Chemed Corp (CHE) 2005 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Chemed Corporation conference call for the first quarter of 2005 ended March 31, 2005.

My name is Liz, and I will be your conference facilitator for today.

[OPERATOR INSTRUCTIONS]

Let me remind you that the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 apply to this conference call. During the course of this call, the Company will make various remarks concerning management's expectations, predictions, plans, and prospects that constitute forward-looking statements. Actual results may differ materially from those projected by these forward-looking statements as a result of a variety of factors including those identified in the Company's news release of May 3 and in various other filings with the SEC.

You are cautioned that any forward-looking statements reflect management's current view only and that the Company undertakes no obligation to revise or update such statements in the future. In addition, management may also discuss non-GAAP operating performance results during today's call including earnings before interest, taxes, depreciation, and amortization or EBITDA or adjusted EBITDA. A reconciliation of these non-GAAP results provided in the Company's press release dated May 3, which is available on the Company's web site.

With that, I would now like to introduce our speakers for today, Kevin McNamara, President and Chief Executive Officer of Chemed Corporation, Dave Williams, Vice President and Chief Financial Office of Chemed, and Tim O'Toole, Chief Executive Officer of Chemed's VITAS Healthcare Corporation subsidiary. I will now turn the call over to Mr. McNamara.

Thank you.

Good morning everyone. Welcome to Chemed Corporation's First Quarter 2005 Conference Call. I will begin with an overview of the first quarter and certain strategic developments. Dave Williams, Chemed's CFO, will provide financial color and metrics. And Tim O'Toole, VITAS' Chief Executive Officer, will follow with specifics on our hospice operations. I will then open the conference up for questions.

As most of you are aware, VITAS received subpoenas in the mail earlier this month from the Office of Inspector General for the Department of Health and Human Services relating to VITAS' alleged failure to appropriately bill Medicare and Medicaid for hospice services.

As part of this civil investigation, the OIG has selected medical records for 320 past and current patients from VITAS' 3 largest programs for review. We are fully cooperating with the OIG and are still in the process of gathering the information requested in the form and context that will help facilitate the OIG to examine this information in a timely manner.

While the OIG has not disclosed the origin or reason for the investigation, it appears that the focus is on patients with length of stays beyond 180 days as well as VITAS' processes in regard to admissions and discharges. Medicare requires that a patient must be medically certified as terminal, meaning less than 6 months to live at the time of admission if the illness were to run its normal course to qualify for the hospice benefits.

Patients are re-certified after 90 days and again after 180 days from initial admission. After 180 days, re-certification occurs every 60 days. Statistically, a certain percentage of terminally ill patients will live beyond 180 days per the National Hospice and Palliative Care Organization. In 2003 the mean percentage of patients discharged industry wide who were on hospice beyond 180 days was 6.3%. The 75th percentile was 8.8%. And probably most significantly programs that had an ADC in excess of 400 had 9% of their discharges surviving beyond 180 days.

Of VITAS' over 42,000 discharges in 2003, 8% had length of stays in excess of 180 days. In 2004, 8.9% of our discharged patients had length of stays in excess of 180 days. For VITAS' 3 largest programs, 8.6% of the 2003 discharges had stays of more than 180 days. These 3 programs had 10.1% of their 2004 patient discharges in hospice for more than 180 days. Regardless of how comparable our overall statistics are to the industry, a critical factor of VITAS will reside on having appropriately documented patient records that are adequate to support the terminal diagnosis. Hospice care provided in subsequent Medicare or Medicaid buildings.

We believe the VITAS hospice approach has been built on a platform of internal systems and controls that provides for adequate monitoring and documentation. At this point, our goal is to quickly provide the OIG with organized records, documentation, and any other information that they may require. We believe this will facilitate the OIG's review and allow them to perform the investigation in an efficient.

I also want to reiterate our understanding of the critical role in the OIG and CMS and these types of investigations, the role they play. Reviews, audits, and similar examinations of detailed records are critical tools in ensuring all for profit and not-for-profit providers follow the Medicare and Medicaid rules and procedures.

