Q4 2022 Addus Homecare Corp Earnings Call

Good day and welcome to the addict homecare fourth quarter and your N 20 twenty-two earnings conference call.

Participants will be in a listen only not.

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Specialist.

Yeah.

After the day presentation, there will be an opportunity to ask questions.

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I would now like to turn the conference over to drew Anderson. Please go ahead.

Thank you good morning, and welcome to the out of home Care Corporation fourth quarter and year in 2022 earnings conference call today.

Today's 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 cap by going to the company's web site 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.

Occluding statements among others regarding add is expected quarterly and annual financial performance for 2023 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.

Limiting the foregoing discussions a forecast estimates targets plans beliefs expectations and the like are intended to identify forward looking statements.

You are hereby caution that these statements may be affected by important factors among others set forth an artist filings with the Securities and Exchange Commission and its fourth quarter 2022 news release Consequently.

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, Mister Dark Allison. Please go ahead Sir.

Thank you drew.

Morning, and welcome to our 2022 or quarter and year end on this call with me today are Brian Poff, our Chief financial Officer, and become our President and Chief operating Officer.

That's what we do on each of our earnings call I won't begin with a few overall comments and then Brian will discuss the fourth quarter results in more detail.

Following are comments the three of us would be happy to respond to your questions.

My first want to say, thank you to all the employees that adage home care for their efforts. This past year, while it's exciting to know that we had a great year financially and it's more important to know we provide care to approximately 66000 clients and patients in 2022.

I am very proud of our teams hard work and making sure we were able to meet a home care needs of all these deserving people.

Leaving our mission each day will continue to lead to ongoing gross rash.

Yesterday, we announced our financial results for the fourth quarter and four year of 2022, and I'm extremely proud of our operating performance.

Our team grew revenue, 10% $247.1 million for the fourth quarter of 2022 as compared to.

$224.6 million for the fourth quarter of 2021.

This resulted in adjusted earnings per share of a dollar elevens as compared to an adjusted earnings per share for the fourth quarter of 2021 of 97 cents an increase of 14.4%.

We also exceeded $28 million and adjusted EBITDA.

For the full year of 2022, our revenue was $951 $1 million with an adjusted EBITDA of $101.5 million or 10.7% of revenue.

Our team was able to achieve these poor your results. Despite the first two months of 2022 being negatively impacted by the omicron way.

During 2022, we continued to street C strong cash flow from operations as our stage and other payers have worked for buying.

[noise] providers like Alice in a timely manner.

The strong cash flow has allowed us to maintain a net leverage position of less than one times adjusted EBITDA, giving us the financial flexibility to continue to implement our strategy even as the cost of debt has increased.

As has been the case for us over the last few quarters. The library environment continues to improve.

During the fourth quarter of 2022, we experienced improved hiring in our personal care segment with higher per business day, increasing approximately 10% as compared to the fourth quarter of 2021.

We are also seeing this improved hiring trend continue in January and February of this year with her for business day running ahead of our fourth quarter of 2022 performance.

A part of our improved hiring results have been due to the recent investment we made in a candidate tracking system, which allows us to better engage with potential employees as well as shortening the time between application and higher.

We are continuing to roll out the system to all of our sites a process that should be completed in 2023.

Starring in our clinical segment has been more challenging than a personal care segment. However, we began to see our clinical hiring pick up in the third quarter and continued through the fourth quarter of 2022, particularly in our hospice segments.

This along with the incremental improvement in our clinical turnover is started to relieve some of the staffing challenges we faced in the first half of 2022 in our clinical segment.

There are some geographic areas, where both clinical hiring and wage pressures continue but the overall hiring environment has certainly improved and we expect this trend to continue in 2023.

As has been announced the COVID-19 public health emergency will end on May 11th 2023.

With the ending of the emergency declaration the enhanced federal Medicaid match that states have been receiving from the federal government will gradually phase out.

The full 6.2% and extra federal funding will last through March 31st 2023.

This match will then decrease the 5% for the second quarter too.

2.5% for the third quarter of this year.

And 1.5% for the fourth quarter of 2023.

Even with the reduced funding to state Medicaid plans, we believe the states in which we operate or in a much stronger financial position and before the pandemic.

During our fourth quarter. The funding we received from the American Rescue Plan Act or ARPA has allowed us to begin increasing caregiver wages.

A sign on and retention bonuses or provide one time bonuses to current caregivers depending on the state program.

Today, we have realized approximately $24 million of which we still have $13.8 million to utilise over the next 12 months.

These funds have been helpful with our recruitment efforts.

To support patient care and should continue to help our hiring retention efforts in the future.

As we deploy our remaining funds.

As for Illinois, our largest state of operation on January one of this year, we received a 70 cents per hour statewide rate increase as expected.

This rate increase covers the Chicago minimum wage increase we saw last July and allows us to raise wages elsewhere in Illinois.

On December 30th 2022, the state of Illinois announced an additional increase of $1 26 per hour, which will be effective on March 1st 2023 subject to approval from CMS.

Once approved or Illinois state reimbursement rate will increase to $26.92.

This increase will cover the upcoming July one minimum wage increase in Chicago and allow us to continue to raise wages, all our Illinois employees.

We believe these increases should help us to continue the favourable hiring trends, we have been saying and our personal care.

I also want to get them a brief update on recent developments regarding our participation.

And the New York consumer directed or CD path program.

On February one of this year, the Governor of New York issued her budget, which proposes to repeal the procurement process for fiscal intermediaries, who participate in the C D.

Program.

Eliminating the reduction on providers, which would have occurred under this process.

This budget now proposes to make changes to the M. L. T C program with a gold minimizing the number of providers in the state.

We believe these proposals will allow <unk> to continue providing services to our current clients, while growing with Payors, whose reimbursements rates provide for an adequate financial return.

The final budget for New York is due on April 1st 2023.

Once that budget is published we will be able to refine our growth plan for New York.

As a reminder, we continue to operate as normal with R. M. L. T C partners and the New York market with respect to the CD half program.

As we received further clarification on the state <unk> rates, we will evaluate whether to increase our CD Pap admissions is appropriate.

Now, let me discuss our same store revenue growth for the fourth quarter of 2022.

For our personal care segment exclusive of the New York CD Pap N R. R.

Same store revenue growth was 7.9% when compared to the fourth quarter of 2021.

Over the past three years and majority of our same store throws and P. C. S came from rate increases from our states.

With the disruption caused by the pandemic hourly growth has been more difficult.

Recently, we have started to see a resumption of growth and same store hours.

And the fourth quarter of 2022, we saw Same-store hours, excluding New York CD past, 2.6% over the same period in 2021, and 1.5% on a sequential quarterly basis.

This makes a volume and rate growth is more consistent to our historical averages prior to the pandemic.

Turning to our clinical care operations are hormel segments same store revenue grew 8.3% over the same quarter in 2021, primarily as a result of our prioritizing episodic cases and declining non episodic referrals due to the lower reimbursement rates.

As we have seen are non episodic rural opportunities continued to increase our managed care team has been working with our Medicare advantage Herschel payors to adjust our contract rights to a more appropriate level, which will allow us to accept more non episodic volume growth going forward.

Recently, we have started to see success in these efforts as we continued to discuss movement to episodic case rates for a longer term solution.

We are still in negotiations with a couple of our large payers and look forward to the completion of those discussions.

Our operations team continues to work hard on both mix and staffing and home health to ensure we maximise the value of the services we provide.

We remain excited about home health operation as it compliments or personal care services, particularly where we participate in value based contracting models.

Our hospice same store revenue decreased 4.9% when compared to the fourth quarter and 2021 with a decrease of 0.9% in our average daily census, as compared to the fourth quarter of 2020 warm as well as the resumption of Medicare sequestration.

Our medium length of stay did improved to 27 days in the fourth quarter as compared to 22 days for the same period in 2021, but it was down slightly from 28 days for our third quarter of 2022.

While hospice continues to recover from the pandemic at a slower rate than we expected. We did see an increase in hospice submissions on a sequential basis, which is encouraging.

Our hospice ADC increased to 32.13 for the fourth quarter.

Of 2022 as compared to an ADC 2635 for the fourth quarter of 2021 inclusive of the ADC attributable to our journey care acquisition, which closed on February 1st 2022.

As for our ongoing development efforts, we continue to look a potential acquisitions that meet our strategic criteria.

