Scott Ginn – Senior Vice President-Accounting and Controller Paul Kusserow – President and Chief Executive Officer Ronnie LaBorde – Vice Chairman and Chief Financial Officer Steve Seim – Chief Strategy Officer Dan McCoy – Chief Operating Officer Kate Jones – Chief Clinical Officer.

David MacDonald – SunTrust Kevin Ellich – Piper Jaffray Brian Tanquilut – Jefferies Whit Mayo – Robert Baird Sheryl Wolnik – MS USA.

Good morning. My name is Candice and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.

Scott Ginn, you may begin your conference..

Thank you, Candice. Good morning and welcome to the Amedisys Investor Conference Call to discuss the results of the second quarter ended June 30, 2015. A copy of our press release is accessible on the Investor Relations page on our website.

Speaking on today's call from Amedisys will be Paul Kusserow, President and CEO; and Ronnie LaBorde, Vice Chairman and CFO.

Before we get started with our call, I would like to remind everyone that statements made on this conference call today may constitute forward-looking statements and are protected under the Safe Harbor of the Private Securities Litigation Reform Act. These forward-looking statements are based on information available to Amedisys today.

The company assumes no obligation to update information provide on this call to reflect subsequent events other than as required under applicable security laws. These forward-looking statements may involve a number of risks and uncertainties, which may cause the company's results or actual outcomes to differ materially from such statements.

These risks and uncertainties include factors detailed in our SEC filings, including our forms 10-K, 10-Q and 8-K.

In addition, as required by SEC Regulation G, a reconciliation of any non-GAAP measures mentioned during our call today to the most comparable GAAP measures will be available on our website on the Investor Relations page under the tab Financial Reports, Non-GAAP. Thank you. Now I will turn the call over to Paul Kusserow..

Thank you, Scott, and welcome to the Amedisys second quarter conference call. This morning I’m very pleased to announce we reported revenue of $314 million, adjusted EBITDA of $32 million and adjusted earnings per share of $0.42. We are very encouraged by our strong year-to-date performance and the trends that we are seeing in our business.

In home health, field level contribution increased $7 million or 22% over the second quarter last year. Same-store Medicare revenue was down 1% on flat admissions. We continue to see strong same-store Non-Medicare revenue growth at 16%, again, driven by our larger contracted relationships.

In hospice, we posted our strongest quarterly same-store revenue growth in nearly three years. Same-store admissions continue to increase and cost per day is down more than 5% year-over-year leading to a healthy increase in margin. Hospice field level contribution was up almost $4 million or 28% versus the prior year.

After June 30, our hospice senses was slightly under 5,000. Clearly the hospice restructuring put in place in the fourth quarter of last year is favorably impacted its performance. In only nine months, Jim Robinson has built a strong team, established a sound growth strategy, execute it cleanly and delivered results.

I expect to see continued strong performance from our hospice business. Congratulations to Jim and the entire hospice team. On the regulatory front, CMS we’ll soon finalize its proposed work for hospice that will go into effect in October.

In its current form the change in hospice reimbursement methodology will have a net neutral to slightly positive impact to us. CMS also recently released the proposed rule for home health and we are currently in the comment period. Ronnie will provide more details on the potential, financial impact in his remarks.

In the home health proposed rule, CMS introduced a value-based purchasing program pilot in nine states that will provide financial incentives to providers generating superior outcomes for their patients using similar metrics to the stars program.

This is a significant shift for CMS away from traditional fee for service to outcomes based reimbursement. It’s important that home health providers monitor the design criteria and implementation of this pilot program. But in general, we are supportive of its goals. Home health providers that deliver the best quality care should be rewarded.

Ultimately, we believe a well designed program like the proposed one will drive consolidation and ultimately benefit providers with scale, capital resources and clinical sophistication. This month CMS also released star ratings for home health agencies for the first time.

We are pleased to report that over 90% of our providers will rate it at least three stars compared to just over 70% for all providers. This data will be publicly available and provide transparency to those seeking home health services. We believe stars will drive disportionate share of volume to higher quality providers.

We are and we will continue to be a high quality provider. CMS also introduced changes that reflect the value that they see in hospice services. Although, the details are still emerging, CMS has proposed that one physician will now be reimbursed for end of life discussions.

And two, there is a pilot program being introduced that will allows for curative treatment when a patient collects hospice. In fact, one of our hospice care centers in South Carolina will participate in this pilot starting in January 2016.

Since our last call, we have continued to work on and build out our strategy, culminating in the strategic plan that we presented to our board last week. Our plan, aligns in focuses efforts on the most impactful opportunities to drive growth margin improvement and clinical distinction.

We believe that Amedisys is well positioned for the future, both payers and consumers will continue to push for more care to be performed in the home, which will reduce cost and improved patient experiences. As a result, strategically we are focused on two things.

One, optimizing our performance in our core home health and hospice businesses, and two building capabilities that allow us to meet the future demand for broader continue on the home-based services. We’ve identified four key areas of focus that will critical to success in our core businesses.

Building clinical distinction, becoming the employer of choice, increasing operational efficiency and driving growth organically and inorganically. Clinical distinction is foundational to our business, and truly it’s the hard of what we do.

Our focuses on driving improvement in our clinical quality today and continuing to develop distinctive clinical programs tailored our patients needs. While we are pleased to see the company’s strong relative industry positioning in the initial stars force, continuing to improve our quality metrics is and always will be a priority for Amedisys.

