Amedisys Inc (AMED) 2008 Q1 法說會逐字稿

Good day, everyone, and welcome to the Amedisys first-quarter 2008 earnings conference call. Today's call is being recorded. At this time I would like to turn the conference over to Mr. Kevin LeBlanc. Please go ahead, sir.

Thank you, Keith, and good morning, and thank you for joining us today for the Amedisys investor conference call to discuss this morning's first-quarter 2008 earnings announcement and related matters.

By now you should have received a copy of our earnings press release. If you have not received the press release, you may access it on the Investor Relations page on our website at www.Amedisys.com.

Joining me on today's call from Amedisys are Bill Borne, Chairman and Chief Executive Officer; Larry Graham, President and Chief Operating Officer, and Dale Redman, Chief Financial Officer.

Before we get started with our call, I would like to remind everyone that any statements made on this conference call today or in our press releases that express a belief, expectation or intent, as well as those that are not historical facts, are considered forward-looking statements and are protected under the Safe Harbor of the Private Securities Litigation Reform Act.

These forward-looking statements are based on information available to Amedisys today, and the Company assumes no obligation to update these statements as circumstances change. These forward-looking statements may involve a number of risks and uncertainties which may cause the Company's results to differ materially from such statements. These risks and uncertainties include factors detailed in our SEC filings, including our Forms 10-K and 10-Q.

In addition, as required by SEC Regulation G, a reconciliation of any non-GAAP measures mentioned during our call today to the most comparable GAAP measures will be available on our website at www.Amedisys.com on the Investor Relations page under the link Press Releases.

Thank you and now I will turn the call over to Bill Borne. Pleas go ahead, Mr. Borne.

Thank you, Kevin, and good morning. First, let me welcome each of you to this call. We appreciate the opportunity to update you regarding the Company's performance for the quarter and share our vision for Amedisys.

We had excellent results for the first quarter, recording net revenue of $213 million and earnings per share of $0.62. This represents growth of 39% and 22% respectively over the first quarter of '07.

The first quarter was a milestone for the Company regarding acquisitions. On January 1 we acquired an agency in the certificate of need territory of Puerto Rico. This represents our first location outside of the continental United States.

On February 28 we acquired a business with 24 locations in Kentucky and Tennessee. This significantly expands our footprint in the CON states, particularly in Kentucky.

Finally, at the end of the quarter, we completed the acquisition of TLC, by far the largest acquisition ever done by Amedisys. With 92 Home Health and 11 hospice agencies located in 22 states and the District of Columbia and approximately 300 million in revenue, this acquisition adds significantly to the scope of Amedisys. We believe this acquisition will be an outstanding investment for the Company.

We have already integrated the Puerto Rico agency and the agencies in Kentucky and Tennessee. We have begun the integration of TLC agencies, and we anticipate concluding this process no later than the fourth quarter of this year.

As I stated previously, the addition of TLC is a significant and exciting milestone for Amedisys. In addition to these acquisitions, we opened nine new Home Health agencies and one new hospice agency. As a result of acquisitions and available growth, we ended the quarter with 442 Home Health locations, 169 more agencies than the first quarter of '07.

In addition, we own 38 hospice agencies at the end of the first quarter of '08, 21 more hospice agencies than the prior year. With these acquisitions and startups, we now provide services in 35 states.

In addition to this geographic expansion, we're also focused on growing our care management capabilities to better strategically position Amedisys for the future. We're announcing today the rollout of our new specialty division. Larry will provide additional comments on this rollout in a moment. But the focus is own better meeting the needs of the chronic co-morbid patients within our care.

From a demographic perspective, the number of Medicare beneficiaries is expected to almost double by 2030 to 79 million people. Our country needs to develop a more efficient process for handling the health issues of this aging population in general and more specifically for the chronic co-morbid population which are expected to require an increasing portion of our health care resources.

Our core business is developing high-quality cost-effective care to elderly patients with chronic conditions. With the nationwide footprint, a highly skilled and compassionate team of clinicians, best practice, care management programs and a best-in-class technology platform, Amedisys shows great promise as part of the solution to the health care crisis in our country.

