Good morning, and welcome to the Addus HomeCare Corporation Second Quarter 2018 Earnings Conference Call. Today's call is being recorded. To the extent any non-GAAP financial measure is discussed in today's call, you will also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP by going to the company's Web site and reviewing yesterday's news release. This conference call may also contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Addus' expected quarterly and annual financial performance for 2018 or beyond. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statement. Without limiting the foregoing, discussions of forecast, estimates, targets, plans, beliefs, expectations and the like are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by important factors, among others, set forth in Addus' filings with the Securities and Exchange Commission and in its second quarter news release. Consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future event or otherwise. I’d 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 second quarter conference call. With me today is Brian Poff, our Chief Financial Officer. I will begin with some overall comments, and then Brian will discuss the second quarter results that we issued yesterday afternoon. After that, we'd be happy to respond to any questions. As we announced yesterday, our strong operating performance continued in the second quarter of 2018 which led to our solid financial results. Revenue for the second quarter was $131.2 million compared to $103.6 million for the same period in 2017, an increase of 26.7% driven by a combination of organic growth and acquisitions. Our adjusted earnings per diluted share for the second quarter of 2018 increased to $0.50 as compared to $0.38 for the same period in 2017, an increase of 31.6%. Our adjusted EBITDA for the second quarter of 2018 increased 32.3% to $11.3 million from $8.6 million with an increase in our adjusted EBITDA margin to 8.6%. We ended the second quarter with approximately $69.2 million of cash in the bank and $103.7 million of debt. As reflected in our cash position, our cash collections continue to be strong from all of our payers, including the state of Illinois. During June, the State of Illinois passed a budget for the 2019 fiscal year. This is the second consecutive year of a state budget, and this ensures that the more timely cash reimbursement from Illinois will continue for the next 12 months. While the passing of a budget was a good news, we were disappointed that the minimum wage offset that we were expecting in this budget was not in the final version that was passed. This means that for the next few quarters, we will see a decrease to…

Thank you, Dirk, and good morning, everyone. Our financial results for the second quarter of 2018 demonstrated the ongoing potential of our business model, which has levered the positive dynamics in the homecare industry and our scaled leadership position in personal care to drive steady organic growth over the past few years at an increasing level of profitable growth from acquisitions. With the second quarter acquisitions of Arcadia and Ambercare, which have combined historical annualized revenue of over $100 million, we believe we are well-positioned to produce further profitable growth through the remainder of 2018 and into 2019. We expect this growth will also be supported by continued organic revenue expansion with same-store revenues increasing in a range of 3% to 5% and through additional accretive acquisitions from an increasingly robust pipeline of potential transactions. As Dirk mentioned, total net service revenues for the second quarter increased 26.7% to $131.2 million, which included the impact of a 3.7% increase in same-store revenue. Approximately 78% of our total revenue growth was due to a 20.8% increase in personal care revenues for the quarter, which in turn reflected a 17% increase in billable hours per business day and a 3.3% increase in revenue per billable hour. The remaining approximately 22% of total revenue growth came from our initial revenues for hospice and home health services. As noted in our press release, the adoption of ASU 2014-09 on January 1 affected the comparability of revenue growth and P&L items as a percentage of revenue. As approximately $2.3 million of our provision for bad debt for the quarter was netted directly against revenue instead of as an operating expense as in prior periods. This change reduced the revenue growth rate for the quarter by more than 200 basis points. Although this reporting change has…

Thank you. [Operator Instructions] And our first question will come from the line of Matthew Gillmor with Robert Baird. Your line is now open.

Hey, thanks. Good morning. Thanks for taking the question. I wanted to ask about the acquisition pipeline comments. Dirk, you reiterated the expectation to close one more deal by year-end, but it also sounded like activity levels in the pipeline had increased. So I was hoping you could provide some more detail around the pipeline dynamics? If I’m correct, that increase sort of what do you think cause that and are there any particular areas where you’re seeing more activity relative to the recent past?

