Welcome to the second quarter earnings conference call. My name is Christine, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn the call over to Mr. Greg Swanson, Corporate Controller. You may begin.

Thanks, Christine. Good afternoon, and thanks for joining us, everyone. With me on the call today are Mark Heaney, Addus' Chief Executive Officer; Daniel Schwartz, Chief Operating Officer; and Dennis Meulemans, our Chief Financial Officer. Before we begin, I'll briefly read the Safe Harbor statement. This presentation will contain forward-looking statements within the meaning of the federal securities laws. Statements regarding future events and development, the company's future performance as well as management's expectations, beliefs, intentions, plans, estimates or projections relating to the future are forward-looking statements within the meaning of these laws. These forward-looking statements are subject to a number of risks and uncertainties including factors outlined from time-to-time in our most recent Form 10-K or Form 10-Q, our earnings announcements and other reports we file with the Securities and Exchange Commission. These reports are available at www.sec.gov. The company undertakes no obligation to update publicly any forward-looking statement whether as a result of new information, future events or otherwise. With that complete, I'd like to now turn the call over to Mark Heaney, our CEO.

Thank you, Greg. Good afternoon, everyone, and thank you for attending Addus HomeCare's 2012 Q2 investor call. Greg identified who's with us, so I don't have to do that. I'd characterize our performance this past quarter as having made progress overall. We're improving with a lot of work still left to do. Total net revenues were $70.3 million, a 3% increase over the prior-year quarter. Home & Community net revenues were $58.7 million, a 6.6% increase over the prior year quarter. Home Health revenues were $11.6 million, a 12.2% decrease from the prior-year quarter. Net income, overall, was $1.5 million or $0.14 per diluted share. Cost management measures are continuing, especially in our Home Health division. Home & Community, our largest division, had another solid quarter. 95% of our revenues come from government. Government is not paying more for the services we provide. While cost management in Home & Community continues to contribute, I'm especially positive about what the team is doing to generate census growth through their increased focus on external sales. While cost management in our Home Health division saw progress over the quarter with much work left to do, revenue generation in Home Health is not where we want it to be. We have made the necessary investments in our Home Health sales program, and it's time for that investment to generate consistent, steady growth. Beyond our focus on cost containment and sales throughout the organization, the important highlights coming out of the second quarter would include most of our states' budgets have been concluded in the second quarter, overwhelmingly supportive of continued investment in home and community services. Several of our states and others continued to execute on their plans to shift to long-term managed care, especially focused on the dual eligible population -- We're continuing…

Great. Thank you, Mark. The Home & Community division, our core business, continues to perform solidly, and we had another good quarter. Division operating income increased 17.6% and margin increased 1.2 percentage points over the prior-year quarter. Gross margin increased 0.5 percentage points from the prior-year quarter with slightly lower payment rates. Census increased 2.3% from Q1 of '12 and 4.2% from prior-year quarter. Billable hours increased 7.7% from prior-year quarter. These improvements are the direct result of our strategy to grow this core business by transforming to a sales-oriented culture, increasing our field staff productivity and reducing administrative costs. We continue the positive trend in this division that we shared last quarter. The telephony rollout and centralization of administrative processes continues with positive trends in both effectiveness and efficiency. We're not seeing any meaningful reductions or negative proposals from state legislators, rather an increased recognition that home and community services are an important component of the state's cost reduction solution. We're excited about this core business, its improved profitability and continued growth opportunities. Turning our attention to Home Health. We've made measurable progress to improve this business during the quarter. We have much work yet to do, but I'd characterize the quarter as a good start. As we shared last quarter, our action plan is focused on 5 key areas: increasing field labor productivity; reducing administrative labor, travel and mileage expenses; increasing sales volume and mix; improving conversion effectiveness through central intake; and assuring episodic clinical accuracy and appropriate reimbursement. While Dennis will discuss the financial results in more detail, during the quarter, we improved division operating income from a Q1 loss of $1.2 million to a Q2 loss of $47,000, essentially achieving break-even in the quarter. We improved gross margin to 45.5% from 39.5% in Q1 of '12.…

Thank you, Daniel, and good afternoon, everyone. Highlights for our second quarter were consolidated revenues increased 3% to $70.3 million compared to $68.3 million for the same period in 2011. Net income was $1.5 million or $0.14 per diluted share, compared to $1.3 million or $0.12 per diluted share, a 16.7% increase over the same period in 2011. Cash flows from operations during the quarter were $7 million, reflecting positive timing differences in our cash collections from the state of Illinois received during the quarter, offsetting shortfalls in Q1. Our year-to-date cash flow from operations is a positive $5.7 million. Home & Community, our largest segment, reported operating income of $7.1 million, an improvement of approximately $1.1 million or 17.6% over prior year, largely due to increased census, an increase in billable hours, improved field productivity and lower bad debt expenses, offset by an increase in general and administrative expense. Home Health segment operating loss was $47,000, down approximately $887,000 on a year-over-year basis. The operating loss is a result of declining admissions from both Medicare and other payers and a 1.1% deterioration in gross profit margin percentage. We are pleased that on a sequential basis, Home Health operating loss declined by $1.1 million. However, after considering the previously reported adjustment in Medicare revenue accruals in Q1, our operating loss declined by $353,000. Interest expense was $426,000 or 0.6% of revenues for the second quarter of 2012, a decline of $242,000 when compared to 2011, a result of lowering -- lower borrowings throughout the quarter. Turning to our segments. Home & Community reported an increase in net service revenues of $3.6 million or 6.6% to $58.7 million when measured on a year-over-year basis. Despite challenged state environments and a slight decline in our billable per-hour rate, this growth was fueled…

Thank you very much. With that, operator, we'll open it up for questions.

