Q3 2021 Addus Homecare Corp Earnings Call

November 2, 2021

Okay.

Good day, and thank you for standing by and welcome to the added Homecare third quarter 2021 earnings conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone keypad.

Please be advised that today's conference is being recorded if you require assistance during the conference. Please press Star Zero I would now like to hand, the conference over to drew Anderson. Please go ahead.

Thank you good morning, and welcome to the AD is home care third quarter 2021 earnings Conference call.

To the extent any non-GAAP financial measure is discussed in today's call. You will also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP by going to the company's website and reviewing yesterday's news release.

This conference call May also contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

Including statements among others regarding added 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 alike are intended to identify forward looking statements.

You are hereby cautioned that these statements maybe affected by important factors among others set.

Fourth and add his filings with the Securities and Exchange Commission and in its third 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.

I would now 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 welcome to our 2021 third quarter earnings call.

With me today are Brian Poff, our Chief Financial Officer, and Brad Bickham, our President and Chief operating Officer.

As is our custom I will begin with a few overall comments and then Brian will discuss the third 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 third quarter of 2021, and we are proud of our operating performance.

Our team was able to produce record results in the quarter. Despite certain pressures from the current operating environment that I will discuss.

Our revenue for the third quarter of 2021 was $216 $7 million as compared to $194 million for the third quarter of 2020, an increase of 11, 7%.

Adjusted earnings per diluted share for the third quarter of 2021 were 91 cents as compared to 76 cents for the third quarter of 2020, an increase of $19 seven.

Our adjusted EBITDA for the third quarter, 2021 was $24 9 million as compared to $19 5 million for the third quarter of 2020, an increase of 27, 4%.

During the third quarter, we continued to see the positive effect of the $350 billion in state aid, which came from the most recent federal stimulus payment plan as our states have done a nice job in maintaining and in some cases increasing.

Outstanding accounts receivable payments to add is leading to a strong cash flow quarter and our cash balance at September 30 of approximately $152 million.

Over the past few years I have discussed the minimum wage increases, which had which were occurring in Chicago.

These annual minimum wage increases have now been fully implemented.

The final Chicago minimum wage increase of one dollar per hour, which takes the city's minimum wage to $15 was effective on July one 2021.

It is important to note that this cost increase is reflected in our third quarter results without a corresponding reimbursement rate increase which had a negative effect on our operating margin.

As we told you during our last earnings call. The state of Illinois budget for the fiscal year 2022 planned to offset the Chicago minimum wage increase with an additional statewide reimbursement rate increase.

Which was to be effective January 1st 2022.

However, with its receipt of the additional 10% F match funding for the previously mentioned stimulus Bill.

The state has requested approval from CMS to accelerate this rate increased by two months, making it effective November one two.

2021, and appear confident that they will receive approval for our November 1st increase.

This rate increase will cover the entire state of Illinois, and positively impact our fourth quarter financial results.

Several other states have requested approval from CMS for changes to their home and community based service programs utilizing the additional federal from funds from the 10% F map.

Many of these request include proposed reimbursement rate increases for our services.

We hope to see these requests approved by CMS in the near future and to learn more about the specific reimbursement rate increases included in those requests.

Along with our positive operating trends, we saw some near term pressure related to other developments that impacted our third quarter financial results.

Our ability to continue our New York consumer directed business as we discussed on our last call remains uncertain as 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, although no official time table has been released.

In the meantime, we filed our response to the state's follow up survey, which was created by the state to consider additional awards to providers for this program.

While we continue to await a decision on any additional awards, we have stopped accepting most new referrals for the New York City Pep program due to the uncertainty of continuity and negative reimbursement changes for a portion of our business that was already one of our lowest margin contracts.

As a result of the Covid impact and our attention will approach to the New York C. D path over the past 12 months, we have seen our revenue in this program decreased from an annualized run rate of approximately $52 million as of the third quarter of 2020.

To approximately $44 million as of the end of our third quarter of 2021.

We expect our revenues from the New York City path to continue to decline in the absence of changes to the existing status as we continue to limit new referrals.

Our third quarter results were also modestly impacted by an increase in the number of caregivers in quarantine.

Due to the surge in Covid infections, resulting from the Delta variance.

While the impact of this most recent surge in the Covid virus was not as significant as the one we saw during the fourth quarter of 2020, we did see an increasing number of missed visits due to Carlos.