Thanks, Matt. Well, we are seeing additional increase in our pipeline for potential acquisitions. We're working on a number of deals, none of which we're ready, obviously to announce today, but we do continue to do a lot of work in that area. What we're seeing, it's largely personal care opportunities out there, although we do have a couple of hospice opportunities we're looking at. As far as the reason why we may be seeing additional acquisition opportunities, Matt, I think one is people understand that Addus is willing and able to look at deals and that we had -- it is part of our business strategy moving forward, so we’re starting to see some opportunities might be in the past we didn't see. I think particularly around personal care, we have an EVV mandate that, at one-time, all states had to be on EVV by January 1, 2019, that was recently delayed a year by Congress. But it's still most states are moving forward very quickly, that's an expensive proposition for smaller personal care companies that have to make the IT investment to interface with the states. So I think we're seeing some movement there. And so, really other than that, the fact that we’re well capitalized, people see that we’re out there buying, I think, those are probably the two largest reasons we're seeing an increase in our pipeline.

Okay. And then maybe one in the same-store census trend. I know the overall organic revenue growths were in line with your outlook. And there are some dynamics going on with the same-store census trend in terms of your emphasis on hours versus census. But I did just want to get an update in terms of where you are from a penetration standpoint into allowable hours. And should we expect that'll continue to drive the growth rate in your hours or are you approaching a point where you'll emphasize the census growth over the hour growth?

Well, we will always emphasize hour growth if you ask us to just pick one because we bill by hours, but we do believe we got into the point in time where census is now becoming again part of what we look at. In fact, if you look at this quarter, we had the first sequential increase in ADC quarter-over-quarter since I think the third quarter of 2016 when we really started deemphasizing ADC and started emphasizing hours. We will continue with a emphasis on both of those going forward. Our operating team has done a really good job in the second quarter starting moving focus back to both of those. We will continue to look at that as we go forward.

And one more for me. On the Illinois rate issue and I understand this is just a timing issue when they actually provide the rate update to offset the minimum wage increase. I wanted to get a sense for as you’re talking with your local folks there and the lobbyists, if you have any kind of confidence level you could give us in terms of whether that gets passed in this veto session. And is there any chance that it would be on a retroactive basis, so you would be caught up for this mismatch in the back half of the year?

Well, I think historically, Matt, what you have to look at is this happened to Illinois once before and they waited a year to make an adjustment to the rate. Whether we got a little higher rate than we would have otherwise is open for debate. We certainly didn't get a retroactive adjustment, so I'm not assuming we will get that. I’m not sure how -- what the probability is that we will get something in the veto session in November. If the election goes as we expect and the Democrat wins the governorship, if is the veto session is not something we are able to have go our way, then we'll be working right after the January timeframe where the new governor takes effect to work with the legislator to get this passed. We had a lot of discussions with the legislator. We actually had a bill out there, an amendment to the budget that was going to give us this increase. We felt like, right up until the very end, it was going to be done. And then due to the dynamics of how politics and Illinois have been the last four years with the Republican governor and a Democratic Congress, it was one of the things that went by the wayside to get everybody to sign the budget. So we’re very confident it's a matter of timing whether that is something we get in January or have to wait till July of next year. We believe that it will occur.

Okay. Thanks very much. I will hop back in queue.

Thank you. The next question will come from the line of Mitra Ramgopal with Sidoti. Your line is now open.

Yes. Hi, good morning. Just on the reimbursement and what you’re seeing with the state of Illinois, I was wondering if there are other states you’re currently involved in that you’re tracking in terms of maybe facing this similar issue down the road?

Actually, Mitra, we had really positive results this year. Every state came through. We got some nice increases, covered the minimum wage increases. So with the exception of Illinois, I would say we did very, very well. And again with Illinois, let me emphasize, while its disappointing that they didn't pass it in the budget, we do believe they understand the importance of giving that to all the companies. This isn't just an Addus issue. This is anybody in the state that is affected by minimum wage that the state reimburses. So we are very confident they understand the critical nature of getting this passed, because smaller companies will not be able to handle this higher minimum wage while not getting reimbursed for it. Companies like ourself, we'd rather it not occur. We certainly can handle it without missing a beat as far as growth and acquisitions things we’re going to do in the future. So we're comfortable we will get it with Illinois. All other states did a really good job this year.

Okay. Now that’s great. And as you look in terms of acquisitions and expanding, are you consulting with some of your managed care partners in terms of maybe some of the places they would like to see you in. And also I assume you’re also keeping in mind reimbursement in any new states you’re looking to enter?

