Good morning and welcome to the Addus Homecare Corporation Fourth Quarter 2015 Earnings conference call. Today’s call is being recorded. 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 the company’s most recent Form 10-K or Form 10-Q, earnings announcements or other reports filed with the Securities and Exchange Commission and available at the SEC’s website. The company undertakes no obligation to update publicly any forward-looking statement whether as a result of new information, future events or otherwise. I would now like to turn the call over to the company’s President and Chief Executive Officer, Mr. Dirk Allison. Please go ahead, sir.

Thank you, Scott. Good morning everyone and thank you for joining us for our fourth quarter conference call. Today I am joined by Don Klink, our Chief Financial Officer; Maxine Hochhauser, our Chief Operating Officer; Darby Anderson, our Chief Development Officer, and Zeke Zoccoli, our new Chief Information Officer. I would like to begin with some general comments and observations, and then Don and I will discuss the fourth quarter results that we issued yesterday afternoon. After that, we’d be happy to respond to questions. Let me start by saying how excited I am to have joined Addus Homecare as the President and Chief Executive Officer. Many of you know that I have been in the healthcare service industry for over 29 years. During that time, I have been associated with many great companies in various parts of healthcare. Based on that experience, I know that Addus is a great company that is providing services that are desperately needed by our consumers. It has a long and successful history, which I appreciate and respect. Addus also has a solid management team, and I am pleased to be able to work alongside each of them. I not only appreciate their hard work but also the hard work and dedication of each Addus employee. The management team and the quality of the organization were important factors in my decision to accept the CEO position. As you may know, I have been on the Addus board for six years and served as chairman of the audit committee for the last three years until becoming CEO. During that time, I saw that Addus was extremely well positioned to capitalize on the post-acute care trends in healthcare. This knowledge, along with the strategy and culture of the company, were also important reasons why I was…

Thanks Dirk, and good morning. For the fourth quarter, net service revenues increased 2.6% from the fourth quarter of 2014, as Dirk mentioned earlier. Of this overall 2.6% increase, approximately 1.6% came from higher volume, 0.6% from increased hours per census, and 0.4% from higher reimbursement rates from our northwest region and our fourth quarter acquisition. For the full year 2015, revenues increased 7.6% with higher volume representing 5.6% of this increase, increased hours per census at 1%, and increased reimbursement rates in the northwest region and acquisitions at 0.9%. The adjusted net diluted net income per share results for 2015 exclude $0.05 per diluted share from an increase in workers’ compensation reserve expense, $0.03 for the South Shore acquisition transaction expense, $0.03 for an expense accrual related to an IRS audit of prior years. In addition, adjusted results for 2015 exclude the positive $0.09 per diluted share impact from the Worker Opportunity Tax Credit that relates to the first three quarters of 2015, which reflects the renewal of this legislation in the fourth quarter of 2015 for 2015 until 2019. Due to the longer term extension of this WOTC legislation, our ability to consistently qualify for these benefits through ongoing hiring practices and the meaningful tax savings these benefits provide, we included an in-period WOTC tax credit in our adjusted results for the fourth quarter and for the full year 2015, and will continue doing so going forward. As we discussed in the last call, we exited certain underperforming locations during the third quarter, all of which were in our same store base. Adjusting our revenues to remove the impact of these closed locations, total company revenues increased 6.1% and same store revenues increased 2.9% for the fourth quarter. Adjusting revenue for these closed sites for the full year…

[Operator instructions] The first question is from Mitra Ramgopal of Sidoti. Your line is open.

Yes, hi. Good morning. First, I just wanted to get your sense of going forward as you look at what’s going on with Illinois. Could you let us know first, backing out your acquisition, what percentage of your revenue comes from Illinois, and would it make you more aggressive in terms of looking to diversify away into other states?

