Good afternoon. My name is Whitley and I will be your operator for today. At this time, I would like to welcome everyone to the Addus Q3 (sic) Q4 2013 Earnings Conference Call. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this call is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Dennis Meulemans. Please proceed, sir.

Good afternoon everyone and sorry for the slight delay in getting started. My name is Dennis Meulemans and I will be your conference – that's you. Thanks operator. Good afternoon. This is Dennis Meulemans. And thanks for joining us again. 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 developments, 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 are all 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, Dennis. Good afternoon and thank you all for attending Addus HomeCare's investor call covering our performance in the fourth quarter of 2013. Here with me in our support center is our CFO, Dennis Meulemans, one we just heard from and Darby Anderson, our Senior Vice President. Let me also acknowledge the many management and staff of Addus HomeCare listening in from our 100-plus locations in the 23 states across the country. These are the healthcare professionals who make it possible for our 28,000 deserving consumers to live, where they want to live for as long as they want to live there. And always speak for our Board and our long-term shareholders, when I express my gratitude for the efforts they have undertaken to produce what I think was another good quarter for the company. In the fourth quarter, revenues were $69.9 million representing a 9.6% increase from the prior quarter. Same-site revenues increased 6.9% from the prior year. Net income from operations was $3.1 million or $0.28 per diluted share. Our fourth quarter had the look and feel of the previous three quarters completed over the past year steady, steady improvement, consistent, consistent to plan, and most importantly focused. Over the past year, I made a point of reminding our shareholders of our focus items. We will become a sales organization. We will position ourselves to be a leading provider to Managed Care. We will reengineer our system of care delivery. We will lower our costs, drive health outcomes and connect our direct care staff and our at risk consumers to the healthcare system essentially we will play an important role in the shift to population management. We will be opportunistic in pursuing strategic acquisitions and we will do these things in an intensified and discernible culture of…

Thank you, Mark. Good afternoon everybody. I too want to acknowledge and thank our employees across the country a lot of our consumers remain safe and supported at home where they want to be. It was a good quarter from the sales and operations perspective as we successfully integrated the acquired locations in South Carolina and New Mexico, while continuing to put up solid census growth numbers, move forward on our new care system model and further our relationships with Managed Care organizations as we move closer to implementation of the deals and managed Medicaid long-term care in key states. Organic census growth is up on average 464 consumers or 1.7% over Q3 of 2013 and up 2014 consumers or 7.9% from a year ago. At year's end and including acquisitions, total census growth was 3379 consumers or 13.2% from a year ago. We are pleased with these overall organic growth rates and the fact that we are seeing improved growth from more locations and states across our footprint. This tells me that our sales efforts, our conversion to a sales organization is taking root. We are not done and know this is an ongoing process. Lori Cabbage, our Vice President of Sales has settled into her new role and as a solid plan on which she is executing through our regional and agency directors. We continue to have positive meetings with Managed Care organizations in our markets targeting both near and mid-term projects. Since we last spoke, we issued releases regarding two pilot projects with Aetna and Centene. These projects continue to develop positively we believe for all entities involved. We are preparing for expansion of existing Managed Care projects in Illinois in Q2 and the initiation of those projects in Illinois by Q3 based on the most current…

Thank you, Darby, and good afternoon. We had a good quarter a very good year. Census is up, revenues are up, two acquisitions closed, income steady on an adjusted basis, balance sheet remain solid. Highlights were net service revenues from continuing operations for the quarter increased by 9.6% to $69.9 million compared to the same period in 2012 and up 3.9% from Q3 reported revenues of $67.3 million. This includes approximately $1.7 million in revenues added from our CHHC acquisition closed on December 1st. For the year, our revenues have increased 8.9% to $265.9 million. Our revenue growth for the quarter has been driven by 7.9% increase in census a slight increase in average billing rates offset by a modest decline in average billable hours per consumer. Net income from continuing operations was $3.1 million, or $0.28 per diluted share, however the comparisons for this quarter are a bit challenging. In this quarter we had substantial one-time transition cost incurred to execute on our M&A strategy increased cost for SOX 404 compliance efforts which we did not have last year. The lost margin as a result of technical changes to the Illinois payment process in the benefits of a favorable tax position. On an adjusted basis, our EPS was $0.32 per diluted share essentially equal to the 32% per diluted share for 2012. Gross profit margins declined by 1.6% of revenues when compared to fourth quarter of 2012 with approximately 1% of that decline attributable to the billing process change in Illinois and the remaining decline attributable to increased labor cost. We are experiencing higher wages in Washington and Alabama and the correct application of the EVV system for payroll has resulted in slightly increased payments to our homecare aide. General and administrative expenses increased $2.4 million or 21% over…

Dennis, thank you very much. Operator, we'll open up the call now for questions. Thank you.

