Q1 2021 Addus Homecare Corp Earnings Call
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Good morning, and welcome to the Attic Homecare Corp, first quarter 2021 earnings conference call.
This call is being recorded.
The extent that 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 COVID-19 1995, including statements among others regarding attis expected quarterly and annual financial performance for 2021 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 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 and <unk> filings with the security and Exchange Commission and in its first quarter 2021 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 at.
At this time I would like to turn the call over to the company's chairman and Chief Executive Officer, Mr. Dirk Allison. Please go ahead Sir.
Thank you drew.
Good morning, and welcome to our 2021 first quarter earnings call.
With me today are Brian Poff, our executive Vice President and Chief Financial Officer, and Brad Bickham, Our President and Chief operating Officer.
And I will begin with some overall comments and and Brian will discuss the first quarter results in more detail. Following our comments, we would be happy to respond to any questions.
While the pandemic continues to create challenges we began we have begun to see positive momentum and a number of our markets starting in mid February.
And I expect the environment to continue to have some difficulties over the next several months. We are encouraged by the progress being made with the COVID-19 vaccine rollout and the steady reduction and COVID-19 cases since the peak in late December.
We look forward to the time and the near future. When this pandemic is no longer a disruption to both the country and to our operations.
One of the important takeaways from this pandemic has been the increased understanding of the importance of home and community based care.
And as caregivers have been and important part of the health care system as we work to keep our elderly citizens safe from the virus and made sure that these consumers had the daily help they need.
I'm extremely proud of our dedicated team that has demonstrated their ability to meet our mission and execute upon our strategy even during this unprecedented pandemic.
Yesterday, we announced our financial results for the first quarter of 2021.
We continued our solid operating performance, even with the challenges from COVID-19 that we are all facing on.
Our revenue for the first quarter was $205 $3 million as compared to $192 million for the first quarter of 2020.
Adjusted earnings per diluted share for the first quarter of 2021 with 74 cents as compared to 77 for the first quarter of 2020, Despite both last year's first quarter being a record quarter prior to the full onset of the COVID-19.
As well as the effect of the Chicago minimum wage increase which occurred on July one two.
2020.
As we had discussed on our last earnings call the Illinois state rate increase to cover this minimum wage adjustments and became effective on April 1st 2021 and will be reflected beginning with our 2020 one second quarter results.
Also last year our earnings per share.
I'm sorry on our adjusted EBITDA for the first quarter of 2021 was $19 3 million as compared to $17 7 million for the first quarter of 2020 and increase of approximately 9%.
As expected our first quarter same store revenues continued to be impacted by the COVID-19 virus.
As was the case and our last few quarters. This reduction occurred to varying degrees and all three segments of our business, which I will discuss in just a few minutes.
As I'm sure you are aware the changes and the leadership of our federal government is bringing about a number of potentially positive changes to our company, especially around Medicaid reimbursement.
COVID-19 relief legislation that was signed into law by the President will provide a general financial relate to states suffering revenue losses from the pandemic, which will help to strengthen the budgets of these states and their Medicaid reimbursement.
We expect to see the funds from the 350 billion and state benefit and this bill to be dispersed starting in May.
In addition, the additional 10% federal Medicaid match, which is specifically for Medicaid home and community based services should be a positive paradis.
We believe the federal government will clarify the rules around this match soon which should allow states to start to use these additional monies to support home and community based services.
On the state level, we face one last scheduled minimum wage increase for the city of Chicago.
This $1 wage increase will be effective on July one 2021.
The Governor of Illinois did include funding and his fiscal 2020 to budget for an additional rate increase to offset the upcoming wage increase.
However, the state reimbursement rate increase is currently scheduled to be delayed six months similar to the past few years and is scheduled to become effective on January one 2020 two.
We continue to have discussions with state leaders about the late timing of the reimbursement increase and potential to accelerate as a result of the additional Medicaid funding from the federal government.
As we have discussed on our last earnings call. We continued to assess the New York City Pap statewide change well.
We have approximately 52 million of revenue and this particular service line and New York. It has not been a very profitable program and will be less so with the recently published reimbursement rates.
Let me remind you that we are only a physical intermediary and C. D Pap with a caregiver working directly for the consumer.
This is not our normal form of personal care services.
