Addus HomeCare Corporation

Hello, ladies and gentlemen, and welcome to the Addis Home Care Corporation Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star zero on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Drew Anderson. Please go ahead.

Good morning, and welcome to the Addis Home Care Corporation fourth quarter and 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 2021 or beyond. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, discussions of 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 in its fourth quarter in 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 fourth quarter earnings call. With me today are Brian Popp, 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 fourth quarter results in more detail. Following our comments, we would be happy to respond to any questions. As we've been saying for the past 11 months, the pandemic continues to create many challenges as we experienced a substantial new surge of COVID cases beginning midway through the fourth quarter of 2020. While I expect the environment to remain operationally challenging over the next several months, we are encouraged by the progress being made with the COVID vaccine rollout and the steady reduction in COVID cases since the peak in late December. We look forward to the time when this pandemic is no longer a significant disruption to our operations. In spite of the ongoing pandemic-related challenges, my optimism about the future of both the home care industry and Addis remains strong. I'm especially proud of our dedicated team of leaders and team members that have demonstrated their ability to meet our mission and execute upon our strategy. This past year has been a unique challenge for our country, and I believe all of our Addis team has been a vital part of keeping our elderly citizens safe. As you saw with the financial results we announced yesterday, we continued our solid operating performance in the fourth quarter of 2020. Our revenue for the fourth quarter was $196 million as compared to $192.4 million for the fourth quarter of 2019. Adjusted earnings per diluted share for the fourth quarter of 2020 was 82 cents, up from 73 cents for the fourth quarter of 2019, despite the impact of COVID-19 on revenues during our latest quarter. Our adjusted EBITDA for the fourth quarter of 2020 was 20.9 million as compared to 18.8 million for the fourth quarter of 2019, an increase of 11.6%. Our adjusted EBITDA margin increased to 10.7% for the quarter, up from 10.1% sequentially. During the fourth quarter of 2020, our revenues continue to be adversely impacted by the COVID-19 pandemic, with a decline of 2% to 3% from our pre-COVID 2020 run rate. As was the case in our third quarter of this year, this reduction occurred to varying degrees in all three segments of our business, but particularly in the New York personal care market and in our New Mexico hospice operation, where we still see a number of facilities limiting access, which hinders our ability to work with new patients. As a result of the recent increase in COVID cases during the last couple months of 2020 and the ongoing COVID precautions in place, we estimate our first quarter 2021 revenues will continue to be negatively affected by approximately 2% to 3% as compared to our pre-pandemic run rate. For the full year 2020, Our revenue was $768.4 million as compared to $648.8 million for 2019, an increase of 17.9%. Adjusted earnings per diluted share for 2020 was $3.08 from $2.50 for 2019, an increase of 23.2% despite the 10-month impact of COVID-19 on revenues. Our adjusted EBITDA for 2020 was $76.9 million, as compared to $58.7 million for 2019, an increase of 31%. Our adjusted EBITDA margin increased to 10% for all of 2020, up from 9% for 2019, as we continue to see leverage from our increasing size, along with the growth in our higher margin clinical services. Our fourth quarter 2020 operating cash flow, exclusive of a government stimulus advance, was solid at approximately $24 million. During the fourth quarter of 2020, many of the states where we operate have continued to prioritize timely payment to home care providers. We continue to be grateful to these states and to our MCO partners who have remained committed to making prompt payments to providers, even with the challenges of the virus. On December 1st, 2020, we closed on two additional acquisitions, Queen City Hospice, a large provider of hospice services in Ohio, and Sun Life Home Care, a personal care provider in Tucson, Arizona. The integration of these operations into Addis has been proceeding consistent with our expectations and on schedule. Both of these acquisitions will help us expand our services into existing markets with Queen City Hospice adding hospice services to our Ohio personal care presence. I want to again welcome all the team members from Queen City and Sun Life to the Addis family. We continually monitor legislative activity in both Washington DC and our various states relative to each of our service lines. Obviously, the COVID relief legislation expected in budget reconciliation is projected to be significant in providing general financial relief to states suffering revenue losses from the pandemic. We are encouraged by the provision included in the proposal that will provide an additional 7.35% in federal matching funds specifically for Medicaid home and community-based services. Increasing the federal minimum wage is another proposal we are watching closely that may or may not become law. Regardless, through our various trade associations, we are developing proposals focused on making sure that states have the necessary resources to raise reimbursement rates commensurate with any rise in the federal minimum wage. To that end, we were extremely pleased to see the Congressional Budget Office, to our knowledge for the first time, score the cost impact of minimum wage increases on Medicaid and Medicare programs. On the state level, We were disappointed that Illinois delayed the scheduled January 1st, 2021 rate increase until April 1st of this year. However, the Illinois governor introduced