Amedisys Inc (AMED) 2011 Q1 法說會逐字稿

Good day, everyone, and welcome to the Amedisys first-quarter 2011 earnings conference call. Today's call is being recorded.

At this time, I would like to turn the conference over to Kevin LeBlanc, Director of Investor Relations. Please go ahead, sir.

Thank you, Cynthia. Good morning, and welcome to the Amedisys investor conference call to discuss the first quarter ended March 31, 2011, earnings announcement and related matters. A copy of our Press Release is accessible on the Investor Relations subpage on our website.

Speaking on today's call from Amedisys will be Bill Borne, Chairman and Chief Executive Officer; Mike Snow, Chief Operating Officer; and Dale Redman, Chief Financial Officer. Also on the call today during our Q&A session will be Tim Barfield, our Chief Development Officer.

Before we get started with our call, I'd like to remind everyone that any statements made on this conference call today, or in our Press Releases, that express a belief, estimation, projection, expectation, anticipation, intent, or similar expression, as well as those that are not limited to 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 or actual outcomes to differ materially from such statements. These risks and uncertainties include factors detailed in our SEC filings, including our forms 10-K, 10-Q, and 8-K. The Company disclaims any obligation to update information provided during this call other than as required under applicable securities laws.

Our Company website address is www.Amedisys.com. We use our website as a channel of distribution for important Company information. Important information including press releases, analyst presentations, and financial information regarding the Company is routinely posted on, and accessible on, the Investor Relations subpage of our website.

We may use our website to expedite public access to time-critical information regarding the Company in advance of, or in lieu of, distributing a press release or a filing with the Securities and Exchange Commission disclosing the same information. Therefore, investors should look to the Investor Relations subpage of our website for this information. Visitors to our website can also register to receive an automatic e-mail and other notifications alerting them when new information is made available on the investor relations subpage of our website.

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 on the Investor Relations page.

Thank you, and now I'll turn the call over to Bill Borne.

Thank you, Kevin. Good morning, everyone. Welcome to our first-quarter earnings call. On behalf of our leadership team at Amedisys, we appreciate the opportunity to update you regarding the Company's performance.

For the quarter, we recorded a net revenue of $364 million, and adjusted net income of $18 million or $0.62 per share. Our revenue for the quarter was below expectations, driven by soft admissions in our Home Health division. However, cost control efforts implemented in the second half of 2010, and continuing this year, allowed us to meet our internal EPS expectations for the quarter. A number of factors contributed to soft admissions in the quarter. To drive improved organic growth in both our operating divisions, we're undertaking numerous initiatives that Mike Snow will cover in more detail.

Turning to external growth, on April 15, we signed a definitive agreement to acquire Beacon Hospice, an $80 million in revenue business with locations across the northeast. We expect to close this acquisition later in May. We are very excited about this opportunity, which is a significant expansion of our Hospice business and a great geographical fit.

Now, I would like to turn to quality. Providing the highest quality service to the patients entrusted to our care is extremely important to our day-to-day operations. And is also extremely important to our long-term growth strategy. Our number-one quality goal in 2011 is to decrease avoidable hospitalizations. In fact, we believe this goal is so important that you will note in our soon to be released proxy statement, we tied a portion of the long-term incentive pay to our executive team to a specific percentage reduction in this metric.

We have implemented and are piloting a number of initiatives focused on decreasing hospitalizations. These include our Care Transition program designed to bridge the gap for patients between their acute care setting and the home; an initiative we call Advanced Chronic Care management designed to focus additional services on those patients most susceptible for rehospitalization; a pilot program that employs nurse practitioners at the care centers to enhance the level of care we provide to patients and improve communications with our physicians; the utilization of our Encore tele-health group to provide intra-episodic health coaching in certain agencies.

We're also investing in our medical director infrastructure. Each care center has a medical director who provides clinical direction and guidance to our staff. Over the past 2 quarters, we have added regional medical directors to our organization to provide more support and training to this area of our Company. The more we can engage our medical directors, the more positive impact they will have on our quality.

We believe providing post-acute care through innovative home care programs such as Amedisys Care Transitions and advanced chronic care management positions Amedisys to be the leading preferred partner of hospitals, managed care providers, and new healthcare groups such as Accountable Care Organizations. These advancements will position Amedisys for strong, internal core business growth, and help us to achieve our longer-term strategy of becoming the nation's leading continuum of care provider.

Now let's turn to the regulatory landscape. As you know, starting January 1, CMS instituted new regulations requiring face-to-face encounters between patients and their physicians in both home health and hospice. Amedisys has always believed increased physician engagement improves the quality of care we provide to our patients. In fact, one of the key protocols of our Care Transition program is to have a follow-up physician appointment scheduled before the patient leaves the hospital. We have been a proponent of assuring that this interaction between the patients that we serve and their physician takes place.

