Addus HomeCare Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Annis HomeCare Corporation third quarter 2020 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Drew Anderson, Investor Relations. Please go ahead.

Thank you. Good morning and welcome to the Addis HomeCare Corporation third quarter 2020 earnings conference call. Today's call is being recorded. 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 third 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. At this time, I would 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, and thank you for joining us for our 2020 Third Quarter Earnings Call. With me today are Brian Poff, our Chief Financial Officer, and Brad Bickham, our Chief Operating Officer. As usual, I will begin with some overall comments, and then Brian will discuss the third quarter results in more detail. Following our comments, we would be happy to respond to any questions. As you already know, the pandemic has created many challenges over the past eight months, and I expect the environment to remain operationally difficult until there is a solution to the COVID virus. In spite of these challenges, my optimism about the future of the home care industry and Addis' opportunity within it are as great as ever. I am especially proud of our dedicated team of leaders and team members that have demonstrated their ability to continue to meet our mission and execute upon our strategy. We have continued to provide quality care to our consumers and patients with an added focus on safety. We have continued to grow our business both organically and through acquisition. and we have continued to generate strong operating performance including the most recently reported third quarter 2020 results. As you saw with the financial results we announced yesterday, Addis continued our solid operating performance in the third quarter of 2020. Our revenue for the third quarter was $194 million as compared to $169 million for the third quarter of 2019, an increase of 14.8%. Adjusted earnings per diluted share for the third quarter of 2020 was 76 cents, up from 75 cents for the third quarter of 2019, despite the impact of COVID-19 on revenues during our latest quarter. Our adjusted EBITDA for the third quarter of 2020 was $19.5 million, as compared to $17.4 million for the third quarter of 2019, an increase of 12.2%. Our adjusted EBITDA margin increased to 10.1% for the quarter, consistent sequentially with the second quarter. During the third quarter of 2020, our revenues continued to be adversely impacted by the COVID-19 pandemic, with a decline of approximately $6 million from our pre-COVID 2020 run rate. As was the case in our second quarter of this year, this reduction occurred to varying degrees Thank you. Thank you. Thank you for joining us. We are grateful to these states and to our MCO partners who have remained committed to ensuring prompt payments to providers, even with the challenges of this virus. As we have previously discussed, affected July 1, 2020, the City of Chicago raised the city's minimum wage by $1 to $14 per hour. A rate adjustment to cover this increase is included in the fiscal year 2021 Illinois state budget, which was passed in May of this year. The increased rate to offset the City of Chicago minimum wage increase will be effective statewide on January 1, 2021, subject to federal approval, which the state has already applied for. Our results for the most recent quarter include an increase in our costs due to this unreimbursed wage increase of approximately $900,000. We will see a similar effect in our results for the fourth quarter of 2020, after which The January 1st reimbursement rate increase should eliminate this temporary negative effect. I also wanted to update you on certain developments pertaining to the New York State budget reduction which was effective April 1 of this year. The New York State Department of Health announced that all non-exempt Medicaid payments would be uniformly reduced across the board by 1% effective January 1, 2020 through March 31, 2020 with an additional 0.5% reduction effective April 1, 2020. Approximately one-third of our New York business is directly with the state and was immediately affected by this reduction. During the third quarter of 2020, we also started to see certain MCO payers begin discussions on their rates to Medicaid service providers. Our managed care team has been successful at maintaining our rates with our MCO partners with only immaterial changes. We continue to work with our New York State Association to mitigate any future rate reductions and to help educate the state leaders of the value of home and community-based services. One of our potential challenges over the next couple of years could be the effects of this virus on state budgets. Although this pandemic has reduced state tax revenues, The impact over the last eight months has not been as much as originally expected due to federal COVID relief to both states and the general population. In addition, states are currently receiving an additional 6.2% federal Medicaid match as part of the CARES Act, which will continue through the duration of the health emergency which currently goes through the first quarter of 2021. Our home-based care is cost-effective and significantly safer than having patients in a long-term care facility in today's challenging environments, which we believe the leadership of our states recognize. For the third quarter of 2020, our personal care same-store revenue growth