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Gentiva Health Services (NASDAQ:GTIV)

Q1 2014 Earnings Call

May 07, 2014 10:00 am ET

Executives

John N. Camperlengo - Senior Vice President, General Counsel and Secretary

Tony Strange - Chief Executive Officer, President and Director

Eric R. Slusser - Chief Financial Officer, Executive Vice President and Treasurer

Analysts

Joshua Kalenderian - Deutsche Bank AG, Research Division

Ralph Giacobbe - Crédit Suisse AG, Research Division

Sheryl R. Skolnick - CRT Capital Group LLC, Research Division

Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division

John W. Ransom - Raymond James & Associates, Inc., Research Division

Toby Wann - Obsidian Research Group, LLC

Operator

Good morning. My name is Laurie, and I'll be conference operator today. At this time, I would like to welcome everyone to the Gentiva Health Services First Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, May 7, 2014. It is now my pleasure to turn the floor over to John Camperlengo, General Counsel. Sir, you may begin.

John N. Camperlengo

Thank you, Laurie, and good morning, everyone. Welcome to Gentiva's first quarter 2014 earnings conference call. Speaking on the call today are Tony Strange, our CEO; and Eric Slusser, our CFO. We hope that each of you had chance to review the company's earnings report, which was released this morning. All statements made during this call relating to future results and events are forward-looking statements that are based on our current expectations. Actual results could differ materially from those projected in forward-looking statements because of a number of risk factors and uncertainties, which are discussed in our annual and quarterly SEC filings and in the cautionary statements contained in our press release on our website.

Our call today will be consistent with SEC's Regulation FD. We encourage participants to ask their questions during the call, since we have certain limitations on comments that can be made in individual inquiries. Today's call also conforms to Regulation G regarding the reconciliation of GAAP and non-GAAP disclosure. As a result, we will not discuss non-GAAP financial measures on this call except for those set forth in our press release. You may access a telephone replay of this call later today through May 14. A transcript of the call will be posted to our website and will be available for the next 12 months.

Following today's prepared remarks, we will open the call to questions. [Operator Instructions] And with that, I'll turn the call over to Gentiva's CEO, Tony Strange.

Tony Strange

Thank you, John, and good morning, everyone. Thank you for joining our 2014 first quarter call. I'm looking forward to updating you on our key initiatives, as well as our results for the quarter. I'm pleased to report that our first quarter results are right in line with our expectations, although they include a significant impact from the weather events in January and February. On a positive note, we saw our volumes rebound and margins begin to normalize in March. We continue to make progress with the implementation of One Gentiva, and most encouraging, we continue to see some positive momentum in Hospice.

We do have a lot to cover, so let's move right into our results. Revenues for the quarter were $488 million, and adjusted EBITDA from continuing operations was $39 million or 8%. Earnings per diluted share was $0.13 for the quarter, which was consistent with our expectations and positions the company to be on track to achieve our guidance for the full year 2014. During the quarter, 60% of our offices were closed at least 1 day and some up to 4 days over the course of the snow and ice storms in January and February. Due to the volume of Home Health admissions on a daily basis, the storms had a greater impact on Home Health revenues versus our Hospice revenues. We estimate that the impact related to the storms equated to approximately $7 million in lost revenues and $3 million in lost EBITDA. Our Home Health revenues for the quarter were $256 million and our adjusted EBITDA from continuing operations was $31 million or 12% compared to an adjusted 11% in Q4. Episodic admissions were up 9% compared to a year ago, including the Harden acquisition.

Given that the combination of overlapping offices is well underway, it's very difficult to separate same-store growth versus acquisition. Based on the recent trends, we expect to see that episodic admissions from the combined companies would return to double-digit growth during Q2 and Q3. As we overlap the Harden transaction anniversary in Q4, we would expect episodic admission growth to trend in the low-single digits from that point forward. On the Hospice front, revenues for the quarter were $174 million and adjusted EBITDA from continuing operations was $22 million or 13% compared to an adjusted 12% last quarter.

I'm cautiously optimistic about the progress that David and our operational team are making in this business. During our last call, I mentioned that our census was approximately 12,900. During the quarter, we closed or sold offices that reduced census by approximately 150, bringing that snapshot down to approximately 12,750. Today, our census is right at 13,000. I'm encouraged that our census has not declined as is typical in Q1 and is beginning to show signs of growth. From a profitability perspective, I mentioned on our last call that we began reducing direct expenses to correspond to the drop in census. This effort continued through the first quarter and as a result, we've seen a sequential improvement of about 100 basis points in gross margins over the adjusted gross margins of Q4. We expect to see continued improvements in gross margins in Q2, leveling out in the mid-40% range for the remainder of the year.

With the stabilization of census and the margin improvements, the Hospice division should be on track to achieve its goals for the year. And finally, in our Community Care division, revenues for the division was $57 million and adjusted EBITDA from continuing operations was $9 million or 16%, all of which is in line with our expectations.