Clinical distinction will be essential, as we prove out the value proposition in the Healthcare in the home to payers and the referral sources in order to move away from a commoditize view post-acute care. Our scale, educational programs and access to clinical resources will provide an advantage in this area.

Investing our people – in our people is another fundamental and foundational element of our strategy, and it’s core Amedisys is a people business. The quality of our clinicians directly drive the quality of the care provided to our patients. Our goal is to become the employer choice in home health and hospice.

Achieving this goal means, we need to recruit, train, develop and retain talent at all levels of the organization. We would focus on making operational improvements that will make light easier for our clinicians will also improving retention.

Employee turnover is not only difficult operationally, but very costly, ultimately we will benefit by way of higher productivity and lower cost and our patients will benefit with higher quality of care. Improving margins in a challenging rate environment necessitate the constant focus on operational efficiency.

Last quarter, we announced our plan to transition away from our proprietary software platform AMS3 and AMS2 to Homecare Homebase over a period of 18 months to 24 months. Today, roughly 90 days after signing the contract with Homecare Homebase implementation remains on track with 18 sites fully live on the system.

Although, it is early and the preliminary feedback we are receiving from the field is very positive, particularly the comments from our clinicians. On patient visits clinicians have been able to maximize their time providing care to our patients and spend less time documenting in their point of care computers.

This will maximize the opportunity to capture efficiency gains that are made possible with our upgraded platform. As we proceed through this transition, we are gaining best practices inside from our private sites and the Homecare Homebase implementation team that will benefit the broader rollout.

We expect to implement the system and it 60 additional care centers before the end of the year, if there – initial results proved to be highly positive, we may accelerate the rollout. All of these areas I’ve touched on will improve productivity and retention. And they will free of capacity to allow organic growth.

We are also driving initiatives that will provide greater standardization and consistency and our business development efforts resulting in a more effective sales team. In addition to driving organic growth, we are continuing to pursue M&A opportunities. We pleased to attract our two transactions in the past week.

We closed on the purchase of hospice assets that will add seven key counties covering the greater national area to expand our existing Tennessee hospice footprint. We also signed a definitive agreement to add five new counties to expand our home health license in our key Georgia market.

We have increased the volume of deals, we evaluated to over 150 in the second quarter versus 17 in the first quarter. The two completed transactions were identified through our internal prospecting and sourcing efforts and didn’t involve bankers. I’m encouraged by our deal flow and why we are and what we are seeing.

A key longer term piece of our plan is that we refer to – as what we refer to as the new gain strategy. More care can and will be delivered in the home because of advancements in technology and as a response to pay our patient demand.

We think eventually that the home will be the pivot point for care delivery and planning versus institutional settings. Our aim is to be a leader in building care continuing that center around home care and aging in place. We’re also out looking for deals and partnerships that give us capabilities to do this.

In the evolving consumer driven, value-based worlds, these capabilities will be essential to our success in the new game of care being delivered in the home.

Sorry, page – we recently announced the location of an executive office in national and are excited about the opportunities have our presence in one of the leading healthcare markets in the country. Most of our central back office in many of our corporate functions will remain in Baton Rouge. And leadership will spend significant time in both places.

Internally, we are being very transparent about our intentions as this kind of move can be disruptive. We need the most talented people regardless of location. Our patients don’t care about where we’re located. They just wants the best care in their homes. This decision will help us get the best talent to drive our strategies forward.

As you will notice in our filings, on July 28, we reached an $8 million settlement on the wage and hour collective and class action litigation that we previously disclosed. This settlement will be payment, later – the settlement will be payable later this year and we are glad to have resolved this issue.

Overall, we are very pleased with the results for the quarter. But there is always room for improvement. One area of concern for us is Medicare volume in the business mix in home health. We have some regions in our home health business that are growing Medicare well.

And we are looking and we are working to carry over some of these practices across the entire home health platform. We are confident in our plans to address these concerns while over it and we’re seeing encouraging results.

Lastly, as we always try to remember, it’s a privilege to do what we do, taking care of people in their homes, in their most vulnerable times. 13,000 people serving 57,000 patients a day, 7.5 million visits a year.

We believe there is a virtual circle in our business, where the right people with the right tools, deliver the best outcomes clinically and financially. The two are intertwined and we appreciate your interest and support as we move forward to improve and transform our business of caring for people where they want to be in their homes.

With that, I’ll turn it over to Ronnie LaBorde. .

Thank you, Paul. So for the second quarter again, our revenue was $314 million and adjusted earnings per share was $0.43. Adjusted EBITDA was $32 million or 10% of revenue.

There were several one time items in the quarter detailed in our press release, including the $8 million wage in our settlement, $3 million of severance, and a $4 million gain on the sale of an investment. Turning to home health, revenue was $248 million up $4 million.

Home health operating income was $38 million and increase of $7 million over the prior year. Medicare same-store revenue was down 1% as the result of flat admissions and lower recertifications. Our recertification rate was 36% compared to last year 37%. Medicare revenue for episode was up 1.5%.

Non-Medicare same-store revenue again grew handsomely at 16% and admissions increased 15%. In home health, our gross margin was 42.6% compared to 42.8% last year, cost per visit was down slightly from last year. Turning to hospice, our revenue was $66 million for the quarter, up $5 million.

Operating income was $17 million and increased of $4 million over last year. Same-store revenue growth increased 10% with admissions up 11% and ADC up 8%. Cost of service per day decline 5%. This reduction was mainly attributable to declines in pharmacy cost, as well as DME cost.

