Addus HomeCare Corporation

Good day and thank you for standing by. Welcome to the Addis Home Care third quarter 2021 earnings conference call. At this time, all participants are in a listen only mode. After the speaker 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 keypad. Please be advised that today's conference is being recorded. If you require assistance during the conference, please press star zero. I would now like to hand the conference over to Drew Anderson. Please go ahead.

Thank you. Good morning, and welcome to the Addis Home Care third quarter 2021 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 and 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 Securities and Exchange Commission and in its third 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. 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, Drew. Good morning and welcome to our 2021 third quarter earnings call. With me today are Brian Popp, our chief financial officer, and Brad Bickham, our president and chief operating officer. As is our custom, I will begin with a few overall comments, and then Brian will discuss the third quarter results in more detail. Following our comments, we'd be happy to respond to any questions. Yesterday, we announced our financial results for the third quarter of 2021, and we are proud of our operating performance. Our team was able to produce record results in the quarter despite certain pressures from the current operating environment that I will discuss. Our revenue for the third quarter of 2021 was $216.7 million as compared to $194 million for the third quarter of 2020, an increase of 11.7%. Adjusted earnings per diluted share for the third quarter of 2021 were 91 cents as compared to 76 cents for the third quarter of 2020, an increase of 19.7. Our adjusted EBITDA for the third quarter of 2021 was 24.9 million as compared to 19.5 million for the third quarter of 2020, an increase of 27.4%. During the third quarter, we continue to see the positive effect of the $350 billion in state aid, which came from the most recent federal stimulus plan, as our states have done a nice job in maintaining and, in some cases, increasing outstanding accounts receivable payments to Addis, leading to a strong cash flow quarter and a cash balance at September 30 of approximately $152 million. Over the past few years, I have discussed the minimum wage increases which were occurring in Chicago. These annual minimum wage increases have now been fully implemented. The final Chicago minimum wage increase of $1 per hour, which takes the city's minimum wage to $15, was effective on July 1st, 2021. It is important to note that this cost increase is reflected in our third quarter results without a corresponding reimbursement rate increase, which had a negative effect on our operating margin. As we told you during our last earnings call, the state of Illinois budget for the fiscal year 2022 planned to offset the Chicago minimum wage increase with an additional statewide reimbursement rate increase, which was to be effective January 1st, 2022. However, With its receipt of the additional 10% FMAT funding through the previously mentioned stimulus bill, the state has requested approval from CMS to accelerate this rate increase by two months, making it effective on November 1st, 2021, and appear confident that they will receive approval for a November 1st increase. This rate increase will cover the entire state of Illinois, and positively impact our fourth quarter financial results. Several other states have requested approval from CMS for changes to their home and community-based service programs utilizing the additional federal funds from the 10% FMAP. Many of these requests include proposed reimbursement rate increases for our services. We hope to see these requests approved by CMS in the near future and to learn more about the specific reimbursement rate increases included in those requests. Along with our positive operating trends, we saw some near-term pressure related to other developments that impacted our third quarter financial results. Our ability to continue our New York consumer-directed business, as we discussed on our last call, remains uncertain as we continue to await word on our formal protest concerning our non-award and the provider selection process for the CDPAP program. We anticipate hearing something from the state concerning this protest over the next few months, although no official timetable has been released. In the meantime, we filed our response to the state's follow-up survey, which was created by the state to consider additional awards to providers for this program. While we continue to await a decisions on any additional awards, we have stopped accepting most new referrals for the New York CDPAC program due to the uncertainty of continuity and negative reimbursement changes for a portion of our business that was already one of our lowest margin contracts. As a result of the COVID impact and our attentional approach to the New York CDPAP over the past 12 months, we have seen our revenue in this program decreased from an annualized run rate of approximately $52 million as of the third quarter of 2020 to approximately $44 million as of the end of our third quarter of 2021. We expect our revenues from the New York CDPAP to continue to decline in the absence of changes to the existing status as we continue to limit new referrals. Our third quarter results were also modestly impacted by an increase in the number of caregivers in quarantine due to the surge in COVID infections resulting from the Delta variant. While the impact of this most recent surge in the COVID virus was not as significant as the one we saw during the fourth quarter of 2020, we did see an increasing number of missed visits due to call-offs. These call-offs peaked in September and steadily decreased through the month of October. These call-offs had an immaterial effect on our third quarter revenues. While there was no impact to our third quarter results, another challenge that we, like most companies, face today is the issue concerning vaccinations. As many of you know, the federal government has proposed that all healthcare employees whose businesses operate under a condition of participation with Medicare or Medicaid must be vaccinated. This proposed vaccination mandate would cover our home health and hospice segments. In addition, New York, Delaware, and the city of Philadelphia have mandated that all healthcare companies, including personal care, must ensure that their employees in those markets are vaccinated. Companies like Addis are also operating under the potential of an OSHA requirement that all employers with 100 or more employees must mandate that their employees be vaccinated. These various city and state mandates, as well as the potential of federal mandates, make it imperative that we focus on getting as many of our employees vaccinated as possible. While Addis has not mandated vaccines for our