have been a surprise, but it was a surprise that so much of them there. We thought we'd absorbed it. But I think what happened here is that because of the hurricane September, all of those costs really were pushed off into the fourth quarter, and we didn't have as much of that activity going on.

So that was a bit of a surprise. We should have recognized it earlier. We kept believing that that was a temporary phenomena.

In terms of the release of our earnings, we felt when we put out the revised guidance two weeks ago that in the light of the Deficit Reduction Act, we needed to put that out in the market as soon as possible. And we do have a policy, which -- we don't release our numbers until both the auditors and the audit committee are comfortable with those. That's been our policy consistently over the last few years. And obviously, it would've been more easy to put all these things out at one time. We just weren't quite sure of the process of review [until two] weeks ago. And that's why we delayed it.

I think -- as a parting thought, I just think that this whole thing just sounds unusual. Your resignation -- all of these things just seem unusual. And I think that you've got a lot to prove to the investment community after what I think you've had goodwill for a long period of time -- I'm not sure you have that anymore. So I wish you good luck, but I just think you've got an uphill battle.

Well, I agree with you; we do need to rebuild our credibility. It's a shame that the three to four years that we have built up that credibility could dissipate in the space of two weeks. And I feel sure that as we report results for 2006, it will be restored.

I want to dissect your comments, because you made two comments. One, you said our ability to manage the business and our ability to forecast costs. I'll take the comment on the ability to forecast costs in the fourth quarter. Obviously, as Bill stated, we didn't do as good a job as we could have with that.

The ability to manage the business -- I have absolute confidence that we are able to knock out cost. And I think if you look at our history of going from [IBS to TPS] that's well proven and well track record.

And as a business manager, give me the issue that I have too much cost and let me take care of that issue. I can handle that. It's not a growth issue. It's not a Medicare admission issue. It's not a revenue issue. It's absorbing a $100 million acquisition that had a fully staffed corporate overhead that we had to transition down to Baton Rouge that wasn't operating up to our metric that we put on our computer system. We did not do a great job of forecasting the costs associated with that massive transition. But as far as the future and knocking out this cost, I'm absolutely confident. And only time will tell on that. So I guess we'll just have to wait and see as these quarters pass out to regain our credibility, if you will.

(OPERATOR INSTRUCTIONS). Eric Gommel, Stifel Nicolaus.

I wanted to hone in on the hurricanes' impact on your programs. Are there any programs that are still off-line from the hurricanes last year?

The answer is yes. Chalmette, Louisiana was completely shut down. That is a suburb of New Orleans, and it is right outside the levee. The whole area is not up and running. Beyond that, Biloxi, Mississippi -- if you're familiar with that, the I-10 corridor and where the railroad tracks south is completely wiped out. We're probably about 75 to 80% of where we were pre-hurricane.

Metairie and Baton Rouge are doing quite well, but it took six months, seven months to build their systems backup here. So that's going okay up in Metairie, 75 to 80%. But Chalmette is the permanent loss, if you will.

And of the programs that were impacted by hurricanes, I guess with the exception of the programs you just outlined, are all those programs back to -- if there were other programs impacted -- back to sort of a pre-hurricane census levels at this point?

They're not back completely to the pre-hurricane census level. They're operating on a monthly basis with admissions. It takes a while to build your census, as you can imagine. So we're building our census as we go. But on their monthly performance, they're looking quite well.

And when do you expect them to be back to that pre-hurricane level?

Over the next three to six months, I'd say.

And do you have an impact from that from a census perspective? Like, can you quantify that impact at all?

Let me answer that. Last call, we thought that the impact of the hurricanes was behind us and we were wrong. From a contribution standpoint, the most affected agencies -- or the affected agencies from the hurricane really contributed about $1.2 million in the second quarter of 2005, about $650,000 in the third quarter, and about -- not much more than breakeven in the fourth quarter.

So we really did get an impact from that. And the reason why we haven't emphasized that -- obviously, that affected our margins as well -- is that we obviously got an offsetting benefit on the tax rate in the fourth quarter, which was also related to the hurricanes. So even though they're at different ends of the income statement, those two items sort of offset each other.

