Good morning, and welcome to the Addus HomeCare Corporation Third 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 website 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 statements. Without limiting the foregoing, discussions of forecasts, 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 third 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 events or otherwise. I would like to now turn the call over to the company's President and Chief Executive Officer, Mr. Dirk Allison. Please go ahead, sir.

Thank you, Drew. Good morning, everyone, and thank you for joining us for our third 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 third quarter results that we issued yesterday afternoon. After that, we would be happy to respond to any questions. As we announced yesterday, our strong operating performance continued in the third quarter of 2018, leading to our solid financial results. Revenue for the third quarter was $137.6 million compared to $108.6 million for the same period in 2017, an increase of 26.7%, driven by a combination of 3.7% organic growth and our acquisitions. Adjusted earnings per diluted share for the third quarter of 2018 increased to $0.48 as compared to $0.42 for the same period in 2017, an increase of 14.3%. Our adjusted EBITDA for the third quarter of 2018 increased 20.2% to $11.6 million from $9.6 million, with an adjusted EBITDA margin of 8.4%, even with the lack of a minimum wage price increase offset in Illinois. We ended the third quarter with $147.5 million of cash on hand and $103.2 million of bank debt. Our current cash position reflects both our recent stock offering that we completed in August as well as our strong cash collections from all of our payers, including the State of Illinois. In addition to our strong cash position, yesterday, we announced an amended credit facility, which will lower our borrowing cost and give us the capital to continue our acquisition strategy. We appreciate our bank group, led by Capital One, for working with Addus to complete this agreement. During our last earnings call, we mentioned that the offset to the Chicago minimum wage increase we were expecting in 2019 Illinois budget did…

Thank you, Derek, and good morning, everyone. Our financial results for the third quarter of 2018 demonstrated solid execution of our strategy as we continued to capitalize on the growing demand of our services and extended our leadership position in personal care through both steady organic growth and increasing level of profitability from acquisitions. We believe we are well positioned to continue producing further profitable growth through the remainder of 2018 and into 2019. We continue to expect consistent organic revenue expansion with same-store revenues increasing within our target range of 3% to 5% and through additional accretive acquisitions from a robust pipeline of potential transactions. As Dirk mentioned, total net service revenues for the third quarter increased 26.7% to 137.6 million, which included the impact of a 3.7% increase in same-store revenue. Personal care revenues accounted for 93% of our total revenue for the third quarter and increased by 18% over last year. This growth reflected a 15.8% increase in billable hours per business day and a 2% increase in revenue per billable hour. The remaining growth in revenue was attributed to the addition of hospice and Home Health services with no contribution from these sectors in the prior-year period. 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 2.4 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 230 basis points, although this reporting change has no effect on the net income, adjusted EBITDA or adjusted earnings per diluted share. Gross margin was 26.7% for the third quarter compared with…

[Operator Instructions] Our first question comes from the line of Brian Tanquilut with Jefferies.

It's Jason Plagman on for Brian. Just a couple of questions. Regarding the MA contracts, Dirk, that you mentioned you're in discussions with a couple of large Medicare Advantage plans. So are those -- do you expect those to be more pilot-type programs in 2019 or will those be broader coverage? Just any additional insight on that would be helpful.

Yes. We're not expecting tremendous volumes from our working in 2019 with Medicare Advantage providers, largely due to the fact that I think most of the MA providers are entering into this market carefully, with a more limited offering as to who will be -- have the opportunity for personal care services. So, while I don't know that I would classify it as a pilot, I do think it is going to -- 2019 is going to be a year where we work with these providers to gather data and to figure out how personal care can affect them, both from a marketing and a cost basis, going forward. So we're excited about it, but we expect still 2020 and beyond to be when most of the volume will occur.

Got it. That's helpful. And then on the VIP acquisition, do you expect meaningful synergies, given that you already have an existing footprint in New York?

Yes. I think, Jason, with South Shore and VIP coming together, I think you should definitely see some operational synergies. I think that the biggest piece, strategically, for us is really our relationships with the MCOs in the market. I think adding coverage in the five boroughs, in conjunction with our Long Island operations, is going to be meaningful for us and something that we've been targeting for a while.

And let me add, I know you're probably talking mostly about cost synergies. But in our mind, where there's some opportunity here that we're excited about is the revenue synergies by us being large enough to remain in the 75-member panel. We anticipate that we'll be able to pick up revenues -- as we're seeing in Long Island today, we'll pick up revenues as other companies are no longer able to serve their client base.

And our next question comes from the line of Matthew Gillmor with Robert Baird.

My phone cut off earlier for a bit, so if this is redundant, you can please tell me to read the transcript. On the organic growth, obviously, a really good number even with the Illinois rate issue. Could you talk about that metric a little bit? Were there any particular markets that drove the outperformance? Are you seeing a benefit in New York with the narrowing of the networks?

