Chemed Corp (CHE) 2008 Q3 法說會逐字稿

Good morning, ladies and gentlemen, welcome to the Chemed Corporation third quarter 2008 conference call. My name is Rick, and I will be your conference frat it tat for today.

Please note that today's call is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer period. I would now like to turn the call over to Sherri Warner, the Chemed Investor Relations. Please proceed.

Good morning. Our conference call this morning will review the financial results for the third quarter of 2008 ended September 30th, 2008.

Before we begin, 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 October 21st, 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, tax, depreciation, and amortization, or EBITDA and adjusted EBITDA. A reconciliation of these non-GAAP resulted is provided in the Company's press release dated October 21st, which is available on the Company's website at www.Chemed.com.

I would like to introduce our speakers for today, Kevin McNamara, President and Chief Executive Officer of Chemed Corporation, David Williams, Executive Vice President and Chief Financial Officer of Chemed, and Tim O'Toole, Chief Executive Officer of Chemed's VITAS Healthcare Corporation subsidiary.

I will now turn the call over to Kevin McNamara.

Thank you, Sherri.

Good morning, everyone. Welcome to Chemed Corporation third quarter 2008 conference call.

I will begin with an overview of the quarter, I will then turn over the call to David Williams, Chemed's Chief Financial Officer. This will be followed by Tim O'Toole, chief executive of our VITAS subsidiary, for discussion on some of our hospice metrics. I will then open up this call for questions.

Chemed consolidated revenue in the quarter totaled $288 million, a net income was $17.9 million. This equated to diluted earnings per share of $0.79. If you adjust for non-cash items or items that are not indicative of ongoing operations, earnings per diluted share were $0.90 in the quarter.

Our VITAS business segment had revenue of $205 million in the quarter, an increase of 8.7%, and generated adjusted EBITDA of $31.1 million, equating to a 15.2% adjusted EBITDA margin. VITAS' gross margin in the third quarter of 2008 was 23.6%. This is 147 basis points above the gross margin in the prior-year quarter, and a 170 basis point increase sequentially.

We accomplished this improvement in gross margin through reinforcement of existing labor management tools, such as daily scheduling meetings, rebalancing the mix of nurses and home healthcare aids in our hospice teams, and through more cost effective utilization of the agency staff.

VITAS did not have any billing restrictions related to Medicare cap for its third quarter 2008 operating activity. As of September 30, 2008 VITAS has not accrued any Medicare billing restrictions for the 2008 or 2007 cap years. Of VITAS' 36 unique Medicare provider numbers, 30 provider numbers, or 83%, have a cap cushion greater than 20% for the 2008 cap year. Three provider numbers are between 10% and 20%, and three provider numbers have cap cushion of less than 10%.

Our Roto-Rooter business segment continues to be marginally impacted by the slowdown in the economy. This is evidenced by a 13% decline in third quarter customer calls into Roto-Rooter's centralized call centers. We have been able to substantially offset the revenue impact of this decline in call volume through a combination of selective price increases, favorable job mix shift to higher revenue per job, increased excavation work and increased conversion rates of calls to paid jobs.

We are in preliminary discussions, as well as final negotiations, to acquire a number of Roto-Rooter franchised territories. This significant increase in activity is attributed both to the current state of the capital markets, the potential increase in tax rates, and the recessionary difficulties that our franchisees are experiencing. The timing or actual completion of these acquisitions cannot be predicted, however, we intend to be highly disciplined in terms of valuation and risk to ensure these acquisitions will be immediately accretive to our earnings.

I believe the Roto-Rooter business model continues to be recession resistant. This is a result of Roto-Rooter's focus on emergency plumbing and drain-cleaning jobs that customers find difficult to defer. In addition, our variable cost structure, minimizes the negative financial impact when demand is soft. This is primarily achieved through utilization of plumbing and drain-cleaning technicians that are paid exclusively by commission.

Both of Chemed's business segments are well positioned to weather the current challenges in our economy. Given our strong balance-sheet and capital structure, a difficult economy may provide us with future opportunities relative to our competition.

With that, I would like to turn this teleconference over to David Williams, our Chief Financial Officer.

Thanks, Kevin.

As Kevin mentioned the net revenue for VITAS was $205 million in the third quarter of 2008, which is an increase of 8.7% over the prior year. The revenue growth was a result of an increased ADC of 4.4% and a Medicare price increase that averaged to approximately 3.2%. Our average revenue per patient day in the quarter was $185.13, which is 3.8% above the prior year period.

Routine home-care reimbursement and high acuity-care averaged $146.57 and $645.75, respectively, per-patient per-day in the third quarter 2008. During the quarter, our high acuity days of care was 7.7% of total days of care. Quarterly high acuity days of care of average between 8.0% and 8.4% throughout 2007.

Any shift in revenue mix will typically have a noticeable impact on our overall revenue given the significant disparity in reimbursement between routine home-care and high acuity-care. However, this marginal shift in the high acuity days of care typically had minimal impact on overall profitability.

During the third quarter of 2008, VITAS' direct routine home-care margin was 52.4%, this compares to 51.5% in the second quarter of 2008, and 51.0% in the third quarter of 2007, again, showing a nice progression in improvement of margin that's coming from our labor management. Direct inpatient margins in the quarter were 16.6%, which compares to 15.9% in the prior year. This margin is in line with our historical inpatient margins, which have ranged between 15.9% and 19.3% over the past six quarters.

Occupancy of our inpatient units averaged 76.9% in the quarter, and compares to a 79.2% occupancy in the third quarter of 2007.

Continuous care, our least predictable of all levels of care, had a direct gross margin of 18.0% in the quarter, and this compares to 16.9% in the prior-year quarter. Continuous care margins have ranged between 16.5% and 18.0% over the past six quarters.

Our selling, general, and administrative expense for VITAS was $17.1 million in the third quarter of 2008, which is an increase of 9.3% over the prior-year quarter and 5.7% on a year-to-date basis. Our adjusted EBITDA for VITAS totaled $31.1 million, an increase of 26.1% over the prior year, and equates to an adjusted EBITDA margin of 15.2%.

Now let's turn to our Roto-Rooter segment.

Roto-Rooter's plumbing and drain-cleaning business generated sales of $83 million in the third quarter of 2008, which is 8/10th of a percent lower than the dollars reported in the comparable prior-year quarter. Our adjusted EBITDA in the third quarter of 2008 totaled $13.7 million, which is a decrease of 12.1% over the third quarter of 2007, and equated to an adjusted EBITDA margin of 16.4%.