These call offs peaked in September and steadily decrease through the month of October.

These call offs had an immaterial effect on our third quarter revenues.

Yeah.

While there was no impact to our third quarter results. Another challenge that we like most companies face today is the issue concerning vaccinations.

As many of you know the federal government has proposed that all health care employees, whose businesses operate under a condition of participation with Medicare or Medicaid.

Must be vaccinated.

This proposed vaccination mandate would cover our home health and hospice segments.

In addition, New York, Delaware and the city of Philadelphia has mandated that all health care company, including personal care.

Must ensure that their employees in those markets are vaccinated.

Companies like Arris are also operating under the potential of an osha requirement that all employers with 100 or more employees must mandates that their employees be vaccinated.

These various city and state mandates as well as the potential of federal mandates make it imperative that we focus on getting as many of our employees vaccinated as possible.

While that is not mandated vaccines for our employees, we have taken a number of steps to strongly encourage our employees to get COVID-19 vaccine.

Over the past few months, we have implemented a number of initiatives designed to increase the vaccination rate of our employees.

These include a stipend for getting vaccinated.

And ongoing communication program centered around the same a be a hero, which includes videos with corporate leadership and board members as well as written communications with stories of caregivers, who have received the vaccine.

And now a program that provides price opportunities are vaccinated employees.

These efforts have been effective as we have seen our vaccination rates continued to increase.

With New York being our largest market with the current vaccine mandate. It has been a priority to get our employees vaccinated and to track vaccination status.

Our dispersed workforce makes this process more challenging but adds up today, we have confirmed that roughly 93% of our New York caregivers have now been fully vaccinated all received their first dose of a two shot regimen.

We are very pleased with this response from our employees, but we also realize that all markets may not embraced a mandate like they have in New York.

While vaccine mandates are a potential issue paradis, we are pleased in the progress we are seeing.

Overall, our confirmed explanation percentages or 79% vaccinated in home health set.

71% vaccinated in hospice and 56% vaccinated.

<unk> care.

Based on our experience with our New York Caregivers. We believe these numbers could be understated by some amount based on incomplete information.

We are still working to ascertain vaccination status for all employees, which is an ongoing process, particularly with our dispersed personal caregivers.

As of today, we have not seen any material effect on our revenues due to these various mandates and we continue our efforts to be well positioned to adhere to any future mandates implemented as they occur.

A critical item for our personal care organic growth is the ability to hire new caregivers.

A tightening labor market had some effect on our growth in certain markets, and particularly Oregon, Idaho and Tennessee.

Many segments of the economy are seeing labor shortages, which may continue and may be more severe in some areas of the country.

However, our overall hiring in our personal care segment continues to see improvement we.

We saw solid growth in our highest per business day during the third quarter in our personal care segment with September being our best hiring month of 2021.

This favorable hiring trend continued into the month of October.

Our personal caregiver hires in our third quarter were up slightly over the third quarter of the prior year and a five 8% and up five 8% on a sequential basis with most of the increase occurring in September.

Now, let me discuss our revenue growth in our various operating segments.

Our same store revenue growth for our personal care operations exclusive of the New York City back program was 4% when compared to the third quarter of 2020.

This growth is within our range of expectations for our personal care segment.

With our upcoming Illinois rate increase we expect to be at the high end of this rate of growth over our next few quarters.

We are 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.

As for our home Health segment. This segment of our company has continued its strong performance.

During our third quarter of 2021, our same store revenue growth was 24, 8%.

Since the beginning of 2021 our home health admissions have increased steadily with this favorable trend continuing throughout the third quarter.

We are excited about our home health operation and will continue to focus our efforts on expanding this part of our kind of thing.

On our last earnings call, we discussed our belief that we would start to see a steady growth in our hospice ADC during the last half of 2021.

With strong hospice admissions since the beginning of the year, we believe that a corresponding increase in our ADC would come.

We are pleased to see the beginnings of this growth and our third quarter hospice results.

While our hospice same store revenue decreased four 8% over a strong third quarter in 2020. It was an approximate 400 basis point improvement over our second quarter same store growth.

As we saw in the second quarter of this year, our same store admissions continue to be strong growing 22, 3% over the third quarter of 2020, and 14, 5% on a sequential quarterly basis.

This should continue to lead to higher census, as the year progresses.

Our hospice ADC grew to 2000 and 629 for the third quarter of 2021 as compared to an ADC of 2000 and 460 for the second quarter of this year.

