Addus HomeCare Corporation
Q3 2013 Earnings Call Transcript

Published:

  • Operator:
    Good day, ladies and gentlemen, and welcome to the Addus HomeCare Q3 2013 Earnings Conference Call. My name is Lisa, and I'll be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Mr. Dennis Meulemans, Chief Financial Officer. Please proceed, sir.
  • Dennis B. Meulemans:
    Thank you, operator, and good afternoon. This is Dennis Meulemans, and I 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 all available to you 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 now turn the call 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 performance for the third quarter of 2013. I'm joined here in the Support Center by Dennis, whom you just heard from, and Darby Anderson, our Senior Vice President. In addition to Dennis' and Darby's attendance, I'd like to also welcome our management staff who listen in from our 100-plus locations in our 21 states. And on behalf of our board and our shareholders, I'd like to thank all of you for your hard and consistently outstanding work, making it possible for us to serve our 27,000 consumers, allowing them to live where they want to live, for as long as they want to live there. I also want to thank the entire team for producing what I would describe as very solid quarter of service and financial performance. In the third quarter, revenues were $67.3 million, representing a 10% increase from our prior year quarter. Gross margin was stable at 25.6%. Operating income from continuing operations was up 10.2% over the prior year Q to $4.3 million. And income per share was up 25.7% from the prior year Q at $0.25 per share. As you may have seen in our press release prior to this call, we are very, very pleased to be in the position to announce our having entered into definitive agreements on 2 important acquisitions
  • Darby Anderson:
    Thank you, Mark, and good afternoon, everybody. It was another good quarter and looking back, I'm proud of what we have accomplished in this quarter relative to our priority objectives in addition to signing 2 acquisitions. Average census was up 3.4% over Q2 of 2013, and up 12.1% from a year ago. We are pleased with these growth rates and the increasing focus of our agency leaders in executing on their specific sales plans, while recognizing that opportunity exists for improvement in a number of our markets. As Mark outlined, 1 of our priority objectives is to continually improve our organic growth and our conversion to a sales culture. I am very pleased to announce that in the quarter, we filled our sales leader position with the promotion of Lori Cabbage to the position of Vice President of Sales. Lori has been our Regional Director for the East Coast operations for over 2 years and her success in census and revenue growth in that region, in addition to her 20-plus years in home care sales and operations with some of the industry's leading companies, gives me great confidence in her ability to maximize opportunities across the country, and to accelerate our conversion to a sales organization. As we have fully deployed on our CRM system, Lori will be working with our agency and regional leaders to enhance sales plans and closely monitor performance. Additionally, her priorities will focus on underperforming locations, ongoing sales coaching and training, and developing incentive plans consistent with our 2014 objectives. We continue to meet with managed care organizations in our markets, and reaction to our NuCare system is consistently positive. We continue to pursue and sign contracts with these plans in our markets in advance of initiation of dual demonstration and managed Medicaid programs. I am particularly excited about the announced acquisition of assets from Coordinated Home Health Care in New Mexico. Coordinated is a very high quality organization that together, with existing Addus operations in that state, will provide us a much broader and deeper footprint as the state prepares for the launch of Centennial Care, a managed Medicaid program starting January 1, 2014. We are looking forward to welcoming Scott Wells and the entire team at Coordinated Home Health that will be joining us at closing. I am equally excited to welcome to the team from Medi Home Private Care, who adds to our already significant presence in the state of South Carolina, and will add locations in Ohio and Tennessee at closing. All 3 of these are important managed care states, and the addition of the Medi Home team will only enhance our ability to be better partners to managed health plans and the states, as they embark on these important and promising managed care and dual eligible projects. As Mark described, we continue to make progress on our NuCare system, by completing the transition of 13 additional sites within Q3, executing on uniform, home visit protocols and documenting protocols and best practices learned in our beta sites. Our care system is deployed in 31% of our locations, targeted to those states with 2014 managed care initiatives. One additional note
  • Dennis B. Meulemans:
    Thank you, Darby, and good afternoon. As a special note to our investors, our Form 10-Q will be filed later this evening and available tomorrow. We had another solid quarter, census up, revenues up, margins stable, income up, balance sheet remains solid. Those are the highlights, but more specifically
  • Mark S. Heaney:
    Thank you, Dennis. Dennis and -- while I'm thanking you, I'd also like to thank you and your team for all the effort that you have been sacrificing -- for instance, that you and the team have put in over the last couple of months, in addition to managing the finances of the company, board meetings and audit meetings and Q calls and overseeing the relocation of the Support Center, coordinating the '14 budget, year end and yes, we did 2 concurrent acquisitions. Darby and I just are -- just very, very appreciative of your effort, Larry's effort and your whole team's effort. This is why your golf game is as bad as it is, but we're really, really appreciative.
  • Dennis B. Meulemans:
    Thank you, Mark.
