Greetings and welcome to the Amedisys’ Fourth Quarter and Full Year 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Nick Muscato, Vice President of Strategic Finance. Thank you, sir. You may begin..

Thank you, operator and welcome to the Amedisys’ investor conference call to discuss the results of our fourth quarter and year ended December 31, 2018. A copy of our press release, supplemental slides and related Form 8-K filing with the SEC are available on the Investor Relations page of our website.

Speaking on today’s call from Amedisys will be Paul Kusserow, President and Chief Executive Officer and Scott Ginn, Chief Financial Officer. Also joining us is Chris Gerard, Chief Operating Officer and Dave Kemmerly, General Counsel and Vice President of Government Affairs.

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 the call to reflect subsequent events other than as required under applicable securities laws. These forward-looking statements may invoke 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 measure will also be available in Forms 10-K, 10-Q and 8-K. Thank you.

And now I’ll turn the call over to Amedisys’ CEO, Paul Kusserow..

improved margins from operational efficiencies; lower turnover as we strive to become the home health hospice and personal care Employer of Choice and continued industry leading performance in providing the highest quality care. We are also investing.

We are investing in Compassionate Care, in de novos, their growth and acceleration, in innovations and also in our people. Again, thank you to all the Amedisys’ employees for all you’ve done to drive this success. You continue to prove that focusing on our patients drives outstanding results.

With that, I will turn it over to Scott Ginn who will take us through a more detailed review of our financial performance for the quarter and the year as well as our forecast for 2019.

Scott?.

$3 million enhanced IT security and update our staffing model and paid practices; $2.5 million for 7 to 9 de novo locations; and $2 million for investments in PDGM preparation and to enhance our innovation plans. For our CCH acquisition, we are estimating EBITDA in the range of $12 million to $14 million.

We are slightly above our ADC target used for our original modeling. However, as we have previously mentioned, we will disrupt the current run-rate as follows. We will make investments in business development staff and regional infrastructure needed to grow low ADC care centers and optimize margin of large care centers.

We will only see partial realization of synergies in 2019 due to the HomeCare HomeBase rollout. Based on our HomeCare HomeBase rollout experience, we do anticipate a drop in ADC during the rollout, which is scheduled to be completed in August of this year.

This ADC disruption is projected to be approximately 100, which equates approximately a $6 million impact to EBITDA. Excluded in 2019 EBITDA guidance is onetime deal expenses in nature.

We anticipate these costs range of $16 million to $18 million and include cost weighed to HomeCare HomeBase implementation resources, updates to technology and a retention program aimed at securing our key Compassionate Care employees. Finally, this guidance assumes a fully diluted share count of approximately 33.1 million shares.

This will conclude our prepared remarks. Operator, please open the line for questions..

Thank you. [Operator Instructions] Our first question is from the line of Brian Tanquilut with Jefferies. Please proceed with your question..

Hey, good morning guys. Congrats on a good 2018. So my question is as I think about the guidance that you gave, Scott and I know you guys look at where Street expectations are.

If you don’t mind just bridging us to how you are thinking about the different moving parts between the $8 million that you mentioned and I think the investments that you are talking about as well as Compassionate Care, I mean, you are essentially cutting it half the run-rate EBITDA expectation there.

So just putting all that altogether, because I’m trying to get a sense of what the core apples-to-apples EBITDA looks like? And then I guess any comment you could make on Q1 as we think about modeling for Q1?.

Yes. Thanks, Brian. If we still look at – I mean, I think there is three items we kind of look what’s out there from a Street perspective that the kind of – we have got a little bit of a confusion out there so to speak. So we think about that 210ish number, we have got investments of 7.

We think there is a rate differential out there that we have talked about that 8 plus a disruption in CCH to somewhere around 6. So that’s somewhere it gets you. You add all those items back we are really in roughly a 230ish range what we are looking at.

So those pieces are that, that are impactful I think the most in a ways, we have seen somewhere around CCH. I think the factor – to circle back on that is the issue around disruption, which we are mindful of what was impacted us when we got there.