Yes Mitra, thank you. Let me talk a little bit about what we’re going to do looking forward from way of acquisitions, and then I’ll let Don talk to you about the percentage of revenue from Illinois. Clearly, our goal as a company is to continue to diversify away from the dependence on one state, and so as you saw with the South Shore acquisition, we were able to bring in approximately $50 million of revenue from New York. You will continue to see us in the future as we look to enter into new areas and as we look to our acquisitions, we will be moving away from the State of Illinois, not because it’s bad business but because we believe very clearly that we need to make sure that it is a lesser percent of our overall revenue going forward.

Mitra, just to give you a little bit of some numbers on it, excluding the MCO of Illinois, that revenue, the state programs are about 50% of our revenue, just to give you an idea, at the end of ’15.

Okay, so if we add a full year of South Shore, it should be even less, then?

Yes, it should.

Okay. I don’t know if you can give us update in terms of the pace of transition. I know last quarter you’d mentioned that it had slowed in terms of moving people over to managed care. I don’t know if you have an update on that.

Yeah Darby, why don’t you talk about that?

Mitra, this is Darby. Yes, we’re pretty much through those transitions here in Illinois. I will say, though, that we did see good growth within the MCO line, which is very favorable given the state of payments otherwise. But we’re through the bulk of the transitions, so new members would be assigned to us as they enroll with the health plan.

Okay, thanks. Regarding the expense reduction initiatives, I don’t know if it’s possible for you to give us a sense as to how much you think you can take out of the system that right now might be considered redundant.

Yes, let me handle that, Mitra. It’s a little early. As you know, I’ve been on board six weeks, working with the management team. We have identified a number of areas where we feel confident that we can reduce expenses. We run a little over 21% as combined G&A for the company, up around 21, almost 21.5. While we’re not ready to give real targets of what we believe we can achieve until we maybe get together in another 60 days, we do believe that during this year, it would be the goal of our management team to get our combined G&A down below the 20% level.

Okay. Finally Don, I was wondering if you could give us a sense of what we should be modeling for tax rate 2016.

So Mitra, I think we do expect these credits to continue, like I said, more evenly in 2016. I would probably go high 20s, low 30s is probably the range of where we’ll fall in the tax rate, given these credits. They’ll still be a little uneven because it’s a matter of how they process them, and they’re not exactly even, but that’s probably the range I would pick.

Okay, and finally on the payroll system, again you pretty much expect to have that resolved by the end of the year, and right now there are no other issues you’re concerned about?

Well, obviously one of the big issues for us is the payroll system, not only because of the additional expense its created upon the company but also its created process problems, so just we’ve had to struggle this last year in just some of the basics that you would normally associated with creating payroll. So we’re going to work on that, and then as was mentioned, it did have a weakness in our internal controls that revolved around the payroll system, so this needs to be a complete re-look at our payroll system from start to finish, and we’re in the process of doing that. We do believe we’ll be able to do that during 2016.

Okay, thanks for taking the questions.

Thank you. The next question is from Dana Hambly of Stephens. Your line is open.

Good morning, thank you. Dirk, just on the--I know you’re not giving targets right now. Just wondered, do you plan on giving targets and timelines for reducing G&A in 60 days, or maybe is that as early as we could expect?

Dana, I would expect that we will have more information to share with you in 60 days. We will at that time share some of the procedures that we’re undergoing, some of our tasks to reduce these costs, and we’ll be able to share with you some of our goals at that time, which would include numbers and timelines.

Okay, thanks. Then on the organic growth, Dirk, you called out in the press release billable hours per day, and I would think organic growth would be primarily driven by census, so I just wanted to get an update on what are the key drivers for organic growth. Should we be thinking about billable hours per day as a driver, or is it really more on census?

So Dana, we’ve always had billable hours, and in the past we tended to focus more on census; but as we expand outside into other markets, in order to do a better comparison and really look at the variance between authorized hours in different programs throughout the country, we’re really moving the focus more to billable hours per day because that normalizes it and you really get to see the shift. Particularly with New York, that also has a higher billable hours per day than we have experienced in some of the other states, whereas continuing to focus on census growth because the hours per day are a factor of both the census growth, it’s the hours that are authorized and ensuring that we’re providing the services to authorization, so that really becomes a cleaner metric for comparative purposes.

