Good morning and welcome to the Addus Homecare Corporation First Quarter 2016 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 first 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 Chief Information Officer. I would like to begin with some general comments and observations, and then Don and I will discuss the first quarter results that we issued yesterday afternoon. After that, we would be happy to respond to any questions. I’ve been the CEO of Addus for just over90 days and I’d like to share with you my impressions of our Company as well as some of the initiatives that have been launched over the last few weeks. When I became CEO, I believed that Adduswas a high quality provider of services and was well-positioned in the marketplace to capitalize on a very large and compelling market opportunity. Additionally, I believed that Addus had averycapable and committed team of employees across all levels of the organization. After 90 days on the job, I’m more convinced than before that all of this is true and I’m excited and energized everyday to come to work. I also believe that there were significant near-term opportunities to enhance the Company’s operations and profitability. I’ve been pleasantly surprised that the opportunities in this regard are also much greater than I had anticipated. As I would discuss shortly our initial focus has been on these near-term operational initiatives. Beginning in the second half of the year, we plan to increase our focus on revenue growth both organically and through acquisition, as I believe those opportunities are also significant. Over the past three months, the leadership team has been very busy working to ensure that Addus’ positionedto achieve the growth and…

Thanks, Dirk and good morning. For the first quarter of 2016, net service revenues increased 13.1% from the first quarter of 2015. This growth was driven by 10.8% increase in average billable hours per day and a 0.4% increase in revenue for billable hour in a quarter that due to leap year had one more day than the comparable quarter last year. As we discuss our results and related financial metrics this quarter. We will note areas impacted by the South Shore acquisition, which has a higher number of hours per client per month, lower gross profit percentage and lower G&A cost as a percent of revenue. The growth in average billable hours per day of almost 11% was due to the impact of the South Shore acquisition, which has consumer directed services and more hours per census. As Dirk mentioned, if we adjust last years’ revenue for the site closings in the third quarter of 2015 and adjust for the extra day in the most recent quarter, net service revenue increased 15.3% for the first quarter of 2016. The same store revenue increased 3.4% for the 2016 quarter and was driven by growth in Illinois, New Mexico and our northwest region. Our adjusted net income per diluted share for the first quarter increased 21.7% to $0.28 per diluted share from $0.23 for the first quarter last year. The adjusted per share results for the first quarter of 2016 excluded four items, $0.16 per severance and other cost related to senior executive changes during the first quarter, $0.05 per restructured charges related to the initiatives Dirk mentioned earlier, $0.04 per acquisition related transaction expense, $0.02 per non-cash stock-based compensation. Our adjusted per share results for the first quarter last year excluded $0.02 per acquisition related transaction expense and $0.02 for…

Certainly. [Operator Instructions] Our first question comes from the line of Mitra Ramgopal with Sidoti. Your line is now open. Please proceed with your question.

Yes. Hi, good morning. Thanks again for laying out detail the cost savings initiatives. And I was just wondering if this is sort of, the way we should look at it, if this sort of a first step and as you finished 2016 looking beyond, you have more initiatives in mind or should we see it pretty – this is all inclusive right now.

I am Dirk. Thank you for the question. I believe that you can look on this as a major focus that we’ve had on expense control. These initiatives we mentioned today are the ones that we felt like when we got here that we needed to look at as a team and we do. And so now that these changes have been made and we’ll phase in during the remainder of the year. Going forward we will continue as a team to constantly look for areas of opportunity to become more efficient and effective. But I don’t think you should expect it to this level going forward.

Okay, thanks. And I don’t know if you could help me understand a little more in terms of how you plan in growing the business from an organic standpoint. I know that something is going to be focus point going forward.

So Mitra, it’s Maxine, thank you.

Hi, Maxine.

Hey, good morning. We have focused and Dirk touched on it that one of the issues was that we moved a lot of the customer facing initiative back out to this field. Organic growth is really driven primarily on a relationship basis on the local market. And we have started to lose some of that relationship by having some of the intake functions and the client calls in our support – our contact center rather than out in the field. So that is one of the big initiatives that we’re working on by having moved it back out into the field. The other issue as Dirk touched on is we’ve really changed the focus from census to billable hours and it is also helping the field target, the type of business that they want to go after because every client is not exactly the same. It also allows us to look at the business as Don had touched on from South Shore, which has more hours for client and be able to compare the relationship between the different opportunities. So that’s really the driver, it’s very much local though looking at the business that we’re taking in.

Thanks. And are you seeing for example if you had to use Illinois an example regarding the budgetary issues, obviously, I would assume that the mom and pop providers are under even more pressure, the same business so to speak. Are you seeing any additional pick up in volume as a result of that?