Our deal flow continues to consist primarily of a number of smaller acquisition opportunities mainly in our personal care and home health segments.

While we have a desire to look at larger assets deals with signs have been slower to come to market, especially with the near term reimbursement rate challenges for home health we.

We expect to see larger home help opportunities in the coming months as a market understands the reimbursement rates coming from CMS.

In the meantime, we have been reducing our debt with our strong cash flow.

Going forward are disciplined balance sheet, but allow us to financial flexibility to take advantage of any larger strategic opportunities that may present themselves.

As for value based care efforts, we are continuing to see positive results from our various value based care contracts.

We have now entered into five value based contracts in three states covering 4800 clients.

These contracts are focused on helping our clients avoid unnecessary emergency room visits and hospital admissions.

As well as re admissions at various Timeframes following a hospital discharge.

In addition, we are also working on improving heat as benchmarks.

To date or outcomes data has shown our ability to help reduce costs, while improving quality benchmarks.

We are currently working on additional by you based opportunities for 2023.

Value based care continues to be a revenue growth opportunity, which we expect to grow to a more meaningful amount over the next few years.

I'm so proud of our team for the care, they are providing to our elderly and disabled consumers and patients.

Home remains one of the safest and most cost effective places to receive care and is also the place where most elderly individuals and their families prefer to be we've.

We believe the heightened awareness of the value of Homebase care is favorable for our industry and will be a growth opportunity for.

For our company.

We understand and appreciate that our operations and growth are dependent on our dedicated caregivers, who work so incredibly hard providing outstanding care and support to our consumers patients and their families.

With that let me turn the call over to Brian .

Thank you Dirk and good morning, everyone.

Add a set a strong financial and operating performance for the fourth quarter cutting off another record year of profitable growth.

Ah results reflect strong demand for our services led by organic growth and personal care services, well above our normal expected range of 3% to 5% along with solid same-store growth in our home health segment.

In addition to our organic growth we benefited from our acquired operations in home health, our motto home health and some at home held added in 2021, and Apple home Health care, which we close at the beginning of the fourth quarter of 2022.

Our hostess business has continued to slowly recover from the pandemic with a return to our pre COVID-19 medium length of stay range is upper twenties are Hostas results. Also include the acquisition of journey here, which closed in February of 2022.

As Derek noted total net service revenues for the fourth quarter, where $247 $1 million <unk>.

Revenue breakdown is as follows <unk>.

Personal care revenues were $183 $4 million or 74.2% of revenue.

<unk> revenues were $56 million or 25% of revenue.

At home health revenues were $13 $1 million or 5.3% of revenue.

We have continued to actively pursue acquisition opportunities that meet our criteria and complement our organic growth.

2022, we added approximately $65 million of annualized revenue with the acquisitions of journey care and Apple home health care.

We continue to evaluate a pursue other acquisition opportunities and believe we will see a more favorable market environment. Later this year, the sellers, particularly in broker processes have been slower than expected and coming to market in part due to significant Medicare reimbursement uncertainty through October of last year for home health services the.

The final announcement of late 2022 on reimbursement changes for home health has provided more clarity it should lead to opportunities for future acquisitions and skilled home help although we continue to monitor developments regarding future reimbursement changes and related inbox.

Most importantly, we are well capitalised to continue to pursue our acquisition strategy as opportunities arise.

Other financial results for the fourth quarter of 2022 include the following.

Our gross margin percentage was 31.9% compared with 32.4% for the fourth quarter of 2021.

While we benefited from our annual hospice rate adjustment on October 1st 2022 are results reflect the negative impact of the July one 2022 minimum wage increase in Chicago, one of our largest personal care markets for which we did not receive a corresponding reimbursement increase.

Active January 1st 2023, we did receive a statewide reimbursement increase in Illinois, which will offset the Chicago minimum wage increase with another recently announced statewide increase to be effective on March 1st 2023 pending CMS approval.

We anticipate our gross margin in the first quarter to be negatively impacted sequentially by approximately 120 basis points from the annual reset on payroll taxes, and our annual merit increases which are effective on March 1st.

These decreases will be offset slightly by the positive impact from our January 1st rate increase in Illinois, Although we expect to see some minor compression from the March 1st, Illinois increase as we anticipate our gross margin contribution after wage negotiations and increases to paid time off and mileage rates from this rate increase to be in the low <unk>.

Two per cent range, where our normal Illinois personal care gross margin is typically in the mid 20 per cent range.

Overall, we expect our gross margins sequentially to declined by approximately 100 to 110 basis points from the fourth quarter of 2022 to the first quarter of 2023.

G&A expense was 22.1% of revenue consistent with the same percentage of the fourth quarter, a year ago, but lower sequentially from 22.5% in the third quarter of 2022.

Just the G&A expense was 24% for the fourth quarter of 2022, an increase over the prior year of 21%, but lower sequentially from 26% in the third quarter.

The company's adjusted EBITDA increased to $28 $2 million compared to $26 $7 million a year ago.

Justin EBITDA margin in the fourth quarter was 11.4% compared with 11.9% for the same period last year.

While we expected to see some margin compression in 2022, primarily due to wage pressures. We were pleased to have exceeded 11% and adjusted EBITDA margin for the first time this year.

Looking ahead, while we continued to operate in a dynamic environment, we expect to see stabilization and our adjusted EBITDA margin of 2023.

Adjusted net income per diluted share was $1.11 <unk>.

Compared with 97 for the fourth quarter of 2021.

The adjusted per share results for the fourth quarter of 2020 to exclude the following.

Acquisition of Dinovo expenses of six restructure.

Restructure and other non-recurring costs of one cent and non-cash stock based compensation expense of 13 cents.

The adjusted per share results for the fourth quarter of 2021 excludes the following.

The favorable impact of the retroactive, Illinois rate increase net <unk>.

Acquisition of Dinovo expenses of nine <unk>.

Restructure and other non-recurring costs of one cent and non-cash stock based compensation expense of 11 cents.

Are effective tax rate for the fourth quarter of 2022 was 19.2% a benefited from several discrete credits during the quarter as well as continued strong work opportunity tax credits.

For calendar year 2023, we expect our tax rate to be in the mid 20 per cent range.

Dsos were 45.1 days at the end of the fourth quarter of 2022, compared with $46. Two days at the end of the third quarter of 2022.

We have experienced consistent cash collections for most of our players and expect to see this trend continue.

Our dsos for the Illinois Department of aging for the fourth quarter were 41, five days compared with 35 four days at the end of the third quarter of this year.

Our fourth quarter net cash provided by operations was $24.3 million.

During the quarter, we made the final repayment installment on our payroll tax deferral in 2020 under the <unk> a $4.1 million and also had a net utilization of ARPA funds of $4 $2 million <unk>.

Exclusive of these payments are cash flow from operations would have been $32.6 million during the fourth quarter.

For the full year 2022, our cash flow from operations was $105 $1 million inclusive of a positive net impact from government stimulus advances of $8 $7 million.

We also benefited from a positive impact of working capital changes of approximately $19 million in 2022, primarily due to our strong accounts receivable collections.

As of December 31, 2022, the company had cash of $80 million in bank debt of $134.9 million with capacity and availability under our revolver of $382 million and $237.2 million respectively.

We have continued to focus on debt repayment in the face of rising interest rates and as a result of our strong cash flow were able to reduce our revolver balanced by a net $90 million in 2022.

To date in 2023, we have continued this focus and a further reduced our revolver balanced by another $13.5 million.

We have a capital structure that supports our growth initiatives and acquisition strategy and as previously noted we expect to be active in the M&A market. This year.

At the same time, we will continue to diligently manage our net leverage ratio, which is currently well under one times net of cash on hand.

This concludes our prepared comments this morning, and we would like to thank you for being with US I will now ask the operator to please open the lines for your questions.

We will now begin the question and answer session.

To ask a question and a <unk>.

Then one on your Touchtone phone.

If you're using a speaker phone please pick up your handset before pressing a key.

If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then too.

This time, we have paused momentarily to assemble our roster.

The first question today comes from got Fidel with Steven. Please go ahead.

Hi, Thanks, good morning.

First question just appreciate the commentary just around the two Illinois rate increases and then the impacts on gross margins might.

Might be helpful. Just if you want to if you could just give us what you would view the overall annualized revenue impact of of.

Of those two Illinois rate increases in aggregate, obviously that would I get sorted annualize out more in the second quarter.