So result in hospice gross margin was up 350 basis points to 49.6% compared to last year results. With respect to G&A, on an adjusted basis our G&A was $105 million, down $2 million from last year. Corporate G&A was up slightly over last year and up $3 million sequentially.

Sequentially, depreciation expenses down $2 million, largely attributable to the software write-off of AMS3 in the first quarter. This earnings improvement of appropriately $0.04 per share reflects the removal of AMS3 cost, but not the cost of Homecare Homebase, which will be reflected in third quarter results.

We expect the run rate per depreciation to level out, it appropriately $5.5 million per quarter. Cash flow from operations for the quarter, before changes in operating assets and liabilities was $29 million and increase of $2 million over the prior year. Our DSO was 31 days down one day from March 31.

Capital expenditures for the quarter are $14.6 million incremental increase up $12.4 million over last quarter. A large portion of this increase is due to one time, Homecare Homebase software licensing fees.

Our projected CapEx for the year remain between $20 million and $25 million and we expect our run rate in 2016 and beyond again to be reduced below the $10 billion level.

At quarter end, we have a cash balance of $33 million, a deferred tax asset on our balance sheet of $140 million, $97 million in total debt outstanding and our total leverage ratio was 0.9 times adjusted EBITDA for the last 12 months. We have $99 million available under our revolving credit line.

Looking forward to the second half of the year, I want to discuss a few items that will impact results. First, the second quarter generally reflect higher home health volumes, higher in those in the third and fourth quarter. We are focused on growth and that should overcome these normal trends.

Second, we have holiday cost that will increase for one additional holiday in each quarter compared to the first and second quarters. This is approximately $0.02 per share in incremental cost in each the third and the fourth quarter. And as Paul mentioned earlier, we are making investments in key areas.

With respect to ICD-10, which becomes effective October 1, the third quarter will be the most intense preparation period. We are completing our training for internal staff and do according to prepare for the implementation. We are adding resources, amounting to approximately $2 million for quarter.

To mitigate, anticipated productivity impacts and other risks presented by this transition, as well as effect improvements and our processes. We anticipate improvements should eventually offset this cost. We have begun implementation of our new technology strategy, which we expect to ultimately result in $20 million of G&A savings.

In conjunction with this new strategy, cost of our technology platform will shift from depreciation under AMS3 to EBITDA under Homecare Homebase. The next three quarters will likely reflect higher cost of $2 million to $3 million impact in EBITDA. And as previously discussed, depreciation will be lower offsetting the portion of these costs.

We expect the bumpiness in EBITDA to be neutralized in the later half of 2016. We have restructured compensation programs to shift toward a higher proportion of equity base compensation, 80% of which is performance based and lower short-term cash incentives. Effective this restructuring is essentially cost neutral.

However, beginning in the third quarter, you will see a $1.5 million increase and non-cash compensation. We are about launching effort to refinance our existing debt and replaced our second lean term loan with the banker lower – bank term loan and revolve.

This successful and this endeavor just paid lower in our interest costs on the $70 million of second lean loan by approximately 600 basis points. CMS is issued proposals as you know for both home health and hospice. With the hospice rule, this assumed to be finalized.

We expect the impact of the new hospice rule to be neutral again the slightly positive. In home health, we are working through the impact of a proposal to us. We can’t give any specific financial impacts a day.

We do know that CMS is estimated a 1.8% cut in overall payments to the home health providers, which exceed our expectations primarily because of the unexpected case mix pre-cut of roughly 1.7%. Finally, I would just comment on our last call, we identified a goal of 400 basis points of EBITDA margin improvement over the next three years.

At the time, we did not anticipate the additional case mix adjustments that CMS has proposed from both 2016 and 2017 and the proposed rule. Our goal remains to deliver as plan. We still intend on hitting our volume growth targets and reducing costs. But ultimately, we don’t control pricing impacts from CMS. This concludes our prepared remarks.

Candice, would you please open up the call for questions..

Certainly. [Operator Instructions] Your first question comes from the line of David MacDonald from SunTrust. Your line is open..

Guys, look, I know couple of these, we are obviously pretty new it’s our ratings and value-based purchasing, but when you talk about the pipeline, can you just little more detail, are you guys seeing any increase this comfort from the smaller guys, as you know the coming apparent that more our – your compensation is going to be tied the clinical outcomes and I got a couple of follow-ups..

Dave, good morning. This is Ronnie. Unfortunately, we are having some technical difficulties and you fade it in and out. And I’ll ask you try one more time. Candice, I don’t know if anything you can do here..

Could you try your question again Mr. MacDonald..

If you could listen Candice and then translate towards if it becomes a problem it seems why don’t we try that..

Certainly..

Guys, I think the background noise with you operator.

So guys, basically the question is with the star rating [indiscernible] obviously, early new, can you guys hear me off?.

Yes. We can hear you. .

Okay. Obviously particularly new, but are you seeing any increase in this comfort from some of [indiscernible] outcome. How that ties [indiscernible]. And I got a couple of other follow-up. .

Okay. So let me translate just because you did fade in a little. So what you’re basically saying is on the star ratings in the increase and the push towards value base purchasing and other things that we – that are we seeing pressure that was result in potential M&A opportunities.

Is that right?.

Yes. You seeing the smaller guys, I mean, a little bit more on [indiscernible].

I would say we are not seeing that sort of foresight that we were hoping that the people would see the tsunami gathered out there and see what’s going to hit them. But we haven’t seen that in a huge way yet.