As Kevin mentioned our job count in the third quarter of 2008 declined 11.6% when compared to the prior-year period. To break that down, our total residential jobs declined 12.0%, and they consisted of residential plumbing jobs declining 10.3% and residential drain-cleaning jobs declining 12.9%, again, when compared to the third quarter of 2007. Our residential jobs continued to represent 70% of our total job count. The total commercial jobs declined 10.6% with commercial plumbing job count declining 9.6%, and commercial drain-cleaning decreasing 10.8% over the prior-year quarter.

In the third quarter of 2008, recessionary pressure continue to impact demand for certain discretionary plumbing and drain-cleaning services. This is evidenced by the 13% decline in call volume at our call centers. This decline has been substantially offset by increased pricing, favorable job mix, and increased conversion rates from calls to paid jobs.

There continues to be substantial disparity and demand for Roto-Rooter services within the United States. The south region has experienced a 16.9% year to date decline in commercial jobs, while our northeast region has a modest 1.8% decline in commercial volume. Residential demand is also following a similar pattern in the South, with job count declining 12.0%, while the remaining regions have experienced a job count decline between 5% and 10%.

Roto-Rooter has had a material increase in healthcare expenses in 2008. As of September 30th, 2008, Roto-Rooter has expensed an additional $1.7 million in medical expense. This increase is driven by the number of large claims, as well as the severity of these large claims. This unusual experience has been moderating over the last couple of months as some of the claims reached our stop-loss insurance as well as a moderation in the severity of new claims. We anticipate returning to more historical large claims experience in 2009.

Now let's take a quick look at our consolidated balance sheet.

As of September 30th, 2008, Chemed's long-term debt aggregated $217 million. $200 million of this debt is our convertible debenture, which carries an interest rate of 1.875% and a is due in May 2014. Our remaining debt consists of $17 million bank term loan with current interest rate of approximately 4.7%. Chemed's total debt, divided by the trailing four quarters of our adjusted EBITDA, reflects a very conservative debt to adjusted EBITDA leverage ratio of 1.35.

Chemed has $175 million revolving credit facility that expires in May 2012. At September 30th, 2008, this credit facility had approximately $148 million of undrawn borrowing capacity after excluding $27 million of letters of credit that are issued under this facility to secure the Company's worker's compensation insurance. Their credit facility carries a varying interest rate at the lower prime or LIBOR plus 100 basis points. Letters of credit issued are charged to spread over LIBOR, which again, as I mentioned, is 100 basis points.

Chemed's year to date net cash provided from operations aggregated $90 million. Capital expenditures for the first nine months of 2008 aggregated $13 million, and compares favorably to Chemed's $21 million of depreciation and amortization bought through the first nine months of 2008. We had approximately $7 million of cash on hand at the end of the quarter.

The components of our 2008 earnings guidance is as follows. VITAS is estimated to generate our full-year revenue growth prior to Medicare cap of 8.0% to 8.5%. Admissions are estimated to increase 4%, and full-year adjusted EBITDA margin prior to Medicare cap is estimated to be 14.1% to 14.3%.

This guidance assumes VITAS continues to receive its Medicare basket price increase of 2.6%, which became effective October 1st, 2008. Full calendar year 2008 Medicare (inaudible) billing limitations are estimated at $1.25 million.

Roto-Rooter is estimated to generate full year 2008 revenue totaling $340 million to $344 million. Adjusted EBITDA margin for 2008 for Roto-Rooter is estimated in the range of 17.7% to 18.0%. Although we are in current discussions with a number of our Roto-Rooter franchisees regarding potential territory acquisitions, we have assumed zero Roto-Rooter acquisitions in our guidance.

Chemed's effective tax rate has increased to 42.9% in the third quarter of 2008, and is estimated at approximately 40.1% for the full year 2008. This unusually high tax rate is a direct result of the inner play of severe volatility in the stock market as it relates to certain deferred compensation investments and the required GAAP tax accounting. The stock market volatility does not have any material impact on Chemed's reported pre-tax earnings. It does impact general and administrative expenses, however, this fluctuation is then directly offset by an adjustment to other income.

Excluding the impact of taxes associated with this deferred compensation issue, Chemed's effective tax rate in the third quarter and for the full year 2008 is estimated at 39%.

Based upon these factors, a full year average diluted share count of 23.4 million shares, management estimates 2008 earnings per diluted share from continuing operations, excluding non-cash expenses for stock options, and the tax rate impact from this deferred compensation investment issue, and any other charges or credits not indicative of ongoing operations, our earnings per share will be in the range of $3.35 to $3.40.

I will now turn this call over to Tim O'Toole, Chief Executive Officer of our VITAS subsidiary.

Thank you, David.

In the third quarter of 2008, we continued to focus our efforts on the daily scheduling of field labor with the goal of ensuring proper levels of staffing, notwithstanding length of stay and census fluctuations. This involved not only the efficient utilization of existing field-based labor management tools, but the implementation of several new tools. We continued to refine our approach to staffing levels and eliminate inefficiencies while still responding to patient care needs and achieving quality outcomes.

Over the long term, VITAS expects to continue its investment in labor management and scheduling tools with the goal of using its resources in a more leveraged way. While this will not eliminate the inherent volatility in our labor cost as a function of admission trends and patient care acuity, we should have more consistency in scheduling direct labor with the daily flexibility needed to meet patient care needs.

Admissions were difficult during the quarter, declining slightly less than 1%. Although disappointing, this did not impact our overall ADC growth which expanded 4.4% in the third quarter, averaging 12,033 patients. Offsetting the admissions rate was a favorable discharge trend, which declined 0.9% in the quarter.

VITAS' average length of stay in the quarter was 74.1 days, which compared to 76.7 days in the prior-year quarter, and 73.2 in the second quarter of 2008. Our median length of stay was 15 days. Our days of care totaled over 1.1 million days in the quarter, routine home care days increased 4.7%, inpatient days of care declined a modest 0.6%, and continuous care days increased 1.7%.

At September 30th, 2008, we had five programs classified as startups, four of which are licensed, and three are Medicare certified. These start-up programs had an ADC of 58 patients with revenues of $825,000, and pre-tax operating losses of $451,000. These same programs has an ADC of 21, revenue of $237,000, and operating losses totaling $214,000 in the prior-year quarter.

With that I'll turn the call back over to Kevin McNamara.

Thanks, Tim.

Now it would be appropriate to entertain questions.

Ladies and gentlemen (OPERATOR INSTRUCTIONS). First question comes from the line of Darren Lehrich with Deutsche Bank. Please proceed.

Thanks. Good morning, everyone.