And then just an update as well on sort of how the the blended rates look across all your other markets on personal care outside of Illinois for 2023.

Yes, I'll talk about the January burst increase or so based on kind of current volumes in Illinois, that's going to result in approximately right around $12 million an annualized revenue. So I want to come in in January virtual C. A full quarter impact of that in Q1. The March 1st rate increase which is a little larger per hour.

To be probably between 17 and $18 million kind of based on current volumes in Illinois, obviously getting one month of impact of that in Q1 of you will see the full impact of that is that rolls through and Q2.

Out of that I think we've seen a couple of other markets that we're going to see rate increases or South Carolina, which is one of our smaller markets has come through with a rate increase early this year.

Probably not going to see the same level of rate increases across the board. We seen the last couple of years, but I think overall I was still seeing some support and some other areas as well.

Okay got it and then follow up question just wanted to follow up on <unk> commentary just on I just started the updated framing around the M&A pipeline and Brian I know you mentioned as well sort of maybe picking up middle later this year I'm, assuming is that sort of implying.

Wanting the market wanting to also get visibility into at least a proposed 2024.

Rates for for home health and Medicare just given some of the uncertainty around summer.

Some of the proposals at CMS I talked about for next year as well.

And that would be the first part and then the second part I guess, if you wanted to just sort of Bob update aside your priority, Jason Jason West between home health personal care hospice in terms of how you or Rob how you prioritize it got M&A in the pipeline here. Thanks.

Yeah Scott.

I do think the question of what's going to happen with the home health race long term is still somewhat to be answered I mean, obviously last year there was a.

A period of time more we didn't know a whole lot of based on what had been announced by CMS as to what the actual role is going to be by the time it came through.

We still have a little bit of that going for an issue no.

Trying to figure out exactly what the rates are going to be and I think the real question lies in what sellers and purchasers are thinking I don't know that all sellers today have come to the place where they have.

Have factored in that there might be a future.

Limitations on the rate increase and so their expectations for price may be still a little high.

I think from us as purchasers and others in the industry I'm trying to be very careful and strategic.

As to what we pay for deals until we truly understand the rolling So I think that has affected some of the <unk>.

Brian said some of the larger broker deals that we may see particularly around and the home health market.

Going forward the prioritization.

Really continues to be quite consistent from what we've been telling you for the last few quarters.

Our prior sensation as far as where we will use our acquisition dollars will be really around personal care as well as home health.

This point in time, we're probably not as focused on hospice as we have been in the past we think we have a nice.

Operation around the hospice coverage around our personal care markets. So we're really trying to grow home health and we're really also continuing to look for those strategic opportunities to grow personal care either strengthening the states in which we currently operate are potentially entering into new states, where we would like to go so that'll be our focus that.

You will see over the next.

Few quarters in 2023.

Okay. Thank you.

[noise]. The next question comes from Cal Queen with people. Please go ahead.

Thank you and good morning.

Could you talk about any shifting discharge wait before association may have impacted this quarter on the hospital site and since you mentioned the policy hiring trend, which contributed to the $6 6%.

Included growth in emissions there.

Should we expect a relatively strong sequential gaining ADC in the first quarter this year.

And Additionally journey care.

It has to be a major part last year compared to your $50 million in revenue expectations should we expect any upside.

Terms of the continue renting Apple performance there. Thank you.

Yeah happy to take those questions up first when you look at that just kind of mix from an admission and discharge rates.

We haven't what we have seen is certainly some improvement in our medium length of stay.

Year over year, we're kind of back to that upper twenties, where we were pre pandemic. We did fleet of one day slides <unk> I think the one area, where we're still seeing.

An opportunity for improvement is when you look at nursing home discharge length of stay and medium length of stays those still haven't recovered. So we're we're tending to get those patients later in the cycle and I think some of that may resolve itself with the ending of the public health emergency and some of the special rules around.

Sniffs and related to skilling patients.

You did not have to have the prior three day hospitalization.

There was previous pre pandemic. So I think there's some certainly some opportunities there when you look at from the standpoint of what is Q1 looked like.

We certainly have added a lot of staff. So that's very helpful to to help with the growth aspects, but I still think you're going to see a little bit of a bumpiness and hospice and that probably the first half of the year.

More of the growth is going to come through on the second half of the year and part of it is related to what I, just said related to exploration of the some of the allowances under the PHA.

With respect to journey care we've.

Fully integrated journey care into our.

<unk> our systems.

This is for some growth but again.

Still have some of the same issues that you see for I think they're going to be kind of challenging in the first couple of orders.

Related to some of the can we get more nursing home business and particularly can we get patients come home service a little earlier out of us.

Those facilities.

Gotcha.

Sounds like you've been against pretty shortly.

And care services, this year and ways to improve hiring trend when you return to a more nonetheless volume growth as well so should we and we look at organic growth profile should we expect it.

You can sustain can up the top end of that 3% to 5% growth or do you foresee yourself doing the hiring of that thank you.

Well I think you could certainly say that we're we're excited about the potential for growth is nearing personal care. We would tend to believe that it can be to the upper end of about 3% to 5%, we're not ready to adjust that level.

At this point in time, we wanted to see what continues to happen over this next year I think the exciting part for US as I mentioned in our comments was the fact that for the first time since the pandemic incur has occurred we are starting to see over the last couple of quarters growth and personal care.

<unk> and the hours provided and I I think that's very excited because that was a struggle that all the industry had for.

For the last two two and a half years and now that we're able to hire more individuals are coming back on service, we're able to then put them to work.

Seeing this hourly growth and then put on top of that just normalized.

Impact, we believe that 2023 will be a nice share price.

It's a real quick on us pick it back a little bit on that I just keep in mind, you know, obviously Q1 comps back to last year impacted by the on the front way of I think just across the board probably expect some some free robust same-store numbers, but again.

That impact last year compared to this year is going to be a big part of that difference, but with some of the rate increases, particularly with two rate increases from Illinois, which is our largest personal care market <unk>.

I'm going to be helpful. I think on the personal care side from the right perspective.

Great I appreciate it thank you.

As a reminder, thank you have a question. Please send me one to be joined into the question queue.

Next question comes from Brian Home correctly Jeffrey Please go ahead.

Hi, There hi, Brian Uhm, it's touchy on her Bryan just a couple of questions for me. This morning, So just going back to your discussion around you know contract negotiation for home health right. So as you negotiate the contract terms with Medicare advantage payers I'm curious what leverage point.

You're implying to successfully get those rain and also you know what this appetite look like from the payers to secure the value based contracts like the case right you had mentioned frequently.

Yeah, we've actually you know when you look at it from a leveraged standpoint I mean these are the payers are our largest payers on home health side. They also tend to be in the markets, where we have significant personal care presence as well and so I think that is a kind of a primary leverage point. These are also bears in certain instances.

Where we have existing value based arrangements for a as we're talking with them about.

Adding value based arrangements. So that's really what kind of our leverage point when looking at can we get the an episodic or case rates.

Place.

I think there's still a lot of appetite from payers to explore value based arrangements.

Think we're starting to build on a good track record around what we've accomplished and so there was really no shortage of interest and those types of arrangements.

I think it's really a matter of making sure that we have the.

The wherewithal to do do good with.

With those projects that you definitely don't want a stretch too far.

So we're just making sure that we're building out some infrastructure related to value base.

That should help us to be able to take on more of those cases in this Ah Derek eluted doing. This comments. This is something that we think is a tremendous opportunity for us down the road.

But it's going to take a little while to get there, making meaningful from a revenue standpoint.

Great. Thanks for the information and then just one more follow up I think this is more settled for Derek you had mentioned with a Ta T. Just the elimination of the enhanced federal Medicaid match.

So what are the offset that will create that stability, even though the enhanced federal Medicaid math programs ending in May I think you had mentioned that in your commentary.

Yes. This is Brad.

I think when you look at those the reduction in the match also think about three to terminations that were put on hold which again, we don't feel like we will have much if any impact for me to terminations on the Medicaid Rolls just when you look at the patient population that we serve elderly fixed income chances of them being.

Bumped off the rolls.

Is probably negligible. However, there are individuals that were added to Medicaid that.

May not qualify now and I think Thats law and logic is why the matches are being eliminated and lie is being phased out as you see those limits redeterminations take place.

Great. Thanks for taking my question.

The next question comes from John <unk> with Raymond James. Please go ahead.

Hey, there.