This improvement is consistent with our expectation of seeing our hospice census gradually improve over the last half of 2021 as our median length of stay also continues to improve from our low point in January of this year.

We are also seeing an improvement in our hospice volumes in both ALS and snaps both of which have been slower to return than census outside of the facility setting.

In July we announced the acquisition of our motto home health and hospice.

Fact, they've October one we closed on our acquisition of summit home health or home health provider in Illinois.

This represents our entry into clinical services, and Illinois, our largest state of personal care services.

This is consistent with our strategy of adding clinical care to our personal care markets.

We are excited about our motto home health and hospice as well as some at home health being a part of our company and I want to welcome all of our new team members to the <unk> family.

As you saw with both of these purchases we continue to focus our acquisitions on acquisitions, which meet our goal of creating multiple markets, where we provide all three levels of homecare.

We will continue to look at opportunities in all three segments with a focus on acquiring services in markets, where we have strong personal care coverage.

This past 18 months has shown the value of taking care of elderly and disabled consumers and patients in their homes during the pandemic.

We have invested in planning preparations and materials to assist us in safely fulfilling our role as we continue to monitor developments related to the pandemic and changes in the home care industry.

We believe the pandemic has raised awareness about the value of our interest our value our value our industry provides.

And we will continue to be a growth opportunity for our company.

But 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 one of our team members and I am proud of the job. They have done in the past 18 months and continue to do each day.

It is important that each of us focus on achieving our mission by putting our patients first.

With that let me turn the call over to Brian.

Thank you Dirk and good morning, everyone.

I just had a record financial performance for the third quarter of 2021 with consistent profitable growth and solid volume trends we.

We saw strong organic growth in both personal care and home health with continued improvement in hospice as we expected.

With sequential growth in hospice admissions and average daily census, and median length of stay we anticipate a return to positive year over year organic growth in that segment by the end of 2021.

As Derek noted total net service revenues for the third quarter were $216 $7 million up sequentially from $214 9 million in the second quarter when adjusting for the out of period, Illinois retro rate increase that was included in our second quarter results.

The revenue breakdown for the third quarter is as follows.

Personal care revenues were $169 $6 million or <unk> 78, 3% of revenue an increase from $165 $9 million in the prior year quarter.

Hospice care revenues were $39 $1 million or 18% of revenue an increase from $24 million in the third quarter of 2020.

In home health revenues were $8 million or three 7% of revenue an increase from $4 $1 million in the prior year.

As Dirk mentioned, we decided to suspend materially all new referrals in our New York Consumer directed program due to the continued uncertainty of the program.

When excluding the New York consumer directed revenues, our same store revenue growth in personal care was 4% consistent with our expectation and within our target range of 3% to 5% and in spite of modest pressures during the quarter from the Delta variant and a tightening labor market.

Home health organic growth in the third quarter was 24, 8% over the prior year with strong admission trends.

Our hospice organic growth deficit is improving down four 8% for the third quarter of 2021 put in approximately 400 basis point improvement sequentially from the second quarter.

Our home health and hospice revenues during the quarter both benefited from the acquisition of Armada home Health Hospice, which was completed on August one we.

We look forward to a full quarter contribution from Armada and both of these segments in the fourth quarter.

Together with the recently completed some of the home health acquisition in Chicago, We have added combined total annualized revenue of approximately $3 million so far in 2021.

We continue to evaluate and pursue other acquisition opportunities we have several projects in our pipeline that meet our criteria, but primarily in clinical services.

Other financial results for the third quarter of 2021 include the following.

Our gross margin percentage was 39% an increase from 29% for the third quarter of last year largely attributable to our growing mix of clinical services. This was a decrease sequentially from 31, 6% in the second quarter of 2021 as we saw the impact from the final increment of minimum wage increase in Chicago.

<unk> negatively impacted our gross margin.

Because we have not yet received a corresponding reimbursement increase.

With the state of Illinois application to advance their previously scheduled reimbursement increase from January one 2022 to November one 2021, we'd expect to see the benefit from this state what increase in the fourth quarter.

G&A expense was 21, 4% of revenue a slight increase from 21% of revenue a year ago and lower sequentially from 22, 1% in the second quarter with lower acquisition and stock compensation expenses.