Unfortunately, some of the regulations surrounding the implementation of the new face-to-face requirement are overly burdensome for our physicians and providers. For instance, we are now the only segment of the healthcare continuum unable to accept a verbal order from a physician. We believe face-to-face will negatively impact patient access to care, and by extension, industry volume.

Relative to others in the industry, the strength of our technology infrastructure and the depth of our clinical and regulatory teams who have worked diligently since the regulations were announced last November, we believe we are in a better position to minimize the impact that these changes will have on our operations. However, the requirements have not been in place long enough to predict with accuracy what that impact will be.

Our vision is to be much more than a home health and hospice company. There is such a great need in this country for better care management of the growing elderly population. Amedisys will play an integral role in providing this care. As we work to realize this vision, we will focus on making smart investments in our infrastructure, and working with policymakers and other key stakeholders to deliver a better solution.

Politicians in Washington seem to have reached a consensus on the need for budget cuts. What gets cut is now an open debate, and healthcare is front and center. We're committed to participating in that dialogue on how it impacts the care for our elderly population. Our efforts will be centered on how the high-quality and cost-effective care provided by home health and hospice can benefit our nation.

Educating our policymakers on this point will be an important aspect of this effort. I will be leading this effort along with Tim Barfield, our Chief Development Officer, and Julie Lewis, our Vice President of Health Policy and Governmental Affairs. Julie has an extensive background in health policy, with the experience in Congress and at the Dartmouth Institute of Health Policy. We're extremely excited to embark upon a proactive, engaging dialogue with those who shape the nation's healthcare system about how to deliver a better model of care.

Amedisys will continue to lead the industry by leveraging our nationwide distribution model, and focusing market by market on our organic growth, and we will continue to invest in quality initiatives to achieve measurable improvements and outcomes such as hospitalization, enhance our IT infrastructure as a vehicle to improve quality care, including the ability to better share data between providers, and build our continuum of care capabilities. Initially, this means expanding our hospice capabilities across our service area footprint. Over time, we envision expanding beyond traditional home care and hospice to further develop our continuum of care capabilities, either in the form of direct investments or leveraging partnerships.

I would like to conclude my comments by welcoming the employees of Beacon Hospice. When this transition closes, you will be joining over 16,000 Amedisys employees dedicated to providing the highest quality of services to the patients entrusted to our care.

I'll now turn the call over to Mike Snow, our Chief Operations Officer.

Thanks, Bill. I'll start my comments by focusing on our divisional operating performance, first in home health. Comparing the first quarter of this year with the first quarter of last year on a same-store basis, we saw episodic admissions decline 2%, episodic recerts decline 10%, episodic revenue per episode decline 8%.

Our recert rate in the quarter was approximately 44%, measurably lower than our 47% rate in the first quarter of last year, but consistent sequentially since the second quarter of last year. The majority of the decline of revenue per episode is a function of the Medicare reimbursement cut of 5.2% that was implemented the first of this year. These components contributed to a same-store revenue decline of 14% quarter-over-quarter.

To rebuild our organic growth, we're undertaking a series of tactical and strategic initiatives that we believe will pay dividends over time. Some of these include market-specific operating, sales, and marketing plans to increase breadth of share at the care center level, appointment of new business development leadership focused on leading indicators such as minimum weekly sales calls and sales quota management, targeted strategic selling to hospitals, health systems, and managed care plans.

To augment this effort, we announced last week an important new position to oversee our managed care and strategic sales. Bob Yungk comes to the Company with tremendous hospital and health insurance experience, and we look forward to the energy and insight he will bring to the organization. For those of you attending our investor meeting this week in New York, you will have an opportunity to meet him.

In terms of sales infrastructure, we are investing in a new customer relationship management tool that is now in pilot and will move to full roll-out later this quarter. This sales force automation tool will allow us to implement a more disciplined approach to business development. It will allow us to more easily track leading sales indicators and better manage the productivity of our sales force. Ultimately, superior quality metrics will drive growth. We already exceed our competitors in almost all outcome measures. And as Bill's remarks indicate, we are clearly focused on furthering our relative outcome ranking.

Staying on growth, we opened 4 home health start-ups in the first quarter, bringing our total owned home health agencies to 489. We are now targeting an additional 3 to 5 over the course of the year. As we discussed last year, we are being very selective in our start-ups, focusing on strategic markets with strong demographics.

Turning to costs, we're pleased with our cost control efforts and the impact they have had on our margins in both cost of revenue and overhead. Our cost per visit in the first quarter of 2011 was $79.91 compared to $81.32 in the first quarter last year, a 2% reduction. On a sequential basis, adjusting for differences in holiday and inclement weather pay, the quarterly improvement was $1.05 per visit, or about 1%.