We think once the – it’s sinks in that there are all of these initiatives that fundamentally if they – do you get finalized will drive big, big cuts in terms of these gross margin, which is the margins are much lower in general in the mom-and-pop. We think we’ll see a lot more activity there.

We also think that the mid-level folks that we have been seeing – we seen a little movement there. I think if they – in the kind of $50 million to $100 million range on revenues we’ve seen some discomfort, because they’ve been studying more and I think they’ve been doing more calculations in terms of what it’s going to do their business.

What we haven’t seen that was valuation expectations go down. And I think we will start to see that in a very good time for us. I think we have more implementation on Homecare Homebase. When our operations are running in our Homecare operations are running as well as our hospice operations are.

So we thinking about six months, we’ll start to see some very meaningful flow as we – as I said in my comments, so Dave, our team is done a great job of building up the pipeline and sourcing deals – the good little deals we brought and we’re just nice deals that really are very additive, relatively inexpensive and we’ll continue to do those until we see this figure open up and more realistic expectations.

.

And then Ronnie, you’ve kind of touched on this little bit answer, but regards to homecare hospice, you talk about those well you could accelerate rollout of it. Can you give us a sense I think 18 months to 24 months was the original timeframe, where do accelerate it.

Is it 18 months could have been less than that give us some sense of what’s the timing could be if you didn’t decide to serving that. .

Okay, you fade it a little. But let me try to translate. So Homecare Homebase implementation if we do decide to accelerated and would we – what would that acceleration look like and what would causes to accelerated, is that a fair answer..

And also, I think 18 months to 24 months was originally talk about and how should we think about was the 18 months could have been less than that just some sense of time..

Its three months later from when we first talk to you. So I think we would reduce that. My IT guide Marty here is laughing nervously at me. So I’ll let Marty answer that in terms of the – in terms of what we can do, in terms of implementation.

Our belief that is – here is what I have been, I have been out in the field and I’ve talked to people who have started to use Homecare Homebase. And the feedback is very, very positive, particularly on our – from our clinicians. So we are seeing an obviously our clinicians are who deliver the care and there a lot of the cost of the company.

So I think that the key thing for us to make sure we given the best of they can half to do their job. So as we continue to role this out. We see that this is a positive as we are seeing in the first 18 sites.

We are going to look towards our implementation team and see if we can put more resources into this and speed up implementation because the – once we get Homecare Homebase and we can drive a lot of the operational efficiencies that we think we are going to push those 200 basis points, we talk about additional basis points, we talk about in terms of operational efficiency.

So the faster we get that down, the faster we can start to implement along those lines. So we are very motivated and pushing our folks, but we are can be unreasonable where they start to watch up implementation. So I don’t know Marty, if you have additional on that..

That’s – thank you, that’s just pretty complete. So the method of acceleration would as while indicated be to bring additional resources making sure the of course we do that in the least disruptive way.

And we would do that by working with our internal teams with Homecare Homebase staff and with their business partners bring additional resources to move the transition more quickly to enable the results that we are starting to see in the field that in the back office..

Okay. Thank you, guys..

Thanks so much, Dave. .

Your next question comes from the line of Kevin Ellich from Piper Jaffray. Your line is open..

Thanks guys, can you hear me okay?.

Yes. We hear you well.

Yes..

Thanks. Ronnie, just wanted to go back to your comment about the 400 basis point margins hedged over the next few years and I thought you said case mix just wasn’t included in that assumption.

Does that have an impact and we still be able to drive that 400 basis points of expansion?.

Yes, Kevin, thanks for the question. I’m sure the 400 was not at that point. So now that flows through just the mass of it, might cross that just about more than half.

And what we want to indicated is our plan is still the same to deliver on those initiatives, and those opportunities that we see, but standalone and all, with this rate cut coming through, the math that would cut in half with those same results..

Okay, that’s helpful. And then obviously just….

Kevin, just one point I would like to add to that, there’s going to be a lot of – clearly, there’s going to be a lot of industry interest in that portion of the row, and this is still – its still in the comment period.

This isn’t fully baked yet, and I think there is going to be a lot of momentum to make sure that this is a draft and potentially there is some litigation on this. We are going try forward, we anticipate our gathering well is well.

It’s not in and baked yet, but I think the key thing is do we – what we do 400 basis points better than the industry or what we consider the industry, yes. Will pricing take – could pricing take 200 points back on us, yes it could. But we’re waiting to see – that’s what we’re waiting to see..

Okay, that’s fair. I appreciate that. And then looking at the strong EBITDA growth this quarter with the margin expansions you saw, you talk about $5.5 million of run rate P&A for the quarter and it came about what, $4.6 million this quarter.

So just wondering what’s the delta is, if it’s going to be more lumpiness as we think about things until for later part of 2016?.

Yes, look Kevin this is Ronnie, I think I understood you, and will go back to – so between ICD-10 and the early stage of our technology strategy implementation, the cost side definitely can be a little bit bumpy here and we are signaling that that could be, just on the cost side up to perhaps $4million or so in the quarter between those two, offsetting that from an EPS perspective will be the lower depreciation.

And so you see that net effect – net of that probably about $0.04 a share. It’s just the cost side of it is reflected. And so it’s early we wanted just let you know there is some lumpiness. We certainly have a view of how to offset those calls which will emerge overtime. We are just not talking precise comment on that..

Got it. And….

But ultimately – ultimately I conclude that again on the technology side that this EBITDA cost, that side as we transition and get more efficient transition staff and implement certain opportunities there. We think that lumpiness will be about neutral or neutralize by the end of next year 2016..

