Amedisys Inc (AMED) 2006 Q4 法說會逐字稿

Good morning, my name is Kathleen and I will be your conference operator today. At this time, I would like to welcome everyone to the Amedisys fourth quarter and full year conference call. (OPERATOR INSTRUCTIONS) Thank you. It is now my pleasure to turn the floor over the Mr. [Dennis Mont]. Sir, you may begin your conference.

Thank you Kathleen. Good morning and thank you for joining us today for Amedisys' investor conference call to discuss recent corporate developments relative to this morning's fourth quarter and full year 2006 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 on to the Web-cast please call Larry Graham at 225-292-2031 and we will be happy to assist you.

Speaking 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, John Giblin. Management will give you an overview of quarter's highlights and then turn over the conference call to questions and answers.

Before we get started, we'd 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 in other statements that are 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 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 Mr. Bill Borne. Please go ahead Mr. Borne.

Thanks Dennis and good morning everyone. We want to welcome our shareholders and we appreciate the opportunity to share the Amedisys vision with the investing public. Management will continue its commitment to ensuring and maintaining its strategic direction with a focus on generating appropriate returns for our investors.

The future of home nursing is very bright and we at Amedisys intend to take full advantage of future growth opportunities. The Company continues to focus on our core strategic initiatives which we have outlined over the previous years. Internal growth is our primary focus, followed closely by expansion through our disciplined startup and acquisition strategies. Our position as the market leader in the home health nursing industry, servicing the elderly population in a community-based setting is clearly a solid strategy which is continually enhanced by significantly growing demographics.

This has been an exciting year for us. We posted record revenues and record earnings per share for 2006, fully integrated our significant 2005 acquisitions declared a four for three stock split, raised $118 million in equity and retired substantially all of our debt. Our revenues doubled in the past 24 months as a result of both internal growth and acquisitions and our net income has nearly doubled over the same period. While at times challenging, we never doubted the acquisitions that we made in 2005 were strategically correct. At the time, I thanked the employees of Amedisys, Housecall and Spectracare for their hard-working and dedication in completing the transaction.

In hindsight, I should thanked them in advance for the hard work and dedication it would take to fully integrate these acquisitions. Time and sweat equity have proven us correct as the performance of Housecall and Spectracare no longer provide a reason to differentiate these acquisitions from the rest of our business.

During the past three months we raised $118 million through an equity offering of our common stock and retired $43 million that we owed on our senior credit facility. That leaves us with approximately $90 million in cash and only a nominal amount of debt of our books.

We're now united for the first time in over a decade, having moved from three separate locations into our new corporate office. We no longer waste time traveling from office to office to attend meetings and sense a new pride in our corporate employees as they embrace their new surroundings.

I would like to comment on the departure of John Giblin and the appointment of our new interim CFO Dale Redman. We are appreciative of John's contributions to Amedisys in his short tenure. While we are disappointed in his departure, we're excited about Dale's appointment as our new CFO. Dale comes to us with seven years experience as a CPA with Ernst & Young. For 10 years, through 1999, Dale was the CFO of United Companies a $1.7 billion NYSE mortgage company. Since leaving United, Dale has been operating his own business Windward Capital, working with a variety of smaller companies, assisting with their capital and management needs. Dale is also an adjunct instructor, teaching in the Department of Finance at Louisiana state University. Dale lives in Baton Rouge, has a comprehensive knowledge of the capital markets and has brought experience in accounting, finance and public relations. His experience and wisdom will be a great asset to Amedisys. We welcome Dale

I would like to welcome two new members to the analyst group that now totals 10. Since our last call, Darren Lehrich of Deutsche Bank and William Bonello of Wachovia have initiated coverage. As a reminder, our strategic objectives are to grow into the leading Medicare home nursing company, to utilize technology in order to achieve operational efficiencies, to emphasize outcome driven patient care and to build disease management capabilities.

True to these objectives, we now operate 261 home nursing agencies and 14 hospice agencies as of year end. We have installed our point of care laptop computers in 50% of our agencies. As it relates to our clinical outcomes, Amedisys has better outcomes in all 10 categories in the markets we serve. Our Encore disease management call center follows up on all discharged patients in our markets to monitor their recovery as part of our patient satisfaction analysis. And as I do on each call, I would like to welcome the employees of our newest acquisitions Sun Health in Arizona and Horizons Hospice in Alabama.