We have filed a protest concerning our omission from their provider selection process and understand from the recent finalization of the fiscal 2020 to New York State budget that a few additional awards may be granted.
We will keep you updated as we received additional information and explore other potential options to remain in this particular program.
As to timing of these changes we believe it will be at least nine to 12 months before the state fully implement the new program. If no other structural changes are made.
As I previously mentioned our same store revenue has been affected by the COVID-19 virus. However, we are starting to see a positive trend and all three segments from which we operate.
For the first quarter of 2021 our personal care same store revenue growth was two 4% when compared to the first quarter of 2020, Alaska quarter without the full impact from the pandemic.
As we discussed on our last call during November and December we saw a significant increase and the number of our caregivers who had to enter into quarantine.
We also solve client call offs increase again, starting in November lasting until the first week of February.
In addition to the impact on growth due to COVID-19, we were affected by the February winter storm that spread across several straight states, where we provide personal care services and we estimate had a negative impact on our first quarter personal care revenues of approximately $1 million as a result.
With the fourth quarter COVID-19 surge, we discussed we experienced a large increase and our employees, who were and quarantines and unable to serve their consumer.
We went from 187 employees per week, and quarantine and the third quarter of 2020.
So 448 employees per week, quarantine, and our fourth quarter, 'twenty, and 'twenty, which affected our hours of care through January.
For April this number is now down to 149 employees per week, which should help our growth rate returned to a more normal level and our second quarter of 2021.
We also saw a similar dynamic as it relates to our client call offs and personal care.
Our personal care caregiver hires for the August through October 'twenty, and 'twenty time frame were up approximately 9% over the same period and 2019, leading to the highest amount of hires per business day and over a year.
However, during November and December of this past year, when we saw the increase and virus counts are hiring slowed to where we were down one 3% versus the same two months and 2019.
Our hiring numbers did improve and the first quarter of 2021 with hires per business day, increasing four 2% on a sequential basis and.
And 1.2% over the first quarter of 2020.
We are encouraged with the trend and our ability to hire and we continued to see positive numbers so far in April.
With the positive trends, we are seeing and personal care along with the April one reimbursement rate increase from Illinois, We expect our personal care same store revenue to be at or above our expectation of 3% to 5% for the next few quarters.
For the first quarter of 2021 R. Hospice same store revenue decreased eight 4%, which is still a 'twenty of 220 basis point improvement over our fourth quarter of last year.
While a D C remains under pressure, we did see our highest quarter of hospice admissions since the first quarter of 2020 with a sequential increase of approximately four 6% from the fourth quarter 2020.
While our admissions have been strong we have seen a reduction in our same store median length of stay over the past few quarters. Its median length of stay decreased from 26 days early in 2020 two.
To just 15 days in January which contributed to our lower a D C.
Our median length of stay continued to continued to trend upwards and March increasing to $17 five day.
Any worry is when we started to see our ATC bottom out with slightly increasing ATC through the middle of April.
And with new Mexico, being our second largest hospice market. It continues to have an overall negative effect on growth even while other hospice markets are showing improving census.
As for our Queen City acquisition, which closed on December <unk>, 2020.
Our hospice census has grown from 890, when we close this transaction to over 940 in April of this year, despite the business going through the normal stages of integration, including converting to homecare Homebase and ATP.
And I'm very proud of this team for being able to continue to grow while transitioning to the Atlas systems.
As far and new Mexico Hospice locations. We believe we will continue to see both assisted living facility and independent living facilities loosen their rules around personal personnel access as the percentage of new Mexico residents, who are vaccinated continues to grow and should help this market returned to a more normal.
On a D C.
We are excited to see our home health same store revenue is back to the level, which we experienced in the first quarter of 2020 prior to the effects of the pandemic.
This compares to a fourth quarter of 2020 decrease of eight 2% and our home health same store revenues.
Since the beginning of 2021 our home health admissions have increased steadily with this favorable trend continuing into April.
And while January same store revenues per home health were down 11, 5%.
February marked the turning point with March being up 11, 9% versus the same period and 2020, We're seeing our April home health numbers continue this growth trend.
Turning to our average concerning acquisitions, our pipeline continues to be strong with a current slant towards home health.
