Addus HomeCare Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Addis HomeCare Corporation second quarter 2020 earnings conference call. At this time, all participant lines 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. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, and Drew Anderson. Thank you. Please go ahead, ma'am.

Thank you. Good morning and welcome to the Addis HomeCare Corporation second quarter 2020 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 ADDIS expected quarterly and annual financial performance for 2020 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 forecasts, 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 ADIS filings with the Securities and Exchange Commission and in its second quarter 2020 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 president and chief executive officer, Mr. Dirk Allison. Please go ahead, sir.

Thank you, Drew. Good morning, everyone, and thank you for joining us for our 2020 second quarter earnings call. Brian Poff, Chief Financial Officer, and Brad Bickham, Chief Operating Officer. As usual, I will begin with some overall comments and then Brian will discuss the second quarter results that we issued yesterday afternoon. Following our comments, we would be happy to respond to any questions. Yesterday, we filed our 2019 10-K along with our first and second quarter 10-Qs for 2020 and with these filings, we are now back in compliance with SEC filing requirements. As you know, our delayed filings were the result of a disagreement between our current and former auditors on how to handle an approximate $10 million non-cash charge in the aggregate related to a 10-year time frame. To move past this issue, we engaged our current auditors, PWC, to re-audit our financial results for 2017 and 2018 that were previously audited by another big four accounting firm. That work was completed over the past 120 days and the expected results, which are not material, are reflected in our 2019 10K. I have to thank both our ADDIS team as well as the team at PwC for their dedicated work over the past few months, which has gotten us to this point. Even with the pandemic, these individuals stayed focused and completed this task while continuing to perform their normal duties. As you saw with the financial results we announced yesterday, Addis had another solid operating performance in the second quarter of 2020. Our revenue for the second quarter was $184.6 million as compared to $148.9 million for the second quarter of 2019, an increase of 23.9%. Adjusted earnings per diluted share for the second quarter of 2020 increased to 73 cents from 54 cents in the second quarter of 2019, an increase of 35.2%. Our adjusted EBITDA for the second quarter of 2020 was $18.7 million as compared to $12.5 million for the second quarter of 2019, an increase of 49.9%. Our adjusted EBITDA margin increased to 10.1% for the quarter. During the second quarter of 2020, we saw a decrease in our revenue of approximately $8 million due to the effect of the COVID-19 virus. This reduction occurred to varying degrees in all three segments of our business. As we have discussed on previous calls, we continue to see improvement in our same store revenue as we have progressed through the most recent phase of the pandemic. While we cannot say for certain, we estimate our third quarter revenues will be negatively impacted approximately 2-3% as compared to our first quarter run rate. As we reported, our operating cash flow in the second quarter was strong at approximately $30 million, increasing our June 30, 2020 cash balance to $158.5 million. Due to our strong financial position and following discussions with our board, We announced last month that we would be returning the approximate $6.9 million we have automatically received from the CARE Act Provider Relief Fund relating to our Medicare business. We have made the decision to return these funds primarily for two reasons. First, we have a strong capital structure with little debt and solid ongoing operations mitigating the need for these funds to continue our normal operations and allowing us to let others who need these funds to have access to this money. And second, we lacked comfort with the continuing uncertainty around federal reporting and audit requirements which may be imposed on companies in the future who chose to participate in the stimulus program. Based on these reasons, both our management and board felt it was appropriate to return these funds. As we previously discussed, On July 1, 2020, the City of Chicago raised the city's minimum wage by $1 to $14 per hour. This accelerates the move to a $15 per hour minimum wage ahead of what the state of Illinois had already passed. Our team has been working with state leadership to secure funding to offset this accelerated wage increase. A rate adjustment to cover this Chicago minimum wage increase is included in the fiscal year 2021 state budget which was passed in May of this year. This increased rate to offset the City of Chicago minimum wage increase will be effective statewide on January 1st, 2021 subject to federal approval. ATIS will experience an increase in our unreimbursed cost of approximately $1.2 million a quarter for each of the next two quarters until this reimbursement rate is effective. I also want to update you on certain developments pertaining to the New York State budget. After implementing a 1% reduction for all Medicaid providers in January 2020, the state has continued to deal with lower levels of funding due to the COVID virus. The recently passed fiscal 2021 budget did include an additional 0.5% reduction to the Medicaid rate effective April 1 of this year and gave the governor leeway to make additional changes needed as the budget year progresses. We continue to work with our New York state associations to try and mitigate any future reductions and to help educate the state leaders of the value of home and community-based services. We believe our home-based care is cost-effective and significantly safer than having patients to be forced