In conclusion, I recently attended a new employee orientation in Atlanta and for those of you that may not know, Larry and I attend all of our new employee orientations. With each new face I am reminded that our greatest competitive strength lies in our employees who individually and collectively make it possible for us to carry out our mission every single day. At Amedisys we believe this culture we so carefully preserve is the intangible that truly differentiates us from our competition. And now I would like to turn this call over to John for his financial review. Thank you.

Thanks Bill. Our fourth quarter revenues grew nearly 21% over the 2005 fourth quarter, to a quarterly record $144 million on a 29% increase in completed episodes of care from 36,000 episodes in last year's fourth quarter to 47,000 in the current quarter. Internal growth, including startups, contributed about three-quarters of our growth in the quarter while acquired agencies, that we have owned for less than one year contributed the balance of our growth.

Revenue per episode totaled $2,612 in the current quarter, up 1.7% from $2,569 in last year's fourth quarter. The 3.3% market backed increase announced by CMS last November was effective for all episodes of care ending on or after January 1, 2007 and so is reflected in our episodes in progress as of the end of the year. This increase will be partially offset in 2007 by the elimination of the 5% rural add-on which we receive on approximately 20% of our episodes of care. These reimbursement changes are expected to increase our Medicare revenues in 2007 by just under 2%.

Operating income surged 61% to $19.1 million or 13.3% of net service revenue in the current quarter, from $11.8 million or 10% of revenue in the fourth quarter of 2005. This margin expansion is due primarily to the integration of the 2005 Housecall acquisition during 2006. Our gross margin improved from 55.8% in last year's fourth quarter to 56.2% in the current quarter, while our general and administrative of expenses, inclusive of depreciation and amortization, declined from 45.9% in the 2005 fourth quarter to 42.9% in the current quarter.

Net income totaled $11.4 million in the quarter or $0.48 per diluted share, a new quarterly record increasing 56% from the $7.3 million or $0.34 per diluted share reported for last year's fourth quarter. We recorded a non-cash charge of $1.3 million or $0.03 per share in the quarter related to the write-off of deferred financing fees associated with the termination of our senior credit facility. As Bill mentioned in his remarks, we raised $118 million in November through an offering of 3 million shares of our common stock and we used $43 million of the proceeds to pay of our outstanding term loan.

For the full year 2006 we grew our net service revenue by 42% over the 2005 period, to a record $541.1 million on a 43% increase in completed episodes of care, from 121,000 episodes in 2005 to 173,000 in 2006. Internal growth, including startups, contributed about half of our growth for the year with acquired agencies that we have owned for less than one year contributing the balance of our growth.

Revenue per episode totaled $2634 in 2006 up 2.6% from $2567 in 2005. We grew our operating income 31% from $50.1 million or 13.1% of net service revenue in 2005 to $65.7 million or 12.1% of revenue in 2006. Although the Housecall acquisition had the effect of reducing our operating margin, it has proven to be a very accretive deal for us. Our gross margin declined from 57.3% in 2005 to 56.5% in 2006, while our G&A expenses inclusive of depreciation and amortization increased from 44.1% in 2005 to 44.4% in 2006. An increase in bad debt expense from 1.3% of revenue in 2005 to 2.1% of revenue for full year 2006 contributed to the increase in our G&A consensus. We have taken steps to reduce our exposure to bad debts going forward and are targeting bad debt expense in the 2% of revenue range for 2007. Substantially all of our bad debt expense is related to our non-Medicare book of business. Days sales outstanding at the end of the year totaled 52.9 days, down from 62.3 days at the end of 2005. Net income totaled a record $38.3 million or $1.72 per diluted share in 2006, up 27% from $30.1 million or $1.41 per diluted share for 2005. We're currently projecting our effective tax rate for 2007 to be 38.9% up from 38.2% in 2006. In 2006, we benefited from federal tax relief legislation enacted as a result of hurricanes Katrina, Rita and Wilma that reduced our effective tax rate for the year.