Our primary focus on acquisitions remain on opportunities, which add clinical services to our existing personal care markets with the gold up having additional markets with all three levels of care.
That we provide.
With our strong liquidity position, we continue to believe that we have the ability to close additional acquisitions. During the next few months, while purchase multiples preclinical services remain high we will continue to pursue transactions, which are accretive while bringing both revenue and operating synergies to add us.
As I look back over the past year I am proud of the team as they've continued to do a tremendous job of living our mission during these extraordinary times and.
Our caregivers have been able to positively affect the trajectory and impact on the COVID-19 pandemic on.
Continuing to serve the needs of our consumers and patients and their homes.
All caregivers and all segments of health care deserve our appreciation for this commitment to patient care.
I, especially want to thank they add his team who continually putting our patients first.
Before I turn the call over to Brian I wanted to remind our team on the value of our services, while the COVID-19 virus is still a challenge for our country as well as the world we need to continue to live our mission and values, while serving our consumers and patients.
Each of these individuals need to be in their homes, where we can help to keep them safe from the virus, while providing much needed care.
With that let me turn the call over to Brian.
Thank you Dirk and good morning, everyone.
<unk> solid financial performance to start the year with consistent profitable growth and improving volume trends comparable to our pre pandemic levels.
With two of our three segments at or above our first quarter 2020 same store revenues and our hospice ADC beginning to trend positively. We look forward to a continued return to a more normalized growth profile as the COVID-19 environment improves.
And we'll also benefit from the most recent rate increase from Illinois, our largest market, which became effective on April one 2021.
Looking at the comps over the prior year period last year's first quarter was our strongest quarter before we really felt the full impact of COVID-19.
So we were very pleased with the results for the current year quarter R.
Volumes continue to improve and personal care and home health and we're optimistic about hospice care volumes returning to pre pandemic levels as more people are vaccinated and we see greater facility access.
We have a strong business model in place and believe we are well positioned to meet expected demand as consumers become more confident and are less restrictive environment.
Okay.
Included in our results are the incremental benefits from the four acquisitions, we completed and the second half of 2023 and personal care and one on hospice, which totaled approximately $84 million and annualized revenue.
Together acquisitions completed over the past two years of combined total annualized revenue of approximately $214 million.
We continue to have a robust pipeline of potential transactions that are in line with our strategy of adding clinical services and markets, where we have first of all care operations and continuing to enhance our existing personal care markets.
And on current market conditions, we remain confident that we will have opportunities to achieve or exceed our stated goal of adding a minimum of $100 million and annualized revenue through acquisition. This year.
As Dirk noted total net service revenues for the first quarter were $205 $3 million. The revenue breakdown is as follows.
Personal care revenues were $164 $8 million or <unk>, 83% of revenue.
Hospice care revenues were $36 $1 million or 17, 5% of revenue. These results include the first full quarter of our Queen City Hospice acquisition, which closed near the end of 2020.
Home health revenues were $4 $3 million or two 1% of revenue.
Other financial results for the first quarter of 2021 and include the following.
Our gross margin percentage was 29, 8% and increased from 29, 4% from the first quarter last year largely attributable to a higher mix of clinical services, which are now approximately 20% of our revenue up from 16% and the first quarter last year.
This increase was partially offset by the normal reset of payroll taxes, and the new year, which impacted our margin by approximately 80 basis points sequentially.
While we still experienced a negative impact this quarter from the additional minimum wage increase and Chicago on July one 2020, the statewide reimbursement increase and Illinois that became effective on April one will offset beginning in the second quarter.
G&A expense was 22, one percentage of revenue for the quarter, a slight decrease from 22, 2% last year and.
Adjusted G&A expense was 24% of revenue up slightly from 20% in the first quarter of 2020, and primarily as a result of the higher mix of skilled business with a higher G&A profile.
The company's adjusted EBITDA increased to $19 $3 million from the first quarter of 2021 compared to $17 $7 million from the first quarter of 2020 <unk>.
Adjusted EBITDA margin was nine 4% an increase from nine 3% from the first quarter of 2020.
Adjusted net income per diluted share was <unk> 74.
The adjusted per share results for the first quarter of 2021 and exclude the following.
COVID-19 expense benefit net of <unk>, which includes the impact of temporary rate increases partially offset by the COVID-19 direct expenses.