(Operator Instructions) Our first question comes from the line of Brian Hoffman with Avondale Partners. Please proceed.

Hey, guys. First of all, congratulations on a great quarter.

Thank you.

So you mentioned the do-eligible demonstrations in both California and Illinois, with California beginning in Q2, and Illinois in Q3. Can you talk a bit about the ramp up of those programs and when you could potentially expect to see some impact there?

So right now the – in Illinois we're going through a voluntary enrollment period then they returns to a more mandatory passive enrollment opportunity. So we expect operations really to be operational August, September. It's just very hard to predict, in Illinois as you know we serve already a large number of individuals that will be enrolled in the duals program. So it's just very difficult to put a timeframe or numbers on the benefit to add us in that program. Similarly in California we're going through the process, it's a little more county-by-county specific and in some of those counties we don't currently provide care, so I think it's even harder to project timeframes and growth around that.

Okay. And then related to acquisitions, with both of the two recent acquisitions closed at this point, can you talk about the integration process of those two companies going forward, and your comfort or bandwidth, I guess for future acquisitions?

Darby why don't you address the integration and I'll touch on the --

I'll comment on the first part of the question. And I think things are going along well with regard to the integration and stimulation, I'd say we're more in the simulation process getting to know our systems and people we held at a large orientation for leadership of those locations couple of weeks ago here in our Support Center. So I feel good about the efforts to-date on a simulation into our culture while also keeping the things that we admired about those businesses and therefore, the reason for the acquisition intact within those organizations.

Okay. With regard to Brian, it's just a question of bandwidth the ability to do. We believe there are acquisitions to do. We have a pipeline generator out and out in the communities looking for opportunities for us, we review them. We have the resources. We have the cash and financial resources to do the deals that we're looking at. We have the bandwidth to do the acquisitions. We would – with that said, it's really about – first you have to look at – are these premium strategic opportunities for you. We have to stay focused on our fundamentals, the acquisitions will be there. They'll always be there. We will do them, if they make sense. We're going to be focused on our fundamentals. But, we have said this before – [as an answer] (ph) this to you, we don't want to be seen as an acquisition story though. We'll do the acquisitions but we're not an acquisition story.

Okay, great. And then last one for me. I believe in the press release it stated that South Carolina was included in the same-store results. Can you give us the increase in census excluding the South Carolina for the acquisition?

The census increased stated as new acquisition did exclude the membership that we incorporated into our two offices in South Carolina and that is in the press release that would be roughly 1350 people.

Got it. Okay, great. Thank you.

Your next question comes from the line of Mitra Ramgopal with Sidoti. Please proceed.

Yes, hi. Good afternoon. First, Mark as you look the first quarter expansion in 2014 and beyond. Could you give us a sense as to how far along you are as it relates to investing in your technology platform?

That's a good question. It should be – the only reason I'm hesitating is, I don't want to be careful that I answer questions that I'm allowed to answer. We estimate that we're 40% into the design that we have drawn up and planned out.

Hello?

Yes, did you --

I'm sorry, I lost.

No, so what I said is, we estimate – we are 40% deployed and the plan that we – that we're working from.

Okay. And as you look in terms of getting to say that 100% is that going to be sort of a five year plan or something more aggressive?

It won't be a five year plan and it will not be a five year plan, it would be much more aggressive than that. Having said that, the – this is exciting actually. Everyday we see that we could add to the plan or there is more opportunity to further improve our care delivery system. So the plan that we have is, I would put that in the – another year to 18 months and we would say that we're substantially there. But, we – I hope that we're not there because this thing as we said it will rub and fix together in nature, we're doing things today that when we look and say wow, this has a capacity to do these things for us. So we're not going to be done.