As you will recall, the Community Care division provides services to the elderly dual eligible population and was 1 of the driving strategies behind the Harden transaction. We are very excited about the opportunities that this business creates for Gentiva on a go forward basis. We are thoughtfully making investments into this business to strengthen the platform, and we are beginning to seek opportunities to expand these services into other markets, where we have deep penetration with Home Health and Hospice. We are now operating our first 2 non-Harden community care sites in the state of North Carolina and are looking for opportunities to expand. We will provide more color on our expansion plans during upcoming calls. Congratulations to this team for a great start in 2014.

I'd like to spend a few minutes updating you on the progress that we've made on One Gentiva. While it's still very early in the process, we are beginning to see anecdotal evidence that One Gentiva is working. The organizational structure has been fully implemented and the last phase of rolling out the combined incentive structure, which will further solidify the joint accountability was finalized last week. We continue to see improved communications with referral sources and better patient care coordination between divisions. Last week, I spoke to the family of a 78-year old long-term Home Health patient who has been battling COPD for years. After several episodes with Home Health, his care coordination team consulted with his physician on his appropriateness for hospice. With the physician's and the family's agreement, the team transitioned the patient into hospice, where he died comfortably 52 days later. My discussion with the family was prompted by their appreciation for the care that their father had received from our employees and the seamless manner in which his care was transitioned from a restorative to a palliative plan of care. This is One Gentiva. I'd like to tell you that this happens in every branch with every patient, but we're not there yet. However, that's our vision and I look forward to updating you on our progress as the year unfolds.

Briefly, I'd like to update the status of things in Washington. As you are aware, at the end of March, Congress passed a 1-year SGR patch that extended physician payments for 1 year. The good news is that Home Health received no further cuts as a means by which to pay for the legislation. The bad news is that we didn't receive any of the much-needed relief to the current rebasing rules. The community continues to press forward on our relief strategies, including introducing a bill that is being introduced by several congressional leaders that would significantly reduce the impact of the rebasing rule and protect seniors' access to care. In the meantime, we will continue to apply pressure to the administration to rectify the overreaching impact of this rule.

From a Hospice perspective this past Friday, CMS issued the proposed Hospice rule for 2015. The net impact of the market basket increase, the reduction mandated by the ACA and the BNAF phase out and reduction is estimated by CMS to be a 1.3% rate increase for hospice providers in 2015. In addition to the payment updates, they also proposed a couple of regulatory changes that target timely notification of CMS on the notification of election, as well as the timely settlement of any outstanding cap liabilities. The proposed rule is open for comments, and we would expect to see a final rule issued sometime in July, with an effective date of October 1, 2014.

Before I turn the call over to Eric for some further insights into our results, I'd like to spend just a minute focused on the opportunity in front of us. There will be continuing rate pressure and increased regulatory burdens. There will be continuing uncertainty as CMS and Congress who wrestle with payment reforms. But as I look ahead, we are still in a position to lead the industry in growth within Home Health and the Hospice and Community Care industries. Our Hospice census appears to have stabilized and we still have room to improve margins as we see the full benefits from the cost reductions done in Q4 and Q1. Community Care results were strong and this business represents a great opportunity for growth, as well as diversification in our payor mix. And probably most exciting, we are just beginning to realize the power of One Gentiva. These external pressures will lead to further consolidations and companies like Gentiva with size and scale and a proven management team will seize the opportunities that a difficult environment affords.

Tonight, we'll provide care to over 110,000 families across 41 states. This care will be the most cost effective setting possible in the patient's home and best of all, this is the preference of the patient and their family. Health care services in the home are and always will be the most cost effective care available for patients who meet the profile. With the addition of Community Care services, Gentiva's Home Health and Hospice platform is well positioned to meet the needs of America's most frail population, including that of the dual eligibles. Providing more care and services in the patient's place of residence has to be a solution to the rising cost of health care and I think Gentiva is well-positioned to lead this effort.

I'd like to thank all of our employees for your ongoing commitment to our patients and our company and the role that you're going to play in making Gentiva the leader in our industry. I'd also like to say a special thank you to our 5 regional Presidents, who have joined us in Atlanta today for our call.

With that, I'd like to turn the call over to Eric for some further insights in our results.

Eric R. Slusser

Thanks, Tony, and good morning, everyone. Overall, our first quarter results came in consistent with the expectations we discussed on our March call and we remain on track to reach our full year outlook. Before I discuss our results further, I'd like to cover a few other matters to facilitate your review. First of all, you should note that our first quarter 2014 numbers include the full quarter impact of the Harden acquisition, which closed on October 18, 2013, and that prior-year numbers reflect only Gentiva results, which impacts the comparability of our operating metrics and financial results. Given the significant number of branch consolidations that have taken place between the overlapping Harden and Gentiva locations, effective with this quarter results, we will no longer discuss the separate Harden results or our results excluding Harden, as they would not make for meaningful comparisons given all of the consolidations.