  • Mark S. Heaney:
    While I'm doing that, one more recognition before we turn the call over for questions. I want to acknowledge as previously announced, our founder, Andy Wright, has left our board to pursue his other personal, family and community interests. Beyond his giving me and others here, our opportunities to do what we are passionate about, Andy founded and has etched his person deep into this organization. We are very grateful, and we're in his debt. With that, Lisa, we'll open the call up for questions.
  • Operator:
    [Operator Instructions] Your first question comes from the line of Whit Mayo with Robert Baird.
  • Whit Mayo:
    Maybe just for a start with the acquisitions. If -- it'd be helpful, maybe, if you could give us a sense of the financial profile, what the growth has been, maybe the mix of business, purchase price? Anything to give us an idea of potentially how accretive this could be to you?
  • Dennis B. Meulemans:
    Whit, as we have disclosed, our combined revenues for the 2 businesses are $20 million to $22 million. The economic profile of the business is very consistent with the rest of our profile. We have not disclosed the purchase price, in part, because it was not required. But secondarily, because one of the sellers requested, as a condition of close, that we not disclose that at this point in time. And as we are looking to the business, we do see it as accretive in nature. And lastly, to give you a little bit of guidance, the purchase price was in the range of purchases we've made historically, and we are really pleased with these 2 acquisitions.
  • Mark S. Heaney:
    And with this, Darby, just in terms of the profile of the businesses, consistent with the personal care services that is our focus. Many in New Mexico and a lot of the same are -- almost all of the same programs where we operate, the same thing in South Carolina. So this is -- these are personal care businesses.
  • Whit Mayo:
    Got it. And maybe, Dennis, if you could remind us, within a range, what a typical multiple is, that you've historically paid for deals? You could, perhaps give us a sense of within a range of what these 2 could be?
  • Dennis B. Meulemans:
    Whit, we typically look to buy in EBITDA multiples of 4 to 6. That's a strategic acquisition, it might be a little on the higher side, but that's the normal range.
  • Whit Mayo:
    Got it. And were these structured with any earnouts? And also, do you plan on filing financials for these? I just -- I'm not sure of the materiality behind them, or whether or not those disclosures are needed.
  • Dennis B. Meulemans:
    We are not required to file, because they're not material as defined by the SEC for filing financials for them. So you will not see anything of that nature. There are earnouts on one of the transactions.
  • Whit Mayo:
    Okay. And maybe for Mark, just to give us a sense for how critical M&A will be, going forward with your strategy, just how aggressive should we expect you to be over the next 12 months? And were these 2 transactions that came to market, or were these deals that you sourced internally, or with a third-party?
  • Mark S. Heaney:
    Darby, I'm actually -- we looked at a lot of opportunities, and I want to be correct. Darby, generally, do you know whether these were --
  • Darby Anderson:
    One was brought to market, and the other was kind of identified internally.
  • Mark S. Heaney:
    In terms of -- we've been very consistent in our communications with regard to acquisitions. We are very focused on our core objectives, and I've stated those. We're going to become a sales organization, we're going to focus on managed care business development, and we're going to convert our care system, to the extent that we are not distracted by opportunities, that we will pursue acquisition opportunities. I would say that in the past 6 months, we have become more assertive in the market in pursuit -- in looking for and pursuing. But we -- I don't want Addus to be perceived as an acquisition story. We are in the market, if we see it, we'll hook it. But we have our core objectives.
  • Whit Mayo:
    Got it. And maybe just my last question is, as you have articulated in the strategy, I think numerous times, that you're trying to get the organization in a position to capitalize on, let's call it, risk-based payment models, if you will. Are there any investments that you need to make, or will be making, on actuarial capabilities? I guess, I'm just wondering if there's going to be anything either, call it unusual or usual, that we should be paying attention to in terms of spending over the next 12 months?
  • Mark S. Heaney:
    Not relative to -- not material, not relative to our pursuit of managed care opportunities. And with -- relative to risk, we are encouraging managed care organizations to look at risk gain share and other types of reimbursement models rather than traditional fee-for-service, hours-based programs, case capitation is a nice one. Managed care is responsive. They appreciate it even if they -- appreciate our bringing this to their attention as a possibility. We are asking managed care organizations if they want to demo any of this. But right now, managed care is focused on bidding, being -- getting ready, and in case load or member accumulation. They're well into the -- into '14, before we would think that we -- anybody would be -- we would be engaged in a risk model. But there would be an acceleration, we think, as you -- into '15 and '16, we think that will be the payment methodology required on personal care providers.
  • Operator:
    [Operator Instructions] Your next question comes from the line of Dana Hambly with Stephens.
  • Dana Hambly:
    Just on the organic growth, the billable census up 12% year-over-year, we saw that the first couple of quarters tracking mid-single digits. So I know, you were a little disappointed last quarter actually, and I would imagine you'd be very pleased this quarter. I know you don't like to give guidance, but just trying to get a sense of -- was there anything unusual there? Or is this kind of just collective good work? And maybe we should be targeting something higher than maybe we had been, previously?