Adjusted G&A expense was 19, 5% up slightly from 19% for the same period in the prior year on a higher mix of clinical services with a higher G&A profile. However, adjusted G&A expense was lower sequentially from 20% in the second quarter.

The company's adjusted EBITDA increased $24 $9 million for the third quarter of 2021 compared to $19 $5 million in the third quarter of 2020 adjusted.

Adjusted EBITDA margin was 11, 5% compared with 10, 1% for the third quarter of 2020, and an increase sequentially from 11, 2% in the second quarter.

Adjusted net income per diluted share was <unk> 91 sets the <unk>.

Adjusted per share results for the third quarter of 2021 exclude the following acquisitions.

Acquisitions and de Novo expenses of <unk> and.

Noncash stock based compensation of 11 stuff.

The adjusted per share results for the third quarter of 2020 exclude the following co.

COVID-19 expensive too.

Acquisitions and de Novo expenses of two <unk>.

Restructuring and other costs of <unk>.

Noncash stock based compensation of seven sites.

Our tax rate for the third quarter of 2021 was 26, 6% within the range of our expectation for the full calendar 2021, we continue to expect a tax rate in the mid 20% range.

Dsos were $52 nine days at the end of the third quarter of 2021, compared with $56 nine days at the end of the second quarter. We continued to see consistent payments from the majority of our payers, including another strong cash collection quarter from the Illinois Department of aging.

Those were down to 36 four days at the end of the third quarter of 2021.

We continue to see strong cash flows with our third quarter net cash provided by operations totaling $17 $6 million.

Timber 32021, the company had cash on hand of $152 $4 million with $224 $9 million of bank debt.

Under our recently expanded revolver at the end of the third quarter, we had capacity and availability of $367 million and $123 $8 million, respectively, and remain well positioned to execute on our acquisition strategy.

This concludes our prepared comments this morning, and we'd like to thank you for all being with US I'll now ask the operator to please open the line for your questions.

Thank you as a reminder to ask a question you will need to press star one on your telephone keypad to withdraw your question press the pound key.

Our first question comes from the line of Matt Borsch with BMO capital. Your line is open.

Yes.

Impressive results, particularly given all.

All of these circumstances.

Yeah, Let me ask you about M&A.

M&A pipeline and how that may be changing given what we've been going through here and to the extent you can comment at all about what kind of.

Valuations are prevailing and how that may have changed.

Particularly interested in the hospice side, where for a wildly evaluation and maybe this is still the case or have been quite elevated.

Yeah, Matt I think what we're seeing currently in the pipeline I think our valuation range is really haven't moved from the projects that we'd been working on and I think we still have several things that we would like to continue to progress, but as you know were being very selective in what we're looking to acquire both from a valuation standpoint, but also a good fit.

<unk> with where we have overlap.

Our service lines. So I think we feel still pretty positive about what we're looking at today haven't seen valuations move I will say you know I think we've seen probably a little bit of a slowdown and maybe things coming to market through brokered processes. I think 2345 months ago. There was quite a bit more activity, we are seeing a little bit less activity.

In that regard over the last couple of months.

Okay great.

And are you.

To emphasize the home care side of the business just given.

Did that remains a fairly small percentage of your overall revenue.

Yeah, I think we definitely like we've indicated this is the last couple of quarters as well our focus has been on trying to add clinical services, where we have significant personal care asset. So I think thats still is consistent with what we're looking at today in home skilled home health is obviously a much smaller portion of our business. So we were happy to bring on summit This last quarter, which gives us our first clinics.

Services in Illinois, It was a small acquisition.

But I think that's been really well with with Chicago, which is our largest personal care market. So where we can continue to replicate that type of acquisitions to be sure we definitely would like to.

If we can get a little more size and scale definitely there's always preferred as well.

Alright, thank you.

Thank you. Our next question comes from the line of Scott Fidel with Stephens. Your line is open.

Hi, Thanks, and good morning, all interested if you could maybe give us a little.

Fox and then on the headwinds and tailwind is just in terms of thinking about modeling revenues and in margin sequentially.

Just thinking about in the last couple of quarters. It seemed like the street has probably been a little bit aggressive on the revenue side and a little bit conservative on the margin side. So trying to get in front of that a little bit here and I understand you don't provide formal guidance, but maybe giving us some framework to think about sequentially for <unk> relative to <unk>.

