Chemed Corp (CHE) 2012 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Chemed Corporation's fourth-quarter 2012 conference call. My name is Erin and I will be your conference call facilitator 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 with Chemed Investor Relations. Please proceed.

Good morning. Our conference call this morning will review the financial results for the fourth quarter of 2012 ended December 31st, 2012.

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 the result of a variety of factors including those identified in the Company's news release of February 18 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 February 18, which is available on the Company's website at 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. Welcome to Chemed Corporation's fourth-quarter 2012 conference call. I will begin with some of the highlights for the quarter and David and Tim will follow with additional operating detail. I will then open up the call for questions.

Chemed consolidated revenue in the quarter totaled $369 million and net income was $26.7 million. If you adjust for certain non-cash items and items that are not indicative of ongoing operations, adjusted net income for the quarter totaled $29.9 million and equated to adjusted earnings per diluted share of $1.57. This is an increase of 8.3% when compared to adjusted earnings per diluted share of $1.45 in the fourth quarter of 2011.

During the quarter, our hospice business segment generated revenue of $273 million, an increase of 7.2% over the comparable prior year period and provided adjusted EBITDA of $44 million, an increase of 9.8%. This equated to an adjusted EBITDA margin of 16.1%. Admissions in the quarter totaled 16,004, an increase of 5.4% over the prior year.

VITAS accrued a $900,000 2013 Medicare Cap billing limitation in the fourth quarter of 2012 that related to three programs. The government's Medicare Cap fiscal year begins on September 29. The first quarter of the Medicare Cap year has potential to be volatile if a program experiences any unusual admission or discharge patterns. This is also attributed to a seasonality pattern in which admissions and discharges tend to sequentially decline in November, December and then subsequently spike in January, February. As the year progresses, individual program Medicare Cap calculations become significantly less volatile and more predictable on a year-to-date basis.

Actual January 2013 admissions and discharges in these three programs did increase sequentially and, consistent with prior years, we anticipate reversing all or a significant portion of this Medicare liability in the first quarter of 2013.

The Medicare Cap 2012 fiscal year is based upon Medicare admissions from September 29, 2011, through September 28, 2012. And this compares to Medicare hospice billings from November 1, 2011, through October 31, 2012. Medicare will retroactively prorate Medicare beneficiaries who receive hospice care in multiple hospice providers. Based upon admissions in Medicare revenues during these periods including the proration, VITAS has estimated that there were zero billing limitations for the 2012 Medicare Cap fiscal year.

In fact, VITAS generated an aggregate cap cushion of approximately $213 million during the trailing 12-month period.

Now let's turn to our Roto-Rooter business segment. In the fourth quarter of 2012, Roto-Rooter generated $95.6 million in revenue, essentially equal to the prior year. This resulted in $17.1 million of adjusted EBITDA, a decline of 4.2%.

I am disappointed with Roto-Rooter's 2012 operating performance. In 2011, Roto-Rooter had its second-best year ever in terms of profitability. Our 2012 business plan had initially anticipated 2012 exceeding that operating performance. However, in 2012 we ended the year generated and adjusted EBITDA of slightly over $58 million, essentially equal to our 2010 [comp] rated results.

The 2012 operating results were the result of unusually soft demand for emergency residential services, primarily in the first half of 2012. We also incurred unusually large healthcare expenses in 2012, which pressured Roto-Rooter's operating margins.

We did achieve solid growth in the commercial sector which tends to receive less emergency or weather-triggered services. For the full year 2012, commercial jobs increased 2% with plumbing jobs increasing 4.5% and drain cleaning jobs increasing 1.3%. However, this growth in the commercial sector was not high enough to offset weak residential sewer and drain demand.

Roto-Rooter's January and first half of February of 2013, revenue and job count results appear to be much more aligned with the traditional seasonal patterns. This makes me very optimistic on the profitability growth for Roto-Rooter in 2013.

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

Thank you, Kevin. As Kevin mentioned, VITAS's revenue growth was 7.2% in the quarter. If you exclude the impact of Medicare Cap, revenue expanded 6.5%. This growth is the result of increased average daily census of 5.4% driven by an increase in admissions of 5.4% as well as increased discharges of 5.4%. We also had modest expansion in length of stay and an increased Medicare reimbursement of approximately 0.9%.