Craig Leighton, Lord Abbett.

Just a couple of questions. Firstly, as you let the managed care business at Housecall unwind, I'm wondering if you could just talk about the revenue impact and what the likely 2006 Housecall year-over-year revenues might be.

We would anticipate that in terms of the overall revenue mix, we'll obviously change. But we anticipate more than making up throughout '06 any loss in managed care revenue with Housecall.

More specifically, we exited about $3 to $4 million of managed care contracts. And the people that were doing a lot of that business that moved on, we gave severance to. So in the fourth quarter, you had a drop in revenue, and higher costs as relation to severance costs. Obviously, the revenue won't be moving forward, but I'll tell you that we were losing money on that revenue, so that made good business sense. But it had a fourth-quarter impact to us, obviously.

I see. Does that terminate as of the beginning of the year, or did it work its way through down through the fourth quarter?

It works its way down during the fourth quarter. You give the managed care notice that you're exiting a contract. You probably don't take any new business. But you have existing patients that you're continuing to service until they're off, and you help them transition to another provider. So it wound down during the fourth quarter.

In terms of peripheral impacts of that, I guess I just wonder -- your referral sources as you are exiting these managed care contracts, if there's other kinds of effects -- as in you lose some Medicare business from those referral sources.

And that goes back to a question earlier, how the Medicare admissions are relatively stable, which I'm very proud of. But clearly, there's an impact -- when you exit a managed care contract, you have to visit all of your physicians, educate them on why you did it, which they clearly understand, because they're dealing with the same issues. But it takes you a while to rebound from that and go forward. So there is a short-term impact with that.

But I will remind you that three or four years ago, we exited a lot of managed care business from Amedisys, and our Medicare admissions have increased since that time.

Thanks. Just to finish up, in terms of kind of [like] Housecall sales, are you thinking give or take $110 million? Or would it be less or more than that?

I would expect us to do somewhat -- a little more than $110 million in 2006. Somewhere between $110 and $115 million.

Terrific. And then just a couple of one-offs -- provision for bad debt in the quarter?

Yes. Can I get back to you on that one?

Certainly.

If you had a look at our overall allowance for doubtful accounts, you'll see it increased at December 31st as a percentage of what it had been in the previous year. And obviously, we review that on a consistent basis. But I'll get back to you with the specific expense.

And for the year, it would be similar at 1.3% on the income statement?

Similar, yes.

And then just lastly, and I think you mentioned this, but the revenue per episode for the Medicare business?

Yes -- I believe I said $2,569.

$2,569 in quarter four.

Can you just remind me what the change from last year was?

Hang on one second and I will tell you. Last year in the fourth quarter, we did $2,542 -- which, by the way, is coincidentally exactly the same as we did in the third quarter of 2005.

Great. And since you're giving all the breakouts, the revenue per episode for the Housecall and Amedisys -- sort of heritage Amedisys business?

We gave the breakout for utilization was 18.6. The Housecall all-in revenue per episode was right about $2,490.

Okay. And I guess Spectracare is not big enough to really move the needle on the average.

That would be correct, and I don't have that number right in front of me.

David Schneider, Hoover Investment Management.

I just want to make sure -- your '06 guidance is inclusive of stock option expense?

Yes, it is.

What would the stock option expense estimate be for '06?

About $0.06 -- $0.05 to $0.06.

John Ransom, Raymond James.

I know this is going to sound like minutiae in light of the big issues of the day, but looking at your episodes per visit, Larry, is there -- on the core AMED at 16.6, 16.8, is that probably about as low as it is going to get in your view?

We've been tracking about 16.5 there for a while. I would say 16 to 16.5 is where it's going to vary from.

I notice you had mentioned -- kind of a throwaway comment, but you're spending $7 million on tablet PCs. Is there a potential productivity pick up from having some of that upfront paperwork done in the field with PCs, or are you still kind of a paper process on the front end?

Absolutely. There's a pick up -- to give you a little detail on that, everything will be automated, so you can eliminate a lot of keystrokes on the backoffice side. So there will be some SG&A pickup in the field, as well as clinical managers will be able to manage a larger (technical difficulty) space, so you'll have some efficiencies there. And we calculated some of that -- you will see a nice return on that. But I will remind you, the cost of putting them in will come before the efficiencies.