Okay, great.

And then what’s the most nature if the new losses that you are opening about plus the build out of the senior management team, was there a much incremental G&A expense this quarter? Or it should be look that next quarter?.

Incremental G&A on the move to Nashville that net effect of it, is that right Kevin?.

Yes, that’s right, Paul. Okay..

So the net effect that we expect that pretty neutralize at the end of the day slight increase, but we will continue to look at that cost. So we built in some of the management team within our run rate is reflected today. So we think at the end of the day not certainly material issue as we move forward. .

Great. And then two last questions for me. Paul, you talked about the two deals that you wrapped up. Can you give us some more color in terms of the cost and what are the multiples you are seeing out there and what you are paying. And then also the strong non-Medicare same store admissions growth in home health.

Should we expect that to continue?.

Okay. We got you first on the two deals and can we give you more, can we be more expensive on valuation on the two deals that we’ve gotten, and then we kind of lost here. So why don’t I get to that first and then you can repeat. So the first one is we did very well on these deals. We are for a variety of reasons we are disclosing the purchase price.

But what we did as we kind of classic gumshoe work, we basically figured out where we needed to fill in gaps particularly initially in hospice. This was – and fundamentally what we are doing is we are buying market share. We are buying CON in a place which is very, very important to us where we have a strong presence in hospice in Tennessee.

In Georgia, similar again we’ve gone in and we are buying turf. And we see huge – I mean we very strong efficiencies where we are going to be operating these as out of existing centers have minor – minor additions in terms of staff, in terms of resources. So we think these are going to be very, very accretive, very quickly.

I don’t know Steve Seim, Head of Strategy and – as here, I don’t know Steve, you have anything to add..

I think that’s fair. They replace that fit very well as talking. They are contiguous to geographic areas we are already do businesses and particularly in Tennessee, it’s a real nice fit with not only the hospice, but a homecare market that were very strong. And so we are very comfortable and we are continuing to look for those kinds of things. .

Okay, great. Paul, my follow-up was with the non-Medicare same store admissions expand, should we expect that to continue. .

We have a couple of good I mean so here is where I’d look at this. Our admissions growth this year has been extraordinarily good. So volume is coming in. What I think the issue that we have to think about is how do we process all the volume that’s banging at our door.

And so I think what we did and there were two things that you bring home a great report card and you always look at B minus and not the age. And so we are looking at the B minus.

I think what we need to improve on is we need to think about mix more critically, particularly as admits are coming in and we need to sort through that and get our fair share of traditional Medicare, which is obviously as higher margins. And then the other thing is our results were down. And results in traditional Medicare were down.

I saw – we are spending a lot of time and attention understanding that on the key thing is as we saw at a couple of months ago and Dan McCoy will that comment after this as really done a wonderful job getting our folks going and we’ve seen very early good results to tell you it’s fixed yet, it be presumptive.

But I think we’ve seen a lot of changes or people certainly have read the message. And we are seeing some good results thus for. I don’t know Dan, if you have anything to add on that..

Yes. Just at a real high level, Paul you spoke about investing our people in the operational efficiencies, which includes retention as well as the productivity. So we have initiatives underway already they will help drive our growth.

In addition that we’ve identified some best practices across the country that some more region to are doing extremely well. So we are taking those best practices to drive that standardization and efficiency across the country. That includes data analytics, business intelligence whatever information we can have to help grow the business.

And I think Paul – just a complement what Paul have said, we are very encouraged by preliminary results for the month of July to the fourth week or third week. We’re seeing encouraging results. So overall from when we raises the growth pattern is definitely hitting the right direction.

So we made a lot of strives in last 60 days, 90 days with the intention of growth in the second and third quarter of 2015..

Yes. I think as just a follow-up and beat this thing to that Kevin is – the message has been well received in the field that’s – important in our mix that traditional Medicare is important in our mix that there is a sorting process that has to be done better to fix mix. And that there is a – and that the appropriate research can be done.

So I think there is been a very strong message out there and we are starting to see very good results this month. So I think we’re all over..

Thanks guys..

Thanks..

Thank you, Kevin..

Your next question comes from the line of Brian Tanquilut from Jefferies. Your line is open..

Hey, good morning, guys..

Hey, Brian..

Hi, congratulations. First question for Paul, so with as far as data and all the discussion evaluates. So how do you translate your superior performance relative to most of your peers into market share gains and increased reimbursement. So how do you communicate that to your target market and what type of medicines you’re going to going forward.

So make sure that you maximize that opportunity?.

I’ll take – I’ll let Kate Jones to see, who is our Chief Clinical Officer talk about how we’re going to maximize and move the dialogue starts even better level. I think what we do though just to be clear on how we will take advantage of this. First of all I think start – and I’ll go back to my past.

I was involved in Humana's implementation of stars and it was an extraordinary complex endeavor. The results though are very good and we’re seeing the same thing here. You have to be a sophisticated provider with a lot of scale, a lot of resource, a lot of education to move stars.

And so I think what that’s going to do is those people they don’t have that I think are going to have a hard time with stars. And so I think it’s moving towards – I think once again towards scale and resources. It’s going to favor those folks that are out there.

The other thing is when our referral sources – I think are going to have to be more quality oriented. And so when they – when the referrals in hospitals and in physicians when they see and the patients see and make the choices for which home health agency to be referred to or not. They are going to look at the star ratings.

And that’s going to drive more and more referrals sources because it’s going to be very hard to recommend somebody within that the top of the pile from a stars perspective. So we understand what this is going to mean from a business development perspective.

