Q2 2021 Addus Homecare Corp Earnings Call
Yeah.
Good day, and thank you for standing by and welcome to the out of Homecare Corp, second quarter 2021 earnings conference call.
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And now I'd like to hand, the conference over to drew Anderson.
Please go ahead.
Good morning, and welcome to the out of his Homecare Corp. Second quarter 2021 earnings Conference call today's call is being recorded and the.
The extent any non-GAAP financial measure is discussed in today's call. You will also find the reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP.
The board going through 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 add as 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 average filings with the Securities and Exchange Commission and then its second quarter 2021 news release.
On sequentially actual operations and results may differ materially from the results discussed and 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 this time I would like to turn the call over to the company's Chairman and Chief Executive Officer, Mr. Dark Allison. Please go ahead Sir.
Thank you drew good morning, and thank you for joining us for our 2021 second quarter earnings call with me today are Brian Poff, Our Chief Financial Officer, and Brad Bickham, our President and Chief operating Officer.
As usual I will begin with some overall comments and and Brian will discuss the second quarter results in more detail.
Following our comments, we'd be happy to respond to any questions.
Yesterday, we announced our financial results for the second quarter of 2021, we continue to be proud of our solid operating performance as we have started to see our markets return to a more normal environment.
Our revenue for the second quarter of 2021 was.
$217.9 million as compared to $184.6 million for the second quarter of 2020 and increase of 18, 1%.
Adjusted earnings per diluted share for the second quarter of 2021 was 90 cents as compared to 73 cents for the second quarter of 2020 and increase of 23, 3%.
Our adjusted EBITDA for the second quarter of 'twenty the.
Second quarter of 'twenty, 'twenty, 1 was $24.3 million as compared to $18.7 million for the second quarter of 2020 and increase of 31%.
During the second quarter, we started to see the positive effects of the 350 billion and state aid, which came from the federal stimulus plan.
Our states and done a nice job and maintaining or in some cases, increasing receivable payments to add is leading to a very nice cash flow per the quarter and of cash balance at June 30 of approximately of $139 million.
Our largest state, Illinois as scheduled increase their statewide reimbursement rate on April 1 to cover the minimum wage increase which was effective and Chicago on July 1 of last year.
In addition, the state made this rate increase retroactive to January 1.2021.
For the approximate 60 per cent of our business, which is reimbursed directly by the state as opposed to through M. C. O's.
As we discussed on previous earning calls the minimum wage increases planned for Chicago have now come through and in the.
Final Chicago minimum wage increase of 1 dollar per hour.
Which takes the city's minimum wage to $15, what's the effective on July 1.2.
2021.
And the state of Illinois, and budget from fiscal 2020.2 and the state is budgeted to offset this recent July of first 2021, Chicago minimum wage increase with an additional statewide reimbursement rate increase which was originally to be effective January 1st.
2022.
However, with the receipt of the additional 10% of <unk>, which is currently in place from the earlier mentioned the stimulus Bill. The state has now requested approval from the federal government to accelerate this rate increased by 2 months, making it effective on November 1.2021.
We are grateful for this consideration by the state and expect approval from the federal government and the next few weeks. We are hopeful that other states will consider similar requests for use of the additional federal funding.
As far on New York City Pet business, which was discussed on our last call. We continue to await word on our formal protests concerning our non award and the provider selection process for the CD path program.
We anticipate hearing something from the state concerning this protest over the next few months.
And the meantime, we did file our response to the state of survey, which was created by the state to consider additional awards to providers for this program.
While we have no knowledge of when there will be a decision on additional awards. The state recently provided a timeline, stating that new contracts for winners of this program will not be effective until November 1.2021 at the earliest we continue to believe any changes that will affect us.
We'll most likely be and 2022.
With most of our locations returning to a more normal operating environment, we're starting to see improvements and our same store revenue.
Our same store revenue growth for our personal care segment increased as expected for the past quarter, partially due to the Illinois rate increase but also due to increasing volumes.