After adjusting for $18.8 million in 2005, payroll taxes that were deferred and paid in 2006 rather than 2005 under Hurricane Relief Act extended deadlines, our cash flow from operations more than doubled, from $24.7 million in 2005 to $61.9 million in 2006. Our cash position at the end of the year including $5 million in restricted cash totaled nearly $9 million up from $17 million at the end of 2005. With such a strong balance sheet we're very well-positioned to capitalize on consolidation opportunities in the home health sector over the next 12 to 24 months.

No new information has been communicated by CMS since our last conference call regarding potential case mix adjustments to the Medicare reimbursement methodology including how we are reimbursed for therapy services. Based on informal communications with CMS we currently believe that CMS may publish its proposed changes in the next several months, perhaps as early as May. If CMS does publish its proposed changes in May we do not believe that these changes would become effective until January 1, 2008 at the very earliest. For 2007, we are projecting net service revenues in the $625 million to $650 million range and diluted earnings per share of $2.05 to $2.15 per share excluding any acquisitions.

Capital expenditures should approximate about 2% of revenue plus about $6 million for the final stage of the roll out of our point of care technology. Before turning it over to Larry for his operational overview, I would like to say what a pleasure it has been to work with the management team here at Amedisys over the last four months. The decision to leave was a very difficult one for me, but one I needed to make for my family. Amedisys is a great company with a very bright future. And I look forward to continuing to work with his team in my new role at Blue Cross Blue Shield of Tennessee. With that said, I will turn it over to Larry.

Thank you John. Our operational strategic plan continues to center around our internal and external growth strategies. This plan generated a fourth quarter internal growth rate over last year in Medicare admissions of 11%. Our total growth rate over the fourth quarter of last year in Medicare admissions was 15%. For the full year, our internal growth rate in Medicare admissions was 13% and our total growth rate was 31%. This total growth rate was positively impacted by the full year effect of acquisitions completed in the second half of 2005. We believe that longer term, our internal growth rate should settle in the 10 to 15% range. 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 and startups, as well as external growth opportunities via acquisitions that meet our strategic criteria. During the fourth quarter, we opened nine new home health locations for a total of 36 for the year. In addition, we opened a new hospice location in the fourth quarter for a total of two new locations for the year. Our plan is to continue with our strategic branch expansion based upon local market opportunities. Specifically, we are targeting approximately 40 home health and four to five hospice startups in 2007.

As discussed on our last call, historically we have invested an average of $250,000 to $350,000 in each startup before reaching breakeven results. Normally, we expect the location to recoup this investment by month 18 and to be generating approximately $1.5 million to $2 million in annualized revenue by the end of the second year. In an effort to allow investors to more easily gauge our progress and operational strength, we have broken our quarterly revenue and contribution margin down as follows. Contribution margin is pretax and pre-corporate overhead. $124 million in home health revenue related to agencies we have owned longer than 12 months with a contribution margin of 31%. $5 million in home health acquisition revenue that we have acquired in 2006 with a contribution margin of 12%. $9 million in hospice revenue with a contribution margin of 22% and $5 million in home health startup revenue related to startups opened in 2006 with a contribution margin of negative 9%. Also in the quarter, we incurred approximately $1.4 million in additional costs associated with agencies we plan to open in 2007.

On the acquisition front as previously announced, we made two acquisitions in the fourth quarter. We acquired a home health agency business in the St. Louis, Missouri area on October 1 and in the Phoenix, Arizona marketplace on November 1. More recently, we acquired a hospice operation in Montgomery, Alabama on February 1st. We continue to evaluate potential acquisition candidates and have a healthy pipeline of opportunities that fit our profile and strategic direction.

