Addus HomeCare Corporation

Good morning, and welcome to the Addis Home Care Corporation first quarter 2021 earnings conference call. Today's call is being recorded. To 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 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 ADDIS filings with the Security and Exchange Commission and in its first quarter 2021 news release. Consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. At this time, I would like to turn the call over to the company's chairman and chief executive officer, Mr. Dirk Allison. Please go ahead, sir.

Thank you, Drew. Good morning and welcome to our 2021 first quarter earnings call. With me today are Brian Poff, our Executive Vice President and Chief Financial Officer, and Brad Bickham, our President and Chief Operating Officer. Today I will begin with some overall comments and then Brian will discuss the first quarter results in more detail. Following our comments, we would be happy to respond to any questions. While the pandemic continues to create challenges, we have begun to see positive momentum in a number of our markets starting in mid-February. While I expect the environment to continue to have some difficulties 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 in the near future when this pandemic is no longer a disruption to both country and our operations. One of the important takeaways from this pandemic has been the increased understanding of the importance of home and community-based care. Addis caregivers have been an important part of the healthcare system as we work to keep our elderly citizens safe from the virus and made sure that these consumers had the daily help they need. I'm extremely proud of our dedicated team that has demonstrated their ability to meet our mission and execute upon our strategy even during this unprecedented pandemic. Yesterday, we announced our financial results for the first quarter of 2021. We continued our solid operating performance, even with the challenges from COVID that we are all facing. Our revenue for the first quarter was $205.3 million as compared to $190.2 million for the first quarter of 2020. Adjusted earnings per diluted share for the first quarter of 2021 was 74 cents as compared to 77 cents for the first quarter of 2020, despite both last year's first quarter being a record quarter prior to the full onset of the COVID-19, as well as the effect of the Chicago minimum wage increase, which occurred on July 1st, 2020. As we had discussed on our last earnings call, the Illinois state rate increase to cover this minimum wage adjustment became effective on April 1st, 2021, and will be reflected beginning with our 2021 second quarter results. Also last year, our earnings per share, I'm sorry, our adjusted EBITDA for the first quarter of 2021 was 19.3 million as compared to 17.7 million for the first quarter of 2020, an increase of approximately As expected, our first quarter same-store revenues continued to be impacted by the COVID-19 virus. As was the case in our last few quarters, this reduction occurred to varying degrees in all three segments of our business, which I will discuss in just a few minutes. As I'm sure you are aware, the changes in the leadership of our federal government is bringing about a number of potentially positive changes to our company, especially around Medicaid reimbursement. The COVID relief legislation that was signed into law by the President will provide general financial relief to states suffering revenue losses from the pandemic, which will help to strengthen the budgets of these states and their Medicaid reimbursement. We expect to see the funds from the $350 billion state benefit in this bill to be dispersed starting in May. In addition, the additional 10% federal Medicaid match which is specifically for Medicaid home and community-based services, should be a positive for Addis. We believe the federal government will clarify the rules around this match soon, which should allow states to start to use these additional monies to support home and community-based services. On the state level, we face one last scheduled minimum wage increase for the city of Chicago. This $1 wage increase will be effective on July 1, 2021. The governor of Illinois did include funding in his fiscal 2022 budget for an additional rate increase to offset the upcoming wage increase. However, this state reimbursement rate increase is currently scheduled to be delayed six months, similar to the past few years, and is scheduled to become effective on January 1, 2022. We continue to have discussions with state leaders about the delayed timing of the reimbursement increase and potential to accelerate as a result of the additional Medicaid funding from the federal government. As we have discussed on our last earnings call, we continue to assess the New York CDPAP statewide change. While we have approximately $52 million of revenue in this particular service line in New York, it has not been a very profitable program and will be less so with the recently published reimbursement rates. Let me remind you that we are only a fiscal intermediary in CDPAP with the caregiver working directly for the consumer. This is not our normal form of personal care services. We have filed a protest concerning our omission from the provider selection process and understand from the recent finalization of the fiscal 2022 New York State budget that a few additional awards may be granted. We will keep you updated as we receive additional information and explore other potential options to remain in this particular program. As to timing of these changes, we believe it will be at least 9 to 12 months before the state fully implements the new program if no other structural changes are made. As I previously