I would like to extend a warm welcome to all the new employees of the agencies we have acquired since our last earnings call, including the employees from Comprehensive and Family Home Health, the businesses we acquired in Kentucky and Tennessee and all the employees from the TLC acquisitions. We are very excited that you are part of the Amedisys family.

In conclusion, our competitive advantage is driven by the talented employees who individually and collectively make it possible for us to carry out our mission each and everyday of providing cost-effective, quality health care services to the patients entrusted to our care. We have a culture of hard work, a passion for service and a commitment to our core values, and that intangible separates us from our competition.

I will now pass this call to Dale for his financial overview.

Thank you, Bill. We've begun 2008 with another strong quarter for Amedisys, which included our successful completion of three acquisitions that resulted in the addition of 114 Home Health and eight hospice locations. Our first-quarter revenue grew 39% over the first quarter of 2007 to $213 million. Acquisitions accounted for approximately $24 million of this increase. Our net income of $16.5 million or $0.62 per share surpassed the $13.3 million for the first quarter of 2007 or $0.51 per share, an increase of 22%.

Operating income increased 35% to $28 million or 13.1% of revenue for the quarter compared to $21 million or 13.5% of revenue for the first quarter of '07. Our G&A expense including depreciation and amortization as a percent of revenue remained flat at 40%. Our gross margin was 52.7% for the first quarter of 2008 compared to 53.4% for the same quarter of 2007. The decrease in gross margin is primarily related to our acquisition activity since Q1 '07.

Effective for the first quarter of 2008, we have reclassified certain benefit-related expenses from G&A to cost of service to better reflect our direct cost of providing service to our patients. The amount of expenses reclassified in Q1 '08 was $5.9 million, and the gross margin would have been 55.5% without the reclassification. $4.5 million of expenses previously reported in G&A for Q1 '07 have been reclassified to cost of service, and a previously reported gross margin was 56.4%. EBITDA for the quarter was $32.3 million, 15.2% of revenue versus $23.6 million or 15.4% of revenue during the first quarter of 2007. Bad debt expense for the quarter was $3.6 million or 1.7% of revenue compared to $2.6 million or 1.7% of revenue for the first quarter of last year.

We generated cash flow from operations of $26 million during the first quarter of 2008. We spent $436 million on acquisitions and $5 million on capital expenditures and issued $395 million of new debt. Cash flow from operations was down $9 million from the prior year. Approximately $14 million of the decrease is related to the increase in accounts receivable, net of recent acquisition activity, which was partially offset by an increase in our results of operations.

Days revenue outstanding at quarter end remained flat with the fourth quarter of 2007 at 51 days. As I mentioned, during the quarter we issued $395 million of new debt. This new debt was issued under new credit facilities totaling $500 million in three tranches. $100 million unsecured private placement of term debt with an average maturity of six years from three insurance companies. A $150 million amortizing five-year unsecured term loan from 10 banks. And a $250 million, five-year unsecured revolving credit agreement with the same 10 banks.

At present the average interest rate on all of this debt is 5.05%. Including amortization of deferred financing costs, the all-in rate at present is about 5.35%.

This morning we are increasing our 2008 guidance to the range of $1.050 billion to $1.100 billion in revenue and earnings per share guidance to the range of $2.70 to $2.80 based on an estimated 26.9 million shares. This guidance includes the anticipated results of our two recently completed acquisitions after adding back certain integration costs related to the acquisition of TLC, and it does not include any other future acquisitions.

We made these changes to our 2008 guidance primarily for the following reasons. Since our last conference call, we completed the TLC acquisition and the related financing. The financing was affected during an extraordinarily difficult time in the credit markets and at what we believe are very attractive terms.

As Larry will discuss in more detail, thus far the TLC integration is going well. Going forward, we believe that our revenue per episode will be positively impacted for the following reasons. TLC has a higher revenue per episode than Amedisys' historical numbers, and the impact of the new reimbursement on TLC appears to be better than we previously believed.

In addition, as we announced in our press release today, we are in the process of rolling out our new specialty division, which Larry will update you on as well. Now I would like to turn it over to Larry for some operational comments.