In the fourth quarter, we continue to roll out our point of care system to our agencies. As discussed previously, the system consists of tablet PCs that are used by our visiting staff to document visit information which is then electronically uploaded into our proprietary operating system. To expect the system to improve the quality and documentation compliance of our visiting staff and eliminate numerous back office functions at the agency level. We made the decision to roll out the system after three years of strategic development and an extended test at five agencies earlier in 2006. In total, the system required a $9 million to $10 million investment in capital primarily associated with the cost of the tablets. We spent approximately $3 million in 2006 and expect to spend approximately $6 million in 2007. At year end, we have rolled out the system to 90 locations, representing about one-third of our total agencies. Through mid-February, we have approximately 140 agencies now point of care. When fully rolled out in the third quarter of 2007, we anticipate $1 million to $1.5 million in quarterly savings largely associated with reduced overhead at our agencies. I certainly want to thank all the operation management and staff for the results to date in improving the performance of operations and their commitment to meeting our strategic goals. In particular, the transition to point of care is changing how we operate while resulting in a more efficient and productive company and one requiring much less paperwork for our employees. In summary, we're very pleased with our full year 2006 operating performance. We showed significant margin improvement over the course of the year as we successfully integrated the 2005 acquisitions.

Additionally, internal growth continued in the double-digit range and our significant investment in de novo startups has placed us in good position to continue this performance in 2007. (technical difficulty). We continue to focus on being the premier low-cost (technical difficulty) provider in home health. We believe that focus, execution and commitment to clinical outcomes (technical difficulty) continues to separate us from our competition (technical difficulty). I would like to express our appreciation for the continued support of our shareholders, customers, employees, and vendors. At this time out like to turn it over to Dale Redman for a brief introduction. (technical difficulty). Operator, we are getting background noise.

Thanks Larry and good morning. As Larry mentioned, my name is Dale Redman and I'm very pleased to be joining the Amedisys team. It is an exciting and well-positioned company with a clear vision of its strategic future. I'm a CPA and I worked at Ernst & Young for seven years and spent over twenty years working in a public company environment -- ten years as a CFO. I have extensive experience for raising different forms of capital and working with the investor and analyst community and I look forward to working and talking with each of you about Amedisys. Needless to say, I'm excited to be part of this talented management team.

Thanks Dale. I'd like to open up the session to the Q&A. So please ask your questions in the queue.

(OPERATOR INSTRUCTIONS).

Go-ahead operator.

Michael Wiederhorn, CIBC World Markets.

Good morning, quick question. In light of the reimbursement question marks associated with the home health, can you give us your outlook for the future acquisitions and what the pipeline looks like. And part two, with your recent hospice acquisition in Alabama, can you give us some color on your strategy in this space going forward?

Sure Mike, I will start with part two. We took advantage of that small hospice acquisition in Montgomery because we believe Alabama is going to be moving to a CON state related to hospice. We have no hospice acquisitions -- pure play hospice acquisitions -- currently in our pipeline. If you see us getting into hospice, it would be because we are buying a home care agency that has hospice associated with it. And I mentioned during my script that we'll probably open four to five startups in the hospice arena this year. And by the way, I'll go-ahead and mentioned our cap criteria. Right now we have no agency greater than 70% of their cap and we monitor that on a monthly basis and we have nine provider numbers that we monitor that. On the acquisition pipeline, we have a lot of acquisitions that we're currently looking at. We probably will wait to do anything large -- an I'm defining large in the 30, 40, 50, $60 million range to the back half of the year as we get reimbursement clearly. But you'll see us announce acquisitions probably on a monthly basis as they come up. Obviously we don't project acquisitions. Last year we did $20 million of acquisitions. We should do the north of that this year easily and again anything large in the back half of the year. Thanks Mike.

Darren Lehrich, Deutsche Bank.

Hi, good morning it's actually Sudeep Singh calling in for Darren. A couple of quick ones here. I think it would be helpful for us to just learn, internally, when did John kind of give you guys a sense of his resignation and were there any outside candidates considered?

Sudeep, that's a good question. Over the last several weeks John has been discussing his thoughts about possibly moving closer to home and Blue Cross Blue Shield of Tennessee, I think, was one of the companies he interviewed while he was interfering with us and they had approached him. He essentially gave us his resignation on Monday, although he's been contemplating it for a week or two. There was some discussion of us allowing him to commute back and forth so he could remain his presence in Atlanta. But the end of the day, he decided that being closer to home was important to him. We had went through an extensive search prior to selecting John and analyzed a lot of candidates. Dale Redman came to us through a board member that has known him personally for 10 years. So we interviewed him in the last several weeks. He's met a lot of our top management. We've benchmark his criteria against the candidates we have seen previously. We feel very confident that he excelled in our criteria in relation to the five or six candidates that we had passed on if you have been following us. We have announced him as interim, just to give us a grace period. So since it was a quick decision over the last couple of weeks, so we could work with him, with our intention of naming him permanent in the near future. Thank you Sudeep.

