Addus HomeCare Corporation

Good day and welcome to the Addict Home Care's second quarter 2022 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Drew Anderson. Please go ahead.

Thank you. Good morning and welcome to the Addis Home Care Corporation second quarter 2022 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 2022 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 second quarter 2022 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 2022 second quarter earnings call. With me today are Brian Popp, our chief financial officer, and Brad Bickham, our president and chief operating officer. As we do on each of our earnings calls, I will begin with a few overall comments, and then Brian will discuss the second quarter results in more detail. Following our comments, the three of us would be happy to respond to any questions. While Brian will give you a more detailed review of our financial results, I wanted to highlight a couple of items from our second quarter performance. First, even with the labor challenges we are seeing in parts of our industry, our team grew revenue 8.7% to $236.9 million for the second quarter of 2022, as compared to the second quarter of 2021. This resulted in sequential adjusted earnings per share growth to 91 cents as compared to 77 cents for the Omicron impacted first quarter of this year. Second, we had a strong cash flow from operations of $56.5 million this quarter, which reduced our net leverage position to less than one times EBITDA. While we expected our results to return to a more normal level following the decrease driven by the first quarter Omicron surge, it is nice to see our team actively manage the challenge and make it a reality. I am very pleased overall with our second quarter performance with favorable trends beginning around mid-February, continuing each month through the end of the quarter and further through July. Even with the growing prevalence of the most recent Omicron subvariant, our team has continued to perform. Let me discuss this latest COVID subvariant that we have started to see. Throughout most of the second quarter, we saw little effect from the COVID virus. During April and May, we saw continued decline in the number of patients and caregivers who were in quarantine from the first quarter Omicron wave. However, During June, we saw increased effects of the new Omicron sub-variant primarily in our personal care segment. This newest wave has resulted in a slight increase in our consumer and employee quarantines, which so far has had a minimum impact on our financial results as total quarantines remain significantly below those we saw with the Delta and original Omicron waves. We continue to monitor quarantine rates closely but believe that we will be able to successfully work through these ongoing surges as we have historically. As we discussed last quarter, the labor environment remains one of our most challenging issues. While we are still facing this issue across our company, we are starting to see improvements in our personal care segment, with hires per business day for the second quarter of 2022 increasing approximately 21% over the second quarter of 2021 and approximately 9% on a sequential basis over the first quarter of this year. This improving hiring trend has continued into July with hires per business day running slightly ahead of our second quarter of 2022 performance. As we previously discussed, we are constantly evaluating our sourcing, hiring, and onboarding processes to further improve our personal care hiring numbers to meet the continued demand for our services. While hiring in the hospice and home health business remains a challenge, we did see improvement over the last couple of quarters with an increasing ability to hire new clinicians as well as a modest reduction in our clinical turnover numbers. Overall, we feel the trend in both hiring and turnover is moving in a positive direction in all segments of our business. During this quarter, we started to receive more substantial funding from our states as they implement their plans to deploy funds provided to them under the America Rescue Plan Act, or ARPA. With respect to our three largest states, Illinois used the funding to accelerate last year's rate increase by two months, as well as fund the upcoming statewide rate increase, which will be effective January 1st, 2023. New Mexico and New York have provided funding for direct payments to providers to be used primarily to assist in recruitment and retention of caregivers. Several other states have been given either temporary or permanent rate increases, which should help us hire and retain more caregivers as the majority of these funds are to be passed along to our employees in wage increases. As for Illinois, our largest state of operation, we will receive a 70 cent per hour statewide rate increase effective January 1st, 2023. However, on July 1st of this year, we saw an approximate 40 cents per hour minimum wage cost of living increase for our Chicago area personal care caregivers, which will have a slight negative effect on our margins over the next two quarters until the upcoming rate increase occurs. Once we receive the statewide rate increase, we expect to be able to adjust wages for our remaining Illinois employees, which we believe will continue to help with caregiver recruitment. Now let me discuss our same store revenue growth for the second quarter of 2022. For our personal care segment, exclusive to New York CDPAP program and ARPA funds, our same store revenue growth was 2.5% when compared to the second quarter of 2021. However, While our personal care hours were down year over year, we did see the first sequential growth in hours in a number of quarters. Our second quarter personal care hours were up 3.8% over the first quarter of this year as we continue to see improved hiring and lower quarantine levels. We have seen sequential growth each month this year since January in personal care starts of care, employees worked, and clients served. Turning to our clinical care operations, our home health segment same-store revenue was up 24.6% from the prior year and 36.4% sequentially. We continue to see improving home health admissions, which were up 25.2% over the second quarter of 2021. We are excited about our home health operation as it complements our personal care services, particularly where we participate in value-based contracting models. We will continue to focus our efforts on expanding these services into our existing personal care markets. As we anticipated on our last call, our hospice same-store revenue increased 2.5% over the second quarter in 2021. We also saw a sequential increase in our average daily census as our medium length of stay improved to 23 days in the second quarter as compared to 17 days for the second quarter of 2021 and 20 days for the first quarter of this year. Overall, our hospice ADC increased to 3,333 for the second quarter of 2022 as compared to an ADC of 2,460 for the second quarter of 2021, inclusive of the ADC attributable to our journey care acquisition which closed on February 1 of this year. As for our development efforts, over the past quarter, most of our deal flow has consisted of smaller acquisition opportunities across all three levels of care. We continue to have conversations with brokers and other third parties, and based on the feedback we've received, we expect to see an increase in potentially larger transactions in late 2022 and early 2023. I do want to mention that with the proposed rate cut by CMS and home health, we are seeing an overhang related to differing price expectations from buyers and sellers. We have seen some home health deal processes being put on hold while waiting for the publication of the final rule in late October. We expect there to be a lower level of transaction activity in the skilled home health sector until reimbursement is finalized. Once the final home health rule is published, We expect to see activity in this sector increase and believe we are well positioned to take advantage of these opportunities. While skilled home health activity may be slower in the short term, we are still very optimistic on our M&A outlook and will continue to build a pipeline focusing primarily on personal care and home health. We continue to believe that acquisitions will remain an important part of achieving our 10% minimum annual revenue growth target which we have exceeded for the past few years as we have previously discussed we are starting to see additional momentum in our value-based care efforts currently we have four value-based contracts which are now in three of our states these contracts are focused on helping our patients avoid both unnecessary emergency room visits and hospital admissions as well as readmissions at various time frames following a hospital discharge. These programs currently cover approximately 4,700 of our personal care clients. An important component of each of these contracts is a focus on care quality measures and metrics. We feel this quality focus fits well with our overall mission at Addis. Today, we have been able to show measurable improvements in these targeted goals, which is what we believed would occur as our personal care and clinical staff are able to closely follow these patients. To help us with data collection and analysis of our patient outcomes, we plan to invest in additional software tools, which will help us as we continue to scale these type of arrangements. While the revenue generated from our value-based efforts are relatively immaterial today, we continue to expect them to grow to a more meaningful amount over the next few years. While the COVID virus continues to be difficult for everyone, our team has been able to prove the value of taking care of elderly and disabled consumers and patients in their homes. The home remains one of the safest and most cost-effective places to receive care and is also the place where most elderly individuals and their families prefer to be. We believe the heightened awareness of the value of home-based care is favorable for our industry and will continue to be a growth opportunity for our company. As I mentioned on our last earnings call, we understand and appreciate that our operations and growth are dependent on our dedicated caregivers who work so incredibly hard providing outstanding care and support to our consumers, patients, and their families. I am thankful for each of our team members and I'm 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 consumers and patients first. With that, let me turn the call over to Brian.