So those are the biggest items that we see if you backed up and think about pure AMED just what’s in our guidance today that would suggest the 196 number, you think about adding back 7 for investments and rate differential there, that’s another 15 puts pure AMED pre-CCH at a 211ish number. So those are some of the moving parts.

I think when you back up and look at – if you want to take an approach where you think about what 2018 exit run-rate of 181, we have got pricing good gaps of roughly 15. You put CCH at roughly 14, let’s use the top-end of that line.

And if you think about raises, I have said in my comments, it was around 20 investments of 7, we are going to put more BD here to 6. That’s another 33 that we are going to add to the cost structure, puts you at 177, I am going to grow EBITDA 31 over that. So given an 18% return on that kind of that base EBITDA you get there.

So, a lot of pieces involved in the numbers. We feel good about it and we think when you step back and look at CCH and look at the chart we have on Page 20, we are thinking from right to left versus left to right how do we best prepare ourselves to get to that $50 million.

We think what we are going to do early in 2018 is going to – I mean, 2019 is going to be helpful..

Yes. I think, Brian, just to add to what Scott said, when we did CCH, great asset, delighted to do it, but on a very difficult technology platform that will not be supported a year from now. So we are paying for that to keep going. So we have to get this on to HomeCare HomeBase.

We used our experience with disruption that we had when we converted our hospice group over to HomeCare HomeBase. So we believe that that’s going to – we will see some minor disruption about 3%, which is 100 ADC and then we really have to invest, because as we indicated they’re about half our margin right now.

So, we want to get them up to the full margin and they’re about 1/5 of our growth rate.

So, we believe that this is a wonderful chassis, but we’ve to do the work necessary in terms of getting them on the right technology platform, hiring the right people in BD, getting the low ADC group up to a more a better operationally better margin area, which is over 60 ADC. So, we’re investing very heavily to get that done.

And then last part of this year, we’ll put some efforts in terms of pulling out the synergies and that will occur until about the first half of next year. So, the key is we’re investing because we believe that we can get this double, but that we expect to see this double in 2021, and we expect to have a good trajectory in 2020..

Yes, Brian. And thanks, Paul, and then closing on just your comments to Q1. I think, if you look back at our trends that we have back in our deck, I think, the factors impacting it are the same.

If you think pure AMED from modeling perspective, I would look back to ‘20 what we did from 2017 Q4 to 2018 Q1, I think you can expect some similar patterns there. We’re going to bleed in CCH, which is only going to be 2 months of the quarter.

I’d look for that to be more of upper-to-the-right trend with some stronger EBITDA numbers in the back half of ‘19..

Thank you. Our next question is from the line of Matt Larew with William Blair. Please proceed with your question..

Hi Matt..

Hi good morning. Wanted to ask a question on the payer front. You’d mentioned on the third quarter, a number of pilot models that you looked at in terms of taking some risk. I think you mentioned star improvements, ACH and medication adherence.

Just wondering where those conversations are at today? And then in the context of Medicare Advantage rule changed from last April, whether your personal care business has started to get involved at terms of peer discussions as well.

So just any update there probably would help?.

Sure. So, we’re still in 15 states, three different types of pilots, mainly focused, again, on ADCs. So focused on readmissions, hospital readmissions driving that down, focused on keeping the quality scores high, in some cases, and some of the couple of the cases, we have med adherence. Those are going well. So, we feel good about it.

It’s still early days. We’re still kind of figuring out what we need to be doing to what sort of resources we need to bring in and how that’s going to net out. But thus far, we feel very good about it. I’d say the interest level has increased considerably from a variety of folks not just payers, but in other types of risk relationships.

And so, we’ve seen a lot more of that activity. We’re having a lot of bigger discussions with health systems themselves, retailers, specialty folks that are out there all of them looking to get involved in risk. So, we feel good about it.

I will say that our work with Medalogix has helped our confidence level on that in terms of our ability to use analytics to drive that and to get better feedback and to project better what risk levels actually are. So, we feel very good about it. We’ll come out.