Dark I noticed a small piece of your business, but I'd be interested in your perspective about hospice.

Some of the cross.

Do you think this is a.

Temporary bang.

If you think something structural this step in and that Martin.

Thanks, John and you know.

It seems there has been a little bit of a change in the industry. I think you can see that and that all the providers of hospice over the last couple of quarters.

Have had some struggles as far as growth.

There was a question whether with the pandemic there was a lot of increased elderly deaths.

It came through that period of time and so the question is.

Some of the indications are if you look at the government data hospice has gone down a little bit over that timeframe. So while I don't believe in I don't think we as a team believe that's going to be a long term change in the hospice environment. We do think there are some short term impacts.

As <unk>.

Probably those early.

<unk> elderly patients that would have been on hospice is that kind of moves through when we get back to a more level operation as we consistently obscene yearly in the hospice environment. So we're still excited about hospice I want to make sure you understand that just because it's not a focus for our M&A at this point in time, that's largely because we already have about 20% of.

Our revenue in hospice, and we really believe that to get the balance of home health and clinical services sat on top of our personal care network is really the strategic quite a move forward in the next year or two.

And so let me just to follow up on that do you think length of today.

Are you going to be any different in the future than they used to be more government scrutiny.

But they have like data is again do you think this some of the struggles every year periods of having sort of like to stay in.

Get a bottleneck referrals do you think that's also temporary but notwithstanding.

Manned issue structural demand issue from the government mortality.

Anything with referral networks.

Say that kind of thing.

Well you know I think we saw during the pandemic that our length of stay which challenged that's was the industry probably due to what Brad mentioned earlier and that is we were receiving the hospice patients that were coming on board over the last couple years seemed to have been later in their stage of.

Hospice stage so their length of stay once they we came on service tended to be shorter than what we had seen historically the.

The question will will be where we start to see that longer length of stay as the nursing homes, the snaps get back to <unk> after that.

The emergency is declared over when it get back to more of the normal approach that when we received clients straight from a nursing home the length of stay for those clients tended to be.

Longer if.

If you look at the last couple of years, we've still received a lot of hospital hospice referrals and their length of stay has not changed a great deal, but those tend to be the shorter length of stay patient. So our belief is we will start to see that change over the next year or two but as to what point it really reverts back to a more normalised level that's etched.

El a question for us.

Alright, thanks, so much.

As a reminder, if you would like to ask a question. Please <unk> anyone to be joined into the question queue.

Next question comes from <unk> with William <unk>. Please go ahead.

Hey, good morning.

I wanted to follow up on the comment about home health right then.

Then on the on the Medicare advantage had been a theme for a number of the companies in space.

For years really in terms of getting.

Adequate reimbursement you reference your leverage point around personal care, but just curious.

Maybe what percentage of your book of business today, you feel on that side, you feel like you're getting adequate reimbursement, but unique about the situation and then how you're approaching.

A pair today that might be different than one or three or five years ago.

Well I think when you look at the business.

We've had the purposely kind of slow down some of them for all volume that we saw in queue for and really get the attention of some of the payers out there. We have found though once we start having conversations with them they understand some of the challenges that.

We won we haven't really revisit these rates in awhile we've had.

Certainly some inflation around wages that needs to be addressed.

And.

And if they want to have adequate coverage for their beneficiaries they need to do something about the rates. So.

We've had some success I think the way. We're approaching is is let's try to get some near term wins focus on if we're on a non episodic let's get those non episodic rates adjusted to where we were at a in a position where we can start taking on those referrals and they become profitable for us and at the same time, let's look at the longer term solution, which is.

Honestly, we need to move towards an episodic type rate that is more comparable to Medicare fee for service. So we've had some.

Good traction with plans both on the near term solution, but then also on that longer term solution.

Investigating and looking at episodic because I think they realize.

This isn't I think we're kind of reaching a.

Point, where if they want to have the coverage that they need they are going to have to adjust rates also I think they're looking for we'd like department with people that we can look at potential value base types of arrangements. So I think I bodes well for us, particularly where we have the personal care footprint that complements the home health footprint ought to be able to do.

Something creative on the right side.

Okay and then following up on.

Some of the <unk>.

Investments you made into a candidate tracking.

Both that gave the potential hires antique this time to hire.

Is there anything you can quantify for us in terms of how that improves the metric keep track of the hiring side and then referenced rolling it out to all your site 23, so maybe.

Where that rule out today, and what's kind of course, a roll out over 23. It just so we can think about.

I think my to continue to improve throughout the year.

Yeah. So on the Kennedy tracking system, we initiated it.

First with our clinical side lower volume just to make sure we get kind of address any.

Issues or bugs in the system that was successful earlier this past year by about mid year, we've been piloted at several of our.

Personal care sites actually.

I actually got a split it out a couple of locations in each region.

Wanted to spend some time there because if you look at his volume of hiring that we do on the personal care side is significant so we wanted to make sure that the system was working as planned and so we've had those rollouts have been successful we are now ready to take it to the rest of the personal care locations, which will do over the next probably too <unk>.

Orders to get all of the regions.

The new candidate tracking system, it's pretty intuitive takes a little bit of training, but pretty straightforward, but what we've seen is one increase in Canada flow to start with but we've also seen that reduction.

From the time that someone's Smith's an application to their actual hiring and there's been no depending on whether it's a clinical services for peace, Yes, we've seen anywhere from you know.

One or two days savings versus really on the P. C. S side, where we've seen property you know four to five days.

Acceleration of that process.

Okay. Thanks.

Perhaps.

The next question comes from Joanna cut you with Bank of America. Okay go ahead.

Good morning. Thank you so much I'm sorry, if you mentioned this earlier, but actually I don't know I was just gonna follow up on that at the last commentary did you did you give some staff in terms of your <unk> and your personal kind of how things are trending into for an interview one.

Yeah. So if you look on the clinical side, we actually had a.

Ah nice net higher we added probably about 80 net hires on the clinical side, primarily on the hospice front.

Hiring on Ccs certainly if you look year over year. It was that I think about 10% greater than it was prior year sequentially down a little bit, but that's mainly because of the holiday season, you see some thus loans in queue for good to see our in our January and February of numbers look solid.

So more like kind of with the Q3 site number so good hiring momentum on the personal care front and again as we said the clinical hiring has certainly improved really since you know kind of mid year last year.

Okay. That's helpful and I guess that sounds okay. Okay. So you mentioned composites <unk> on them.

Volume today, I was <unk> sequentially, alright, everything going forward about the following quarters is it fair to assume phones, you know a normal situation should be calling sequentially of a quarter or there's some seasonality the business.

No I mean, I think there is that.

Tends to be a little less seasonality related to personal care I mean, where you have seasonality primarily as if you have ah depending on kind of winter storms.

Can affect it at a little slowness and tends to be frankly in queue for around December of the holidays, but we saw in spite of that some nice growth. So Q1, I think when we look at Q1 Q2 Q3 should be nice steady growth with the hiring numbers that we're seeing.

Keep in mind, you we have just.

Thinking back on that a little bit so and personal care a lot of our markets. You know we have missed visits things we have the ability to make those up and reschedule those on different days again, that's market to market. So it's not always a guarantee but we do have a little bit of flexibility that we run into some of those things you know there there was a little bit of ability to to work around those in certain spots.

Okay and another follow up on the cash flow, which mentioned Rosemary strong Anthony could it included some of that maybe one time uhm finding you've received <unk>, how should we think about operating cash flow this year versus.

It's one O five so you know how much should be excluded kind of asked one time not repeatable and.

What would you think you know you could land for this here for cash flow.

Yeah. If you look at a 2022, so it was 105, but if you're cutting back out a net positive impact from from the ARPA funds and then you're back out kind of those working capped changes that I mentioned in my comments was around $19 million. So you're back to those out that's $27 million you'd probably would have been more of the 70 580 million dollar range.

Off of our EBITDA of a little over $100 million. So that's a pretty strong conversion rate still so I think you know to expect something more in that range would be more.

<unk> opportunity for 2023 22.

We're not going to get in to see $20 million in that working cap improvement even as we grow that's probably more of a one time thing, but that's 75% conversion rate is probably something you should expect on a consistent basis.

Mhm.

This is great. So helpful. Thank you and the last one follow up so.

So you were talking about you know working with auto home house that sorry Uhm.

Wait I'm working with the Medicare at Sandwich plan.