Revenue growth also was slightly benefited from a favorable patient geographic mix shift. Our average revenue per patient per day in the quarter excluding the impact of Medicare Cap was $205.78 which is 1.0% above the prior year period.

Our routine homecare reimbursement and high acuity care averaged $163.76 and $713.34 respectively per patient per day in the fourth quarter of 2012. During the quarter, our high acuity days of care were 7.7% of our total days of care, essentially equal to the prior year quarter.

The fourth quarter of 2012 gross margin, excluding the impact of Medicare Cap, was 23.5% which is 21 basis points below the gross margin in the fourth quarter of 2011. Our homecare direct gross margin was 54.4% in the quarter, 12 book basis points above the prior year quarter. Direct inpatient margins in the quarter were 10.5%, which compared to 13.1% in the prior year. Occupancy of our inpatient units averaged 72.6% in the quarter and compared to 72.5% occupancy in the fourth quarter of 2011.

There are currently three inpatient units classified as start-up in the quarter and these start-ups negatively impacted our inpatient margins by approximately 150 basis points in the quarter.

Continuous care had a direct gross margin of 18.3%, a decline of 160 basis points when compared to the prior year quarter. Our average hours build for a day of continuous care averaged 18.8% in the quarter, a 1.0% increase over the average hours build in the fourth quarter of 2011.

Selling, general and administrative expense was $20.1 million in the fourth quarter of 2012, which is an increase of 10% when compared to the prior year quarter. However, on a year-to-date basis our selling, general and administrative expenses increased 6.3% which compares favorably to our full year revenue growth for Medicare Cap of 7.8%.

Now let's turn to the Roto-Rooter segment. Roto-Rooter's plumbing and drain cleaning business generated sales of $95.6 million for the fourth quarter of 2012, a decrease of 1/10 of 1% over the prior year quarter. Adjusted EBITDA in the fourth quarter of 2012 totaled $17.1 million, a decline of 4.2%, and the adjusted EBITDA margin was 17.9% in the quarter, a decline of 76 basis points.

Unit for unit job count in the fourth quarter of 2012 declined 2.1% compared to the prior year period. During the fourth quarter of 2012, our total residential jobs decreased 2.4% as residential plumbing jobs declined 9% and residential drain cleaning jobs increased 1.2%. Residential jobs represented 70% of our total job count in the quarter.

On the commercial front, our total commercial jobs decreased 1.3% with commercial plumbing and excavation job counts decreasing 3.4%, and commercial drain cleaning jobs increasing 0.3% compared to the prior year quarter. The All Other residential and commercial job category, which represents 1.5% of aggregate job count, declined 10.5%.

Now let's look at our balance sheet.

Chemed had total debt of $175 million at December 31, 2012. This debt is net of the discount taken as a result of convertible debt accounting requirements. Excluding this discount, our 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 January of 2013, Chemed entered into a five-year Amended and Restated Credit Agreement that consists of $350 million revolving credit facility. The interest rate on this Amended Credit Agreement has a floating rate that is currently LIBOR plus 125 basis points. In addition, an expansion feature is included in this Credit Agreement that provides us the opportunity to increase our revolver or enter into term loans for an additional $150 million. The company currently has approximately $320 million of undrawn borrowing capacity after deducting $29 million for letters of credit issued to secure the Company's workers' compensation insurance.

Our capital expenditures for the full year of 2012 aggregated $35.3 million and compares to depreciation and amortization during the same period of $30.5 million.

During the quarter, we purchased 723,472 shares of Chemed stock at an aggregated cost of $48.8 million. The Company now has $14.8 million remaining under our previously announced share repurchase program.

Since Chemed restarted its share repurchase program in 2007, we have returned over $504 million to shareholders with the repurchases of over 9 million shares at an average share cost of $55.85.

Our 2013 full-year guidance is as follows -- VITAS expects to achieve full year 2013 revenue growth, prior to Medicare Cap, of 6.4% to 7.0%. Admissions in 2013 are estimated to increase approximately 4.5% to 6.0% and full-year adjusted EBITDA margin prior to Medicare Cap is estimated to be 14.4% to 14.8%.

Effective October 1 of 2012, Medicare increased the average hospice reimbursement rates by approximately 0.9%. Revenue growth assumes sequestration is deferred into calendar year 2014. Earnings-per-share guidance also assumes VITAS will incur $5.0 million of estimated Medicare Cap contractual billing limitations for calendar year 2013.