Eric Gommel, Stifel Nicolaus.

Good morning, it looks like you are taking a little bit of a slower approach on the hospice business. What is the -- I guess if you look at hospice, what do you think is the opportunity there from a growth standpoint. Do you look at that as something that you might be able to roll out to all of your locations? Are you very selective in the strategy you're using to grow that business? I'm just curious of your thoughts on that?

Eric, that's a good question. We're kind of making sure that get her back together operationally. We are actually rewriting the platform from a software perspective. That will be released in the next three months to the agencies. We're currently up to about 16 hospice locations with the acquisition that we did and I think we've opened up one here in the first quarter. So, it's slow as you go learning. We do think that it is a future growth opportunity. But my thinking is there may be an inflection point in the next two to five years in hospice -- either reimbursement change, something else that may give us the opportunity to go into hospice on a larger scale. But up until that point you'll see us do selective startups. A lot of the markets we serve, the demographic reason you would go into the market for home care is the same demographic reason you would go into it for hospice. So it is a future growth opportunity. But in '07, four to five startups, maybe some acquisitions in home health that have some hospice associated with it.

Kevin Baker, Chartwell Investments.

Hi gentlemen. Two things. If you could somehow, on the record, state what accounting concerns that the Board or Dale might have. Obviously, a CFO resigning is a terrible headline. So if you could somehow state what accounting issues have arisen that might have led to this departure or not I would appreciate that first please.

Kevin, this is John Giblin. I guess I'm the best one to respond that. I can tell you that I have no concerns at all about the accounting at Amedisys. I am signing off on the 10-K that we will file tomorrow. And this decision that I have made had nothing to do with accounting. It had everything to do with the opportunity at Blue Cross Blue Shield of Tennessee and my family.

Thanks, I appreciate that. And secondly, talk to me about the opportunities to calibrate the de novo pace later on in the year, given the reimbursement ambiguity that appears in '08 and beyond for that matter.

Kevin, this is Larry. Thanks your question. We have, for lack of a better word, a pipeline of potential startups that have to go through a regulatory process that takes literally months to get approval. And last quarter we opened nine and I said we were going to open about 40 this year. I can't articulate exactly when they're going to land in each quarter. If I were modeling I'd say about 10 per quarter. We have the ability to slow that down by slowing the application process down if the need be. From a strategic standpoint, I don't want to slow it down because it generates so much revenue growth. And I will go over it one more time and most of the investors have heard this. The 36 startups we did last year, while they cost us $8 million or $9 million, they're going to be generating about $2 million apiece within two years. So that $75 million. And they will be contributing a 20% gross margin. So that's $14 million, $15 million of EBITDA. That same revenue stream, if I went out and bought it today cost me about one times revenue or about $70 million. So I'm spending 8 million to generate $70 million of revenue versus buying it. Again we are in CON states, so we have to do acquisitions in certain CON states. We like doing an acquisition in a market we have not been in before and then do startups around it -- our dual-prong strategy. But we do have the ability to slow it down if need be.

Bill Dezellem, Tieton Capital Management.

Thank you, relative to the issues surrounding Medicare HMO reimbursement issues, what is the update there and are you feeling like you're getting a better handle on that situation?

This is Larry. Let me go over what happens with Medicare HMO advantage patients. At any time during the sign up period, a Medicare patient can opt into a Medicare Advantage plan and literally they give up their Medicare card and go into a Medicare Advantage plan. There are two types of Medicare Advantage plans on a macro basis. One type, which we like, continues to reimburse us under the episodic fee-for-service rate. And we have several of those under contract currently. The other type puts you into the traditional HMO or bill paying you on a per visit type and that is unprofitable for us. We are approaching managed care plans about switching to episodic rate where appropriate and we've had some success. As an example in the Phoenix market we negotiated episodic rates with their Medicare Advantage plan when we purchased that home care agency. It has generated less than 1% of our total revenue base. So while we've seen a shift and we've had to account for that -- a lot of that in the bad debt arena, it's still less than 1% of our total revenue. It's insignificant in total, but it's been a shift in the last year because it's new phenomenon if you will.

