Addus HomeCare Corporation
Q1 2015 Earnings Call Transcript

Published: 3 May 2015

[Operator:]

Ladies and gentlemen thank you for standing by. This conference is being recorded and we are no ready to begin.

[Scott Brittain:]

Good afternoon and welcome to the Addus HomeCare first quarter 2015 earnings conference call. This presentation will contain forward-looking statements within the meanings of the federal securities laws. Statements regarding future events and developments, the company's future performance as well as management's expectations, beliefs, intentions, plans, estimates or projections relating to the future are forward-looking statements within the meaning of these laws. These forward-looking statements are subject to a number of risks and uncertainties, including factors outlined from time to time in the company's most recent Form 10-K or Form 10-Q, earnings announcement or other reports filed with the Securities and Exchange Commission and available at the SEC's website. The company undertakes no obligation to update publicly any forward-looking statement whether as a result of new information, future events or otherwise. I would now like to turn the call over to the company's Chief Executive Officer, Mr. Mark Heaney. Please go ahead, sir.

[Mark Heaney:]

Thank you, Scott. Good afternoon everyone and thank you very much for joining us for Addus HomeCare's investor call. I'm joined today by Maxine Hochhauser, our Chief Operating Officer, Darby Anderson, our Chief Business Development and Strategy Officer and Dennis Meulemans, our Chief Financial Officer. This will be Dennis’ last call with us as was announced previously just as the weather in Chicago is warming, Dennis will be retiring to the Golf Course trying to repair the damage that was done to his handicap __ working here with us at Addus. As was also announced today Don Flink will join Addus as our new Chief Financial Officer effective on May 11. so while we will welcome Don and look forward to his contribution, Dennis speaking for Addus, its share holders and all the employees here, we want to thank you for everything that you have done over the past four years to help us even better serve our at risk consumers. I also want to welcome our staff listening in to today's call and to recognize them for the outstanding care they and our homecare aids provide. These calls provide our team with a good overview of both our business operations but also importantly our responsibilities to our shareholders and other stakeholders. The care our aids provide is very often the difference and our consumers being able to stay in their homes or they are progressing on the healthcare continuum to a much more expensive level of care. Especially as the healthcare system shifts to a value base approach to care, helping our consumers remain at home is good for everyone involved, the consumer , their families, the care provider and the payor. Turning to the first quarter, we're pleased with our financial and operating results including our double-digit census growth, this growth was the primairy driver of our 14% plus revenue growth for the quarter which contributed to an increased gross profit margin and a 21% increase in our adjusted EBITDA. Our revenue growth continued with MCOs and with our traditional state based referral services. As mentioned in our last call, referrals in Illinois had slowed in this and the previous quarter as the state converts to managed care, we see those referral rates as returning to historical levels. Revenue from MCOs for the first quarter increased to 18.3% of our total revenue mix compared with 4.4% for the first quarter last year and 15.4% for the fourth quarter of 2014. For the past 35 years we have been providing personal care services to older persons and younger disabled persons who without the intervention of the homecare aid would be at imminent risk of institutionalization along the way using more and more of the limited healthcare dollar. We serve the 5% who use 50% of the healthcare resources in this country. The payor is shifting to managed care, managed care will seek to providers who drive the best health outcomes and provide their members with the best service experience… ***00-05*** 5_10_ADUS_SAI Shifting to managed care, managed care will seek to providers who drive the best health outcomes and provide their members with the best service experience. Getting ready to serve this new payer, we’ve been reengineering our care delivery model using mobile technology, Addus Mobile Portal or AMP as the medium for connecting the home-based at risk member to the plan case managers, so that that case manager feels like he or she has the information. The eyes into the members home so that they can make informed real time decisions about the care and treatment of that consumer. We are using this constantly developing technology, our 24/7 contact center and the distributed nature of our workforce to not only deliver effective care but now plans in three states are utilizing our care model to help them gets started in new markets by helping them locate their new members provide an initial health risk assessment and other member engagement activities. These projects put us squarely in the conversation as MCOs evaluate service providers for their new members and they provide us a great opportunity to demonstrate and differentiate the capabilities of our technology supported service delivery model. We expect to expand our participation in these projects with existing and new MCO customers both in these current states and in new markets. Finally, Addus continues to implement on an acquisition strategy intended to get us broader and deeper where we are and or to go where managed care is and we have an opportunity. Following our first quarter acquisition of Priority Home Care which expanded our presence in Ohio, this week we reported having signed a definitive agreement to purchase South Shore Home Health Services in New York. We have been looking at opportunities in New York for a long time, we think South Shore is the right business. It’s the right size it’s in the right locations, it has an outstanding management team committed to our continued success. It has an outstanding reputation. With approximately $47 million in 2014 revenue, South Shore is a great platform business and a large and important managed care state. We are very pleased to have the opportunity to enter the large New York market with this high quality company. Now some of you know that New York’s [indiscernible] extended license transfer process at the end of which subject to this typical conditions have posed that transaction will be completed, we look for that process to be completed late this year or early next. Upon completion of the purchase, we expect South Shore’s operations will be immediately accretive to our financial results. Beyond these two acquisitions we have an active pipeline of potential transactions and the strong balance sheet with which to execute on what we think is a thoughtful acquisition strategy and what we see is a consolidating industry. You may have seen Time Magazine cover from their March 2nd issue. If you did, you saw the picture of a cute little baby with the words 142 years below her picture. We are making more and more older people every day and we are living longer and longer. If we consider the favourable demographics of the senior population along with the clinical and financial risks that payers face and a value based system, we think our long-term growth opportunities are compelling. To summarize, we had very solid start to 2015 with our first quarter results, we are making tangible process and positioning our company to increase our market share as they do it eligible and Medicaid populations transitioned to managed care. As our experience in Illinois indicates, we expect the transition will sometimes be bumpy and lumpy, but the opportunities for growth are substantial… ***15-20*** And friendship over the past four and a half years. It has been great place to work and I will miss you. this concludes my comments, operator would you please open the floor for any questions?