Thank you, Dale. Overall I'm very pleased with our bottom-line results for the first quarter. Our strategic focus continues to be on growing the business both internally and through acquisitions, becoming as efficient as possible and delivering high-quality Home Health care to our patients. This focus continues to generate strong results for the Company.

For the quarter our internal growth rate over last year and episodic-based admissions was 7%. As discussed before, we define internal growth as growth coming from agencies we have owned over 12 months and all startups we have opened in the last 12 months. We refer to this group of agencies as our base startup agencies. This is the first time in a long while that our internal growth rate was in single digits.

A contributing factor is the regulatory delays we have experienced in opening startups over the last few quarters. The first quarter showed this trend reversing with the opening of nine new Home Health agencies, putting us on track to open our target of 40 agencies for the year.

We have also taken steps to improve growth at our mature agencies. We have made adjustments to our incentive plans to better emphasize growth to the agency staff and have had numerous conference calls with our business development teams to make sure their focus is where it should be, on growing episodic admissions. We are beginning to see improvements. Indications are that April will finish in excess of a 10% internal growth rate.

With startups rebounding and our renewed emphasis on mature agency growth, we continue to believe we can hit our target of internal growth of 10% for the year.

We also want to point out that our internal growth rate of episodic-based revenue grew 26% year-over-year. We believe this is more indicative of the true performance. We will add this stack to our discussion on internal growth in the future.

Regarding hospice, we opened one new hospice agency in the quarter and continue to target five hospice startups for the year.

We are pleased with respect to first-quarter acquisitions. On March 26 we completed the acquisition of TLC, our largest acquisition ever. I will provide an update on our integration efforts in a moment.

We also acquired a business with 24 Home Health locations in Kentucky and Tennessee. This was a great opportunity to significantly grow our coverage in these certificate of needs states. In the near-term, our focus is on the successful integration of these businesses with Amedisys.

Longer-term I'm very excited with the footprint expansion these acquisitions bring to us, making us truly a national company and a leader in the Home Health care business. In an effort to allow investors to more easily measure our progress and operational strength, we have broken our quarterly revenue and contribution margin down as follows. As a reminder, contribution margin is pretax and pre-corporate overhead.

$171 million in Home Health revenue related to agencies we have owned longer than 12 months with a contribution margin of 33%. $8 million in Home Health and hospice startup revenue related to startups open less than 12 months with a 10% contribution margin. Also, in the quarter, we incurred approximately $2 million in additional costs associated with agencies we plan to open in the future. $10 million in hospice revenue related to agencies we have owned longer than 12 months with a contribution margin of 16%. $24 million in Home Health and hospice acquisition revenue associated with acquisitions completed during the last 12 months with a contribution margin of 3%.

With respect to our TLC integration efforts, our wind-down of the TLC corporate offices is ahead of schedule. The payroll and Accounts Payable departments have already been transitioned to Amedisys and much of the human resources department as well. Our other corporate departments are in various stages of transition with work being shifted to Amedisys as TLC agencies are converted to Amedisys systems.

Our systems integration efforts have four components. Human resource conversion of TLC employees into our system. This was completed on April 15. Accounts Payable conversion of TLC vendors into our system. This was also completed on April 15. Payroll conversion of TLC employees into our system. This was completed on April 16. Agency conversion to put the TLC agencies onto our operating platforms. We began the conversion process on 22 agencies the first week of April. We will convert between 16 and 20 agencies per month dependent upon census size and our schedule to complete the conversion in October.

The technical integration remains on track. When we announced the TLC transaction, we discussed our expectation that TLC would be negatively impacted by the CMS reimbursement changes in 2008 and estimated this negative impact to be initially in the 4% to 5% range. We have been tracking the impact of the reimbursement changes as actual data has become available and now believe the impact will be less negative. This has contributed to the favorable variance to our previous guidance as Dale discussed.

With TLC's greater presence in higher wage markets like the Northeast and California, their average revenue per episode is higher than Amedisys. I would like to take a moment to introduce to our investors the launch of our specialty division. This division will be comprised of special care management programs. We have introduced and are rolling out to our agencies the first program which is balanced for life. Our press release also includes additional details related to this program.