Acquisition and de Novo expenses of eight.
Restructuring and other costs of <unk> and noncash stock based compensation and 12 cents.
Our adjusted per share results for the first quarter of 2020 exclude COVID-19 expenses net of one said and.
Acquisition and de Novo expenses of nine <unk>.
Restructuring and other costs of five cents and.
And noncash stock based compensation of assets.
Our tax rate for the first quarter of 2021 was 19, 5% as a result of and excess tax benefit generated by our stock compensation for the full year 2021, we continue to expect our tax rate to be and the low to mid 20% range.
Dsos were 68 days at the end of the first quarter of 2021, consistent with the fourth quarter.
However, dsos for the Illinois Department of aging were 72 days at the end of the first quarter 2021, as we saw slower payments, primarily as a result of the timing of tax revenues and the state with.
With the increase and tax revenues and the stimulus assistance coming from the federal government and the second quarter, we have seen an acceleration and payments from Illinois and have received over $24 million since the beginning of April.
Our first quarter net cash used by operations totaled $18 $4 million inclusive of the return of $10 $8 million and cares Act funding received as part of the Queen City acquisition and.
Additionally, the timing of normal payroll payments negatively impacted cash flows by approximately $15 $5 million and the quarter.
At March 31, 2020, one the company had cash of $145 $1 billion $196 $3 million of bank debt and $112 $8 million and availability under our revolver.
With continued low net leverage and well positioned balance sheet, we continue to be able to execute our acquisition strategy.
This concludes our prepared remarks this morning, and thank you for being with US on how is the operator to please open the line for your questions.
At this time to ask a question you will need to press star one on your telephone to withdraw your question press. The pound key please ensure you're on a landline and not a speaker phone when asking your question well pause for just a moment to compile the Q&A roster.
Okay.
Our first question comes from the line of Frank Morgan with RBC capital markets.
I appreciate the color around labor and the issues and that the improvement and the worker quarantining.
And I'm just curious a quarantine aside labor has always been sort of the thing I think you worry about the most direct so just how do you feel about the labor market today is as we sort of.
Our way into this post COVID-19 World do you feel better worse or are there any new strategies that you're considering or thinking about as the economy reopens.
Yeah. This is Brad you know when you look at the labor.
The team and the field I mean, it's a challenging recruitment environment all the time.
And we unfortunately have a turnover and the industry this little higher than we would like it to be we're actually doing a little better than our opinions and industry statistics that being said.
We're still.
We've got the unique problem since I've been here, where we have.
And frankly more business and workers and.
And I'd, rather have that and the other.
But you know with respect to recruitment on numbers have improved when you look at the trends April is looking pretty good.
I think theres still some headwinds with the additional unemployment out there condoms are reopening, but again you know I think we've done a pretty good job of keeping those numbers trending and the right direction.
We are working on kind of you know.
Strategies, both are you utilizing the Nashville job boards being creative.
Constantly refreshing and updating our ads.
Up and it kind of more enticing to employees potential employees to click on them and then also doing a lot of work and the community and really stressing that the you know we can't forget about what are the local community recruitment efforts and look like and.
And Frank you know overall as you know we've talked about it from the last couple of years.
Recruitment has been one of our bigger challenges I think if you go back to last year. When we were looking at the what was going on and then the larger unemployment benefit from the federal government are certainly very challenging environment and while it's still a little bit today as Brad mentioned with the $300. We really are.
Optimistic that over the next few months, we will start to see our ability.
To recruit and to hire continue to improve as we've seen the last month or two so we're a bar and a much better position our minds a day than we were maybe a few months ago.
Got you and and then I guess switching gears on M&A are you your comments about.
And maybe more of a slant towards the health and the home health care market, just curious what you're seeing there I know there there was a recent home health care hospice.
Relatively good.
A good size win announced but what do you see and that's driving the shift toward home health care is it valuations or is it just kind of you want to change the clinical mix.
Yeah. Frank This is Brian and I think what we're seeing in our pipeline and I think we expected to see that coming into this year.
And you know more on potential assets coming to market out there I think you know last year and a lot of a set of expectations that we would see a lot of activity and really didn't see that so I think you had.
Kind of a bolus of potential targets are actually coming to market and now so I think we've seen a little slant on that in our and our pipeline I think our focus is still largely and clinical services and enhanced personal care.