[Operator:]

Thank you. [Operator Instructions] our first question comes from the line of Dana Hambly with Stevens. Your line is open, please go ahead.

[Dana Hambly:]

Hey good afternoon. Can we just go over the Mark or Darby on the illinos referral, I know you talked about it last quarter, obviously had an impact this quarter and Mark I think you mentioned we're back to normal, can you just describe when we got back to normal and what normal is?

[Mark Heaney:]

Yes. So let me ask Maxine Hochhauser to handle that if you don’t mind Dana.

[Dana Hambly:]

Oh yes, it might be nice.

[Maxine Hochhauser:]

Hey Dan, hey hi how are you.

[Dana Hambly:]

Good.

[Maxine Hochhauser:]

So as Mark had indicated we saw a continued slowdown of new clients entering into the system during January and February, we started to see that pick up in March and we're really happy with what we saw in March, continue to be happy with where things are you know you are from Tennessee, we saw a lot of this in Tennessee when they went through the MCO transition there and same type of thing, Illinois is just a bit more complex, so we expect it to take a little bit more longer.

[Dana Hambly:]

Okay, the issue was your assessment case manager is just getting inundated with work from the managed care organizations, is that basically it and that’s what you are saying is kind of back to normal now.

[Maxine Hochhauser:]

Yes, we started to see it come back to normal, started to see it pickup in March and as I said we're really happy with what we started to see, happy where it is now, but its exactly as you are saying. The case managers are the same case managers so the focus was on transitioning the clients from the traditional program into the MCOs and that prevented them from focusing on new clients entering into the system.

[Dana Hambly:]

Okay great that was helpful. And could you just update me on what was in the same store numbers now and what’s [indescribable 17

[Dennis Meulemans:]

Right, Dana the same store now includes the acquisitions of the MSA properties at the end of 2013 and the community care, community CHHC acquisition in New Mexico are now all part of the same store. The acquisitions are the aid and assist and the priority.

[Dana Hambly:]

Okay. and how would you characterize the performance of those acquired practices now that the ones that have folded in the same store now thaqt they have been in there for over a year?

[Maxine Hochhauser:]

Yes where CHHC is performing as expected and is doing well, we saw growth during last year for CHHC and aid and assist as we said after post transition to MCO started – we saw growth in the in the first quarter. CHHC was integrating and performed as we expected during Q1.

[Dana Hambly:]

Okay and lastly, for me could you just give a little more detail on the health risk assessments that you have engaged in and what would be the financial impact if any or where does this lead to other business?