I have two questions, I'll start first with the plumbing segment, and Dave, thanks for giving us some additional color there with regard to the healthcare benefit expenses. I guess my question, really, relates to plumbing segment margins. Revenues were down about 1%, you know, your segment profit was down double digits. Aside from the higher benefits or medical expense you referenced, is there anything on the cost side that caught you off guard, and I guess, you know, the broader question would be how are you adjusting the cost structure to the reality that we're in a potentially prolonged down cycle economically?

Yes, this is David Williams.

Nothing caught us off guard relative to the expenses of Roto-Rooter. If you look at the entire segment, 50% of the costs are directly variable. The other 50% are what I would call step variable or fixed, and without a doubt, inflation, although we have fought to keep revenue flat, inflation has eroded the overall EBITDA margin, so it has been a challenge. Health care on top of that combined it, made it little more difficult.

Again, I'm just going to touch on the healthcare because it's large claims. Typically in a recession you will see a lot of utilization of healthcare, as people are afraid to lose their benefits and you see a lot of small claims. Again, this is just the opposite. These are claims in excess of $20,000, a number of them well in excess of $100,000, which is again, why we don't see this reoccurring in 2009.

But without a doubt inflation is eroding our margin to a degree, but with that said, we are very, very pleased with the way Roto-Rooter is holding up relative to a softening in demand, and we see this holding up going in to 2009. It will be challenging, but we also think there will be a number of opportunities that this recession will create that will actually well position Roto-Rooter on a go-forward basis.

And one additional thing, I'd say if you look at the Roto-Rooter business I would say expense control is going very well. As Dave said, there are some fixed expenses which you can't do much about when jobs are down, but also keep in mind that one of the areas where we have gotten a lot of favorable mix shift to keep our revenues relatively flat is excavation, which are bigger jobs.

Again, in this era of a lot tougher competition, that is there's no new home construction in the South or the Southeast, it really means that for bigger jobs, you occasionally face some pretty strong competition with regard to bids. Excavation jobs very often are jobs where we have to give a formal bid and stick with it. So, when you talk about margin, it's not so much on the expense side. We feel that that's in excellent control. It's just -- it's competitive pressures, a little bit, which we think we're very much on top of. Excavation is a bright spot.

Got it. And if I just fot follow up there with regard to the medical costs. I understand what you are saying about moderation that you are seeing in recent months. How does this impact your outlook for health benefits and premium increases going in to next year? Is there any change in your experience that would make your costs much higher next year?

Let me respond to that.

First of all, when we talk about the situation, it is really unusual. Something we follow pretty carefully is our bottom 98%. Let's call those the small normal predictable claims. Those are up just a couple of percent over last year. In other words -- and this year, we had a very low premium, and it was really just some modification. Arguably you could say no premium increase to our technicians, but basically those claims are doing very well.

Though top 2% of the claims are up over 35%, which is again, not really predictable. We will make some change in our premium structure just to guard against that reoccurring, but again, there's no reason to presume that that will reoccur next year. Dave said that, again, we're already having, in the last four months we have already had two months where we had kind of a normal level of large claims. So it's -- something that we feel that is -- will not be a problem in 2009.

Okay. Thank you.

Then my second question here is just related to hospice. Obviously we have seen some nice improvement in the margins. But the variation has been the greatest, I think, since '04 when you brought this in. My question is, can you give us your perspective in where you see the margins leveling out, longer term, and does the stability that we see in margins, the improvement that we have seen recently, does that give you any further confidence about being a consolidator looking in to '09.

Well, I'm going to turn this over to Tim, with just -- starting by saying, yes, on the consolidation issue, and if the -- I want to give you the rationale, my biggest rationale for saying a strong yes at this point.

Yes, we think we're the high quality, most efficient provider, but you got to remember that the reason our real competition is still in business, that is the not for profit is charitable contributions, and it would be hard for them to keep their head above water, especially if it's in a metropolitan area that is connected to a hospital that has a lot of short-stay referrals. Those are generally low margin. They stay in business because of charitable contributions. Given the fact that there is less highly appreciated stock to give away on a charitable basis, given the fact that times are tough, I have a feeling that those will be the forces that most impact consolidation, but we'll see, but -- with that overview, I just want to turn it over to Tim, and Tim, you can give your comment on margins or really talk about, I think, what you did to increase margins in your tied to labor management, and your confidence in your ability to continue it.

Very good.

Well, we talked at our last quarterly call with you about many of the actions that we have began to put in place in the later part of the first quarter in the spring, and mainly they were around, you know, implementing some tools to get a better handle on our labor on a real time basis, and maybe to oversimplify it we have historically had systems that have allowed us to have a check on the labor in the field maybe every two weeks, so twice a month. And in the last three of four months we have been able to change that system to where we can have a check on labor once a week, four times a month. Really, I think that's critical, then having that labor focused on a budgeted margin at a program level based on the level of ADC they are accomplishing in the current time period, so those things have worked and I think we have made a big improvement with about -- a 200 basis point improvement over the last three of four months in the field expenses going down, and that has dropped to our EBITDA line.

We have also put better controls into the company on the annual pay increases for all workers throughout the whole company, where there's more controls for any increases above a modest rate, and that's is working very well. We have had better controls in the company about these salary levels or wage levels of workers that we hire when we need to replace people that have left. And our turnover is doing very well. We have our turnover down another point or two to about 23%.

So I think all the of these things would allow us to feel very good about having a stable situation on our labor from here moving forward, and I should also add we do believe long term that through the use of some technology and better logistics, vis-a-vis the drive time, use of things in this manner, that we can even squeak out some work productivity and hopefully enhance the character bedside at the same time.

With that said I think we feel very comfortable with our margins. Our goal is to sustain them and improve them other time. Some of that is a function of our top-line growth rate, we are able to enhance our margins at a higher level with better top-line growth. And keep in mind how we do that, is we have very tight control on our fixed-cost structure at the administrative level at the field and at the corporate level, so our goal is to always have those fixed-costs grow at a lower level than the revenue rate. We kind of have a rule of thumb we try have that grow about half. And when we do that the margins do quite well, and could grow from here.

So, feel pretty good about that. As far as a consolidation opportunity, as Kevin says, it's probably a better opportunity today than it was a year ago, but from the perspective of the Company being better prepared and the marketplace probably allowing us some opportunities. We're not aggressive, but we certainly -- that's a key component of our gross strategy, and at the right time I feel certain we will implement.

Thanks a lot for that, appreciate it.

Your next question comes from the line of Dawn Brock with JPMorgan. Please proceed.

Good morning, guys. I actually have three questions.

The first is I just wanted to focus quickly on hospice volumes, and get your thinking around the softness, and what you think could drive a resurgence? I mean, at this point in the quarter in particular, discharge trends moved in your favor, ADC, obviously, excellent cost management. It offset the volume decline, but I would think that volume growth is going to be needed here in the medium and long-term, so Ken, maybe just your thoughts around that.