Yes, Scott I think looking ahead to the fourth quarter, obviously with the Illinois rate increase coming on board in November, which we expect to get full approval on that from CMS or the state to get full approval I'm sorry, very shortly obviously, that's going to be a benefit not just revenue, but also to margin as we've taken the impact of the Chicago minimum wage increase keep in mind, we will give all of our non.

Workers, an increase at the same time, we get the rate increase but so it would be a benefit for us in Q4. So I think your point is well taken looking at Q3 as kind of a baseline move into Q4, especially from the top line and revenue expectation. We've seen consistent sequential growth I think we would expect to see that continuing into Q4, we'll benefit from.

One extra month of our moderate in Q4, and some of which is the small acquisition, we did up in Chicago.

But thinking about it from a margin perspective, we should see the benefit of Illinois, particularly in Q4. If you look forward into 2022, especially in Q1 with reset of payroll taxes, you've got potentially the Medicare sequester holiday season at the end of the year, probably would expect to see some of that rationalize in Q1.

Got it thanks.

Then just as my follow up question just to get back on to CD path and the situation there and I. Appreciate you calling out the annualized revenue contribution that is helpful.

That's still a bit tricky I think for all of us in terms of what to do with that contract in our models at this point and whether to keep it in or not.

So not asking you what would you do on our with our models there, but if you could give us some insight I guess into sort of where you think things are set from a timing perspective at this point and I.

I know you mentioned that it's a much lower margin on that contract, but if you weren't able to glean out even more specifically what you think the annualized EBITDA contribution is from CD path I think that would be helpful for us to try to ring fence if that contract. They go offline.

Yeah.

You know honestly Scott as we look at what's going to happen, but to see back program at least in our mind, we're going to continue.

To limit new referrals into that program we're concerned.

Not only about our ability to continue in that program because of a contract but also the profitability of that as the state has come out with and lowered the reimbursement for that particular program. So we have continued as you will see since the last year, we started right out about a year ago starting to limit that.

Those referrals were down almost $10 million in revenue to around 44 million annualized today, you should see that continue to decrease at a similar rate over the next year, the only change would be.

You know if the state came through.

<unk> contract and adjusted their rates, so that going forward providers in that particular program can actually.

Our return.

Then we would consider continuing to service new clients, but right now we will continue to see that decrease as far as the margin.

Yeah, I think Scott I think to <unk> point, you know timing is going to be probably something we don't have a lot of insight into your unfortunately right now I think the state has not really come forward with any kind of a set timetable. So I think we had said a.

A few months ago.

Kind of put out this potential for November one period of starting at a transfer of patients I think we will a dubious of that even at the time.

<unk> seen that come to fruition, so hard for us to put a box around when will we see the transition assuming that we did not stay in the program through one of the various methods that are described in his comments earlier I think from a margin perspective, we're down to a $44 million in annualized revenue. Our margins. There are they kind of that mid to upper single digit range. So it was a pretty low maher.

Contract so.

Not material for us and as that continues to kind of trail off I think even continues to lessen the exposure.

Okay. That's helpful. Thanks.

Thank you. Our next question comes from the line of Frank Morgan with RBC capital markets. Your line is open.

Good morning.

I was hoping we could kind of go back to the sort of the what youre seeing in terms of momentum exiting the quarter. I think you gave a little bit of commentary about hospice, but if you look across all three of the segments, maybe what youre seeing so far in the year.

And I guess.

Also curious on the hospice side since that's the one that's been sort of the drag is maybe more color specifically on the recovery in that mix of sniff and Alpha pools. That's my first question.

Yeah, Hey, Brian This is Brad with respect to kind of where we stand in the various segments exiting the quarter was encouraging on the personal care side. It was probably impacted the most from a COVID-19 standpoint with corn team employees. We started seeing those numbers decrease towards the end of September and that's continued into October.

<unk> also kind of a driver as our hiring metrics, which have been strong September.

It was actually our strongest hiring them up not just this year, but actually the strongest over the last two years.

I don't know if thats, a reflection of some of the stim.

Stimulus money coming to an end with respect to the enhanced unemployment benefits, but the timing seems to match up with.

With respect to it and then just sort of lay that October hiring trends have actually been pretty favorable there as well and we still continue to see robust demand for our services.

With respect to home Health home Health has been just chugging along and so we've had some really good quarters I anticipate and of course, the comps are going to start getting a little more challenging because of all the growth that we've had this year, but optimistic that that's going to continue traditionally on the home health side kind of you know as you get later in the year.