employees, we have taken a number of steps to strongly encourage our employees to get the COVID vaccine. Over the past few months, we have implemented a number of initiatives designed to increase the vaccination rate of our employees. These include a stipend for getting vaccinated, an ongoing communication program centered around the theme of Be a Hero, which includes videos with corporate leadership and board members, as well as written communications with stories of caregivers who have received the vaccine, and now a program that provides prize opportunities for vaccinated employees. These efforts have been effective as we have seen our vaccination rates continue to increase. With New York being our largest market with the current vaccine mandate, it has been a priority to get our employees vaccinated and to track vaccination status. Our dispersed workforce makes this process more challenging, but as of today, we have confirmed that roughly 93% of our New York caregivers have now been fully vaccinated or receive their first dose of a two-shot regimen. We are very pleased with this response from our employees, but we also realize that all markets may not embrace the mandate like they have in New York. While vaccine mandates are a potential issue for Addis, we are pleased in the progress we are seeing. Overall, our confirmed vaccination percentages are 79% vaccinated in home health, 71% vaccinated in hospice, and 56% vaccinated for personal care. Based on our experience with our New York caregivers, we believe these numbers could be understated by some amount based on incomplete information. We are still working to ascertain vaccination status for all employees, which is an ongoing process, particularly with our dispersed personal caregivers. As of today, we have not seen any material effect on our revenues due to these various mandates, and we continue our efforts to be well positioned to adhere to any future mandates implemented as they occur. A critical item for our personal care organic growth is the ability to hire new caregivers. A tightening labor market had some effect on our growth in certain markets, in particularly Oregon, Idaho, and Tennessee. Many segments of the economy are seeing labor shortages, which may continue and may be more severe in some areas of the country. However, our overall hiring and our personal care segment continues to see improvement. We saw solid growth in our hires per business day during the third quarter in our personal care segment, with September being our best hiring month of 2021. This favorable hiring trend continued into the month of October. Our personal caregiver hires in our third quarter were up slightly over the third quarter of the prior year and up 5.8% on a sequential basis with most of the increase occurring in September. Now let me discuss our revenue growth in our various operating segments. Our same-store revenue growth for our personal care operation, exclusive of the New York CDPAC program, was 4% when compared to the third quarter of 2020. This growth is within our range of expectations for our personal care segment. With our upcoming Illinois rate increase, we expect to be at the high end of this rate of growth over our next few quarters. We are pleased with the performance of this segment of our business in spite of the challenges we have faced over the last several quarters due to the pandemic. As for our home health segment, this segment of our company has continued its strong performance. During our third quarter of 2021, our same store revenue growth was 24.8%. Since the beginning of 2021, our home health admissions have increased steadily with this favorable trend continuing throughout the third quarter. We are excited about our home health operation and will continue to focus our efforts on expanding this part of our company. On our last earnings call, we discussed our belief that we would start to see a steady growth in our hospice ADC during the last half of 2021. With strong hospice admissions since the beginning of the year, we believe that a corresponding increase in our ADC would come. We are pleased to see the beginnings of this growth in our third quarter hospice results. While our hospice same store revenue decreased 4.8% over a strong third quarter in 2020, it was an approximate 400 basis point improvement over our second quarter same store growth. As we saw in the second quarter of this year, our same store admissions continued to be strong, growing 22.3% over the third quarter of 2020 and 14.5% on a sequential quarterly basis. This should continue to lead to higher census as the year progresses. Our hospice ADC grew to 2,629 for the third quarter of 2021 as compared to an ADC of 2,460 for the second quarter of this year. This improvement is consistent with our expectation of seeing our hospice census gradually improve over the last half of 2021, as our median length of stay also continues to improve from our low point in January of this year. We are also seeing an improvement in our hospice volumes in both ALFs and SNFs, both of which have been slower to return than census outside of the facility setting. In July, we announced the acquisition of Armada Home Health and Hospice. Effective October 1, we closed on our acquisition of Summit Home Health, a home health provider in Illinois. This represents our entry into clinical services in Illinois, our largest state for personal care services. This is consistent with our strategy of adding clinical care to our personal care market. We are excited about Armada Home Health and Hospice, as well as Summit Home Health being a part of our company, and I want to welcome all of our new team members to the Addis family. As you saw with both of these purchases, we continue to focus our acquisitions on acquisitions which meet our goal of creating multiple markets where we provide all three levels of home care. We will continue to look at opportunities in all three segments with a focus on acquiring services in markets where we have strong personal care coverage. This past 18 months has shown the value of taking care of elderly and disabled consumers and patients in their homes during the pandemic. We have invested in planning, preparations, and materials to assist us in safely fulfilling our role as we continue to monitor developments related to the pandemic and changes in the home care industry. We believe the pandemic has raised awareness about the value our industry provides and will continue to be a growth opportunity for our company. But our operations and resulting growth are dependent on our dedicated caregivers who work so hard providing outstanding care and support to our consumers, patients, and their families. I am thankful for each one of our team members, and I am proud of the job they have done the past 18 months and continue to do each day. It is important that each of us focus on achieving our mission by putting our patients first. With that, let me turn the call over to Brian.