Bill, just to add on that briefly. The prescription drug benefit card really -- a large single time growth in their transition. And we sort of witnessed that last year. We don't think your going to see that type of rush to the MA plans over the future. And you tend to see that on enrollment which is in the October, November, January time and year-end, beginning of the new year. So we think the onetime spurt that we witnessed was the result of the prescription drug benefit and the transition there and some of the confusion in the market. So we think we have a good grasp on managing that transition in the future and it should not be as much of an impact has we move forward.

Really it was more of a onetime event rather than the beginning of some trend that you're going to have to spend a lot of time on.

The first-year that it was introduced -- they introduced the prescription drug benefit, so we feel like that is the bigger period. But every year from November to March is the sign up period, where the Medicare Advantage can market and transition Medicare patients. So it's something you'd have to monitor on an annualized basis. We just feel like when it's first started, it may be a little bit more aggressive than as you go forward.

Newton Juhng, BB&T Capital Markets.

Thank you, just a real quick for John. Just wondering if you're going to be able to stick around a little bit with the transition for Mr. Redman there. And also, what capacity are you going to be in over at BB&T -- BCBS of Tennessee.

I am taking the CFO position at Blue Cross Blue Shield of Tennessee. I will -- my resignation is effective as of March 2nd, so I've got a couple of weeks to transition with Dale. However, I'm going to be available by phone to the team here to assist in the transition as much as practically possible.

Okay great, just on the tax rate here going forward, just the uptick. It basically seems like the tax credit you received this quarter goes away; it was a onetime issue?

We actually will receive a little bit of the credit going forward into 2007. It is in the neighborhood of $300,000 to $500,000 I believe -- significantly less than the credit that we received in '06.

Bill Bonello, Wachovia.

Yes, just a couple of follow questions. One just as you look to 2007 and back at 2006, you obviously had a pretty healthy Medicare increase that I think you probably hadn't been expecting. My assumption is that maybe you're going to take a little bit of sort of that windfall so to speak and take it as an opportunity to beef up infrastructure a bit, after having been pretty aggressive on both the startup and acquisition front. So I just want some clarification, if that is correct, and what you might be doing and then I have a separate question.

Sure Bill. The first response is net, it's about a 2% price increase. So $9 million to $10 million and we told the market that's 60% of that or so. I'm comfortable that it will probably drop maybe 30% to 40% through increased salaries and wages, increased mileage, those type of things to be conservative. That's kind of how we model that out. So I hope that answers your first question. So I'm ready for your second half.

Okay, and just so I understand that the increased salaries and wages and increased mileage, that has nothing to do with getting the reimbursement increase. Those are just increases you would have expected to have happen anyway.

Yes, but except for last year, we didn't get a market basket increase. This year, we did. So you might be little bit more generous the year you get a market basket increase.

Okay, that is helpful. The second question is for John in your comments on -- around why you're leaving in your comfort with the accounting and signing off on the 10-K etcetera, it's extremely helpful. I guess just the only other question I would have is it sounds like a lot of this decision was driven personally. And I'm just curious, obviously, when you accepted the position, you knew you were going to be going to Louisiana etcetera. So I'm just wondering if you can give us anymore color on sort of what changed after accepting the position in the relatively short time that it sounded like you felt more comfortable going elsewhere?

Well Bill, I guess the significant thing that changed was an offer that I received from Blue Cross Blue Shield of Tennessee that was a very generous, significant offer and a significant opportunity. So I had to weigh that against the opportunity here at Amedisys. And I have to say it was not an easy decision. It was a very, very difficult decision, because I saw the opportunity here to be very, very substantial. And so I -- that is what changed. I was not out looking to leave Amedisys. I bought a condo here in Baton Rouge that my wife and I were planning to move into and we were going to move our son here next year. So I was committed to Amedisys and very much enjoyed the time that I was here. But this opportunity with Blue Cross came about and then I had to weigh the two opportunities. And yes family considerations were very significant in the decision that I ultimately made.