I don't remember did you disclose can you tell US you know what is he a mix of Medicare fee for service Princess.

Medicare advantage perfect verses Medicare advantage episodic.

<unk>.

We're probably running at <unk>, you know put San Jose.

Yeah, we haven't disclosed that in the past, but we were probably a little over half of our businesses Medicare or episodic.

And a little less than half as non episodic and again, we're working on that mix and certainly made some good progress in queue for related to that.

Yeah definitely a great great. Thanks, so much for the question.

Sure.

This concludes that question and answer session I would like to turn the conference back over to Derek Allison closing remark.

Thank you operator, I Wanna. Thank H V. Today for your interest in Attis and for being part of our earnings call today, and we hope you have a great week. Thank you.

The company.

Thank you for coming today. Please location you may now disconnect.

[music].

[music].

Good day, and welcome to the Adits Homecare fourth quarter and year end 2022 earnings conference call.

All participants will be in a listen only mode.

Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions.

To ask a question you May press Star then one on the Touchtone phone.

To withdraw your question. Please press Star then two please.

Please note this event is being recorded.

I would now like to turn the conference over to drew Anderson. Please go ahead.

Thank you good morning, and welcome to the AD is home care Corporation fourth quarter and year end 2022 earnings conference call.

Today's 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.

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 out as expected quarterly and annual financial performance for 2023 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 in <unk> filings with the Securities and Exchange Commission and its fourth quarter 2022 news releases.

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. Dirk Allison. Please go ahead Sir.

Thank you Jerome.

Good morning, and welcome to our 2022 for quarter and year end earnings call.

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

As we do on each of our earnings call I will begin with a few overall comments and then Brian will discuss the fourth quarter results in more detail.

Following our comments the three of us would be happy to respond to your questions.

I first want to say, thank you to all the employees at <unk> home care for their efforts. This past year, while it's exciting to know that we had a great year financially and it is more important to know we provide care to approximately 66000 clients and patients in 2022.

I am very proud of our team's hard work in making sure we are able to meet our home care needs of all of these deserving people.

Our mission each day, we will continue to lead to ongoing growth gratis.

Yesterday, we announced our financial results for the fourth quarter and full year 2022, and I am extremely proud of our operating performance.

Our team grew revenue, 10% to $247 1 million for the fourth quarter of 2022 as compared to $224 6 million for the fourth quarter of 2021.

This resulted in adjusted earnings per share of $1 11, as compared to an adjusted earnings per share for the fourth quarter of 2021 of 97.

An increase of 14, 4%.

We also exceeded $28 million and adjusted EBITDA.

For the full year of 2022, our revenue was $951 $1 million with an adjusted EBITDA of 101.

$5 million or 10, 7% of revenue.

Our team was able to achieve these full year results. Despite the first two months of 2022 being negatively impacted by the omicron way.

During 2022, we continued to street see strong cash flow from operations as our states and other payers have worked for buying.

Hey providers like at us in a timely manner.

This strong cash flow has allowed us to maintain a net leverage position.

Less than one times adjusted EBITDA, giving us the financial flexibility to continue to implement our strategy even as the cost of debt has increased.

As has been the case for us over the last few quarters, the labor environment continues to improve during.

During the fourth quarter of 2022, we experienced improved hiring in our personal care segment with hires per business day, increasing approximately 10% as compared to the fourth quarter of 2021.

We are also seeing this improved hiring trend continue in January and February of this year with higher per business day running ahead of our fourth quarter of 2022 performance.

A part of our improved hiring results have been due to the recent investment we made in our candidate tracking system, which allows us to better engage with potential employees as well as shortening the time between application and higher.

We are continuing to rollout this system to all of our sites a process that should be completed in 2023.

Hiring in our clinical segment has been more challenging than our personal care segment. However, we began to see our clinical hiring pick up in the third quarter and continue through the fourth quarter of 2022, particularly in our hospice segment.

This along with the incremental improvement in our clinical turnover has started to relieve some of the staffing challenges we faced in the first half of 2022 and our clinical segment.

There are some geographic areas, where both clinical hiring and wage pressures continue but the overall hiring environment has certainly improved and we expect this trend to continue in 2023.

As has been announced the COVID-19 public health emergency will end on May 11, 2023.

With the ending of the emergency declaration enhanced federal Medicaid match that states have been receiving from the federal government will gradually phase out.

The full six 2% and extra federal funding will last through March 31, 2023.

This match will then decrease to 5% for the second quarter.

Two 5% for the third quarter of this year and.

And one 5% for the fourth quarter of 2023.

Even with the reduced funding to state Medicaid plans, we believe the states in which we operate or in a much stronger financial position than before the pandemic.

During our fourth quarter. The funding we received from the American rescue plan <unk> or ARPA has allowed us to begin increasing caregiver wages.

Pay sign on and retention bonuses or provide onetime bonuses to current caregivers depending on the state program.

To date, we have realized approximately $24 million of which we still have $13 $8 million to utilize over the next 12 months.

These funds have been helpful with our recruitment efforts to support patient care and should continue to help our hiring and retention efforts in the future.

As we deploy our remaining funds.

As for Illinois, our largest state of operation on January one of this year, we received a 70 per hour statewide rate increase as expected.

This rate increase covers the Chicago minimum wage increase we saw last July and allows us to raise wages elsewhere in Illinois.

On December 32022, the state of Illinois announced an additional increase of $1 26 per hour, which will be effective on March one.

2023 subject to approval from CMS.

Once approved our Illinois state reimbursement rate will increase to $26 92.

This increase will cover the upcoming July one minimum wage increase in Chicago and allow us to continue to raise wages are all are Illinois employees.

We believe these increases should help us to continue the favorable hiring trends, we've been seeing in our personal care segment.

I also want to give a brief update on recent developments regarding our participation in the New York consumer directed or CD path program.

On February one of this year, the Governor of New York issued her budget, which proposes to repeal the procurement process for fiscal intermediaries, who participate in the CD path program.

Eliminating the reduction on providers, which would have occurred under this process.

This budget now proposes to make changes to the MLT see program with the goal of minimizing the number of providers in the state.

We believe these proposals will allow atlas to continue providing services to our current clients, while growing with payers, whose reimbursements rates provide for an adequate financial return.

The final budget for New York is due on April one 2023.

Once that budget is published we will be able to refine our growth plan for New York.

As a reminder, we continue to operate as normal with our MLT see partners in the New York market with respect to the CD path program.

As we received further clarification on the state GDP rates, we will evaluate whether to increase our CD pap admissions as appropriate.

Now, let me discuss our same store revenue growth for the fourth quarter of 2022.

For our personal care segment exclusive of the New York, CD Pap and ARPA funds, our same store revenue growth was seven 9% when compared to the fourth quarter of 2021.

Over the past three years, a majority of our same store growth and PCF came from rate increases from our states.

With the disruption caused by the pandemic hourly growth has been more difficult.

<unk>, we have started to see a resumption of growth in same store hours in the fourth quarter of 2022, we saw same store hours, Excluding New York GDP grew two 6% over the same period in 2021, and one 5% on a sequential quarterly basis.

This mix of volume and rate growth is more consistent to our historical averages prior to the pandemic.

Turning to our clinical care operations, our home Health segment same store revenue grew eight 3% over the same quarter in 2021, primarily as a result of our prioritizing episodic cases and declining non episodic referrals due to the lower reimbursement rates.

As we have seen our non episodic referral opportunities continue to increase our managed care team has been working with our Medicare advantage commercial payors to adjust our contract rates to a more appropriate level, which will allow us to accept more non episodic volume growth going forward.

Recently, we have started to see success in these efforts as we continue to discuss movement to episodic case rates for a longer term solution.

We are still in negotiations with a couple of our large payers and look forward to the completion of those discussions.

Our operations team continues to work hard on both mix and staffing in home health to ensure we maximize the value of the services we provide.

We remain excited about home health operation as it complements our personal care services, particularly where we participate in value based contracting models.

Our hospice same store revenue decreased four 9% when compared to the fourth quarter and 2021 with a decrease of <unk>, 9% and our average daily census, as compared to the fourth quarter of 2021 as well as the resumption of Medicare sequestration.

Our medium length of stay did improved to 27 days in the fourth quarter as compared to 22 days for the same period in 2021, but was down slightly from 28 days for our third quarter of 2022.

While hospice continues to recover from the pandemic at a slower rate than we expected. We did see an increase in hospice submissions on a sequential basis, which is encouraging.