And all three legs of that stool and each of our markets. I think we've just got a little more I would say skilled home health and our pipelines a day.
And there are two segments currently.
Got you and then I guess finally on the on the margin picture.
Do you I think you called out at least at the G&A line. The change in your clinical mix is not being able to get as much leverage, but do you still see and opportunity to really.
Get some leverage off your G&A expense as a as your top line growth and I'll hop.
Yeah, Frank I think we definitely continue to see I'm sure leverage, especially on our corporate G&A, but even our field G&A as we add some of these services and in markets, where we have personal care or other operations, we should get some additional synergies there as well. So that's our expectation is continued leverage as we continue to grow.
Thank you our net.
Thank you R. Next question comes from the line of Matt Borsch with BMO capital markets.
Well, yes. Thank you.
If you could just talk a little bit more on the M&A pipeline.
In terms of why.
What you're seeing in personal care in particular.
And that may or may not be coming out and as a result of the pandemic impacts.
Houses that are.
How has that influenced.
And the willingness to sell.
And number of opportunities that are out there.
Okay.
Yeah.
And.
The problem with a lot of the personal care and the bigger ones that have come out that we could look at there have been reasons why.
It would be difficult for us to look at them either it was a concentration and a market where we already operated and it would've been on a difficult.
Combination or quite honestly some of them are revolving around the New York marketplace and it is not at this point in time and New York is not a focus of our company we need to see that particular market are really stabilize and and see the direction that the governor and the leaders of the state are going to.
At program and so for us while we're always interested and personal care that is R. You know, 80% of our business, we want our strength in the states and which we operate continue to look at that it just seems like lately on the acquisitions of any size has been more on the clinical side and and for US honestly you know hospice has been very.
<unk> expenses.
Expenses are we've reached out and and some strategic.
Opportunities with H P. A with Queen city to acquire those at this point and time, though we also feel it's very important to add the home health service to our lines of care as we continue to look to grow not only.
With our relationships with M C O us, but as we start looking at the and the type of payment situations and we may look at port.
Look forward down the road.
With the MTO partners.
And Matt just real quick one thing to add to that and we're not.
We're not really seeing a I would say the influx of personal care assets for sale and result of the pandemic I think as you know with with us, particularly and others and all of those states. We operate and have done a really good job of being supportive with temporary and rate increases and the like or for home and community based services across the board and I think with that we havent seen and influx and central opportunities become a normal flow.
Yeah.
Got it on that all makes sense and and actually direct you sort.
And sort of anticipated my follow up question, which was on New York, specifically and are.
The reimbursement environment, and I know youre not alone and.
And in facing challenges there.
Yes, I guess, maybe there's not much to be said here. Its just it is what he used for right now and.
And correct me, if I'm wrong, but there isn't really a catalyst we can see for <unk>.
And.
More partnership environment.
Emerging in the near term it may or it should in theory, because the funding has improved and this fiscal situation and apparently as well but.
Sorry, I just think it was sort of was the question you sort of answered it but if you have anything more to say on that from interested.
Yeah, you know honestly the thing I would say is it is disappointing from our standpoint that the state did get is getting federal money and there's not been more support from the state as it revolves around home and community based care.
And the state has put funding and their budget, but they don't always get that to the provider.
It's a very difficult market and there's also changes and the way things are reimbursed there as it relates to.
Benefits to the caregivers, which we're very excited about with minimum wage goes up as long as it's reimbursed, but new York is not at.
At this point and time has not been as forthcoming.
And fourth coming and some of the other states and supporting those increases so right now again, we'd love to be able to be stronger and New York, but it's not a market that at this point and time, we're going to put a lot of additional growth dollars into.
Okay that makes sense. Thank you.
Our next question comes from the line of Scott Fidel with Stephens.
Hi, and <unk>.
Thanks, and good morning.
First question I, just actually wanted to piggyback on Matt's question, just around growth opportunities and.
Personal care and and sort of separate from I guess M&A opportunities interested and what youre seeing potentially on the geographic expansion front and in particular just have you as you're evaluating.
Some of that potential enhanced funding that's coming through for Medicaid as states UBS services are you seeing any states, where it does seem like that the states are committing to actually delivering that funding March to providers and you think could open up new geographic opportunities for you.