Balaji Gandhi, Oppenheimer.

Good morning, I think John you had mentioned this. But I just wanted to make sure I got it right. Cash flow from operations for the quarter and for the year if you have both?

Yes, the cash flow from operations, if you just look at the cash flow on the surface; last year $43.5 million. This year $43.1 million. So actually a slight decline. But what you have to consider is that we received another benefit in addition to that tax benefit we received, related to the Hurricane Relief Act. We also receive the ability to defer the payment of payroll taxes from '05 into '06. So payroll taxes that we normally would have paid in '05 of $18.8 million were actually then paid in '06. And so what that resulted in was a change in our cash flow from operations. If you just for that, our cash flow from operations actually more than doubled. I gave those numbers from $24.7 million to $61.9 million. And all I'm doing is deducting the $18.8 million from last year's cash flow and adding the $18.8 million to this year's cash flow from operations. I think that our cash flow from operations last year -- are you talking about the quarter or the year?

Well, I guess now I can back into the quarter. So that's basically what I was looking for. That's helpful. I just wanted to see how you got to that 61.

I think our cash flow last year, particularly in the fourth quarter was affected by the -- certainly by the hurricane activity, but also by the Housecall acquisition. So there was some disruption in the back office processes. Our receivables grew and we benefited in '06 from cash collections in '06 that normally landed in '05.

Okay but could you just remind me -- the Medicare nine-day payment hold from the third quarter, how much of that was held back that you wound up collecting this quarter?

That was about $13 million that then we collected in the fourth quarter.

Okay and then what was CapEx for the quarter?

CapEx for the quarter (Multiple Speakers)

Again for the year is fine too -- I can back into it.

CapEx -- hold on just a second. $14.1 million -- I'm sorry, $29.3 million for the year. And that includes just under $14 million for the building -- for the new corporate headquarters. And for the quarter it was $8.9 million and that included just under $3 million for the corporate headquarters.

Got it. And then just last question, maybe for Larry. The margins were about 15 -- EBITDA margins about 15.2% for the quarter. It seems like kind of stabilized from where they were at the beginning of the year. What does your guidance imply given all the kind of moving parts with the de novos, the Medicare pricing updates etcetera. What do you think they settle in at for '07 and beyond, assuming no major changes to Medicare?

Precisely about 15.5%, but a range of 15% to 16%.

(OPERATOR INSTRUCTIONS) Brian Tanquilut, Jeffries & Company.

Good morning guys. A couple of quick questions. Larry, you just mentioned 15% to 16% EBITDA margin range. Does that reflect the market basket?

Yes it would. Before the market basket, we were reflecting around 15% and after is where I'm coming up with that 15.5% to 16%.

Got you. Now going back to the market basket, I just wanted to clarify. You said it was about a 2% -- just under 2% net benefit for you guys. We're thinking rural was 3.6%, urban was 3.3%. If you can just walk us through how we get from 3.3% market basket going to under a 2% impact for you guys.

Sure, there are really three areas you have to monitor. One is the 3.3% overall increase you mentioned. Two is the 5% rural add-on going away and about 20% of our revenue was rural. So that's a net negative of 1. So 2.3 minus 1 -- I mean, 3.3 minus 1 gets you around 2.3. And then every year, they adjust the wage index and the rural versus urban areas and you've got to factor that in. And we are in a lot of different counties and that makes up for the difference between the 2.3 and the 2 that I am saying.

Okay that's very helpful. Now you mentioned also that in Q4, we saw sort of some of the benefit from the market basket as we priced some of the episodes that are going to add in '07 with the market basket. Sort of what benefit did we get in Q4 from the market basket?

About $500,000. In John's script, he was careful to point out that you got the addition of the 3.3% because it's for patients on service January 1 -- you roll it backwards. But you don't get the negative of the rural until the first quarter. But it was about $500,000.

Last question. On the DSOs, obviously, you've seen a sequential improvement. Where should we expect this to go, going forward. And at what level or at what point should we see this normalize?

