Addus HomeCare Corporation

Today and welcome to the Addis Homecare's fourth quarter and year-end 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 fourth quarter and year-end 2022 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 2023 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 its fourth 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 fourth quarter and year-end earnings call. With me today are Brian Poff, our chief financial officer, and Brad Bickham, our president and chief operating officer. As we do on each of our earnings call, I will begin with a few overall comments, and then Brian will discuss the fourth quarter results in more detail. Following our comments, the three of us would be happy to respond to your questions. I first want to say thank you to all the employees at Addis Home Care for their efforts this past year. While it's exciting to know that we had a great year financially, it is more important to know we provide care to approximately 66,000 clients and patients in 2022. I am very proud of our team's hard work in making sure we are able to meet the home care needs of all these deserving people. Meeting our mission each day will continue to lead to ongoing growth for Addis. Yesterday, we announced our financial results for the fourth quarter and full year 2022, and I am extremely proud of our operating performance. Our team grew revenue 10% to $247.1 million for the fourth quarter of 2022 as compared to $224.6 million for the fourth quarter of 2021. This resulted in adjusted earnings per share of $1.11 as compared to an adjusted earnings per share for the fourth quarter of 2021 of $0.97, an increase of 14.4%. We also exceeded $28 million in adjusted EBITDA. For the full year of 2022, our revenue was $951.1 million with an adjusted EBITDA of $101.5 million, or 10.7% of revenue. Our team was able to achieve these four-year results despite the first two months of 2022 being negatively impacted by the Omicron wave. During 2022, we continued to see strong cash flow from operations as our states and other payers have worked to provide pay providers like Addis in a timely manner. This strong cash flow has allowed us to maintain a net leverage position of less than one times adjusted EBITDA, giving us the financial flexibility to continue to implement our strategy even as the cost of debt has increased. As has been the case for us over the last few quarters, the labor environment continues to improve. During the fourth quarter of 2022, we experienced improved hiring in our personal care segment, with hires per business day increasing approximately 10% as compared to the fourth quarter of 2021. We are also seeing this improved hiring trend continue in January and February of this year, with Hire for Business Day running ahead of our fourth quarter of 2022 performance. A part of our improved hiring results have been due to the recent investment we made in a candidate tracking system, which allows us to better engage with potential employees, as well as shortening the time between application and hire. We are continuing to roll out this system to all of our sites, a process that should be completed in 2023. Hiring in our clinical segment has been more challenging than our personal care segment. However, we began to see our clinical hiring pick up in the third quarter and continue through the fourth quarter of 2022, particularly in our hospice segment. This, along with the incremental improvement in our clinical turnover, has started to relieve some of the staffing challenges we faced in the first half of 2022 in our clinical segment. There are some geographic areas where both clinical hiring and wage pressures continue, but the overall hiring environment has certainly improved, and we expect this trend to continue in 2023. As has been announced, the COVID-19 public health emergency will end on May 11, 2023. With the ending of the emergency declaration, the enhanced federal Medicaid match that states have been receiving from the federal government will gradually phase out. The full 6.2% in extra federal funding will last through March 31st, 2023. This match will then decrease to 5% for the second quarter, 2.5% for the third quarter of this year, and 1.5% for the fourth quarter, of 2023. Even with the reduced funding to state Medicaid plans, we believe the states in which we operate are in a much stronger financial position than before the pandemic. During our fourth quarter, the funding we received from the American Rescue Plan Act, or ARPA, has allowed us to begin increasing caregiver wages, pay sign-on and retention bonuses, or provide one-time bonuses to current caregivers depending on the state program. To date, we have realized approximately $24 million of which we still have $13.8 million to utilize over the next 12 months. These funds have been helpful with our recruitment efforts to support patient care and should continue to help our hiring and retention efforts in the future as we deploy our remaining funds. As for Illinois, our largest state of operation, on January 1 of this year, we received a 70 cents per hour statewide rate increase as expected. This rate increase covers the Chicago minimum wage increase we saw last July and allows us to raise wages elsewhere in Illinois. On December 30, 2022, the state of Illinois announced an additional increase of $1.26 per hour, which will be effective on March 1st 2023, subject to approval from CMS. Once approved, our Illinois state reimbursement rate will increase to $26.92. This increase will cover the upcoming July 1 minimum wage increase in Chicago and allow us to continue to raise wages for all our Illinois employees. We believe these increases should help us to continue the favorable hiring trends we have been seeing in our