Well I think Scott I think that is something we will be looking at and hope that as rules are clarified there'll be some opportunities to do that the problem that I think we have so far is that some of these additional monies that are coming to federal government are still to arrive and and the rules around those.
On <unk> have not been and <unk>.
Finalized or at least shared with the states and the providers as much as we would like so it's more clarification of those rules come out. We do believe there are some opportunities you specifically around we talked about the 10% additional match and Medicaid funds that's out there for year, yes. It is temporary but it is monies that potentially states can use to expand there.
Our offerings and home and could be the case here.
And potentially can use for rate increases they've already talked about we would hope that maybe that could be utilized to make rate increases happen sooner rather than later. So these are all the things with the various states that we are discussing around the federal money.
Okay.
Got it and yeah, and realize that we're sort of in that feeling our way through the darkness and little bit here with getting visibility on on how these new fundings are going to be translating down into the range I guess and a similar vein here on <unk>.
But would be interested in and what you are hearing if anything in terms of any additional details on.
And the federal side and in terms of buying and <unk> $400 billion proposed boost to Medicaid and HCV extending and.
Any type of visibility you are getting into.
Thoughts on how that funding would that would actually be deployed in terms of what types of initiatives that will be allowed to be used on and then your thoughts on.
What youre hearing politically in terms of.
General support for actually getting.
And this actually included and and one of these packages that are being worked on and I would assume that and it's obviously part of that first infrastructure Bill would seem like something that would maybe be more appropriate and by and and second families Bell, but I'm just interested and politically and what you guys are hearing as well around support for that.
Yeah, well what were hearing politically is certainly there's a lot of support from the 400 billion from.
From the Democratic side on both the house and the Senate.
It does seem to be at least at this point the Republicans are not quite as on board as maybe the president.
And the Democrats and the rest of the Democrats are so you know whether or not this is going to end up being part of any buildings or may not occur. We do believe it's an important part where certainly letting folks know that we think it's needed but.
But we will see but as it relates to what we believe that'll be used for and again remember there's very little out there very little detail that we can grasp hold up today, but we do believe that what it's probably going to be focused on is both expanding access to home a computer based consumers.
A lot of those are there's a lot of talk about the waiting lists that are out there for this care. So we believe the pumps will be directed towards trying to handle some of that waiting list and giving more access to care and then also there seems to be initiatives around increased wages for caregivers to make sure that the caregivers who are in fact provide.
And that care have a living wage. So that's that's kind of what we're thinking and that'll be useful.
Got it and then just one last one from me.
Interest and no one was generally difficult backdrop for the hospice space around some of the pandemic headwinds and the first quarter, but it sounds like Queen city and was able to deliver pretty solid.
Results month on month throughout the quarter.
Just interested and in terms of.
Operationally, you were able to glean and anything into.
Some of the.
Trends that they were able to deliberate and Ah.
Around that performance and whether that would impute do you think that they were likely taking some market share and their market as well thanks and that's it from me.
Yeah.
Yeah, Scott this spread on that.
Queen City I mean, we're very impressed with what they build the.
So to grow the business, particularly during an integration process and I think one thing that it really demonstrated.
To me was the fact that they you know having density and the the AOS and iOS that they service was very important it allowed them to keep access and those facilities.
And the pandemic.
You know, we haven't really tracked the market share and numbers, but I suspect they probably are and we have probably done a pretty good job of taking some market share.
And in those markets, but.
And I think it really goes to show that they you know having density and facilities.
And if there's a if you know any type of shutdown or are we going to pair. The list of providers you know you're more apt to be the ones that stay on the facilities.
And Mexico.
Our next question comes from the line of Brian Tim Quillin with Jefferies.
Hey, good morning, guys. Thanks for all the color that you'd go on so far.
Yes.
My question for you I mean, having been in the and the hospice space for a long time.
We're seeing obviously, a broad base challenge or headwinds in the hospice business. How are you seeing this you know kind of like recovery out of that happen and what do you is it provider need to do to turn that business around or is this merely a waiting game of just waiting for the recovery post COVID-19.
Well you know part of the issue around medium length of stay it has to do with the fact that.
A lot of times the longer length of <unk>.
Yeah.