Adjusting for one-time costs associated with mergers and consolidations, field overhead declined $12 million compared to the first quarter of last year, and $9 million compared to the fourth quarter of 2010. Much of the improvement is a function of agency closures, but our adjusted overhead cost as a percent of revenue year-over-year and sequentially are essentially flat. A positive result in light of the 5% pricing cut we took.

Turning to Hospice division, we continue to see very strong performance. On a same-store basis, revenue grew 21% year-over-year. Average daily census grew 23%. Admissions growth was 17%. Average length of stay remained flat at 89 days. And revenue per day was flat.

We're particularly pleased with the continued healthy admissions growth in our Hospice division, which has generated double-digit same store growth in 4 of the last 5 quarters. This is reflective of the strong business development team with a particular focus on hospital-based referral sources. The business development efforts have been strong and in addition, the Hospice division has the momentum of being earlier in their business life cycle.

Regarding Hospice start-ups, we opened 2 new locations, ending the quarter with 69 hospice care centers. For the remainder of the year, we're expecting to open another 3 new locations.

In addition to growth, hospice margins have been improving, mainly in agency-level overhead. This highlights the leveraging impact of organic growth in our business. On a same-store basis, agency overhead was basically flat, while revenue grew $7 million, allowing for a $3 million in incremental contribution from these agencies compared with the first quarter of last year.

We have been very pleased with our hospice division's consistently strong performance. The confidence we have gained in our hospice division's leadership and operational talent has opened the door for us to consider more sizable acquisitions, which is why we're so excited about our Beacon Hospice transaction. This transaction will increase our hospice census by approximately 40%, putting our annual hospice revenue run rate at almost $240 million. It has excellent geographic fit with our home health operations, and nicely complements our hospice business.

In addition to the normal acquisition synergies from leveraging overhead and the growth synergies we expect to get from the overlap with our home health operations, we're excited about the reverse synergy potential in this deal. For instance, Beacon has a number of sophisticated hospice clinical specialty programs that we believe could benefit our existing hospice business. Additionally, we're very pleased with Beacon's operational capabilities, and believe we can adopt some of their processes and procedures to further improve our own efficiency.

Historically, Amedisys has been quick to operationally consolidate acquisitions. In this case, however, we'll take a more measured approach as we flush out the strengths of both organizations. While this will slow the accretive impact of this transaction, it will ultimately lead to better results throughout our hospice portfolio.

Let me now turn to the face-to-face and therapy assessment regulatory requirements. These new rules became effective January 1, but not subject to enforcement until April 1. As of January 1, we began rolling out enhancements to our operating system to handle the new rules. For face-to-face, this included new fields to track patient physician visit dates, and the receipt of appropriate documentation from physicians. For the therapy reassessment, this included processes to ensure the assessment is performed as required. The therapy rules require that a therapist perform a therapy reassessment on each patient that receives a 13th and/or 19th visit and/or every 90 days, attesting to the need of additional therapy visits if that is what is recommended.

Accomplishing this is operationally challenging, given that many of our patients receive multidisciplinary service. We believe our technology enhancements will help us more efficiently adjust our home health processes to meet the new regulations. Our competitors that operate in a more manual environment are likely to face greater operational challenges.

We also invested significant time and resources in training our clinicians, sales teams, back office staff, and our referral sources on these new requirements. For our referral sources, we developed a face-to-face information pack. Additionally, we sponsored an educational webinar with 2 industry experts, Dr. Mary Naylor, Professor in Gerontology at the University of Pennsylvania School of Nursing, and Dr. Steven Landers, Director of the Center for Home Care and Community Rehab at Cleveland Clinic.

The adoption of the face-to-face rules has been easier in hospice, as the requirements could be met with our own medical directors or nurse practitioners. Additionally, the face-to-face requirement only impacts patients who were on census for 180 days, and can be accomplished in a 30-day window leading up to that point.

In summary, the actions we initiated to control costs in the second half of 2010 and into the first quarter are paying dividends. However, we have other challenges in front of us with respect to admissions growth and new regulatory requirements. We are focused on both of these areas, and on driving the overall business to deliver the results in 2011 we outlined in our last earnings call.

At this time, I'll turn the call over to Dale Redman to discuss our financial results in more detail.

Thank you, Mike. As Bill and Mike mentioned in their comments, the first quarter was challenging, as we experienced a significant decline in revenue. However, we're pleased with our efforts that began in the second half of 2010 to improve our cost structure. Comparing our performance for the first quarter of 2011 and the first quarter of 2010, total revenue is $364 million compared to $413 million. Our net income for the first quarter was $15 million or $0.53 per share, compared to $37 million or $1.29 per share.

