Scott Ginn - SVP of Accounting and Controller Paul Kusserow - President & CEO Ronnie LaBorde - Vice Chairman & CFO Steve Seim - Head of Strategy.

Brian Tanquilut - Jefferies. Ryan Halsted - Wells Fargo David Macdonald - SunTrust Dana Hambly - Stephens.

Greetings and welcome to the Amedisys Second Quarter Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to your host, Mr. Scott Ginn, Senior Vice President of Finance and Accounting. Please go ahead..

Thank you, Operator. Welcome to the Amedisys investor conference call to discuss the results of the second quarter, ended June 30, 2016. A copy of our press release, supplemental slides and related Form 8-K filing with the SEC are available on the Investor Relations page on our website.

Speaking on today’s call from Amedisys will be Paul Kusserow, President and Chief Executive Officer; and Ronnie LaBorde, Vice Chairman and CFO.

Before we get started with our call, I’d 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 provided on this call to reflect subsequent events, other than as required under applicable securities 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 and now I will turn the call over to Paul Kusserow..

Thank you, Scott, good morning and welcome to the Amedisys second quarter conference call. During the quarter, Amedisys reported adjusted revenue of $362 million, up 15% year-over-year on strong volume growth in all three segments. Adjusted EBITDA was $30 million. Adjusted EPS was $0.42.

These results were delivered while under growing large scale change and intentional disruption in our organization.

We continue to make good progress on the four key tenants of our strategy, first we delivered strong organic growth across the board in Home Health, same store Medicare fee for service admissions grew 4.1% and total episodic admissions grew 5.3%. We also made progress on improving our business mix in home health as non-episodic admissions fell 2.2%.

In Hospice, we continue to exhibit strong same store growth where admissions grew 18%. Our new personal care business segment has delivered 38% year-over-year growth in billable hours. We also just announced the signing of an agreement to acquire another personal care asset in Massachusetts professional profiles.

Second we are beginning to realize targeted efficiencies enabled by our Homecare Homebase roll out. We have 313 care centers live on Homecare Homebase and continue to target a go live date of October 31 for our last group of care centers. We are experiencing more disruption due to implementation than we originally envisioned.

These costs are substantially contained to 2016 and we still are confident that we will achieve the run rate of $46 million in annualized savings by the end of 2017. And based on implementation results in what we are presently projecting we think it could be more.

We are making strides in becoming our industries employer of choice, turnover and retention metric continue to improve with voluntary turnover down to 23.3% in total an 18.3% amongst full time employees. We are also beginning to crack the code in terms of our part time, PRM weekend labor force with turnover rates down in all three areas.

As we have repeatedly stated, our business is only as strong as our people. We must identify, develop and retain the right employees. Finally, our clinical quality metrics continue to improve as demonstrated by our average quality of patient care score of 3.59 stars in the most recent July release.

In our October preview scores, we reached a 3.74 star rating with 50% of our care centers above 4 stars. Similar to our first quarter report we are monitoring several areas closely and tracking our progress.

Referring to slide six of our supplemental slides, we are extremely pleased with our performance in terms of growth, business mix and clinical quality.

While we are seeing increased Homecare Homebase disruption, our experience in the initial roll out market shows the effected cost returned to normal roughly 60 to 90 days after a conversion is completed. Accordingly, we believe these costs will be substantially eliminated by the end of Q4.

On the inorganic front we are seeing several MNA prospects across the three business segments, but we believe there is a evaluation disconnect at work in the market. Our pipeline includes approximately 200 million of EBITDA; however pricing expectations particularly for the larger deals may keep these deals from getting done in the near term.

We continue to remain disciplined with regard to capital allocation. With all of that being said, we have plenty of dry powder and are looking to execute opportunistically where we find value for the organization.

Smaller tuck-in acquisition opportunities continue to be actionable and we are pleased to announce that we have signed an agreement to acquire professional profiles in Massachusetts in our personal care division for $4.4 million. Professional profiles are a great strategic fit and generates approximately $10 million in annual revenue.

We anticipate closing the transaction on October 1. In addition, we have executed an asset purchase agreement via bankruptcy to purchase a certificate of need in New York. This purchase would expand our service area into Kings and Queens County in New York, the eighth and ninth largest Medicare population counties in the country.

We are awaiting final regulatory approvals and expect to close in late Q3 or early Q4. We also recently formed a joint venture with Tucson Medical Center to deepen our presence in that market. We will be working collaboratively to support their APL and are excited about the ability to demonstrate our impact on clinical quality, readmissions and costs.

For the acquisitions we announced in the last year, Infinity and Associated Home Care, we have been performing regular look backs to determine their performance against our original projections. I’m happy to report both are progressing according to plan with Infinity helping to establish us in Florida and growing ahead of schedule.

AHC is presenting us with new growth -- with a new growth platform in personal care that will allow us to round out our service offerings in the home. Last quarter, I mentioned we had just kicked off a business development re-alignment pilot program in Home Health.

The concept is to identify and prioritize the best sales target and relocate these amongst our most productive business development employees. While these are very early days we have seen 2% incremental Medicare growth over our 4% growth rate, mainly driven by increased productivities for our employees.

Perhaps most encouraging is that we have seen these results accelerate and improve in recent weeks. We will push to prove out this concept across our business and evaluate the most effective way to deploy business development resources across our geographic footprint.

On the human capital side our turnover results continue to improve across -- continue to improve across the regions, declining to 18.3% amongst full time employees as of June. Our target for full time employee turnover is 16% by the end of 2017.