Uh huh.
<unk>.
Sorry, I'm not sure what happened there.
A lot of debate.
Median length of stay a lot of the longer length of stay patients come from assisted living facility Snips, and we've seen not only and we seem to sensus and those facilities go down but we've also seen as we've talked the access. So what's happened is it's now skewed more of the admissions were getting two acute care facility.
These are those that have a shorter length of stay.
We also believe that probably is a natural progression of the pandemic.
<unk>.
I apologize I don't know if that's the.
Phone system on the other side, but I'll continue to try to push through.
We do believe that as we see this pandemic.
<unk> nation rolled through and the pandemic become less of an issue, we're hoping to see that a couple of things happened. One there is a census, and the nursing homes that return more to a normal level and that the families that we believe maybe during the pandemic have delayed the discussion around hospice amazing.
It might be because they're working from home and they were able to take care of their family member longer.
We believe that would return to something that's more normal so for us.
And we're not just stopping there and saying a D. C is going to return through linked to medium length of stay grow over the next few months, we're working with our sales team. We're looking at places that we can try to drive additional length of stay but I do believe as an industry itself over where we should start seeing over the remainder of the year.
And some improvement in that and and leading more back towards the normal level of medium length of stay around the mid twenties.
Got it and then Brian and we think about the different moving parts on the different reimbursement rates are state reimbursements that are changing so between Illinois the sequester.
Delay and also the increase in wages and July if you don't mind, just walking us through kind of like the your estimates of the numbers like the sequential changes from Q1.
Yeah, I mean, we're sequentially so into Q2 to your point, Brian you'll see the benefit from the Illinois rate increase which you know is going to be offset partially by the increase in wages and our non Chicago workers. So there will be some margin there <unk> be helpful. So it'll move our gross margin up slightly from where you see and Q1.
And you won't have any other real impact in Q2, and Q3, Youll see kind of on offset and Chicago minimum wage increase that Doug referenced in his comments.
And we'll see kind of that normal.
40 basis points or so reduction there because we don't have reimbursement offset until July and unless something changes and in Illinois was able to pull that forward and we're in conversations and see if that is possible.
And then you get through the end of the year and sequester and I think as long as that's out there and we are benefiting like a lot of folks from that as well.
Alright sounds good thank you.
Our next question comes from the line of me to rank <unk> with Sidoti.
Yes, good morning, thanks for taking the questions.
Just and I know you talked about the federal funding.
And placed on them.
And for the industry and also on the heightened focus on health care being done more and home setting and I was wondering just from an M&A perspective, if that's resulting and maybe driving on valuations as you have good opportunities.
Dmitry I think I think there's definitely a lot of appreciation for homecare services, especially through the pandemic EBIT, even more so I think you know prior to COVID-19. Obviously, there were there was a value proposition. There I think through COVID-19. You also see a lot of choice and reaction to a pandemic type environment and people's preference to be on their home. So I think there's definitely.
And appreciation and the space and that's driving and you know more of the clinical services. We've seen I think more of those multiples climb up, particularly and in hospice group III.
Last year, I think personal care multiples that we've seen are the ones that we typically would target had been pretty consistent we haven't seen a lot of movement on those bolt on at this point.
Okay, that's great and then.
On Medicare advantage and I was wondering if you have an update there and I know you know that was seen as a nice.
And so it goes opportunity for you and things got delayed as a result of the pandemic and tons of baby and implementing some programs et cetera, just wondering if you're seeing any pickup in any environment there.
So on each of those Brad with respect to Medicare advantage and other value based.
Arrangements.
Possibilities, we're starting and seeing increased discussion around it and we're actively engaged and those discussions we've got several.
And the projects out there that are implemented or in various stages of implementation. So I think long term, there's certainly a it's a nice tailwind for the industry.
Theres a lot more discussion on the federal level about a long term benefits are you know just recently so I think there's lots of opportunities I think you'll may pieces, Julian as we said a.
A couple of years away from seeing any real meaningful numbers, there, but I think and the the near term we're starting to see some pretty interesting projects that we're participating in and I think will further.
Constraint to savings that our services can provide.
Okay. Thanks, and then plan and he gets on the vaccines and the Rollouts et cetera, just wondering from and <unk>.
Certainly as it relates to euro caregiver and employees et cetera.