I think Kate you want to talk a little bit about how we’re going to do well and what initiatives we have toward driving?.

Sure, Thank you, Paul.

So I think your question about how this may impact the growth, we are planning all along has been to include to all of our team members and how we get ready for and respond to star ratings, so our operations leaders, our business development leaders and our clinical leaders are all working together in concept on our star planning and our star are respond to our star ratings.

We’re pretty pleased with how the first results looked when they came out just over a week ago. And we are already hearing anecdotally from some of our market, that people are making choices based on star ratings.

And so it’s a continuous quality improvement effort including for those locations where we already have 4.5 stars to continue to push everyone to the right on where we are with star ratings.

At the end of the day, its our ability to reflects the quality of care that we’re providing and star ratings gives us an opportunity to do that and so, what we’re seeing and hearing so far that positive results and star ratings will be a positive driver of growth, which makes perfect sense because people want good care provider than their home’s been and allowed our clinical team, our quality team and our op team to really focus on that..

And just a follow-up on that Kate or Paul, is this also opening up opportunities for BPCI as we see bundle payments and also the new joint bundling program that was introduced for the hospital.

So are you seeing any doors opening already for you guys related to those?.

Yes, its very pressing of you Brian, is the, we were having this discussion right before the call started, so I was asking Kate for trying to get prep for this in terms of what the similarities were in terms of stars versus across the various government programs that are out there.

So the thing is if we go to star measures does that give us credit for other measures or help us to be better prepared in going there, and so I’ll let Kate give that answer..

Yes, so what we have done is a cross walk between all the various measures that are being looked at either proposed or already in place and of course readmission rates are included both in star ratings and in the proposed VBP measures. So having a lower readmission rate certainly will help in any potential BPCI partnership that we pursue.

So we are certainly can be a good post-acute partner for our hospital community hospitals where is the 75 that maybe based with the joint replacement BPCI program. We are certainly can be a good post-acute partner for them and star ratings will contribute to that.

But also some of the other measures that are out there will be necessary for us as we work with them..

I appreciate that. And then for Ronnie, so as we think about the 400 basis points, last quarter when you gave this guidance, the EBITDA margin was 8.7% and sequentially it already went up about a 130 basis points. So if you are saying that the rate cut could reduce the margin upside opportunity by half.

I mean you are essentially say there is only 70 basis points left, but we are in very early stages of Homecare Homebase.

So how do you reconcile all of that?.

Brian, if you did break up on that thing – I got Jeff to your questions. Just into the walk between 400 and in the comment about half of that and its nothing more try not to make anymore complex and we still will deliver half use of deliver on the efficiencies and the reduction in cost that we an indented.

If we take these rate cuts off the top which will be $20 million plus over a couple of years of for Medicare then just a math of that, gets us down to about half..

Ronnie, my question was the fact that you already seeing 130 basis points of margin improvement..

Yes..

From when you initially gave the guidance, so if you are saying half there is only about 70 basis points left I guess..

That’s not unfair. I think that’s [indiscernible] we’ve gotten some of it and price is going to put us take some of it back and will keep going. I think you frame that fairly..

Okay. I got it. And then last question hospice, obviously good performance there. So are we in the third or fourth inning of the gain or are we in much earlier stages on that one..

I’d say an hospice were – I’m really proud of what our hospice folks are doing. I got to tell you I think Tim Robinson and his team just done a great job. So I think they are executing extremely well. I think Jim is boil this thing down to – I mean I was just out there in Boston and then in Pennsylvania talking with some of our hospice folks.

And just very encouraged by how they are singing off the same hymn and all, which is a good – a very nice sign for an organization. They know what they have to hit, they know what their metrics are. Their focus – their heads are down, they are feeling really good about what they doing, they are delivering great care.

So I think what I'm basically saying is the way I'm kind of looking at is Jim, you are doing a great job. We’re going to let you continue to do a great job. If I can push on getting some more acquisitions in, I’d love to do some more deals in hospice because hospice is ready.

Once we get Homecare Homebase in hospice, which is upfront in the queue, it will be even more ready. And then I think my sense is home health will be ready a little after that. We still have – it’s a little more complex business. But I think we will be able to start in selected places where operations are going very well.

I think we will be able to start to and we’ve started to target those areas where we’ll be able to do some deals and bring some things in. So all good..

I appreciate it. Thank you, guys..

Sure. Thanks, Brian..

Brian, this is Ronnie. I'm going to follow-up on your question. And just know from our looking at the second quarter again, we are trying to indicate is not a run rate. So we posted good results and good margin here in the second quarter, but that’s not a full year results as you know.

And so to say that just 70 basis points left we probably have little more work to do and probably is more in that then from the second quarter if that makes sense..

Now, it makes sense. Thank you, Ronnie..

You are welcome..

And then I think the one other thing I would like to add Brian is on – is if this pilot workouts whether there is which could be very interesting. I think there will be a lot of shake out in the industry. If there is the 5% in the nine states that we are talking about is pulled out and then reassessed and then redistributed giving quality bonuses.

I think there will be obviously some incremental revenue potential there. And once again, we are going into that full bar and we anticipate, we’re going to get the quality bonuses and come out with more than 5% that they take away from us initially..

Got it, that makes sense. Thank you, guys..

Okay..

Thank you, Brian. .

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

Hey, thank you. Just wanted to follow-up on Brian’s hospice question. How sustainable do you see the margins in the quarter.

And was just one of the quarters where everything just sort of fell the right way and then expect us to continue?.