We are also seeing good results with our part time in PRN staff by more effectively selecting, managing and utilizing this necessary labor form. We have built and are deploying a proprietary resource planning tool to maximize our deployment of human capital resources, helping us to achieve our aggressive growth goals.

This tool will help to guide our local care center leaders who are seeing increased capacity post Homecare Homebase implementation with better information on resource planning. We will have more information to provide to you in the subsequent quarters on this initiative.

G&A expenditures remained higher on an absolute level in the second quarter, consistent with our planned transformation. We should start to see savings initiative begin to show up in the latter half of the year, both in the field and in corporate G&A.

As a percentage of revenue, total adjusted G&A decreased 50 basis points sequentially and we expect this trend to continue. Another key metric we are monitoring in Home Health is our cost per visit. We are tracking it intentfully and believe we have reduction plans in place to employ at the appropriate time.

On Slide 11 we have detailed these components and our plans to address these particular areas which Ronnie will address more in his comments. Our Human Capital team did a comprehensive study of all our markets and found our wages were very competitive versus market pricing.

In the markets where we weren’t competitive we’ve already made the adjustments to market pricing. Overall, our disruption costs during implementation have been deeper than expected, but we are tracking and monitoring it and have mitigation plans in place. We are very confident it is contained to 2016 and will not impact 2017 results.

Our rapid pace of implementation had an impact on billing and collections in the first quarter, which reversed course slightly in the second quarter. While we don’t think that the paces of collections have completely normalized at this point we have a good handle on the issues and expect them to be largely result this quarter.

Sequentially our day’s sales outstanding are down two days to 37 days. On the regulatory front, as expected CMS issued a new bundled payment programs for heart attacks and bypass surgery. This program defers from the existing CJR bundle and that these patients have chronic conditions with high post discharge readmissions.

These are exactly the types of patients that we have the ability to positively impact with multiple conditions and co-morbidities. We believe there are opportunities to reduce readmissions to the hospitals and also shift patients out of nursing homes in to Home Health. CMS has not yet decided on which of the 98 MSAs are selected for this new program.

Additionally, CMS has also added hip and femur fractures to the CJR program that took effect in April. Overall, we are excited about these developments which we believe present a large opportunity for Home Health. We have protocols and we know how to bend the curve here.

CMS has also been active on other fronts, including finalizing its pre-claim review or PCR processes in five states as a tool to fight fraud and abuse. While we believe there are better ways to directly fight fraud in the industry, we view this program favorably compared to the proposed prior authorization program.

However, we are concerned about the ability of the mass [ph] to meet these new complex administrative requirements. We are working to estimate the additional administrative burden associated with this new process. This will affect our care center in Florida, Massachusetts and Illinois representing less than 10% of our total Home Health revenue.

In July, CMS issued it proposed rule for Home Health in 2017. The market basket increase was slightly higher than we anticipated and the final year of rebasing along with the second year of a three year coding intensity cut will reduce payments to the industry by approximately 1%.

However, CMS has shifted reimbursement dollars in a budget neutral manner that can impact providers differently based on their patient mix. The calculation of the net impact to us is not yet complete, complicated by a software transition.

We currently anticipate that the case mix re-waiting will result in an unmitigated incremental 1% to 2% in payments to us on top of the 1% industry reduction. On a net basis we anticipate a reimbursement decrease next year of 2.5%.

Last week, CMS finalized its 2017 role for Hospice resulting in a net payment increase to 2.1%, somewhat mitigating the impact of the Home Health payment reduction. This payment increase is effective October 1st. If current expectations hold, we expect to combine $14 million pricing headwind in 2017, roughly the same as we experienced last year.

Before I turn the call over to Ronnie, I’d like to discuss a few wishes in closing. On June 27th we received a civil investigative demand issued by the U.S. Department of Justice related to 68 identified Hospice stations in Parkersburg, West Virginia.

As previously disclosed, we received a CID on November 3rd 2015 requesting records related to 66 patients in Morgantown, West Virginia. We are continuing to regularly communicate and fully cooperate with the Department of Justice and expect to reach resolutions of all Hospice investigations as soon as possible.

Finally, I’m sure everyone yesterday’s news that Ronnie LaBorde has decided to retire from Amedysis, effective January 2nd of next year. It is a bitter sweet day for many of us. As Ronnie has been involved with Amedysis in some form or another for almost 20 years and was instrumental in helping us achieve our stunning turnaround in 2014.

His leadership helped put the Company on solid footing. Ronnie has also been running our Hospice business unit for the last year on an interim basis and again has been delivering stellar performance. We have identified some very good qualified external and internal candidates for the Hospice leadership role and anticipate the same for the CFO role.

The good news is that Ronnie has built a great and very deep team in finance, accounting and Hospice and he will be here for the next five months helping us make a smooth and seamless transition.

Finally, I’d like to thank our tremendous team out there in the field that remained focused on providing the highest quality care to our most vulnerable populations. The results you have delivered during this period of change throughout the organization are extremely impressive. We have the right strategy and we are executing on it very well.

Thank you. And with that, I’ll turn it over to Ronnie LaBorde.

Thank you, Paul. To get into the financial results now I’d like to first start on a GAAP basis, of course we generated $361 million in revenue and earnings per share of $0.32 in the quarter.

As we have stated since the beginning of our transformation, we have continued to incur self induced, restructuring and onetime cost that have cost disruption to our operating results. As we approach the end of our Homecare Homebase implementation we aspire for our adjusted results to be consistent with GAAP results.

That being said, let me call your attention to our earnings release in slide 19 of our supplemental slides. This slide provides detail regarding income and expense items adjusting our GAAP results that we have characterized as non-core and temporary or one time in nature. This schedule also details the income statement line item that they impact.