It’s been mixed to a certain extent Mitra. I mean we’ve seen some mom and pops have gone out of business and some we had seen some of that business, because unfortunately they can’t maintain themselves. At the same time, the budget cuts for Illinois are accepting the care coordination units that are actually going out to access the clients. So we’ve actually seen a corresponding slow down in some of the clients that are coming out of the care coordination units. So it’s really kind of a mixed situation right now in Illinois.

Thanks. And then just one question again on the organic side with the adjustments regarding the closing of the Contact Center facility, just changing the focus a little more towers billable versus census growth. Is it resulting in any major adjustment internally or any disruptions?

There – I mean, I wouldn’t call it necessarily a disruption. On the field, we welcome the opportunity to have those functions back. We did not eliminate all those centralized functions as Dirk had said, we’ve kept certain functions here that made sense. And we really – it’s really been more the customer facing. So everyone has really looked at it as an opportunity to have those functions back in the local branches and allow them to continue to develop the relationships that they need to maintain their client referrals.

And Mitra, let me just add to Maxine’s comments. We did keep certain aspects centralized, but we moved them from where the Contact Center was located before in a separate building into our corporate office in our Downers Grove, which we felt made a lot of sense not only from a cost standpoint but from a culture standpoint so that we all can be together each day as we continue to work with our consumers in the field. So we thought that made a big impact also.

Right, that’s great. Thanks for the color. And then just switching quickly if I look at the pair of mix I know managed care now is at a 23%, a new high for you. Is the change from what we saw on the fourth quarter to now pretty much reflecting South Shore or are there any other new additions?

Yes. Mitra, this is Darby. Overwhelmingly the increase in that percentage is due to the large concentration of managed care business that is in South Shore. We do still continue to see growth in our managed care business elsewhere, but overwhelmingly that increase in that percentage is driven by the addition of South Shore.

Okay, thanks. I'll get back in queue.

Our next question comes from the line of Toby Wann with Obsidian Research Group. Your line is now open. Please proceed with your question.

Hey, good morning guys. Mitra actually stole my last – most of the question that I have was about managed care, Mitra stole it. So I'll jump back in the queue for a second.

Thanks, Toby.

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

Thanks, good morning. It’s following up on Mitra’s question, I assume the billable hours per month is also largely related to New York or is that some of the change in the focus on billable hours per census driving that?

Yes. Dana, this is Don. Yes, it's primarily driven again by South Shore. There is a little bit of change in some of the others, but the vast majority in South Shore has a higher per hour per client or per census than our organic business.

And Dana, let me add also that, again, we have been extremely focused the last 90 days on our cost initiatives, big projects especially related to the shutdown and the transfer of services from our Contact Center back to the site level. So while we didn't ignore organic growth by any means, it was not a focus of the senior leadership team. That's why we're excited at this point where we've gotten most of the cost initiatives completed although we’ll continue to see the results of those throughout the year. We will now be turning our focus more directly towards both organic and acquisition growth. And Maxine is doing something as far as adding some personnel in the field, some leadership in the field to help with the organic growth that she can talk about. And then I know Darby is continuing to stay focused on our acquisitions. So, you'll start to see us as a leadership group now. Not leave the cost initiative thought process, but move more towards a revenue growth aspect at this point.

[Indiscernible] and you mentioned, but Maxine, are there some specific initiatives you can talk about right now?

So of the one other thing that we did is we've changed out how we're doing the sales support. We have consistently and we will continue to use our agency Directors as our primary sales force. So we are in the process, we have one onboard in the process of putting on a second Sales Director that we work directly with the staff in the field to help them in that process and help to develop their skills. As we’ve said before, as you located health agency director and the service coordinators in the office that really drives growth on a local basis. But we really feel that by putting some additional support, staff support to them, we will be able to enhance their capacity in those areas.

Okay.

So one person is onboard and the second will be coming onboard very shortly.

Okay, that's helpful. And then Don, you called out three areas that drove most of the growth in the quarter, the Northwest, Illinois and New Mexico. What aspects continue to drive growth in those three geographies?

Some of it is managed care. I mean, Northwest is not managed care, it’s our base of traditional business by a margin. We’ve had strong leaders in that market, strong relationship. New Mexico, we've seen the growth associated with managed care and we've been able to make some great inroads in that market. And then, Illinois, we’ve had a historic presence in the market, but those are the ones. So it's various really Dana by market in terms of whether there's a large penetration of managed care, or they've really transitioned to the do of initiative. And so our approach in the market is very different, which is why it's really very market based.

Okay, that’s helpful. And I just want to make sure you called out those three areas. Are you seeing negative organic growth in the rest of the portfolio or those were just the standouts in the quarter?