Included in the 3-month period ended March 31, 2011, approximately $4.4 million in costs incurred for the realignment of our operations, including agency closings, severance, and acquisition costs, as well as legal fees associated with the governmental investigations. The net effect of these items after tax is $2.7 million or $0.09 per share. After adjusting for these items in the first quarter, adjusted net income was $18 million or $0.62 per share. We've excluded these amounts in the rest of our discussion this morning.

Our revenue declined $49 million consisting of a $55 million decline in our home health offset by a $6 million increase in our hospice. The decline in home health was driven by the 5.2% CMS rate cut, declines in same-store admissions and recertifications, as well as agencies we closed or merged in 2010. Adjusted EBITDA for the first quarter of 2011 was $41 million or 11% of revenue, compared to $71 million or 17% of revenue in 2010.

Gross margin decreased from 51% to 48%, driven by declining revenue offset by a $1.41 improvement in our cost per visit. This metric improvement is due to our portfolio realignment, as well as a focus on productivity and the conversion of salaried commissions to our pay per visit model. Other operating expenses increased from 36% to 39% of revenue, primarily due to declining revenue, as these expenses decreased from $147 million to $141 million over the last year. Additionally, we saw a $5 million sequential improvement in these expenses from the fourth quarter of 2010.

We ended the first quarter of 2011 with days of revenue outstanding at 35 days, which is up 2 days from the first quarter of 2010 and up 2 days from year-end. Our provision for estimated revenue adjustments and doubtful accounts increased from 1.1% to 1.5% of revenue.

We reduced our outstanding debt by $31 million to $172 million as of the end of the quarter, compared to $203 million for the same period in 2010. Our leverage ratio at the end of the quarter was 0.9 times, compared to 0.7 times for the same period in 2010. And our weighted average interest rate on our debt was 4.2% for the quarter.

From a liquidity standpoint, we ended the quarter with $149 million in cash, and $233 million available under our revolving credit facility. Our cash at the end of the quarter increased $29 million from the end of 2010, as we generated $53 million in cash flow from operations, spent $17 million on capital expenditures, and made debt repayments of $10 million.

In summary, we were able to meet our internal EPS expectations as our progress and our cost control efforts offset lower than expected admission volumes. We're exiting the first quarter with a strong balance sheet, and have continued to add technology enhancements to our platform, which we believe will be the key in providing us the competitive advantage in the future.

This morning, we are reaffirming our revenue and earnings guidance for 2011. We anticipate that revenue for 2011 will be in the range of $1.6 billion to $1.65 billion. Earnings per share will be in the range of $3 to $3.30 per share based on an estimated 29.3 million shares outstanding.

This guidance includes the effects of the recently announced Beacon acquisition. However, it excludes the effects of any future acquisitions if they're made. In addition, this guidance does not include the effect of any share repurchases, any nonrecurring costs that may be incurred during the year, and the impact on any future revenue rate changes from Medicare.

Lastly, as Bill and Mike mentioned, the industry faces a number of operational challenges in 2011 associated with the CMS rule changes, including therapy reassessment and face-to-face requirements. While we believe we're well positioned to implement these changes, their ultimate effect is difficult to predict. Therefore, while we believe that Beacon will be incrementally positive this year, the uncertainty surrounding the effect of these regulatory changes leads us to reaffirming our previous guidance.

At this time, I'll open the call to your questions. Please limit yourself to one question and one follow-up so that we may allow question time for everyone. Operator, please open the lines.

Thank you, sir.

(Operator Instructions)

Our first question will come from Kevin Campbell with Avondale Partners.

Good morning. Thanks for taking my question. I wanted to follow up, Dale, on guidance, as it relates to the new regulations.

If you look at the Press Release, it specifically says that you're excluding the impact of the new requirements which is -- I don't think you specifically said in your last Press Release. So I wanted to maybe touch on that, why you're excluding that, what exactly it means that you're excluding that? Are you not assuming any volume pressures or documentation issues, et cetera? Maybe you could first touch on that?

Sure, that's fine. The issue there is that we, and I don't think anyone else in the industry, has a firm grip on what the impact of face-to-face in the therapy reassessment are going to be going forward. While we believe that, ultimately, the industry will become adjusted to the new requirements, the short term impact, meaning over potentially the rest of this year is extraordinarily difficult to predict.

So we have not included in our guidance any negative impact of that. But, by the same token, we have not increased our guidance for Beacon. As we mentioned in our Press Release, we believe Beacon will be incrementally accretive to the tune of $0.05 to $0.07. We have not increased our guidance because of that, but by the same token, we haven't taken anything out of our guidance for the potential negative impact of face-to-face or the therapy reassessment.