Roto-Rooter expects to achieve full year 2013 revenue growth of 2.0%. The revenue estimate is a result of increased pricing of approximately 1.5%, a favorable mix shift to higher revenue jobs, with job count estimated to equal the prior year. Adjusted EBITDA margin for 2013 is estimated in the range of 17.1% to 17.5%.

Based upon the above, management estimates 2013 earnings per diluted share, excluding non-cash expense for stock options, non-cash interest expense related to the accounting for convertible debt and other items not indicative of ongoing operations, will be in the range of $5.65 to $5.80. This compares to Chemed's 2012 reported adjusted earnings per diluted share of $5.29.

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

Thank you, David. VITAS had a very solid operating performance in 2012. Admissions totaled 63,777, an increase of 6%. Our average daily census for the quarter reached 14,465, 5.4% higher than the prior year. During the year, VITAS provided end of life care to over 77,000 patients and their families. The increase in admissions is a direct result of our investments in field education and marketing of the hospice benefit, including training and recruitment of additional staff.

As of December 31, 2012, we had 358 field sales and marketing personnel, 163 admissions coordinators, 379 admission nurses, 55 admissions liaisons, 81 community liaisons, and 23 long-term care liaisons. Admissions increased in all four of our largest referral categories. During the fourth quarter, home-based admissions increased 8.1% and our hospital-referred admissions increased 5.1%. Assisted living facilities increased 15% in the quarter and nursing home admissions increased slightly at 0.4%.

VITAS's average length of stay in the quarter was 80.3 days which compares to 79 days in the prior year quarter and 78.5 in the third quarter of 2012. Average length of stay is calculated using total discharges during the quarter. Median length of stay was 15 days in the quarter. Median length of stay is a key indicator of our penetration into the high acuity sector of the market. Our days of care totaled 1,330,819 days in the quarter, an increase of 5.4% over the comparable prior year period.

Non-nursing home, routine homecare days increased 8% in the quarter and nursing home routine homecare declined 2.7%. Nursing home days of care has now declined to 20.8% of our total days of care. Continuous care days increased 8% and inpatient days of care increased 1.6% when compared to the fourth quarter of 2011.

At December 31, 2012, we had three programs classified as start-ups. Total operating losses for these start-ups totaled $1 million in the quarter and compares to losses of $900,000 for locations classified as start-ups in the prior year period.

With that, I will turn the call back over to Kevin.

Thank you, Tim. At this point we will entertain questions at the meeting.

(Operator Instructions). Darren Lehrich, Deutsche Bank.

Good morning, everybody. I have a couple questions. I wanted to start with Roto-Rooter. Just maybe could we get a little bit more flavor for job count? I understand your comments just about the earnings disappointment on the year, but we have seen a little bit of sequential improvement and I am just curious to get some flavor for what you're seeing.

I'll start out, let Dave comment on it. But, as I said, I think we have seen sequential improvement. We are talking about a very basic pretty predictable business that even though we had difficulty last year, we didn't see that same difficulty on that commercial side. And for a variety of reasons as we indicated that the phone is ringing more. And I think that's part of why the investment we have done on the Internet side of the business where a majority of our calls come in now fund numbers that only appear on the Internet. So we have seen that sequential improvement that you are talking about, and as we have said in the course of the presentation, what we have seen for Roto-Rooter is the first couple of months is just a return to what we would expect.

I mean the best season for Roto-Rooter is the winter months and we did not see that basically last year, but we are seeing it this year and that is really expected, to be honest with you. And so if you said what one should assume for Roto-Rooter, you would assume that it would go back. You should see the fairly easy comparison to last year's results and the expectation is more in line with a little bit improvement over the last few years.

And you have talked a lot about the web-based marketing. Maybe it is too limited a sample, but I couldn't help but notice in the Northeast a lot more outdoor advertising. Have you shifted this at all to, I guess, get at the residential, the consumer side with billboard? Is that anything new?

It is interesting you say that because you are exactly correct. It is something that Roto-Rooter has done in -- on and off over a long period of time. And we have just been much more active in billboard advertising. And where we have done it and you know how marketing is, it may be a coincidence, but the phone has rung more where we have done more billboard advertising. So it is something that just happens to be a part of what we have been doing the last six to eight months.