I will talk about the business in general and then I guess Ronnie will talk about the margins. The winter at our back in hospice in terms of from my belief, I mean the two things have come out in terms of the rulings. CMS now is going to reimburse physicians for talking about hospice. I think there will be more people coming through hospice.

And then I think the other proposed pilot where they’re going to be testing, because, they’ve already seen good results where they’re going to be people having curative care as well as hospice. I think is going to be an interesting project. But once again I think it shows a wider acceptance or wider interest of hospice in more places.

So I think from that perspective we’re very, very sanguine about the business. From a margin perspective, I’ll let Ronnie to talk about if were in a full year. .

Sure. Well, in that I want to put Jim on the spot, but we will. .

He’s not here. .

It was a really a good quarter and it was the highest, certainly the highest gross margin we had and since the beginning of 2014. But you know looking at last year, just how much of that will carry forward. I think a great deal of it. And last year even for Jim, Jim stepped in and to leadership again effective October 1.

But from Q2 to Q3 last year, we went from 46% gross margin to 48%. So we did it last year essentially and some good things that happen since then. So I think the large part of this – if not all of the can go forward and will get Jim sign up for that. But good results and I think it’s pretty real given the volume changes that we’re seeing. .

Okay.

And Ronnie, you mentioned that you’re calling, your secondly in that assumes, did you say that you’re addressing your bank agreement and just in the since for what life of the facility may look like?.

Yes. Areas, it will – I did – I don’t want to go into that now. So we get slower down the past, but so I don’t want to get specific about that this year. But we’re about to launch a process, feel good about where the market is and I think we’ll be successful. Hopefully, get this done before Labour Day. .

And last question, just CapEx for the year. I think you pointed us to maybe $20 million to $25 million as the right expectation. Is that still going at number... .

Yes. .

Okay. Thanks. .

Thank you, Whit.

Operator:.

[ph] (2:40) *19:.

Good morning. Thank you very much. I’m going to beat the source more if I may. Ronnie, you identified starting here. You are basically doing a great job as identifying life $0.43 of EPS on an adjusted basis is the not the right run rate going forward. Thank you for that. Step item number one.

Item number two is you gave some specific impact of $0.02 to $0.03 per share I believe for and some of the labor issues on related to holidays. And then you said something along the lines of $2 million to $3 million of cost associated with shifting the IT systems from G&A to ongoing expenses.

Was that a quarterly number or annual number?.

Sheryl, thanks for your question and welcome back..

Thank you..

Sure. And it was the numbers was referring to a quarterly..

Okay. That’s what I thought because I actually have a series of questions here. And the $1.5 million that you also identified increase to non-cash comp was also a quarterly number.

So also if I’m doing my math right, there is somewhere around $0.11 at the – using the higher end of your range and EPS that is a headwinds going into third quarter is that correct..

Well. I’m glad you’re talking on that Sheryl. I think that’s a little larger than I wanted to share. I think you’ve captured all, but let’s start with the non-cash compensation.

There you’ll see on the face of the statement that $1.5 million a quarter, but we think the restructure the program is neutral meaning that there is a reduction in short-term incentive. Now that’s going to be a barrier to another line item. So – but you’ll see the $1.5 on the face of the statement and I just wanted to call attention to that.

So that $0.03 of share I don’t think is a negative in and off itself due to run rate..

Okay. So that would take $0.11 down to about $0.08..

There you go. And so – now the other $0.03 positive, so I think you got it $2 million of ICD-10, $2 million of technology – front end technology cost that’s the $0.08 you are referring to, but I have $0.03 of lower depreciation that the shift of how technology just under the old systems [indiscernible] was internal and capitalized..

Yes..

As you know was embedded in depreciation that $0.03 will offset that in – on a EPS basis..

Okay. So I got $0.02 of the holiday should be in the $0.08 right..

Yes..

Okay and then I got….

Let me just say $0.02 for holiday, $0.04 for ICD-10, and $0.04 for technology, that’s 10 on EBITDA and $0.03 positive on depreciation..

Okay. And so that net $0.07 of headwinds to the bottom line..

Yes..

Okay, all right. That is helpful..

Yes, okay..

Yes, that’s extremely helpful because I might have been led to overestimate the impact, okay.

Now, the next day I’m going to ask you for, I think one of the things we are getting wrapped up in here, is the use of basis points of margin improvement rather than dollars or cost savings and efficiency gains, because if you can give us a sense what your targets are in terms of dollars of cost reduction that you expect over this next 18 months to two year period, then we can do the math on that.

And then we can grade you on whether you achieved that as opposed to letting it against what the government may or may not do to you on the top line when all is setting down..

Fair enough, and I think as we start out that 400 basis points on a $1.2 billion of revenue, our thinking was roughly $40 million to $50 million of opportunity to reduce cost and gain efficiencies.

About half of that will result from the technology strategy and that will – there’s been more clarity in that in timing of what will come out as its largely driven and we’ll get most visibility into that when we fully implement Homecare Homebase. So that’s that half of it.

The other half of that is going to be in more general in workflow processes, we think we have capacity issues, we have some inefficiencies in our workflow that we want to get to efficiency in a BD staff, those types of things will be the other half of it that again we reflected with less, probably less scripted at this point but certainly aspirational over the next two to three years, probably closer to three, to be fully realize..

Okay.

So again in total $45 million to $50 million..