So, previously, were you assuming -- my understanding was this you were assuming some pressures from face-to-face in your prior guidance. So, is this -- are you just reiterating -- was my understanding incorrect of your prior guidance?

We're reiterating our prior guidance.

In terms of the disclaimers, or whatever, that you have at the end that says what you're including and excluding, previously, was there any assumption on face-to-face and therapy reassessment? Or did you previously assume no impact from those?

We didn't assume an impact of face-to-face, while we knew it was there. You also have to recognize we got some final guidance on the ability to take verbal orders from the doctor, like days before we were issuing our Press Release for the year end. It was difficult to predict what the impact of that is, and I think we're still in that posture.

So, rather than making a guess at what that issue is, we simply are putting the market on notice. We haven't included any negative impact of the regulatory changes in our guidance. And, therefore, as we move forward, we will update you on what our experience is with face-to-face and the therapy reassessment. But at this point, it is difficult for us to predict that.

Okay. As a follow-up, Mike, maybe you can touch on this. Have you seen -- I know we're only three weeks, three and a half weeks in, but have you seen any early impact on volumes, referrals, things like that from these requirements?

Not from volumes per se, but in how we administer the documentation has been difficult. Don't misunderstand me, Kevin. We've had physicians who are upset. They see -- we have to do a lot of selling on that it's not us doing this, this is the CMS requirement. So, we're having to do a lot of management of our referral sources in education of our referral sources.

But the actual grinding through, getting the documentation, is where the difficulty is. And making sure that we've got that on the charts, we're fully compliant. That's the greater challenge that we've got right now.

Great. Thank you very much.

Moving on to Darren Lehrich with Deutsche Bank.

Thanks. Good morning, everybody. I had a question with regard to the revenue per episode trend. Mike, I think you indicated down 8%. We calculate that, we can see that in your Press Release and obviously a little bit larger than the 5% rate cut that we all knew about. So, can you maybe flush out a little bit , what's going on with pricing and perhaps comment a little bit about mix and what's changed

Yes, sure thing, Darren. We've got -- Darren, during the first quarter, we had some acuity change from -- on a sequential basis and frankly year-over-year. Some of that is related to, as we did some restructure around what the portfolio looked like, but some of it was a drop in therapy episodes with 14 plus visits. So, those two things combined led to a lower acuity in the first quarter. It led to the gap in the pricing per episode.

Okay, so, maybe if you could characterize the current run rate of revenue per episode around the 14 plus visits that you saw the change in the first quarter. Is this a good level?

How we're thinking about it, Darren, is this -- we expect this to be constant going forward. I would remind you that the Balance for Life program that was instituted back in '08 and through '09, even into '10, is pretty much baked into the portfolio now. So, we really should not see from a programmatic standpoint , much expansion or acuity increase in our -- overall for pricing purposes. So, we're expecting that pricing number to be pretty constant for the

Okay. And then , if I could go back to your comments as a follow-up here. The addition of Bob Yungk and trying to understand exactly what it is you're driving at and the overall strategy with that hire and some of your activity there, and maybe some brief comments? I'm sure we'll get more into it in the investor

Sure. First, remember what Bill said in his closing remarks. We're wanting to be more than a home health and hospice company. That's our core business. We going to be in those businesses, we're going to be good at those businesses.

But we are -- we want to evolve into a Continuum of Care company. And when you think about what are the core competencies required to operate in that kind of environment, then you look at some of the talent we've brought into the organization over the last year, whether it is Julie Lewis, that Bill mentioned in his remarks, from Dartmouth, who actually helped with some of the ACL language, et cetera. And now Bob, whose experience with United Healthcare and Blue Cross of Georgia and (inaudible), a managed care organization, and strategic sales. It ought to signal to you that we're trying to gather the components necessary to evolve to that future state. So, these are just pieces of the puzzle that we're putting together as we try to point toward that bigger state in the future.

That's great. Thanks a lot.

You bet.

The next question comes from Brian Tanquilut with Jefferies.

Good morning. Let me ask a question on guidance. Last quarter, you talked about how earnings directionally would decline sequentially from Q4 to Q1. I was just wondering, Dale, if it provides some commentary on how we should think about Q2? So that us under the sell side do not miss anything in terms of direction.

Yes, thanks, Brian. I think what we mentioned in our call in February was that we felt that there would be significant sequential improvement from Q1, Q2, Q3, and Q4. We set our guidance fairly wide at that point with a $0.30 spread on a $3.00 base. And that was done on purpose because of the uncertainty around the face-to-face and therapy reassessment that we previously mentioned.

So, it should be implicit in our understanding and our commentary today that we are reaffirming our guidance, that our comments in February remain. That we anticipate a significant, sequential improvement beginning in the second quarter and going through the third and fourth quarter.

