Chemed Corp (CHE) 2011 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Chemed Corporation's first-quarter 2011 conference call. My name is Latasha and I will be your conference call facilitator today. Please note that today's conference 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 session.

I would now like to turn the call over to Sherri Warner with Chemed investor relations. Please proceed.

Good morning. Our conference call this morning will review the financial results for the first quarter of 2011, ended March 31, 2011. 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 April 25th, 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, and adjusted EBITDA. A reconciliation of these non-GAAP results is provided in the company's press release dated April 25th, which is available on the company's web site at www.CHEMED.com.

I would now like to introduce our speakers for today, Kevin McNamara, President and Chief Executive Officer of Chemed Corporation; Dave 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's first-quarter 2011 conference call.

Chemed consolidated revenue in the quarter totaled $331 million. The net income was $18.1 million. If you adjust for certain non-cash items, and items that are not indicative of ongoing operations, adjusted net income totaled $23 million and equated to an adjusted earnings per diluted share of $1.07, an increase of 12.6%, when compared to adjusted earnings per diluted share in the first quarter of 2010.

In the first quarter of 2011, our hospice business segment generated revenue of $236 million, an increase of 5.7%, over the comparable prior-year period, an adjusted EBITDA of $33.2 million, an increase of 1.4%. This equated to an adjusted EBITDA margin prior to Medicare cap of 13.7%.

In the first quarter of 2011, our admissions totaled 15,798, an increase of 6.4% over the prior-year quarter. The growth in our admissions in 2010 and 2011 are attributable to several factors. We continue to expand our presence in local communities with new or refurbished inpatient units. This provides VITAS with increased visibility to our referral sources, as well as an increased capacity to provide hospice care to our high acuity patients.

As of March 31, 2011, VITAS has 32 dedicated IPUs with a total daily capacity of 427 beds. This is an increase of 6% over the prior-year quarter. Approximately 73% of our inpatient days of care are within these dedicated units. The remaining 27% of our high acuity inpatient care provided within short-term contract beds. I anticipate this approach in using inpatient units of maximizing our visibility within the healthcare community to be a permanent part of our admissions strategy. We continue to expand our marketing and community liaison personnel in terms of staffing, training, and support. These investments in personnel, coupled with our inpatient units, have resulted in significant improvement in overall admission strengths.

In the first quarter of 2011, VITAS recorded a positive revenue adjustment of $1 million, due to reversal of estimated Medicare cap billing limitations, recorded in prior periods. This compares with a similar positive revenue adjustment of $1.7 million for reversal of Medicare cap, recorded in the first quarter of 2010. The reversal of these Medicare cap liabilities relate predominantly to VITAS's largest Medicare provider number.

Of VITAS's 33 unique Medicare provider numbers, 31 provider numbers, or 94%, have a Medicare cap cushion of 15% or greater for the current Medicare cap period. One provider has a Medicare cap of 5%, and one small program has a modest Medicare cap liability. VITAS generated an aggregate Medicare cap cushion of $223 million, or 26% during the trailing 12-month period.

Now let's turn to our Roto-Rooter business segment. During the first quarter of 2011, Roto-Rooter increased revenue almost 11%. This was accomplished through a combination of increased jobs, on both the commercial and residential sectors, as well as through a combination of strategic price increases and individual markets, and continued expansion in excavation. During the quarter, Roto-Rooter generated $15.6 million of adjusted EBITDA, an increase of 13.8% over the prior-year quarter.

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

Thanks, Kevin. The net revenue for VITAS was $236 million in the first quarter of 2011, which is an increase of 5.7% over the prior-year period. If you exclude the impact of Medicare cap, our revenue increased 6.1%. This revenue growth was the result of increased ADC of 4.8%, driven by an increase in admissions of 6.4%, combined with Medicare price increases of approximately 2.1%. This was partially offset by acuity and geographic mix shift of our patient base.

Average revenue per patient per day in the quarter, excluding the impact of Medicare cap, was $201.82, which is 1.2% above the prior-year period. Routine home care reimbursement and high acuity care averaged $157.93 and $696.25, respectively, per patient per day in the first quarter of 2011. During the quarter, high acuity days of care were 8.2% of total days of care. This is 35 basis points lower than the prior-year quarter.