This establishes a level playing field for all providers and creates an environment that allows patients to receive appropriate access and quality outcome. Now I'd like to turn this call over to Dave Williams for comments on the first quarter of 2005.

Thanks, Kevin.

On a consolidated basis, our revenue increased to $219 million. Our Pro Forma adjusted EBITDA was $26.9 million and our diluted earnings per share after adjusting for specific items such as our debt restructuring, favorable changes to our insurance accrual, and other items detailed in yesterday's press release were $0.79.

The Q1 2005 Roto-Rooter segment sales of $73 million was an increase of 4.9% over the prior year quarter. Adjusted EBITDA was $11.8 million up 12.4% from the prior year, which resulted in an EBITDA margin in the first quarter of 2005 of 16.2%.

For Roto-Rooter, commercial demand continues to show strength with job count increasing 4.1% in the quarter. This growth was offset by a 3.2% decline in residential job count. This netted to an overall 1% decline in aggregate job count for the quarter.

However, commercial jobs averaged approximately 34% more revenue per ticket than a residential job. This mix shift combined with modest price increases, contributed to the 4.9% aggregate increase in revenue for the quarter.

On the hospice end, VITAS continues to expand its market penetration. Average daily census increased 17.6% to 9,523. Revenue for the quarter totaled $146 million and our adjusted EBITDA was $17.6 million resulting in an adjusted EBITDA margin of 12.1%.

Central support expenses continued to reflect a favorable decline as a percentage of revenue. These costs classified as selling, general, and administrative expenses in a statement of operations, were reduced to 9% of revenue in the first quarter of 2005 and compared to 9.1% in the forth quarter of 2004 and 10.7% in the first quarter of 2004.

As of March 31, 2005, we had $8.6 million in cash and cash equivalents. This balances net of the approximately $55 million used to redeem the floating notes. In addition, the first quarter of 2005 ended on a Thursday, one day prior to receiving our scheduled Medicare billing payment. This payment, received on April 1, 2005 totaled $19.6 million.

Net cash provided from continuing operations was $5 million and capital expenditures totaled $6.2 million in the first quarter of 2005. Looking ahead into 2005, we anticipate VITAS to increase revenue in the range of 16 to 18%. Gross profit margins, which are primarily our direct and indirect cost of care, will remain relatively constant.

VITAS' EBITDA margins are anticipated to increase modestly from the 2004 level. The EBITDA margin expansion will be generated from leverage in our central support costs and will not be generated from increased margins in the field. Roto-Rooter is estimated to have generated a 5 to 7% increase in revenue with margins at approximately those generated in 2004.

Our consolidated effective tax rate was unusually high in the first quarter of 2005 due to the earnings mix and state and local tax impact of the unusual items noted earlier. The 2005 consolidated full year income tax rate is estimated to be 39.5 to 40%.

Based upon these factors and our current diluted share count of 13 million, our expectation is that earnings per diluted share for 2005, excluding the early extinguishments of debt and other items noted in yesterday's press release, will be in the range of $3.40 to $3.50 per share. With that, I'd like to turn this call over to Tim O'Toole, our Chief Executive Officer of VITAS.

Thank you, David.

During the quarter, we acquired an 85-census program in Pittsburgh. This now brings our total programs to 36. Of these 9 are classified as new starts with 6 being state licensed and 5 Medicare certified.

We classify a program as a start-up from initial formation through the first 12 months of Medicare billings.

At that point, it is transferred into our established program classification.

During the first quarter of 2005, our 9 start-ups had an ADC of 197 patients with revenues of $2.6 million and operating losses of $1.2 million. In the prior year quarter, these 9 start-ups had an ADC of 15 with revenues of $56,000 and operating losses of $911,000.

These same start-ups in the fourth quarter of 2004 had ADC of 136 and losses of around $1.5 million.

Without the impact of new start losses, adjusted EBITDA margins in the first quarter of 2005 increased to approximately 12.9% of net revenues.