All right, thank you, Dale. That's very helpful.

Mike, just to piggyback on Darren's question about the recent hires. Going back a year and a half, they brought you over and you've got a lot of managed care experience. The new guys that you've brought over, like you said, have experience in all these other places. Should we expect Amedisys to increase basically the focus on managed care payers going forward? Is that part of the strategy? If that's the case, is there a target mix that you have set so far?

I wouldn't put it into my model yet if I were you. I think the gestation period on this kind of change is long. So, when will it be a material part of our business? Who knows.

I do believe it will be a part of our business. I think we're going to have to learn how to manage patients over a continuum, and learn to take risks for the performance and keeping the -- help them keep the patients out of the hospital. I think that's where we're going. So, this is -- again, we're just trying to add pieces of the puzzle. But when you could start to see it, put it into a model, I don't know. This is just -- our effort to start trying to diversify our revenue.

Just a follow-up of that, Mike. You've had the Humana national contract for awhile. Wanted to hear your thoughts on how receptive other managed care payers are to adopting more home health at this point? We all know several years ago, they were not as receptive to home care as maybe Humana is right now. I just wanted to hear if you can provide us some color in that.

It is still all over the map, Brian. I think you've got some payers who understand the value proposition. And -- like a Humana. You've got others that still see it as the commodity and goes to the lower common denominator on pricing in local markets.

And so -- but I think, as you see populations coming, whether it is -- no matter what you call it, whatever name you put on it, ACOs or bundled payments, or whatever. I think the drumbeat is out there for change. That we're going to be in a more risk environment going forward and that is the world that I think -- those payers, those early movers there, I think will have the fruits of this kind of relationship. We're keeping those patients out of the hospitals.

Got it. Thank you.

I'm moving on to Newton Juhng with FBR.

Thank you very much. I did want to ask a little bit about the Beacon acquisition and relative to -- one, obviously a move into New England. But it sounded like, in Bill's prepared comments, you were talking about expansion in other areas. Is there any particular geographic regions that you're particularly focused on at this point right now? And also, just with regard to the specialty program comment that he made, if you could give us a little bit more of an idea as to how many of those are in existence over at Beacon and kind of relative to what you guys got over on the home health side?

Okay, first from kind of strategic standpoint. I think we've said in the past that we're going to look for markets to expand hospice into markets where we have good home health presence. And it doesn't overlap existing hospice operations. And so, to the extent that we see synergy between the two business lines. And Beacon absolutely fit that bill. A nice overlay with our existing home health operations. And we were thin in -- I think we only had one overlap with this acquisition.

As for the specialty programs from Beacon, let's close the transaction then we'll talk about that. But we do see some pretty attractive potential. They've got six specialty programs and to be honest with you, in our due diligence we came away very impressed with what they've done and lessons we think we can apply to our portfolio.

Got you. Do you have where the ADC was that Beacon is currently serving at this point?

1,300.

1,300. Thanks for the refresh on that. Okay. And then, beyond that, I was just wondering , I may have missed this comment but -- where you stand o the share repurchase at this point right now, and if there's been any change in direction on

The share repurchase program, as you'll recall, was put in place last September and it is at a $60 million maximum target on it. We bought about $12 million in terms of dollars and about 500,000 shares. We have not repurchased any shares since the third quarter. That remains in place and it remains one of the things that we can use in our quiver of financial operations. So, we will continue to evaluate that issue as we go forward. As you can see from the Beacon acquisition, we are focused on growing our business. So, it is a part of our consciousness and our thought process but we haven't bought anything since the third quarter.

Great. Thanks for the comment, Dale.

Moving on to Ralph Giacobbe with Credit Suisse.

Thanks, good morning. Can you maybe just to clarify -- I know face-to-face started in January, but it wasn't officially implemented until April. Just to be clear, did you start this January 1 as full implementation, or not?

Yes, Ralph, we did. We rolled this thing out and said we've got to get good at this. We have to understand where the holes are in the processes, the challenges we'll have going forward when it is going to be implemented. So we went full boar.

As we got into it, and got the push back from referral sources, et cetera, we didn't go all the way to the wall to say we absolutely have to have the documentation in order to do the billing. But we pushed pretty hard so that we could try to condition referral sources on what it was going to be like going forward. And frankly, we -- we had issues there, off and on.

I think the main thing -- we geared our system around -- we've got Mercury Doc, which is a great physician portal. It makes it easier for physicians to do their paperwork with us. So, we've built our systems always believing we would be able to accept a verbal order from the doc and be able to do the documentation on his behalf and have him then execute the orders. When the transmittal came out in February that we couldn't do that, it really threw us for a loop. So we had, right in the middle of trying to condition our referral sources, we had to change gears on them a little bit. So, that was a little bit of a blip for us, to be honest with you. But we did implement as if it were in effect on January 1.

