David Castille - Managing Director of Finance Paul Kusserow - President and CEO Gary Willis - CFO Chris Gerard - COO Scott Ginn - CAO Stephen Seim - Chief Strategy Officer Dave Kemmerly - SVP of Government Affairs and General Counsel.

Brian Tanquilut - Jefferies Sheryl Skolnick - Mizuho Securities Kevin Ellich - Craig-Hallum Dana Hambly - Stephens.

Greetings, and welcome to the Amedisys First Quarter Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. David Castille, Managing Director of Finance for Amedisys. Thank you, Mr. Castille. You may now begin..

Thank you, operator. Welcome to the Amedisys investor conference call to discuss the results of the first quarter ended March 31, 2017. 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 Gary Willis, Chief Financial Officer.

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 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 also be available in our Forms 10-K, 10-Q and 8-K. Thank you.

And now I'll turn the call over to Paul Kusserow..

First, organic growth in Home Health. It's nonnegotiable; second, deploying capital towards acquisition targets that are the right strategic fit; third, reducing our backlog of accounts receivable that grew throughout 2016; and last, working with CMS and other payers to focus on decluttering our delivery of care.

In closing, thanks to our tremendous team of employees, over 16,000 strong who continue to demonstrate the value of high-quality care in the home. Congratulations on a strong start to the year. With that, I'll turn it over to our CFO, Gary Willis.

Gary?.

Thank you, Paul. During the first quarter of 2017, we generated $370 million in revenue, an increase of $22 million or 6% as compared to 2016. Diluted earnings per share were $0.44 in the first quarter of 2017 compared to $0.19 per diluted share in 2016.

Slide 17 of our supplemental slides provides detail regarding income or expense items, adjusting our GAAP results that we have categorized as noncore, temporary or onetime in nature. This schedule also details the income statement line items that each adjustment impacts.

As it relates to these non-GAAP adjustments in the first quarter of 2017, we incurred net pretax adjustments of $1.5 million, as detailed in our slides and 8-K filing, as compared to non-GAAP adjustment of $7.8 million in the first quarter of 2016.

Adjusted EBITDA for the first quarter of 2017 was $32 million, an increase of $8 million from the first quarter of 2016. Our adjusted EBITDA margin was 8.6% in the first quarter as compared to 6.9% in 2016. Adjusted diluted earnings per share were $0.47 per share, an increase of $0.14 from the prior year.

In our Home Health segment during the first quarter of 2017, revenue was $271 million, down $1 million compared to the prior year. Our Medicare same-store admissions were down 1% as compared to '16 with total same-store episodic admissions up 3% over the same period. Our Medicare recertification rate was 35%.

Same-store non-Medicare per visit admissions were down 1%. Our segment EBITDA for Home Health was $37 million in the first quarter of 2017, down approximately $2 million from 2016, and our cost per visit increased $2.16 compared to the first quarter of 2016.

This increase was primarily driven by raises and increased health insurance cost, offset by a reduction in contractor utilization. As Paul mentioned, our Hospice segment produced strong operating results this quarter. For the first quarter of 2017, our Hospice revenue was $86 million, up $13 million over 2016 or an increase of 17%.

Our same-store admissions were up 20% this quarter with same-store average daily census up 16% to 6,365 in the first quarter. Our Hospice segment EBITDA was $23 million, an increase of $6 million over the first quarter of last year. Net revenue per day was up approximately 3% to $149.41, and our cost of service per day was down 4% to $74.08.

In our Personal Care segment, we generated approximately $14 million in revenue in the first quarter of 2017 with approximately 588,000 billable hours. Our Personal Care segment incurred an operating loss of $0.2 million this quarter as a result of increased general and administrative expenses.

This growth in G&A is due to some of the recent acquisitions in our Personal Care segment as this segment builds out its infrastructure for future growth. Turning now to our general and administrative expenses. I'd like to refer you to slide 6 in our supplemental slides.

This quarter, we performed very well at controlling our G&A spend and driving our operational efficiencies. On an adjusted basis, total G&A was $117 million or 31.6% of total revenue.

Total G&A was down 270 basis points as a percentage of revenue compared to the first quarter of 2016 and down sequentially 50 basis points from the fourth quarter of 2016. Our Home Health G&A was down $2 million from the first quarter of '16 to $68 million or 25.1% of home health revenue, down 70 basis points year-over-year.

Our Hospice G&A was up $1 million to $18 million or 21% of hospice revenue. This was a 210-basis point decrease compared to last year. Our corporate G&A was $28 million, which was down $4 million over prior year. As a percentage of total revenue, total corporate expense was down 160 basis points from the prior year.

Our cash flows from operations for the first quarter were solid at $27 million based upon strong operating performance. This is up $15 million from the first quarter of 2016. Our capital expenditures were $4 million, down $2 million over the prior year.