As David mentioned earlier, we do not anticipate any significant changes in VITAS' gross profit margins. Total costs of services provided for VITAS in the statement of operations represents total program or field based costs. Of the $115 million in field-based expenses incurred by VITAS in the first quarter of 2005, approximately 75% of these costs are for direct patient care.

The major components of these costs are direct labor, which accounts for over 70% of our cost of sales. This labor consists of nurses, doctors, home health aides, chaplains, and other example, social workers. The remaining 5% is for such items as drugs, home medical equipment, and supplies. One key area we track is the number of visits per patient per week. This is currently tracking at 5.5 visits per patient per week. This compares to the latest data from the NHPCO that calculates the industry average at 4.9 visits per patient per week.

Licensed nurses at VITAS average approximately 2.4 visits per week compared to the NHPCO industry data of 2.0 visits per week. At the end of the first quarter, VITAS had 182 field-based personnel calling on referral sources and educating them on the benefits of hospice. This compares to 160 in the fourth quarter of 2004. We are also increasing our penetration into the assisted living facilities area. In the first quarter of 2005, 9.3% of our admissions were in the assisted living facilities. This compares favorably to 6.3% in the first quarter of 2004.

We believe this is significant. By providing hospice care to the assisted living facilities, the patient has an opportunity to remain in their home and avoids transfer to an expensive nursing facility or hospital setting. We intend to increase our focus on the assisted living market in the year 2005.

With that, I'd like to turn this back over to Kevin McNamara.

And at this point we would entertain questions that may be in the queue.

[OPERATOR INSTRUCTIONS]

And your first question comes from the line of Jim Barrett, CL King and Associates. Please go ahead, sir.

Good morning, everyone.

Good morning.

Tim, question for you. Can you generalize about what has been the response of referral sources to the OIG investigation?

Well certainly. Well, we really, to be, you never know what's in the head or what's going on out there totally, but I've not had a lot of - we've not seen impact to our referral sources in any negative way.

I think clearly we had a broad communication effort within our Company to explain what was going on. And to reinforce to every employee and all of our management in the Company to use this as an opportunity to have a positive discussion with the referral source to educate them that the OIG investigation, what we're able to talk about publicly. Explain that to them and explain while that does not change the opportunity for hospice and them.

So we have not seen any negative impact there. As we've mentioned to you in our press release, we talked to you about our census in the month of March. And that's doing very well and we're continuing to do very well into the second quarter of the year.

Good.

And when I look at the operating margins at VITAS, your guidance for them to only improve modestly for the year overall. Considering how much improvement you had in Q1, why wouldn't you expect to see more than a modest improvement in the remaining 3 quarters?

Well first of all when you look at the year-over-year keep in mind that we had a very big growth last year and we had a very strong improvement in the field structure of the expenses, profitability so forth.

And so we took a lot out of the Company in the first quarter of last year. We've had very high growth. We kept our corporate area growing at low rates. Our targets are to grow our corporate area at about half of the grade of the field growth.

And so if we just look at where we're at right now and moving forward on that basis of a revenue growth of 16 to 18% and keeping our corporate expenditure area growing at about half of that rate. That would likely produce about a half a percent margin improvement just based on that.

And so that's what we're expecting. Our goal certainly we could do better. But that's what we're looking to do. And we will.

And finally, is that a margin that you think is sustainable or still capable of further improvement when we look into beyond this year?

Well I think it's sustainable on that same basis.

I tell you what we tell people. This is Kevin McNamara.

Because of the - we look for continuing level, we're looking to continue to leverage the growth off the central support costs growing at a slower rate than sales. I mean we expect to see over the next several years modest improvement but in the half percentage point range over the next several years.

That leverage is still there. If we continue to keep central support costs growing at a lower rate than sales we will get those same pressures to the extent that we keep getting cost of living adjustments and that should be the result.

Okay. Well thank you both.

And you next question comes from the line of Mr. Eric Gommel of Legg Mason. Please go ahead, sir.