Then just as a follow-up to that, sort of the same question. Will you take on patients that haven't had the face-to-face up front?

Yes, absolutely. We're doing that.

And so do you -- would you expect bad debt? Should we assume that to start to pick up a little bit? Is that not the way you're thinking about it?

There's that risk. Certainly, there's that operational risk. But our belief is that we can get those patients to see their physician within the 30 days allowed. So, that's the position we're taking in -- we think that is in the better interest of the patients.

Okay. Then just my follow-up. I'm struggling a little bit in terms of the discussion around the significant sequential improvement in the earnings ramp after this first quarter when we're still staring out at the uncertainty around the volume side. So, help us reconcile how we see that significant sequential improvement when we saw what we saw in the first quarter without even the face-to-face taking full hold.

I think what we talked about in February is not materially different than what we're saying today. And that is, we talked about the first quarter being the weakest of the quarters in 2010 and that we anticipate we will have sequential, significant improvements. I don't know that I can go too much further down that road because we're not -- we don't think it is appropriate and we have not given quarterly guidance in the past. And we don't think that's appropriate even today, if for no other reason because of some of the uncertainties.

But I can't help you more than to say, look, we think things will get substantially better. If you look at the fact that we have reaffirmed our guidance at $3.00 to $3.30, $0.62 doesn't get you there on multiplying by four. So, we believe there's going to be a significant improvement as we go forward. Or we would not have reaffirmed our guidance where we did.

That's fair. Maybe what would help us, what do you assume is your underlying assumption for top line growth? Maybe before any cuts?

Well, there are two -- obviously, it is either volume or cost, right? So, we're exiting March on a cost structure that's lower than the quarter average. So we've got some things baked in there. We think we'll see some additional savings in costs. But we also assumed we would ramp up volumes. So those were the assumptions that we made.

Based on that, that's not any different than where we were in February. We assumed sequential improvements in revenue and we assumed that the cost structure was going to be positive. And, in fact, it has turned out to be a positive trend based on the first quarter.

Okay. Thanks.

Moving on to John ransom with Raymond James.

Good morning. Wanted to just revisit the purchase price you paid for Beacon. We calculated it 1.6 times revenue, which looked like a pretty healthy multiple. Can you work through with how you arrived at the price and what kind of return was used? Thanks .

The purchase price on Beacon.

Well, when we analyzed transactions, we analyzed transactions based on what they're worth to us. We go through an intensive analysis of -- certainly we look at the market, we look at all the market forces that determine purchase price. But, as Mike and Bill have mentioned, we have -- we have a number of unique factors about this transaction. We see Beacon as premiere provider in New England. There's a little overlap with our hospice business. There is significant overlap with our home health business. We have a lot of what we consider intellectual property here. We have the disease specific programs that Mike mentioned earlier.

And we also have the reverse synergies, not only the intellectual property but they have a number of best practices, attractive practices on how they operate their business. It brings innovation., it brings efficiency and it brings a high quality of service, high quality of clinical delivery. All of these things really roll into the package to give it a very substantial valuation for us. And last but not least, they have an impressive track record of growth. And that's something that we haven't seen in some of the hospice acquisitions we -- targets we have been looking at lately. They haven't had the growth history we've seen with Beacon.

Just to underscore this for a minute, even if it were to achieve a 20% EBITDA margin -- you're paying eight times EBITDA, whereas you're currently trading at five times EBITDA? And you haven't used your share authorization. So, at least on paper, it is a heck of a lot more accretive to buy your stock back.

I just wondered how you -- when you compared one versus the other, what made you stretch? Because this is the highest multiple we've seen paid for a hospice business on a multiple revenue basis, especially considering you hadn't used your share buyback, I was just curious.

That's a discussion we've had. A tremendous amount internally, certainly right up to the Board level of what is the best use of capital.

We've looked at short term factors and we looked at long-term factors, and certainly on this acquisition, it was the long-term factors that predominated in the Board's decision to go forward with this. And looking towards, how do we grow the Company and fill out the Continuum of Care and fill out higher markets the way that we believe we should from long-term perspective.

Okay. Thanks.

Moving on to Eugene Goldenberg with BB&T Capital Markets.

Thanks. This is James Chinkblom filling in for Eugene. You mentioned that volumes were below expectations in January and February. And I assume the same held in March. Can you tell us what you're seeing so far in April?

No . We'll talk about April when it is time to talk about

That's fine. Can you give us a little background on the Beacon deal, how long its that been in the works and who approached who?

