Addus HomeCare Corporation

Now let me discuss our same-store revenue growth for the fourth quarter of 2021. Our same-store revenue growth for our personal care segment exclusive of the New York CDPAP program was 8% when compared to the fourth quarter of 2020. This growth includes the Illinois rate increase we received starting November 1st, 2021. However, as I previously mentioned, Our same store growth in personal care hours was impacted by our quarantine levels, as well as to an increase in the turnover we saw with our market level service coordinators. These are the team members who help schedule hours to be served, as well as help to onboard new caregivers. This turnover for this position has increased over the past several months as we have experienced issues with both the Delta and Omicron variant of COVID, as well as the general labor market challenges. We are optimistic that we will see our hours return to more normal levels of growth as the current wave of the virus continues to decrease and our service coordinator turnover returns to our historical levels. Turning to our clinical care operations, our home health segment continued its strong performance. During our fourth quarter of 2021, our same store revenue growth was 7.1% as we continue to see strong volume growth in this segment. Although we did see an Omicron-related impact on volumes late in December and into January as some acute care facilities limited elective procedures. However, since the beginning of 2021, our home health admissions have increased steadily and with favorable, our overall favorable trend continuing through most of the fourth quarter. As we have been saying over the past year, we are excited about our home health operation and we'll continue to focus our efforts on expanding these services. As we have anticipated, our hospice same store revenue increased 1.3% over a strong fourth quarter in 2020, the first year over year revenue growth in our hospice segment since mid 2020. As we saw in the third quarter of this year, our same store admissions continue to improve over the prior year, growing 1.4% over the fourth quarter of 2020. Although we did see a decline sequentially due primarily to expected seasonality during the holiday season and to a lesser extent the onset of Omicron in December. We continue to make progress with our median length of stay, improving to 22 days in the fourth quarter of 2021 as compared to 15 days in January 2021. Overall, our hospice ADC increased to 2,635 for the fourth quarter of 2021, as compared to an ADC of 2,492 for the fourth quarter of 2020, inclusive of our Queen City acquisition completed during the fourth quarter of 2020. Let me update you on the status of our vaccine progress. As many of you know, the federal government has passed a mandate that all healthcare employees whose businesses operate under a condition of participation with Medicare or Medicaid must be vaccinated. This vaccination mandate covers 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. although most have exempted non-clinical caregivers from their state mandates. These various city, state, and federal mandates make it imperative that we continue to focus on getting as many of our employees vaccinated as possible. While Addis has not mandated vaccine for our employees, we have continued to take steps to encourage and incentivize our employees to get the COVID vaccine, and we are pleased with the progress we are seeing. Overall, our confirmed vaccination percentages, including employees with approved exemptions, are 99% vaccinated in home health, 99% vaccinated in hospice, and 72% vaccinated for personal care with a compliance rate between 95 and 100% in personal care markets with a currently applicable mandate. We will continue our efforts to encourage our employees to get vaccinated so that we will be well positioned to adhere to any future mandate implementations as they may occur. As we have discussed on our last few calls, we continue to await a decision on any additional awards or responses to our appeal in the New York CDPAP program. Based on the uncertainty associated with this RFP process, we have stopped accepting most new referrals for this New York program. Both as a result of the COVID impact and our intentional approach to reducing New York CDPAP admissions over the past 12 months, we have seen our run rate revenue in this low margin program decrease from an annualized run rate of approximately $52 million as of the fourth quarter of 2020 to approximately $42 million as of the end of our fourth quarter 2021. We expect our revenues from New York CDPAP to continue climbing in the absence of new developments or information as we continue to limit new referrals. However, we are pleased that the Governor of New York has included in her budget proposal for the coming fiscal year a rollback in the 1.5% Medicaid reduction we saw last year. In addition, she has In addition, she has proposed increasing Medicare rates by an additional 1%. If passed into law, these rate increases will strengthen the rest of our New York business. We are pleased that during the fourth quarter, we closed on our acquisition of Summit Home Health, a Medicare certified home health provider in Illinois, which allows us to provide skilled home health services in the state with our largest personal care operation. In December, we announced our agreement to acquire JourneyCare Hospice, a not-for-profit hospice with an excellent clinical reputation and one of the largest hospice service operations in the Chicago metro area. With this acquisition, we will provide all three service lines in our Illinois market. This transaction closed on February 1, 2022. Currently, we are in the early stages of the integration of JourneyCare into Addis and we are pleased with our progress. We are excited to have both the Summit Home Health and JourneyCare as part of our Addis family, and I want to again welcome both teams to Addis. Both Summit Home Health and JourneyCare are examples of acquisitions which align with our goal of creating 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 clinical services capabilities in markets where we currently have strong personal care coverage, furthering our strategy of developing states with coverage of all three levels of home care. The COVID pandemic has affirmed the value of taking care of elderly and disabled consumers and patients in their homes. Home is not only one of the safest and most cost-effective places for them to receive care, but it's also the place where most elderly individuals prefer to be. Over the past two years, we have continued to invest in planning, preparation, and materials to assist us in safely and effectively fulfilling our role as an important caregiver, allowing these consumers and patients their wish to stay at home. We believe that this heightened awareness of our value of home-based care is favorable for our industry and will continue to be a growth opportunity for our companies. We also understand and appreciate that our operations and 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 of our team members and am proud of the job they have done in the past and continue to do each day. It is important that we all focus on achieving our mission by putting our patients first. With that, let me turn the call over to Brian.