Some highlights include, last year we launched a specialty care program in 33 pilot locations. The programs are generally targeted to higher acuity patients. It is not uncommon for these patients to have multiple co-morbidities and illnesses more long-term in nature. The program has yielded impressive outcomes to date, substantially reducing our patients' fall and injury risk. Our plan is to formerly launch the dedicated division, continue to generate and study outcomes on this patient subset and launch this service systemwide.

As we have stated in the past, you will continue to see Amedisys migrate our services in the area of care management to that chronic patient with increased needs. We expect to continue to see an impact on our revenue per episode throughout the year as a result of changing our care mix and servicing a larger percentage of higher acuity patients.

In conclusion, I would like to extend my thanks to all the operations management and staff for their efforts during the quarter. They have been very busy integrating our acquisitions, getting us prepared for TLC and achieving great results for the Company.

I am also very appreciative of the TLC now Amedisys management and operations staff as they have positively embraced our culture and moved their work without hesitation. We remain focused on being the premier low-cost high-quality provider in Home Health. We believe that focus, execution and commitment to clinical outcomes will continue to separate us from our competition.

I would like to express our appreciation for the 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). Darren Lehrich, Deutsche Bank.

I have questions in two broad areas. First would be cash flow and second would be guidance. So I will start with the cash flow question for Dale I guess. What is the outlook for cash flow from operations in '08? Really what I'm trying to understand is how you think cash taxes made compare to accrued taxes on a GAAP basis, just anything you can help us up there with your cash flow outlook.

Well, I will make two comments on that. One is that in the first quarter we had an increase in accounts receivable net of acquisitions, and we believe that is going to come down over time, and that affected our cash flow.

As I think we mentioned on previous conference calls, there are some significant NOLs that we absorbed from the TLC acquisition that will have a positive impact on our cash taxes this year. It will have no impact on our GAAP taxes.

Okay. And do you care to make any outlook on cash flow from operations?

Well, you see what it is in the first quarter, and we talked about the issue of increasing the accounts receivable. I would anticipate that it would improve because of a general decline in accounts -- a general decline in the increase in accounts receivable over time.

Okay, fair enough. And then my question about guidance, just based on what you're seeing, I want to make sure I'm clear. It sounds like there's really three reasons for the change to guidance. One would be your view on revenue per episode, your view on the financing relative to what it was when you established that guidance, and I guess the third bucket would be based on what you're saying in TLC. Is that fair putting it in those three broad categories? I guess I would love to get some additional commentary, Larry, from you about what exactly you think TLC's revenue per episode may come out at?

I will comment on the guidance question first. Really it is two broad areas. One is the financing. The rates we ended up getting actually ended up being very attractive for us as compared to what we additionally thought might happen.

The second one is I articulated during my comments that we thought the case mix to TLC was going to be 4% to 5% negative based on historical data. It has actually improved two hours, and as far as revenue per episode, that is going to be combined with Amedisys agencies. I can tell you that it is higher than what we have historically seen with Amedisys. I talked about the Northeast and California issue, which will combine with ours to make ours higher going forward. But guidance really is wrapped up in the financing and the case mix. That is why we increased it.

Okay. And so it improved to yours, just so I'm clear there and I will jump off, so 4% to 5% negative, and you were originally targeting 1%. Are you now flat to slightly up in there at that level?

TLC is more in line with the 1% negative.

And you are better than that at this point given what you're seeing?

With the case mix going forward now that we're in the new year and we actually have change in care mix, we have '08 data and going to try to recalculate '08 as if '07 was in effect is a little bit difficult and time consuming. But we will probably steer away from giving specific care mix or case mix guidance in terms of percentages, but we will disclose our revenue per episode. And we clearly articulated that our revenue per episode was going to improve throughout the year.

John Ransom, Raymond James.

Just a question on the first quarter. Clearly despite the fact that organic volumes were a little bit down, your revenues were clearly better than what I think most of us had modeled. Is it that the PPS was a pretty big net positive this quarter, or what other reason can we think about that the revenues were just so much larger than what was forecasted?

Well, you have a couple of things. I think we talk about $24 million in acquisition revenue in the quarter, quarter one, so that is one reason. And I articulated the internal growth rate in terms of admission growth rate, which was 7%. But we also articulated now the revenue growth rate in terms of dollars, and it was 26%.

