Scott Brittain - Corporate Communications, Inc. Mark Heaney - CEO Maxine Hochhauser - COO Darby Anderson - Chief Business Development & Strategy Officer Don Klink - CFO.

Mitra Ramgopal - Sidoti Dana Hambly - Stephens.

Good day, ladies and gentlemen, and thank you for joining today. The conference is now in progress..

Good morning and welcome to the Addus HomeCare Corporation Third Quarter 2015 Earnings Conference Call. Today's call is being recorded. This presentation will contain forward-looking statements within the meaning of the Federal Securities Laws.

Statements regarding future events and developments, the company's future performance, as well as management's expectations, beliefs, intentions, plans, estimates or projections relating to the future are forward-looking statements within the meaning of these laws.

These forward-looking statements are subject to a number of risks and uncertainties, including factors outlined from time to time in the company's most recent Form 10-K or Form 10-Q, earnings announcement or other reports filed with the Securities and Exchange Commission and available at the SEC's website.

The company undertakes no obligation to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise. I would now like to turn the call over to the company's Chief Executive Officer, Mr. Mark Heaney. Please go ahead, sir..

Thank you, Scott. Good morning everyone, and thank you very much for you joining us for our third quarter conference call. I'm joined today by Maxine Hochhauser, our Chief Operating Officer; Darby Anderson, our Chief Business Development and Strategy Officer; and Don Klink, our Chief Financial Officer.

Don and I have some brief comments to make about our results that we issued yesterday afternoon and then we'll take your questions. Our financial results for the third quarter of 2015 are in line with the guidance we issued in our pre-release on October 22.

Revenue comes in at $84.3 million, adjusted EPS is $0.25 compared to $0.29 in the prior year quarter. Don will have more on our numbers in a moment. As I commented in our call on the 22nd, we are disappointed with our performance in the Q.

Revenue was slightly below our expected levels and we incurred some additional G&A expense, in part due to our human resource system implementation. We have some work to do and we have initiatives in place to improve our near-term performance. However, in spite of our results in the quarter, the fundamentals of our business remained strong.

Our market opportunity remained significant; we are well-positioned to capitalize on our opportunity. Let me go into a little more detail about our quarter. Our lower than expected results flow from two important factors. Revenue generation. First, our revenue growth was below our expectation. Revenue growth versus last year was 3.3%.

To be clear, taking out previously announced closed operations, our growth was actually 7%. The largest shortfall came in two of our acquisitions which did not generate the sales that we had anticipated.

While we may have missed our forecast, these are good acquisitions, these are good businesses, they are purchased at modest prices, they are in good state, and they are profitable. We are bringing the necessary focus to these locations so that they generate the growth they are capable of achieving.

Good acquisitions made consistent with our strategy are an important part of our opportunity. We have the capital and human resources needed to pursue and close them and we will continue to do so when these good opportunities arise.

On the matter of acquisitions, I'm going to take this moment to update our investors on our New York South Shore acquisition. This $47 million plus revenue business is on track, completing regulatory approval which we expect. We look to close this acquisition immediately after the 1st of the year.

We stay in communication with South Shore's leadership; we're working along on our integration plan. The business is doing just fine and we cannot wait to bring it to the Addus family.

Factors such as slower referral rates where markets are transitioning to managed care, the Illinois budget issue, and market specific leadership changes slowed census and revenue growth in various markets. However know that most of our locations have good revenue and census growth.

While the broader Illinois market has slowed, we're very pleased that our growth in Illinois was above the market. We monitor census development closely. It's our highest priority because it is a key indicator of our success in the community. We are taking steps to increase our focus on census generation in weaker locations and across the company.

On October 1, we brought on a high energy, experienced, homecare business development expert, who is working directly with our senior and site teams to improve sales productivity. We believe we are taking the right step, to further improve our census development, energy, and focus, which will service well now and into the future.

Some of our costs are too high. Our HRIS implementation costs have been running over budget. This is a massively important process involving every aspect of our business. Excellence in this area makes us a better and more efficient company. The system is working and we believe that our HRIS implementation costs to peak.

Our ongoing go-forward focus is on optimizing the benefits of the system, so that it becomes even more efficient. We can be somewhat more efficient in our basic operations. We are always looking to lower our direct operating cost. We can lower some of our overhead.

I am proud that we are consistently pretty efficient in these areas, but under Don's direction. We have a companywide cost rationalization program underway. We think we can become even more efficient. Throughout, we continue to reengineer our care delivery system to position ourselves for managed care, the new long-term payor.

Managed care wants to know what is going on in their beneficiaries' home. They do not want their members discharged from their homes to the hospital. To meet that goal, we have to connect managed care beneficiaries to the greater health system by way of our HomeCare aid and mobile technology.