Okay, that’s helpful, Maxine. Maybe that’s a good segue, Maxine, to New York. Given its size, can you lay out maybe the growth that that agency has seen and any metrics around billable hours per day or price, margins, anything you can provide that’d be helpful?

It’s a little early for us to provide that, Dana. Historically, they have experienced growth, and even in the first six weeks that we’ve been with them, they’ve continued the type of growth that they’ve seen. But I would expect next quarter to have more visibility into exactly some of our projections for ongoing growth, but as I said, it’s been about six weeks since we closed - we closed on February 5, and they have consistently grown each week, so we expect that to continue.

Okay. All right, we’ll look for more detail there. Lastly for me, it’s a technical question on the managed care in Illinois. The managed care AR, is that separate from the state AR, or is that all lumped together?

Yes, that’s separate, Dana. It has nothing, or at least not from our standpoint, our AR is specifically with the managed care organization.

But you are getting paid for the managed care organization in Illinois?

That’s correct.

You are, okay. Great, thanks very much.

Thank you. Once again, if you do have a question, please press the star then one key on your touchtone telephone. The next question is from Toby Wann from Obsidian Research Group. Your line is open.

Hey, good morning. Thanks for taking the questions. Could you guys maybe detail the operating changes that you’ve recently begun implementing, or is still too early to give more details on that?

Good morning, Toby. It’s a little early to give details. Listen - we talked about during my comments some of the areas that we’re going to focus on. We’re focused on process improvements and cost reduction revolving around our payroll system in particular. We’re also looking at things such as our centralized contact center and where it fits in as part of our company going forward, making sure that we have the most cost effective way to deliver the efficient services to our consumers and customers that we need. We will continue to focus in IT. It’s an area of big expense in the company and we want to make sure that those dollars that we’re implementing into IT or putting into IT are effectively driving the operations of our company to be more effective and more efficient. So those are two or three areas of general concern that we’re looking at, and we will have some further detail for you about this in about 60 days.

Okay, thank you. Then with regards to the payroll system or HRIS system implementation and the issues that have been uncovered there that led to the weakness in financial controls, could you maybe give us a little bit more detail as to were those weaknesses present before the new HRIS system was installed or were they a result of the new system? Just maybe expand on that a little bit, and then given that the upgrade’s been ongoing for almost a year now, where does that stand? Do you have any recourse with regards to going back to the vendor, selecting another vendor, or just kind of an update on those sorts of issues?

Toby, those are all great questions and things we are looking at honestly as a team and as a focused task force how we correct it. Let me go to the first part of the question. If my history serves we correct when I was on the board, we actually--the first year that we were a filer as far as SOX is concerned, we had material weaknesses and those revolved around the payroll system and the lack of controls. If you’ll remember, we grew in size enough to become a filer about mid-year of that year, so we didn’t have a lot of time to actually make sure the controls were working. The following year, which I believe is 2014, we actually put controls in place and we no longer had material weaknesses at the end of the year, so the controls were in place and were effective. What happened when we converted to the UltiPro system, it did not work as we had expected in a number of areas, and so there were difficulties early in the year getting paychecks out on time and correctly, and so the decision was made by management at that time to really focus on getting those checks out to the people and in doing so, some of the segregation of duties that you would normally associate with a system were lightened up a bit to allow people to get in there and get the paychecks out. The failure, I think of the team, and we recognize that now, is that after that period passed, there was not a tightening back of those controls that had been in place and had been effective, so by the time year end rolled around and there was a review, we decided that those things needed to be corrected, there just wasn’t time to get those tested and passed as they needed to in a normal SOX environment. So I would say to you today, even with the difficulties we have with the UltiPro system, we do have controls in place, they have been effective in the past, I believe we can make them effective now. In those areas where there are some gaps in the controls, we have a team in place to start working on those and make sure we don’t have a problem at the end of the year.