And I did want to ask one or two things on the hospice side, if I could. I guess leaving sequestration out certainly makes sense. None of us can predict what is going to happen in DC, but I guess I wanted to get a sense from you as to what you think what kind of mitigation strategy you think you might have if it were to go through and then maybe a more technical question for Dave. What is your understanding in terms of how sequestration would impact over the course of the episode? Is it -- are the rates based on the current pricing or is it based on when the patient was admitted? Any flavor for that?

Let me start. I will start -- I'll turn it, to answer your question I will first turn it over to Tim because he is the one who has to do it and I may have some different ideas. But we have been talking about this obviously for some time, but, Tim, if sequestration did occur what are the type of things that -- what levers would you pull or what are the kind of thoughts that would go through your head?

Very good. I am not aware that they have been talking about any retroactive to when the patient was admitted. So we have not heard that, haven't seen that at all. So if it were to occur, it would affect a drop in our revenues of approximately 2% based on what we hear right now. And there's a lot of possibilities that it will be deferred or some other changes made. So as you say we are not positive about that.

On our side, I think the best way to discuss it is this is nothing new. We have been anticipating this obviously for several years and as we have moved into those years, we basically think of categories of expenses that yes, we have decisions we can make about investments. We have decisions we can make about pricing issues on our labor, obviously. And we have a lot of things in the mix on our expense side that are non-labor, things like our ancillary services. And we have talked about how we are always improving that and we have good things to bring forward as we go into next year on those areas.

So our tools are increasing. They have more effective labor scheduling for productivity and that is just capturing where everybody is, all the cost in the system for each caregiver and having effective scheduling. So you would maybe say, well, haven't you -- you've been in business 30 years, haven't you accomplished that yet? And the answer is really, technology is helping.

So we have ongoing areas in the fringe benefit that we can make changes to. And we have done a lot of planning as I say, anticipating that there could be some choppy waters in the reimbursement and based on the eventual outcome of that, we can moderate the effect on our bottom line quite a bit.

So we feel very comfortable and I guess the other thing you really do need to throw in there, we know that these types of issues are going to put more pressure on many in the industry, many of our competitors, small or large. And we are, we think, very well-positioned from a competitive position compared to how those issues may affect others in the marketplace. So, again, not new news and we have been preparing and are prepared and we are comfortable with it.

And let me just add one thing before I turn it over to Dave. You have got to remember that when we are talking about protecting margins in an era of sequestration, it largely begins and ends with labor. Obviously, we have the benefit of hospice, there is a lot of variable cost, and 66% of our costs fully loaded are labor.

So that's the general area that Tim and his team are constantly working with to keep in control and to the extent that they just changed the calculus by changing the reimbursement, obviously, you have got to deal effectively with labor as well. But, Dave, go ahead.

The other thing I would reiterate is although we are -- everyone in the hospice industry is dealing with the largely variable cost model, as Tim mentioned, we are the largest provider and we do have scale. And that scale is really coming from $80 million of what I would call is backroom or infrastructure.

So there still is, as the government squeezes us, our people see that, it does create a lot of opportunity to manage costs differently on non-bedside labor as well. That will become completely transparent and invisible to our patients.

But it is probably important to revisit what is going on with reimbursement today. So I think about it right now, every October 1 as a result of the Hospice Act which is embedded into the Social Security Act, we get an increase, that will be October 1, that is based upon about two thirds the hospital wage index basket and about one third of it is urban CPI.

So this October 1, we get a net 90 basis point increase because there is a number of haircuts that are currently ongoing. And this is kind of critical to keep in mind.

So right now, if you remember at the tail end of the Bush administration they implemented something called the Budget Neutrality Adjustment Factor, where they are taking away some of the inflation increases received over a previous 10-year period. And there's about three more -- I think three years left to run on that where they take 70 basis points out of our market basket increase.

Then healthcare reform came in, and there's some additional cuts to our market basket. As a result of healthcare reform, another 30 basis points comes out. That is just a flat statutory amount. Plus something called a productivity factor, which I think was 70 basis points -- I am trying to remember -- for this past year.