Year, a lot of people going to probably use surgeries and stuff to use up any deduct or any.

Any deductibles that they have under their plans go ahead and get them out taking care of this year. So you'll see a pick up kind of late Q4, and then into Q1, there with respect to hospice, we've actually seen a.

A couple of things going on since January of this year, you know we bottomed out on our median length of stay we've seen nice sequential increases in our medium length of stay is not quite up to the mid twenty's, yet, but around 2021 days of October it looks like we may have picked up about a day there as well so.

Seeing some of that and continuing to see some good admission volume now, we'll say hospice in Q4 around the holidays things slow down a little bit.

Pick up again in Q1.

As far as the mix, we have seen actually a pickup in both ALS and nursing homes. We started seeing in the Smith volume pickup last quarter. This quarter, we actually start to see in the ILS pick up as well. So we're still not back to what are kind of pre pandemic makes it and I think that's going to take some time with facility.

Occupancy levels, increasing but certainly it started seeing a nice pick up there.

Got you and maybe as a follow up in terms of home health care and hospice.

How much agency labor or just premium labor that have you had to use it and then maybe.

Brian question, just remind us what the the annualized effects to that sequester would be on your own all your Medicare revenues. Thanks.

Yeah I'll take the staffing question first so we really have used minimal outside staffing owned both home health and hospice, we've been fortunate there.

Yes, I'd answer question, Frank I think when that goes away you just with the mix of our skilled business today that would probably be around $3 million in total but keep in mind. We're also gonna get our kind of annual CPI rate increase here in the fourth quarter as well that will probably helped to offset that so I think the way we look at it going into next year, assuming that sequester holiday does go away will be essentially flat.

But I wouldn't expect to see us have a net rate increase going into next year, but essentially flat.

Okay. Thanks.

Thank you. Our next question comes from the line of Matt Larew with William Blair. Your line is open.

Yeah, Hi, good morning, I just wanted to ask maybe the latest you're hearing around the potential for some eight GPS funding and legislative package before the end of the year I know there's been many iterations in discussions around that but just kind of latest you're hearing on the hill.

Yeah.

Well it certainly we.

Like everybody else, we're sitting here waiting to see if the.

Democrats are going to get together and passed the reconcile reconciliation bill.

Now as we understand it theres a 150.

And the current draft of the reconciliation bill that will be dedicated to home and community based care.

As far as really having any further inside of where that stands.

All we know is that it is still in the bill today, but we have no knowledge of when and if this might be passed.

Okay and then just wanted to previous question you mentioned you didn't utilize much contract labor.

Obviously, a number of your peers have I have referenced that they also referenced things like additional bonuses are pretty significant increases in the wage trend did you also you know not experienced that and I guess any thoughts on why you've been able to avoid some of those near term staffing challenges.

Yeah, I think when you look on the staffing side I mean, one our exposure on the clinical is certainly not as maybe as significant as some of our peers our peers.

But it is.

We're starting to see some wage pressure certainly in particular markets.

So nurses, specifically a more competitive we've had to make some proactive adjustments there on the compensation side.

So far we've avoided some of the <unk>.

Special bonuses, but we are having to make some proactive adjustments on the.

Wages, particularly with respect to nurses, but we've been fortunate to be able to avoid any of that premium labor.

So far but you know it is a competitive environment out there on the clinical services in this trade.

Yeah, and we're starting to see.

Administrative services kind of across all segments that you know.

As a much smaller.

Part of our cost structure, but certainly as you know service coordinators Rfps are personal care side, which our schedulers of certainly starting to see some wage pressures there.

Okay.

Got it thanks.

Thank you. Our next question comes from the line of Brian <unk> with Jefferies. Your line is open.

Hey, good morning, guys.

Yes, Brian first question for you or maybe for Derek as well I know in the past you've talked about kind of like a goal of acquiring at least $100 million of revenue a year and you're at 30 of this year, So and I know you typically source your own deal. So just curious you know Brian you said, you're not seeing that much or there's a slowdown in brokerage deals, but what are you seeing on the.

The deal front from your own BD team and are there any changes in the market that you would call out that would explain some of the slowdown in your typical M&A pace.

Yes, I think a specific let's just talk about kind of our pace for this year.

<unk> had some projects that were working on early this year I think as you guys know, we're pretty stringent in our diligence process. We also were looking things that are very specific and strategic to us we're not looking to necessarily just you know make acquisitions to make acquisitions. So.