Okay. No, this sounds very helpful. And I know you mentioned in terms of [wanted] (ph) big targets for Addus going forward is transforming it now into more of a sales organization. I don't know if you can give us a sense as to how far along you are as it relates to head count, or how much in terms of hiring any with regards to your goals over the next couple of years?

Yes. I'm going to ask Darby to answer that but we just took it off, I will say that it's really not a head count thing, it's a model. Darby, why don't you explain in terms of how we view the sales effort?

Yes. In community based services, it is not an environment which we believe individual sales representatives thrive; it is a service and sales in companionship effort. So our sales force is our local leadership, our agency directors who maintain the relationships that generate the majority of our referrals and the network and branch out into the communities to do community education about the services we provide. So it's not a head count kind of issue. To your question, I'd say that we're very pleased with the progress that we've made this year and see that progress increasing with Lori Cabbage's focus and the focus of our regional and agency directors. But, in terms of being done we talk about a culture, cultures need to be nursed and sustained. So I don't think we're ever going to be done, add to the mix, change to a Managed Care model, I don't think that fundamentally changes that sales and service strategy, but it certainly does create new referral source opportunities for us to engage and develop very deep partnership relationships with.

Thanks. No, that's very good. And finally on regarding the pilots Aetna and Centene, I know still very early here. But, is this sort of more of a 2015 sort of initiative where you think it could sort of move the needle for you?

Well, one of the things that we're expecting to get out of those pilots both us and the two payors is evidenced around the effectiveness of an enhanced personal care delivery model connecting the aide to the healthcare team and the impacts that that can make on overall health and wellness health outcomes and of course, spending related to acute care costs. So that would be something we would hope to have evaluated in 2015 and that's – in terms of our increasing relationships with those two payors obviously beneficial to us, that's really the outcomes we're expecting from those pilots.

And I'd also add that we feel very good about the pilots. The most important thing in the pilot is to make sure that we meet the objectives and both of the – both Centene and Aetna intend to publish on the results. What's exciting is, these are smaller populations but they are capped, there is a cap to the agreements. We're already exceeding the caps the intended caps that is you're receiving more referrals than the – than were put into the proposal.

When we initially started out, we think it slowed growth, yes.

And we attribute this to the Aetna and Centene case workers dealing with what they deal with [an agent] (ph) and saying look they need somebody responsible and responsive to handle these serious cases. And so we're excited on that measure alone.

Yes. Thanks again for taking the questions.

Mitra, thank you.

Your next question comes from the line of Dana Hambly with Stephens. Please proceed.

Thanks. Good afternoon. Just following up on the two pilot program, is that anything different than really what you guys have been talking about for the last 18 months, or is it really more of a validation of what you've been talking about and this is kind of initial buy-in from some of the Managed Care guys?

Dana, I couldn't have said that better myself, you're exactly right.

Okay. Well, good. And I can move on.

I mean it is exciting because that's the answer, it's going to see the – it's they believe in this model, they want to see it and my point on the census is already increasing in it, which was not an objective if there is anyway its because it works and its so exciting.

Okay. And you say the increase in census, I got to believe that's pretty moderate right now, are you currently serving a lot of these consumers?

No. We didn't have a large population of the Integrated Care Program this is a Medicaid only, so duals are excluded from that element of Illinois Managed Care strategy. So predominantly the consumers we serve are older adults, which we will see in the duals, so this was a good opportunity to get a manageable population and really study it.

Yes. It's an important number of consumers period it wouldn't move the dial company wide much. But more important is, where it is, who it's with in the population, its in Illinois backyard Aetna and Centene hugely important national implications, at population that we want to serve.

Dana, I would also add that we expect that we're going to publish some of the results, which we think will be positive.

Okay. All right. That's helpful. Dennis on the modified billing procedures in Illinois, was that just on the quarter, or we going to get the $600,000 drag in Qs one through three of this year?

You'll see a comparative drag in Q1 and then it goes away. There is 100 left in Q2, but kind of then were transitioned out and the comparisons will be the same.

Okay. What is that related to, I mean what exactly happened there?

It had to do with technical change in how they pay us. Previously for every minute over the hour they paid us to the quarter hour. And now they pay in. So if we worked a minute pass the hour, they give us another 15 minute and now it follows a federal mandate.

