Addus HomeCare Corporation

Good day and welcome to the Addis Home Care's second quarter 2024 earnings conference call. All participants will be in 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 your 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 2024 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 ADIS expected quarterly and annual financial performance for 2024 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 forecast, 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 SEC and in its second quarter 2024 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, Dirk.

Thank you, Drew. Good morning and welcome to our 2024 Second Quarter Earnings Call. With me today are Brian Poff, our Chief Financial Officer, and Brad Bickemeyer, President and Chief Operating Officer. As we do on each of our quarterly 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. Before I discuss our results for the second quarter of 2024, I wanted to bring you up to date on our recent secondary stock offering, which we completed at the end of June. As part of a review of our capital structure pending the acquisition of the personal care operation of Gentiva, management and our board of directors concluded that it would be prudent to proactively raise common equity, which would keep our net debt leverage to just over one times following the close of the Gentiva transactions. With the help of both Bank of America and Jefferies, along with other of our investment banking partners, we were able to complete a successful stock offering, which resulted in our raising net cash proceeds of approximately $176 million after the expenses of the stock offering. It is our intention, as we have done previously following similar stock offerings, to utilize these funds over the next 12 to 24 months to allow us to continue sourcing acquisitions of the size and type that will bring additional value to our shareholders. I want to thank our banks and shareholders that supported this offering. Our team looks forward to continuing to maintain a conservative balance sheet while using our capital in a way that brings value to all shareholders of Addis. Now let me turn to our financial performance in the second quarter. As we announced yesterday, Our total revenue for the second quarter of 2024 was $286.9 million, an increase of 10.4% as compared to $260 million for the second quarter of 2023. This revenue growth resulted in adjusted earnings per share of $1.35 as compared to adjusted earnings per share for the second quarter of 2023 of $1.07, an increase of 26.2%. Our adjusted EBITDA of $35.3 million was an increase of 24.7% over the second quarter of 2023. During the second quarter of 2024, we continued to experience consistent cash flows. That, along with our equity offering, has allowed us to pay off all of our outstanding debt and leaves us with approximately $173 million and cash on hand at quarter end. It remains our focus to use our financial capacity to acquire strategic operations that align with our overall growth strategy of adding clinical services where we have a strong personal care presence, enhancing our existing personal care markets, and adding select new personal care markets where we can enter at scale. We believe this acquisition strategy will continue to strengthen our ability to participate in value-based contracts with our payers and to adapt to potential any reimbursement changes. On June 10, 2024, we announced that we are acquiring the personal care assets of Gentiva, one of the largest providers of hospice services in the United States. We believe it is important that personal care providers have scale and broad geographic coverage in states where they operate to be successful, particularly in managed Medicaid states and as a result of the final Medicaid access rule. This scale and coverage helps facilitate the development of value-based contracting arrangements, allows these providers to spread costs over a bigger revenue base, and provides more opportunity for meaningful advocacy with the states in which they operate, while also promoting a more favorable hiring and retention dynamic. This belief led us to pursue this acquisition with Gentiva. Once this deal is closed, Addis will be the number one provider of personal care services in the state of Texas, which is primarily a managed Medicaid market. In addition, this transaction gives us larger presence in Arkansas strengthens our California and Arizona private pay and Veterans Affairs businesses, adds a location in eastern Tennessee to our existing operations in the state, and provides entry into both Missouri and North Carolina. Effective last week, the required waiting period under the Hart-Scott-Rodino Antitrust Act expired in connection with this acquisition, which satisfies one of the key regulatory conditions necessary for the completion of the transaction. This was an important step toward closing. We are targeting finalization of this transaction in the fourth quarter of this year, subject to satisfaction or waiver of the remaining customary closing conditions, including regulatory approvals related to the Texas operation. We are very excited about the many new team members that will be joining Addis once this transaction is closed. This team has done a great job in growing the business and providing quality services to customers, which we expect to continue as part of our company. Currently, our team is working diligently in transition planning in anticipation of closing. During the second quarter, we continue to experience solid results related to our ability to hire caregivers, especially in our personal care segment. During the second quarter of 2024, we saw our personal care hiring set a company record at 86 hires per business day while turnover rates have remained at historically low levels in addition to our strong hiring numbers we have continued to see consistent momentum in our starts per business day over the past few quarters as for our clinical segment hiring has continued to improve and seems to be returning to a more normalized pre-covered hiring environment As we have over the past couple of years, we continue to utilize the funding we received from the American Rescue Plan Act, or ARPA. During the second quarter of 2024, we received an additional $2 million, bringing our total to date to approximately $40 million, of which we have over $13 million remaining to utilize. These funds are helpful with both our personal caregiver recruitment and retention efforts. In our personal care segment, Our services continue to receive favorable reimbursement support from many of the states in which we operate, and we believe that our states remain in stable financial condition. We feel confident that the personal care services continue to deliver real value to state Medicaid programs as well as our managed care partners through reduction in overall cost of care. As for our clinical services, effective October 1, 2023, Medicare hospice reimbursement was increased by approximately 3.1%. Earlier this year, CMS announced the preliminary fiscal 2025 hospice rate increase of 2.6%, which will