Addus HomeCare Corporation

Good day and welcome to the Addis Homecare's third quarter 2024 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 1 on a touch-tone phone. To withdraw your question, please press star, then 2. 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 Added Home Care Corporation third 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 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 third 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. At this time, I would 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 2024 third quarter 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 quarterly calls, I will begin with a few comments, and then Brian will discuss the third quarter results in more detail. Following our comments, the three of us would be happy to respond to any questions. As we announced yesterday, our total revenue for the third quarter of 2024 was $289.8 million, an increase of 7% as compared to $270.7 million for the third quarter of 2023. This revenue growth resulted in adjusted earnings per share of $1.30, as compared to adjusted earnings per share for the third quarter of 2023 of $1.15, an increase of 13%. Our adjusted EBITDA was $34.3 million, compared to $30.9 million for the third quarter of 2023, an increase of 11.1%. During the third quarter of 2024, we continued to experience consistent cash flows, As of the end of the third quarter of 2024, we had cash on hand of approximately $223 million. This cash, along with our line of credit, will be used to fund our previously announced acquisition of the Gentiva personal care operation. Once this transaction is closed, we will remain in a conservative leverage position, allowing us to continue to evaluate larger strategic acquisition opportunities. With respect to our ongoing acquisition activities, I'd like to provide an update on the Gentiva transaction we announced on June 10th of this year. Recapping our strategy, we believe our personal care segment benefits from both scale and project graphic coverage in the states where we operate. This is particularly true in managed Medicaid states and as a result of the final Medicaid access rule if and when it may be implemented. This scale and coverage allows us to spread our cost over a larger revenue base and provides Addis with the opportunity for meaningful advocacy with the states in which we operate while also promoting a more favorable hiring and retention environment. This strategy led us to pursue the acquisition from Gentiva. As we have previously stated, upon the close of this transaction, Addis will be the largest provider of personal care services in the state of Texas which is primarily a managed Medicaid market. In addition, this transaction will give us a larger presence in Arkansas, strengthen our California and Arizona private pay and veterans affair businesses, and will add a location in eastern Tennessee to our existing operations in the state and provide entry into both Missouri and North Carolina. We have spent the last several months working with members of the Genteva personal care team preparing for the close and transition of this business into Addis. I believe we have done a very good job of planning for the changes that will occur once this acquisition closes. Our planning has been focused on minimizing the impact on frontline staff and ensuring the continuation of the provision of quality services to our customers as we go through the integration process. We are appreciative of the efforts of the Gentiva personal care team as they continue to provide quality services to its customers. We look forward to the many new team members who will be joining the Addis family once this transaction is closed. As we stated on our last call, we believe this closing will occur in the fourth quarter of this year. Now let me discuss certain areas of operations. During the third quarter of 2024, we continued to experience solid results related to our ability to hire caregivers, especially in our personal care segment. In the second quarter of this year, we achieved 86 hires per business day. When adjusted for the disposition of our New York operation, that second quarter number was 79 hires per business day. During the third quarter of 2024, we saw our personal care hiring numbers continuing this strong trend at 79 hires per business day, while our 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, which continues to be a focus of our operations team. With respect to our clinical service lines, we continue to see improvements in the overall clinical labor environment consistent with the last few quarters. As we have over the past few years, we continue to utilize the funding we received from the American Rescue Plan Act, or ARPA. During the third quarter of 2024, we received an additional $3.2 million in funding and utilized over $2.5 million, leaving approximately $13 million remaining in accessible funds. These funds are continuing to be used to help with caregiver recruitment and retention efforts, as well as other opportunities to enhance our caregivers' experience and training. In our personal care segment, our services continue to receive favorable reimbursement support for many of the states in which we operate. We continue to believe that our states remain in good financial position as the economy seems to be stable at this time. We are confident that personal care services continue to deliver real value to state Medicare programs as well as our managed care partners through a reduction in the overall cost of care. Let me remind you that effective January 1st, 2025, Illinois, our largest state for personal care services, will enact a 5.5% increase for personal care services. Brian will give you more information on how this increase will possibly impact our personal care performance for 2025. As for our clinical segments, effective October 1, 2024, Medicare hospice reimbursement was increased by approximately 2.9%, largely consistent with what we have seen over the past few years. This increased rate will be reflected in our fourth quarter results. We are pleased with this support from CMS for this valuable end-of-life care. On Friday of last week, CMS announced a final healthcare rule effective January 1st, 2025, which, including all adjustments, results in a 0.5% rate increase versus a previously proposed reduction of 1.7%. While we are appreciative of the final rate adjustment being slightly more positive than the proposed rate, we are disappointed that CMS continues to pursue both temporary and permanent reimbursement reductions from home health providers, which we believe limits patient access to this valuable and much-needed service. Although the current Medicare home health rate remains challenging and appears will also be in 2025, we continue to believe that traditional Medicare home health reimbursement pressures are likely to moderate over the next few years in response to well-documented patient access issues. Now let me discuss our same-store revenue growth for the third quarter of 2024. For our personal care segment, our same-store revenue growth was 6.8% when compared to the third quarter of 2023. During the third quarter of 2024, we saw personal care same-store hours increase by .6% as compared to the same period in 2023. This growth was negatively impacted by the Medicaid redetermination process which appears to have slowed the approval of new personal care clients. We believe that all of the states we currently operate in will have completed this redetermination process by the end of the fourth quarter. It is encouraging that we will continue to see improvements in our percentage of hours served compared to authorized hours. This improvement, along with the completion of the Medicaid redetermination process in our state, should help us return to our target same store personal care hours growth rate of approximately 2%. Turning to our clinical operation, our hospice same store revenue increased 3.5% when compared to the third quarter of 2023. Our same store average daily census increased 2.1% when compared to the same quarter last year. As of the third quarter of 2024, our hospice medium length of stay was 31 days as compared to 29 days for the second quarter of 2024. While we have seen our same store admissions decrease the last couple of quarters, we have implemented changes to our operation, which we believe will have a positive impact on our ongoing admissions trend. Overall, we are pleased by the steady improvement in our hospice segment this year. Our home health segment same store revenue decreased 1.7% when compared to the same quarter 2023. This decrease was primarily due to the implementation of a standardized intake and scheduling process in our acquired Illinois and Tennessee markets that we believe will ultimately lead to an increase in our referral conversion rate, reduce our administrative costs, and allow our clinical staff to increase their focus on providing outstanding patient care. The implementation of these process changes should be complete by the end of the fourth quarter, after which we expect to see our same-store revenue growth improve. As demonstrated by the GentivaCare transaction, acquisition continued 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 larger size of our revenue base. For us to meet or exceed these goals, 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 are looking for potential acquisitions for both personal care and skilled segments, particularly home health. Over the past couple of years, the acquisition opportunities that meet our strategic objectives have been somewhat limited due to some favorable some unfavorable general market conditions. However, we are starting to see a few more opportunities that could strengthen all three of our segments in markets where we currently operate. We remain committed to making future acquisitions will help us to achieve our overall growth targets while maintaining a conservative approach to our capital deployment. 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 clients and patients want to receive care at home, which remains one of the safest and most cost-effective places to receive care. We believe the heightened awareness and 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.