Good morning. Dave, I was wondering if you could give me some color on where you see some of the below EBITDA items going in '05 specifically depreciation, amortization, other income, and interest expense?

Yes, a couple of things. One, depreciation and amortization hanging in the low $20 million range, 22, $23 million. I think that will be, remain constant. One interesting fact that we do have relative to fluctuations in our other items, we have some non-qualified retirement programs where employees can contribute a portion of their payroll dollars in a deferred comp. And in our accounting rules, we have to do mark to market on those. So to the extent that there's a gain in those investments and mutual fund and other things and that rises, say 800,000 in the quarter, there's actually an offset in our G&A expenses go up 800,000 in the quarter. The net impact on a pre-tax profitability is zero, but there's fluctuations.

On a go-forward basis we're going to continually, we're going to footnote those so you can reclassify and see where the G&A truly nets out on a consistent basis, but for the first quarter that number totaled approximately 996,000 last year and it was only approximately 100,000 this year. It was also a big impact in a prior year fourth quarter.

And then on the interest expense line?

Again, 150 million of our notes are 8 3/4 that sticks, but we do have about 85 million that float that Lybor (ph) plus about 2 1/2, 2 to 2 1/2 depending also on our worker's comp LCs, so the real wild card on that one is where Lybor(ph) is going to go.

Great.

So it's almost, you guys are going to have to forecast where you think short-term rates are going to be.

Very good. On the acquisition environment, since you're the ones making acquisitions. How do you see that going right now? Do you see more or less opportunities? How are valuations trending?

We're not seeing any big changes there. The acquisition opportunity remains very attractive for us. We're in numerous discussions with those small, medium and some pretty good sized players and there's been no big change in that so we still see that the valuations are not cheap, they're businesses that are doing well so that people can sell them at good prices, there is competition for the acquisitions. We remain pretty steadfast in our view of it. We look for good opportunities, good companies continue to grow be platforms for future growth in the area and we always have the opportunity to look at a new start which is a very good program as well in any area where we don't find a good acquisition. So we don't see any big changes there, we clearly, that's part of our growth strategy and we think we'll do well in that area in the future.

And Eric, this is Kevin McNamara; I'll quickly add that we haven't changed our priorities. As Tim eluded to, new starts are our number one priority, there's no reason given our success rate with new starts, there's no reason to think that we, in all the attractive areas, we aren't going to have a new start if an acquisition comes along at the right price with the right characteristics. That will get done but you should view our growth strategy as still primest on new starts.

Great thanks.

And your next question comes from the line of Matt Riperser (ph) from Smith Barney. Please go ahead.

Hi, thanks very much. Just a couple questions here. When I look at your ADC growth in the 9 new starts, it looks like you added about 6 ADC per program from the 4th quarter to the 1st. I wanted to see if you could just verify that, and then secondly give some color as to whether that's in line with your expectations for these denovos (ph).

Well, I'm going to turn this over to Tim, but just let me say very generally, our new starts and medium sized programs are doing very well and we're very happy generally. But Tim, why don't you see if you can respond with a little more specificity.

Well, I don't know whether the average is 6 and certainly if its an average it would fall out that way in the 9 programs. There'd be some that were doing much more than 6 and some that have made no progress because they're not licensed and certified yet but let me just say that we're very very pleased with the new starts, we've had great success in these 9, we've got a couple others that are ready to open, open very soon. We've identified several new markets in the country where we intend to be, whether you look out 3 or 4 months from now as some of these mature. Several of the new starts that are in these figures are becoming profitable as they move into their 9 and 10 month and 12 month programs, so we've got a couple that are doing very well, they're going to be great candidates to add to profits and to base business as they move over.

But as far as the expectations from the 4th quarter to the 1st quarter, we're pretty much on track. We've been able to keep in line with our estimate of spending patterns, in fact it's a little under the guidance we've given you of about a million and a half a quarter. We think that guidance is still good for the future.

As far as the growth, we're seeing very good growth in the Northeast where we've opened up some new offices in Connecticut and Delaware for example, that we're very excited about that opportunity. Our New Jersey offices are building strength; we have 3 offices in New Jersey now with a census over 100 in the state there. We're doing very well, that's a great market for us in the future.