We have over 6,000 smartphones in the hands of our caregivers serving at-risk persons in managed care markets. They use apps; we develop, to keep managed care consumers connected to the health system. In a recent week, our aid generated over 300 changing condition reports of which over 100 required intervention primary care.

We love what we are doing to position ourselves to best serve in managed care organizations and their members. All said nothing in Q3 gives any pause, as to our vision, our strategy, the opportunity, or our ability to take advantage of it. There are more other low income persons right now than when this call started.

The population we served is living longer and longer. The public policy is that we are going to serve this population at home to the greatest extent possible. Managed care will increasingly serve this population and they will give preference to larger, more sophisticated, technology oriented, outcomes driven, and ultimately risk taking organizations.

We think we are the leader among that small group of providers. We are very positive about our opportunity in this growing and changing market. We appreciate greatly, the work of our people, and the support of our investors. With that, let me turn the call over to Don..

Thanks, Mark, and good morning. For the third quarter of 2015, the company's net serviced revenues were $84.3 million, an increase from 3.3% from $81.79 million for the third quarter of 2014. This growth reflected a 1.2% increase in average billable census versus the third quarter last year.

We also benefited from a 1.9% increase in revenues per billable hour from state rate increases and increase in overall billable hours. Same-store census declined 0.7% for the quarter, but due to increases in average billable hours per census and revenue per hour, same-store revenues increased 0.2% for the quarter.

As mentioned in the release, our decision to accept certain underperforming locations during the third quarter which were all locations in our same-store base, reduced revenue by $2.8 million for the quarter and census by $1,128.

Adjusting our results to remove the impact of these exited locations, total company revenues increased 7%, and same-store revenues increased 3.8% for the third quarter from the third quarter of 2014. For the same period, census excluding exited locations increased 3.7% on a companywide basis and 2.9% on a same-store basis.

Gross margin rose 120 basis points to 27.9% for the quarter. This is primarily driven by improved workers' comp expense. Our tax rate declined to 29.9% for the quarter, from 32.3% for the quarter of 2014, due to credits related to 2014 submission under the Workers Opportunity Tax Credits Program.

G&A increased 210 basis points as a percent of revenue primarily due to the higher cost Mark discussed. As Mark also mentioned, I'm responsible for our cost control efforts to which we have taken a two-prong approach.

One is to reduce spending across several areas to align with our revenue levels; the second is to evaluate our spending to ensure greatest efficiency and effectiveness.

We had net cash used for the quarter of $26.6 million compared to $7.4 million for the third quarter last year which brought cash flow from operations for the first nine months of 2015 to $8.8 million from $7.6 million for the same period in 2014.

The sizeable decrease in cash used this quarter follow the sizeable increase in cash generated for the second quarter both of which reflected variable conditions from the State of Illinois. Due to the cash used in operations, our cash at the end of the third quarter was $14.9 million versus $14.1 million at the end of the third quarter last year.

Addus remains well-positioned to fund its growth strategies with no bank debt and $40 million availability under its revolving credit facility. This concludes our comments. Operator, would you please open the floor for any questions..

Thank you. [Operator Instructions]. Our first question comes from Mitra Ramgopal with Sidoti. Your line is now open..

Yes, hi, good morning, thanks for taking the questions. First Mark, I just wanted to get on to cost side a little, I think you mentioned the spending on the HRIS system is sort of peaked.

I was wondering if you can give us an idea as to how much more you have to spend on that front and may be what potentially was the impact as we look back at 2015 in terms of may be earnings or may be if you have a dollar number for us..

Mitra, this is Don Klink. So as Mark mentioned, the costs have peaked meaning that we completed some of the install for the HRIS. We're still continuing to do some training and some, what I'll call more minor tweaks to get it in to fully operational, the most effective we can.

So there probably will be some little bit of more cost going into Q4 and then even less in Q1, it will decrement as we go forward. I don't have exact figures but it is going to become more our normal operating system and it will start to become more ongoing cost..

Okay, thanks. And then switching on the revenue side, I know you mentioned two of the acquisition certainly didn't help this past quarter.

I was wondering how comfortably you feel as you look at the all the recent acquisitions you have done and in terms of future acquisitions that may be some of the issues that might have what you hear would not be repeated?.

Mitra, I appreciate that question. We have done three, three-and-a-half acquisitions in the past, I don't know, year-and-a-half, two years. As I mentioned in my comments, we have a strategy for pursuing acquisitions we stick to it.

Stage two we have to fill in, in states where managed care is and we ought to be, and the acquisitions that we have done are consistent with that strategy. We are paying, we think negotiating very good pricing for these acquisitions. By and larger these are larger providers in these states specifically, they're good businesses.