I think, it’s too early for us to really comment on a large scale in terms of how we’ve done. We’re still working through some of the Kings. But we’ve got a couple of other things in the pipeline, knock on wood, we hope that some of these things come through, we’ll have some more opportunities, particularly on a much larger scale.

So, we’re very optimistic at this time..

Okay and then, Chris, throughout 2018, a number of times you provided us updates on progress of underperforming care centers and that drove some improvement on home health side.

Just wondering if can you give a sense for what you’ve focused on in 2019 in terms of improving what has been strong performance on the home health side?.

Sure, yes. Thanks, Matt. Yes, 2018 was really nice and a lot of our success in ‘18 was contributed to by from our focus on our underperforming care centers, which is really kind of core strategy that we continue into 2019.

We’re always benchmarking our locations against the others and trying to get to a target margin profile, and we’ve got opportunities we got for this year as well. Some of the other things we think that we still can make some progress on is related to on our cost per visit side is you’ll see that our actual contract cost per visit is up about $0.45.

In Q4, it was up, continue to go up last year. There’s really kind of us basically making sure that we had clinical capacity to make the volume that was coming in the door. If we get better at our staffing, retention and really kind of capacity for clinical perspective, we think that there’s some significant opportunity there.

If we were able to shave about $0.50 off the after contract visit rate, that’s about $4 million in that will fall to the bottom line. We also see some opportunities still around our transportation and kind of our scheduling and make sure that we’re more efficient how we do that.

Other than that, we really see the growth is also going to continue to accelerate through 2019. That will also help us drive our margins..

Okay thank you. Congrats on a great year..

Yes thanks Matt..

Thank you, Matt..

Thank you. Our next question is from the line of Frank Morgan with RBC Capital Markets. Please proceed with your question..

Hi Frank..

Good morning hi honestly, on that cost per visit thought, you mentioned things that popped up, I guess, I just have used, but I’m just curious what will you be able to do to hold it flat? And I think, you also made some comments I think, what follow you on what was going on with acuity as it related to cost per visit.

So just more color on that and are you really starting to see a change in maybe your labor mix our visits in preparation for future reimbursement changes? Thanks..

Yes. So, starting with the labor mix, we haven’t we’ve seen a slight improvement in our LPN versus RN utilization and have our clinicians working up to top of their license.

If I think about ‘19, we have still some opportunity on there, I think really we will experience the upside in ‘20 and beyond and that’s just really internally related to kind of our pay practices that we mentioned in the deck that we’re going to be changing out later this year to our clinicians are really going to be encouraged to work at the top of their license.

So, we see that as kind of a 2020 realization, but we still have been improving that a little bit. On the labor side, we still are seeing capacity constraints in some very specific markets, so that’s required in the utilization of the contracts to have.

And then on our ability to keep our actual direct labor cost per visit flat and still give raises is really kind of related to our focus on our productivity of our clinicians.

We’ve been able to as we’ve gotten better with HomeCare HomeBase and use the system more been able to get our clinician productivity up to the standards that we expect and that’s allowed us to offset the raises that we’ve been giving to our clinicians.

Got you. Can I sneak one in more, just Paul, your concerns around the hospice carbon for MA? Thanks..

Yes, early days still on the hospice carbon. Again, we we’re all getting together as a group and meeting on this in a couple of weeks in Washington. At this point, it doesn’t seem to make sense to it seems to make much sense to leave hospice separately, but what we’re talking about is a very much of a kind of a measured stuff.

We saw some folks at CMS, and I think what they’re doing is taking a look at what this how this would be of interest.

Also, I think the plans are not particularly jumping all over this yet, bringing in hospice, brings back some of the days of potentially where they could be tagged on as with death panel type things, and I think that make some very nervous. So, we don’t know frankly, if the plans are going to be jumping all over this.

So, we don’t know if the dog is going to eat the dog food on this one yet, particularly with the plans..

Thank you..

Thank you. Our next question is from the line of Joanna Gajuk with Bank of America. Please proceed with your question..

Hi Joanna..