Thirdly, just to be clear -- I know you're running at 50% gross margins on the two acquisitions. In your guidance, what is your assumption for gross margin from Housecall and Spectracare for 2006?

John, we expect to see them increase not entirely to the Amedisys level. And if (technical difficulty) my gross margin implied for 2006 is approximately 57%. So we will see some increase. But I would not expect to see the Housecall and Spectracare ones -- what will happen is it will be a gradual approach throughout the year. Maybe they'll get to our levels by the fourth quarter -- third or fourth quarter.

But 57% blended for the year, or 57% by the end of the year?

57% blended for the year.

That's a 700 basis point pickup from the fourth quarter?

That's right.

Van Brady, Presidio Management.

They've all been answered, except -- (indiscernible) staying with the guidance that you've already given us, 2.33 to 2.43, how do you square that -- I guess I should ask this of [Joey] or Greg -- with your comments earlier that the integration that you had hoped to be through by the end of the year would now drag through the first half, implying that there will certainly be some shortfall relative to your initial expectations in the first half, yet you're keeping full-year guidance the same. Could you kind of layout your reasoning there for us?

We do not give quarterly guidance. But obviously, by your rationale, it's going to take three to six months to get our cost structure in place, to get our gross margins in place. And the back half of this year is going to be very strong in relation to the first half. So you'll see it go through the year.

But we're trying to paint the picture that we know we have all these costs out there. It may take us a quarter or two to get them. We have a history of, if you recall -- quarter one of an acquisition doesn't produce much; quarter two, a little bit; quarter three, a little bit more. And by quarter four, quarter five of an acquisition, they start looking like Amedisys. So that's kind of where we're at, and that's what you'll see on a quarter-by-quarter basis.

Craig Leighton, Lord Abbett.

Not to get too distracted by minutiae, but the hospice revenues for the quarter?

Hang on one second.

Actually, here's a quick one while you're looking it up. The tablet PCs -- that's capitalized, I assume, over what period?

Three years.

We did approximately $9 million in hospice revenue in the fourth quarter.

Okay. I know you're putting a little bit of effort behind that business. I'm just wondering what your expectations for 2006 are.

Hospice -- our census is starting to grow. We are in the about 830 to 840 range in hospice census. Back half of the year, you may see a couple of hospice startups. We're getting the infrastructure in place, I feel confident that longer-term hospice is going to provide a very good growth opportunity for Amedisys, both on a startup and in the future on the acquisition front.

But in the short term, it's flattish? That $9 million quarterly run rate is kind of where you are going to be?

That was pretty consistent with the number in the third quarter. But we are seeing -- as Larry said, we're starting to see some census increases. And with the price increase we got last year, we would hope to on the Medicare side -- we'd hope to see some improvement in that as the year progresses.

Thanks. I'll follow up with you, Greg.

I would like to turn the floor back over to Mr. Borne for any closing remarks.

Again, we appreciate everyone's calling in this morning and your interest in the Company and the continued interest. I think overall, we had a very good year, with a topline growth of 68%, and a bottom-line growth of 50%.

Management, as you are -- obviously, are disappointed that we have to end the year on less than a very positive note. We also understand that it's kind of complicated slightly with Greg's departure.

However, I want to let everyone know that we are committed to re-establishing our full credibility in managing this transition and getting our earnings back to stronger than they actually were before we had this little setback. The overall purpose of the acquisitions would give us some strategic presence and dominance in many markets.

And we feel really good about the activities that we've made. As I mentioned earlier, the last couple of days I've spent meeting with the entire management and sales staff of Housecall and Spectracare. It was a very positive experience. We feel very good about the future moving forward, and we're excited about a lot of the initiatives. And we look forward to being able to present our first and second quarter to demonstrate the improvement that we know we can make in these results.

And thank you all very much for calling in.

Thank you, ladies and gentlemen. This does conclude today's teleconference. You may disconnect your lines at this time. Have a wonderful day.