Yes. I think this deal certainly Beacon has been on our potential target list for years. I think this deal probably got kicked off in March of 2010 when we met with the principals of Beacon for the first time. We had a number of meetings over the course of the last year-plus that really got the momentum started.

Some of that was waiting for the right time from their standpoint where they thought the business was, and some of it was better understanding of their business and the markets and, again, the valuation that they brought to our Company longer term. So, it has been a long process. A long relationship and I think it has been done the right way.

As Mike talked about, we've been very, very concerned about how we integrate this business into our business. We see a lot of reverse synergies here. So, a lot of that discussion, and a lot of the planning going into this transaction is, how do we preserve the value and the momentum for growth and bring the best practices that they have to our business and likewise, the best practices we have to their business?

Okay, thanks. And maybe -- sorry, one quick follow-up. Would you be able to give us any initial projections for cost or any revenue synergies associated with this?

Maybe upon closing, but I think it would be premature right now to define those.

Yes, I think that's right. We haven't put out anything related to that.

Okay, that's fine. Thank you so much.

We have time for one more question and that will come from Bill Dezellem with Tieton Capital Management.

Thank you. A couple of weeks ago, you put out a release that referenced a program with the Department of Health and Human Services. Would you please discuss how that program that that department is putting in place interrelates, or is not at all related, to some of the things that Amedisys has been doing over the last several quarters in this whole Care Transitions arena? Are they dove tailing off some of the things you developed, or is this entirely separate?

Well, I think it is fair to say that Care Transitions has been a hot topic across a lot of sectors of healthcare, particularly the hospitals. We participated in a QIO, a Quality Improvement Organization Initiative, in Georgia, dating back to last year that really looked at Care Transitions. We had been working on our own Care Transitions model at the same time and we saw the results from that and the impact it was having. And we were the first home health company to roll out the Care Transitions program throughout our whole organization. And certainly, if you look at the clinical deployment and how that's been done, I don't think anybody is as far out as we are in the post-acute space.

If you look at it from a standpoint of what it brings in terms of the better communication and coordination with the doctors, the medication management, the coaching and education of the patients. These are all the aspects that CMS was pointing to and some of their initiatives.

So, we're excited to see that -- that they're going forward with the program. And whether we were a part of the impetus for the larger initiative, it is hard to say. We would like to think so. But I think it just shows that we really have been anticipating where healthcare is going and we'll continue to do that and we'll continue to bring the best practices to our business platform.

As a follow-up, the program that they are rolling out, is that a scaled down version of what you have been doing? Or is it a bulked-up version? And then, what do you anticipate the financial impact to be?

I don't think we're in a position to anticipate or predict what the financial impact would be. I think it is fair to say, it is a much more comprehensive roll-out. They're focused on more industry sectors, hospital and health system focus is a big part of it from their standpoint. So, we see that as more comprehensive, it reaches across many other sectors. And everybody is out there focusing on reducing hospitalizations. And this is one of the big initiatives that many of the providers out there should be focused on and we're focused on to reduce hospitalizations.

Thank you.

At this time, I would like to turn the conference back over to Mr. Borne for closing remarks.

Thank you. We appreciate everybody's time and attention in calling in this morning. Just to restate a couple of issues that came up during the call. Absolutely, the primary focus of the Company for the remainder of this year is to focus on internal growth and in capturing more market share in each and every market we're in. We're excited about that. We have on-going conversations with numerous hospitals across the nation. Our intention is to be the preferred provider in many of these hospitals. Although some of the legislative activity from the regulatory front is moving slowly, we see an increased pace across all providers that are out there, especially large systems, not-for-profit health systems as well. We see a lot of activity and large physician groups such as IPAs, and we're having more of a dialogue with managed care companies than we've ever had.

As a reminder, their reimbursement for Medicare patients, they've been assuming higher risk patients over the years, that they've gotten paid for, is fixed. And, actually, it's coming down and they don't have a model to care for these more complex patients. We all think that managing these patients for less cost and less risk is driving the care in the home. And the mission of Amedisys is to become the post-acute care partner of these facilities and health systems and also work on new ways with managed care to allow them to allow us to accept more of the risk of managing these high-cost patients.

So, we're excited about that and there is a lot of activity. There's a lot of activity going on in CMS's innovation center and we see a lot of activity with the medical homes right now in multiple states, in both the Medicare and Medicaid aspects of that. So, the focus is getting our sales team out there, establishing new relationships, growing the organic business both in home care and in dove tailing that with hospice. Having the two divisions work well together as we evolve into a more complex model of care, which is a continuum we spoke about earlier.

We'll look forward to communicating on our second quarter earnings call. We appreciate, again, everybody's time and attention today. Everybody, have a great day. Thanks.

This does conclude our conference call today. We would like to thank you for your participation.