For the second quarter of 2021, our personal care same store revenue growth was 7.4% when compared to the second quarter of 2020.
Our previously announced same store revenue growth for personal care for our first quarter of this year was 2.4%.
However, adjusted for the recently announced Illinois retro payment for our direct state business, we would have experienced a 4.4% growth rate, which is the upper and more normal 3 to 5 per cent target.
We continue to be very pleased with the performance of this segment of our business in spite of the challenges we have faced over the last several quarters due to the pandemic.
Our ability to hire of caregivers and our personal care segment is also seeing improvements.
Our personal caregiver hires and our second quarter were approximately equal to the rate we were able to hire in our previous quarter, which was a marked improvement over the last 6 months of 2020.
While hiring continues to be a challenge for our team. We are pleased that we are making progress in this area with June being our highest hiring quarter soapbox month, so far in 2021.
As for our home Health segment, our same store revenue growth was 24, 7% as compared to the second quarter of 'twenty 'twenty and up from the flat year over year growth. We saw on the first quarter of this year.
Since the beginning of 2021, our home health admissions have increased steadily with this favorable trend continuing throughout our second quarter and into July.
A few weeks ago, we announced the pending acquisition of our motto of home health and hospice.
Effective August 1st we closed on this transaction, which more than doubled our revenues from our home health segment.
This acquisition helps to give us the increased coverage per our home health to capitalize on our strategy of fully covering the state of new Mexico with all 3 levels of home care that we offer we.
We are excited about the Armada team, joining our company and I want to welcome each of them to add us.
For the second quarter of 2021, our hospice same store revenue decreased 8.4% similar to the first quarter of this year.
However, we did see the same store admission growth, 12% over the second quarter, 2020, which should lead to higher census, as the year progresses.
While ADC has not yet returned to where we would like at the B, We did see nice growth and our ADC during July.
At the end of July our census was over 2000, and 550, which is the highest since we have seen and many months.
Our median length of stay which was 17 days and our first quarter of 2021 continues to improve with the medium length of stay and our second quarter of 2021, increasing to 19 days and our July of medium length of stay reaching 21 days.
Our Queen city operational how has grown from 890 at the time of acquisition to over 1008 in July and maintaining the positive experienced the positive momentum experienced in 2021.
We are also excited to see our other hospital markets, including New Mexico continued to make progress towards our growth expectations.
As you saw with our amount of acquisition, we continue to focus on acquisitions, which meet our goal of creating multiple markets of scale, where we provide all 3 levels of homecare.
For 2020.1 of our focus has primarily been in the personal care and home health segments of our business. However, we will continue to look at strategic opportunities and all 3 segments.
As we announced yesterday, we closed on the new $600 million revolving credit facility. We are excited to complete this process and are grateful to our bank partners, who stepped forward to support at us.
With our continued strong liquidity position, we have the ability and the desire to close additional strategic acquisitions during the next several months.
With the increasing focus on home care services as a result of the pandemic the acquisition landscape remains very competitive, particularly preclinical service providers of scale.
As we have demonstrated over the past few years, we will continue to focus on our strategy to pursue transactions that are accretive and that will bring revenue and operating synergies to add us.
While conditions related to the COVID-19 pandemic have improved in recent months and the United States as facts and nations have become more widely available. It continues to be impossible to predict the effect and ultimate impact of this pandemic on Atlas as the situation continues to evolve.
Our team is continuing to monitor the COVID-19 dealt the buyer variant and the recent uptick and Covid cases.
This past 15 months have shown the value of taking care of elderly and disabled consumers and patients and their homes and as such we have invested and planning preparation and materials to assist us and fulfilling our role as we monitor these developments.
We firmly believe that the pandemic has raised the awareness for the value of our industry. The bag of our industry provides and will continue to be and opportunity for growth for our company.
However, our operations and resulting growth are dependent on our dedicated caregivers, who work so hard providing outstanding care and support to our consumers patients and their families I am thankful for each of our team members and I'm proud of the job. They have done in the past 15 months and continue to do each day.