Now let’s begin by discussing our quarterly adjusted results and year-over-year comparisons. On a consolidated basis revenue was $362 million, up 48 million or 15%. EBITDA was $30 million, down 2 million. While down from last year, our comparative results were impacted by the following. A $3 million Medicare rate cut in home health.

A full quarter of Homecare Homebase platform calls of 2 million which is an incremental 1 million over last year. These two items were permanent. And finally, I’d like to mention that in this quarter we also incurred 3.4 million in temporary expenses related to Homecare Homebase disruptions outlined on slide nine.

These cost as Paul indicated are temporary and we think are contained in 2016 for the most part. Our EPS, our adjusted EPS was $0.42 down $0.01 from the previous year. So turning to segment highlights. In the home health segment, revenue was $276 million, up $28 million over the prior year. Medicare same-store admissions were up 4%.

Total Episodic admissions were up 5% and non-episodic admissions were down 2%. Medicare recertification rate was down slightly to 35%. Segment EBITDA was $41 million, flat compared to last year. Our cost per visit was up $3 over last year and flat sequentially.

The year-over-year increase of $3 is composed primarily of about $1.15 which again is due to our growth. $0.70 due to higher health insurance cost in this quarter over last year and $0.60 based on our Homecare Homebase disruption. Turning to the Hospice segment, our revenue was $77 million, up $10 million over the prior year.

Same-store admissions were up 18%, same store ADC was up 16% and our segment EBITDA was $19 million, an increase of $2 million over the prior year. Our cost of service per day was up $1.62 mainly due to wage increases and also some DME cost increases. Turning to G&A, I’d like to refer you to slide four in our supplemental slides.

On an adjusted basis our total G&A was $122 million, an increase of $17 million over last year, approximately $9 million of this increase is related to acquisitions. Our G&A cost as a percentage of revenue increased 40 basis points to 33.8% year-over-year and decreased 50 basis points sequentially.

For the year-over-year increase of $17 million I’d like discuss the expenses in each segment and then in corporate. In home health, our G&A expenses were up $9 million to $71 million or 25.9% of home health revenue, a 60 basis point increase year-over-year and up 10 basis points sequentially.

$4 million of this G&A is attributable to Infinity acquisition. And Hospice G&A our cost were up $2 million to $17 million or 22.6% of revenue. This was a 50 basis point decline compared to last year and sequentially. And finally turning to our corporate G&A, our total expense was $31 million up $4 million over the prior year.

Included in this $4 million increase was $3 million of corporate expense from acquisitions. As a percentage of revenue, total corporate expense was flat at 8.6% of revenue. Again, sequentially corporate G&A expenses were down approximately 50 basis points as a percentage of revenue.

Our cash flow from operations for the quarter before changes in working capital was $24 million. Our use of working capital was $9 million during the quarter and our DSO was down two days to 37 days. Our capital expenditures for the quarter was $3 million, we still expect between $20 million and $25 million of capital expenditures in 2016.

And we expect routine CapEx of approximately $10 in 2017 beyond at our current side. At quarter end we4 had a cash balance of $10 million and $176 million available on our revolving line of credit, or our total available liquidity $of 186 million.

As of June 30th, we had $98 million in total debt outstanding and our total leverage ratio was 0.9 times adjusted EBITDA for the last 12 months. We had zero borrowings under our revolver at June 30.

In an early July, we again were borrowing on our revolver as we anticipated and/or continuing to work through the account receivable issues we discussed earlier.

In closing, we knew we would challenge our organization to simultaneously, implement a new technology platform at a very rapid pace, improve quality scores, grow organically, and begin to realize operating efficiencies. To the credit of our team and our organization we are pleased with our progress to date.

Our additional experience in Homecare Homebase implementation had both served our confident and our ability to realize the identified $46 million an annualized run rate savings is truly demonstrates the capability of our organization. This concludes our prepared remarks. Shale [ph], would you please open up the call for questions..

Thank you. [Operator Instructions]. Our first question comes from Brian Tanquilut from Jefferies..

Hey, good morning, guys. Ronnie, congrats on the upcoming retirement, so if you don't mind I'll start there.

We think you can give us some color and to your decision to retire, I mean, why now and what is the plan in terms of finding your replacement for your CFO spot?.

Well, let me speak to my decision. You know as Paul indicated it's been really a 20-year relationship with the company. Very interesting, very rewarding, it's just been wonderful. And you know it feels like the time to move to the next chapter, and I do that with confidence in the company, in the leadership team and the strategy.

It just feels like the right time. Great things are going to happen and so I feel good about works done to-date, progress made and in some small way contributing that and so, just a – its feels right. So, it's seem like the right time with the results achieve and really the great opportunity ahead of us.

And I'll let Paul talk about the kind of where we go from here in the plan to replace..

Yes. And Brian, as I said, I think it’s a bittersweet time for us here around the table. We're excited about what Ronnie has done and his legacy here.

The stability he built here as the way he put at least when I arrived at the company at the end of 2014, it was in much better shape than when I first started looking at the company in the beginning of 2014. So, we owe Ronnie a ton here. At the same point I think we're -- Ronnie and I both feel that there is real good stability here.

We build a good team. We're on a really good trajectory. We're very excited about once we get through ourselves and do change here that we've been talking about for the past year in 2016. We're very excited about 2017 and we think that what we put in place in 2016 is going to pay very good dividends in 2017 and 2018.