  • Mark S. Heaney:
    I'm going to -- let me start this, guys, if you don't mind, with just a statement that, Dana we have been talking about what it -- we want to become a sales organization, and for those new to us, the history of this organization is coming out of the social service model. You've built your business based on being a really good and responsive provider, you didn't market the business so much. You were an, basically, an order-taking company, and I don't mean to diminish the importance of the order that we're taking. But it is, as the world has evolved, it's necessary for us to be -- to compete and to grow, and we're out into the community telling people about our company and the opportunity for elder care services. It's marketing. We have been working on this. Darby has been working hard with his people, it takes change. And I would -- we should see steady -- Darby, I'm going to say, we should see steady, consistent, continuous improvement, and I also say that we have sites, Darby, you would -- a fair number of sites that need to turn it around. So I don't know if you want to add to that?
  • Darby Anderson:
    No, I think that's a good historical perspective. Absolutely, we've been undergoing this change and change does takes time. I think we're seeing incremental progress, quarter-over-quarter. Was the third quarter better than previous quarters? Hard to look for it, and we don't give that kind of guidance, as you stated. But there were a few ups and downs within the different regions across the country. So it's hard to estimate actually the specific impact on what drove the number up. I have to attribute it to a more diligent and consistent effort, more focus, more oversight and monitoring of our sales plans, as Mark described, getting out into the community, telling people what we do and then continuing to be responsive when they call upon us.
  • Dennis B. Meulemans:
    All right. Dana, I'm going to close out this question with not cold water, but recognize Q3 for us, is our biggest quarter as far as days -- or days for our people. Q4 tends to be a bit of a lower quarter, largely driven around the holidays this year, with both Christmas and then New Year's falling midweek, families tend to come and visit our consumers, so our need is a little bit less. So fourth quarter tends to be a little bit more tepid. So I would put that in your thought process as well.
  • Dana Hambly:
    Okay, very helpful. And just staying on some of the drivers here, too. The billable rate up almost 1% year-over-year, it looked like. I guess, I would've thought that the billable rate looked kind of flat to declining over time. Anything unusual in the third quarter?
  • Darby Anderson:
    We did -- state budgets, or most of our states start their state budgets in July, so it's usually when rate increases become effective. And I was just looking at your comment of a significant increase. I'm seeing $16.99 to $17.01. Is that what I'm seeing there?
  • Dennis B. Meulemans:
    Right, $16.93 to $17.08.
  • Darby Anderson:
    Something like that.
  • Dana Hambly:
    Right, yes, no. Big for what it has for -- what it has been in prior quarters and I guess I, I felt like that's a number that probably trends down over time.
  • Darby Anderson:
    Well, I think in July, with the start of fiscal years, we did get some rate increases in some of our states, no one state is really a material rate increase, kind of percentage increases on rates. I think that's reflective of both recovering state economies, as well as states commitment to rebalancing their long-term care spending into home and community-based programs versus institutional, which is the most cost-effective way to -- and the preference of the consumers we serve.
  • Dennis B. Meulemans:
    I'd just add one last point. We're seeing growth in states where we have higher rates.
  • Dana Hambly:
    Okay, it's good to hear it. And on that topic, we're still a little ways from these pilot -- dual demonstration pilot programs rolling out. Has anything changed with any of the pilots? Or have we stalled on it? Or, not stalled, but have any of them been pushed back or moved forward? Any kind of changes from where we were a quarter ago?
  • Mark S. Heaney:
    Since the last time we spoke, I think Illinois may have drifted 1 month. I'm not exactly sure about that. It's to start April 1. It's my most recent information, I believe it's accurate. So no, is the short answer. No significant pushbacks on dates in any of our key states.
  • Mark S. Heaney:
    I want to -- Dana, I want to take the opportunity, as Mark wants to comment on it. The -- and when they come in, they're going to come in and affect us gradually. The state government did not intend this to ratchet their systems. So we expect them to be steady, we expect them, though, to be consistent, continuous and we, as you've probably heard us say publicly, we expect over time, we're going to shift from a state payer to an insured payer, to a managed care payer.
  • Dana Hambly:
    Yes. That makes sense. And thanks for clarifying that. Last one, Dennis, can you just remind me, the -- what is your -- the capacity on your credit facility?
  • Dennis B. Meulemans:
    We have about $43 million available.
  • Operator:
    There are no additional questions at this time. I would now like to turn the presentation back over to Mr. Mark Heaney.
  • Mark S. Heaney:
    Lisa, thank you. Thank you all, very much. We appreciate your support, to our investors and our staff and teams listening. We look forward to speaking with all of you again in 90 days. Thank you all, very much.
  • Operator:
    Ladies and gentlemen, that concludes today's presentation. You may now disconnect. Have a great day.