So now just to recap. So 70 basis points from the market basket for the Budget Neutrality Factor. And the combined healthcare reform worked out to be about another 100 basis point cut. So our 90 basis point increase we received really should have been about 2.6% this past -- this October 1 of 2012. You know if sequestration naturally happens, that is another 200 basis points coming out of the reimbursement increase, which would really take us to a decrease.

Now we have, because of our scale, we have about the same margins as everyone else at the field level, but because of our scale we are delivering low to mid teens in an EBITDA margin. So we could weather this in a very fragmented industry, the 200 basis points. We think we can, given time, offset a major portion of it.

The fragmented industry, though, which has about an average daily census of 100 to 120 patients as a daily census, they are not in a position to weather this. As a matter of fact, MedPAC estimates about half of the hospices lose money, primarily those that are direct subsidiaries of hospital groups.

So we will have our work cut out for us in terms of reengineering some cost out of the system. But we think this will create a significant opportunity for intelligent consolidation to ensure most markets have continued access to quality hospice care. And we really think this will create the opportunity for us to pick up market share either through direct competition or intelligent partnerships with hospitals to ensure that those hospital discharge planners can get quality hospice.

So there's a lot more positive as a result of this we think than negative, if all of these adjustments to reimbursement come to pass.

Thank you. Thanks, Dave.

Frank Morgan, RBC.

Good morning. I was wondering if you could give us -- the admission numbers look really strong. I am assuming that is not a same-store admission growth number. Could you give us what same-store admits were in the quarter?

It was -- that was same-store.

That was same-store. Anything in particular that is driving back? I mean that seems like really good robust recovery in admission growth over the last year or so, anything in particular that is driving that?

Let me start by saying, before I turn it over to Tim I would say, look at the investment we have made in sales and marketing, more feet in the street. What we hope is a little bit better training as we learn more and more of the changing marketplace. But when you look at the expenditure, I hope it is coming from that increased expenditure. Tim, anything else that you would like to add?

Well, again, I think we have talked to you guys quarterly and all the things we talk about about having a strong effort with our sales team and a model where we can have our admissions people very quickly on the scene to be helpful and we can intake people into our programs seven days a week, 24 hours a day and upgrading our opportunities to do that.

So, again, we are doing the right things in the marketplace and when you have a good sales and marketing effort that only works for you if you have a great quality of service. So we do. And as you know, one of the things we talked about is our inpatient unit strategy. We are in large markets. We have invested in those in the past. Those things are paying off.

You can see that our home care programs are growing at a nice rate, and what we talked about in the past is when we invest in the inpatient units, that drives eventually the homecare opportunities. So the new start programs that we have invested in in the last three or four years as those programs begin to take initial, additional market share growing from 5% market share to 10% market share, that helps have good growth opportunities.

And again, we can't -- we don't know exactly, but our perception is that many of the competitors that we work against in the marketplace are not as strong as we are and don't have the resources, they are not moving forward. So we are picking up incremental share and volume.

So again, I think Florida is doing very well. We are very pleased with that. You can see obviously the admissions are impacted, the situation where we didn't have a cap either in the first quarter of the year, so that is very good. We are making progress in Texas and Illinois, two areas of the country where we've talked about over several years where we are modestly not growing much, modestly kind of flat. And now they are both growing for us so that's good news. And California is stable.

So, again, all of the issues that we've talked about, all of the investments are paying off. And I believe we are giving very, very high-quality services and I want to thank all of our caregivers and field management for that awesome work they do for our patients. So that would be my feeling about it.

And so to summarize, I would say from my perspective, the increase has been spread generally throughout our system. We are not getting it in any one -- it is not being driven by any one particular location or one referral source. I will say that goes to kind of a subtle point that Tim is making as some of our competitors are struggling, one of the first things they cut is sales and marketing. So that what we are doing on a relative basis looks even stronger. And then, but things go slowly.

I mean, I can give you one of our -- in one of our California markets a 500 census not-for-profit hospice program recently filed Chapter 11. Now, obviously, they are making all sorts of cuts. I think that's going to mean a lot of good things for our branch in that location. But it happens gradually. And even, I mean I don't even think in that program you will see a spike in growth of admits, but it is going -- it just comes from a lot of blocking and tackling.

On the comments you made earlier about the opportunities for mitigation on the nonlabor ancillary services side, can you elaborate a little bit? Give me some examples there, maybe a little background on what you might be able to do in that area. Thanks.