The first quarter of 2011 gross margin, excluding the impact of Medicare cap was 21.5%, which is a decline of 74 basis points from the first quarter of 2010. This decline in margin is a result of increased costs related to the newly mandated physician visit for recertification, expansion of our community liaison program, as well as costs associated with our continued expansion of inpatient units.

Our home care direct gross margin was 51.5% in the quarter, an increase of 20 basis points when compared to the first quarter of 2010. Our direct inpatient margins in the quarter were 13.0%, which compares to 15.2% in the prior year. This margin decline reflects costs associated with the startup of new inpatient units. Occupancy of our inpatient units averaged 76.8% in the quarter, and compared to 79.1% occupancy in the first quarter of 2010.

Continuous care, the least predictable of all levels of care, had a direct growth margin of 20.5%, a decline of roughly 20 basis points when compared to the prior year quarter. Average hours billed for a day of continuous care averaged 18.6 in the quarter, essentially equal to the prior year's average.

VITAS selling, general, and administrative expense was $18.7 million in the first quarter of 2011, which is an increase of 3.1% when compared to the prior year. Adjusted EBITDA margin, excluding the impact from Medicare cap, was 13.7% in the quarter, which is 30 basis points below the prior year.

Now let's turn to the Roto-Rooter segment. Roto-Rooter's plumbing and drain cleaning business generated sales of $95 million for the first quarter of 2011, an increase of 10.9% over the prior-year quarter. Roto-Rooter's gross margin was 44.2% in the quarter, a 103-basis point decline when compared to the first quarter of 2010, and 110 basis point improvement when compared to the fourth quarter of 2010.

Adjusted EBITDA in the first quarter of 2011 totaled $15.6 million, an increase of 13.8%. And the adjusted EBITDA margin was 16.4% in the quarter, an increase of 42 basis points when compared to the prior-year quarter. The 103 basis point decline in gross margin in the first quarter is the result of job mix shift to higher price, but slightly lower margin excavation work, higher casualty and health insurance claims, and increased fuel costs. These costs were partially offset by lower indirect wages and material usage.

The lower gross margin in the quarter were more than offset by total Roto-Rooter selling, general, and administrative expenses, excluding litigation costs, expanding at a rate that was 300 basis points below our overall sales growth. The net result was Roto-Rooter expanding first quarter of 2011 adjusted EBITDA margins by 42 basis points.

Job count in the first quarter of 2011 increased 5.8% when compared to the prior-year period. During the first quarter of 2011, total residential jobs increased 4.7%, as residential plumbing jobs increased 5.4%, and residential drain cleaning jobs increased 4.5%, when compared to the first quarter of 2010. Residential jobs represented 72% of total job count in the quarter. Our total commercial jobs increased 8.7%, with commercial plumbing/excavation job count increasing 10.2%, and commercial drain cleaning increasing 8.1%, when compared to the prior year. The "All Other" category for residential and commercial jobs increased 3.6%.

Now let's review our consolidated balance sheet. Chemed had total debt of $161 million at March 31, 2011. This debt is net of the discount taken as a result of convertible debt accounting requirements. Excluding this discount, aggregate debt is $187 million and is due in May of 2014. Chemed's total debt equates to less than one times trailing 12-months adjusted EBITDA.

In March of 2011, Chemed replaced its existing credit facility with a new five-year $350 million revolving credit facility. The interest rate on this credit agreement has a floating rate that is currently LIBOR plus 175 basis points. The new credit facility provides Chemed with increased covenant flexibility in terms of acquisitions, share repurchases, dividends, and other corporate needs.

An accordion feature is included in this agreement that provides Chemed the opportunity to increase the revolver, and/or enter into term loans, for an additional $150 million. As of March 31, 2011, this credit facility had approximately $322 million of undrawn borrowing capacity, after deducting $28 million for letters of credit issued to secure the company's workers' compensation insurance.

Our capital expenditures for the first quarter of 2011 aggregated $6.2 million, and compares favorably to depreciation and amortization during the same period of $7.3 million. The company increased its quarterly dividends per share in the third quarter of 2010 from $0.12 per share to $0.14 per share. The company purchased $96.3 million of treasury stock in the fourth quarter of 2010, and an additional $21.8 million in the first quarter of 2011. Total shares repurchased in the first quarter of 2011 totalled 341,513.

Approximately $97.4 million is remaining under Chemed's previously announced share repurchase program. We continually evaluate cash utilization alternatives, including share repurchase, debt repurchase, acquisitions, and increased dividends to determine the most beneficial use of available capital resources.