Going forward, we hope to get it below 50. A good goal is the 45 to 50 range. So stabilizing in the 45 to 47 range would be nice for us.

John Ransom, Raymond James.

Hi, good morning. I thought I pushed one-four a lot quicker than apparently I did being way back here. Housecall -- you had mentioned last quarter, I think, the contribution margin was 25% I believe. How did that compare this quarter? Thanks.

It went from 25% to about 26% this quarter. I mentioned that the growth going forward would be a little slower. But keep in mind when I talk about $124 million of home health revenue, that now includes hospice and the all-in contribution margin is 31% which is pretty healthy. So we're pleased with the Housecall margins.

And you know, I recall midyear you mentioned Housecall was hitting your organic -- consolidated organic numbers about 400 bps. Are you expecting that same effect in 2007?

Maybe the first half a little bit. But I'm expecting 2007 to start experience some better growth. I've already seen some early indications of that happening. So I gave a 10% to 15% range; last two quarters are at 11%. Maybe in the 11%, 12%, 13% range in the first half and then maybe pick up a little bit in the back half.

Are you starting to see some signs of life in Florida on the revenue side?

Yes, we've stabilized in Florida. We were actually at negative year-over-year growth in Florida after we got out of all the managed care business and it was pretty substantial. Now it's almost to breakeven. So I feel pretty good about the stabilization and maybe we'll start ramping now.

Okay so, not to beat this too much. But it's still running kind of running in the $100 million revenue range then, if you take the puts and takes?

That's correct.

The other thing, just a couple of clarifications. How much did bad debt -- increased bad debt reserve add to G&A? And what was the effect on EPS this quarter?

The bad debt expense was in the 2.5% range in the quarter. And as I indicated in my remarks 2.1% for the year. So it was relatively consistent. It was 2.7% in the third quarter. So it came in at 2.5% in the fourth quarter. And as I indicated we are targeting it in the 2% of revenue range for 2007.

I mistook that. I thought it was an increase in the fourth quarter. Got you.

No, quarter three and quarter four were relatively stable -- it was about 3.5 million.

Got you. And then just to clarify also. You mentioned in your opening comments 47,000 episodes. What percent of growth came organically versus acquisitions? It was up 29% I believe and I was just trying to get the split between (Multiple Speakers)

If you're in the quarter -- if you're looking in the quarter, the organic growth was 25 -- was 75% and the acquired growth was 25%. For the year it was split 50-50 between organic and acquired.

And then just one other kind of big picture question. Do you get the sense -- is the industry as a whole a little bit on hold vis-a-vis M&A activity until there is more reimbursement clarity?

That's a good question. What we're finding out internally is the larger acquisitions we're looking at are not willing to discount or look at their valuation any differently, even knowing there's a case mix review ahead. So we have kind of stalled the tabled some of the larger ones for clarity. On the smaller ones, it hasn't really slowed down or affected our internal valuations. So you will see the small ones that we continue to announce over the next several months.

Thanks John. I think we'll take one last question.

Derrick Dagnan, Avondale Partners.

Yes, I had a really quick question on the hospice acquisition. Larry, I was wondering, could you give us just a little more information? Could you maybe give us the average length of stay or the percent of patients that are -- that have diagnoses related to cancer?

I will handle that question this way. It's only about $1 million in revenue and they don't have cap issues. I don't have those specific answers in front of you, but it was pretty insignificant.

At this time I would like to turn the floor over to Mr. Bill Borne for any closing remarks.

Thanks operator. I would like to thank everyone for calling in this morning. Just as a reminder, in New Orleans it is Mardi Gras today. I'm sure a lot of people will be going to enjoy the event. We will stay focused here. We appreciate everyone's call and everyone's interest and we certainly understand when you have changes such as in the Chief Financial Officer role that one could be concerned about that. However, as stated in this call, we're very comfortable with the numbers that we have reported and we're very comfortable with Dale's presence in the organization. And we look forward to continuing to do more of the same and to grow this company in a very safe manner. And we look forward to seeing you on our next quarterly call. Thanks everyone for calling in.

This concludes today's Amedisys conference call. You may now disconnect.