Hi thank you. [Indiscernible] so just coming back to the discussion around margin and, I guess, the outlook. So, clear the Medicare growth improved very nicely right to 3% volume grew Medicare fee-for-service improved, right.

So, would you assume growth on that metrics to be in 2019 and beyond, because I guess, you just try to talk about some potential cost savings, but I guess, if the growth accelerates on that front, whether that should help margins even more.

So, what’s your assumption there in your guidance and also on margins for the home health segment?.

On the growth side you have what we have baked into 2019, we feel like we’ll deliver on is 5% total admission growth. We expect Medicare to be the majority of that growth, and we’re looking at our Medicare side to be 3% to 5%, we continue to invest in our sales force and continue to penetrate deeper into market.

So, I still I anticipate to see an acceleration throughout the year going into 2020 as well as us being able to deliver on our expected numbers in 2019.

And then on the margin side, we continue to just try to fine tune what we’re doing in our locations, we still didn’t see the levers that we can pull around our professional mix, which I just mentioned a while ago that we really won’t see a tremendous movement there in ‘19, but we do expect to see in 2020..

And Joanna, it’s Scott, and just cycling a little bit back on the home health segment. So really a great year in margin expense from an EBITDA perspective. That 15.1% for ‘18, that’s a 190-basis-point improvement. So really strong performance, they’ve outperformed some of our internal thoughts early. So really pleased with that.

We do see a little bit more room in 2019 for fewer home health to continue on, especially if we hit these growth numbers, especially around Medicare that we can expand that a few more basis points as we move forward. So, we’re bullish on what our home health segment has done and what we think they can do..

We are continuing, Joanna, to focus on our RN LPN mix so that we can we still believe there’s quite a bit to be done there. And so, but that initiatives we’re going to be starting later in this year. So, we will see probably the real impact of that in 2020. So, we’re excited about that because we believe there’s a lot to be done there..

And on that I’m glad Paul brought that up, because I think it’s something we have been as clear on and while we think it’s so important to do, we need to do that this year to get prep from pay practice changes. I mean as we think about that, we’re somewhere around 38% from LPN versus RN utilization on that.

So, every 1% movement is somewhere around $450,000. So, there is a significant opportunity there, some of our competitors in that 55%, 60% range. So, if you do the math on that, that’s why it’s worth us focusing this year on getting prepared for that..

That’s helpful.

So, are you saying that even with these investments that you’re taking in ‘19, margins will still be slightly up year-over-year?.

Yes, if you back up and look at kind of what we’re seeing, let’s put CCH on the side, I still think we have room for some expansion in margin. It’ll be moderated by the $7 million of additional investments and then CCH will be a slight drag on that.

But yes, there is some room within, when I’m talking, I’m thinking within our kind of ongoing Amedisys segments we see ability to expand margin..

Part of this, remember part these that what we’re investing in, Joanna, it will expand margin. The fact that we have that we’re putting some investment in terms of what we call pay practice redesign will and staff reallocation will fundamentally be very, very advantageous to us from a staffing optimization perspective..

And we see that piece coming in 2020. It will impact..

We’re investing it in ‘19..

It will be in Q4 before we kind of probably piloting some of the things we have to do to make sure the systems are ready. So, our deal for ‘19, as we said before, is really roll up our sleeves, a lot of work to do, a lot of things we need to do to get ready for 2020. So that’s the year we want to get CCH asset ready and really performing well.

So, this is a lot of hard work for us this year..

Thank you. Our next question is from the line of Dana Hambly with Stephens. Please proceed with your question. Please proceed with your question..

Hi Dana..

Hi good morning. Just following up, Scott, on the last comment on the staffing ratios, you are at 38%, some of the competitors in the mid-50s. I don’t want to get out over my skis.

How do you expect kind of the pacing of that obviously not getting really starting to 2020? I’m thinking it’s more of a multiyear thing, not a 1-year thing where you can get it into the mid-50s.

Could you just remind me the you gave the 450 number, but just the cost differential per visit between the RN and the LPN?.