Putting it in that perspective, last year at quarter one it was 21%. And revenue growth is made up of admissions. It is made up of revenue per episode changes, which includes market basket and things of that nature and also recertifications. And when you do a lot of startups historically, you start out with admissions, and then over time you begin to gather recertifications, a lot of acquisitions we have done historically have started off with low admission volume, and maybe we would increase them a year or two later and correspondingly increase the recertification. All of those factors lead to the actual revenue growth in dollars being greater.

I see, so it was not just the rate. Would it be fair to say, though, that PPS was not a net negative? In the first quarter, it looked like it was maybe a slight positive.

Well, January and February was really under a transition reimbursement methodology, and March was the only month under the '08, if you will, reimbursement methodology. And again, we're not going to get into the specifics of percentages related to the case mix, but we will tell you that revenue per episode is trending upward mainly due to our Balance for Life Program and the higher acuity patients that we are servicing.

So your case mix apples-to-apples is up year-over-year?

Well, you can see that. I think many analysts articulated what our revenue per episode was (multiple speakers) quarter one compared to quarter two, so yes.

Okay. My other question just relates to TLC. One are their brands -- when you announced that deal, you mentioned that their branch margins, contribution margins, were running in the low 20% range. Is that still an accurate statistic going into the acquisition?

You know, we acquired them on March 26, so we have April data, had closed out a month. But I have no reason to believe that that is not still accurate at this point in time.

And is there any structural reason why those -- I mean you had a 33% margin this quarter on your mature agencies. Is there a structural reason why those branches over time cannot get to the Company average in the low 30s?

I would suspect that over time that they will migrate more to Company averages. I don't know if they will get all the way up to 33%, which is our all-in average, and that includes agencies we have owned for four or five or six years. So it may take awhile, but over time you will see improvement.

That being said, historically when we do acquisitions, the first few quarters out of the gate you do not see that. And that is clear when I went over the $24 million in acquisition revenue this quarter with acquisitions, we've had less than 12% that have only a 3% contribution margin.

Right. In July -- and this is the last thing. If I recall, housecalls started out in the midteens and did it not closeout at about 29% on your last quarter before it rolled into the same store base. So you're able to improve those margins something like 1500 basis points over five quarters?

I cannot remember the specific number, but I do recall it being north of 25%.

David MacDonald, SunTrust.

Larry, just on the specialty program, can you talk a little bit in a little more detail about are there other disease states we should expect over time? You know, just some broad comments and what the feedback has been from some of the pilot locations from both the patients and from a clinical standpoint. Just a little bit more detail there.

Sure. With this pilot program, Balance for Life, we have actually selected the first 33 locations, hired specialty directors. We train our clinicians, as well as our sales staff, on the protocols associated with improving falls and risk management. We're very excited about this program because if you read the literature, one of the major causes of hospitalizations, as well as major dollars spent in the health care system, is due to the geriatric elderly population falling and breaking a hip.

And that is caused by many different factors. Isolating the factor that is causing that and developing a program around that to improve that is what we're doing. And we're seeing quantifiable results in what is called a [tenani] assessment, which is something that therapists use to quantify if someone is a high risk for fall or a low risk. And we have been able to migrate people from high risk to low risk using this. So from a clinical perspective, it is a very exciting program.

Now I have stated for years that wound care, cardiac, diabetic therapy patients are the main patients you will see in Home Care. Developing specialty programs specifically training clinicians to a deeper level, hiring specialty clinicians in areas, training the salesforce is something you will see Amedisys continue to do and evolve. I'm not ready to articulate in what order we will roll out programs, but we will focus this year on the Balance for Life.

Okay and just one other question on the internal growth. With some of the regulatory delays on the de novo side, is that completely behind us now? I mean it looks like that reaccelerated this quarter. And then you talked about 10% for the full year still looking like a pretty good number, which would suggest that internal growth will actually accelerate from April levels. Am I kind of reading that correctly?