During the quarter, we closed 7 additional branches related to the One Gentiva restructuring and the Harden acquisition, bringing the total to 53 branches closed during the past 2 quarters. Net revenue comparisons for the first quarter of 2014 were negatively impacted year-over-year by approximately $7.5 million related to the closed locations.

Finally, I want to remind everyone that similar to previous quarters, we will be highlighting results from continuing operations during our discussion.

Now, on to the results. For the first quarter of 2014, net revenues were $487.5 million, an increase of 17% compared to $415.6 million in the prior year. Home Health episodic revenues increased 8% in the first quarter to $224.4 million. Hospice revenues were $174.4 million in the first quarter, down 3% compared to $179.5 million in the first quarter of 2013. Community Care revenues were $57.1 million in the first quarter of 2014.

Turning to our Home Health revenue metrics during the first quarter of 2014, there were approximately 54,400 total admissions on an episodic basis and approximately 82,600 total episodes. On a year-over-year basis, excluding the impact of branches sold or closed, Medicare admissions increased approximately 7% and episodes grew approximately 13%. The number of episodes per admission was 1.52 for the 2014 first quarter, consistent with last quarter. Revenue per episode for the first quarter was approximately $2,715, which was down approximately 6% year-over-year, due largely to the reduction in Medicare reimbursement rates and the impacts from the Harden acquisition.

On the Hospice side, excluding the impact of closed and sold locations, our consolidated average daily census for the first quarter of 2014 was 12,800, up approximately 4% from the first quarter of 2013. Our consolidated admissions for the quarter were approximately 12,600, which was up 2% compared with the prior-year first quarter, excluding the impact of closed and sold locations.

On a sequential basis, same-store Hospice admissions increased 5%, which bodes well for the continued stabilization of our Hospice business. Our consolidated average discharge length of stay for the first quarter of 2014 was 104 days, up from 99 days in the first quarter of 2013.

Our net patient service revenue per day in the first quarter of 2014 was $149, down from $157 in the first quarter of 2013. The mix in our levels of care for available days for the first quarter 2014 was 99% for routine care and 1% for all other levels, which is similar to recent quarters.

Our Medicare cap was essentially flat for the first quarters of 2013 and 2014.

On the Community Care side, we had approximately 4.2 million billed hours and we had an average revenue of approximately $13.60 per hour for the first quarter of 2014. Total company gross profit as a percent of net revenues was 44% in the first quarter of 2014, down from 46.7% in the first quarter of 2013, due partially to the lower margins in the new Community Care business. Gross margins for Home Health were 48.3% this quarter, down slightly from 48.6% in the first quarter of 2013. Hospice gross margins were 42.4% this quarter, down from 44.2% in the first quarter of 2013.

Community Care gross margins were 29.5%, up from 27.8% in the prior quarter. With the additional cost reductions in Hospice in the first quarter, we expect to see improved Hospice margins in the second quarter.

Turning to our selling, general and administrative expenses. Excluding charges relating to cost savings initiatives, restructuring, merger and acquisition activities and legal settlements, SG&A expenses in the first quarter of 2014 were $183.7 million, up from $159.7 million in the first quarter of 2013, due to the Harden acquisition. SG&A as a percentage of net revenues declined to 37.7% for the first quarter of 2014 compared to 38.4% in the prior-year period. From an adjusted EBITDA perspective, interest before -- earnings before interest, taxes, depreciation and amortization, excluding charges related to restructuring, merger and acquisition activities, legal settlements and losses from closed locations, were $39 million in the 2014 first quarter or 8% of net revenues. Note that this included an estimated $2.7 million negative impact from the severe weather conditions during the quarter. Excluding the weather impact, adjusted EBITDA would have been up approximately 7% year-over-year. Our effective tax rate on continuing operations were 39.3% in the first quarter 2014 compared to a tax rate of 39.9% in the first quarter of 2013. First quarter 2014 adjusted income on a diluted basis was $0.13. Note that this included the negative impact from severe weather conditions and the negative impact from the seasonality of federal and state unemployment taxes, which have a much more pronounced impact in the first quarter when many employees reach the wage limit maximum than the remaining quarters of the year.

Switching to the balance sheet. Cash and cash equivalents closed the quarter at $62.9 million, down from $87 million at the end of the fourth quarter, based on typical first quarter seasonality. DSOs were 50 days for the quarter, up from 49 days at end of the fourth quarter. Capital expenditures for the first quarter of 2014 were $3.2 million. First quarter 2014 net cash from operations was negative $17.7 million, and free cash flow was a negative $20.9 million, due in part to the timing of interest payments on the company's debt and compensation-related expenses. The negative cash flow trends are consistent with prior years and the timing effects we usually see in the first quarter of the year.

