Addus HomeCare Corporation — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; filed May 8, 2015. Unless noted, financial amounts are in thousands of dollars. Addus provides home and community-based care, primarily to dual-eligible consumers, operating in 22 states through 132 locations.
Financial results
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Net service revenue | $81,915 | $71,683 | +14.3% |
| Gross profit / margin | $21,926 / 26.8% | $18,668 / 26.0% | Margin +0.8 percentage points |
| Operating income / margin | $3,627 / 4.4% | $3,770 / 5.3% | −3.8% |
| Net income / margin | $2,162 / 2.6% | $2,354 / 3.3% | −8.2% |
| Diluted EPS | $0.19 | $0.21 | −$0.02 |
| Cash from operating activities | $(904) | $2,670 | Declined $3,574 |
Revenue growth reflected an 11.9% increase in average billable census (45.7% same-store growth and 54.3% acquisition-related), plus a 1.8% increase in revenue per billable hour to $17.23. Billable hours increased 12.2%. Gross margin improved primarily due to lower workers’ compensation expense and higher-margin acquired business. General and administrative costs rose 19.1% to $17,153, increasing to 20.9% of revenue from 20.1%; depreciation and amortization more than doubled to $1,146, including $737 of intangible amortization. Management attributed higher G&A partly to wages, payroll taxes, stock compensation, legal and consulting costs, and Sarbanes-Oxley compliance work. The filing gives no numerical forward earnings or revenue guidance.
Cash, liquidity and obligations
- Cash was $7,396 at March 31, down from $13,363 at December 31, 2014. Operating cash use reflected primarily higher receivables; investing cash use was $4,981, including $4,250 for the Priority Home Health acquisition and $731 of capital expenditures.
- Net accounts receivable increased to $74,370 from $68,333. Days sales outstanding rose to 82 from 80; Illinois Department on Aging DSO increased to 95 from 85. Gross receivables from Illinois governmental programs were $45,490, and the state’s open receivable balance increased to $45,942 from $44,136.
- The company had no revolving-credit borrowings and reported $39,555 available under its $55,000 revolving facility, subject to borrowing-base limits and outstanding letters of credit. Facility maturity is November 2019; it is secured by company assets and includes financial and other covenants.
- Balance-sheet capital lease obligations totaled $3,418; contingent earn-out obligations totaled $2,120. Total liabilities were $52,673 and stockholders’ equity was $130,617. Current assets were $96,432 and current liabilities $43,283.
- Management said cash and available credit, together with operating cash flows, should cover working-capital needs for at least 12 months. It cautioned that further delays in Illinois payments could pressure liquidity and require additional borrowing.
Business developments, outlook and risks
- On January 1, 2015, Addus acquired Ohio-based Priority Home Health Care for $4,250 cash; it contributed $2,383 of Q1 revenue. Acquisition costs of $453 were expensed. Purchase-price allocations were preliminary.
- On April 24, 2015, the company agreed to acquire South Shore Home Health Service and Acaring Home Care for approximately $18,000 to enter New York; this was a subsequent event, not a Q1 completed acquisition.
- Managed-care organization revenue share rose to 18.3% from 4.4%, while state, local and other governmental programs declined to 77.7% from 91.0%. Illinois remained a major concentration: 58.1% of revenue came from Illinois, and the Illinois Department on Aging alone accounted for 47.7% of revenue and 56.0% of receivables.
- Management described growing managed-care adoption and its coordinated-care model as potential growth opportunities. Key exposures include government reimbursement, state budget and payment delays, Medicaid/Medicare rule interpretation, receivable collectability, and dependence on Illinois. The company reported ordinary-course legal and administrative proceedings that management did not expect to materially affect results; it also carried a $1,263 indemnification reserve related to historical billing adjustments. No material changes to previously disclosed risk factors were reported.
- The company reported effective disclosure controls. It was evaluating control effects of a payroll and HR system transition. A new revenue-recognition standard was expected to take effect for the company in 2017; adoption impact and method were still under evaluation.
Important facts for investors to verify
- Whether Illinois payment timing improves, and the effect on receivables, DSO, allowance needs and operating cash flow.
- Whether managed-care growth and acquired census translate into sustainable margins and earnings, given rising G&A and amortization costs.
- The final purchase accounting and performance of Priority Home Health, and the funding, closing conditions and integration of the proposed New York acquisition.
- Compliance with credit-facility covenants and borrowing-base availability, particularly if cash collections weaken or acquisitions require additional financing.
- Exposure to the Illinois Department on Aging concentration and the status of the $1,263 historical billing-related indemnification reserve.