Okay. All right. And then just on that front, anything we should be thinking about for either Illinois going forward, or any of the other contributing states either on changes to billable hours or changes to rates per hour?

Darby?

No. Nothing we can, no, nothing at this point.

Okay. Great. Thanks guys.

Dana, thank you.

(Operator Instructions) Your next question comes from the line Whit Mayo with Robert Baird. Please proceed.

Hey, I guess first on the [serve] (ph) box cause, I guess just to be clear what's the difference in the $280,000 in the quarter from the incremental cost that you've already communicated previously?

Well, we had been communicating that we anticipated that this expense annualized would be in the 700 range that's first time through. These are expenses for our internal audit function as well as the consultants that helped them and a portion of the increased audit fees that we will have. It's a new step up in expense level for us.

Okay. So we know it was coming and it was just going to be $100,000 more than you communicated. And can you just remind me, is that an accrued number or is that an expense item that's very specific and isolated to the fourth quarter?

That is an expense item that's specific to the fourth quarter that will, Whit that will remain at near that level every quarter going forward.

Okay. All right. Just wanted to kind of get a sense of the recurring nature of that. And on the material weakness just and I guess I want to focus first on the payroll conversion just how much that's going to cost you, and also can you talk more about the IT controls, I guess I'm going to have a great idea for what the issue is there in the plan to correct that?

I'll take that in reverse order. The IT controls really deal with segregation of responsibilities and access controls, we've got a small team here. And we ask them to do a lot of things and from a control environment that's not a good thing. So we have to have more specific responsibilities for people that are doing development can't be in the operating platform making changes real-time. Now, we've just got to do a better job of documenting that sort of process. In the payroll area is documentation of the checks and balances you would normally expect in a payroll process. We are implementing a commercial solution. We've done our cost benefit analysis of it. There will be some capital expended this year to assist for the implementation and it will take us six months to get through that process. We have completed an ROI. We're working to make this to be cost neutral going forward.

Okay. I guess the important thing, it's not financial weakness so – on the contingent liability issue with the all legacy Home Health business. Can you walk me back through that, again, sorry I was kind of in and out when you're making your comments.

We're under Medicare and Medicaid law, they have the ability to wrap products, they can collect, they can ask for additional documentation and if we are not compliant with, if our clinical record does not support that the compliance with those regulations they can recover monies from that. It took us a while to make this estimate because we wanted to base it on some fact days of experience. So we have been actually monitoring the recovery rates by the intermediaries over about the last three years. And this estimate of $3.2 million is on a revenue base of over $153 million. So and that liability extends from six years from the date of the close, so they can go back six years prior to the date of the close. Obviously, we are a year into it, so there is now about five years of exposure there. So one year is gone. But this is what we think it's going to take so that we are not charging earnings each and every year, or every quarter for what would be a recovery under this process. We wanted to get it all behind us, set-up a reserve. We think its prudent and that's what we are at.

Now, that makes sense. Okay. And just a couple of modeling questions, just tax rate and also CapEx, how to think about those going forward?

That the tax rate is certainly challenge I would refer you as I made in my comments to our effective rate for 2012. This year is ominously low because of that net around 34%. You asked on the tax rate and the second question was on…

CapEx?

Our CapEx is year where that we are moving into a new contact center we are going to have some capital there. I cannot really – we haven't disclosed that going forward but there will be some CapEx this next year will be high. But, then we will go back on to our normal level.

Okay. And I guess my last one here is, I mean you don't give guidance, which I can respect. And but is there anything Dennis that you want to say wow, you have our attention in a public forum just in terms of modeling just anything that comes to mind?

Well, Darby and Mark both commented on the weather in the first quarter. We will see a little bit of a drag on top line as a result of that. I think of it, we are generating as you think of work days in the year, we generate about $1 million a day in revenue. We had 65% -- 65% to 70% of our offices affected in January and February. We are still trying to tabulate the net impact of that. But, there is going to be a day or two that's going to affect that.

Okay. All right. Thanks guys.

Thank you, Whit.

There are no further questions in the queue at this time.

Well, let me thank everybody for your attention and support. And we look forward to speaking with you in 90 days. Thank you all very, very much.