From a debt perspective, we had debt outstanding on our term loans, revolver and senior notes of approximately $1.17 billion at the end of the first quarter of 2014. Our consolidated leverage ratio for the quarter was approximately 5.8 under our credit agreement. During the first quarter, we made $4.6 million in principal payments on our term loans. For the full year 2014, we're required to make approximately $18 million in mandatory principal payments spread out quarterly throughout the year.

Turning to our Harden integration activities, I continue to be pleased with the overall progress our teams have made since we closed the transaction in October 2013. From a back-office support perspective, we completed the integration of our payroll systems and the conversion of the Harden hospice billing system, which were significant integration milestones for us. We are scheduled to have the rest of the Harden's back-office functions integrated by the end of the third quarter of 2014.

Turning to our outlook. For 2014, we continue to expect net revenues to be in the range of $1.9 billion to $2.1 billion and adjusted income attributable to Gentiva shareholders to be in the range of $0.85 to $1.15 on a diluted per share basis. This outlook includes the full year impact of the Harden acquisition and the final 2014 Medicare Home Health and Hospice reimbursement rates issued by CMS, but excludes any ongoing losses from closed or sold locations as they are wound down. When trending quarters for 2014, keep in mind the sequential improvement we're expecting to see from the reduced unemployment taxes, weather and the full quarter impact of hospice cost reductions taken near the end of the first quarter. Based on the expected benefits from these items and business trends, we remain on track to reach our full year guidance.

In the quarter -- excuse me, in summary, the quarter came in, in line with our expectations. Through efforts such as One Gentiva and the Harden acquisition, we are proactively taking steps to drive shareholder value despite the tough operating environment. That concludes my comments. Operator, let's open the call up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question comes from the line of Darren Lehrich of Deutsche Bank.

Joshua Kalenderian - Deutsche Bank AG, Research Division

This is Josh Kalenderian in Darren. First question here is can you give us a little color on why you think the Community Care margins were up so much?

Tony Strange

Josh, this is Tony. If you look at the margins within Community Care, we've actually had a little bit of improvement in rate compared to our original plan. We would expect those -- and we also had the benefit of some lower operating costs in the quarter. I don't know that I would tell you I think that those margins will stay there for the remainder of the year, but they won't fluctuate a lot. We did benefit a little bit from some lower costs in Q1, but there's nothing unusual in those margins that would cause that number to either go further from there or to fall further from there. That's pretty much the range that we expect them to hold.

Joshua Kalenderian - Deutsche Bank AG, Research Division

Okay. Great. And then can you just give us an update on your Hospice growth strategies and what's progressing there?

Tony Strange

Well, I think, it's bigger than just the Hospice growth strategy. It's really it goes back to One Gentiva, and that's making sure that we find the appropriate care for every patient in the right place at the right time. And just like the example I gave in my prepared comments, there are many patients that are receiving services in their homes today that eventually will qualify for hospice. And the idea behind One Gentiva is to create a culture in which providing care to the patient at the appropriate time in the appropriate setting is what will be second nature. And that's where a lot of the growth will come from. I think One Gentiva, as we represent ourselves and our company to our referral sources, makes it a little bit easier to understand that the Gentiva is really a one-stop shop for a patient regardless of where they are in the continuum of their prognosis, that Gentiva can be there and be the provider of those services. So I don't think it's a growth strategy that's unique to Hospice or unique to Home Health or even unique to Community Care. Now outside of the Home Health and Hospice, I made a comment related to Community Care that we're going to begin looking for opportunities to expand that business. When you think about the synergies that exist between the dual eligible population that's receiving support services in their home versus those of Home Health and Hospice, we think there's a tremendous opportunity. And where we have density in Home Health and Hospice, we're going to look for opportunities to expand. I'm really excited that David and the operating team have found the opportunities to go ahead and expand that business in North Carolina. We have 2 locations up and running and looking for a lot of opportunity to continue to expand that throughout the remainder of the year.

Operator

Your next question comes from the line of Ralph Giacobbe of Credit Suisse.

Ralph Giacobbe - Crédit Suisse AG, Research Division

Can you help a little bit more with the ramp in EBITDA as we sort of move through the year? I think when I look back over the last few years, 1Q sort of contributed anywhere between kind of 24% to 30% of kind of the full year EBITDA number and I know you mentioned that even exclusive of the weather, EBITDA would have been up 7%, but guidance implies something like over 30% type growth. So just hoping you can flush out and maybe even quantify kind of the Harden integration, expected improvement in operations, cost reductions, anything along those lines and where and when does that step up happen?