So, I think we feel it’s a very solid ground with which Ronnie can safely move on to other things. The process though is obviously he's going to be very hard to replace, because he's stepped in wherever we needed him. And so, we have been now looking and we have some very good internal candidates from hospice perspective.

We also have been looking external candidates. We have a very good list. And we've been moving through that list over the past I'd say, four months or so. So, we're getting closer there. On the CFO piece, we've got again good folks internally, very stable team and then we have five months of runway with Ronnie.

We think there will be some good interest obviously in this role and – but we're going to need to find somebody really good. And we have the time, the luxury and the great team and the guidance and help of Ronnie on this to make sure we find somebody who is good. So, that's we're at on that front..

Appreciate the color from both of you guys. So, Paul, just hitting on the Homecare Homebase adjustment on the chop essentially, how should we be thinking about what's the main drivers were of the incremental disruption cost that you're factoring in, number one.

And then, number two, as you think about the earnings power of the company for 2017 versus where you have thought it was going to be prior to the adjustment in the cut, I mean, how should we think about the comparability of the earnings power at least in your general budget?.

So, I think from a – one, I'm not really that first over the deeper chop that we thought. Couple of reasons, one is, it came from things that we have a handle on and know, and know we're going to. They have seen where we've done early implementation that it comes out.

So in places like Louisiana and Mississippi, Alabama, Tennessee we do –we did see some of these things, particularly in Tennessee we saw a recert issue which we didn't see in the first three states that I mentioned. But what we see is it's very controllable. We have really good operators. And what they do is they go through this.

It requires -- a lot of people walking and chewing gum at the same time, and there is a little confusion on that.

Where we've seen the cost increase, for example, in the State of Tennessee recert, we're starting -- we're seeing a little recert issues in Georgia, but Tennessee got a hand little bit, we anticipate that that's going to be largely play through. We also are seeing things like helpdesk increase in terms of cost of that.

We've seen some increased travel expenses. We've seen some increase over time expenses.

And then, concurrently what we're also starting to see and what we're starting to see now is efficiencies coming out of this and we're now starting to – we'll have much more to talk about it in the next quarter, but we're seeing a lot of efficiencies starting to come out of these first places and we're pushing those harder now, because we believe that what we're setting up now will be much better for 2017.

Ronnie, as we all know is the more conservative person on these fronts, but I think we'll do better than our $46 million based on the sort of now they're looking at me, giving me the evil eye.

But – and based on the margins that we're starting to see and the cost savings we see that are going to pass through to 2017 on a consistent basis the hard work we're doing now, it’s looking really good, I mean, the model. So, I'm very excited by it, frankly..

Okay. And then, I guess Ronnie on the Tennessee we saw a there is a comment there about 5% to 6% organic growth expectation.

Is that a good way for us to be thinking about post 2016, post Homecare Homebase and what do you think are going to be the key drivers of that one?.

Sure. I think that is the way to think about it, that's how we're thinking about it. We been showing and posting good organic growth aspirationally we've been talking north of 5 and so that hasn't changed.

I think the way to think about it and we're really -- we're enthusiastic forward looking as Paul mentioned our business development and market initiative there to help drive that to really bring better science to our market and better targeting and increasing productivity of our sales teams there.

So, we're very pleased about that early stage and as that get rolled out.

And the other thing I think that we haven't define but certainly we're confident about is, we again, I'd highlighted, we have been posting this organic growth while implementing Homecare Homebase and is that kind of – we get through that that occupation of the organization and doing that that just remove some barriers while we posted good results.

We do all of this. I think we're very optimistic about our ability to achieve yet more growth as we say, 5% to 6%..

Yes. I just wanted to add to that, Brian. We have in terms of what we're seeing -- we're pushing change now on both sides of the organization on the operational side and on the BD side. And so – and what's interesting about it is – and there is play on both sides.

If you look at what's happening on the operational side where what we've seen when we implement the Homecare Homebase and we start to push some of the efficiencies that we see there, we create capacity with our own people and those are our assets.

As we said that's 85% of our cost, our people cost, we're starting to create efficiencies and access capacity there that we believe we now need to start to fill in.

That's why we build our human resources productivity tool, so that in each care center people can make sure that people, their employees or their clinicians are working at maximum capacity and to start to make sure that that occurs.

So, once we achieve, once we start to build that excess capacity in the operations which is what we anticipate with Homecare Homebase that's why we're being so aggressive can currently we want to have that volume growth in there that eats up that capacity. And we also want to make sure which we have been doing.

This is what I'm very, very happy about in our results is that it's fee-for-service Medicare. And so, I'm delighted to have a negative number there on the non-empathetic and what I want to make sure is the targets that we're finding, that we're setting up, that we're incentivizing these sales people to do is that type of business.

So, our plan is great capacity with our clinicians have it filled up with our best type of empathetic business and drive growth that way, because then we will have organic capacity. So, that's how all these moving parts relate. And then obviously the other good thing that we're seeing is our quality is really good.

So, that the referrals can be there because we have – we're delivering very strong quality numbers. So that there will be no excuses from that perspective. So that's how we put it all together..

Got it. Thanks guys..

Okay. Thank you, Brian..

Take care, Brian..

Thank you. [Operator Instructions] Our next question comes from Ryan Halsted from Wells Fargo..

Thank you. Good morning..

Hey, Ryan.

How are you doing?.

Maybe just as a follow-up to that last point.

On the cost per visit, do you have visibility into how much of the increase might be related to increase use of contract labor that you could specifically relate to Homecare Homebase versus potentially needing it for broader staffing needs?.