Through that selective process and then some things that didn't get across the finish line I think has put us where we are a little behind where we'd like to be as far as acquired revenues for this year.

I will say the year's not over just yet it's still the number but.

We still got some things in our pipeline that were excited about it and we'll see if we can get those through our process and to close so I think from a market perspective, I think what we've seen as I mentioned, a little bit earlier, just broker processes, we're not seeing the level of activity, we saw probably over the summer. It seemed like there were several things out in the market at the time, you know a lot of those that didn't sit well.

With us, but we are probably feeling that broker processes are a little slower towards the end of the year I think you get a big bolus of people that were looking to get out to the market in advance of potential cap gains issues I think they realize now going into the end of the year that was probably going to be difficult to get closed this year.

So maybe maybe their decision process to say, it's better to kind of rebase off of our adult away and look at going out early next year, we're not really sure that's a little speculative on my part but.

That's probably all I can really say that what we're seeing different in the market today.

Got it and then they're just any updates you can share with us.

They front in terms of your efforts to try to gain traction there and maybe expand into the M&A market.

Yeah.

Brian what we've been doing as it relates to Medicare advantage and really the whole value based care approach.

We currently have as we said we've announced one deal with.

Presbyterian where we're working on a value based approach, we hope to what we should be announcing.

Further deals soon which will show that we're in to a number of pilots all related around value based care.

The reason I talk about that as even though some of the pilots will be due on our managed Medicaid providers. The data that we're going to develop our are developing from these various pilots will allow us to sit across with the Medicare advantage providers and talk about how we can help them control their medical loss.

<unk> costs.

We're still very excited about this in fact, we believe value based care has a real is a real opportunity not only paradis, obviously, but for others in the industry. We think the market is headed that direction. We have a team that is working specifically around value based care and what we can do in the future with Medicare advantage. It's just again.

It's not going to be something that flips the switch and becomes material to add as you know.

And the next year or so it's going to take three or four years for us to continue to work with these various companies and present the opportunity we believe we bring to them.

Are there costs. So we're still excited about it but it's going to be a long term process.

Awesome. Thank you.

Thank you. Our next question comes from the line of John Ransom with Raymond James Your line is open.

Good morning.

Have you seen any material inflection in labor supply since some of these states ended there.

Unemployment benefits.

Yeah. John This is Brad we have I mean.

Certainly appears to be with you. If you look at our September hiring numbers, which corresponds when are the enhanced federal unemployment benefits expired.

Across the country, though we did see a nice pick up there it was our strongest personal care hiring month in over two years.

So.

Whether that specifically tied to that not sure, but it seem to correspond with it and particularly in our hiring numbers honestly are kind of in the Illinois market increased pretty significantly, particularly in the Chicago area.

Which was one of the ones that had the unemployment benefits enhanced benefits out there.

Early September.

Great and then Conversely.

You know in states that you're operating in that are embracing vaccine mandates as sort of a harbinger for.

Maybe some you know the federal program that you talked about have you been able to navigate those.

You know as successfully more successfully less successful than you might have thought.

Yeah actually I think more successfully than we would've thought I mean, New York being the largest market that is subject to a vaccine mandated that applies to our personal care caregivers.

As Dirk mentioned in his script I mean, we ended up around 93% vaccinated.

We still have a few out there are employees that I think are still considering getting vaccinated impact was pretty negligible by less than 2% on hours out of the gate with the.

With the mandate going into effect. So it's something that we're certainly monitoring and you know whether new York is going to be.

The same is downstate, Illinois, or Montana, Idaho has to be seen but we're really pushing hard and encourage ara caregivers to get vaccinated and not just for in preparation of the mandates, but we just thought honestly as a company I think that's the right thing to do we do believe that.

No.

In the best interest of our employees I mean, if you look at the safety and efficacy other vaccines. So we're still continuing to push it our biggest challenge honestly is just.

Understanding the vaccination status of a very dispersed workforces, primarily part time for US we still have a lot of unknowns and that's our focus over.

Over the next month or so.

And just to remind me the current stat on percent of your labor that's family members and how that May have evolved over the past couple of years.

Yeah, we're probably around 35% family caregivers and that's a good point when it comes to the vaccine mandates.