All three of the acquisitions that we've done in that period of time are profitable. The two most recent did not grow at our expectation; one of them is actually more profitable. One of those that didn't grow at the rate that we expected it to grow is still more profitable, than we bought it, but it didn't grow at the rate we wanted.

Mitra, every acquisition -- I've been here a while. Every acquisition we've done, we would do again. Every one of them over time grows; some of them grow out of the box and some of them we forecast growth and they don't grow.

I think we -- I think in doing good acquisitions, the way we've been doing them, at the pricing that we're doing them is important for our growth strategy..

Thanks. And a quick follow-up on acquisitions. I know you have a robust pipeline.

Are you seeing any competition in terms of when you identify a candidate in terms of competing bid et cetera or is it pretty much you're bidding against yourself?.

No. I have a burden that we cannot bid against ourselves, they wouldn't allow. So, no, we are certainly seeing a various competition and we encounter it periodically and obviously that has influence on pricing. But I'd tell you that an important criterion for many sellers at this level is where their people will land.

And I think that we have an edge in that area. I think we will compete on price. But overall I think when compared to others we are very, very frequently viewed as the preferred employer, preferred provider, and that's an edge..

Okay, thanks. And I know you did mention earlier regarding you're seeing favorable revenue per billable hour from some of the states.

Is that pretty much across the Board for all the states you're seeing in terms of just reflecting what the overall macro picture looks like?.

No, Mitra, this is Don Klink. It was primarily the Northwest region, so big states for us are Oregon, Washington, Idaho, right in that area we saw increases..

Okay. And again, the bump up in the AR that was pretty much from Illinois.

And I know you mentioned this is third quarter you've pretty much recaptured a lot of that?.

Yes, it was almost all Illinois..

Okay..

Like 99%..

Okay. And finally I know if I look at the payor mix last couple of quarters, it's around 18% for managed care. So it's been flat sequentially.

Is that more a reflection of a slowdown you've seen in terms of the transaction of some of the states as opposed to anything else going on?.

So, Mitra, this is Darby. On that transition, in our payor line, two things influenced that obviously, acquisitions was a large part of that as we're acquiring in managed care states and then the conversation that we experienced in Illinois that went through second quarter of this year.

So we won't see any significant changes in that line until we see additional transitions in Illinois which are kind of on hold given the budget mass, but also we will change significantly after South Shore and any other managed care acquisitions.

I think I focus now is managing, I know, within that line our market share growth; within managed care payor..

[Operator Instructions]. Our next question comes from the line of Dana Hambly with Stephens. Your line is now open..

Thanks. Good morning.

Mark could you remind us why on the exited locations why you guys exited from those locations?.

Yes, let me have Maxine address that if you don't mind, Dana..

Okay..

Good morning, Dana..

Good morning..

We've looked at the locations and there were three factors that we basically looked at. One was the reimbursement that we're getting for the contracts that we had within those locations as compared to what our cost basis was.

The other was basically whether the state was favorable towards managed care which didn't impact as the third is to whether or not we could really gain appropriate market share. So in the locations we exited, there were volumes of clients but the contribution to the bottom-line was very limited because of the contract state..

Okay. That's helpful.

And you at this point, you feel pretty good about the rest of the portfolio?.

Yes, we feel pretty good about it. But historically Addus has always looked at its performance in various locations and we will continue to do that as the environment is changing..

Okay, great.

And then Don on the $330,000 in costs that were in G&A, I think you called out the exited locations and an earn-out, do you have the breakdown for those, if not could you just reassure that is truly one-time in nature?.

Yes, I mean the earn-out is actually at the max amount so there is no more increase for that and we have incurred all the cost on the exited locations. So now those are complete..

Okay.

And then Maxine may be on the New York acquisition, the integration there it's a big acquisition for you, are they bringing a lot of their own infrastructure, whether it's a cost center or back office systems that you believe in place for a while or how is that going to operate within the Greater Addus portfolio?.

So we intend to leave it in place as it is for a while, while we get our hands around their operations. They are running extremely well as Mark had indicated and we're really excited to be having them join our portfolio. But we’re going to basically leave their infrastructure as it is for the immediate future..

Okay.

And then last one from me just an update on minimum wage, wage inflation, healthcare cost, just how that's trending any big states we should be looking at just kind of any general change or status quo on that front?.

I would say from this quarter through our last call pretty status quo. There is still a lot of conversation on minimum wage but no real activity that's imminent, some things that we're working on for more in the future. But we're managing our cost on ACA; we will see where that goes in the upcoming elections.

But no big changes I would say to report this quarter, Dana..

At this time, I'm showing no further questions. I would now like to turn the call back over to Mr. Heaney..

Yes, thank you. Thank you all very much for your participation in today’s call. We look forward to see you little later in the year when we talk about Q4. Thank you all so much..

Ladies and gentlemen, thank you for your patience. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day..