Yes, a couple of stats on that. I actually gave you that April was running north of 10%. In internal growth rate one month does not make a year, but we feel pretty good about the traction we have made. While it is impossible for me to predict the bureaucracy that goes into the approval process of startups, I do believe with our pipeline and what we're projecting to open with the rest of the year, we could still have a very good shot at hitting that 40 number, which is why I feel strongly that we will be able to reach close to the 10% internal growth rate.

Okay and then just last question. Dale, on the collections, was that -- I mean in terms of collections, was there a little bit of choppiness also from Medicare just given the reimbursement changes, or was a lot of that kind of acquisition driven?

Yes, there was a little bit of difficulty in early in January and maybe throughout part of January. That has been resolved, and we really don't see any problem with that going forward at this point.

Thanks, guys. Congratulations.

Brian Tanquilit, Jefferies & Co.

Congratulations, guys. Larry, just a question on the integration of TLC. How much more is left of the backoffice in New York?

And then if you can give us just an initial read on how the integration is going at the agency level, especially with the rollout of the point of care?

Sure, I will start with the back half of that first. We did 22 agencies in the month of April, and then we will start a new batch in May. That has gone according to plan. Very similar to what we have seen historically with acquisitions. Obviously by doing all the acquisitions we have done historically, as well as rolling point of care out to over 300 agencies internally, we have got some highly trained people that do that now. So I feel very good about the initial start of rolling out these agencies.

As far as the TLC corporate wind-down, they have four regional billing centers, one corporate office in Lake Success. April is a big wind-down month, but then it will slow over the next four to five months, meaning about half of the corporate employees will finish their employment at the end of April.

So how are the clinicians receiving the transition from paper-based point of care?

You know, it varies but overall positively. It helps tremendously that we already had 8000 clinicians on the point of care. They have people they can call and ask questions to. I mean we have training programs for everyone, including someone that has never turned on a computer before all the way to someone that has used the device in the past. And we're constantly getting feedback and reprogramming things to improve the ease and use of our point of care.

So I feel pretty good about how we they will receive it. Now you will have individuals that will struggle, but overall it is going quite well.

Okay and then last question, your view on the PPS. I know we have only had one full month in Q1. How different is that from what you had thought at the beginning of the year?

Again, we are not going to get into specifics on that because we have got a lot of moving parts. We have got Balance for Life rolling into our program. We have got TLC's revenue per episode, which is higher. But we're clearly sending the message that revenue per episode is going up through the remainder of the year.

Whit Mayo, Stephens.

Just to get back to the revenue per episode a little bit. I understand, I think we hear it is trending upwards. But can you give us a sense for how maybe the visits per episode, did that change at all on an apples-to-apples basis with this transition through PPS in the quarter?

This quarter, no, but I would say it is within one visit of what we have historically been running about. It may trend up one visit upward, but that is an early indication. It is not definitive.

Okay, okay, so that is clearly the case mix is driving that up. And secondly, just can you give a little more color on the reclassification of some costs in the quarter? It looked like there were some numbers that shifted from G&A to cost of services. Can you confirm that that, indeed, was a net wash in terms of the P&L impact?

Absolutely -- this is Dale -- absolutely no P&L impact. All we did was move $5.9 million from general overhead or G&A up into cost of revenue, and that shifted the gross margin down by about 3%. But absolutely no P&L impact, no impact on EBITDA, none of those things.

Was that a decision on the auditors to do that?

No, absolutely not. That was a decision on our part. We think it is probably the better way to approach it. TLC has been doing it that way, and we think that is generally what the industry is doing.

That is fair. Just one more quick question if I may. Larry, can you give us how many agencies you have right now that are waiting approval right now for provider numbers?

Depending on how you quantify what stage they are in, it is between 20 and 25. Some are real close. All they are waiting on is basically the go-ahead, and some are very, very close to that process. Depending on what state, the regulations are different. Sometimes you have to get on-site surveys. Sometimes you have to get desperate to use, but about 20 to 25.

Okay. And do you feel that is a little bit less of a pressure point now than it was at least what you saw in the first quarter in terms of getting these open?

Well, for me personally it is something I'm continually focused on. I do feel better that some agencies opened in the first quarter. And again, you guys are asking me to predict how fast CMS, a bureaucratic body is going to move on things. But again, I do feel that it has opened up in the first quarter.