[Maxine Hochhauser:]

Great question. From a revenue basis its really not material, but we are really looking it as an opportunity to touch large number of clients that we wouldn’t have otherwise engaged with. What the MCOs have done is asked us to use our network, distributor network of employees its feet on the ground to help them locate new members, arrange for physician appointments, engage with their new members to fill care gaps and do this initial health risk assessment. Our success translates to their success in improving their quality and contract compliance. So we're really excited because we're now operating with them other then focused on our personal care business, we're also using the software and distribution system that we developed to provide that full services to them. So we really feel like we've positioned ourselves well as they are starting to move forward within managed care.

[Dana Hambly:]

Okay great thank you.

[Operator:]

Thank you and our next question comes form Mitra Ramgopal with Sidoti. Your line is open, please go ahead.

[Mitra Ramgopal:]

Yes hi, good afternoon first I was just wondering if you could give us a sense as to how far or long are we on the Illinois transition?

[Mark Heaney:]

Yes I may ask Darby to answer that he has been involved with it long.

[Darby Anderson:]

Mitra hi, so I think as Maxine indicated I think we are getting through the initial phase of the transitions, all of the passive enrollment has occurred I think we're now still focusing on tracing down those members, getting the authorizations in the system through the first quarter, but I think we are essentially through the first wave, what’s a little bit unknown is I'm sure you are following in the duals that opt out rates under Medicare which may require sort of a reenrollment process later this year into straight Medicaid managed care, not quite sure how the state is going to handle that but we're essentially through the first wave to answer your question.

[Mitra Ramgopal:]

Okay and you feel pretty comfortable going forward, you know it should hopefully get a little easier from here on out.

[Darby Anderson:]

Yes, absolutely.

[Mitra Ramgopal:]

Okay. Mark I was just wondering if you could give us more color on the south shore transaction in terms of as you look at New York and the potential opportunities you had out there, what was it about south shore in particular and maybe that geography that sort of attracted you to it.

[Mark Heaney:]

So, its frankly what I listed in my statement, we have been looking at the New York markets for a lot of years Mitra, and its an interesting market and it sets peculiarities which you don’t encounter necessarily in other states just is what it is. We were looking for the right size business doing personal care and not involved in home health and not sub contracting too much which is a lot of what happens in New York. A clean history, operated the business like a real business, like a clinical environment for a lot of years, looking for the right size and the right management team, because as I mentioned we think of it as a platform to very large and important states. Frankly its good fortune because our COO has a boat load of experience in that state its just I don’t want to use the word perfect, but if you don’t mind its perfect for your.

[Mitra Ramgopal:]

Okay. I was wondering since the transaction doesn’t close until maybe the end of the year, does that sort of preclude you from looking t other markets or even further within New York?

[Mark Heaney:]

No, no short answer no. we will work this out internally, we will work with the management team there to begin to get to know each other and figure out where the opportunity is, again platform, they may even be listening to this call if they are the bad new for them is that the senior management would be staying with us, has work to do on day two and by the way they are real excited about doing that it’s a great it’s a great business to be true.

[Mitra Ramgopal:]

Okay and thanks again for the additional comments there and I was just wondering in terms of as you continue to gain share on this business and expand, are you running into more competition so to speak and as you look at transactions are you seeing potential other bidders that you are running up against that have may be didn’t exist a year ago?

[Darby Anderson:]

Its really starting, I wouldn’t say that we are seeing a lot of increased competition, there might be a little bit more but not a lot more and when I say tat I mean not a lot more competition on every deal of course it depends on the property, right the larger the size, if they are private equity sponsor then we tend to see a little bit more competition, but generally I would say modest increase in that.

[Mark Heaney:]

You know what Mitra we've known you well right, we have said to the market we believe it true that there are 12000 plus homecare providers doing what we do in this country, we're making more and more consumers but it is becoming an appropriately more challenging business to operate and it should be, this is the nature of the consumer we're dealing with and the opportunity to make margin is one that favors the larger companies and so we think - we don’t think it, we think we are certain that this is a consolidating market and we have the strategy and you know our acquisition strategy and we think we are in the position to prudently but consistently execute on it.

[Mitra Ramgopal:]

Okay thanks again for taking the questions.

[Mark Heaney:]

Thank you Mitra. End of Q&A

[Operator:]

Thank you [Operator Instructions] And I’m showing no further questions at this time. And I would like to conclude today's program. Ladies and gentlemen thank you for your participation and you may all disconnect. Everyone have a great day.

[Mark Heaney:]

Thank you.