Let me start by saying -- the softness was in admissions, and there's a couple of factors I would like to point out. We try for all admissions, long stay, short stay -- critical patients, whatever.

I think what we saw in the quarter, when you look at just the raw data that jumps out at you, you saw your median length of stay went up two days, in other words fewer short-stay patients. When you have fewer short-stay patients it helps your margin. The longer-stay patients are more profitable.

Was that -- is it a long-term problem if you have an admissions problem? Yes, you have Medicare cap situation. What we saw in the quarter, though, was in the markets where it was critical or near critical, we had pretty good experience, our cap cushion overall remained well over $200 million on a company-wide basis, which is just illustrative if not determinative. But basically, I would say that what we saw during the quarter was a little disappointing, because it's a figure that is important, your overall admissions growth. But I think that the good news is it seemed to be represented by the shorter-stay patients that we didn't get as many as we had been getting. So it's not the end of the world, especially in the last quarter of the government fiscal year -- the fiscal year for the cap determination purposes.

Now, the real question is okay, where do we go from here? I would say there's no question about it. We have made a significant investment in personnel, that is admission nurses and what have you, as we talked about in previous quarters, spending well more than $1 million a quarter, an increase on that type of personnel to -- call it the sales effort, as it were, on the hospice side. We're in the process -- we have identified opportunities where we need, on the doctor's side, more help at the physician level, and we have identified pool of dollars that we're willing to shore up that side of the business as well.

So, do we think we have to improve admissions? No question about it? Do we have a plan to do so? Yes, and I also think that we're not quite getting the fruit from our previous efforts on some of our investment that I think we will.

So, with Tim -- those are my -- we talked about almost this exact question shortly before the call, so that's kind of where I came out on it, but Tim, anything to add?

No, I think those are all exactly what is going on, and I mean -- there have been numerous people talk about that the troubles in the economy in general have caused some modest slowdown to activity in the healthcare sector, for example, in hospitals, and whether that is true or not, you know, who knows. But we do know that hospital census has been lower than normal, that's been reported by hospital companies, and we see it reported by our field information that we receive. That usually ebbs and flows, so to the extent that you see that soft, it usually picks up, and we usually see things pick up dramatically in the fall this time of year, and in the winter, especially in the South, and we expect that to happen.

We had a couple of unusual events, not to get too down into it, but we had a serious situation in Houston with the hurricane moving through, and that caused a few blips in the admissions, but I shouldn't move past that without applauding and thanking the excellent efforts of our staff in Houston. It was an incredible job they did, and took great care of our patients. A few Florida weather events with hurricanes early in the quarter that caused rain for over a week in north Florida softened things a bit. Never good to talk about the weather, but I guess I just did.

We hope those things will keep working for us. I will say what Kevin said, we have a lot of resources in the sales effort, both in the admission nurses to be available when we have a referral, and in the marketing, and individuals talking to the referral sources out there. The best way that we'll continue to show improvement and have continued success is give great care and great service levels, and I think we're moving forward and doing even a better job today than we've ever done historically.

We do have some activity which will help us a bit in south Florida. We expect, in the next several months, to open two new inpatient units in very positive areas for us. And I would also say that we're making some very interesting progress in some new emerging partnerships that we're creating with palliative care programs at hospitals where they're beginning the end of life care discussions sooner, and we can send our physicians in to talk and work with them, as well as our nurses and counselors, and that seems to be something that is going to be a big opportunity, and I think we're very well positioned for that.

So, again, no big changes at all, just keep putting the resources there. We are seeing pressure on competition, and we think that will benefit us over the long term.

Okay. Great.

The second question is just based around the cap cushion baskets that you give us every quarter. This quarter, again, very high 83% with a cushion greater than 20%. Could you give us an idea of the operating margins for each of these groups, and really the crux of my question is the upside potential that you might identify in the programs that fall in to the high-cushion basket.

Well, let's put it this way,we don't divide things up -- we don't manage the business like that, but I was going to say, yes, there's no question about it, to the extent that -- if there is a program that has a big cushion, number one, we would -- if the cushion has great room for growth, if we found a -- in one of those markets within that provider number, if we saw a hospice that had a cap problem and they had nothing they could do and they were going out of business, it would be a great program to add to that existing program. The programs with a lot of cap cushion have a big upside as far as growth, there's no question about it. The problem is we're doing pretty much everything we know to do to get more patients in those markets currently, but it -- even having said that, there's still room for growth.

With regard to margin, as you can imagine, in practically every program where we're close to the cap cushion, those are our higher margin programs. As I said if you -- this was -- if we had our choice, we would be right at the cap cushion in every program. Our margin would be probably up seven points. It would be huge. But that's -- that's more something that we -- we don't manage the company like that. We manage to avoid cap problems, but just in doing our normal blocking and tackling, we try to churn up that cap cushion, no question about it.

Tim, anything to add to that?

Well, I would only say that the function of your cap issue generally is not related to the profit margin of that specific location. It's related to their growth year-over-year and continue to grow their business, because as you know it's a function of your number of admissions times a static number, and of course if your admissions grow, that cap limitation grows and you're going to have more revenue.

So you can have a mixed bag. You can have a program have a cap that has a lower margin because their admissions aren't growing their census going backwards, you have a big opportunity there, because a lot of times you have low market share, so you enhance greatly the selling effort and you ought to be able to make progress if you have the right people in the right places. If you have a large program that's in a cap situation, it also offers you many opportunities because you have many ways to go to change the nature of how you go to the market, and again, many, many resources to hopefully enhance the growth.

So, every location has to be looked at separately with a separate local marketing effort, understanding the cap situation, where you are at now, and where you are heading six, nine, twelve months out. We feel pretty good about it, but everybody understands that admissions need to grow, so we're focused on that and we expect them to.

And Don, I already talked a lot on this issue. But let me say this, with regard to the programs we see, you can margin in a market we already have -- we're the dominant provider in the market and we have been there a long period of time. Hypothetically about a large Florida market. There's no question that in a market like that, it will be high margin. We are going to gradually approach the end of the cap cushion. As we have said, for the last four years, that's not a big problem. You are not going to blow through cap in a program like that.

You are just going to -- you are a dominant provider, there's limits to growth, your margins will be higher, you are just going to gradually approach that number to the extent that we would expect to see our large dominant programs over time to all move in to that category of less than 10% cap cushion, that's just almost definition. The real -- the issue you hope to avoid is a small program that just doesn't have any access to short-stay patients, which is going to have an intrinsic problem with. Or, as we had a year and a half ago, we had a couple of fast-growing programs that just grew out of balance, but they were very healthy programs.