The northern California market continues to be a big opportunity for growth and so those are really the areas we're focused on right now and they've definitely met our expectations. They're going to be great programs and as you know, what we try to do is build, we take a little longer in the pipeline of development than some other companies but we try to build very deep programs that have very deep market share. We build our staff early, we do a lot of pre-marketing, s o as you know our average programs are larger than most and that's going to be our goals in these new starts and we think there's just great opportunity there.

We're building our staff of people; we have a great staff now. We're always adding to it as we're growing in the number of new starts and I just feel really good about it and yes its definitely meeting our goals.

Can you give a sense of how many new denogos you expect to start in fiscal '05 and '06 and then I can come back with another one?

Well, now that's fine. I mean basically to the extend that be basically have 9 going right now and a couple more that will be opening and be in the new start program soon. I think right now we're kind of running between 10 or a dozen at any one time. And that's up from the number that we were able to manage a year ago and I think that if you look forward another year we'll be modestly improving that number to a higher number of new starts, just as we roll this thing out, but there's no magic answer.

We basically look at it as the number that we want, looking at the opportunities that we see out there, consider the timing that's necessary to go into these markets and so there's no magic number and we also are trying to pace the losses within that range that we've given everyone. So we kind of make decisions about the growth based on our success. And so to the extent we're doing very we'll, we'll probably be able to do more of then than less of them. So the answer is the future will bring more.

Okay. And a follow up question. In your mature areas, you've done a great job of having a, sort of a full range of hospice services across in-patient continuous and routine. Can you just qualitatively give some color as to when you do theses donovos(ph) how do you go at building out that cross section of service offerings so that you make sure that you've got the acuity in the in patient area to help keep your length of stay in line?

Well, that's fine. I mean first of all we have different marketing plans based on the market we are in. so each region, each city would have a different opportunity that we analyze. One area might have a better opportunity in the nursing home area or the assisted living area or the physician market or hospital so we will build a marketing plan around that but the main thing that we do in our new starts is we try to build a very strong presence in the community with our home care program and the one thing that we do that's a little unique and different is that we are very quick to add continuous care. We want to be in the market place providing that service and even with a small program we are immediately adding continuous care.

As we continue to make progress in our census build, then we're looking to add new marketing people to basically penetrate more referrals and more opportunities. We build our caregivers and then once we get to probably a 50 to 75 level would be looking for an in-patient facility. And the in-patient facility does not have to be hospital based, we're having good success now having in-patient units in nursing facilities for example. Which can be a good bridge to a stronger in-patient unit and small program. So again, strong home care program supplemented by good continuous care program penetrating the markets with all referral sources, building your marketing staff, making your presence known in the community, having great care givers and then when the time is right, find the right relationship for an in-patient unit is our strategy.

Okay, great. And one question for Dave. It looks like you added about 22 field personnel in the hospice business sequentially from 160 to 182 but yet your SG&A costs in the hospice business were down by about 800,000 sequentially. I just wanted to see if you could give some color as to how you were able to achieve that given that you're ramping up your sales and personnel area?

Well a couple of things, that's important to note is, all of our field based costs, all field based personnel, including the personnel that call in referral sources, they're all in cost of sales. That was the discussion Tim had earlier when you look at cost of sales. 75% of those costs are direct care costs; the other 25% is indirect. General managers, personnel calling on, referral sources, admissions folks so that's all in our gross profit margin Matt.

Okay. And then one more question for Tim, if I could. Given that you've lived through and OIG inquiry in the late 90's. I wanted to see if you could maybe give some context in terms of how this one may compare to that one, and what we can learn from the precedent for your guys specifically?

Yes, No, I don't think that's healthy, or can't get into the details Matt as we've talked about. If we get into the details of the comparison we have to get into the details that we just cant talk about publicly right now, so...