Okay, that’s helpful, and I appreciate the additional color on that. That’s all for me at this point, thanks.

Thanks Toby.

Thank you. The next question is from Gary McCausko [phon] of Montrose Advisors. Your line is open.

Yes, thank you. Could you talk a little bit about the diversification? I think it sounds like a good strategy. I believe you’re in 22 states now, or perhaps more. Is that the right number, and when you look to diversify, have you ruled particular states out? Are there states that are particularly attractive at this point?

Yes, we have looked at the various states. Darby works with us - he is the one of our management team that’s most familiar with the states, he and his team, and where we would like to move. There are--in the 22 states that we’re in, we’re pleased to be there. We’re happy. We believe that we have good sites; however, we do believe that there are additional states that we can look at as a team and would be proper and actually be a very good thing for the company being in those states. So Darby and his team are focused in those areas where if we enter into a new state, we can go there with enough volume to make a difference and to give us a good base to enter into those states. Darby, would you like to add to that?

No, just a couple of fundamentals that you look at in states, just from the demographics that Dirk alluded to in terms of volumes, but payment rates and program requirements and the funding for primarily Medicaid personal care services. But as we’ve been, I think, pretty consistent, we’re also targeting those markets that are transitioning their traditional Medicaid and Medicaid waiver services to managed care, so increasingly states are doing that, new states all the time doing RFPs and other programs to transition those populations. So we’ll continue to focus on those states as well as other states that have the right demographic and rate profiles for us to grow the business.

So those states that are more interested in growing faster in managed care, I’m assuming would be more attractive than other states. Could you talk a little bit about managed care? I’m assuming it’s more--in general has a higher profit percentage, or is it more because of there’s more security in collecting the accounts receivable?

Well I guess uniquely, I would say, in Illinois, it is better for us to be contracted with the managed care companies, as we are getting paid more timely there. But generally, I wouldn’t necessarily draw to higher profitability overall. What it is, is the opportunity to increase volumes. There are states out there with very, very large networks of personal care providers, and we foresee in the future that managed care companies will narrow those networks, and narrow them to providers that have a broader and deeper geographic footprint in those markets, have the technological and other capabilities to really serve as a partner to them to help avoid other costs of physical health through the use of our very low cost services in the home.

And I believe you have, well at least you had 127 sites, and you exited some. At this point, have you made a decision or have you exited all, other than on an ongoing basis, is that number at a good point right now?

Gary, this is Maxine. We ongoing evaluate our various sites. We did exit three during Q4, and we will continue to evaluate it. As Darby had just touched on, we look at things like payment rates, we look at the ability to gain market share, we look at what our cost basis is in those markets, and that’s an ongoing process, so we continually take a look at that and ensure that we’re able to grow within those markets and that they make sense for us to continue to be in.

Finally just with regards to sites, clearly acquisitions is a key part of growth, but if I look on a longer term basis in terms of your site growth, would the majority of those be coming from acquisitions, or you expect more openings as we look out for the next few years?

Honestly, I would say that you could probably look to more of our location additions coming as a result of acquisition. It is difficult to de novo in this business, used to be not the case, so my answer 10 years ago might have been different. But I think you can look to acquisitions as the major growth of our location.

Thank you very much.

Thank you. As a reminder, if you do have a question, please press star then one on your touchtone telephone. The next question is from Brian Rath from Walthausen & Company. Your line is open.

Hey guys, thanks for taking the question. Just on the AR reserve increase as mentioned in the press release, just curious if you can quantify what that delta was, and also just the genesis for that increase, which my understanding was at least on the Medicaid payments, that there is a federal mandate to have that paid by states, so it’s a matter of just when, not if you get paid. So just curious what’s driving that higher AR reserve.