his fiscal 2022 budget on February 17th, and this rate increase is included effective April 1st, 2021. The governor also included funding in his budget for an additional rate increase to offset the upcoming July 1st $1 minimum wage increase in Chicago. However, this increase is scheduled to be delayed six months, becoming effective on January 1st, 2022. This is the last scheduled minimum wage increase for Chicago. I also want to update you on recent developments pertaining to our New York business. We currently operate two types of personal care in this state. PCA, which is a type of personal care services that represent the majority of our overall revenue, and secondly, CDPAP, which is a special program where we act as the fiscal intermediary for certain individuals who hire and employ their own caregivers. In New York CDPAP, we are technically not considered the employer of the caregiver, even though they are paid as W-2 employees, as the client is responsible for hiring, training, scheduling, and direction of caregivers. Recently, the state announced the winners of an open bidding process that had been underway for a number of months related to the CDPAC program in an effort to reduce the number of providers and reduce costs. Even though we are a relatively large provider of CDPAC services in the state, we were not selected as a winning bidder as part of this process. We know other large providers who were not selected. Our current revenue from this service is approximately $52 million annually. At this time, it is unclear whether the selected parties will have the ability to fully meet the program's needs. We believe that any transition of clients as a result of this process will not take place during the next 6 to 12 months, during which time we will continue to explore our options, including a recently filed protest which may allow us to continue to provide these services. Let me now turn back to COVID for a minute. In late September, we began to experience an increase in the number of reported suspected and positive COVID cases for both our patients and caregivers. The weekly average number of confirmed or suspected cases more than tripled between September and December. Our weekly case numbers began to particularly accelerate from early November to the middle of December. Our peak employee cases occurred mid-December and have continued to trend lower each week since that time. This surge of the pandemic affected our visits, particularly in our personal care segment, but also to a degree in our clinical care service lines. Our personal care segment was primarily impacted by the substantial increase in personal care staff who were subject to a mandatory 14-day quarantine period. Our clinical service lines were impacted due to a further tightening of facility access restrictions and hospitals limiting elective surgeries due to increased COVID-related hospitalizations in certain hard-hit communities. For the fourth quarter of 2020, our personal care same-store revenue growth was 2.6%. This growth rate was negatively affected by the increase in COVID cases we experienced across our markets. This new surge of the pandemic led to a number of challenges for our company. As discussed above, during November and December, we saw a significant increase in the number of our caregivers who had to enter into quarantine. We also saw client call-offs increase again starting in November, with this increase lasting until the first week of February. Our caregiver hires for the August through October timeframe were up approximately 9% over the same period in 2019. However, during November and December, when we saw the increased virus counts, our hiring slowed to where we were down 1.3% versus those same two months in 2019. While our January 2021 hiring levels were still down slightly from 2020, we did see a nice sequential increase from the hiring numbers we saw in December. For the fourth quarter of 2020, our hospice same-store revenue decreased 10.6% as we saw our average daily census decrease 13.5% year-over-year, primarily due to continuing facility access issues in our New York, Mexico hospice programs. With continued limits on access to facility-based settings, such as assisted living facilities and skilled nursing facilities, our team has encountered challenges identifying and working with new patients who need hospice services. We did, however, experience sequential same-store hospice admission growth of approximately 7% due primarily to an increase in our non-facility referral base. Our home health same-store revenue decreased by 8.2% year-over-year, We were having our best month of the year in October when we experienced the increase in COVID cases and saw some of our New Mexico hospitals resume homes on elective surgeries. Since the beginning of 2021, our home health admissions have increased steadily with this favorable trend continuing into February. 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 several months. We are primarily focused on acquisitions which strengthen our coverage in existing markets or add clinical services to our personal care business. While purchase multiples for clinical services remain high, we will continue to pursue transactions that bring both revenue and operating synergies to Addis. As I look back over the past 11 months, I am proud of our team as they have continued to do a tremendous job of living our mission during these extraordinary times. Our caregivers have been able to positively affect the trajectory and impact of the COVID-19 pandemic by continually serve the needs of our consumers and patients in their homes. All caregivers in all segments of healthcare deserve our appreciation for their commitment to patient care. I especially want to thank the Hattis team for continuing to put our patients first. Before I turn the call over to Brian, I want to remind our team of the value of our services. 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 in their homes where we can help to keep them safe from this virus while providing much-needed care. With that, let me turn the call over to Brian.