No, no, those were the standouts we've had on – since we did the acquisition in New Mexico combined with our existing locations that were there. We just had some very consistent growth in that market and we've done extremely well from a market perspective there, and they continued to perform.

Okay. And then last from me on South Shore. Could just remind me how many weeks that was in for the quarter, I think it was run rate of about $52 million in revenue when it closed. And just how we think, is there any seasonality or it’s roughly $1 million a week kind of the right way to think about how the revenue rolls through.

Dana, this is Don again. We closed at February 5. So we only had about seven weeks in Q1 of South Shore. It was – that’s the kind of – to think about it that way. As far as seasonality, I don't think there's a lot of seasonality, I do think roughly you could think of it as $1 million a week as you said approximately. Obviously, there's some – a little bit of seasonality, but not enough to really adjust.

Okay, great. And then last one, Darby, any update on the acquisition outlook?

Nothing specific right now, but we still maintain a good pipeline. We're optimistic about moving forward second half of the year and continuing to build that pipeline and get some deals further in that process.

Right. Thanks very much.

Our next question comes from the line of DeForest Hinman with Walthausen & Company. Your line is now open. Please proceed with your question.

Hey, I had a couple questions, and I apologize they’ve already been addressed, but I got on the call a bit late. Obviously, the situation in Illinois is not good from a state budget perspective. As the receivables keep getting pushed out? Within our revolver, we use a pretty good portion of that in a pretty short period of time. Have we had negotiations with our banks if this becomes kind of a prolonged issue where we may need to take up our borrowing capacity? So why don’t we start there.

Yes. Thanks for the question, DeForest. Certainly, we pull $10 million of our land, but that was pulled very early in the first quarter. We’ve needed nothing since then. So I’ve been very pleased with our ability to manage through the fact that the state is not paying us approximately $15 million a quarter. So we’ve done a fairly good job in the first quarter being able to manage our working capital. Going forward, we do expect to use some of our land as it relates to this issue until the state gets their [indiscernible] together. We are talking to our banks, we’ve had some very good success. We hope that we’ll be coming back to you shortly with the outcome of those negotiations. We believe we’re going to be in great shape as it relates to our banking relationships to allow us to work through this issue with the state, and at the same time continue to look for acquisitions aggressively.

Okay. You said you’ve started to do adjustments, my next question is as it relates to acquisitions, how conformable do you think the banks are lending money to us if there's a potential for continued increase in the receivables balance if the State of Illinois continues to struggle with their budget issues?

Well, I took this on a – kind of a personal challenge coming into the state there, for really, the first time as an operator the last 90 days. And so I personally met with our banks to talk to them about this issue. What's interesting is a number of our banks are very familiar with the State of Illinois, they have seen this happen before, well, probably not to the extent with the lack of a budget, but certainly to the extent that the financial situation of the state has been at various times tight. And so they don't seem to be concerned about it. And I'm hoping that again we're going to be back to you shortly with some information that if we're able to finalize, we'll let you know that our banks are not only behind us as a company, but believe in our ability to grow. So I think we're going to be fine as it relates to both the capital that we have to carry us through this difficult period with the state, as well as our opportunity to continue to look for those in acquisitions that will enhance the value of our company.

Maybe I’ll ask the question a little bit differently. Can we expect an acquisition to close before the State of Illinois finishes their budget?

Well, DeForest, honestly I don't know how long it's going to be for Illinois, close to finishes their budget, and we are as a company, are not waiting for that to look for growth opportunities. Although, as our Darby mentioned, we have nothing today in the way of acquisitions to announce. We are – we do have a solid pipeline. We are in discussions with certain of those to see if it makes sense for our company to look to come together, but nothing at any point to really talk about.

Okay. And can you give us an update on what you're seeing on from a multiples perspective? And then maybe just comment on what you're seeing potentially in Illinois? You talked about some other competitors going out of business. Are they selling their customer lists for really low prices or what's going on?

So this is Darby on your first question. Multiples we're seeing, no significant change. It depends on the specific market and property. But we've been in a range of three to six times. EBITDA or adjusted EBITDA, we are not seeing a change in that. With regard to Illinois, most of providers with a couple of exceptions that have stopped providing services are relatively small. And what happens in that situation is after they give their notification to the State of Illinois, the Department on Aging, redistributes those clients to the available existing providers on a consumer choice basis. So, at this juncture it’s just those opportunities to maybe be more assertive in terms of acquiring entities in Illinois. Just haven't really been there and really don't make sense for us at this point when the case that's going to come through the normal referral chain anyway.

Okay. Thank you.

Our next question comes from the line of Toby Wann with Obsidian Research Group. Your line is now open. Please proceed with your question.

Hi. Thanks for dropping me back in queue. Quickly, as you know we're coming up on state budget season here pretty soon, any faults indications in terms of what the states are looking to maybe change their pricing for these services or any update on that front you guys have, it would be helpful?