Greg Williams, Sidoti & Co.

Can you talk a little bit about the specialty division and how you operationalize this? Are you training everybody in Baton Rouge, or are you going on an agency by agency basis?

Yes, I will give an overview. I do not want to get too specific. I believe some of it is proprietary, but it is at the agency level. We send people on-site, and we do training down to the individual clinicians providing the care, down to the salesperson calling on the physician office. So it is at the agency level.

Okay, so it will be sort of a slower rollout. When do you think it will be complete? Or how many agencies per month or something?

We have not quantified how many, but to give you some indication, towards the back half of last year, we rolled out 33. So that will give you some indication. We will be aggressive with our rollout.

And Larry, you mentioned in the scripted comments that you have implemented some programs to better incentivize agency directors to grow episodic numbers per agency. Can you talk a little specifically about what you are doing there?

It mainly has to do with their individual incentives. I had a lot weighted to the agency making their quota, and I shifted more of the incentive to the individual making their quota. Because any time you might be down a salesperson and different things of that nature and we believe that individual accountability will drive performance.

Okay, it makes sense. Thanks, guys.

Ralph Giacobbe, Credit Suisse.

Just going back to the same-store or to the internal growth rate, just so I understand, volume I guess this quarter is 7%. Same-store or internal revenue 26% would obviously imply pricing mix of roughly 19%. And I guess given that TLC really is not much in the numbers in Q1 and given that you are just starting some of these specialty programs, I guess just help me understand the growth of that number, and I guess the sustainability of that type of figure given that you expect volume growth to pick up again?

Sure. I will answer that in a couple of ways. One, if you compare the first quarter of '07 to the first quarter of '06, that number was 21%. And now we are comparing the first quarter of '08 to the first quarter of '07, it is 26%. And you hit it. It is due to mix. It is due to admissions. It is due to revenue per episode. And it is due to recertification. A combination of those factors all lead into the ultimate revenue generation on internal growth.

But I guess going forward sustainability of that number on -- are you saying that number is sort of a sustainable number, and on top of that, we're getting even more because of the better mix or higher revenue per episode for -- (multiple speakers)

The only guidance we have ever given in relation to our growth is probably to sustain an internal growth rate at admissions of 10%. We have not given individual guidance in terms of revenue percentage growth, internal growth. It may be something we consider in the future, but right now I'm not prepared to give that guidance.

Okay. Then maybe can you remind us again of sort of the difference between the CMS sort of implied hit to your revenue and what you guys are actually seeing? You mentioned TLC originally thought of as a hit of 4% to 5% to revenue and now down to 1% of revenue. I guess just help us understand what sort of you all are doing to help mitigate the topline. I understand obviously there's cost mitigation efforts. But in terms of the topline, just help me understand how you can go from sort of negative 4% to 5%, down to sort of 1%, and in your case on the base level, you have talked about it before, but maybe you can refresh our memory a little bit about how CMS is implied.

Sure. As a reminder, when you initially estimate the impact, you are going back to '07, '06 data, and you are calculating what you would have gotten reimbursed had that reimbursement methodology been in effect back then. And there's a lot of complications because it goes from 80 Home Health resource groups to 153. It matters not only what your primary diagnosis is, but your secondary diagnosis, and it matters which episode of care you are in. All of those factors combined will ultimately influence your revenue per episode.

So going back historically trying to estimate the impact may be worst than the impact actually is. By the time you are educated on primary and secondary diagnoses, you understand first, second, third and fourth reimbursement, and you are operating under the new reimbursement methodology. We're seeing that very same thing with TLC. They have gone through a very extensive education process on primary and secondary diagnoses, and I point that out because historically you're not required to put a secondary diagnosis. Now you are.

So sometimes when you look at old data, which six months ago a lot of the analysts will recall that I would tell them that them trying to go back and calculate what the impact would be is almost impossible because they did not have the ability to at least estimate what that secondary diagnosis would be. We did.

The other thing is your case mix migration. Amedisys has always taken care of very high acuity patients. It means they have a lot of things wrong with them, and they say stay on service longer because of that.

