Addus HomeCare's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Mar.12.14 | About: Addus HomeCare (ADUS)

Addus HomeCare Corporation (NASDAQ:ADUS)

Q4 2013 Earnings Conference Call

March 12, 2014 17:00 ET

Executives

Mark Heaney - Chairman, President, CEO; President and CEO of Addus HealthCare Inc.

Dennis Meulemans - CFO, VP, Secretary

Darby Anderson - VP, Home & Community Services of Addus HealthCare

Analysts

Brian Hoffman - Avondale Partners

Mitra Ramgopal - Sidoti

Dana Hambly - Stephens

Whit Mayo - Robert Baird

Operator

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.

Dennis Meulemans

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.

Mark Heaney

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 accountability. The team accomplished much in the past year all consistent with these objectives. We started the year executing on our strategic decision to exit on health, census has been steady up.

We completed two acquisitions in four states and expanded our operations into two new states. We have pursued and signed Managed Care contracts including entering into two announced pilots with Centene and Aetna.

We continued our investment in technology by deploying and supporting our telephony based change in condition reporting approach to over 75% of our agencies. We built the 24/7 contact center now supporting 33 of our locations. And we end the year with a healthy balance sheet and cash to deploy.

And this is great. And we are truly proud of what we have started. But, we are not done and there are issues and obstacles and concerns that we have to face into face down. We remain in a challenging environment. Payors both states and Managed Care are now likely to pay more. Regulation is increasing.

Our SG&A costs needed to come down as we centralize and expand, related to SG&A. While we continue to modify our care delivery system, the fact is, we are not getting the efficiencies we know we can get. We are focused on getting the expected efficiencies. And our public company costs are increasing, Dennis will talk a little bit about that.

A good year and despite the challenges a sense that we are headed in the right direction. And speaking of challenges, most us on this call work in a single temperature controlled and comfortable location most of our day that no time in my 34 years in homecare, do I remember a winter like the one that our 16,000 employees have been door delivering homecare to a population living in urban, rural and intensely rural communities across the country and especially throughout the middle, southern and eastern markets we serve. So I say god bless you and thank you for what you do especially considering the environment in which you had to do it.

And with that let me turn the call over to Darby Anderson, who will talk a little bit more about the just completed quarter.

Darby Anderson

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 enrollment timelines provided by the state.

California pilot counties begin in Q2 and continue enrollment according to that states guideline – timelines into 2015.

New Mexico's Centennial Care Program, a Medicaid managed long-term service and supports program became operational January 1st and we continued to further enhance relationships with those health plans.

We continue to reengineer our care delivery and see increasing evidence of the effectiveness of that model. We are more proactive and responsive to the needs of clients through out contact center and more aware of client condition changes through the increased home visits of our supervisory staff.

The remaining work to be done on the efficiency of that model but we remain pleased with progress to-date and are committed to completing the job.

Our care system is deployed in locations targeted to those states with Managed Care initiatives and the majority of our direct care team is utilizing some form of electronic visit verification. We also continue to develop and deploy enhancements to our mobile device applications for our caregivers.

On legislative front, we are monitoring the status of proposals to increase the minimum wage both federally and in our states. We are fortunate today not to have as much minimum wage sensitivity as we have had historically in large part, this is due to the increased value placed on home and community based services by governors and state legislators.

We will ensure appropriate advocacy efforts in states where rate increases maybe needed to fund any minimum wage increased mandates. We are also evaluating the recent changes to the employer health insurance mandate under the Affordable Care Act. The recent regulatory changes impacting employers improves our position in terms of 2014 and 2015 compliance but we continue as all employers do to examine avenues to mitigate cost associated with this mandate.

I'm very excited about the prospects for 2014 as we take important steps into Managed Care model in key states. However, and as Mark mentioned 2014 started with a run of unprecedented inclement weather.

At this point in the quarter, there are not signs of the weather significantly impacted the acquisition of new census but there is no doubt that unit of service and corresponding revenue will be impacted in Q1.

Despite this unforeseen start to the New Year, our team is poised to execute on the opportunities before us in 2014. Again, I want to thank the entire team for their collective and collaborative efforts especially those of you who went above and beyond normal expectation in the care of clients. We are very proud of all of you, and thank you for choosing to work at Addus HomeCare.

I will now turn the call over to Dennis for more detail on the numbers.

Dennis Meulemans

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 the prior year amounts reflecting increased costs related to legal and consulting expenses for our M&A efforts; increased G&A expenses related to the CHHC operation, cost incurred for our SOX 404 compliance efforts and the roll out of our electronic visit verification systems in Illinois in response to the state's July 1st mandate all costs which were not part of our expense profile in 2012.

Aside from the disclosed one-time M&A expense which we will have from time to time going forward over the near term, our G&A expenses will remain at this higher absolute dollar level, but we have every intention to continue to scale the business. Income from continuing operations but before taxes was 4.8% of revenues a 32.7% decline over last year when compared to the 7.8% for the prior year reflecting the increases in G&A expenses noticed earlier.