So, with regard to how we manage this, the problems are more a fast-growing program that is out of balance. I mean, when you do that, you can -- you are looking at potentially providing a lot of service for free, where you're getting no reimbursement, and that's what we are really managing to avoid.

Kevin's comment in the past, one of the things we wanted to show, and we have done that, is sometimes if you do have a program move in to the cap it can move out of the cap. There's things to do, so we have demonstrated if a program does move into a cap, we can grow out of it.

It could happen from time-to-time. We have been very fortunate the last couple of years, and our expectations are we'll continue to make all the right actions to be in good shape, but we are continuing to highlight that issue in our guidance in the future that that's -- it's volatile, and it could happen, but we're feeling pretty good about it right now.

Okay, great.

And then just very, very quickly, Dave, anything on the reimbursement side? Anything out of the courts, or are you guys just looking to the next couple of years of cuts?

I'm going to turn it over to Dave, but let me bottom line say, you know the budgeting neutrality factor, we tried to get ahead of it, I think we are ahead of the power curve on that. It is being fought, and Dave is very close to the people who are leading the charge on that, but Dave.

Nothing major.

There's a few things going on. Actually we came very, very close when they passed the -- whatever they call it, the bail-out package for back lack of better word, that we almost got stapled into a six-month moratorium on the budget neutrality factor phase-out. Unfortunately, the association missed the deadline for our response back to Congress in terms of some other issues, so we weren't stapled to that. The only reason I bring it up is, the opportunity may present itself again, whether it's post election or early next year, but that points that Congress is inclined to do something for hospice.

The association on their own, are -- is challenging CMS in terms of the phase out of the budget neutrality. They are going for a stay on this cut, and of course, the likely hood of that is very, very difficult to determine. What I would say is there is an appetite within Congress that recognizes severe pressure being put on hospice and they're inclined to do something. What that materializes out to be, difficult to determine, we're making the assumption on a go-forward basis, we will get no relief, and we will manage our costs on a go-forward basis anticipating squeeze on the reimbursement side, so we have to be more efficient and more productive in the field to make up for it. We think that it will actually create a number of opportunities in terms of acquisitions.

Right now we assume we get no relief, and there's a possibility it may emerge, but we're not counting on it.

Okay. Thank you very much.

Next question comes from the line on [Brendan Strong] with Barclays Capital. Please proceed.

Hi, good morning. Maybe following up on that question just a little bit, as you think out over the next year or two, what are some of the specific things you can try to do to manage down your costs so that your cost inflation isn't higher than what you end up getting for Medicare?

The first thing is that we're going to continue to do what we have made great progress with, and that is making sure that each hospice team -- that's how we provide service to the patients in each hospice program, by a team -- making sure that, hopefully, every team is productive. That is, that the number of people assigned it to, and the mix of providers is the right mix to handle the particular census that that team is handling on a day by day basis, and it varies on a day by day basis.

We have to be flexible. What David Williams refers to as flex our labor. We're making headway on that point. We in no way feel we are at the end of the improvement process for that. That's still an area where we we'll get some headway.

Tim mentioned a second headway, which is just to the extent we're able to grow our central support cost at half the rate of our overall sales increase. We make headway as far as margin in that regard too. I mean, at this point it's not -- I would refer generally to the fact that, yes, we have on average one more visit per week than the average hospice provider, that's out there, frankly, we don't see any reason that we don't want to continue -- that we would want to discontinue that advantage in quality that we have, which is what helps drive us to make us the referral of first choice, so many referral sources.

But there are those elements out there -- one of the things that makes Tim's job a little bit easier is when he is talking to the clinical people in the field is say okay, we've got to be more efficient. No fat. We have got to be tough on salary increases. Well, they know the issue. They know about the budget neutrality factor. They know that if you are in a business that gets a 2% price increase in a year, you've got to manage your business within those confines, and it's not something we're making up. It's the real world.

Tim, anything else to add to that?

No, I don't think we can be -- I think all of those comments are exactly right. I don't think we can kid ourselves, there is high demand for health care workers still in this country, and especially certain of the skilled category, so it's competitive.

At the same time, we have decisions that we can make if we have to on the wage levels we pay, and on the increases we give and so forth, but at the same time we would like to look at every area in the Company that is not labor, and make sure we're doing it as efficiently as possible.

One of the areas that we have historically found some advantages is our medical equipment division, which we do it in house, and we're moving to handle all of that in-house, hopefully we'll get 78% of the company handled by the time we move in to the next six months. We're now about 60% in-house, and we think our cost structure is at least a 40% discount to outside bids that we see.

We're continuing to do a good job to manage our pharmacy costs and the utilization of the outlier -- utilization of outlier drugs, which is called non-mugs in the industry. So that's going real well, our medical supplies, and we certainly can pull back in areas of corporate spending even from the levels that we talked about. It's a good time, frankly, to be cost conscious with things so tough in the economic environment out there. People are much more willing to listen to it today than two years ago, for what it is worth, and we will press it down to the extent we need to.

Okay. Great. Just one other question on the hospice, you talked about this a little bit before, but looking at the admissions -- it seems like really it was the admissions growth back from the first quarter that continues to drive average daily census this quarter. How sustainable is that, and how do you see that changing in the fourth quarter? I mean it would seem like admissions have to come back in the fourth quarter, otherwise average daily census will start dropping as well.

Well, as I said before, again, not because of anything we did intentionally, but in the third quarter, we had fewer short-stay patients, just relative to the previous three quarters. That affects your admissions fairly significantly.

It's a number we're looking to improve on in the fourth quarter. We're doing some things that I think will have some direct effect on it, but I think if we return to our normal mix -- I guess my question is if we return to having a medium stay of 12 days instead of 15 days, I think you will see a couple percent improvement in our admissions just for that alone.

So, believe me, if you said what is -- over the next -- not just next quarter, but over the next three quarters, very important? I want to maintain a $200 million cap cushion company wide, let's put that it way. We are going to spend a lot of effort in improving our admissions and improving them broadly. We have already mentioned a couple, I don't want to repeat myself, but it's a high priority. There's some things we're going to do, and we're in the process of doing a lot of them now.

It's not that -- I guess my first point is, the number of that growth of admissions was not necessarily alarming. There was not a big increase in average length of stay. We're still comparing to a year ago when we -- our average stay was artificially high because we had an unusual number of discharges for extended prognosis, which skews your average length of stay a little bit higher than it is for purposes of calculating revenue.

So we're in pretty good shape. If you ask me, is our current average length of stay sustainable? The answer is a direct yes. That was one of your questions.