Matt, we still want to, we don't have any further information. We don't want to antagonize the OIG by presupposing what their interested in or what their hot buttons are but again we're in the formulating the responses to their requests, as we said it relates to long-stay patients. We're going to, the issue really comes down to is every single file there, the I's dotted and t's crossed, and that's what we're trying to explain and demonstrate that we have pretty good confidence in our processes and our systems. And the long-term benefit is going to be to the extent that all hospices are held to a high scale on these issues. The company with - that has invested in systems and controls is going to have an easier time with it.

I don't want to go too much beyond that, there's no, I mean it hasn't, there have been no developments. It hasn't raged out of control. They haven't, they're not purring like pussycats, neither. We're just, we've gotten the information, we're in the information gathering stage.

Great, thanks very much.

[Operator instructions]

And your next question comes from the line of Belal Besray(ph) of Sanford Group. Please go ahead sir.

Yes, hi. You mentioned that you had one hospice program that you hadn't wanted to say that exceeded 100. Are you able to provide any color on which hospice place that was and in particular are you implementing any new strategies different from your other hospice sites in order to combat that average length of stay or are you comfortable with where its at currently?

No, I mean - - One we're not going to release the names because the last thing I want is 30 shareholders or analysts calling program managers. But that program we mentioned, the one that exceeded 100, still had a 12.5% cap cushion, that was forecast, that was current as well as forecasted by the end of '05 so we're very comfortable in that.

Again, just to add, we clearly do have strategies to address the situation when we see a program like that. And obviously that strategy would be multi-faceted but you would focus on just ramping up your admissions and attracting the type of referral sources that would lead to that. So a lot of times what happens in a new developing program you're having more of your patients in the nursing home and assisted living market and over time you build the deeper relationships with the physician hospital markets. But to answer your question we have strategies and we're very comfortable that we can make a movement in these programs, or we see this and we monitor it very early in the game, and we can make movement to get where we need to be. We're very confident those issues can be managed.

But I would say this, of the programs that currently billing Medicare, we look at cap, cushion, for every program we calculate it on a monthly basis and again, actually the vast majority of our programs - - actually I think only 2 have less than 10% cap cushion projected for '05, and that number actually changes as Tim mentioned. We open in-patient units, or we take on the shorter length of stay and it has a significant impact.

Okay. And for the hospice industry as a whole, would you expect going forward increased government scrutiny on the industry? Do you think it might be perhaps even more directed toward the for-profits versus the not-for-profits? What are your kinds of expectations, not company specific, but industry-wide going forward?

We don't think there's any reason that there should be higher scrutiny. The industry has been under great scrutiny for many years and we have many good stories, we have bi-partisan support and we don't see scrutiny. I mean to the extent that we're a $7 billion player now it's natural that we're being reviewed. The only information that's been put out there in the public as far as what's being looked at, says that the hospice scheme is working is and that there are certainly areas that need to be reviewed, for example, should there be higher reimbursement for patients that have a higher drug cost?

Should there be a higher reimbursement when you have very short stay patients? Should there be a high reimbursement in the early days of admission? So we think all those things are being looked at. We do not see higher scrutiny. We think everything we're seeing is fairly normal for a government reimburse program that has as much of our revenues, as much of the industries revenues come from the government, its natural that they're looking at things constantly.

And I would just say that, just one thing, the one way we look at it is, its hard to be a bad actor in a field like this were its so dependant on referrals and a variety of referral sources. And, that's a very difficult way to build your business by scrimping or gaining assistance some way; you just can't do it beyond a certain level.

Okay. Great thank you.

And your next question comes from the line of Leslie Linso(ph) from SG Cowan. Please go ahead.

I guess first just a couple of housekeeping items on the VITAS side. I'm looking for the median length of stay and the revenue per day. And then secondly, given the strong ADC that you saw during the quarter, we might have expected a little higher revenue on the VITAS side, and wanted to see if there was anything that might have kept the revenue down a little during the quarter there.