Absolutely. If you look at our acquisition strategy, one of the first things we look at is the financial or the fiscal ability of the state. The minimum wage environment in the state, we're not opposed to minimum wage increases, but they need to be smaller and once that the state understands. If we find states like that, we absolutely put them on the target for us to look for acquisitions. As it relates to working with our MCO partners, yes, we've had a number of MCO partners come to us and say we work with you well in one state, we have a couple other states, we would like to have some additional people come into. Would you consider going in, and we are looking in those states. But as we look in those states, understand we stay very disciplined in our approach. Our deals have to be accretive. They have to fit our strategy of allowing us eventually to get to one or two in the state as it relates to personal care. It's very helpful, if we can find behind the scene a place where we can add hospice into those market, so that we offer more than just one homecare based service. So I would say that our discussions with our MCO partners as it relates to acquisitions grow potential M&A. All of those are very strong and ongoing.

Okay. Thanks. And then, as you look in terms of potential transactions, are you seeing more competition in terms of other entrants in the marketplace and valuations maybe moving a little on the higher end, or no change there?

Well on the personal care side, we’re not seeing a lot of competition. Most of the bigger companies tend to stake out a state or two that they want to be strong in. And we aren't in those with -- in the competitive nature. Most of the deals we’re looking at today, very little competition or if the competition is there, maybe it's smaller PE firms, multiples and the PE range sting to still be around the 6 to 7 in the personal care range. Now hospice is different. We are not going to pay 12, 14x for hospice. If PE firms want to pay that, then they can. We will look at strategic hospice opportunities, mainly in markets that make a lot of sense for us. And we will try to pay -- we will have to pay obviously more than we will for personal care. We will have to pay up some, but strategically we’re willing to do that if we see that it fits in our market where we had some opportunities for synergies, not only cost synergies, but also sell synergies between the personal care network and the hospice market.

Okay, thanks. And just on the -- given the tight labor market out there, I was just curious if you’re having any difficulty in terms of attracting caregivers and what’s kind of the environment out there for you?

Yes, Mitra, I mean with the current environment out there with minimum wage pressure kind of seeing that gap close between what we use to be able to offer to our caregivers and what minimum wage is today has put some pressure on it. But our teams have been very focused. They’ve done a great job in recruiting caregivers. It is a tight labor market in all health care services, so that we experience like many others. But we’ve done a great job and our -- Brad, our COO and his team are doing a wonderful job and focused in that area.

Thanks. And then one follow-up question quickly, Brian, if you can give me a sense as to how much you’ve available in terms of your credit facilities following Ambercare and Arcadia?

Yes. Total all in combined outside of our DTL that’s remaining, our core EN and a revolver we have north of $200 million in availability still to be set.

Okay. Thanks again for taking the questions.

Thank you. [Operator Instructions] And our next question will come from the line of Dana Hambly with Stephens. Your line is now open.

Hey, thanks. Good morning. This is Jacob Johnson on for Dana. A quick follow-up on the debt. Brian, how much do you have left -- how much room do you have left on the delay draw?

We’ve got $19 million that’s left, Jacob.

Okay. And then, so on gross margins, it sounds like Chicago is about a 70 basis point pressure. But I guess we'd think that the addition of hospice and home health should be somewhat accretive to gross margin. So is it possible that some of the impact from the minimum wage hike will be offset, which is due to the mix of business in the third and fourth quarter?

Yes, Jacob, you look at the second quarter, remember, we had Ambercare in there for two months in the quarter. So you’ve seen some of that impact already. You should see a little bit of moment still with another month full quarter in Q3. But yes, you’re right. That should help keep us in that level.

Okay, got it. I guess a question on M&A, a lot of talk this morning about personal care, hospice and entering into new states, but I haven't heard you mention private duty. Is that a line of business that’s still interest to you and is that something that sort of M&A? You will use M&A to grow it or maybe something you try to grow organically.

No, we like private duty personal care. It is a market that we would like to be able to grow quite a good and we look for additional -- we're looking for additional deals from an acquisition standpoint in that market. The biggest challenge, Jacob, we have there is that most of the larger private duty nurse or private duty personal care companies are franchise models and that's not a model in which we participate or operate in. So most of your private side personal care deals will be smaller transactions, but we do continue to look for them.

Got it. That’s it for me. Thanks for taking the questions, Dirk and Bryan.

Thanks, Jacob.

Thanks, Jacob.

Thank you. And I’m showing no further questions. I would now like to turn the conference back over to Mr. Allison for closing remarks.

Thank you, operator. I want to thank you today for your interest in Addus and for your participation in our earnings call. Hope you have a great week. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect. Everyone have a great day.