Sure, Ryan. This -- and we try to kind of tease this out on page 11 of our supplemental slides, that the use of contractors is up $0.85. I think we're looking at that and really think while it’s an areas of high focus how to be more efficient. It’s a growth kind of inspired increase.

I think as Paul articulated as we create this capacity with the system rollout that relieves some pressure there that we can reduce that. It’s certainly one of our points of focus of how do we get more efficient and have greater productivity in existing staff and not rely on the contractors as we have, when we need them..

I think, Ryan from that perspective the cost of contractors fundamentally turns our fee-for-service business into managed care business and the margins are reflecting of that.

So, if we drive volume growth and have to have contractor serve that, it's going to hurt us from a margin perspective very badly on fee-for-service and obviously it takes us into our whole new zone in terms of our non-empathetic business. So, I think that that's the other thing.

Also we believe that there is a correlation although we have improved it with quality that is when we use contractors for qualities, but that will affect obviously future payments. So the point is what we're seeing though is I think if you look at the next slide on page 12, that's the reason why we're turnover down.

And when we drive turnover and that's why it's important for us as we are doing as a company. So, there are two types of employees. There are those who work for us full time which we want to keep and keep as productive as possible, utilize all that capacity. And then there is part time CRMs and weekend folks.

And we want to make sure that these people are readily available. And they are like our internal contracting group or contractors group. We want to make sure that we have a good stable group of people that we can utilize there instead of going outside to contractors.

That way we'll see better – we have more stability in that group and that way we'll also see much better quality in terms of the outcomes because we have people who are familiar with how we do things in our protocols.

So, on that side we're seeing – there's a direct correlation between our ability to recruit, our ability to fill in with good people as we continue to grow as strongly as we're growing. So, we're pretty confident in it. Also what we're seeing is and we will be reporting on this next quarter. We're seeing very good progress on that.

It's been something we've articulated very strongly to our operators and some of them are just knocking it out of the park. So, I think you'll see improved numbers there. So, I'm glad you ask that question frankly..

That's very helpful. Thank you. And maybe sort of on the flip side of this topic, you seem to have opened the door for maybe increased potential upside on the efficiency savings.

What's sort of the biggest contributor there on post implementation, the annual savings opportunity?.

I've got my colleague here who is a Head of Strategy, Steve Seim. And he is been the one who is been driving this. So, I'll let Steve answer the question. I think he can do a better job than I can on this..

Yes. Sure. Ryan, what we're seeing is we're seeing that there are places in our processes that when we developed our initial savings estimate that we're finding that its more systematic that flows become efficient as we really get more comfortable on Homecare Homebase.

So, we're seeing opportunities to drive some efficiencies in just the way the workflow goes through the entire system as oppose to more of the back office which is where we were putting our regional projections.

And then, we're also focusing pretty heavily on as Paul mentioned in the last conversation on the way we're thinking about things like contractors and how well we're able to integrate our human capital people with our operators to really be targeted in driving, hiring and retention in the right places to affect contractor usage.

And then how we can use the workflow of the system to be most effective in terms of our clinical efficiencies.

So when you put all that together, I think we're very comfortable that we haven't beaten off more than we can chew in terms of the projection that we made going forward and we're comfortable with that this is going to something that we're really going to be proud of 2017..

Yes. I'll just add -- I would add, Ryan that, I think this is an iceberg. You have known things that we clearly articulated that we've been talking to you about on the $46 million.

We've found as we dug in and build clinical and operational initiatives that are fundamentally below that that we're driving as a result of this and we're finding we're getting very good results. It's opening up our sort of our savings that we're actually -- that are able to open up our margins in a pretty substantial way.

So, these clinical initiatives are kind of some -- are very hard going, but we've actually been attacking them in the past six months and we're just starting to see some result of those. We've also been coming through on a cost basis to go after various cost pieces.

So again we're -- below the iceberg we have two chunks of initiatives that are pretty substantial that we're very optimistic about for 2017 and 2018..

All right. Thanks for taking my questions. And best of luck to you, Ronnie..

Thank you, Ryan..

Thank you. Your next question is a follow-up from Brian from Jefferies..

Hey, guys. Paul, and last thing about cash flows, I think in the past you're talked about $30 million of operating cash flow per quarter slightly below this quarter, so how should we think about cash flow progression and really the question for you is capital deployment given that you basically have $85 million net debt.

We're going to generate more cash going forward. And you've given your comments on M&A being probably a little more expensive than you are right now.

How should I think about that?.

In terms of – I'll let Ronnie talked about when our growth in cash. He's got those specifics in front of them right now. I'll talk to you about what we intent to do with it. So, Ronnie will say that and I'd like to expand it. That's going to be sad when you leave. But so, Ronnie, I'll let you talk about in terms of what your say for that..

Sure. You know, we've been going through as we know this. Really the kind of disruption in working capital is really a function of the Homecare Homebase implementation. You can clearly see that's what is being going on there.

It just -- as we going through implementation, working through some system issues, where we just had to touch things, in some instance its more manual which was more TDS time consuming et cetera. We're seeing that start clear on both fronts, obviously is clearly temporary.

I think, the only think I would say at this point that will come out of that is probably a couple of extra days just to drop bills from our old platform to Homecare Homebase, that as we said today, that's not the end game.

But I've got about probably if you look at kind of best case DSO, we probably have $25 million of working capital tied up with excess receivables that I think it’s going to – we'll get back out in pretty good order and make some good headway in this quarter certainly and continue.

So, I think cash flows we want to and certainly have line of sight that our cash flows are operating cash flows, EBITDA will fall really basically due to the free cash flow and provide those resources to spend as we want to do..