It is important that each of us focused on achieving our mission by putting our patients first.
With that let me turn the call over to Brian.
Thank you Derek and good morning, everyone out of.
And another strong financial performance and the second quarter of 2021 with consistent profitable growth and continued improvement and volume trends across all of our operating segments for the personal care and home health exceeding the organic growth targets and our hospice segment experiencing solid admissions of sequential growth and sensus.
As Dirk noted total net service revenues for the second quarter were $217.9 million.
The revenue breakdown is as follows.
Personal care revenues were $176.3 million or 89% of revenue.
Hospice care revenues were $36.9 million or 16, 9% of revenue. These results include. The addition of Queen City, Hospice, and Ohio, which closed at the end of 2020.
Home health revenues were $4.7 million or 2.2 percentage of revenue.
Included in our results or the incremental benefits of the 4 acquisitions, we completed and the second half of 2023 and personal care and 1 on hospice, which totaled approximately $84 million of annualized revenue.
We also closed on our motto of home health and Hospice acquisition and New Mexico on August 1 with $23 million of annualized revenues and look forward of completing additional acquisitions that meet our strategic criteria.
Our gross margin percentage was 31, 6% and increase from 29, 8% from the second quarter of last year, largely attributable to the higher mix of clinical services and up from 29, 8% sequentially from the first quarter as we saw the positive impact of the most recent reimbursement increase in Illinois.
Similar to our recent past experience, we anticipate our gross margin to be negatively impacted by approximately 40 basis points from the third quarter by the last schedule and increase in Chicago and minimum wage that was effective on July 1 with the offsetting the state reimbursement increase currently scheduled for January 1.2022, we are hopeful however that the.
The states request for federal approval to accelerate the statewide reimbursement increase on November 1 will be granted.
G&A expense was 22, 1 percentage of revenue a decrease from 23% and the second quarter last year.
Adjusted G&A expense was 20% of revenue essentially flat from the same period last year and a decrease of 40 basis points sequentially from the first quarter.
The company's adjusted EBITDA increased to $24.3 million for the second quarter of 2021 compared to $18.7 million and the second quarter of 2020.
Adjusted EBITDA margin was 11, 2% compared with 10, 1% from the second quarter of 2020, and an increase sequentially from 9.4% and the first quarter.
Adjusted net income per diluted share was <unk> 96.
The adjusted per share results for the second quarter of 2021 excludes the following.
The impact of the retroactive, Illinois rate increase of 7 and acquisition.
The acquisition and de Novo expenses of 11.
Restructuring and other costs of 2 cents and.
And noncash stock based compensation of 12 zone.
Our adjusted per share results from the second quarter of 2020, excluding loss on sale of assets of 2 <unk>.
COVID-19 expenses net of 1 set of acquisition expenses of 9.
And the other costs of 12.
And noncash stock based compensation of 6 assets.
Our effective tax rate for the second quarter of 2021 was 26, 7% within the range of our expectation for the full year 2021, we expect the tax rate and the mid 20 per cent range.
Dsos were $56.9 days at the end of the second quarter of 2021, compared with 68 days at the end of the first quarter as.
As expected we saw strong collections from the Illinois Department of aging with their DSO of 42.7 days at the end of the second quarter of 2021.
Our second quarter net cash provided by operations totaled $15 million. However, during the quarter. We also utilized approximately $12.3 million and government stimulus funds and we had previously received which without add us making these payments our cash flow from operations would have been $27.3 million of.
June 32021, the company had cash on hand of $139.4 million of $196.1 million of bank debt and $112.8 million and availability under our revolver.
As noted in our press release, we executed on a new senior secured credit facility effective July 32021 that expands our revolving credit facility to $600 million from $300 million with no term loans.
The agreement has an accordion feature of that enables the credit facility to the expanded by an incremental $125 million for funding acquisitions and <unk>.
Charity of the new facility has also been extended by an additional 3 years to July 2026.