into a facility setting in today's challenging environment. For the second quarter of 2020, our personal care same-store revenue growth was 9.7% driven largely by our rate increases in Illinois, which were affected in July 1, 2019 and July 1 of this year, offset by the impact of the COVID-19 virus. We should continue to see solid same-store growth in our personal care segment over the next few quarters We did see our personal care same-store census decrease from 38,099 to 35,479 due to the number of patients who had requested a hold in their service. Our census calculation includes those patients who have received care within the past 30 days. If a patient has placed their service on hold for more than a 30-day period, they are no longer included in our census calculation. As we see the return of these patients when they become more comfortable with services provided in their homes, our personal care census should continue to recover. For the second quarter of 2020, our hospice same-store growth was 2.7% as our hospice program saw slowdowns in volume due to facility access restrictions as well as temporary closures of some of our referring physician offices. Hospice admissions have steadily improved since our April lows and are currently running approximately 24% higher than our April admission numbers. Thank you. Thank you. Thank you. While actual home health volumes were up, our revenue was adversely impacted by an increase of approximately 200 basis points in our non-Medicare patient mix and a reduction in our institutional early referrals under PDGM. Our Medicare admissions volume recovered in June and is currently running slightly ahead of our pre-COVID admissions numbers. In addition, our mix of institutional early Medicare admissions has also recovered to pre-COVID levels, primarily due to the resumption of elective surgical procedures in many locations. As we announced on July 1st, we closed on the acquisition of A-plus Healthcare, a provider of personal care services in the state of Montana. This acquisition makes us one of the largest providers of personal care services in the state which is in line with our strategy of creating and maintaining strong geographic coverage in the states where we operate. I want to welcome all the new team members from A-plus that have joined us at Addis. As most of you know, acquisitions have been and still remain an important part of our growth strategy at Addis. We have strategically maintained a strong capital structure which allows us to take advantage of acquisition opportunities as they occur. While we took a short pause from pursuing new acquisitions during the early phase of the COVID pandemic, we are now fully reengaged in the process of identifying and closing additional growth opportunities in all three segments of our business. Our pipeline remains strong, and while we are being appropriately cautious We continue to believe that we can close additional acquisitions during 2020. As our financial results indicate, our team, both caregivers and support staff, have done a wonderful job of staying committed to our mission during the past five months of the virus. Our frontline caregivers have been heroic in their willingness to continue serving the needs of our patients in their homes in spite of the risk of potentially contracting the COVID-19 virus. They have shown the professionalism that so many of our company's health care workers have demonstrated. There's no way for me to share how grateful I am for their dedication other than to say thank you. In addition, our administrative team has continued to work hard, whether in the office or through remote means, providing the much-needed back office support that allows our frontline caregivers to do their job as well as continuing the difficult task for both our caregivers and administrative staff. I am thankful for the patience of our team as leadership has continued to both create and modify policies and procedures to keep them safer as new information emerges. While we are seeing improvements in our call-offs, and that's where a patient or family decides to skip their normal personal care service visit, Due to their concerns of having someone, even a caregiver, in their home, we continue to experience a higher-than-normal patient-driven hold on services in certain markets, particularly New York and Chicago. As we discussed on our first quarter earnings call, we began to acquire PPE in our non-clinical segment, something that we had not needed in the past. Going forward, we believe we will need to continue supplying masks, Thank you. Thank you. as we have been able to provide this higher level of PPE to our team, we have started providing services to COVID positive and pursuing positive patients. Our current case volume is equally split between our hospice and personal care service lines with only a few COVID positive patients in our home health segment. We are committed to continuing to take care of these patients and help them as they deal with this virus. While the past five months have been challenging, I remain optimistic about the future of the home care industry and Addis in particular. We have a dedicated team of leaders and team members that have demonstrated their ability to continue to meet our mission, even as this virus has disrupted the way we have historically operated. I believe the coming months will provide many opportunities for us to continue to achieve our strategic goals for Addis. I want to close my part of this call by saying thank you to all the employees at us. The past few months have been a difficult time for our country and our industry. Through it all, you have continued to live our missions and values while serving our patients. It is important, now more than ever, for our patients to be in their homes where we can keep them safe from this virus while providing much needed care. Thank you, Dirk, and good morning, everyone. Yesterday, after the market closed, we filed our 10-K for 2019, as well as our 10-Qs for both the first and second quarters of 2020 with the SEC.