So, this is Darby. So state’s overall is the question, right, you are not talking specifically about Illinois budget.

Yes. Not specifically to Illinois.

No leave Illinois alone it’s got enough.

I think we – it’s well documented.

That's for sure.

So, with regard to states and pricing, I think we're looking at a few states that are looking at rates for different reasons. But I wouldn't say that we're expecting in this budget season to see any significant increases in our rates or prices. We don’t – similarly, we're not looking at any reductions in rates. We’ll probably have a better – we’d probably have some better clarity on that in our second quarter call as to where we're seeing any specific price increases. Given the economic climate right now in a lot of our states, we're comfortable with that, and comfortable with the rates we have in most of our markets, certainly our largest markets. And so the fact that there's no discussion of rate reductions or seeing any rate pressures through managed care organizations is encouraging to us.

Okay. Thank you, that's helpful. And then one other question, as you guys look out over the portfolio of locations, and I don’t know if you guys do this kind of constant basis, evaluating those under performers. I mean how would you characterize that total portfolio, I mean is it – are there some that are looking to be closed or consolidated? Just kind of talk about that a little bit?

It’s Maxine. Right now as you said we constantly review our portfolio based on the market opportunities rates as Darby was just touching on, and pay rates for the employees. Right now we don't have any plans to close or consolidate, but we constantly review that. We did share last quarter that there were some small locations that we had exited that were underperforming, but we don't have any plans at the moment.

Okay. And then, since you touched on it, just briefly with regard to labor cost, you guys seeing any labor cost pressure anywhere of note?

No, not at the present time, we are facing first step increase in Chicago for the minimum wage that was passed in the City of Chicago, little hit us in July. It's not a material cost, but obviously that's our biggest concern is the regional and our municipal rate increases that are more commonly being legislated or put before us. So that's an ongoing advocacy effort around the rate issues to offset those municipal and more regional rate increases. Not in immediate but we are sensitive.

Okay. Yes. Thank you. And then, those areas where they are trying to pass, increase say, in minimum wage rules or laws at rate $15 an hour at some of these locales. What is your ability to offset that if any?

So offsetting is difficult. There are certainly some controllable costs that we can continue to work on. I think we've demonstrated a tremendous capacity to drive down our workers' compensation costs over the last several years. So those type of areas unemployment costs over time, travel time and mileage, not so much in terms of eliminate – but reducing on those expenditures. But when you're looking at in some cases $2 to $3 hourly rate increases, it's certainly hard to offset all of it. So we're looking to get those mandates funded through the various contractors that we have.

Okay. Thank you.

Our next question is a follow-up from the line of Mitra Ramgopal with Sidoti. Your line is now open. Please proceed with your question.

Yes hi, just two quick follow-ups. I was wondering now that you have entered New York with South Shore, are you seeing any additional interest from managed care as a result of that transaction? Secondly, not to get too ahead of the acquisitions, but Darby I know you mentioned you had a full pipeline. Is the buyer stores going into new states or maybe consolidating in some of the existing areas you’re in.

Yes. Let me handle the second part about the states, and then Darby can talk about whether us being at South Shore has driven any additional interest for managed care. While we would always look at what I would call back fill acquisition opportunities in the states we operate it’s to strengthen us. That is not the case in Illinois. You need to understand that we are not looking to grow through acquisitions in this state, particularly just due to the size of our commitment to this state as well as the financial situation the state frequently finds itself in. So our real growth, our real goal with acquisitions as we look forward is to do acquisitions somewhat of a similar size of South Shore and do them in states where we believe the market is very strong for growth, as well as for the payments from the particular either managed care providers or the state.

And Mitra, specific to your question around New York, obviously New York being a big market, there’s certain overlap with the more national footprint of managed care companies. But New York is a bit unique in terms of its markets where there's not a lot of overlap between some of the more – the more national MCOs, there's a lot – there are some, but there's a lot more local managed care providers in the state of New York. We are seeing good feedback from those organizations, obviously having Maxine in her long history, providing care in the city of New York and State of New York it’s helpful to move those relationships along, as well as the great reputation and work of South Shore management team. So we feel good about our opportunities in managed care in New York. And again, there's some overlap to some of the national players that we deal with in our other states.

Okay, that's great. Thanks again for taking the questions.

Thank you. And with no further questions, I would like to turn the call back to Mr. Allison for closing remarks.

Well, we thank you very much for your interest in Addus today. We look forward to speaking with you in three months and giving you an update on our progress. Have a great day.

Ladies and gentlemen, thank you for your participation in today's conferences. This does conclude the meeting and you may now disconnect. Have a good day everyone.