Our 2011 full-year guidance is as follows. Chemed expects to achieve full-year 2011 revenue growth, prior to Medicare cap, of 7% to 9%. Admissions in 2011 are estimated to increase 5% to 7%, and full-year adjusted EBITDA margin, prior to Medicare cap, is estimated to be at 15.3% to 16.3%. Consistent with prior years, our guidance assumes VITAS will incur $3.7 million of estimated Medicare contractual billing limitations for the remaining three quarters of 2011.

Roto-Rooter expects to achieve full-year 2011 revenue growth of 5% to 8%. The revenue estimate is a result of increased pricing of approximately 3%. A favorable mix shift to higher revenue jobs, with job count growth estimated at 0% to 3%. Adjusted EBITDA margins for 2011 is estimated in the range of 16.5% to 17.5%.

Based upon the above metrics, and an effective tax rate of 39%, and full-year average diluted share count of 21.6 million, management estimates 2011 earnings per diluted share, excluding non-cash expense for stock options, non-cash interest expense relating to the accounting for convertible debt, and other items not indicative of ongoing operations, will be in the range of $4.65 to $4.85. This compares to Chemed's 2010 adjusted earnings per diluted share of $4.17.

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

Thank you, David. As most of you are aware, we have put considerable effort into our field-based sales and marketing efforts over the past year. We have made significant investments in terms of admission personnel, community liaisons, long-term care liaisons, and admissions coordinators. These investments have been in the form of increased personnel training and educational materials. This focus has resulted in VITAS generating a record 15,798 admissions in the quarter, an increase of 6.4% over the first quarter of 2010. At this rate, VITAS is on track to provide end-of-life care to more than 76,000 patients in 2011.

During the quarter, our largest state, Florida, increased admissions 8.5%, and our second largest state presence, California, expanded admissions 7.9%. We were able to expand admissions in 11 of the 15 states, plus the District of Columbia, in which VITAS operates. Admissions have increased in each of our four largest referral categories. During the first quarter of 2011, home-based admissions increased 5.9%. Assisted care living facilities increased 14%. Hospital referred admissions increased 7.5%. And nursing home admissions increase 0.2%.

In addition to the significant expansion of our admissions-focused personnel, growth in admissions is also attributed to our focus on expanding inpatient capacity. This strategy raises VITAS's visibility within the healthcare community, resulting in increased admissions. In addition, providing more high acuity care further minimizes the likelihood of reaching billing limitations under the Medicare cap formula.

The cost associated with the inpatient capacity did put some stress on our inpatient margins during the quarter. If you exclude the roughly $733,000 incurred in IPU start-up costs, incurred in the quarter, our inpatient margin would have been approximately 17.2% As of March 31, 2011, we have 300 sales representatives, 137 admissions coordinators, 349 admission nurses, 104 community liaisons, and 19 long-term care liaisons. These investments in the sales and admissions areas resulted in an increase in our admissions cost of approximately $2.1 million, when compared to the prior-year period.

VITAS's average length of stay in the quarter was 78.9 days, which compares to 75.8 days in the prior-year quarter and 80.8 in the fourth quarter of 2010. Average length of stay is calculated using total discharges during the quarter. Medium length of stay was 13 days in the quarter. Medium length of stay is a key indicator of our penetration into the high acuity sector of the market.

Our days of care totaled 1,162,722 days in the quarter, an increase of 4.8% over the comparable prior-year quarter. Non-nursing home routine home care days increased 8.9% in the quarter. This increase was partially offset by a 4.1% decline in nursing home days of care. Continuous care days declined 0.4%, and inpatient days of care increased 1.8%, when compared to the first quarter of 2010.

At March 31, 2011, we had four programs classified as start-ups, and there were two satellite office leases entered into during the quarter. We currently have three state applications that are prepared and should be submitted in the second quarter of 2011. We've been awarded a certificate of need by the State of Florida and the Jacksonville community, which we anticipate classifying as a start-up in 2011.

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

Thank you, Tim. I will now open this teleconference to questions.

(Operator Instructions)

And your first question comes from the line of Darren Lehrich with Deutsche Bank. Please proceed.

Hello, thanks and good morning. It's Brian Zimmerman, filling in for Darren today.

My first question is regarding IPUs. You've been investing heavily in IPUs over the past last several years. Can you give us an update, maybe a bit more on the strategy? And do you think your footprint can support many more IPUs? And what is the right margin structure to think about with this segment on a going-forward basis?