Yes, I’ll take that - this is Don Klink. The AR is really a function of--it’s really two things for us. It’s the collection rates and the aging, and what we’ve seen is particularly in Illinois is the slowing of the payments, so it’s aged out more and it increases our AR allowance. We’ve also had a couple other states that have changed their system a bit, which slowed their AR as well. We expect that to return back to normal, but that again is because the AR is aged a bit, the allowance gets increased.

Okay, and then can you tell by just the balance sheet, you mentioned you have the increased facility and use part of the term loan facility for South Shore, but just thinking about some of these AR issues which may be short-term in nature, but considering also a desire to pursue M&A, what’s your comfort level or your flexibility to execute on maybe deals of the size of South Shore or larger, if they’re available just over the next 12 months? What’s your comfort level and your ability to do that?

Well, let me take this - this is Dirk. Obviously the first thing we have to do as a company is be prepared from a working capital standpoint to protect the company should the State of Illinois continue to not pay the bill on the 40% of our business which is non-Medicaid. So we as a team have been looking at that, and we’re developing plans that would allow us to deal with that, and again as I said in my comments, something that hopefully we can share in greater detail in about 60 days. But it is our goal and our desire to have the capital in place that allows us to not only make sure we have the proper working capital because of the payment issue, but also allows us to continue in an appropriate manner to acquire companies as they present themselves. One of the things we are doing now, just to make you feel comfort, is we are trying to put together a better process for acquiring and transitioning acquisitions in the future. We’re very proud of South Shore and it’s one that, due to the long time frame we had between announcing it and actually completing it, our teams have been able to work together, and even so it’s difficult in transition to get that done in a timely manner, largely because the company in the past three or four years has not done a lot of acquisitions until the last couple years. So we’re working as a management team to develop a refined process for acquiring due diligence and transitioning into the company, so because of that, again while we will be looking for additional acquisitions this year and hope they come about, it will probably be a few months before we’re ready to do that.

Okay, thanks guys.

Thank you. The next question is from Toby Wann from Obsidian Research Group. Your line is open.

Hey, thanks for taking the follow-up. Just one follow-up quickly on Illinois. Obviously the governor and the legislature are far apart on getting a budget deal done. I think the fiscal year probably ends June 30, so I guess my question is with regards to that, since we’ve got, what, four months left before the fiscal year expires, should you--do you guys anticipate having that big AR balance come down through one big huge payment, or just kind of what’s your thinking on that? I know I’m asking you to speculate on what the government’s going to do, which is always a dangerous proposition, but I’m going to do it anyway.

Well Toby, we would prefer to occur is that the governor and the legislature get together and resolve their differences and develop a budget, which at which time they could take care of the responsibilities they have from a payment standpoint for everybody that is servicing the state, including Addus. So that would be our desire. Should that occur over the next four months, then obviously we would receive a large payment from the state as funds are available, and that would make obviously our financial situation as it relates to our balance sheet better. The unfortunate thing is, nobody can really know for sure when and if the governor and the legislature are going to get together and settle their differences, so from a management standpoint, we’re having to develop plans that allow us to operate in the environment in which we currently operate.

Okay, and then remind me--I know the governor is a Democrat. Is the legislature controlled by the Republicans, so is that the stalemate?

It’s actually the opposite. The governor that Illinois elected is a Republican, and the legislature is by far Democratic, so that’s the challenge.

Yes, my apologies to the governor. I was confusing him with the mayor of Chicago. Thanks.

All right, thanks Toby.

Thank you. Once again if you do have a question, please press the star then one key on your touchtone telephone. I’m not showing any further questions in queue at this time. I’ll turn the call back over to Mr. Allison for closing comments.

Thank you very much, Operator. We really appreciate your interest today in our call. We look forward to updating you in about 60 days on our progress. Thanks very much. Have a great day.

Thank you. Ladies and gentlemen, you may now disconnect. Good day.