Now, to the extent that I really think that you are going to see -- there's nothing -- let me put it this way, there's nothing in -- there's nothing that is consistent throughout our competitive regions that suggests that we're not going to achieve what Dave has indicated in our guidance, is a year to date growth in admissions of 4% plus.

Brendan, this is David Williams.

Just to put this in perspective, if you look at VITAS over the last say, 20 quarters, five years, typically, actually, one occasionally two quarters out of four quarters in a row account for the majority of our pop in admissions, and then you kind of go flat for a little bit. To get two quarters in a row of pretty weak admissions, certainly we're disappointed, but it's not shocking, I guess is the way to put it.

Typically, a couple quarters of weak admissions does signal that you can anticipate a strong quarter coming up. A strong quarter, actually then you wouldn't be surprised to see admissions going flat.

The third quarter is the most challenging for us, because of our concentration of business in Florida, and the population in Florida in terms of the snow birds kind of leave in the summer months. A combination of that, as well as hurricanes impacting Texas, made us even more weak than we would have expected. If you take out Texas, we would have been positive over 1% in admissions, still not exactly a barn burner, but I guess -- typically you'll see one quarter out of four sequential account for the majority of your jump in admissions.

Thank you very much for the color on that.

And then maybe just one question on Roto-Rooter. It was really impressive to see the pricing there, and, essentially offset the volume declines, and I'm just wondering, how sustainable that may be? Is there going to be more seasonality because of that, maybe excavations are tougher in the winter months?

Actually the winter months are our stronger months in Roto-Rooter.

Yes?

You have frozen pipes and what have you, the excavations are still done. Generally speaking, the ground does not freeze below a couple of inches.

We get a lot of questions about Roto-Rooter. Our view on Roto-Rooter is that things have been tough for a good part of the year. Our calls have been down double digits, not just starting last month, it's been for the year -- it's -- as Dave says it has been focused in the regions where there is -- there was a lot of new housing starts, and now there are none. Those are the areas we're having trouble, but frankly what we see pretty consistently, and we saw it consistently throughout the third quarter, the quarter was not deteriorating in any respect, our sales are $200,000 a week below what they should be, in a normal economy. And they are not deteriorating, it's a stable situation.

We have pointed to a few expense items that suggest things being a little easier for us. To be fair, the down side, any time you talk about the fact that there's one region of the country that is giving us more trouble than others, it is very logical to say what happens if the other regions of the country get just as bad? Well, that's possible, but I think if I was to characterize the problem in the Southeast, there is a reason why the Southeast is different in the South, and the South and the Southeast are different from the North and the Northeast, and that is, it has to do with what plumbers were doing a year, and a year and a half ago, and what they are doing now. They are not working on new construction.

Now they are in the market. The economy in Florida has been bad for a year, so the reasons -- I guess what I'm really saying is, we get a lot of questions when the analysts write about the company and what not -- a lot of fear about Roto-Rooter, maybe we're whistling past the graveyard, but we don't see it. We see that as a pretty stable business that -- kind of the -- we're down to metal against metal on that with jobs we're doing now are pretty down hard to defer. We're already down in second jobs and what not, where in good times we convince somebody to just get two or three things handled as long as we are there.

It could be whistling past the graveyard, but we're very confident in Roto-Rooter's ability to control expenses, and things have been pretty stable since early June. Not good. But stable.

Brendan, David Williams. We're not giving guidance for 2009, not that we're being coy, but in early December, Kevin and I sit down with the operating units and go through the entire business plan, kind of a zero-based budgeting.

But with that said, the macro things we see with Roto-Rooter on a go-forward basis, there will be opportunity to pass through pricing, the exact amount we're not sure of.

The fact that the phone is not ringing is what's causing our decline in job count, but the reality is when the phone rings they need us. So there's pricing opportunity, there's inflation in the marketplace, and we're going to pass that on.

We don't see the opportunity to increase excavation in '09 as much as '08. We certainly think we can make some ground, but not nearly as much. On the other hand we certainly see a flattening in terms of the decline in job count we expect to stabilize, because the deferrable jobs have already happened. It can't go on indefinitely.

So we see significant stabilization in Roto-Rooter going forward in '09, and we certainly anticipate acquisitions, then, adding to that in terms of top line as well as bottom line. So we see some very, very solid stability of Roto-Rooter on a go-forward basis, but with that said, we'll be refining our though process, and we'll be giving you specifics in early February on that.

Let me give one last comment, because we have already mentioned this.

You know, one of the silver lining -- whenever things are tough in the business, one of the silver lining -- things are tough on us, but it's tougher on our competitors, so we'll consolidate and make improvements because things are tough on our competitors. Well, the element that we've predicted is really coming true. I mean, to the extent that with a potential change in administration, change in capital gains rates, change in overall taxation rates, the acquisition area for Roto-Rooter is becoming wide open, and we probably won't take -- won't buy every opportunity that presents itself just because we'll want to manage it and maybe sure everyone is a success and everyone is accretive to earnings.

But again, I don't want to leave Roto-Rooter without saying it is not something we see as a huge problem. It is one that we think is relatively stable with, finally, some real good acquisition opportunities at very reasonable prices.

Thanks a lot.

Next question comes from the line of Jim Barrett with CL King & Associates. Please proceed.

Good morning, everyone. Kevin I just have one question sort of follows up on the one you just answered. The franchisees you are negotiating with -- I know back in the '90s the opportunity was to -- you were able to very successfully grow their top line. Are the new franchisees you are bringing in, be more a function of assimilating them from a back-office perspective, or do you see meaningful top-line opportunities to grow their businesses once you bring them in under the Chemed umbrella?

Jim, it's good thing you mentioned that, because what we're facing with several of these opportunities -- one, I'll just say, is a good sized franchisee that does no plumbing. Okay? Has a very good operation doing only drain cleaning. We will dramatically increase -- we'll double their potential just by adding plumbing.

Another one that we're talking to has a big infrastructure that will totally disappear, so that will be more profitable than it is on the top-line growth. But having said that, their pricing is only slightly more than half of what we charge in the adjacent territory. So, I mean, there's the opportunity for sales growth on their business just by adopting the premium pricing model, which we'll do gradually, we don't -- again, we're not looking to upset the apple-cart, but the point of the matter is, it's unusual to see significant sized franchisees that don't do any plumbing. You know, but we're talking to one that does none.

So, it's a mixed bag, but, yes, the answer is what -- the reason I'm excited about the potential acquisitions is, it really presents -- they generally present a variety of opportunities for improvement, and again, it's one of those rare situations where, you know, the acquiring company probably knows more about the profit potential of the business that we are buying than the sellers. So that usually gives you a pretty big advantage on the acquisition front, so again, your point -- your question is right on point, and it's one that, you know, we're seeing the mixed bag.