Yes. And I think it’s a temporary blip in the market, Brian, I'm not overly concerned that. I'm going to be sitting on piles of cash or that we're going to be sitting piles of cash waiting for people to sober up on the pricing.

We're seeing enough out there as I said, our price is basically tripled and as you saw we're doing some cool small things, we have a lot of others in the pipe that we're excited about. We're not going to slowdown. I'd love to do a big deal, but post-synergy I want to make sure it's in a single digit space that I can justify.

So, I think we're getting there. There's couple of big ones out there that we're excited about that post synergy should payout pretty well.

So, I'd expect thus and then the other thing is I want to make sure that we get to where to where we need to get to in terms these two final quarters of this year before I take the implementation team from Homecare Homebase and possibly stick them on something else.

Or there also the integration team, so I want to make sure that they get through what they need to get through so that we can get those good cash flows, be assured of them and I'd start to look for a lot more activity. I think the end of this year kind of teeing up for the beginning of next year is when we really intend to do it.

So, we've clearly chum the waters pretty successfully and brought a lot of people around and I think what we're trying to do now is work through some of those so that the timing works for us late this year, early next year..

Paul, follow-up to that on the personal care, you've announced an acquisition recently. So, how should I think about your long-term strategic view on how to melt together the offerings between you’ve had hospice for a long time, but going to PC.

And how do you enhance your offering or your referral flow from either physicians or hospital discharge binders, given that now you're trying to get bigger in the PC business?.

I think it's largely going to come from plans in ACOs. I think ultimately our thoughts on the future is eventually MA is going to be here in a bigger way.

We don't think it's going to really affect us for the next maybe three to five years in terms of our abilities to really target fee-for-service business, but ultimately we see MA as coming in more strongly. We also see clearly with what the government has been doing much more interest in risk, much more interest in us taking risk.

What I've learned from my past in managed care when we bought one of these companies and we use it very successfully the managed risk. You need both. You need the skills and the un-skills and for you to show up and you need the costs differential between the two.

You need –you have really good skilled people pay them well and then you need to have people who do activities of daily living, non medical activities you need to combine that.

And what I really like about the company that we bought Associated and professional is these folks have been doing risk management for the state of Massachusetts in very, very deep areas like paces and scores [ph] and ASAPS and duals, and these folks really understand how to combine taking that risk and putting non-skilled and skilled together.

Ultimately I think if you are going to take and keep people in the home which is what our ultimate objective is as a company and our value proposition you have to have both. And so this is our first toe in the water in New England to get this going we’ll prove out the case in New England and then what we want to do is to take it to other markets.

We are already looking at other markets where there has been some request that we get involved with, with people to start to bring this model into play, so that’s what we are seeing for the future..

Got it. Thanks guys..

Thank you Brian..

And -- Brian, [Indiscernible] step up, but let me just add to that, I think it would be also appropriate as we talk about the buildup in working capital. But the other thing we talk about our adjustments. And so as we capture that, that’s certainly cash that’s being spent and that we know it’s self induced, is temporary. We are one time temporary.

So as that winnows down, as we know it will, I think that will also enhance cash flows that didn’t show off necessarily and the description in the AR build up, so I thought I’ll call your attention on that also..

Thank you. Our next question comes from David Macdonald from SunTrust..

Hey guys, couple of quick questions.

Paul, just on the pipeline, can you chop it up a little bit, you tried about $200 million of EBITDA, can you give us a sense of how much of that if you have thought about it this way would be smaller tuck-in deals or maybe the pricing is a little bit more reasonable and you know maybe something you could move on a little more quickly as opposed to you know the bigger chunkier typically private equity bank deals are kind around more frothy multiples..

I’d say probably between $30 million and $50 million are probably in that range..

In terms of the ....

So I’m just pushing ups, so I’d say.....

[Indiscernible] two thirds of the bigger stuff, one third on the more manageable....

So a little more than that, so maybe $60 million, $70 million is what we’ve got that we are looking at. The big stuff we are looking at, once again highly attractive we did that to be sure from a synergy perspective and from a management time and capacity perspective we are prepped for that.

Again, this I think the interesting thing is this is actually there is more sellers out there than buyers by a fairly good ratio and there is more on the market than there is money. So, and we’ve done that analysis pretty carefully.

So understanding that we want to make sure that we buy properly and that we buy in a disciplined fashion because ultimately when there is an imbalance in that market it should come down a bit..

And Paul, can you just spend a minute on the business development realignment and how it helped some of the benefits, it sounds like you are starting to see. Can you just give us an example? I’m not trying to follow that completely..

Yes, so what we did is when I came here prior to joining Amedysis I came in and did a little consulting work and I had done, I just started my career as a consultant and done a lot of sales force realignment and my sense was that we were -- we hadn’t updated our approach to sales previously.

And so therefore I felt that there was more information out there than we were using, there was more capacity in terms of well – there were more places to focus than what we were doing, I felt we were doing scatter shot approaches and we are new ahead of business development Caroline Henderson kind of went out and confirmed that.

And so what we’ve really been doing is we’ve been just, we now have information on where the business comes from, what our level of penetration is and we are able to realign things so that we have better, more equitable, categories for people and we are able to assign those to good sales folks who really know where they can call and what the potential of their market is and where the real potential is.

So, we're seeing just lots better productivity in the places where we're going. Now, these are early days, still we're -- and I think five or six places. This is pod, so bigger than care centers, but we're seeing very good results. And as I've seen in my previous career, these things sort out this way.