Our balance sheet remains in great shape with debt, net of cash, of $47 million or 0.4 times our last 12 months' adjusted EBITDA. Our provision for doubtful accounts increased $2.4 million in the first quarter of '17.

This elevated level of provision for doubtful accounts results from the backlog of our accounts receivable during the HomeCare HomeBase implementation and the application of our bad debt policy based upon the aging of these accounts receivable.

Our days sales outstanding in accounts receivable remained consistent at 40 days during the first quarter as compared to our DSO level at the end of last year.

As Home Health revenues grow from non-Medicare episodic payers, we need to be increasingly focused on collecting our accounts receivable as these payers generally require higher administrative and collection efforts.

We're piloting the use of technology tools, such as Availity, to automate some of the frequent manual steps in our current revenue cycle processes. Availity is a technology platform that connects health care providers and payers to automate business office processes with real-time coordination with payers.

Currently, we're piloting this platform with Humana and have seen some early promising results. We expect to expand the use of Availity with other payers in the near future. We've added some additional resources to drive down our DSO levels, and our business office and revenue cycle teams are hard at work to reach these goals.

We expect our provision for doubtful accounts to return to more historically appropriate levels and a return of our DSOs to the mid-30s later this year. Finally, on March 31, 2017, we had a cash balance of $48 million and $170 million available under our revolving credit line, providing total available liquidity of $218 million.

At this time, we're prepared to take your questions. So operator, if you'll please open the call for questions..

[Operator Instructions] Our first question is from Brian Tanquilut of Jefferies. Please go ahead..

Paul, just a question, first, on the organic growth on the home nursing side of the business. I mean, how - well, first, exactly what are you guys rolling out? What are you trying to do to turn that around? I know you said you're very focused on it.

And then second, I know in the past you've talked about HomeCare HomeBase being a potential contributor to driving organic growth.

So how do you tie all that in and how should we think about the timing of the - just the uplift that we should expect from you guys on organic growth?.

Sure. Thanks, Brian. I appreciate it, good question. So in - as we've referenced it, I think we understand that this is - that we've done most of what we promised, and this is one area where we think we really need to step up our efforts and prove that we can grow the business. We're confident we can.

What happened is in late fall, we initiated Project Redwood. Project Redwood delivered on most fronts. One of the things that was unanticipated, though, with this is we lost some folks in business development and sales.

We lost about 50 to 60 of these folks that were kind of in the middle, but they were contributing, they were profitable, but they were in the middle area. And so what we've actually done is we - the folks we have left are actually more productive, so we're very encouraged by that.

But we need to get back those 50 to 60 people as quickly as possible because we believe that, once we get these folks up and running, they'll initially start delivering, let's say, 5 accounts, 5 per month. Then we'll get them up to 10 after about 3 months, and then we can get them up to 15.

And then we believe in a couple years, we can get them up to 20 per rep. So it's a numbers game, and we understand. And so when we were looking at this and we saw where we shed some people, we saw it in very, very specific areas, generally, in our account executives, not in our CTCs and hospitals, but generally, those people calling on physicians.

And we were quite encouraged by actually understanding where these occur. They were in a couple of regions, which can get them through these - the 10 to 20 group, which tends to occur. They tend to hit a plateau and stay in that plateau for about six months. So we're very encouraged by what we've seen so far.

We've really increased our recruitment efforts. We've spent a lot of time on retention of the BD staff, particularly where it's been higher. And so all the folks out there that - they're being measured for this. It's part of their incentives as well. So we're starting to see some very good results from that perspective.

So we think it's largely a numbers game. We think once we get our numbers up to standard, we'll start to deliver at a very good rate. The - I think the thing that people should also think about is if you look at Hospice, which is currently performing very well and clearly growing, we did this very similar transformation.

Our hospice folks did this about two years ago, and they also went through HomeCare HomeBase. They were the first ones in on HomeCare HomeBase, and you've seen obviously the growth that we're producing there, the organic growth that we're producing there. And so what we saw there was two things.

One, when they went through HomeCare HomeBase, they started to create - they created more capacity with the existing staff, clinical staff, so that they could make more calls.

And then what they did is, very smartly, they restructured - they didn't lose anybody in the restructure, but they added more people, and they were, therefore, able to eat up that capacity in organic growth. So we're looking at Hospice here as our model, and we think if we follow that route, that we'll end up in a good position.

We're trying to do this, obviously, as quickly as possible. We believe that in the third quarter this year, that's when you'll start to see all this come to effect. Chris? I'll let Chris Gerard, our Chief Operating Officer, who's been living and breathing this every day, add anything, if you're....

Well, thanks, Paul, and thanks, Brian, for the question. I think Paul covered a good deal of it. And just really kind of the nuts and bolts is that we're going to invest heavily in onboarding additional reps, getting them up to productivity as quickly as possible.