Our hospice ADC increased to $32 one three for the fourth quarter.

Of 2022 as compared to an ADC in 2635 for the fourth quarter of 2021 inclusive of the ADC attributable to our journey care acquisition, which closed on February one 2022.

As for our ongoing development efforts, we continue to look at potential acquisitions that meet our strategic criteria.

Our deal flow continues to consist primarily of a number of smaller acquisition opportunities mainly in our personal care and home health segments.

While we have a desire to look at larger assets. They also size have been slower to come to market, especially with the near term reimbursement rate challenges for home health.

We expect to see larger home health opportunities in the coming months as the market understands the reimbursement rates coming from CMS.

In the meantime.

We have been reducing our debt with our strong cash flow.

Going forward, our disciplined balance sheet will allow us the financial flexibility to take advantage of any larger strategic opportunities that may present themselves.

As for value based care efforts, we are continuing to see positive results from our various value based care contracts.

We have now entered into five value based contracts in three states covering 4800 clients.

As well as Readmissions at various Timeframes following hospital discharge.

To date, our outcomes data has shown our ability to help reduce costs, while improving quality benchmarks.

We are currently working on additional value based opportunities for 2023.

Value based care continues to be a revenue growth opportunity, which we expect to grow to a more meaningful amount over the next few years.

I am so proud of our team for the care, they are providing to our elderly and disabled consumers and patients.

<unk> remains one of the safest and most cost effective places to receive care and is also the place where most elderly individuals and their families preferred to be.

We believe the heightened awareness of the value of home based care is favorable for our industry and will be a growth opportunity for our company, we understand and appreciate that our operations and growth are dependent on our dedicated caregivers, who worked so incredibly hard providing outstanding care and support to our consumers.

<unk> patients and their families.

With that let me turn the call over to Brian .

Thank you Derek and good morning, everyone.

I had a set of strong financial and operating performance for the fourth quarter capping off another record year of profitable growth.

Our results reflect strong demand for our services led by organic growth in personal care services, well above our normal expected range of 3% to 5% along with solid same store growth in our home health segment.

In addition to our organic growth we benefited from our acquired operations in home health, our motto home health and some of the home health added in 2021 at Apple home healthcare, which we closed at the beginning of the fourth quarter of 2022.

Our hospice business has continued to slowly recover from the pandemic with a return to our pre Covid median length of stay range in the upper <unk>.

Our hospice results also include the acquisition of journey here, which closed in February 2022.

As Derek noted total net service revenues for the fourth quarter were $247 1 million. The revenue breakdown is as follows.

Personal care revenues were $183 4 million or <unk> 74, 2% of revenue.

Hospice care revenues were $50 6 million or 25% of revenue.

In home health revenues were $13 1 million or five 3% of revenue.

We have continued to actively pursue acquisition opportunities that meet our criteria and complement our organic growth.

In 2022, we added approximately $65 million of annualized revenue with the acquisitions of journey here at Apple home Health care.

We continue to evaluate and pursue other acquisition opportunities and believe we will see a more favorable market environment. Later this year as sellers, particularly in broker processes have been slower than expected in coming to market in part due to significant Medicare reimbursement uncertainty through October of last year for home health services the.

The final announcement in late 2022 on reimbursement changes for home health has provided more clarity it should lead to opportunities for future acquisitions and skilled home health.

Though we continue to monitor developments regarding future reimbursement changes and related impacts.

Our gross margin percentage was 31, 9% compared with 32, 4% for the fourth quarter of 2021.

While we benefited from our annual hospice rate adjustment on October one 2022, our results reflect the negative impact of the July one 2022 minimum wage increase in Chicago, one of our largest personal care markets for which we did not receive a corresponding reimbursement increase.

Effective January one 2023, we did receive a statewide reimbursement increase in Illinois, which will offset the Chicago minimum wage increase with another recently announced statewide increase to be effective on March one 2023 pending CMS approval.

These decreases will be offset slightly by the positive impact from our January one rate increase in Illinois, Although we expect to see some minor compression from the March one, Illinois increase as we anticipate our gross margin contribution after wage negotiations and increases to pay time off and mileage rates from this rate increase to be in the low <unk>.

80% range, where our normal, Illinois personal care gross margin is typically in the mid 20% range.

Overall, we expect our gross margins sequentially to decline by approximately 100 to 110 basis points from the fourth quarter of 2022 to the first quarter of 2023.

G&A expense was 22, 1% of revenue consistent with the same percentage in the fourth quarter, a year ago, but lower sequentially from 22, 5% in the third quarter of 2022.

Adjusted G&A expense was 24% for the fourth quarter of 2022, an increase over the prior year of 21%, but lower sequentially from 26% in the third quarter.

The company's adjusted EBITDA increased to $28 2 million compared to $26 7 million a year ago.

Adjusted EBITDA margin in the fourth quarter was 11, 4% compared with 11, 9% for the same period last year.

While we expected to see some margin compression in 2022, primarily due to wage pressures. We were pleased to have exceeded 11% and adjusted EBITDA margin for the first time this year.

Adjusted net income per diluted share was $1 11.

Compared with 97 for the fourth quarter of 2021.

The adjusted per share results for the fourth quarter of 2022 exclude the following.

Acquisition of de Novo expenses of <unk> <unk>.

Restructuring and other nonrecurring costs of <unk> and noncash stock based compensation expense of <unk> 13 says yes.

The adjusted per share results for the fourth quarter of 2021 excludes the following.

The favorable impact of the retroactive, Illinois rate increase net of <unk>.

Acquisition and de Novo expenses of nine.

Restructure and other nonrecurring costs of <unk> and noncash stock based compensation expense of 11 cents.

Our effective tax rate for the fourth quarter of 2022 was 19, 2% and benefited from several discrete credits during the quarter as well as continued strong work opportunity tax credits.

For calendar year 2023, we expect our tax rate to be in the mid 20% range.

Dsos were $45 one days at the end of the fourth quarter of 2022, compared with $46. Two days at the end of the third quarter of 2022.

We have experienced consistent cash collections for most of our payers and expect to see this trend continue.

Our dsos for the Illinois Department of AG for the fourth quarter were 41, five days compared with $35 four days at the end of the third quarter of this year.

Okay.

Our fourth quarter net cash provided by operations was $24 3 million.

During the quarter, we made the final repayment installment on our payroll tax deferral in 2020 under the cares Act of $4 1 million and also had a net utilization of ARPA funds of $4 2 million.

Exclusive of these payments our cash flow from operations would have been $32 6 million during the fourth quarter.

For the full year 2022, our cash flow from operations was $105 $1 million inclusive of a positive net impact from government stimulus advances of $8 7 million.

We also benefited from a positive impact of working capital changes of approximately $19 million in 2022, primarily due to our strong accounts receivable collections.

As of December 31, 2022, the company had cash of $80 million in bank debt of $134 9 million.

With capacity and availability under our revolver of $382 million and $237 2 million respectively.

We have continued to focus on debt repayment in the face of rising interest rates and as a result of our strong cash flow, we're able to reduce our revolver balance by a net $90 million in 2022.

To date in 2023, we have continued this focus and have further reduced our revolver balance by another $13 5 million.

We have a capital structure that supports our growth initiatives and acquisition strategy and as previously noted we expect to be active in the M&A market. This year.

At the same time, we will continue to diligently manage our net leverage ratio, which is currently well under one times net of cash on hand.

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

We will now begin the question and answer session.

To ask a question you May Press Star then one on your Touchtone phone.

If youre using a speakerphone please pick up your handset before pressing the keys.

If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

The first question today comes from Scott Fidel with Stephens. Please go ahead.

Hi, Thanks, good morning.

First question just I appreciate the commentary just around the two Illinois rate increases and then the impacts on gross margins might.

It might be helpful. Just if you want to if you could just give us what you would view the overall annualized revenue impact of of.

Of those two Illinois rate increases in aggregate, obviously that would I guess sort of annualize out more in the second quarter.

And then just an update as well on sort of how the blended rates look across your other markets on personal care outside of Illinois for 2023.

Yes, Scott I'll talk about the January burst increase or so based on kind of current volumes in Illinois, that's going to result in approximately right around $12 million in annualized revenue. So obviously come in in January versus Youll see a full quarter impact of that in Q1. The March 1st rate increase which is a little larger per hour.