You will be a bump, you will see with better targets, better information, harder targets for the sales folks that you will see a shakeout, a better productivity, better people staying on the case, some of the other ones will drift away.

I don't know Steve you want to add anything?.

Yes, I guess I would just add one of things that the sophistication that Caroline and her team is bringing to the territory realignment assignment really does help get our arms around measuring the effectiveness of the sales force relative to what expectations are. So there's certainly been some opportunities there.

But there is a lot of basic blocking and tackling here. Just standardizing the reporting, building new dashboards, and focusing not just on the training of the Account Executives, but also the training of the Supervisory level. So, that we're consistently driving it across the organization.

And when we look at what we've seen in those handful of pods in terms of the productivity for sales executive, we've been pretty pleased with it..

Yes, volume growth has been good. We think it's going to get better as it settles in, productivity has been much better, much, much better..

And then guys, just one other quick question on the Homecare Homebase disruption. If I look relative to your initial estimates, the disruption has been year-to-date about $3.3 million heavier which suggest to me that the core business is performing better.

I mean you guys have put up numbers while that drag has been a little choppier than your initial estimates.\ Other -- I know you've called out productivity, is there anything else that you would call out in terms of what has performed or acted better that has at least offset that incremental drag?.

If you could repeat that question, so everybody could hear it again, Dave, that would be great..

Sure..

No, no, no I'm just kidding, I'm just kidding, that was a very nice one. Thank you. Yes, we have performed better despite the cost -- the increase in cost. So, once again, we're really confident. We know where to take the cost. We're really confident; we'll bring it back to below what we were anticipating in terms of normal run rate on G&A.

So, I'd say its volume growth. I'd say the volume growth has been there, that's what we've seen. And then we're starting to see some intangible things that are starting to drive different types of -- with the sales coming through, we’re now starting to shift our mix, so we're getting better mix of business and then that's doing well.

Turnover, which was a huge cost of the business, is now starting to come out. Referrals are getting better because our quality scores are better. So, we're -- I'd say all those mixed in, but mainly volume growth.

I don't know Ronnie?.

No, I think that's true. I mean we have -- we've seen good growth, hospice is up, nice contribution there..

Hospice, of course..

Yes, and so -- there's some things that are working well that help cover this disruption and still hit targets..

Okay.

And then guys, just last question and Paul, I don't know if you want to get into this yet, but just a proprietary resource management tool you mentioned is there kind of any high level things that you've talked about in terms of what that would be? Is it in IT product that will be on the clinician's tablets? What exactly would that be?.

So, we just saw a demo of it about a month ago and its -- basically what it's doing is its informing all the managers, the dudes in the care centers, it's basically saying how productive are the folks that they've got.

And then are they -- since we are creating a lot of capacity with the Homecare Homebase that as we said -- I think we jokingly said, while we had really busy people when we were doing AMS2 through AMS3, we were overworking them. We're bringing Homecare Homebase. They kind of take a break. There is some excess capacity.

We now want to put this tool in place to make sure that we fill up that capacity and that there's pressure at the local level on those clinicians to start to make up that capacity. That's largely what it's for. And it also gives us the forecasting ability on the trends and it allows us to start to understand it predictively.

You saw we're working again, we don't want any contractors. So, it also allows us to forecast more predictably based on past data and then start to build better staffing pools, so that we don't have to go to outside labor, which is a big element of that. So, we'll be able to talk about it.

We're out there testing it out right now, but it's exciting and we have to have this tool. If we're going to create capacity, we have to have the tool that allows us to optimize once it comes to us and obviously this is our people. Homecare Homebase helped to a certain level, but this takes it to one step beyond..

So, it sounds like it's fair to assume that this would help both on the volume side, because it would allow you to better manage volumes, capacity, et cetera, and also the cost per visit side, because you're going to need less temp labor..

Yes, that's what our hope is. Our hope is that we understand the ebbs and flows of this business. We understand that we can build our growth trajectories in, so that our hiring can correspond with it. So, that we don't have to go to outside labor.

As I said, maybe even worse than the expenses of outside contractors is just the level of quality they deliver. And as you know with value-based purchasing, we can't be having people who don't care about us or don't know our protocols or don't know -- can't deliver the quality that we expect..

Okay. Thanks very much guys..

Okay. Thanks Dave..

Thank you, Dave..

Thank you. Our next question comes from Dana Hambly from Stephens..

Hey, good morning. Thank you. With M&A being a little pricey right now, I wonder if you spent a couple of minutes on de novo opportunities, how long those would take to ramp. I assume this license in New York that you've obtained is part of that.

Maybe can you just inform us there first for a second?.

Yes, on the de novo side, we aren’t really a de novo shop and we did have that capability several years ago and so we're rebuilding that. At this point, we're on were starting to do that. We're working for de novo like ideas; we believe we can do that within our footprint.

But our -- better for us is to find desirable areas that our operators identify and to go in and do very small deal, advantageous deal that gives us existing clients and employees that we can go in and -- we're very good at buying at this point, even small deals like that and we can see very corporate turns on them.

But we're going to start to push that capability of de novo. We think in Hospice and in Homecare is very important. But right now we tend to buy small and we're looking at a lot little buy size [ph] things..

Understood.

The license in New York gets into a couple big Medicare areas, is that -- I know I think you have a few licenses in New York, is that more of a -- is that more kind of a tuck-in opportunity?.

Yes, it's more of a tuck-in where there are employees attached to it. There is a brand, there are some partnerships attached to it and we have a very strong market adjacent to it that we believe that we're going to be able to migrate some of our good players who have been looking to get into this market.