Our effective tax rate was 5.8% substantially below the prior year's tax rate of 29%. As you recall, we could not take the benefit of work opportunity tax credit in our 2012 financial results. The benefit this year from the certainty of the credit for financial reporting as a result of the renewal of the credit after January 1st. That said, our taxes continued to benefit from the higher amounts we realized for both 2012 and 2013 related to employee tax credits. Our effective tax rate for 2012 of 34.1% is a better indicator of our true effective tax rate.

We recorded a reserve for contingent liabilities related to estimated Medicare and Medicaid billing recoveries from our Home Health business totaling $3.2 million or $2.2 million net of tax in the quarter, which was taken as a reduction of our gain on the sale of the business. This provides a reserve for up to six years of recovery by these payors and is a prudent accounting estimate to support a contingent liability required under our agreement with LHCG. We also incurred some expenses related to the wind down of the business, which is now substantially complete.

Now let's turn to our balance sheet and cash flow, cash flows from operations during the quarter were positive $2.3 million reflecting positive cash flow for continuing operations less the decrease in payments from the State of Illinois. Payments from the State of Illinois were slow in the quarter as they continued to late payments to us due to the large payment received in Q2 but have become more stable recently.

Our accounts receivable, net of reserves increased $6.8 million in the quarter to $61.4 million as of December 31, 2013. I want to say we are very pleased to see that the year-over-year balance is, however, have declined nearly $10 million reflecting positive collection of nearly all of our Home Health receivables of $7 million and improvements in collections from our other payors.

At December 31st, we had $15.6 million in cash on our balance sheet, no long-term debt and availability under our credit facility. We expended $11.8 million in the quarter to complete the MSA and CHHC acquisition.

404 compliance, something that's been hot here for at least the last three, four months. As a result of our increased stock price last year, we became an accelerated filer and are now subject to increased requirements under SOX 404 regulations. We hired a Director of Internal Audit and engaged consultants to assist us in these efforts. They all came on board at the end of the third quarter. They worked hard to document and test our systems and control processes in advance of our first time audit of our internal controls.

I am personally pleased with their efforts to-date. We've gone through the audit process and have determined that at these higher reporting standards, we have material weaknesses in our control environment in two areas, general IT controls and payroll process controls. We have already entered into an agreement to implement a new payroll system this year that should mitigate those controls and are engaging a firm to assist us with mitigating our IT controlled efficiencies. This conclusion has no effect on our audited results for the year. We will receive a clean audit opinion from our auditors on our financial results.

This concludes my comments. I would like to turn the discussion back to Mark for closing remarks and for any questions.

Mark Heaney

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

Question-and-Answer Session

Operator

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

Brian Hoffman - Avondale Partners

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

Mark Heaney

Thank you.

Brian Hoffman - Avondale Partners

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?

Mark Heaney

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.

Brian Hoffman - Avondale Partners

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?

Mark Heaney

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

Darby Anderson

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.

Mark Heaney

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.

Brian Hoffman - Avondale Partners

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?

Dennis Meulemans

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.

Brian Hoffman - Avondale Partners

Got it. Okay, great. Thank you.

Operator

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

Mitra Ramgopal - Sidoti

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?

Mark Heaney

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.

Mitra Ramgopal - Sidoti

Hello?

Mark Heaney

Yes, did you --

Mitra Ramgopal - Sidoti

I'm sorry, I lost.

Mark Heaney

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

Mitra Ramgopal - Sidoti

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?

Mark Heaney

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.

Mitra Ramgopal - Sidoti

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?

Mark Heaney

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?

Darby Anderson

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.

Mitra Ramgopal - Sidoti

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?

Darby Anderson

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.

Mark Heaney

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.

Darby Anderson

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

Mark Heaney

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.

Mitra Ramgopal - Sidoti

Yes. Thanks again for taking the questions.

Mark Heaney

Mitra, thank you.

Operator

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

Dana Hambly - Stephens

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 Anderson

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

Dana Hambly - Stephens

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

Mark Heaney

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.

Dana Hambly - Stephens

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?

Dana Anderson

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.

Mark Heaney

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.

Dennis Meulemans

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

Dana Hambly - Stephens

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?

Dennis Meulemans

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.

Dana Hambly - Stephens

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

Dennis Meulemans

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.

Dana Hambly - Stephens

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?

Mark Heaney

Darby?

Darby Anderson

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

Dana Hambly - Stephens

Okay. Great. Thanks guys.

Mark Heaney

Dana, thank you.

Operator

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

Whit Mayo - Robert Baird

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?

Dennis Meulemans

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.

Whit Mayo - Robert Baird

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?

Dennis Meulemans

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.

Whit Mayo - Robert Baird

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?

Dennis Meulemans

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.

Whit Mayo - Robert Baird

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.

Dennis Meulemans

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.

Whit Mayo - Robert Baird

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?

Dennis Meulemans

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…

Whit Mayo - Robert Baird

CapEx?

Dennis Meulemans

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.

Whit Mayo - Robert Baird

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?

Dennis Meulemans

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.

Whit Mayo - Robert Baird

Okay. All right. Thanks guys.

Mark Heaney

Thank you, Whit.

Operator

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

Mark Heaney

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.

Operator

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.

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