Capital 1 National Association of acted as lead agent for our Bank group and we appreciate the continued support of all of our lenders.
With this new facility and place our current availability under our revolver increased immediately by an additional $19 million and further enhances our well capitalized balance sheet, allowing us to continue to pursue our acquisition strategy.
We feel confident <unk> is well positioned to continue to be 1 of the leaders and the industry and we're looking forward to our opportunities for the remainder of 2021 and the us.
This concludes our prepared comments this morning, and thank you for being with us on that.
Ask the operator to please open the line for your questions.
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Your first question comes from the line of Matt Borsch with BMO capital markets.
Yes. Good morning, I was hoping maybe you could talk a little bit more about the competition.
Competition for acquisitions.
I think it was most intense and the hospice area of previously and so now perhaps seats.
Most intense on the home health side can you characterize who you are.
What types of organizations Youre competing against the most and if I could ask the question also.
Can you reveal if there and inquiries about AD is being acquired by some.
Some of the organizations.
Well Matthew on the started off with the hard ones of day did you.
[laughter].
And you know as we look at acquisitions certainly this year as we said earlier, we've been focused most on personal care and home health, Although we will look at hospice as if it's strategic you know and 1 of the things we found their number of companies out there.
And that are looking for deals.
If you go back up.
Over the last few months, you've seen a lot of our larger competitors have of acquired companies. There's also been private equity firms out there that are acquired companies and so you know as we look at it this.
And this is a market is going is attractive the pandemic has proven and homecare makes a lot of sense and I think of lot of people are wanting to get into this business or get bigger.
The 1 thing that I want to emphasize is that we are going to maintain our discipline to be strategic and to look at deals that are accretive to our company.
We will constantly look at opportunities in those major markets that we have talked about in the past the 5 or 6 markets, where we want to continue to build like new Mexico, where we want to continue to build 3 levels of care and.
And we will be obviously aggressive and those markets with the if it's of various strategic acquisition, but we also realize that some people are willing to pay more than we are and at that point, we want to maintain our discipline.
As it relates to your last part of the question.
And it's just not for sale hasn't been per sale and we are not in any way talking with anybody about that.
Alright, alright. Thank you. Thank you.
Your next question comes from the line of Scott Fidel with Stephens.
Hi.
Good morning, everyone.
The first question just.
I appreciate the update around some of the enhanced achmat funds and it looks like visibility starting to come in and in terms of what you called out with potentially of faster update in November on on the Illinois.
The rate increase that was scheduled for January just interesting that as you're looking across the other states as well in terms of your other key personal care markets just any type of.
Visibility or indications that you are getting at this point in terms of how some of those enhanced F map funds from our and they start to flow through into the personal care business.
Yeah, I think what we're seeing and and again a lot of states are still and the planning stage I think there is kind of on underlying thing that most states are not trying to add long term new long term plans that would require funding once the F. Matt dollars go away as you know the fact that dollars are match free.
The year the states have 3 years of which to use those funds.
States I think are doing what looking like what Illinois idea of Illinois already had a rate increase planned.
And what they decided to do was use partial funds to move that forward 60 days I think you will see things along those lines being considered and other states, but at this point and time.
There's no cash.
Concrete plans that we're aware of and other states and we could talk to you about today.
Okay.
And then next question just on.
Brian you called out the the expected impact sequentially and <unk> just from the Chicago minimum wage going into effect.
Would be helpful. If you maybe wanted to just.
Bring it up to the higher level in terms of thinking on the EBITDA margin progression.
For the 3 Q and then into <unk>.
And then how that may shake out and when looking at the full year now.
After after having reported the second quarter results, how youre thinking about full year EBITDA margin against that long term, 10% plus target.
Yes got it I think it'll just looking back real quickly I mean 2020 was the per share that we had of full year over 10%, which we had talked about a few years ago kind of b and our target I think we're pretty happy getting into the second quarter of this year and being ahead of 11% and we usually have a lower first quarter as we saw as a result of payroll taxes and the like the reset so we're seeing some relief there.