So, we have a really strong management team there too that we're excited about giving them more. That's kind of how we work is we find really strong managers in certain markets. We ask them to look for opportunities within the markets and then we really dig-in deep at that level to find those opportunities.

And then they -- then we put it on their shoulders and say, okay, you asked for you it, we gave it to you now we need you to perform and that's the case here..

Okay understood. On Medicare Advantage, I know the focus has been on the fee-for-service, but you that population is obviously growing. I think you've said in the past, they are still kind of viewing Home Health more as a commodity-type business.

How much time are you spending -- or is it worth spending a lot of time trying to educate the managed care providers? Or is this something you just need to wait on and it will kind of shake itself out in the next several years?.

No, I think both frankly. So, one I do since I'm an ex-managed care folks, I go out and I do call on the large managed care players and I bring them case studies of where using Home Health within their generally capitated MA programs is highly effective and is the best way to most efficiently drive their costs. So, we're continuing on that front.

We're seeing a lot more interest in the MA plans in building these partnerships, because largely most of these partnerships which we built around physician -- capitated physician clinic practices. And fundamentally that world has been bought up now. There's not a lot of capitated docs out there.

So, the ideas we can fill in and where they can't -- where these docs can't -- where these docs -- there are no docs that do this sort of thing. So, we believe that we can start to offer help there, working with local physicians, local physician's practices and keep people in the home..

Okay.

And does the personal care make it a more compelling value process?.

Bingo, I was getting no passed [ph] anything, you forget personal care. So, yes -- no, you were dead on, good pick up.

I -- the personal care adds tremendous amounts to it and you can show up that way efficiently making sure the Home is a good environment to live and making sure you're observing people on a regular basis and then supplementing it with skilled care. It’s a very good environment.

Clearly the reason we bought associated in Massachusetts was that's what they do with very vulnerable populations, particularly the pace world, which are very vulnerable. So, we see -- we witnesses this every day in Massachusetts and we're excited to take it elsewhere and we think that's the key to going after MA, plans, and ACOs.

Although I will say ACOs seem to be much more interested in real conversations now than payers..

Okay, that's great. Last one from me, the Hospice growth really strong.

I assume with Ronnie leaving, we should drop that growth rate down significantly?.

No..

No, they will flatter me and say look what we can do now. So, no, I think the growth is good.

Obviously, the comps get harder and that will -- just as a percentage basis will moderate, but the team is doing a fabulous job of -- as we saw D&A increase in add in this quarter and if we continue this pace which I'm highly confident the team to be in that zone, we'll have good comparative growth this year into next..

Thanks a lot. Good luck Ronnie..

This is a really solid team Dana. I mean this I -- the Hospice folks have just been doing a fantastic job..

Yes, I appreciate that. Thank you..

Thank you, Dana..

Thank you. Our last question comes as a follow-up from Ryan Halsted from Wells Fargo..

I know we're running over here, but I felt I had to ask a question about bundling.

Do you any sort of initial experiences? Yes, what's been your experience so far under CJR in the quarter? And it looks like based on the number of hospital partners you're in conversations with, things have been progressing on that front, any sort of detail on that would be very helpful. Thanks..

Well, sure. You know I kind of rained on your parade a little in terms of the initial CJR bundling -- bundle that came out. The new pieces of the CJR we're excited by what we’re starting to see in terms of new partnerships and inquiries.

We're excited by our protocols, how they are being responded to some of the early results we've gotten bundle in the initial joint bundles. We're also really excited by the heart -- the cardiac bundles.

We're just actually spending some time looking at the -- the DRGs that were coming out and then we were looking at the split with how many were sent home without our Home Health, how many were in Home Health and then who were going to SNPs [ph] and where we felt we could start to move some of this business away from SNPs.

So, in CABG, there's some real opportunities, in AMI there's great one. We've see in PCI, we see some very good opportunities and very specific DRGs which we know are going to be very expensive to payers and ACO.

So, we look to -- we really look to move some of that business and this is our sweet spot because there's comorbidities involved, these are our high readmissions people and we believe that the type of care we can provide will show some really meaningful results.

So I’m getting a bundles tee-shirt so that I can -- mar [ph] that enthusiasm with you out. So we are trying to.....

That’s great.

And the low utilization volume, has there been any change in that dynamic as well?.

No..

Okay. All right thanks again for it..

Okay. Thanks Ryan..

Thank you. I’ll now turn the call back over to Paul Kusserow for closing comments..

All right, thanks Jay [ph] appreciate it. I wanted to take this opportunity to address one final thing. We are calling from our sparkling new Google like headquarters; it’s been described as Google like so I’m just repeating that. Headquarters in Baton Rouge that we moved to in June.

Thus far the reviews of the new building have been really overwhelmingly favorable from our employees. Our goal is to demonstrate our commitment to the great team that we have, headquartered here in Baton Rouge.

When we were looking at this possibility I promised our Baton Rouge employees, if we moved it would be an upgrade and a good upgrade and thus far I think that’s been an overwhelmingly affirmative both that this has been a great upgrade and that we’re in good -- in wonderful space.

On a more serious note, many of you have heard about the tragic events in Baton Rouge this past month. Amedysis has had some employees that were personally affected by some of the community unrest and violence and our heart goes out to those who lost their lives here.

Baton Rouge is a special place, we are offering our full support in any way we can to a community that’s really nurtured and supported us and has been great to us. So with that, I’d like to thank everybody who joined us on our call today.

We sincerely appreciate your interest and support in Amedysis and look forward to updating you on our visits out to the markets and our next quarterly earnings call. Thanks everybody and take care..

Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.