mentioned, our same-store revenue has been affected by the COVID-19 virus. However, we are starting to see a positive trend in all three segments in which we operate. For the first quarter of 2021, our personal care same-store revenue growth was 2.4% when compared to the first quarter of 2020, the last quarter without the full impact from the pandemic. As we discussed on our last call, 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, lasting until the first week of February. In addition to the impact on growth through COVID, we were affected by the February winter storm that spread across several states where we provide personal care services, and we estimate had a negative impact on our first quarter personal care revenues of approximately $1 million as a result. With the fourth quarter COVID surge we discussed, we experienced a large increase in our employees who were in quarantine and unable to serve their consumer. We went from 187 employees per week in quarantine in the third quarter of 2020 to 448 employees per week quarantine in our fourth quarter of 2020, which affected our hours of care through January. For April, this number is now down to 149 employees per week, which should help our growth rate return to a more normal level in our second quarter of 2021. We also saw a similar dynamic as it relates to our client call-offs in personal care. Our personal care caregiver hires for the August through October 2020 timeframe were up approximately 9% over the same period in 2019, leading to the highest amount of hires per business day in over a year. However, during November and December of this past year, when we saw the increase in buyers counts, our hiring slowed to where we were down 1.3% versus the same two months in 2019. Our hiring numbers did improve in the first quarter of 2021, with hires per business day increasing 4.2% on a sequential basis and 1.2% over the first quarter of 2020. We are encouraged with the trend in our ability to hire as we continue to see positive numbers so far in April. With the positive trends we are seeing in personal care, along with the April 1 reimbursement rate increase from Illinois, we expect our personal care same-store revenue to be at or above our expectation of 3% to 5% for the next few quarters. For the first quarter of 2021, our hospice same store revenue decreased 8.4%, which is still a 220 basis point improvement over our fourth quarter of last year. While ADC remains under pressure, we did see our highest quarter of hospice admissions since the first quarter of 2020, with a sequential increase of approximately 4.6% from the fourth quarter of 2020. While our admissions have been strong, we have seen a reduction in our same-store median length of stay over the past few quarters. This median length of stay decreased from 26 days early in 2020 to just 15 days in January, which contributed to our lower ADC. Our median length of stay continued to trend upwards in March, increasing to 17.5 days. January is when we started to see our ADC bottom out with slightly increasing ADC through the middle of April. With New Mexico being our second largest hospice market, it continues to have an overall negative effect on growth, even while other hospice markets are showing improving census. As for our Queen City acquisition, which closed December 1st, 2020, our hospice census has grown from 890 when we closed this transaction to over 940 in April of this year, despite the business going through the normal stages of integration, including converting to home care, home base, and ADP. I am very proud of this team for being able to continue to grow while transitioning to the ADIS system. As for our New Mexico hospice locations, we believe we will continue to see both assisted living facilities and independent living facilities loosen their rules around personal Personnel access, as the percentage of New Mexico residents who are vaccinated, continues to grow and should help this market return to a more normal ADC. We are excited to see our home health same-store revenue is back to the level which we experienced in the first quarter of 2020 prior to the effects of the pandemic. This compares to a fourth quarter of 2020 decrease of 8.2% in our home health same-store revenues. Since the beginning of 2021, our home health admissions have increased steadily with this favorable trend continuing into April. While January same store revenues for home health were down 11.5%, February marked the turning point with March being up 11.9% versus the same period in 2020. We are seeing our April home health numbers continue this growth trend. Turning to our efforts concerning acquisitions, Our pipeline continues to be strong with a current slant towards home health. Our primary focus on acquisitions remain on opportunities which add clinical services to our existing personal care markets with the goal of having additional markets with all three levels of care that we provide. With our strong liquidity position, we continue to believe that we have the ability to close additional acquisitions during the next few months. While purchase multiples for clinical services remain high, we will continue to pursue transactions which are accretive while bringing both revenue and operating synergies to Addis. As I look back over the past year, I am proud of the team as they've 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 continuing to serve the needs of our consumers and patients in their homes. All caregivers in all segments of healthcare deserve our appreciation for this commitment to patient care. I especially want to thank the ADDIS team for continuing putting 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 the virus while providing much needed care. With that, let me turn the call over to Brian.