Additional incremental leverage off of our clinical business of adding our motto is definitely going to health from a margin perspective in Q3 to help offset a little bit of what we'll see from the headwind and the Illinois minimum wage increase and Chicago, if they're able to pull forward of the statewide increase on November 1st I think we'll see a nice impact in Q4 I think of as you guys are aware typically with that.
And that increase we see you know 20 plus million and new revenue statewide.
With the corresponding costs, but a nice margin attached to it. So you know I think our thought process of looking at the full year of 2021 compared to 2020, we definitely see ourselves coming in with a higher bottom line margin percentage and we saw last year on continued growth and continued expansion and so with our strategy that we have of adding clinical services, where it makes sense strategically.
Continues to grow and get leverage off of our G&A I think we would expect to see continued expansion on the bottom line as well into the future.
Got it and if I could just flip the follow up on on that on the EBITDA margin side.
Just as we now roll and the Armada deal, which closed into the model.
All of you could give us on I know you talked about that being immediately accretive financially.
And how we should think about the EBITDA margin profile on that or incremental EPS, just just trying to model, but the margin side and on our armada correctly and thats it from a cash.
Yeah, Yeah on a lot of it is 23 million annualized revenue so with the coming in for 2 months and Q3, and then you'll see the full Q4 and the margin per vial, it's primarily home health a little bit of hospice number of primarily home health of those gross margins are on a nice for us at 40 plus percent.
The margin is going to be somewhere and that kind of mid teen range as well.
Thanks.
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Your next question comes from the line of Brian 10 kill it with Jefferies.
Hey, good morning, guys, Jack 5 and on for Brian and congrats on a strong quarter.
I think we wanted to and I appreciate all of the commentary I wanted to take a look at the <unk>.
Labor side of things and and personal care I guess, just any updates you have on perhaps what.
And the pull through from your recruitment efforts and May June July have been and kind of expectations for topline growth has.
As some of those unemployment of elevated unemployment benefits roll off as we get into the back half of the year.
Yeah. This is Brad I'll start with the talking about the kind of candidate flow of Hussein.
And you know April may are little slower June was a really good month for us from both the candidate flow and of hiring standpoint.
On July numbers actually look good as well.
No I think what we're seeing on personal care is.
And as these unemployment benefits are starting to of the enhanced benefits are starting to phase out and various states and then.
Early September entirely.
Youre starting to see people try to get ahead of that and start applying for jobs.
<unk> by the increase of the candidate flow.
I think at the bode well for us.
The consistent hiring.
The as far as on the yield the growth trajectory I mean, I think we've said you know the the 3% to 5 per cent of the long term goal and we'll be at the higher end of that range, we expect though and Q3.
Got it that's helpful and then.
On on the hospice business, obviously, I think the the challenges are well digest and understand and the market, but could you just give a sense of of where you're at like maybe July trends on median length of stay and and average length of stay and how you guys are thinking about.
<unk> ADC tracking through the back half of the year.
Yeah, its bragging on the hospice side I mean, what would have been pleased that when we look at where we were at a kind of low point in January we of has seen a steady increase and median length of stay and the steady increase and ADC. Each month and that has continued through July as well and I think you know.
July median length of stay is 21 days. If you remember recall are back on the low point was in January of 15 days. So we're adding you know of about a day of month, you know and I think heading back up towards our normalized kind of mid to upper Twenty's on the median length of stay which we anticipate the.
We will get there kind of the we certainly have said the back half of the year and it looks like that trend is continuing.
Got it Okay, and then last 1 from me on some of the Medicare advantage pilots I. Appreciate that's probably you know you don't have to too much data left or are collected at this point excuse me.
But have you seen any uptick in payers that are interested and running more Medicare advantage pilots and the core personal care business or <unk> or anything there I think we're hearing a lot of chatter on the payer side of about <unk>.
And non medical determinants of health and social determinants of health and you know those kind of buzzwords are picking up and use and so just wanted to kind of hear your thoughts on what the landscape looks like there and how we could think about the opportunity set rolling forward and a couple of years.