Got it, okay. So that’s very helpful. So now that I understand that, and now understand what the headwinds are going into the third quarter and then sustained likely through the fourth quarter offset by growth and improvements in the Medicare home health business, which I assume you’re getting big [ph], because you’re so focused on it.

And as we look at the margin opportunity today, as was noted earlier, you’re already over ten, so is there only 70 basis points left.

We should restart the clock for that again in terms of margin improvement in the third quarter, right, because some of you got this quarter is not sustainable given that you’re just in the midst of putting your strategy in place?.

Right, okay..

I think that’s correct, that’s fair..

Okay, so the margin if I do my math right if the margin is going to come in come in somewhere around 9% this year [ph] on given for a bottom line for an EBITDA margin maybe a little bit lower, because you’re getting some back on the EPS lines. But that shouldn’t scare us of from still getting the additional cost savings in top line growth.

That’s sort of observation number one. Observation number two is, when you talk about the operating leverage components of the margin improvement, did you anticipate hospices being, and so robustly long side of this plan and it appears to be, it’s not a head of plan on its turnaround..

Thank god for hospice..

Yes. Well, that was my thought too, but I don’t want to say it..

Yes. So I know we didn’t anticipate it would be doing as well as it is now candidly, that’s why we’re focused on trying some inorganic growth there, and letting Jim do his thing shares. So I don’t know any other comments in terms of….

No, it is obviously very good result. I think Jim had a plan that they had some stretch in it and he’s at the stage, certainly meeting plan and exceeding it slightly. So we were – but we have a good plan that have some rigger to it. And so when join good results. That sustained him, yes..

Yes. And I heard you say that, so to some extent as we think about the pluses and minuses going, coming out of second quarter going into third quarter and beyond, we are doing better on home health, we are doing somewhat less better on Medicare, better on hospice, somewhat not so hot on Medicare home health.

And there you have to be careful not to drive a necessary result, so you just have to take your time a little bit, as we don’t want to miss to repeat mistakes of the past. And then we move forward into these other headwinds.

So it sounds like we need to take a breadth, slow down a little bit, but still be optimistic longer terms that the turnaround is on track. Because what I concerned about here is you done a spectacular job putting the company on strong footing. This quarter could cause us to run away with our estimates.

You are clearly backing us off, but I'm worried that you’re going to us off so much that we are kind of going to lose confidence in the growth potential of EPS beyond where estimates are now..

Well, let me comment on it, and probably want to add to this. First, we wanted to and it’s a little bit of a where we want to portray was look we do not surprise you, we do have some front-end investment here, and we know there is some bumpiness.

So you are certainly, we articulating the cost side of this is we see it today and we believe there is some opportunities to mitigate those costs and those aren’t reflected in our comments yet.

And our result in the third quarter clarity around that will be helpful, but at this stage we really wanted to present the headwinds that we see and have some transparency into that.

So that’s a general comment and I was thinking about our earlier list, I want to add to that the benefit that if we’re successful a $0.02 per share perhaps the quarter interest savings. Just from an EPS perspective, I didn’t remember we have talked about..

We didn’t and I’m aware of 600 basis points it is a huge number if you are able to re-negotiate successfully I got that. And I think what you are doing is correct, just whatever its worth. I think the transparent about headwinds and backing us of from estimating a $0.43 run rate from now to the end of the year is absolutely the right thing to do.

I just want – don’t want to swing my pendulum so far the other way and this something as result?.

Yeah, I think that’s fair. I mean I think Sheryl just if you look what we’re dealing with from an IT perspective. We’re operating on three platforms now. And we’re getting rid of one and that’s – but that’s still not over and we still have back in uses of it.

So I mean, as we’re moving towards the efficiencies that we see to moving on to one platform, that’s one thing. We still in the people area, we’re still have some really capacity issues in key markets, we’re turning away business.

So I think, we’re going to work through those lumps we’ve got a really good team in place, it is now starting to dig and in tackle these issues. And – but I also we wanted to, and I think in our last call we just want to prepare everybody, for the fact that we’re going to invest and we’re going to do the right thing.

So that the business is in great shape, so that we can really run the margins very aggressively six months a year from now..

I think it’s absolutely the right thing to do and I comment the fact that it’s not easy for a company doing that kind of growth strategizing that you are doing to make sure everybody takes the deep breath of sees the business objectively. So I appreciate that now in. I have one final mid pick of a question if you indulge me..

Sure..

How many home health agencies do you running today?.

318..

318? Okay that’s perfect because some of metrics I do want to per agency basis is helpful to look at the business that way. And then a final recommendation to the extend that you can put a slide show together for the next call, we really appreciate having this kind of walk forward in numbers so we don’t miss thing. Sometimes you ask us to seem them..

Well we wanted to give you that – we wanted to actually walk you through the strategy with the – so that you would understand that next call will walk you through the key slides of the strategy, as well as the metrics by which we the strategy translate by which we will all, which we all thank you everyday. .

Perfect. .

So you’ll see that on the next call. .

Thank you, so much. That would be extremely helpful. .

Of course and you know we’re delighted to talk about our strategy with anybody at any time if people want to call us. .

Nice one. Great job. Thank you, so much. .

Thank you, so much Sheryl [ph]. Welcome back. All right. .

There are no further questions at this time. I turn the call back over to Paul Kusserow.

Great. Thank you, Candice. And thanks everyone who joined us on our call today. We appreciate the good questions and the good dialogue. We sincerely appreciate your interest in Amedisys and we look forward to updating you upon our visits and on our next earnings call. Thanks very much and have a great day. Bye. .

This concludes today’s conference. You may now disconnect..