be effective on October 1, 2024. On July 30th, the hospice rate increase was finalized at 2.9%. Consistent with recent years, we were pleased to see an incremental positive adjustment in the final hospice rate as compared to the original proposal, which may bode well for the pending finalization of the proposed home health rule due later this year. On January 1st of this year, home health Medicaid reimbursement was increased by approximately 0.8%. In late June of this year, CMS announced the preliminary rate for home health that would be effective on January 1st, 2025 resulting in a reduction of approximately 1.7% if finalized as proposed. We believe that the final rate for home health may improve slightly based on the increase of the hospice rate between the proposed and final hospice rate rule and consistent with what we have seen over the past few years. It is disappointing that CMS continues to pursue reimbursement reductions for home health providers which we believe limits patient access to this valuable and much needed service. Although the current Medicare home rate environment remains challenging, we continue to believe that traditional Medicare home health reimbursement pressures are likely to moderate over the next few years. Now let me discuss our same store revenue growth for the second quarter of 2024. For our personal care segment, our same-store revenue growth was 8.8% when compared to the second quarter of 2023. During the second quarter of 2024, we saw personal care same-store hours increase by 0.7% as compared to the same period in 2023 and 2.1% as compared to the first quarter of this year. Helping us with this growth is our record 86 hires per business day, which I mentioned previously. We also saw continued improvement in our percentage of hours served compared to authorized hours, which also has helped our growth. While we are pleased to see continued positive momentum in our person care volume trends, at the same time, we have seen a slight slowdown in the speed at which new consumers are authorized for care. In a few of our person care markets, the Medicaid redetermination process appears to have diverted some state resources from the initial enrollment process leading to this temporary slowness in qualifying new consumers. We anticipate a return to more normal processes as redeterminations are completed in each state. Turning to our clinical operations, our hospice same store revenue increased 6.3% when compared to the same quarter in 2023. Our same store average daily census increased 1.7% when compared to the same quarter last year and was up 3.6% sequentially. At the end of the second quarter of 2024, our hospice medium length of stay, exclusive of our JourneyCare and recently acquired Tennessee Quality Care operations, was 29 days as compared to 27 days for the first quarter of 2024. As we have done previously, we include our JourneyCare operation as it is a higher percentage proportion of shorter length of stay patients due to our inpatient units in the Chicago area. We are pleased by the steady improvement in our hospice segment this year and anticipate those favorable trends continuing into the second half of 2024. Our home health segment saw a same-store revenue increase of 1.6% when compared to the same quarter of 2023, and we saw a same-store total volume increase of 2.1%, on a sequential quarterly basis. As most home health providers have experienced, we continue to be affected by the movement of Medicare beneficiaries from Medicare P for service to Medicare Advantage. However, we have seen steady volume improvement sequentially over the past four quarters, and our episodic to non-episodic mix seems to have stabilized over the past several quarters. We are continuing to work with our Medicare Advantage partners on near-term per-visit rate increases as we discuss moving to longer-term episodic reimbursement methodologies. As we have demonstrated by our recent announcement in TIVA transaction, acquisitions continue to be an important part of our growth strategy at Addis. Our targeted minimum annual revenue growth of 10% remains our goal even with the added size of our revenue base. For us to meet or exceed this goal, we will continue to be focused on using our capital to find additional acquisition targets that meet our strategic criteria. While we await the closing of the Gentiva transaction, we will be looking for potential acquisitions for both our personal care and skilled segments, particularly home health. Over the past couple of years, the acquisition opportunities that meet our strategic opportunities have been somewhat limited due to some unfavorable general market conditions. Our team continues to review opportunities which would strengthen all three of our segments and markets where we currently operate. However, the flow of potential deals continues to be slower than we saw three or four years ago. Even with this slower flow of potential deals, we still believe we will be able to complete strategic acquisitions in our markets that will allow us to meet our growth objectives and we continue to maintain a capital structure that will allow us to take advantage of acquisition opportunities that arise similar to the GENTIVA acquisition. As for our value-based care efforts, I noted last quarter that we continue to gather data which demonstrates material reductions in both emergency room visits as well as the percentage of patients readmitted to the hospital at various post-discharge intervals. We continue to believe our success is due to our ability to provide both non-clinical personal care services to identify changes in condition and clinical resources as needed for specific skilled patient care interventions. We are now using this information as part of our conversations with various Medicare Advantage and commercial payers to demonstrate how Addis can be an integral part of providing quality, cost-effective care to plan members that can reduce the overall medical loss ratio while simultaneously improving overall quality of care. With our recently announced acquisition of Gentiva Personal Care Operations, we will now have the opportunity to enter into Texas with value-based care. This is an important market for our growth in value-based care as we have strong relationships with the managed care payers in the Texas Medicaid program. We expect to be able to work with certain of these payers in a value-based approach once the transaction closes. Before I close my remarks, I want to thank our team for the care they are providing to our elderly and disabled consumers and patients. These last few years have shown that the vast majority of our clients and patients want to receive care at home, which remains one of the safest and most cost-effective places to receive this care. 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. We understand and appreciate that our operations and growth are dependent on both our dedicated caregivers and other employees who work so incredibly hard providing outstanding care and support to our clients, patients, and their families. With that, let me turn the call over to Brian.