Yes, the we.
And have seen increased interest from a number of our payers and putting together a pilot programs to try to determine the effectiveness of our personal care and inside of say of Medicare advantage program or a managed Medicaid program and.
In fact, we're working on a number of other pilots and we hope to announce over the next few months and to the point that were pretty busy. So I would say long term it bodes very well I think the in the interim and what we have to do a number of our programs are designed to.
Give us the information and to work with our payers on whether it be GAAP closures of whether it'd be on clinical measures such as the ER visits and Readmissions and as we get that data and and we're hopeful that we're starting to see some of that data and now as we get that data and if it continue.
Continues to be.
And B, what we expect it to be then we would think long term, we would be able to show Medicare advantage plans that are incorporating non clinical care into their offering a week and overall affect their cost of care. So we're excited about the future, but it's going to take some time and it's not going to happen overnight. There's a lot of these pilots are just starting but we're excited about the interest.
We're seeing.
Awesome, that's it from me, thanks, again, and the and congrats.
Thanks.
Your next question comes from the line up and Mitra of Ma'am go Paul with Sidoti.
Yes, hi, good morning, Thanks for taking the questions.
Had a 2 part question on the Labor front first if maybe you can give us an update in terms of the progress you've made.
Cutting vaccines are among the caregivers and secondly, if I'm.
Net with the.
Surge in the Delta variance et cetera, that's happened and the impact in both the recruiting and the ability to also bring on new business.
Mitra this is Brad.
And then on the vaccination front of.
Honestly, we're not where we'd like to be overall, we're at about the 30.
And 35% overall, however on the skilled side is considerably higher we're actually 60 plus percent on the home health side and almost 60% on the hospice side, we're continuing our efforts to educate our caregivers on the benefits of being vaccinated, but it's an ongoing process and certainly more challenging.
Gene with the personal care workforce that is.
Largely part time workers, so just trying to get those individuals.
Vaccinated and also getting you know honestly good data on that I mean, I think of that 35 per cent is fully vaccinated employees.
And it is a little more challenging to pull of the numbers through and I suspect. The number is actually higher than that and then what we're saying with respect to the delta variance I really haven't seen an impact yet.
From the Delta variant either from the <unk>.
Standpoint of referral volumes or from and.
<unk> 4 and teams.
Or from the.
Affecting the hiring trends yet so it's something we're certainly mindful of and certainly keeping an eye on but right now havent seen anything.
Serial impact on our numbers.
Okay, and thanks for that and just a quick question on the M&A front just curious in terms of the valuations you are seeing today, maybe relative to a year ago. If it's there's been a significant change and also just the competitive environment for acquisitions. If that's also.
<unk> got some of them.
On a little more difficult.
Let me try I think you know it's been a value.
From front, I think and personal care and we really haven't seen much of a change there I think the on the skilled side with a lot of the folks that are trying to kind of enter into the market that we've seen the dirt was referencing earlier, whether it be through private equity or otherwise of definitely that's driven some competition up there so for anything of size and scale and quality of the things you've seen a little bit of a higher multiple being paid.
And particularly it seems and hospice I think you know of home health, we haven't seen that impact as much. So I think from our perspective, it's an attractive space for a lot of individuals' is very competitive you get into brokered process and there's going to be competitive.
As we've said I think of a couple of times, where we're doing our best to try to do our own sourcing as well Detroit and maybe avoid some of the situations and not be forced into situations, where it's a higher.
Higher price auction and that kind of be and along with our strategy of making sure. We're getting good assets that are accretive.
And for Edison per our shareholders and I think we've got good opportunities to continue to close those type of deals.
Okay. Thanks for taking the questions.
Thanks Richard.
At this time there are no further questions I would now like to turn the call back over to Mr. Dirk Allison.
Thank you operator, thank you everyone for your interest and <unk> and for being part of our call. Today Hope you have a great week.
Yeah.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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