Addus HomeCare Corporation
Q2 2013 Earnings Call Transcript

Published: 2 Aug 2013

[Operator:]

Good afternoon. My name is Ben, and I will be your conference operator today. At this time, I would like to welcome everyone to the Addus Quarter 1 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. Thank you. Dennis Meulemans, Chief Financial Officer, you may begin your conference.

[Dennis B. Meulemans:]

Thank you, Ben. Good afternoon. This is Dennis Meulemans, and thank you for joining us. Before we begin, I'll briefly read the Safe Harbor statement. This presentation will contain forward-looking statements within the meaning 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 our most recent Form 10-K or Form 10-Q, our earnings announcements and other reports we file with the Securities and Exchange Commission. These are available at www.sec.gov. The company undertakes no obligation to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise. With that complete, I'd like to turn this over to Mark Heaney, our CEO.

[Mark S. Heaney:]

Thank you, Dennis. Good afternoon, and thank you all for attending Addus HomeCare's investor call covering our results for the second quarter of 2013. I'm joined in our support center by Dennis, our CFO; and Darby Anderson, our Senior Vice President. I'd also like to welcome and thank our management team from around the country who listen in on our Q calls in order to hear from our investors directly. In the second quarter, we saw a continued growth in both revenue and earnings, with continued progress toward achieving our strategic imperatives. Revenues were $65.8 million compared to $60.4 million. Income from continuing operations was $0.23 per share. We're very pleased with the State of Illinois having made a significant payment in the quarter, adding to an already solid balance sheet. Rightly, Illinois has been a concern for our company and our longer-term investors. However, for the past several quarters, Illinois has been a consistent, dare I say, almost dependable payer. The company's objectives remain

[Darby Anderson:]

Thank you, Mark, and good afternoon, everybody. It was a good quarter for us, and I'm pleased with the overall performance of our operating team and our results this quarter. We continue to execute on the priorities, as Mark described them, organic census growth, managed care sales and our care system. Our average census in the quarter grew 1.4% from Q1 and 2013 and 4.5% over the second quarter of last year. Although positive, I believe we can do better and we're taking the following action to drive results

[Dennis B. Meulemans:]

Thank you, Darby, and good afternoon. We filed our Form 10-Q, along with our earnings release earlier today. I hope our listeners have had the chance to at least scan the documents before this call. We had another solid quarter. Census was up, revenues were up, income was up, cash was up, AR was down, all good signs of continued progress. Highlights for our second quarter were

[Mark S. Heaney:]

Thank you, Dennis. Every day, I, and I think, frankly on all of us here, get more and more excited about what we are doing, how we are doing it and why we are doing it. The fundamentals for our business are overwhelming. We are making more older persons every day. We're making it possible for older persons to live longer and longer. As we age, we tend to become impoverished. I think we'd all agree that our older population deserves and has the right to live at home, where they want to be. It is, by multiples, less expensive to care for older citizens at home. These factors put pressure on governments, the primary payor. And the payor's reaction is to hold the line on spending and increasingly to generate health savings. We think these math facts favor larger providers willing to invest in technologies necessary to drive health and economic results. A week ago or so, Darby sent me an article out of Forbes, which kind of tells the story. The article is entitled, "Nursing Home Use by Seniors is Plunging." We feel very good about what we're doing and we are all committed to staying focused to our doing it. With that, Ben, we'd like to open it up for questions.

[Operator:]

[Operator Instructions] The first question we have comes from the line of Alexander Renker from Sidoti & Company.

[Alexander Renker:]

I just had a question first about the census metrics. So based on the filing for June 2012, I think that had census of -- hang on, let me see here -- it looks like, at that point, it was reported as 23,700 versus 26,000 this year, which gives, based on those 2 filings, 10.4%, but you guys mentioned that the number was 4.7%. What accounts for that reporting difference from -- is there an adjustment that happens in the subsequent period?

[Dennis B. Meulemans:]

Alexander, this is Dennis. The statements that were provided last year did not reflect the 3 offices that we retained from the Home Health division, and the comparative in the earnings release schedule has the -- those offices included, so it's an apples-to-apples comparison.

[Alexander Renker:]

Okay, excellent. So given that, that -- given that the number is coming in pretty strong still, yet it's not exactly where you guys want it, what are some of the steps you're taking to strengthen that number?

[Mark S. Heaney:]

Alexander, this is Mark. And what number is it that you're referring to?

[Alexander Renker:]

Census growth, sorry.

[Mark S. Heaney:]

Go ahead, Darby.

[Darby Anderson:]

Yes. So really, our focus is on our organic census growth in all locations. Some of the steps that I described in my comments, a CRM system that really gives us visibility into the actual sales activity of our agency directors on a day-in, day-out basis. We're hiring a director of sales to really help us to convert to a sales culture. We've been in that sales conversion process for a better part of 2 years now. It's not been an easy transition for us as historically, we've been kind of an order-taking business, and that's been the nature of home care. We need to get more aggressive, we need to go out and sell our services on a continuous basis. That requires us recruiting new staff at the agency level, regional director teams that are focused on driving those sales results, ongoing sales, planning and monitoring and coaching. And that's going to be the major -- the responsibility of this director of sales under my direction.