I'm going to turn it over to Tim for some specifics, but let me just say generally, and again, it's still not a very capital-intensive business. What we talk about investing in IPUs, we're talking about in -- where we have opportunity to go into some marquee locations in very significant programs. We've done that even if it gives us a little excess capacity in IPUs. We've done, as we've said, in our presentation, a lot of refurbishment of IPUs. But again, the dollars amounts are still relatively small, and what I like to say is that in understanding this, we keep track of what we think it effects, how it effects our margin, with regard on the inpatient sector. It still has a relatively small effect. But in many respect respects, I don't want to diminish the importance of having refurbished, good-looking locations, but it's a billboard in many respects to the healthcare community. It makes VITAS top of mind. That's the basic strategy. The financial elements of it are relatively minor in my mind. But Tim, take over from there.

I think, as Kevin mentioned, and we've talked about now for probably going on a year with this strategy, it does give you a great presence in large hospitals where there are a lot referrals. It seems like in the last year, hospitals have been willing to allow us to enter into these deals with them, whereas a few years earlier maybe, it's because their census was full in the hospitals, they were harder to get. We're taking advantage of that.

I think it goes without saying, the more inpatient units you have available in healthy locations around town, it's better for the quality of the care that you offer to the patients. So, they can have an inpatient facility close to their home, or available to them as they're preparing to leave the hospital. As Kevin said, it's a great way to build your presence in the communities. It's high-profile. It's great for quality of the care and over time it builds your home-care program, because as you show the individuals that are in the hospital the excellent quality of care that you give to patients in the inpatient units, they just naturally feel better about referring to your home care programs as well.

We've talked about the advantage of an inpatient unit where you're in a location where you have Medicare cap exposure. It creates a lot of short-stay admissions, which helps build your cap area. And we also think they're very, very valuable in the large markets, because when you have a 500- or 1,000-census program that can support the inpatient units-- your question about the margins, the margins are tied to the number of beds you have and keeping them full.

So again, we try to plan for that, but like anything when you build a new one it takes time and a little bit of losses to build them up. Over time, you get the census where you'd like it. We do have other opportunities around the country. We're working on numerous, that we will, I'm sure, open several new ones as the year unfolds. I hope I had responses to your question.

And let me also add one thing. Quick add this, because inpatient units can be a crutch to building your business. When we look at generally not-for-profits around the country, we say, boy, they're not as profitable as we are. It's not that they don't have smart people there. They have certain facets or features that we recognize. One is, generally speaking, the ones that we've seen have a lot more inpatient units than we would have. In other words, they have them everywhere they have a location, oftentimes. The trick here is not just adding IPUs. It's taking advantage when you think you have, what I like to refer as, a marquee location where you're really getting some bang for the buck. You don't want to just eviscerate, as Tim mentioned, eviscerate the margins in the business by having empty beds.

Okay. That's very helpful. On the Roto-Rooter side, the job growth trends are clearly encouraging. Is there anything inside the job volume numbers that you're seeing that is surprising to you at this stage of the economic recovery?

I'll start. I'll let Dave jump in here as well. Generally, I think it's indicative of an economic recovery. It's almost like a light switch was flipped halfway through the third quarter of last year, where we just saw stronger demand in at least three-quarters of the country. And we've done a pretty good job in capturing that demand with regard to topline. We are comparing against a recessionary base, but the best thing I can say is that, I think it is indicative of increased economic activity. There's one thing where--there's some element I always like to say about whether we're recession resistant. By definition, it's recovery resistant as well, to the extent that we share the pain going because we have commissioned workforce, we have on the upside, we share the gain as well.

To the extent that the economy comes back and eventually hopefully the unemployment rate goes down generally speaking, we'll have more hiring and training expense. Presently, we're at record levels of retention of our employees, which is not all that surprising, but that's one of the factors that is certainly helping the results in Roto-Rooter. Again, like you, we are encouraged by Roto-Rooter's results. Dave, anything else behind the numbers you would like to say?

I'll just say, this is the first time -- probably you'd have to go back to 2007 when we saw growth in all four key job segments; residential, commercial, plumbing, drain cleaning, if you think about 2 by 2 matrix. What we see in terms of really solid growth in 2011, really is just a firming up of a trend line that we saw that started taking place earlier in 2010. So, we're very encouraged, but we still view it, as Kevin said, it's going to be a nice, methodical we think, trend line up tick.