Tony Strange

Well, Ralph, first of all, thanks for the question. I'll start and then I'll just turn it over to Eric and let him. I think Eric set the stage for you just a few minutes ago. When you think about the Q1 results, I think the way Eric laid it out was there's about a 5% impact -- a $0.05 impact in weather, there's another $0.06 or so impact related to the state and federal unemployment taxes. Just those 2 items alone bridge another $0.11. And then to Eric's point about the reductions in Hospice that we'll see the full benefit of that in Q2, I think gets you to a bridge to where you'd see how the remainder of the year looks. Given in mind that there's some seasonality in there related to Q3 for Home Health and Hospice. On the other side, Community Care has their bigger times of the year are in Q2 and Q3. So that to me is how you bridge. But Eric, is there anything you'd add to it?

Eric R. Slusser

I mean, those are the key things and I would just add to your point, you can look at this business, historically, in our industry and the trends from Q1, Q2 and then Q3, which tends to be a lower quarter because we see a lot of vacation activity in the month of August and volumes slow down some. So we as a company would expect those same general trends quarter-to-quarter as you model throughout the year off of Q1 and Q2.

Ralph Giacobbe - Crédit Suisse AG, Research Division

Okay, all right, that's helpful. And then just going back to Community Care. The $57 million revenue, is at a good run rate to sort of think about or should we think that there's sort of more to that on a sort of quarterly basis just given the near term nature of when you completed the deal? And then also, what type of conversations are you having with payors or providers, specifically targeting sort of the dual eligible population with this service offering?

Tony Strange

Well, that's a great question, and let me go back to a comment that I just made. If you look historically at the Community Care business, if you look Q1, Q2, Q3, you continue to see an increased volume throughout the year with it tapering back off a little bit in Q4 related to the holidays. So we have no reason to believe that, that trend would change in 2014. So we expect from a volume perspective, that Q2 will be better than Q1 and Q3 will be better than Q2, and then we'll see that tail off a little bit in Q4. As it relates to the opportunity, one that we started talking about episodic, we started talking -- we always have been talking about episodic growth in our Home Health business. We have continued to see increased interest in some of the non-Medicare, Medicare Advantage plans. And as we can present our offering in certain geographical areas that make sense, I think they're going to have a lot of interest related to providing these Community Care services to patients as an effort to keep them aging in place and that's one of the reasons that's driving our goal of expanding that program, where we have deep penetration, specifically in Home Health. So we think all of that's upside for us.

Ralph Giacobbe - Crédit Suisse AG, Research Division

Okay. That's helpful. And just to clarify, you said non-Medicare, Medicare Advantage plan. I'm sorry, is it non-fee per service you're talking specifically about interest from MA, so the Managed Care?

Tony Strange

Correct, yes. But we are being very -- we're very disciplined about the MA that we take and again, our goal is to engage those people who really see value in the services we provide. And we think paying on an episodic basis is the way to do that. So we're very disciplined about the business that we say yes to. And because we think our resources are so valuable that we want to protect those and supply them to people who are willing to pay us for the service and the value we create.

Operator

Your next question comes from the line the Sheryl Skolnick of CRT Capital.

Sheryl R. Skolnick - CRT Capital Group LLC, Research Division

So I wanted to come back to 2 questions that really are related within the One Gentiva effort and I would agree with you, it's just more than a Hospice marketing strategy because that hasn't worked in the past. The One Gentiva seems like it's the right way to go. But how -- given that you're not giving the same-store numbers, how are we going to be able to track your progress? I look at the numbers and I say, okay, average daily census as reported, I think, was 13,000 or so. So how do we track that if we're not seeing what's underneath that in terms of the same store? Can you give us some combined numbers from last year so we can see it? Can you give us some standards or criteria that you think are measures of satisfactory progress that we should be looking for?

Tony Strange

Sheryl, it's a great question and one that we have wrestled here with a lot over the last quarter. Let me start with qualifying what you said as to why it's so difficult to give the same-store picture today. If you can imagine in all those overlapping locations that we talked about with Harden and Gentiva, we have already -- we are deeply engaged in the consolidation process. And I would tell you, we are well along the way of having that consolidation completed. And so we are merging Harden locations into Gentiva. We are merging Gentiva locations into Harden locations. We are collapsing provider numbers and moving patients from one provider number to the other. So because of that, to Eric's point that he made earlier, it's almost impossible to pull those 2 things apart. With that said, I realize that we need to provide you guys with some information that help you understand what do we look like on a same-store basis. And why we can't quantify that, here's the way I'm looking. But I think in my prepared remarks, I think I've -- I'll use Home Health as an example. I said that in -- I think our episodic admissions grew 9% year-over-year, which included Harden. I think I also said that I would expect that number to go to double digits in Q2, primarily because we would eliminate the impact of the weather. So think of the combined growth as a low-single-digit growth. When we anniversary the Harden transaction in Q4, I would expect that low double-digit growth to drop back to a low single-digit growth. So in terms of using a benchmark, if you were to hear me say in Q2 or Q3 that admissions were 8% or 9%, that's going to mean more than likely on a same-store basis, they were down. If you hear that number being in the low double-digit, that's going to imply that we're experiencing low single-digit growth inside the business on a same-store, somewhat of a pro forma type basis. Is that helpful?