was 4.8%. This growth rate is at the higher end of our stated expectation, but is lower than we have experienced in the last few quarters. This slightly lower growth rate is mostly driven by the issues we see in New York. In our third quarter, our New York acquisition of BIP Healthcare Services, completed on June 1, 2019, became part of our same store growth calculation for the first time. Our census for the New York market remains approximately 17% below what we saw in the first quarter of this year as families and caregivers continue to struggle with the impact of the virus. Exclusive of our BIP acquisition, Our same-store personal care growth would have been 8.5%. In addition to New York, we also saw modest reductions in volumes in our Midwest and Southeast states, which are now experiencing a new wave of the virus. However, we are very encouraged that two of our largest markets, Illinois and New Mexico, have seen a recovery in average billable hours per week, which are now running slightly ahead of what we saw just prior to the beginning of the pandemic. With the upcoming rate increase in Illinois on January 1, we should continue to see solid same-store growth in our personal care segment over the next few quarters. On a company-wide basis, we continue to see an overall reduction in patients on hold and improvement in our caregivers' hiring numbers, which contributed to a sequential 6.5% increase in our personal care same-store census. For the third quarter of 2020, Our hospice same-store revenue decreased 5.6% as we saw our average daily census decrease 6.2% year-over-year primarily due to continuing facility access issues in our New Mexico hospice program just discussed. With the continued limits on access to facility-based settings such as assisted living facilities and skilled nursing facilities, our sales team has encountered challenges in identifying and working with new patients who need hospice services. However, we did experience sequential same-store hospice admission growth of 5% due primarily to an increase in our non-facility referral base. Our home health same-store revenue decreased by 8.9% year over year, but improved approximately 4% on a sequential basis. While our home health volumes were up 12.2% compared to last year, Our revenue continues to be adversely impacted by an increase of approximately 300 basis points in our non-Medicare patient mix and a reduction in our institutional early Medicare fee-for-service referrals under PDGM. Our Medicare admission volume did begin to recover late in Q2 of this year and is currently running slightly ahead of our pre-COVID admissions number which has increased our Medicare patient mix Approximately 200 basis points on a sequential basis. As we announced on November 1st, we closed on the acquisition of County Homemakers, a provider of personal care services in the state of Pennsylvania. This acquisition expands our personal care service across the state and is aligned with our strategy of creating and maintaining strong geographic coverage in the states where we operate. We're very excited about the completion of this transaction and I want to welcome all the new team members from County Homemakers to Addis. As most of you know, acquisitions have been and 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 re-engaged in the process of identifying and closing additional acquisitions as we look at opportunities in each of our three operating segments. Our acquisition pipeline and liquidity position remain strong, and while we are being appropriately cautious, we continue to believe that we can close additional acquisitions during the next few months. As we have grown our company over the past four years, we found that we had outgrown our corporate space in Frisco, Texas. While we focus on being conservative with our expenses, it became apparent in 2019 that we needed to increase our office space to allow for the additional personnel that we needed to support our growth. In the fourth quarter of 2019, we negotiated a larger corporate office space near our old headquarters. We finalized this lease in the first quarter of 2020, just prior to the onset of the COVID virus. During the third quarter of 2020, we left our old headquarters and moved into our new location. While we are still mainly working remotely, we are excited about this move. Our new corporate office gives us the ability to support our broader team as we continue to grow over the next few years. This move did require us to write off the remaining terms of our old lease in the current quarter. As I look back over the past eight months, I am proud to see a team of caregivers and support staff have done a wonderful job of living our mission during extraordinary times. Our team has been willing to serve the needs of our consumers and patients in their homes in spite of all the risks associated with the COVID-19 virus. All caregivers in all segments of healthcare deserve our appreciation for their commitment to patient care. I especially want to thank the Addis team for continuing putting our patients first. Before I turn I want to remind our team of the value of our service. While the COVID virus is still a challenge for our country as well as the world, we need to continue to live our mission and values while serving our consumers and patients. Each of these individuals need to be cared for at home where we can keep them safe from the virus while providing much needed care. With that, let me turn the call over to Brian.