With that said, we're also seeing a little bit of push back. There are some markets where we weren't successful in passing through price increases or we've gotten resistance at the consumer level and we had to make adjustments. So I'll tell you, we're definitely seeing growth, and we anticipate a continuing through all of 2011. We also think we have some pretty good lapping numbers against some tough expenses that we had last year, but I would say, for Roto-Rooter, what looks like the great recession is probably ending.

And otherwise, we'd be comfortable saying, it's probably going to be Roto-Rooter's second-best year ever.

Yes, with 2007 being the best year ever.

Okay. And are there any particular geographic reasons you'd like to highlight, either ones you're having difficulties in, or ones that are really doing well?

I'll just say that our central region is again -- it would be helpful maybe to people who are looking for harbingers of other economic activity. Our central region, the Midwest, has been generally strong. The southeast, which used to be our fastest growing unit, has solidified in several respects. Where things are tough, relatively speaking, is the northeast. So that's -- if that's helpful in other regards. There it is.

Okay. Thanks very much. I appreciate it, guys.

Your next question comes from the line of Brendan Strong from Barclay's Capital. Please proceed.

Good morning. I'd just like to follow up on Roto-Rooter. It's interesting, because it's actually, I think, the best quarterly revenue that Roto-Rooter has ever done, but volumes are still down, call it 15%, from the first quarter of '07. Do you look at this and say, wow, there's an opportunity for 20% plus revenue growth over the next two years here?

In terms of job count?

Just in terms of overall revenue growth, between the job count and some pricing?

If everything hit on all cylinders, possibly, but that would be a very, very blue sky optimistic. We think we can get there over several years in terms of cumulative growth. But it's a tough business that you fight out job by job, in some cases $350 jobs.

The other thing that I would say, again this might be a little [inside baseball], but obviously what we're seeing in Roto-Rooter the last couple of years -- and there's a rationale for this -- is a mix shift to excavation, which is a higher sales number, but generally a little bit lower margin. Excavation is one that we watch like a hawk. We wanted to make sure that every excavation is proper, that we have a videotape that indicates that we have a broken pipe, that there's a strong need for a $4,000 job, as opposed to a $560 job. It's one where if you look at what's one of the driving factors, is mix shift. It's one that we look at very carefully, to the extent that we wouldn't want to have that rate of growth get out ahead of us before we can monitor that very closely.

There's one thing though, if you wanted to say over the next several of years, that all of us are very optimistic on, is basically the migration to more people utilizing the internet. If you go back, probably three, certainly five years ago, almost none of our jobs came from the internet. Today, we have thousands more phone numbers than we had three years ago. We have several thousand numbers deployed just to the internet, to specific subdomains. So, we're monitoring where all of our phone calls are coming from. Today -- and it's expanding -- over 30% of our calls coming into our two 24/7 call centers are from the internet.

We think that's giving us a competitive advantage over the small local players who haven't made the same investments in terms of search engine optimizations and trying to maximize their exposure to the internet and showing up on the first page, showing up on the map. So, we think over the next several years, we're going to make gains in market share, because of the investments we've done over the past several years. In addition to, if you call us on Christmas Eve, you're going to get a live person at a call center who can dispatch a technician. So, we think we're well positioned as the economy regains its footing to take share from the local and regional players.

Okay. That's really helpful. I guess the follow-up to that is, just as you think about mix shift to excavation being lower margin, you think about that investment in the internet, what do you think about in terms of margins? You know, margins in this business, I think were in the 20% range back in '07. Is this a situation where margins can't necessarily get that high again, or do you think they can?

They can get within shouting distance of it. Let's make an adjustment for some mix shift, whether we're talking about 19%. 20% was really where we're hitting on all cylinders as Dave said. That is, health insurance comparisons looked good. Casualty insurance comparisons looked good. Right now, both of those are going the other way and hurting us a little bit on the margin side. To answer your question, if those went the other way, yes. And our retention levels were relatively close to the very good rates they are now. There's nothing that would -- making some adjustment for the mix shift of 19% rather than 20%, maybe, yes, that's certainly within range.

Okay. And then just moving over to VITAS. I wanted to ask -- I presume that the increase in cost of services here overall was is up about $2 million sequentially and that a lot of that is driven by VITAS and the physician recertification. Just want to get some clarity around that.