Yes, I’m going to let Chris give a little bit of that..

Sure. Yes. So, the cost differential starting there, it sits around $20 per visit. So, it’s significant kind of shift when you can go to an LPN versus an RN. What we have over ‘17 and ‘18 made small incremental improvements in the mix.

The pay practice that we mentioned a couple of times today is going to be really the key lever that’s going to open up and make it simpler for us to move this mix, but we’re also doing some other things early this year, one is kind of our staffing model redesign, which is really getting the right kind of standard control at the care center level, that’ll be done early in Q2 that we feel like we’ll also facilitate a little bit of a movement.

So, our goal is to get kind of where some of our competitors are in that mid-50s percent range and making sure that our RNs are doing RN work.

And it won’t happen, as you said, overnight in January 2020, but I expect us to move up from our 38% today into the low 40s during the course of 2019 and then by the time we exit 2020, we should be kind of in line with everybody else..

Dana and what we’ll be focused on doing that, we’ve certainly always focused on turnover. So we certainly want to get better at that but as we will be looking to as things as physicians’ time replacing those with the right discipline.

So, we’re not going to make a wholesale change in our staffing mix and turn away some folks that they’re doing a great job for us today. So, we want to be smart about that as well..

Thank you. The next question is from the line of Kevin Ellich with Craig-Hallum. Please proceed with your question..

Hi guys hi Paul thanks I jumped on a little late, so if I ask something that’s been discussed already, you can point me to the transcript, but M&A, clearly, your balance sheet still remains in really good shape.

You got CCH integration this year, but how does the pipeline look? We saw the small hospice deal you guys announced earlier this week, but just wondering where the pipeline sits and how valuations look?.

Yes. Let me just I’m going to turn it over to Scott, but in general, as an ex-M&A guy, it’s very, very good. We’ve developed a whole new methodology, largely this has been Scott and his team and Chris. So, I think we feel very, very good about it. It’s quite full, it’s there’s a lot to say grace over.

And we’re, again we’re really staying outside the process because we’re seeing the prices, we’re seeing are crazy from an EBITDA multiple perspective, so we’re seeing 15 and above in some of those things is just crazy. So, I think we feel really good about it, and we’ve got some things in the pipe, we’re knock on wood.

We’re hoping that we’ll be announcing some of these in the next 6 months or so that are going to be substantial and then we got the de novos which that process is working exceedingly well. So, we’re actually starting to get good at building things.

Scott?.

You covered most of it. I think, if we step back and think about M&A early, I think, in January this year or last year, we were out and at a conference when we talked about our strategy around a large hospice, tuck-in hospice and de novo, so we’re doing all those.

We’ve got a great pipeline, but we’re going to be smart about how we’re what we’re spending as well as what we’re buying. So, and really very thorough diligence process, which sometimes makes it a little slower.

Certainly, externally some folks got frustrated, and we were certainly internally frustrated with the timing it took, but we’re going to continue on that path, but the pipeline looks great.

As we look at these tuck-in deals, we’re looking more of those about buying ADC, which so you’re going to see some of us will talk more around per ADC pricing because some of these smaller ones are going to have really material EBITDA, but that’s a place we want to be, and we can get there faster. We’ll certainly do some more tuck-ins.

So, we’re excited about the opportunities that are ahead of us..

Thank you. Ladies and gentlemen, we have reached the end of our question-and-answer session. So, I’d like to pass the floor back over to management for any additional concluding comments..

Great. Thank you very much, operator, and thanks to everyone, who joined us on our call today. We hope it was enlightening, clarifying and inspires confidence in Amedisys. We appreciate your interest in Amedisys. We’d also like, again, to thank our employees, who delivered these phenomenal results.

Keep doing what you’re doing, taking care of people who need us the most. We hope everyone has a great day, and we look forward to updating you on our ever-evolving process and purposeful work on our next quarterly earnings call in May. Have a great day..

Ladies and gentlemen, this does conclude today’s conference. Again, we thank you for your participation, and you may disconnect your lines at this time..