Going to be probably between $17 million to $18 million kind of based on current volumes in Illinois, obviously getting one month of impact of that in Q1, but youll see the full impact of that as that rolls through in Q2.

Side of that I think we've seen a couple of other markets that we're going to see rate increases for I think South Carolina, which is one of our smaller markets system through with a rate increase early this year.

Probably not going to see the same level of rate increases across the board. We've seen the last couple of years, but I think overall, we're still seeing some support and some other areas as well.

Okay got it and then a follow up question just wanted to follow up on Doug's commentary just on I guess sort of the updated training around the M&A pipeline and Brian I know you mentioned as well sort of maybe picking up middle later this year I'm, assuming is that sort of implying.

Wanting the market wanting to also get visibility into at least the proposed 2024.

Rates for home health Medicare just given some of the uncertainty around.

Some of that proposals that CMS had talked about for next year as well.

And that will be the first part and then the second part I guess, if you wanted to just sort of update us on your priority, Jason Jason West between home health and personal care hospice in terms of.

How youre, how youre prioritizing M&A.

The pipeline here thanks.

Yes, Scott.

I do think the question of what's going to happen with the home health rates long term is still somewhat to be answered I mean, obviously last year there were.

A period of time, where we Didnt know a whole lot of based on what had been announced by CMS as to what the actual rule is going to be by the time it came through.

We still have a little bit of that going forward as you know.

I'm trying to figure out exactly what the rates are going to be and I think the real question lies and what sellers and purchasers.

Our thinking I don't know that all sellers to date have come to the place where they are.

Factored in that there might be a future.

Limitations on the rate increase and so their expectations for price might be still a little high.

I think from us as purchasers and others in the industry, we're trying to be very careful and strategic.

As to what we pay for deals until we truly understand the ruling so I think that has affected some of the as Brian said some of the larger broker deals that we may see particularly in the home health market.

Going forward the prioritization really continues to be quite consistent from what we've been telling you for the last few quarters.

Our prior position as far as where we will use our acquisition dollars will be really around personal care as well as home health.

At this point in time, we're probably not as focused on hospice as we have been in the past we think we have a nice.

Operation around the hospice coverage around our personal care market. So we're really trying to grow home health and we're really also continuing to look for those strategic opportunities to grow personal care either strengthening the states in which we currently operate or potentially entering into new states, where we would like to go so that'll be our focus.

That youll see over the next few quarters in 2023.

Okay. Thank you.

The next question comes from Karl <unk> with Stifel. Please go ahead.

Thank you good morning.

Could you talk about any shifting discharge referral sources that may have impacted this quarter on the hospital side.

Since you mentioned the positive hiring trend, which contributed to the six 6% quarter on quarter growth in the emissions. There should we expect a relatively strong sequential gain ADC in the first quarter this year.

And Additionally journey here.

He has played a major part of last year, and then compare to your $50 million and the revenue expectation should we expect any upside.

In terms of the continued ramping up of performance there. Thank you.

Yeah happy to take those questions first when you look at that just kind of mix from an admission and discharge rates.

We haven't what we have seen is certainly some improvement in our medium length of stay year over year, we're kind of back to that upper Twenty's, where we were pre pandemic.

Did see a one day slide sequentially.

The one area, where we're still seeing.

And opportunity for improvement is when you look at nursing home discharge length of stay and median length of stay is those still haven't recovered so were tending to get those patients later in the cycle and I think some of that may resolve itself with the ending of the public health emergency and some of the special rules around.

Smith and related to scaling patients that did not did not have to have the prior three day hospitalization.

There was previous pre pandemic. So I think there is some certainly some opportunities there when you look at.

From the standpoint of what is.

Q1 looked like we.

We certainly have added a lot of staff. So thats a very helpful to help with the growth aspects, but I still think you're going to see a little bit of a bumpy.

In hospice and that probably the first half of the year.

More of the growth is going to come through on the second half of the year and part of it is related to what I, just said related to exploration.

Some of the allowances under the pag with.

The journey care.

Fully integrated journey care into our <unk>.

This poised for some growth, but again.

I still have some of the same issues that you see for I think they are going to be kind of challenging in the first couple of quarters.

Related to some of the can we get more nursing home business and particularly can we get patients come on service a little earlier out of.

Those facilities.

<unk>.

Got you.

So it sounds like you're going to get pretty shortly growth in personal care services. This year and ways to improve hiring trend. When you will return to a more normalized volume growth as well. So should we when we look at organic growth profile should we expect that.

You can sustain kind of the top end of that 3% to 5% growth or do you foresee yourself doing even higher than that thank you.

Well I think you can certainly say that we are.

We're excited about the potential for growth this year in personal care, we would tend to believe that it can be to the upper end of that 3% to 5%, we're not ready to adjust that level.

At this point in time, we want to see what continues to happen over this next year I think the exciting part for US is I mentioned in our comments was the fact that for the first time since the pandemic incur occur.

Occurred.

We are starting to see over the last couple of quarters growth and personal care.

Seeing this hourly growth and then put on top of that just normalized.

Rate impact, we believe that 2023 will be a nice share price et cetera.

Quick I'll, just piggyback a little bit on that I, just keep in mind, obviously Q1 comps back to last year impacted by the AMA front wave I think just across the board probably expect some some pretty robust same store numbers, but again.

That impact last year compared to this year is going to be a big part of that difference, but with some of the rate increases we've got particularly with two rate increases from Illinois, which is our largest personal care market.

We're going to be helpful. I think on the personal care side from a rate perspective.

Great I appreciate the color. Thank you.

As a reminder, thank you have a question. Please press Star then one can be joined into the question queue.

The next question comes from Brian <unk> with Jefferies. Please go ahead.

Hi, Derek head, Brian Pausing.

Pausing on for Brian just a couple of questions for me this morning.

So just going back to your discussion around contract negotiation for.

Home health rate. So as you negotiate the contract terms with Medicare advantage payers I'm curious what leverage points youre, implying successfully get those rates and also what this appetite look like from the payers to secure the value based contracts like the case rate you had mentioned previously.

Yes.

Actually when you look at kind of from a leverage standpoint I mean these are the payers are our largest payers on the home health side. They also tend to be in the markets, where we have significant personal care presence as well and so I think that is.

One of our primary leverage point. These are also payers in certain instances, where we have existing value based arrangements or we're talking with them about.

Adding value based arrangements, so that's really where kind of our leverage point when looking at can we get the.

And episodic or case rates in place.

Think there's still a lot of appetite from payers to explore value based arrangements.

We're starting to build a good track record around what we've accomplished and so theres really no shortage of interest in those types of arrangements.

I think it's really a matter of making sure that we have.

The wherewithal to do good with those projects.

We don't want a stretch too far so we're just making sure that we're building out some infrastructure related to value base.

Should help us be able to take on more of those cases.

Derek alluded to in his comments. This is something that we think is it as a tremendous opportunity for us down the road.

But it's going to take a little while to get there, making meaningful from a revenue standpoint.

Great. Thanks for the information and then just one more follow up I think this is Marcel for Derek.

Mentioned with the <unk>, just the elimination of the enhanced federal Medicaid match.

So what are the offsets that will create that stability even though.

Federal Medicaid match program ending in.

Yes. This is Brad.

I think when you look at those the reduction in the match also think about.

The re determinations that were put on hold which again, we don't feel like we will have much if any impact from re determinations on the Medicaid roles. Just when you look at the patient population that we serve elderly fixed income chances of them being bumped off the rolls.

As probably negligible. However, there are individuals that were added to Medicaid that.

May not qualify now and I think thats in large case why the matches.

Being eliminated and lives being phased out as you see those redetermination take place.

Great. Thanks for taking my questions.

Yes.

The next question comes from John Ransom with Raymond James. Please go ahead.

Hey, there.

Eric I know, it's a small piece of your business, but.

I'd be interested in your perspective on hospice.

Some of the cross cuts were saying do you think this is a.

Temporary thing.

Do you think something structural or is it in that market.

Thanks, John .

Got.

It seems there has been a little bit of change in the industry. I think you can see that in that all the providers of hospice over the last couple of quarters.

Have had some struggles as far as growth.

There was a question whether with the pandemic there was a lot of increased elderly deaths.

And that came through that period of time and so the question is.

Some of the indications are if you look at the government data hospice has gone down a little bit over that timeframe. So while I don't believe and I don't think we as a team believe that's going to be a long term change in the hospice environment. We do think there are some short term impacts as those.