I'll turn it over to Tim. But let me just say clearly $1 million of it is face-to-face meetings. We were hoping to get more leverage from our physicians on that, but because of logistical understanding of what's required, given what the market is paying physicians, we're seeing we're doing that on a capitated basis. And if you just do the number of research times the amount we're paying for that physician face-to-face, that's $1 million of the dollars right there.

I think that's right. There's been a lot of increases in the regulatory area over the last year, year-and-a-half or so, that are settling into our numbers now. There were costs associated with the changes to conditions of participation. There were costs associated with the physician narrative, on admit. Now there's costs associated with the face-to-face. I think the good news is for us, we built that all in. Now we can refine it, and become more efficient, productive with some of these cost areas, and it's built in. We'll leverage off of it.

So, our admission cost, marketing cost, when you're driving the sales line for those, you feel better about seeing those up a little higher at the same time. We feel we've invested a lot in those areas in the last couple of years, and we don't want them to grow into the future. So, we're going to be refining those cost areas.

When Tim says refining, let's put it this way. Historically, physician costs were relative -- from a management standpoint -- were relatively insignificant. In other words, they were manageable and stable in their trajectory. In the last 12 months, that situation has changed. And we as a company are still in the process of getting the same degree of control over those costs as we have on some of the costs that have, over the last several years, have been more volatile. So, we're not quite where we want to be on a per-program basis. But as Tim says, we're refining those and we're confident we will get there.

Do you think you can lock that in, in terms of a fixed dollar amount, similar to where we were in the quarter, and get a lot of leverage on that? Or that is going to continue to grow as revenue grows?

Face-to-face -- let me say, with regard to face-to-face, right now the market is saying and there's some logistical sport to this as well, it's a fixed number. As we grow and have more research, for the purpose of this call, just use a $100. To the extent that the number of research grows, multiply that number by $100, and that's what the cost of face-to-face is going to be. Not much leverage that we're seeing unless we can change that, and some of the logistical elements behind that change. That's what we're facing.

I mean, again, go one step below the surface and say, CMS has indicated they're very concerned with gaming of the system. They don't want to have companies manufacturing a reason for a paid physician visit contemporaneously with the face-to-face, as if that's serendipitously happening. One of the ways to protect ourselves and protect our reputation right now is to say, look, we're carving that out right now. When we look on a statistical basis, a very, very high number of our research are just plain separate face-to-face visits for no other reason other than for the research requirement and that costs us a fixed dollar amount per visit. With regard to the narrative and other elements of physician costs, yes, we believe we're going to get leverage as we become better managers of that expense line. Yes, we do expect to see improvement.

I just want to characterize that one of the elements that our association is very actively involved in right now is doing something about the face-to-face visits with regard to hospice. Because it's arguable, to the extent that there's a rationale from the government's perspective for them to be in home health care and whatnot, it seems lacking on the hospice side of seeing benefit. You're seeing cost to the provider, not much benefit to the government. The association has been active and there has been legislative action with regard to addressing these, but presently I don't anticipate much benefit on the face-to-face side from just getting smarter on the subject. It's just a net expense as of now and I think will be over the next several quarters.

Okay. Great. Sorry, my last question. I'm just curious, how did the quarter shape up versus you guys' internal expectations?

Let me say this. With regard to hospice, and people who have followed the company for a long time know that I've said this; two of the three toughest months for VITAS are January and February. And it has a lot to do with unemployment taxes and nature of some of the seasonality within the business. I'll give you an example, to the extent that you have, after Christmas, you have a lot of discharges by death. You also have a lot of people who put off changing their health status out of the curative setting who get in. All of the sudden you have a lot expense associated on the admissions side of the business. January and February are two of the toughest months.

So, to answer your question, how it came with regard to us? Things were tough in January and February, maybe a little tougher than we expected. But March, as expected, was very solid across many fronts. So I mean, to answer your question, in line with our expectations. We don't give quarterly guidance, so I don't want to overstate that, our sense of it, but again, our view on the quarter was certainly in line with our expectations.

Okay. Great. Thank you.

I have no further questions in the queue. I would now like to turn the call over to Kevin McNamara for closing remarks.

My remarks will be limited to just suggesting that we will see everybody and talk about results at the end of the next quarter. Thank you very much for your attention.

This concludes the presentation. You may all now disconnect. Good day.