Yes, I am not going to give you any details because these things are all built into the estimates and forecasts we have given to you, but as we have talked about in the past there's really three areas. Our largest area of spend would be the pharmacy that our patient needs. And probably the next area would be the medical equipment that they need when they are cared for at home or in various facilities. And then, the third area would be medical supplies. And again, because of our volume opportunities as we pick up over the years, we are in a better position to seek moderate price increases or the best price we can achieve and volume helps.

We insourced about seven or eight years ago our own medical equipment company. So pretty much in about 80% of our locations it is a VITAS internal group of people that are working to provide the medical equipment, which allows us to have more rapid coverage, better feel for what the customer needs and service them better and also to lower our cost. Because we are cutting out the third-party profit on that.

And again, our medical supplies is a lower category of spend, but as it gets bigger and as we have better systems to put in, we see those costs that are going to be in pretty good shape. So those are the three areas, really, of what I would contemplate in the ancillary services. And all I was suggesting as we have in the past, the strategies we have implemented and have ongoing and are lowering are helping us in that area. So that would be the three things in ancillary and the big focus we have.

And as Dave already inferred, something that has helped drive our growth in over a nine- or 10-year period, our growth in EBITDA margin has been taking advantage of having our central support cost, that $80 million -- what is now $80 million of central support having that grow at half the rate of the top line has enabled us to expand our margin. I mean, in this environment we are talking about protecting our margin and, similarly, that to the extent we keep those central support costs that is accounting, IT, what have you, to the extent you have those growing at the same 50% level of the top line. That is another key factor in helping you protect margins.

I think we are all in agreement that we want to turn around and be more efficient with our accounts and IT expenses so we can protect everyone at the bedside.

Got you. One, going back to the admission growth, are you seeing any anecdotal evidence in the marketplace? Are you seeing fewer new entrants, new programs being brought into the marketplace around the country? Thanks. I'll hop off.

I would say probably yes. It is not a sea change of any sort, but yes. The thing about the marketplace as we have talked about there is not many markets out there that are not fairly highly served and the demand being met. So from that situation there's less of a new start opportunity compared to what you saw 10 years ago. And I think the new entrants would be they're keeping their eyes open and seeing there's a lot of barriers with the regulatory schemes that have been put in. It is difficult. And they see the risk, when you see all of these headlines of companies having situations with audits that give them some problems.

And so I think that slowed it down. It takes more resources, the markets are tied up and the players there are strong.

So we still see them from time to time or we see acquisitions done by a regional company that is buying a small player that can make it more difficult for us. So it is region by region, but that is probably slowed down in the last year or two.

I would say just again anecdotal evidence or commentary the one other significant hospice program that is part of a public company as I see it at least on a comparative basis, Gentiva is closing programs compared to the fourth quarter of a year ago. So that is some information with regard to programs, as Tim says, that aren't necessarily in major metropolitan markets where we are which, almost without exception, are -- have a lot of hospice programs already. You would be, where that is not the low hanging fruit for a new entrant into the market by any means.

Frank, I think you can't really overestimate the sea change that is going to be happening in hospice. So I think it was the November or December of 2012 MedPAC meeting where they had the estimate of margin profitability, had about 4% to 6% and I think that is really based upon 2011 results.

So besides the budget neutrality factor getting clipped in 2012, is it going to 2013, only getting a 0.9% increase is really putting significant -- the forced sequestration is putting significant pressure on our competition. And maybe doubledown is too strong of a word in terms of our approach, but we are not pulling back on our marketing efforts. We are not pulling back on any of our bedside care.

So we really think our size and our careful managing of our capital has put us in a very, very key strategic position as, really, we go to the next several years in hospice that through intelligent competition in the marketplace and intelligent acquisitions that are very accretive to shareholders, we are just in a phenomenal position. As long as Medicare believes in the hospice program which we believe they do, we think we are in a great position to ensure access to quality hospice care in all of our markets.

And I think one point that goes to keep in mind and both Dave and Tim have referred to this, you might say where are we in this competitive environment where very important, historically, a very important element of doing well competitively has been having the best service. We are still in VITAS, succeeding and growing, and we are still in the period where our visits per patient per week are still going up.

So we are still in that phase where we are able to do that and still grow.

Well, if there are no further questions, we will end the meeting and return three months hence.