Thank you, Dirk, and good morning, everyone. Addis had solid financial performance to start the year with consistent profitable growth and improving volume trends comparable to our pre-pandemic levels. With two of our three segments at or above our first quarter 2020 same store revenues and our hospice agency beginning to trend positively, we look forward to a continued return to a more normalized growth profile as the COVID environment improves. We will also benefit from the most recent rate increase from Illinois, our largest market, which became effective on April 1st, 2021. Looking at the comps over the prior year period, Last year's first quarter was our strongest quarter before we really felt the full impact of COVID-19. So we were very pleased with the results for the current year quarter. Our volumes continue to improve in personal care and home health, and we are optimistic about hospice care volumes returning to pre-pandemic levels as more people are vaccinated and we see greater facility access. We have a strong business model in place and believe we are well positioned to meet expected demand as consumers become more confident in a less restrictive environment. Included in our results are the incremental benefits of the four acquisitions we completed in the second half of 2020, three in personal care and one in hospice, which totaled approximately $84 million in annualized revenue. Together, acquisitions completed over the past two years have combined total annualized revenue of approximately $214 million. We continue to have a robust pipeline of potential transactions that are in line with our strategy of adding clinical services and markets where we have personal care operations and continuing to enhance our existing personal care markets. Based on current market conditions, we remain confident that we will have opportunities to achieve or exceed our stated goal of adding a minimum of $100 million in annualized revenue through acquisition this year. As Dirk noted, total net service revenues for the first quarter were $205.3 million. The revenue breakdown is as follows. Personal care revenues were $164.8 million, or 80.3% of revenue. Hospice care revenues were $36.1 million, or 17.5% of revenue. These results include the first full quarter of our Queen City Hospice acquisition, which closed near the end of 2020. Home health revenues were $4.3 million, or 2.1% of revenue. Other financial results for the first quarter of 2021 include the following. Our gross margin percentage was 29.8%, an increase from 29.4% for the first quarter last year, largely attributable to a higher mix of clinical services, which are now approximately 20% of our revenue, up from 16% in the first quarter last year. This increase is partially offset by the normal reset of payroll taxes in the new year, which impacted our margin by approximately 80 basis points sequentially. While we still experience the negative impact this quarter from the additional minimum wage and Chicago on July 1, 2020. The statewide reimbursement increase in Illinois that became effective on April 1 will offset beginning in the second quarter. G&A expense was 22.1% of revenue for the quarter, a slight decrease from 22.2% last year. Adjusted G&A expense was 20.4% of revenue, up slightly from 20% in the first quarter of 2020, and primarily as a result of the higher mix of skilled business with a higher G&A profile. The company's adjusted EBITDA increased to $19.3 million for the first quarter of 2021 compared to $17.7 million in the first quarter of 2020. Adjusted EBITDA margin was 9.4%, an increase from 9.3% for the first quarter of 2020. Adjusted net income per diluted share was 74 cents. The adjusted per share results for the first quarter of 2021 exclude the following. COVID-19 expense benefit net of $0.03, which includes the impact of temporary rate increases partially offset by COVID-19 direct expenses, acquisition and de novo expenses of $0.08, restructuring and other costs of $0.02, and non-cash stock-based compensation of $0.12. Our adjusted per share results for the first quarter of 2020 exclude COVID-19 expenses net of $0.01, acquisition and de novo expenses of $0.09, restructuring and other costs of $0.05, and non-cash stock-based compensation of $0.08. Our tax rate for the first quarter of 2021 was 19.5% as a result of an excess tax benefit generated by our stock compensation. For the full year 2021, we continue to expect our tax rate to be in the low to mid-20% range. DSOs were 60.8 days at the end of the first quarter of 2021, consistent with the fourth quarter. However, DSOs for the Illinois Department of Aging were 72 days at the end of the first quarter of 2021, as we saw slower payments primarily as a result of the timing of tax revenues in the state. With the increase in tax revenues and the stimulus assistance coming from the federal government in the second quarter, we have seen an acceleration in payments from Illinois and have received over $24 million since the beginning of April. Our first quarter net cash used by operations totaled $18.4 million, inclusive of the return of $10.8 million in CARES Act funding received as part of the Queen City acquisition. Additionally, the timing of normal payroll payments negatively impacted cash flows by approximately $15.5 million in the quarter. At March 31, 2021, the company had cash of $145.1 million, $196.3 million of bank debt, and $112.8 million in availability under our revolver. With continued low net leverage and well-positioned balance sheet, we continue to be able to execute our acquisition strategy. This concludes our prepared remarks this morning, and thank you for being with us. I'll now ask the operator to please open the line for your questions.