The median length of stay was 11 days, and as you know, its been going between 11 and 12 days. No significant change. Average revenue per day worked out to be $170.34, that was up from $164.93, in the- I'm sorry $168.27 for the first quarter of '04. And the primary reason your seeing that change is it's just a fluctuation in the mix of our revenue, and it's primarily in the home care study. 69.1% of our total revenue in the first quarter of '05 came from home care, at an average of $129.88 per patient per day. If you go to last year our first quarter of '04 66.9%, so really a loss of 220 basis points. In that shift between rooching home care and taking continuos care of a patient, pretty big impact on our revenue. We average about $548 per day for continuos care, again versus that $129.88 for routine home care, I think that accounts for most of what you say as the -when your trying to forecast our revenue with that inter-play.

All right, thank you.

And your next question comes from the line of Mark Coffman (ph) from Lessars, please go ahead.

Hi, congratulations guys great quarter, any plans to change your dividend?

No plans at this point.

Thank you

[Operator Instructions]

And your next question is a follow up from Mr. Jim Barrett of C.L. King and Associates.

Kevin, let's switch over to Roto-Rooter for a minute, can you tell us what your theories are as to why the job count was so soft and consumer relative to commercial?

Well no, I would say that it's consistent to what we've seen happen with our residential business over a number of years, it's consistent with what franchisees are reporting, and it's certainly consistent with what related companies are reporting with that side of their business, and I - other than to say that we see it happening, there is limits- given the size of our company, there is limits to what we do, we - our approach to residential; at this point is largely yellow page advertising, which as you've heard, and I know Jim you've followed for sometime we have stepped that up dramatically over the past three years to hold on to as much position as we can, to the extent that the nature of TV and cable it's- we're not gonna mount a major media campaign.

I mean the efficacy of those are very questionable at the levels we would be a player in, so we're really working on something we can have an impact on, in the short run, and that is an effort on the commercial side, much more involved in the, if not the sales side of that, then the follow-up, and the IT support for that area and it's bearing fruit.

So the difference is it's hard for me to put my finger on, other than it's observable. We'd like to stabilize, and we have several initiatives presently going in some spot markets to see if we can have an effect on it, but it's an observable trend for that type of service to the homeowner, I don't know if its based on more information with the Internet, or more do it yourselfers, and fixing minor problems, but to the extent that is that just means that there's some jobs where it really wasn't efficient to call somebody like Roto-Rooter when there's a minor problem.

I tell you we get an awful of calls to fix a garbage disposal, and it just has to reset, that type of thing. You know maybe there's some informational things that the less efficient jobs that are far by the wayside but you get - I'll end just by send it's something - we can do more on the commercial side to increase job count than we are, and we can do lots on the residential side, but we're still studying the issue.

Jim this is Dave Williams. What I would also add to that is last year first quarter was a pretty strong residential drain cleaning primarily quarter so we're wrapping a pretty strong quarter. Overall we were pretty conservative but our job count will grow over 1 to 2% per year, plus we'll get inflation and pricing on top of that so really this is almost what I call normal. I fully expect to overall grow potential job counts but again very modestly.

And Dave do you - high gasoline prices for your fleet of trucks is that a - does that hit your radar screen?

I'm going to say this. Most of our Rotor-Rooter employees are on commission, and they would directly pay for gasoline costs. Okay that's - we have trucks and we have gasoline expense but to the extent that it secondary, in other words to the extent that our employees are netting less dollars that's a problem for us. We've tried to put in a number of programs and actually our average earnings per tech were up. So it affected indirectly. You know a relatively small expense directly where that is for company owned trucks but most of our vehicles are individual owned.

Okay thank you very much.

You have no further questions at this point gentlemen. I turn it back to you for closing remarks.

Folks we don't have anything specific other than steady as we go. You can see with our earnings guidance we just took out some of the bottom range of it but overall I'd say the first quarter went relatively in line with our expectations and again from an operational standpoint things are proceeding at pace and I just wanted to thank everyone for their attention and we'll talk to you in about three months from today about our next quarter. Thank you.

Ladies and gentlemen this concludes your conference call for today. We thank you for your participation. You may not disconnect. Have a good day.