Under the new reimbursement methodology, that is where the dollars went to for high acuity long length of stay patients because that is where the resources are going, which makes logical sense to us, and we will continue to migrate to that high acuity, co-morbid patient.

Bill Bonello, Wachovia Securities.

So I will not ask you again to break out the Medicare impact, but I will ask you to explain just how admissions and recertifications impact the growth. I'm not sure I understand technically how they are contributing.

And you may hear some of our competitors talk about revenue growth. When you admit a patient, obviously that initial admission has an episode of care with revenue associated with that. If that patient goes onto a second episode of care because they are still ill or still sick and still need care based on a doctor's signature, well, then you start over with a new revenue per episode. So you have to take the admit plus the recert to get the total dollars associated with that patient that it is ultimately going to generate.

Okay. So that -- but you are saying that patient is not being counted in your episode growth?

The only thing we count in our internal growth rate is new admissions. So it is just the initial admission grew 7%. Our initial admissions grew 7% year-over-year.

Okay, so that is actually very, very helpful. So if we think about your episodic growth when you consider patients coming into more than one episode, your episodic growth organically may be greater than 7%.

That is correct. And, Bill, you're hitting on a good point that I want to make clear. Amedisys has always chosen to articulate to the market our admission growth because we believe that is a key indicator.

But from a financial modeling standpoint and a real performance issue, the 26% internal growth in revenue dollars is much more significant, and that is why we will probably articulate both in the future to you.

Okay. And then the second question and I will hold myself to that, DSO, what is that like at TLC?

Historically it is comparable to ours. It should not now -- they are in a transition. It may migrate our DSO up, but their DSO was in pretty good shape.

And their Medicare revenue is very similar to ours.

Perfect. Thank you.

Newton Juhng, BB&T Capital Markets.

Quickly, it seems like the recertification that you've emphasized a few times here is extremely important towards this internal revenue growth that you have put out today. Can you give us an idea as to how that portion breaks out for you, or are you going to hold off on that for right now?

When you talk about recertification, it is a phenomenon that has always been in effect for all Home Care providers. Keep in mind, when I do a startup, the, first month I do a startup they are all just pure admissions. Six months down the road I will have admissions and recerts. Anytime I grow my admissions, ultimately I'm going to grow my recertifications. And again, we had 21% internal growth rate in dollars year-over-year last year and we had 26% year-over-year this year. And my goal is to drive the admission growth rate to 10%, and obviously it will lead into double-digit internal growth rate in dollars.

And I think we have time for one more call.

Donald Hooker, UBS.

I guess a lot of the questions have been asked. I will just throw in a couple of quick other ones. In terms of CapEx, that has been trending down. Perhaps you can -- I know you have a lot of point of care systems to roll out or software to roll out. Can you give us any sense of where CapEx is going to play out for the remainder of the year?

Long-term we are still anticipating that CapEx will be somewhere in the neighborhood of 2% of revenue. There will be some additional CapEx this year as we roll out our point of care to all of the TLC agencies and the Kentucky and Tennessee agencies.

Okay. Then I guess in the past in terms of I guess we are under this new reimbursement system and the therapy visit thresholds have changed. I mean I know in the past you had sort of given some sense as to how your -- where you were in terms of the different therapy thresholds. Has that changed, or is there any color you can provide around that?

It is a lot more complicated now because under the old methodology, it was just 10 visits or more. Now it matters first, second, third, fourth episode at 6, 14, 20, you get reimbursed for every visit in between. That is long-winded to say that we probably will not be breaking that stat out between four different episodes -- 6, 14 and 20.

I guess if you were under the older system that is much more easier, I think you had talked about 35% or so in the past right around there.

Yes, and our percentage of therapy patients as far as those receiving therapy is generally about the same it has been running, maybe a little higher.

Well, we appreciate everybody for calling in this morning. Obviously we're very excited about the performance over the past quarter, and we're looking forward to sharing the results of the future quarters. We are equally as excited about TLC and the information that we see today in reference to their performance and potential to the Company. We look forward to hearing back from everybody next quarter, and thanks to everybody calling in.

Ladies and gentlemen, this does conclude today's conference. We appreciate your participation. You may disconnect at this time.