Yes. One of the things that we've tried to do with our strategy of growth is to really strengthen our offerings in the markets in which we operate. And New York is a prime example, especially now with our partnering with VIP going forward as well as South Shore. So now what we've seen in the third quarter that helped that 3.7% growth rate was we've seen a lot of activity, driven by the MCOs, in the Long Island market moving or asking us to take additional clients or patients on service because the people that had serviced them before are no longer in the market. So I would say, certainly, New York was a strong contributor of that growth.

Yes. And Matt, I think just to piggyback on Dirk's comments, we saw strong growth year-over-year in two of our other largest markets, which are New Mexico, and then Illinois, both had strong year-over-year numbers. So very positive for the quarter.

And then with the VIP acquisition, can you -- does their business mix look pretty similar to your existing operations in New York? Is there anything to call out? And then are you disclosing the purchase price? Or if not, can you talk about the multiple if that's sort of in line with what you've sort of generically talked about in terms of M&A multiples?

Sure. VIP service offerings are very similar to what we offer in our Long Island market. In fact, one of the things we really appreciated about working with VIP and coming to this agreement is how closely aligned, we believe, our cultures are as companies and the way we operate business. So we are very excited to bring them onboard, bring their leadership onboard, which will help us as we continue to look to grow the New York market. As far as the multiple, we paid probably around 7 times, maybe slightly lower, but right in that marketplace, based on their current run rate. So we're pretty excited since it was so strategic that we were able to do that.

And then the last question for me on the new relationships with Medicare Advantage and some of the contracts you anticipate starting in January. I know you mentioned those will be small. Can you -- initially, and then hopefully growing in 2020. I was curious if you could talk about sort of the measures that will be part of this year of data gathering. Are these hospital readmissions, those types of measures? What are the insights you're trying to -- in the MA plans you're trying to get from some of these first relationships?

Well, we're still working with these MA plans to finalize exactly the data that we'll be looking for. But I would say it probably revolves mainly around two items, emergency room visits, which, obviously, as you know, can be very costly, and it's something that the population our age that we take care of that happens quite frequently. In addition, we will be looking at hospital readmission rates and seeing how we can affect that. So I would say those two are probably the biggest criteria we're talking about at this time.

[Operator Instructions] Our next question comes from the line of Dana Hambly with Stephens.

This is Jacob Johnson on for Dana. Dirk, I know you guys have always been interested into -- getting into New York City, so congrats on the deal. But I think in the past, there's been some concerns around billable hours in New York. I think for live-in aides getting cut, is this still an issue for you guys? And maybe what gave you the confidence to do this deal?

Well, the live-in aide issue, while it is still not resolved, historically, basically, most companies have already made adjustments for that. So it is not as big a problem as it was maybe a year or so ago. But even more importantly, while we -- the hours per patient may go down, and we're not certain of that, we haven't seen it for the last couple of years we've been in the market. I think importantly, Jacob, what we're seeing is that as the markets are or the networks are narrowed, the number of patients that we're getting because other providers are no longer able to service them should offset and help us continue to grow that market. So we believe the dynamics of the MCOs actually starting to narrow the network make New York a really nice place to be.

[Operator Instructions] And our next question comes from the line of Mitra Ramgopal with Sidoti.

Just two questions regarding the New York acquisition. I was wondering if you anticipate synergies with South Shore as you complete the deal. And secondly, New York is also a state that's pushing through higher minimum wages, if you feel comfortable with the reimbursement or being reimbursed for the increase there.

Yes. We do believe that there will be opportunities between South Shore and VIP. And we're not talking really in personnel. We'll need everybody in the market as it grows, but opportunities to do things together to lower the overall cost as we work side-by-side with the leadership in New York. So we're very excited, and we think it's a great opportunity. Both South Shore personnel and the division as well as the VIP folks coming onboard, should be a growing marketplace for us. And the second part of your question, Mitra?

Yes. With New York also pushing through a higher minimum wage, how comfortable you feel in terms of being reimbursed or able to offset that?

The history of New York, since we've been here the last two years, have been that the state has funded minimum wage increases as they come up. So as opposed to Illinois, which has funded them, but in a delayed manner, New York has done it each time there's been a wage increase. So we're pretty excited that the state and the leadership of New York understands the reason for the minimum wage increase and supports that by passing through wage increases for us.

And we have a follow-up question from the line of Matthew Gillmor with Robert Baird.

I wanted to follow up on the New York discussion. Dirk, can you remind us where we are with respect to the narrowing of the networks? And I guess, part of the reason I asked is we saw good growth, and they're on a same-store basis, which was driven in part by that. So just wanted to understand sort of where we are in terms of payers actually moving to a lower number of providers.

We're really at the front end of that, honestly. We started to see that moving about two months ago, and it will continue as the open panel gets reduced to 75 providers going forward. Now there's also next year, there'll be another tightening of the market. So we are very excited about -- with our VIP operation now, along with our South Shore operation, we'll continue to see that narrowing be a positive effect for the next couple of years. So we're pretty excited about what's happening in New York and our position in the marketplace.

And I'm showing no further questions at this time, and I would like to turn the conference back over to Mr. Dirk Allison for any further remarks.

Thank you, operator. And we would like to thank everybody that joined us today for your interest in Addus and we hope that you have a great week. Thank you very much.

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