Probably those early.

Elderly patients that would've been on hospice is that kind of moves through when we get back to a more level.

Operation as we consistently have seen yearly and the hospice environment. So we're still excited about hospice I want to make sure you understand that just because it's not a focus of our M&A at this point in time, that's largely because we already have about 20% of our revenue in hospice and we really believe that to get the balance of home health and clinical services sat on <unk>.

Of our personal care network is really the strategic way to move forward in the next year or two.

And so I mean, just to follow up on that do you think.

Length of stay.

Are you going to be any different in the future than they used to be they are more government scrutiny.

They like that or again do you think that some of the struggles every year periods of habit and shorter length of stay in.

Any bottleneck referrals do you think Thats also temporary and notwithstanding the demand issue of structural demand issue from that noted mortality.

Anything with referral network.

Say that kind of thing.

Well.

We saw during the pandemic that our length of stay which challenged US was the industry is probably due to what Brad mentioned earlier and that is we were receiving the hospice patients that were coming on board over the last couple of years seem to have been lighter.

Their stage.

On the.

Hospice stage, so their length of stay once they came.

Came on service tended to be shorter than what we had seen historically.

The question will be will we start to see that longer length of stay as the nursing homes, the snaps get back to after the <unk>.

Emergency is declared over when they get back to more of the normal approach that when we received clients straight from a nursing home the length of stay for those clients tend to be longer.

If you look at the last couple of years, we still received a lot of hospital hospice referrals and their length of stay has not changed a great deal, but those tend to be the shorter length of stay patients. So our belief is we will start to see that change over the next year or two but as to what point it really reverts back to a more normalized level.

Still a question for us.

Great. Thanks, so much.

Okay.

As a reminder, if you would like to ask a question. Please press Star then one to be joined into the question queue.

Our next question comes from Matt <unk> with William Blair. Please go ahead.

Hey, good morning.

I wanted to follow up on the comment about home health rate.

And then on the on the Medicare advantage side.

Theme for a number of the companies in this space.

For years really in terms of getting.

Adequate reimbursement you referenced your leverage point around personal care, but just curious maybe what percentage of your book of business. Today, you feel on that that you feel like youre getting adequate reimbursement what's unique about this situation.

How you're approaching it.

Payers today that might be different than one or three years or five years ago.

Well I think when you look at the MA business.

We've had the purposely kind of slow down some of the referral volume that we saw in Q4 and really to get the attention of some of the payers out there. We have found though once we start having conversations with them. They understand some of the challenges that we have.

One we haven't really revisit these rates in a while we've had.

Certainly some inflation around wages that needed to be addressed.

And if they want to have adequate coverage for their beneficiaries they need to do something about the rate. So we've.

We've had some success I think the way we're approaching it is let's try to get some near term wins, let's focus on if we are on a non episodic let's get those non episodic rates adjusted to where we're at.

A position, where we can start taking on those referrals and they become profitable for us and at the same time, let's look at the longer term solution, which is honestly, we need to move towards an episodic type rate that is more comparable to Medicare fee for service. So we've had some.

Good traction with MA plans, both on a near term solution, but then also on that longer term solution.

And investigating and looking at episodic because I think they realize.

This isn't.

I think we're kind of reaching a.

A point, where if they want to have the coverage that they need they're going to have to adjust rates also I think theyre looking for we'd like department with people that we can look at potential value based types of arrangements. So I think that bodes well for us, particularly where we have the personal care footprint complements the home health footprint to be able.

Do something creative on the rate side.

Okay, and then following up on that.

Some of the <unk>.

Investments <unk> made in some of the candidate tracking.

Both of those gave that potential higher than decrease time to hire.

Is there anything you can maybe quantify for us in terms of how thats improved the metrics you track on the hiring side and then you referenced in rolling it out to all your site 23, so maybe.

Where that rollout today, and what's kind of the course of rollout over 23, just so we can think about.

Asset metrics continue to improve throughout the year.

Yes, so on the Kennedy tracking system, we initiated it.

First with our clinical side lower volume just to make sure when we get to kind of address any.

Issues or bugs in the system that was successful earlier this past year by about mid year. We then piloted at several of our <unk>.

Personal care sites are actually kind of split it out a couple of locations in each region.

And wanted to spend some time there because if you look at just volume of hiring that we do on the personal care side is significant so we wanted to make sure that the system was working.

As planned and so we've had those rollouts have been successful we are now ready to take it to the rest of the personal care locations, which will do over the next probably two quarters to get all of the regions.

The new candidate tracking system, it's pretty intuitive takes a little bit of training, but pretty straightforward, but what we've seen is one increase in candidate flow to start with but we've also seen that reduction.

From the time someone submits an application to their actual hiring and thats been depending on whether it's the clinical services or BCS we've seen anywhere from.

One or two days savings versus really on the PCI side, where we've seen probably four to five days.

Acceleration of that process.

Okay. Thanks, Brad.

The next question comes from Joanna <unk> with Bank of America. Please go ahead.

Good morning. Thank you so much I am sorry, if you mentioned this earlier, but actually.

Just want to follow up on that on the last commentary did you did you gave some stats in terms of your net hires senior personnel kind of how things are trending in Q4 and into Q1.

Yes. So if you look on the clinical side, we actually had.

Nice net higher we added probably about 80 net hires on the clinical side, primarily on the hospice front our.

Our hiring on Ccs certainly if you look year over year. It was I think about 10% greater than it was prior year sequentially down a little bit, but that's mainly because of the holiday season, you see some slowness in Q4, good to see our January and February numbers look solid.

So more in line kind of with the Q3 type number so good hiring momentum.

On the personal care front and again as we said the clinical hiring has certainly improved really since kind of mid year last year.

Okay. That's helpful and I guess, some personal care. So you mentioned.

Some positive trends there.

But also on that.

On the volumes.

For business to improve.

When Chile.

As we think.

Going forward about the following quarters is it fair to assume funds.

The normal situation should be growing sequentially every quarter has some seasonality in the business.

No I mean, I think there is that it tends to be a little less seasonality related to personal care I mean, where you have seasonality primarily as if you have a kind of winter storms can affect it a little slowness in tends to be frankly in Q4 around December the holidays, but we saw in spite of that some nice <unk>.

Growth.

Q1, I think when we look at Q1, Q2, Q3 should be nice steady growth with the hiring numbers that we're seeing.

Keep in mind, Julia just to piggy back on that a little bit so in personal care, but a lot of our markets. We have missed visits things we have the ability to make those up and reschedule those on different days again, that's market to market. So it's not always a guarantee but we do have a little bit of flexibility. So we run into some of those things.

Little bit of ability to work around those in certain spots.

And another follow up on the cash flow, which you mentioned was very strong or something.

Included some of that.

Maybe call it onetime.

Funny, you would seasonally disconnect with beautiful, but how should we think about operating cash flow for this year.

Just want to size, how much should we exclude kind of ask the one time non repeatable.

Would you think you could land for this year for cash flow.

Yes, if you look at 2022, so it was 105, but if you kind of back out the net positive impact from from the ARPA funds and then you back out kind of those working cap changes that I mentioned in my comments was around $19 million. So if you back those out that's $27 million you probably would have been more of the $75 $80 million range.

<unk> of our EBITDA of a little over $100 million. So that's pretty strong conversion rate still so I think to expect something more in that range would be more probably opportunity for 2023, I think 'twenty two we're not going to get them to see $20 million and net working cap improvement even as we grow that's probably more of a onetime.

But that's 75% conversion rate is probably something you should expect on a consistent basis.

Great. That's helpful. Thank you and the last one follow up.

So you were talking about working with the home health side sorry.

On the way.

It's working with the Medicare advantage plans.

I don't remember.

Could you disclose can you tell us what is your mix of Medicare fee for service.

Yes.

Medicare advantage prevent that versus Medicare advantage episodic type contract.

We're probably running at volumes.

I know visits.

Yes, we haven't disclosed that in the past when we were probably a little over half of our businesses Medicare are episodic and <unk>.

Less than half is non episodic and again, we're working on that mix and certainly made some good progress in Q4 related to that.

No that's what I think.

Great to see you there. Thanks, so much for the question.

Sure.

This concludes our question and answer session I would like to turn the conference back over to Dirk Allison for any closing remarks.

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

The conference has now concluded thank.

Thank you for attending today's presentation you may now disconnect.