Okay. Well thank you very much.

Question comes from the line of Eric Gommel with Stifel Nicolaus. Please proceed.

Thanks for taking my question. I noticed -- or you recently put out a couple of press releases announcing some managed care contracts. I wonder if you could just talk a little bit about what the opportunity is for managed care and hospice, and maybe talk a little bit about pricing relative to Medicare and maybe the structure of the reimbursement there?

Sure, absolutely.

Well, I mean, basically for a couple of years now we have been focused on this major trend, which is the Medicare beneficiaries and getting insurance in this country are being moved to the managed care -- you know, the choice plans, the five or six big insurance companies that have Medicare-managed care choice plans, so clearly, nine out of 10 of our patients are Medicare patients, so it just made sense to us to begin discussions at the national level with these companies and try to get national contracts.

On the pricing front, when a hospice patient comes off of a Medicare insurance program, they come off of their rolls and come on to our rolls, and we bill the government directly. So there's no discussion about price with the Medicare patient at all, which is a great situation for us. At the same time we do the contract, though, we also enter into the commercial contract side of it, and basically we seek, and in most cases receive, the exact same price on the commercial side as we receive for the Medicare reimbursement, and it's adjusted each year.

We think this is a big opportunity. We want to be the hospice of choice to all these large players in the industry, and one of the unique things that we're providing to them -- we're obviously providing great service and a great amount of detailed information.

For example, we can provide customer surveys from one -- after a patient passes away to get a survey to the family members about how the service was. We can get surveys directly for just the referrals from that specific insurance contract, and give that to them. We can give them statistics about how our pain management lowered the pain of the patients we take on over several days, we can give them statistics on death attendance.

So we can do all of these things for them, but in addition what we're doing is we're starting a program -- we are educating their case managers at the insurance companies about hospice, because the insurance companies want their case managers to know about hospice and use it because it's something the public wants and deserves and also it's basically best practices and disease management for these patients to be moved into the hospice program. And in many cases these are high-cost patients that are on the rolls of the insurance company, and when they understand it, and know that VITAS can do a great job, they are very pleased to work with us, and then that choice is offered to the patient.

So we think it is a big opportunity. We're putting some reasonable resources in it, and we don't see that changing in the future, and we expect to be positioned better than any hospice company to deal with that.

Good news, bad news, I don't know which it is more. On the Medicare care side of that, not the commercial insurance side, generally speaking, Republicans like Medicare advantage, Democrats don't. To the extent that you think Democrats are going to get more in control. I guess the good news in that is I don't anticipate great upheaval in the hospice market over the next couple of years. Probably either way, but even less so if the Democrats are in charge.

I was looking at it more as more an opportunity on the commercial side (overlapping speakers)

No question.

There's not a lot of opportunity on the commercial side. Keep in mind that most of the commercial side are younger patients, and they are individuals who, in many cases, don't have terminal illnesses, there are certainly some that end up with cancers and other terminable illnesses, and we're very happy to provide hospice service to them.

But today we provide about 5% of our revenue stream comes from commercial insurance, and we would not expect that to dramatically change. We hope it increases. What we're working on is to make sure that when we do that work we get paid, and we're doing a pretty good job of that. And in some situations, unless you have a contract for both the commercial side and the Medicare side you cannot even get into a contract situation at the field level for any of these patients, because that's the policy of the insurance company.

So we're going around signing up everybody who wants to work with us. It's picking up momentum and I think they are seeing it as a very positive thing to be affiliated in partnering with VITAS.

Right. And again, we have a good footprint -- we have a good geographic footprint for a lot of these companies. We're in the major metropolitan areas.

Great. Thanks.

Your next question comes from the line of Kemp Dolliver with Cowen & Company. Please proceed.

Hi, thanks. Over the last couple of years you have mentioned with Roto-Rooter that pricing has improved or price increases. Could you just -- and I -- this only needs to be brief, just talk about, do you do pricing -- how much of this is decisions made at corporate to put in price increases? When was the last increase that went through? Just some perspective on the contribution from pricing and how it (overlapping speakers)

Let me start to respond and then -- and I'll give you Dave, because Dave is a big part of those -- of the pricing policy at Roto-Rooter.

But let me start by saying that the prices aren't imposed by headquarters, they kind of drift up from the field. That is in each market, and we're in over 100 markets, what are the opportunities? And generally speaking, we're a moderating -- at least as those float up, we are a moderating factor on some of those.

Given the nature of this business, you can get your price on a job. The question is you don't want to be viewed as a gouger, for the second for third job down the line. The market Intel floats up from the field, and we generally do it by not just overall price increases, but various lines of work.

Let me give you an example of that, and that is generally speaking we see in some markets there's a lower -- a different price for main-lines and branch-lines. I mean, one of the -- in the last year and a half or so, one of our biggest price increases have just come -- just by having more normalization between the pricing of those two very similar services. So it's not just an imperial dictate that comes down from the headquarters, but it's a more a culmination of information that comes from the field, and again, there's nothing we're hearing from the field that suggests we're at the end of our ability to set prices in that regard.

Dave, anything more to add on that, because you are closer to it than I am.

The past several years it has averaged out to 5%. And that's pure coincidence. Each branch looks at the pricing, the competition, literally looks at supply and demand for plumbing and drain-cleaning services.

This past year was a push to price branch lines because the cost to deliver a technician a truck is the same whether you do a branch-line or a large main-line, so they adjusted that. Two years ago, we took a hard look at our plumbing rates relative to what our costs of labor are on drain cleaning, and we made those similar. Some branches this year had zero price increase, some had almost double-digit. So it fluctuates.

We think it is going to be harder to pass through price increases in '09, but we still opportunity. The exact amount, we need to see in early December, but we think it's going to be low single digits certainly in the 2% to 3%, if not higher.

But there will be opportunity. It's not an edict. Each location will look at their pricing across all major seas of services provided, and will adjust accordingly, again, the competition, supply and demand.

And let me add one other factor just to give you some color on this. I mentioned of course, anecdotal, but I mean the one thing I say is what type of complaints come to me, as CEO of the parent company, from the satisfied customers? And increasingly, everything has fallen away to the wayside except one complaint that I periodically get, and that's this, and that is somebody said I couldn't get anybody else. I got somebody on a Saturday at 9:00, they came, they gave me a quote of $212, they did it. I paid $212. I later found out a neighbor had it done for $100 with some other provider. Shouldn't I get $100 back, or something like that?