You know what we've thought cases of.
Number of individuals' not wanting to vaccine, especially in health care.
And.
And curious if that has been an issue for you in terms of.
Yeah on employees and caregivers et cetera.
And on the vaccine front, we've made good progress and I think it's a we're not as far along as we'd like to be overall, but part of that is just some regional differences and the pace of the availability of the vaccine when you look at our skilled segment.
And you know home Health Division is probably about just under 50% fully vaccinated.
Hospice is not quite to that level of spend and probably more in the 40% level there's more geographic.
Dispersion there are personal.
Personal care is lagging a little bit behind the skill sectors, mainly because you know just access was is.
And is not as widely available.
At the time I think now what's encouraging is that you don't have to schedule. The appointment you can just show up and get vaccinated and I suspect that we'll start seeing some pretty good traction there because I think just the ease of obtaining the vaccine.
Improvement there they are going to be a big driver.
Okay. Thanks, again for taking the questions.
As a reminder to ask a question. Please press star one on your telephone Keypad. Your next question comes from the line of Matt and the real with William Blair.
Hey, good morning.
And I was wondering if there's a way that you could try and quantify the impact in new Mexico on assisted living independent living facility restrictions and its temperature access.
And then you know maybe give us a sense for how and vaccination system and have.
And have improved your access as a group.
Yeah, you know, it's certainly when we look at just our admission trends and where we really are.
And were impacted was a pretty significant reduction and those are ALS and the ILS and the Smiths on what we have seen in the near term is sniff admissions actually have improved incrementally so and so we're starting to see some traction there overall admission volume, but even in new Mexico was very robust. So you know it.
Disappointed and admission volume is just a lot of it was late stage.
<unk> said when you look at kind of where we were last year from a perspective of AOS and iOS and certainly we're not where we want to be.
And on those admission volumes and new Mexico.
You know I think there's some optimism that day.
Facilities are starting to open up more and new Mexico and keep in mind. It was probably one of the more locked down and states throughout the pandemic I mean, they started kind of early on.
On locking facilities down and locking to stay down and they.
We're just now really starting to reopen.
I think we also if you look at all of our markets related to hospice.
The majority of our markets did grow so a new Mexico, having this difficulty with being a little bit more locked down and others and being our second largest market did have a little bit more of an effect that you would like to see.
Okay.
And then I just wanted to go back to an announcement you made intra quarter about homecare homebase and integration with with that sell track E. D. D function just curious you know.
What do you think that product will look like ultimately that be exclusive to Abbas what are you contributing to the project just what kind of be curious what the plans on from that I know you said and it would roll out in early 2022, it sounds like and interesting tool potentially.
Yeah, well first off it is a true partnership with homecare Homebase and sell track we are not investing dollars into the software creation, what we are investing.
Is time and expertise.
One of the things that we were able to do with homecare Homebase is we probably are one of the top personal care providers and the country and we understand what we as a company at least need to.
To run our business properly the type of data, we need input and output.
From systems to allow us to have some of the access that we have today on the clinical side. So R. R.
Our partnership there while it will not be exclusive we will be the.
The company to really decide how that software system operates and and our goal as you would expect.
Because we're going to have you know personal care all the way through hospice services, we would like to be able to have that record.
And be able to see that patient regardless of what level of care. They are and our company and get the same day to out of that so that's really the aspect we have with homecare homebase today.
Okay, and then just going back to a comment you made about staking and back to the mid twenties.
Obviously and a lot of moving parts, there, but maybe just would that be kind of a two three quarter time period, and just kind of how long do you think it will take to get back to sort of normalize and length of stay.
Well, we've gone from 15, a day start up now to 18 and April. So we you know we've grown three days, which.
While it doesn't sound like a lot of as a percentage, it's a nice move to get back to the mid twenties, you'll probably going to see the third and fourth quarter of this year. It takes it takes it to get there. So we believe by the end of 2021 and you should see on medium length of stay closer to where we would expect it to be which is that mid 20 number.
Okay. Thanks.
There are no further questions that went out and turn the call over to Mr. Dirk Allison for any closing remarks.
Thank you operator, I want to thank everyone for their interest and that is today and for being part of our earnings call. We hope you have a great week. Thank you.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
And then.
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