Thank you, Derek, and good morning, everyone. Addis had a solid financial performance for the fourth quarter, continuing our record of delivering consistent profitable growth for 2021. Our results reflect positive trends in all three segments and the benefit of the advanced Illinois rate increase for personal care. We are encouraged by the continued improvement in hospice care with a return to positive same-store revenues and continued sequential improvement in average daily census, median length of stay, and patient days. While our median length of stay for hospice segment has not fully returned to pre-pandemic levels, we are optimistic this trend will continue to improve in 2022. With the impact of the recent Omicron wave that peaked in January, we anticipate our first quarter revenues to be negatively impacted by employee quarantine, but believe our track record of managing through the pandemic reflects our ability to adapt to the ever-changing environment, and we expect to continue to produce strong operating results in 2022. As Dirk noted, total net service revenues for the fourth quarter were $224.6 million, an increase sequentially from $216.7 million in the third quarter. Full year 2021 revenues were $864.5 million, up from $764.8 million in the prior year. The revenue breakdown for the fourth quarter is as follows. Personal care revenues were $175.1 million, or 78% of revenue, which benefited both from the November 1, 2021 statewide rate increase in Illinois, as well as a retroactive rate increase for Illinois managed care organizations related to the January to March 2021 timeframe. We had previously received a rate increase for this period for all programs reimbursed directly by the state. Hospice care revenues were $40.2 million, or 17.9% of revenues. These results include the addition of Queen City Hospice, which closed at the end of 2020, and the Hospice Division of Armada, which closed on August 1, 2021. Home health revenues were $9.4 million, or 4.2% of revenue. These results include the operations of two acquisitions, the Home Health Division of Armada and Summit Home Health, which closed October 1, 2021. In addition to our strong organic growth, we added approximately $30 million in acquired revenues in 2021, and another $55 million so far in 2022 from our recently closed JourneyCare acquisition. We look forward to seeing the incremental contribution to both revenue and earnings as we integrate JourneyCare into our operations over the next several months, and we'll continue to evaluate and pursue other acquisition opportunities that meet our strategic criteria. Other financial results for the fourth quarter of 2021 include the following. Our gross margin percentage was 32.4%, an increase from 30.2% for the fourth quarter last year and up sequentially from 30.9% in the third quarter. The year-over-year increase is largely attributable to our higher mix of clinical services, and we benefited sequentially from the Illinois rate increase to offset the previous minimum wage increase in Chicago. As we have seen traditionally, we expect our first quarter gross margin to be impacted negatively by approximately 100 basis points as our unemployment tax base resets for the new year. G&A expense was 22.1% of revenue, slightly lower than 22.6% of revenue a year ago with lower acquisition-related expenses. Adjusted G&A expense was 20.1% of revenue, up slightly from 19.5% of revenue in the fourth quarter of 2020, primarily due to our higher mix of clinical services with a higher GNA profile. With the addition of JourneyCare's operations in the first quarter, we expect to see our GNA percentage of revenue increase slightly over historical levels as our clinical business continues to grow. The company's adjusted EBITDA increased to $26.7 million for the fourth quarter of 2021, compared to $20.9 million from the same period in the prior year, and was $97.7 million for the full year 2021, which was an increase from $76.9 million in the prior year. Adjusted EBITDA margin in the fourth quarter of 11.9% was an increase from 10.7% in the fourth quarter of 2020, and an increase sequentially from 11.5% in the third quarter. For the full year 2021, our adjusted EBITDA margin was 11.3%, up from 10.1% for the full year 2020. Adjusted net income per diluted share for the fourth quarter was 97 cents. The adjusted per share results for the fourth quarter of 2021 exclude the following. The favorable impact of the retroactive Illinois MCO rate increase of 5 cents, acquisition de novo expenses of 9 cents, restructure and other non-recurring costs of 1 cent, and stock-based compensation expense of 11 cents. The adjusted per share results for the fourth quarter of 2020 excluded the following. COVID-19 expense of one cent, acquisition de novo expenses of 15 cents, restructure and other non-recurring costs of three cents, and non-cash stock-based compensation of 10 cents. Our tax rate for the fourth quarter of 2021 was 26.7%. For calendar 2022, we expect our tax rate to remain in the 25 to 27% range, slightly higher than in prior years. ESOs were 53.9 days at the end of the fourth quarter of 2021, fairly consistent with 52.9 days at the end of the third quarter. We continue to see strong collections from a majority of our payers and expect this trend to continue as a majority of states where we operate currently have budget surpluses. We continue to see very strong cash flow trends with our fourth quarter net cash provided by operations totaling $25.2 million. Exclusive of payments utilizing previously received government stimulus funds and the partial repayment of our deferred payroll taxes, our net cash provided by operations would have been $28.7 million for the fourth quarter and $67.4 million for the full year 2021. As of December 31, 2021, the company had cash on hand of $168.9 million, $224.9 million in bank debt, and capacity and availability of $376.6 million and $143.6 million, respectively, under our revolver. As you can see, we've remained well capitalized and focused on maintaining a strong financial position in order to pursue our acquisition strategy as we enter the new year. This concludes our prepared comments this morning. I want to thank you for being with us. I'll now ask the operator to please open the line for your questions.

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