personal care sector. I also want to give a brief update on recent developments regarding our participation in the New York Consumer Directed, or CDPAP, program. On February 1 of this year, the Governor of New York issued her budget, which proposes to repeal the procurement process for fiscal intermediaries who participate in the CDPAP program, eliminating the reduction of providers which would have occurred under this process. This budget now proposes to make changes to the MLTC program with a goal of minimizing the number of providers in the state. We believe these proposals will allow Addis to continue providing services to our current clients while growing with payers whose reimbursements rates provide for an adequate financial return. The final budget for New York is due on April 1st, 2023. Once that budget is published, we will be able to refine our growth plan for New York. As a reminder, we continue to operate as normal with our MLTC partners in the New York market with respect to the CDPAP program. As we receive further clarification on the state CDPAP rates, we will evaluate whether to increase our CDPAP admissions as appropriate. Now let me discuss our same-store revenue growth for the fourth quarter of 2022. For our personal care segment, exclusive of the New York CDPAP and ARPA funds, our same-store revenue growth was 7.9% when compared to the fourth quarter of 2021. Over the past three years, a majority of our same-store growth in PCS came from rate increases from our state. With the disruption caused by the pandemic, hourly growth has been more difficult. Recently, we have started to see a resumption of growth in same store hours. In the fourth quarter of 2022, we saw same store hours excluding New York CDPAP go 2.6% over the same period in 2021 and 1.5% on a sequential quarterly basis. This mix of volume and rate growth is more consistent to our historical averages prior to the pandemic. Turning to our clinical care operations, our home health segment same-store revenue grew 8.3% over the same quarter in 2021, primarily as a result of our prioritizing episodic cases and declining non-episodic referrals due to the lower reimbursement rates. As we have seen our non-episodic referral opportunities continue to increase, our managed care team has been working with our Medicare Advantage commercial payers to adjust our contract rates to a more appropriate level, which will allow us to accept more non-episodic volume growth going forward. Recently, we have started to see success in these efforts as we continue to discuss movement to episodic case rates for a longer-term solution. We are still in negotiations with a couple of our large payers and look forward to the completion of those discussions. Our operations team continues to work hard on both mix and staffing and home health to ensure we maximize the value of the services we provide. We remain excited about home health operation as it complements our personal care services, particularly where we participate in value-based contracting models. Our hospice same-store revenue decreased 4.9% when compared to the fourth quarter in 2021, with a decrease of 0.9% in our average daily census as compared to the fourth quarter of 2021, as well as the resumption of Medicare sequestration. Our medium length of stay did improve to 27 days in the fourth quarter as compared to 22 days for the same period in 2021, but was down slightly from 28 days for our third quarter of 2022. While hospice continues to recover from the pandemic at a slower rate than we expected, we did see an increase in hospice admissions on a sequential basis, which is encouraging. Our hospice ADC increased to 32.13 for the fourth quarter, of 2022 as compared to an ADC of 2,635 for the fourth quarter of 2021, inclusive of the ADC attributable to our JourneyCare acquisition, which closed on February 1st, 2022. As for our ongoing development efforts, we continue to look at potential acquisitions that meet our strategic criteria. Our deal flow continues to consist primarily of a number of smaller acquisition opportunities mainly in our personal care and home health segments. While we have a desire to look at larger assets, deals of size have been slower to come to market, especially with the near-term reimbursement rate challenges for home health. We expect to see larger home health opportunities in the coming months as the market understands the reimbursement rates coming from CMS. In the meantime, we have been reducing our debt with our strong cash flow. Going forward, our discipline balance sheet would allow us the financial flexibility to take advantage of any larger strategic opportunity that may present themselves. As for value-based care efforts, we are continuing to see positive results from our various value-based care contracts. We have now entered into five value-based contracts in three states, covering 4,800 clients. These contracts are focused on helping our clients avoid unnecessary emergency room visits and hospital admissions, as well as readmissions at various timeframes following a hospital discharge. In addition, we are also working on improving HEDIS benchmarks. To date, our outcomes data has shown our ability to help reduce costs while improving quality benchmarks. We are currently working on additional value-based opportunities for 2023. Value-based care continues to be a revenue growth opportunity which we expect to grow to a more meaningful amount over the next few years. I'm so proud of our team for the care they are providing to our elderly and disabled consumers and patients. 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 be a growth opportunity for our company. 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 family. With that, Let me turn the call over to Brian.