Sheryl R. Skolnick - CRT Capital Group LLC, Research Division

Yes. And so I guess what I'm -- just to clarify then. So if I use this quarter as an example and you told me how much you were up year-over-year, so I can do the math and figure out what the base was, roughly within tolerance limits. And then I say, okay, so now I can project that given seasonality going forward and assume that it declined through last year. And then off of that, I can actually project the number that's up double digits and be somewhat consistent with where you are, because I know what -- you told us what it was excluding closed and sold, is that right?

Eric R. Slusser

Yes, Sheryl, this is Eric.

Sheryl R. Skolnick - CRT Capital Group LLC, Research Division

Really, I mean, the challenge is I hear the qualitative stuff but when something as important as this, the minutia of the metrics can either obscure or create an impression of growth that might be problematic here. So that's why I was kind of hoping you could give us at least what adjusted for the sold and closed locations the prior year was.

Eric R. Slusser

Yes, Sheryl, it's Eric. I think just to respond to one of your comments, particularly around Hospice and what to look at. I think given the challenges in that business the last few years and our belief that we've found bottom and it's moving forward, I think one of the most important metrics is to look at ADC sequentially. I pointed that out in my script. We're up 5% quarter-over-quarter. And until we get a few quarters into that, I think that's going to be probably the best measure because that is the most important measure. The ADC drives the value of that business and so that's where, absent that year-over-year in our room, is one of the most important things we're looking at.

Sheryl R. Skolnick - CRT Capital Group LLC, Research Division

Okay. And I did hear that and thank you for reminding me of that and I'll figure it out from here. The other question and this again, is part of the larger context of One Gentiva. You've said a number of times that it's going well. That's pretty obvious, I think, in the Hospice numbers in particular, but what has been the reaction from the field? Because when you introduce something of this kind of change, where you're integrating the chain of command up above the actual agencies because of the differences and the way in which they are licensed and operated for Medicare, I get that part. But what's been the reaction of people on the ground? Are you getting a lot of push back? Is this something -- or are the rank-and-file clinicians, I hate to use that word, but are they embracing it as it’s about time guys, what have you been waiting for? What's happening to the culture of Gentiva at the main street level?

Tony Strange

Well, it's insightful that it -- because, first of all, you recognize that this is a major change culturally in the field. And so I don't want to minimize that impact. We have finished the implementation of the organizational structure, which in my mind is the skeleton, the backbone of One Gentiva. We've changed the incentive plans so to -- in an effort to remove any disincentive of people to doing the right thing for the patient. But once you get all of that out and I think your question was at the patient's bedside, what is the reaction to the people who were providing these services? And I think the answer is right where you were leading the question, is I think folks are glad that they can do the right thing for the patient. That example that I gave, I think everybody involved in that case felt very good that we did the right thing for the patient. It wasn't driven by metric, it wasn't driven by profitability, it wasn't driven by revenue, it wasn't driven by a statistic on an OBQI report, it was driven by what's best for this patient and his family. So I think it's being very well received in the field. Specifically as we changed incentive plans, we haven't gotten a lot of push back from the field. I think it's new, so I think people are raising their eyebrows and trying to understand what it means. But so far, I would tell you that what the feedback we're getting from the field is that it's being embraced down at the branch level and folks are feeling good about doing the right thing for the patient.

Sheryl R. Skolnick - CRT Capital Group LLC, Research Division

On aside, the actual amount of cost that you've taken out in dollars, please?

Tony Strange

I don't think we have disclosed that publicly, Sheryl, but...

Eric R. Slusser

Yes, we haven't. I would just say that we're on track with all of the expectations we had from the transaction and are on schedule with all of that. And again, as I think I indicated that we expect to have pretty well, the last of the synergies taken out by the end of the third quarter.

Operator

Your next question comes from the line of Whit Mayo of Robert W. Baird.

Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division

I know you guys really don't want to break out Harden versus the legacy business. I totally get the complexity given the consolidations and the closures and the One Gentiva initiative. But if you were just to take and isolate those sold and shut down agencies, did that group of agencies have positive or negative EBITDA?

Tony Strange

The ones that were sold were negative for the most part.

Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division

Okay. And those that were shut down were probably a drag as well, correct?

Tony Strange

Well, when you say shut down, we close -- we either consolidated or close and you got to look at them separately. The closed locations, a lot of those were underperforming locations for a variety of different reasons, driven by locale and patient base. The consolidations were driven by mostly by the Harden acquisition, where we had overlapping locations. Nothing to do with the performance of the business, driven more so by the acquisition and opportunity to put 2 close branches together.

Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division

Got it. Okay. And my other question was just remind us maybe, on plans for refinancing. I think your bonds are potentially callable later this year. Just what you're thinking about and what we can expect.

Tony Strange

Yes, well, certainly, we're thinking about it, looking at it. But I think as you and everyone knows, a lot of that will be subject to the market conditions in that August timeframe and what the debt markets and opportunities look like when we get there but we will -- we are and certainly will be in the second quarter, doing a lot of work around that and thinking through just exactly what the ultimate outcome is going to be. But right now, it's just too early. Markets can change too much and I think we've got to wait 'til we get a little closer to the August timeframe and look at those market conditions and then go from there.

Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division

Got it. Let me just slip one more in, sorry. I missed the unemployment tax reduction number. Can you repeat that again? I'm sorry.

Tony Strange

I think -- well I think, Eric, the way you quantified it was we were -- it was about a $0.06 impact from 1 quarter to the others, the change in the SUTA and FUTA. Is that right?

Eric R. Slusser

Yes, it's about EBITDA, we've estimated it roughly at about $3.5 million of EBITDA impact.

Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division

For the full year?

Eric R. Slusser

Quarter-to-quarter. So the improvement you get from Q1 to Q2 because of a reduction in those groups of taxes.

Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division

Got it. And then that same cost then flows through the remaining quarters?

Eric R. Slusser

Yes, in theory. I mean, once you get past it, you don't pay it. Just like FICA on highly compensated you don't pay it once you fill the bucket.

Operator

Your next question comes from the line of John Ransom of Raymond James.

John W. Ransom - Raymond James & Associates, Inc., Research Division

I just had a quick question about Medicare Advantage. In your Home Health business, do you have an estimate of what percentage is Medicare Advantage versus traditional Medicare?

Tony Strange

Yes, I think what we have said historically, John, is that if you look at about 80% to call it 84%, 85% of our business in Home Health is Medicare and the rest of the business is split between Medicaid. We do a small portion of Medicaid and the rest is Medicare Advantage. To my comments that I made earlier, this year, we've seen a little more interest from some of the Medicare Advantage plans coming back to the table. As you know, 2013, you saw that number for us shrinking as a percentage of revenue just because a lot of -- some of the plans didn't want to pay on an episodic basis. We have seen some of those plans come back to the table in certain markets. So today, that number, while it's still not a huge piece of our business, that number is probably increasing more in '14 as much as it decreased in '13, but it's still a relatively small number.

John W. Ransom - Raymond James & Associates, Inc., Research Division

All of these are paying episodically then there's no per visit reimbursement in that bucket?

Tony Strange

I'm not going to say never. But yes, as a large -- by a majority, most of that business is paid on an episodic basis.

Operator

Your next question comes from the line of Mick Bevick [ph] of Jefferies.

Unknown Analyst

I was just going to ask a simple follow-up question which is for the previous 46 branches you've closed, you provided a break out between Home Health and Hospice. Can you do the same for the 7 you closed this quarter?

Tony Strange

Bear with us a second, we will get that information for you. While we're looking for that, maybe do you have another question that we could work on?

Unknown Analyst

Sure, and also just a clarifying one, could you just repeat the dollar impact of the weather in 1Q? You said it was 2 point something million?

Eric R. Slusser

Yes, I think what we said was it's roughly about $7 million in revenue and $2.7 million in EBITDA.

Tony Strange

Okay. We're getting that and we'll get -- before the call is finished, we'll get you that number.

Operator

I'd now like to turn the floor back over to Tony Strange for any additional or closing remarks.

Tony Strange

Bear with us 1 minute, we're going to try to get the answer to Mick's question. Operator, are there any other questions in the queue?

Eric R. Slusser

Okay. Yes, in looking at individual sites, all 7 were hospice locations.

Tony Strange

Mick, does that answer your question?

Eric R. Slusser

He may not be on the call but that's the...

Tony Strange

Operator, are there any other callers or any other questions?

Operator

We do have a follow-up question from the line of Sheryl Skolnick of CRT Capital.

Sheryl R. Skolnick - CRT Capital Group LLC, Research Division

I do have one more follow-up question, if I might, and I'm going to go back to the modeling question just because I think it's just very interesting. Eric, you mentioned sequentially that 5% growth and I'm not a big fan of sequentially, but I see where you're going. And since it's the only numbers we have, I'll use them. How does that 5% growth translate into the color that Tony gave us in terms of double digits? Does it have to accelerate? I think it has to accelerate between first quarter and second, meaning the sequential growth has to be bigger than 5% to get to double digit, is that right?

Tony Strange

Yes,, Sheryl, let me clarify that because I want -- and I appreciate your raising it and I will let Eric answer the question you asked him. When I was talking about the double-digit growth and the 9%, that was all related to Home Health, so...