What we have seen is some of the local level is that the family caregivers or those that are residing in the home are typically exempt from those mandates. So we'll have to wait and see what the what happens on the federal front and with some of these other mandates, but we have seen some relief there.

Okay. Thanks, so much.

Gosh.

Thank you as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad. Our next question comes from the line of Mitch here in golf ball with Sidoti Your line is open.

Okay.

Yeah.

Okay I was just curious.

Tony.

He's not the problem.

Yeah.

Dmitry, you're breaking up.

Dmitry youre breaking up pretty bad.

Oh.

Hum.

No.

Try again.

Okay.

Can you hear us.

Yeah.

You're not coming through.

Operator, why don't we go ahead and.

If there's no other questions other than nature will contact major directly and get his questions.

Okay. Thank you I'm showing no further questions at this time I'd like to turn the call back over to you.

Dirk Allison for closing comments.

Thank you operator, I want to thank each of you for your interest in <unk> and for being part of our earnings call. Today, We hope you have a great week.

This concludes today's conference call. Thank you for participating you may now disconnect.

[music].

Okay.

[music].

Yes.

Good day, and thank you for standing by and welcome to the Arris Homecare third quarter 2021 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone keypad.

Thank you good morning, and welcome to the AD is home care third quarter 2021 earnings Conference call.

This conference call May also contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

Clothing statements among others regarding <unk> 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 alike are intended to identify forward looking statements.

You are hereby cautioned that these statements maybe affected by important factors among others set.

Fourth in <unk> filings with the Securities and Exchange Commission and in its third quarter 2021 news release.

I would now 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 welcome to our 2021 third quarter earnings call with.

With me today are Brian Poff, our Chief Financial Officer, and Brad Bickham, our President and Chief operating Officer.

As is our custom I will begin with a few overall comments and then Brian will discuss the third 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 third quarter of 2021, and we are proud of our operating performance. Our team was able to produce record results in the quarter. Despite certain pressures from the current operating environment that I will discuss.

Our revenue for the third quarter of 2021 was $216 $7 million as compared to $194 million for the third quarter of 2020, an increase of 11, 7%.

Adjusted earnings per diluted share for the third quarter of 2021 were 91 cents as compared to 76 cents for the third quarter of 2020, an increase of 19, 7%.

Our adjusted EBITDA for the third quarter of 2021 was $24 9 million as compared to $19 5 million for the third quarter of 2020, an increase of 27, 4%.

During the third quarter, we continued to see the positive effect of the $350 billion in state aid, which came from the most recent federal stimulus plan as our states have done a nice job in maintaining and in some cases increasing.

Our outstanding accounts receivable payments to add this leading to a strong cash flow quarter and our cash balance at September 30 of approximately $152 million.

Over the past few years I have discussed the minimum wage increases, which had which were occurring in Chicago.

These annual minimum wage increases have now been fully implemented.

The final Chicago minimum wage increase of $1 per hour, which takes the city's minimum wage to $15 was effective on July one 2021.

It is important to note that this cost increase is reflected in our third quarter results without a corresponding reimbursement rate increase which had a negative effect on our operating margins.

Which was to be effective January 1st 2022.

However, with its receipt of the additional 10% <unk> funding for the previously mentioned stimulus Bill.

The state has requested approval from CMS to accelerate this rate increased by two months, making it effective November one two.

2021, and appear confident that they will receive approval for our November 1st increase.

This rate increase will cover the entire state of Illinois, and positively impact our fourth quarter financial results.

Several other states have requested approval from CMS for changes to their home and community based service programs utilizing the additional federal funds from the 10% ethanol.

Many of these request include proposed reimbursement rate increases for our services.

We hope to see these requests approved by CMS in the near future and to learn more about the specific reimbursement rate increases included in those requests.

Along with our positive operating trends, we saw some near term pressure related to other developments that impacted our third quarter financial results.

We anticipate hearing something from the state concerning this protest over the next few months, although no official timetable has been released.

In the meantime, we filed our response to the state's follow up survey, which was created by the state to consider additional awards to providers for this program.

While we continue to await a decision on any additional awards, we have stopped accepting most new referrals for the New York City Pap program due to the uncertainty of continuity and negative reimbursement changes for a portion of our business that was already one of our lowest margin contracts.

As a result of the Covid impact and our attention will approach to the New York CD path over the past 12 months, we have seen our revenue in this program decreased from an annualized run rate of approximately $52 million as of the third quarter of 2020.