Addus HomeCare Corporation — Q1 2021 Form 10-Q
Business context and period. This unaudited filing covers the three months ended March 31, 2021, compared with Q1 2020. Addus provides personal care, hospice and home health services in 22 states through 208 offices. It served approximately 50,000 individuals during the quarter. Results include the effect of acquisitions completed in 2020, particularly Queen City Hospice.
Key financial results
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net service revenues | $205.3 million | $190.2 million | +7.9% |
| Gross profit / margin | $61.2 million / 29.8% | $55.8 million / 29.4% | Margin +0.4 percentage points |
| Operating income / margin | $12.2 million / 5.9% | $10.7 million / 5.6% | Income +14.2% |
| Net income | $8.9 million | $8.7 million | +2.7% |
| Diluted EPS | $0.55 | $0.54 | +$0.01 |
| Operating cash flow | $(18.4) million | $20.4 million | Declined $38.8 million |
| Cash and cash equivalents | $125.5 million | $145.1 million at Dec. 31, 2020 | Down $19.5 million |
Revenue growth reflected a 3.7% increase in personal-care revenue per billable hour, partly offset by 1.4% fewer billable hours, and a $10.9 million increase in hospice revenue, mainly associated with Queen City Hospice. Personal-care revenue rose 2.6%; hospice revenue rose 43.2%; home-health revenue was essentially flat. Consolidated gross margin improved, while personal-care and hospice segment gross margins declined year over year.
Cash used in operations reflected payroll timing, repayment of $10.8 million of Queen City Hospice Medicare advance payments, and increased receivables—particularly from the Illinois Department on Aging. Investing cash outflow was $1.0 million, primarily property and equipment purchases; financing cash outflow was $0.1 million.
Debt and liquidity
At March 31, 2021, debt under the credit facility was approximately $196.3 million before unamortized issuance costs, including $178.5 million of revolving loans and $17.9 million of term loans. The reported net carrying amount was $194.8 million. The company had $112.8 million available to borrow after outstanding letters of credit and borrowing-base limits. Borrowings carried a 1.86% interest rate; the facility matures May 8, 2023. The company reported compliance with its financial covenants. A 100-basis-point increase in variable rates would have reduced quarterly net income by an estimated $0.4 million, or $0.02 per diluted share.
Management commentary, outlook and risks
- No specific company-wide earnings or revenue guidance is provided in the filing. Management said the financial effect of COVID-19 remained difficult to estimate and was not expected to materially adversely affect the business, while noting that conditions could change.
- COVID-19-related expenses were approximately $2.1 million in the quarter; the company reported $1.8 million of temporary personal-care rate increases and recognized $0.9 million of Provider Relief Fund support against related expenses. It had $5.1 million of deferred payor COVID-19 reimbursements subject to qualifying expense use or return. Queen City Hospice planned $1.9 million of caregiver retention payments in Q2. The company expected to repay $7.1 million of deferred payroll taxes in 2021.
- Medicare sequester relief added $0.1 million to home-health revenue and $0.7 million to hospice revenue in Q1. Management warned that, absent congressional action, PAYGO sequestration could reduce Medicare spending by up to four percentage points in fiscal 2022.
- New York did not initially select the company as a Lead Fiscal Intermediary for its CDPAP program. Management estimated 2021 program revenue of $52 million and operating income of $4 million, did not expect a financial impact in 2021 due to a transition period, and was pursuing a protest and other options. The ultimate effect remained uncertain.
- Illinois represents a material concentration: 35.8% of Q1 revenue came from the state, and the Illinois Department on Aging accounted for 20.4% of total revenue. Receivables from that department rose $11.9 million during the quarter; its DSO increased to 72 days from 46 days at year-end. Illinois’s delayed 7.1% in-home-care rate increase took effect April 1, 2021; a further proposed increase was not assured.
- Other notable risks include government reimbursement and state budget changes, caregiver recruitment and retention, wage pressure, COVID-19 effects, and dependence on government and managed-care payors. The company stated that pending legal and administrative matters were not expected to have a material financial effect. Disclosure controls were reported effective, with no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether Illinois Department on Aging collections improve and receivable days normalize.
- The outcome and timing of New York’s CDPAP intermediary process, and the potential impact on the estimated $52 million of 2021 revenue and $4 million of operating income.
- Whether personal-care billable hours and segment margins recover, and whether hospice growth and margins are sustainable apart from acquisition effects.
- Use, documentation and possible repayment of Provider Relief Fund and deferred payor reimbursements, as well as repayment of deferred payroll taxes.
- Future reimbursement changes, sequestration exposure, and continued compliance with credit-facility covenants and borrowing limits.