And of course we respond no. But what that really demonstrates is, increasingly, after probably 4:00 p.m., we're the only provider you can get when you are trying to call somebody, especially during a weekend. And to the extent that the blue collar work force is aging, and less willing to work the unusual hours, and less willing to have a yellow page advertisement, illustrating that fact, we become the only provider.

It's not just numbers we pick out of the air. This is supply and demand. There is not much supply of emergency plumbers during the off hours at this point in most markets. That's just an anecdote of why it is that we're still setting prices.

That's helpful. Last question is are these pricing decisions ongoing through the year or is there is a concentration say around January 1?

Typically by mid-to late December they are finalized and put in place.

Great. Thank you.

Next question comes from the line of Craig Roseblum with Millbrook Capital.

Good morning. Can you give any color on the potential size of the franchise acquisitions you were talking about? And how that affects your ongoing buyback plans.

Let me put it this way, we don't -- I probably have said too much already, but they not our largest franchisees. Okay? Or the largest market held by our largest franchisees. They are good-sized markets. Good opportunities, but they are not necessarily going to be transformational acquisitions for Roto-Rooter.

They are just going to be nice additions to our stable of repurchases, which is -- which we have intentionally avoided the last couple of years just to get some price discipline in the market. I don't want to say too much more other than they are not transformational, they're not our one or two or three largest franchised territories.

This is David Williams. Related to that we certainly expect it to be a contributor to growth in Roto-Rooter next year, but it's not going to take Roto-Rooter to double-digit growth, but certainly solidifying in terms of our profitability.

In terms of what we're going to be doing with our cash, at this point, given how bizarre the capital markets are, even though our stock price is extremely attractive, at its current levels given our cash flow, at this point we're inclined to build cash in our balance sheet, and take advantage of our positioning and the fact we have access to capital, and we're accumulating cash, and use it to acquire businesses in the hospices and Roto-Rooter. We're not inclined to do share repurchases until we see the capital markets reopen. We view it as a competitive advantage that we're going to utilize to our full capability.

Thank you .

Your next question come from the line of Gene Fox with Cardinal Capital Management. Please proceed.

Hi, guys. Two questions. First of all, as it relates to trends in Roto-Rooter, any sense that the declines you have seen in the Southeast may start to moderate as -- you basically feel the effect of the housing crisis in Florida and some of those states? Have you seen anything that would indicate any stabilization there yet?

No, I would say we have seen stabilization. I mean it's not like things are continuing to get worse in those markets. They are just not getting appreciably better. Okay?

I think that we -- one way of saying it is, I hope we're not whistling past the graveyard, it looks like we have lost what we're going to lose, and, you know, we're fighting the good fight.

I happen to think that in the Southeast -- it's one of those examples where we have a very strong manager in the Southeast. The Southeast was our best performing region for a couple of years. We have had little turnover there. I mean, we have good managers in the Southeast. They have a relatively stable situation that needs improvement, and when I say is that wishful thinking? I don't know.

One of the advantages you get in those type of situations, you have the ability to hire good plumbers that now are available, and again, we have seen over time in Roto-Rooter, that if you have the qualified plumbing staff, the business will follow. I think in normalized economic conditions, if we have improved our stable of plumbers, those branches will do very well.

Let me try to rephrase it, Kevin. Once you have sort of lapped the difficult comparisons for '08, is there any reason to think that we would -- we would continue to see comparisons at that level going forward? And I'm really asking for a definition of what stabilization means.

Well, I think we're talking about job counts that are flattish in those regions once you have lapped them.

Having said that, we -- Dave already mentioned that we haven't given guidance for '09. We haven't gone through the process, but just to answer your question, I would expect our budget for Roto-Rooter is to be up in -- it's going to be up single digits in sales next year, not down. Not down 1%, not down 9/10th of a percent, but up.

And probably up in a relative -- in what we would normally expect to see a Roto-Rooter budget, and what that has been over the last three years is single digits. It may be the lower single digits, rather than the higher single digits, but increases.

Okay. Second question, as it relates to VITAS, any sense that your benefiting from the competitive environment or -- the credit crisis in terms of market share or your ability to win new business?

No. I would say at this point, no. No sense that we're benefiting at this point. Now every time I look at the newspaper and see that a healthcare system is having problems with the capital markets, they can't raise money, they can't issue a bond, I say, boy, that has got to be helpful to us. It hasn't yet.

Believe me -- what I have described as a pot of gold at the end of the rainbow is having some of these big healthcare systems outsource the hospice part of their service offering to us. They haven't done it yet.

But Gene, related to that, the financial pressures are just beginning, the increase of our cash through this October 1st did not cover inflation, charitable contributions which are typically strongest in the fourth quarter for any not-for-profit comes in combination of gifts, to get the tax deduction before the end of the tax year, as well as appreciated stock.

Both of those are going to be horrible in the fourth quarter of 2008. As well as they go in to '09. So all of the true operating financial pressures that are going to come to hospices are just beginning to start now, so I think it will take several quarters before that pressure materializes to the bottom line in the realization that they have to do something that kind of comes to their awareness.

In terms of your operation, either David, or Tim, or Kevin, what are you doing to position yourselves to take advantage of that? Are you doing anything differently?

Let me give you a concrete example of one thing we have done differently.

Dave and I went to a conference of healthcare systems slash hospital CFOs, and we -- it was one of those ones where we had to pay a not insignificant amount of money for us in order to get in front of the groups. We chose the ones that have one on one meetings with, that is programs with hospices. They chose the people that they wanted to talk to, and we had two full days of meeting with these people, at least trying to put the bug in the ear that, hey, we have a real, we have something that can really help them.

We can buy their hospice and -- but they would outsource it to us, they would get better service, they can continue to get charitable contributions, and everyone would be -- it would be the traditional or the proverbial win-win situation. We got no negative feedback on it, just haven't gotten much headway on the subject. But that's the type of thing we're doing.

What other things are we doing? We're reaching out to the couple remaining major accounting firms that we deal with one way or another, and saying to the extent that you have healthcare systems that you are working with that are casting about vainly in the darkness for something to do, to handle some of their financial pressures, remind them -- tell them that we're there. That's the kind of thing we're doing.

But there's the hurdle of, you know, dealing with the not for profits, you know, it's not their first option is to say hey, I'll outsource hospice to a for-profit company. It will come out of necessity, not out of invention.

Thanks, Kevin.

I believe that's the last of our calls.

We've had a lot of calls this month, but we're happy to have them. We're real happy with our quarter, and we'll have a similar discussion at the end of the next quarter.

Thank you.

Thank you for your participation in today's conference. This concludes our presentation. You may now disconnect, and have a good day.