[Operator Instructions] Our first question comes from Tim Fronda from Sidoti & Company.

I know you're implementing a plan to reduce expenses, specifically in the Home Health segment. What are your specific plans for increasing revenues for the segment?

We have said in our calls that becoming a sales organization is our highest priority or among our highest priorities. We have the pieces in place, Tim, and we have the leadership. We have the data. We have the AEs. We have the plans. It's time for us to execute. It's grinded out. There's nothing more fancy about it than that. We've got to knock on more doors. We've got to say yes and we have to respond promptly. There's nothing fancy about it.

Okay. And with the difficulties in the Home Health segment, can the gross margin for the company overall get over 30% for the next couple of quarters or is 29% around the top right now, given those difficulties?

Tim, you know we don't give forward-looking statements. I will say that, as in the past, our gross margin percentage tends to improve in the third and fourth quarters, the result of the shift in employment and payroll taxes that decline over the course of the year for all companies. Those sorts of trends will continue for us in the foreseeable future.

And if opportunities present themselves to expand your presence and increase facilities in certain states that you want to be in, specifically with Home Health, would you look to increase your presence at this point or focus on the business as it stands right now first?

That's a good question, Tim. We have a pipeline. We're-- we look at businesses. The -- our primary focus as an organization is as we've described. It's on sales, centralization and cost reduction. If an acquisition comes along that is attractive, accretive, we'll do it. At this moment, there's nothing imminent, but our pipeline is open.

Okay. And final question, with the current rollout of the referral center, can you explain how it has improved your business so far?

Tim, it's Daniel. It's a good -- it's a great question. What we have found is it's improving the responsiveness. So we have a group of folks here in Palatine. 100% of their energy is focused on responding to -- receiving and responding to referrals. So they're responding more quickly, more urgently. We're able to process and qualify more quickly and we're able to connect the referral to the branch more quickly. And so our -- both the rate of our responsiveness and the professionalism of our response and the speed of that responses has improved.

Our next question comes from Matthew Gillmor from Robert Baird.

Mark, I was hoping if you could provide an update just in terms of the nature of the discussions with some of the managed care companies around an integrated care opportunity, just sort of any update there would be helpful.

Sure, let me begin. We are really excited about this -- the country's shift to long-term managed care. We just see it as a tremendous opportunity for home and community providers. We have a very detailed plan. We have a plan coordinator who's an experienced managed care insurance -- managed care sales coordinator who is coordinating our plan. We've identified every state that has -- is at any point in moving to managed care or considering doing so. Those that are further along, we have a list of the plans that are involved. We've talked -- all is a big word. But we've talked -- I can't think of any that we have not talked with more than once. I've been doing this business a long time and I've wanted just to talk to managed care companies and insurance companies about the value of the personal care program to their risk. We get a meeting now and then, Matt, I am -- our team, we are meeting -- we have meetings -- several meetings a week with plans across the country and we're getting very, very positive reaction from them. It's nice to be loved.

As a follow-up to that, could you just give us a sense for where you're geographically positioned and maybe the states or the counties where their managed care is going to take those lives from the state. And I know, for instance, Illinois is one of those states. I'm just curious how many regions you're in where the lives are actually moving or you can look out a year and say, okay, managed care will be here.

The -- Illinois has already put out their -- they've already taken in their bids. They're evaluating proposals from the plans for what would be, we estimate, about 40% of the population in Illinois. We're actively talking to all of those plans that submitted. California has awarded. We're actively talking to those plans. We're in those geographies. Other states that are in some place -- New Mexico, New Jersey, Idaho, Delaware all have active plans. Washington is just moving in this direction. We're talking to plans in Washington. Oregon, South Carolina and -- the reason I can do this, Matt, is I'm looking at the list. And I want to make another point, Matt. These are states where we have a presence. We're letting the plans know what our capacity is. The response is very positive. But I'll make the point also that we don't have to be in the state. If the state of Arizona was to go managed care and we talked to a plan and the plan liked our approach and wanted us and committed to a program with us, you know that the barriers to entry are limited. We can be in an up and operating in Arizona pretty quickly. And if the plan will partner with us, we'd see patient flow.

Okay, that's really helpful. And just one other question. Daniel, I think you'd mentioned moving some of the Home Health clinicians to a pay-per-visit. I was just curious, did that happen at the beginning of the quarter, at the end of the quarter? I'm just curious about the timing of when that occurred during the second quarter.

Sure. It was primarily towards the latter third of the quarter, so most of that work was done in June.

[Operator Instructions] We have no further questions at this time. Do you have any final remarks?

I don't, Christine. Thank you very much. Thank you, all. Thank you, our investors and our analysts. We really do appreciate your support. We look forward talking to you next quarter. Thank you.

Thank you. And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.