Sheryl R. Skolnick - CRT Capital Group LLC, Research Division

Okay. And I'm asking about Hospice.

Tony Strange

Okay. So I just want to clarify that the double-digit comment is really translating Home Health growth of the combined companies. We would expect to see low double-digit growth in Q2 and Q3 and through the anniversary date. And then after the anniversary date for Home Health, we would expect that number to be in the low single digits for the combined company, which is a different question than the Hospice growth rate.

Sheryl R. Skolnick - CRT Capital Group LLC, Research Division

Right. And the Hospice growth rate is the one that I -- I'm not really worried about your Home Health growth rate because I think you've got that business down pretty well. I'm much more concerned about the Hospice because that's the one that I see is turning and I'd like to be able to watch the momentum.

Tony Strange

Yes, and I think the comments that we have made publicly thus far is that on a combined basis, we would expect to see Hospice census remain flat for the year and that's the number that we have built into our outlook.

Sheryl R. Skolnick - CRT Capital Group LLC, Research Division

Okay. Flat to the year versus 12,900 or flat to the year versus 13,000 or flat to the year versus what?

Tony Strange

Yes. Flat for the year, call it 12,900 to 13,000, but yes. When we put together our outlook, that's the number we used to remain flat for the year.

Sheryl R. Skolnick - CRT Capital Group LLC, Research Division

I'm glad we clarified because when I was looking at double-digit or even mid single-digit sequential growth, that's illogical.

Tony Strange

No, I will take that, by the way.

Sheryl R. Skolnick - CRT Capital Group LLC, Research Division

It would be nice [indiscernible] you should get there eventually, but it would be a little soon.

Tony Strange

Yes, I don't know that the hospice industry is going to get there right now. I think the hospice industry is under a lot of pressure and I think for us, if we can post the year and hold that census flat for the year and not see any deterioration, I think that would be a home run for us and we're going to celebrate that win with you.

Operator

Your final question comes from the line of Toby Wann of Obsidian.

Toby Wann - Obsidian Research Group, LLC

Just quickly. We talked about consolidation in the industry, kind of given your balance sheet. Kind of how do guys think about being a big participant in that if at all, given -- I know you guys are still digesting the Harden acquisition but I know that there's a lot of talk about industry consolidation and kind of how do you guys plan on being able to be a participant in that in a meaningful way?

Tony Strange

Well, Toby, I think, first of all, your observation is right. We are focused on our business today. We have our heads down, we've got plenty to say grace over in making sure that Hospice is stable and returns to growth, making sure that our Home Health business is doing well. And a tremendous opportunity in front of us expanding Community Care. So we have plenty of work to do right here in our own backyard. With that said, I think that as we watch the landscape evolve in these businesses, as people wrestle with what post-acute care reform is going to look like, I think we will continue to keep our eyes open and be opportunistic as it relates to acquisition. If there's a small acquisition that makes good geographical sense for us, we will move quickly and do that. We've usually done that out of our own free cash flow and we'll continue to do that. As it relates to doing something larger, I think when the time comes and we have all of our ducks in a row, I think we would be prepared to participate. We're not afraid of using our balance sheet and being opportunistic as it relates to the debt market and so, we'll continue to grow and be a consolidator, but our #1 focus right now is really focusing on our house and making sure we have our shop in order.

Toby Wann - Obsidian Research Group, LLC

Okay. And then just one quick follow-up, if I could. With regards to accountable care organizations, bundled payments, kind of your own participation in those sorts of activities in the post-acute care landscape, your all's experiences to date, et cetera? If you all could just kind of give us some color on some of that, that would be helpful.

Tony Strange

Well, we are a participant. We are -- we have done several things with hospital systems where we have joined their ACA model and in some ways, we've done it as informal as a preferred provider agreement. In other opportunities, we've actually done joint ventures with hospitals. We have partnered with both hospital systems, as well as Medicare Advantage plans in efforts to reduce rehospitalizations and have been a trusted partner from that perspective. As it relates to other models like bundled payments, we have dipped our toe in the water and have experimented here or there. But I have to tell you, we're going to be very cautious as we move forward. There's a fine line between being on the leading edge and being on the bleeding edge. And in the position that we're in and the way that we're looking out for our patients, our shareholders, our employees, we don't want to be on the bleeding edge. So when we see a model that's going to develop and take traction, we'll be close to follow, but we're not going to get too far out in front of ourselves. Operator, I'd like to once again, before we close, say thank you to all the Gentiva employees who are providing care to patients in their homes today. We really appreciate what you're doing and look forward to talking to you guys again here in a couple of months. Thanks a lot and have a good day.

Operator

Thank you for participating in the Gentiva Health Services first quarter 2014 earnings conference call. You may now disconnect.

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Source: Gentiva Health Services' (GTIV) CEO Tony Strange on Q1 2014 Results - Earnings Call Transcript

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