As Paul mentioned, kind of taking the playbook from hospice and applying that on the home care side. And from a capacity perspective, I've been a utilizer of HomeCare HomeBase in past companies for almost 10 years now. And the way I look at it on the home care side, there's many more moving parts for a care center to really work within the system. .

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Yes. That's right, yes. Paul, last question really to follow up on that point. About 3 months from now, we'll talk about this. Gary, just wondering if you could provide some color on your thoughts on current consensus. I know you don't give guidance. But in the past, you've given your opinion on current consensus for Q2..

Sure, Brian. Happy to, and thanks for the question. We continue to be comfortable with the current range of analyst estimates for adjusted EBITDA for this year 2017 that are out there. But as we've discussed, we expect to see accelerating home health revenue and that growth in the second half of this year.

So as we have thought about that, we have contingency plans we want to deliver on that and believe we will deliver. But if we, for some reason, did not achieve our target for home health revenue growth, we plan to make some adjustments to our cost structure that will allow us to deliver on our promised adjusted EBITDA levels for this year..

Thank you. The next question is from Sheryl Skolnick of Mizuho Securities. Please go ahead..

So Gary, that's a pretty powerful statement you just made.

So my first question is, where is the room in the cost structure to make those kinds of changes, given that you would be investing in the sales force or the business development force and you've got your IT-related cost savings and organizational-related cost savings under control? Can you give us a little color on that?.

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Yes. It's an option we don't want to, obviously, have to....

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Right, okay. So I would take it from what you just said that the 35% growth is off a relatively small base, but still meaningful growth is likely to be sustained through this year in that segment..

It is off of a relatively small base, Sheryl. But it did also help us drive 3% overall growth in the quarter in total episodic, yes..

Yes, okay. So not that small. All right. I'm just trying to....

Right. It impacted our quarter for sure..

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Yes. This is Steve Seim, Sheryl. I think it's focused really on the right accounts, so we really understand the ones that are per-visit payers, and we want to make sure that when we're looking at sending our salespeople into specific places that part of the targeting efforts we've been focusing on is getting them into the right..

Okay, that makes sense. Please indulge me for a second. Let me go back to the comment that we started with, which was Gary's basically we intend to get to our home health organic Medicare growth targets, but if we don't, rest assured, we're going to make every effort to achieve our EBITDA targets.

We shouldn't interpret that, should we, as hedging in the sense of that there's more than a reasonable amount of caution around hitting those growth targets, i.e., you're not there today, you have work to do before you get there at the end of the year.

You're not backing off from those targets in that comment, right?.

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Sheryl, so this is Chris. I just like to add that we put a lot of effort and a lot of thought into this plan and the strategy, and we have a high level of confidence in our ability to execute on the plan. So that's plan A, and that's where we're headed.

And we feel like we're going to be having discussions later on this year about significant growth in the organization on the Medicare side. But I think to Gary's point is we also want the investor community to understand that we see it from all fronts. And a plan is a plan until it's actually performed, and so we always have a backup.

But today, we feel very strongly about our strategy..

Got it. And just one final question.

So given how strongly you feel about the strategy and given where the business is today and echoing a previous question, when will you feel comfortable enough to give us forward guidance? What has to happen?.

Yes. Sheryl, from my perspective, it's really about us seeing this growth on the top line that we're talking about in the second half, and we're making progress there. But once we have good visibility into that, we will be prepared to do that.

I don't want us to be in a position where we are overpromising and under-delivering, and that's why we have continued to take the approach we have..

Thank you. The next question is from Kevin Ellich of Craig-Hallum. Please go ahead..

Just going back to Project Redwood and the turnover that you saw in business development. Wondering if it had much, if any, impact on your lower operating cost for the quarter.

And what should we expect in terms of the cost structure in home health for the rest of the year?.

Great question.

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Sure.

And then I guess, Paul, just on Project Redwood itself, I guess, what stage or inning would you say we're at with that initiative? And how long will it take?.

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Understood. And then one quick one for Gary. Just thinking about your free cash flow.

Even though you give don't give guidance, have you talked at all about expectations for capital expenditures for the year?.

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Thank you. The next question is from Dana Hambly of Stephens. Please go ahead..

Paul, your comments on the M&A targeting more of the hospice, is that because you feel the hospice operations are a little more mature and ready to handle larger deals? Or are you just seeing better valuations in the hospice space?.

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Okay, that's helpful. And then my second and last is just looking at your scorecard here on Slide 7. In reimbursement, you talked about the Home Health Groupings Model being the next to address.

I wonder, as an industry, how big a challenge is that? And would you check to see any language on that in the proposed rule?.

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At this time, I would like to turn the conference back over to management for closing remarks..

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Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and thank you for your participation..