[Alexander Renker:]

Okay, excellent. And then last one for me is, can you guys speak sort of generally about the strategic acquisition plans you mentioned and maybe what you would be looking towards there?

[Dennis B. Meulemans:]

Alexander, we are -- we have been retaining a list of properties that are for sale in the markets we're in. We look for tuck-ins in those markets that make sense and we are exploring opportunities in some new markets. So if you had to prioritize, it would be California and New Jersey, New Mexico as tuck-in markets, South Carolina. And then if you've looked at new markets, we're exploring opportunities in other states where we're seeing an emergence of managed care as a leader or a driver for change in those markets.

[Mark S. Heaney:]

Yes. This is Mark. I would -- I agree with that. It's really kind of simple. We have the capacity. We think that the overall environment is one that is hostile to smaller and free-standing organizations increasingly. And with the capacity, and that being the environment, we expect that -- you should expect us to be more assertive and frankly aggressive in this area over time.

[Operator:]

The next question comes from the line of Dana Hambly from Stephens.

[Dana Hambly:]

Mark or Darby, when do you think you would hire a sales director?

[Darby Anderson:]

It's always difficult to say. We are actively interviewing candidates. My goal would be, certainly, before the end of the third quarter, but we're looking to do it as quickly as possible.

[Dana Hambly:]

All right. And when you do hire, is the target market the insurers? Or is it your existing referral sources, both? Could you just kind of give us an idea of once he or she is hired, how they're going to hit the ground running?

[Darby Anderson:]

It's really kind of a classic marketing approach of a push-and-pull strategy. We have relationships with case managers who go out and assess and refer cases to us. We need to maintain close relationships with those individuals, keeping our promises, serving the clients that they have referred to us and making sure they are aware of our capacity to serve additional clients. At the same time, there are opportunities to go out into the communities and describe the benefits of home care, the availability of programs, all different types of funded programs from private pay to Medicaid to Veterans Care and just really service that community education resource among large populations within the markets we serve and hopefully identify folks that are having parent care, grandparent care issues that we can help with, and then linking them up to the appropriate pair of source and services. So it's really a grassroots effort out in the communities, beating the streets. And I think we need a little bit more focused attention on how we go approach that relationship development. And that's what this director of sales will bring to us.

[Mark S. Heaney:]

Let me add to that. I agree with everything Darby said. And I also heard a little bit in there about the insurance. And so let me just say, we already have, in managed care, I think, at rather sophisticated managed care sales and marketing effort underway. It's been for a full year and we have an experienced sales leader, insurance sales leader heading that. One other just little adjustment. The effort that the -- is necessary to win caseload in the current environment is quite similar to the process that's necessary to win consumers, win referrals under a managed care environment, especially as managed care begins to move into states where they would very likely maintain the status quo.

[Dana Hambly:]

Okay, that's helpful. Switching gears a little bit. On the census for the quarter, Darby, you mentioned sequestration, its impact on the billable hours. What did it do to your billable census in the quarter? Was it a couple of percentage points or it's just -- that's way too much?

[Darby Anderson:]

No, that would be too much. It -- we do -- the Older Americans Act funding that flows primarily through the area agencies on aging is subject -- it's all federal funds and subject to sequestration. It funds things like home-delivered meals, senior centers, very valuable home and community-based services. And also, some respite care services and homemaker chore housekeeping services, things that we also do provide. It represents a relatively small portion of our overall caseload. So although we are seeing loss of some clients there, it's not impacting to any significant degree the overall growth that we've quoted here. It does, though, have an impact on their very -- typically very low hour and sporadic care plans. So it does have kind of a more significant impact on the hours per consumer.

[Dana Hambly:]

Okay. And then on the billable hours, should we -- I know it's probably higher than -- it's certainly higher than what we were looking for in the quarter. Should we continue to think about that coming down over time, billable hours per census per month?

[Dennis B. Meulemans:]

Dana, you're going to have to make your own judgment on that. We've -- we do have some concern about it. It's higher than we expected it to be and -- but we don't give guidance going forward.

[Dana Hambly:]

Yes, no problem. And then, Dennis, on the 404, so you're going to start incurring those charges in the third quarter, I imagine?

[Dennis B. Meulemans:]

That's true. I'm interviewing consultants to help us with it and we're in the process of looking for either a director or Vice President of Internal Control.

[Dana Hambly:]

Okay. And that's somewhere in the $500,000 to $700,000. That's all for 2013?

[Dennis B. Meulemans:]

Yes.

[Dana Hambly:]

Okay. Where would that flow through? G&A?

[Dennis B. Meulemans:]

It'll come through G&A.

[Dana Hambly:]

Okay. And just -- I'm sorry, last one on the tax rate. You said it would've been 35.5% adjusted?

[Dennis B. Meulemans:]

I've got to look at it. It's 35.7% adjusted.

[Operator:]

That is all the questions that we have in the queue at this time. [Operator Instructions] At this time, we have no further questions, Lucas [ph].

[Mark S. Heaney:]

Well, then thank you, and thank you all very much and thank you for your support and we'll talk to you in 90 days.

[Operator:]

Thank you, ladies and gentlemen. That concludes your participation today's conference. This concludes today's presentation. You may now disconnect. Have a good day.