Addus HomeCare Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Unless stated otherwise, amounts are in millions. Addus provides personal care, hospice and home health services across 22 states. Results are compared with the corresponding 2020 periods.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net service revenues | $217.9 | $184.6 | $423.2 | $374.8 |
| Gross profit / margin | $68.8 / 31.6% | $55.0 / 29.8% | $130.0 / 30.7% | $110.8 / 29.6% |
| Operating income / margin | $17.0 / 7.8% | $9.6 / 5.2% | $29.2 / 6.9% | $20.3 / 5.4% |
| Net income / margin | $11.6 / 5.3% | $6.9 / 3.7% | $20.5 / 4.8% | $15.6 / 4.1% |
| Diluted EPS | $0.72 | $0.43 | $1.28 | $0.98 |
- Q2 revenue rose 18.1%; six-month revenue rose 12.9%. Growth reflected personal care rate and volume gains and hospice expansion, principally from the December 2020 Queen City Hospice acquisition.
- Q2 personal care revenue increased 12.8%, while hospice revenue increased 50.5% and home health revenue increased 24.7%. Hospice’s higher revenue included the acquired business; its segment gross margin declined to 48.8% from 55.5% in Q2 2020, alongside higher direct labor costs.
- Personal care billable hours increased 3.7% and revenue per billable hour rose 6.9% in Q2. Management attributed the rate-per-hour improvement largely to rate increases. Illinois approved a further rate increase effective January 2022.
- Six-month operating cash flow was negative $3.3, versus positive $50.9 in 2020. Management cited receivables timing and $24.0 of government stimulus funds repaid or used. Investing cash outflow was $1.9, including $1.8 of property and equipment purchases; cash declined $5.7 to $139.4. Cash flow after capital expenditures was approximately negative $5.2.
Balance sheet, debt and liquidity
- At June 30, cash was $139.4, net accounts receivable $138.3, current assets $290.4 and current liabilities $116.9. Total assets were $889.2 and stockholders’ equity was $544.1.
- Debt was approximately $196.1 before unamortized issuance costs: $178.5 revolving borrowings and $17.6 term loans. Borrowing rates were 2.08% and 2.09%, respectively. The company reported $112.8 available under its credit facility and compliance with financial covenants.
- On July 30, 2021, after quarter-end, the company amended its facility, converting the outstanding initial term loans to revolving loans, increasing revolving commitments to $600 and extending maturity to July 30, 2026. The incremental loan facility increased to $125.
- Net accounts receivable increased $5.6 from year-end; days sales outstanding improved to 57 days from 61. Illinois Department on Aging receivables were $22.9. The filing notes possible collection delays and state-budget risks.
Outlook, risks and notable items
- The filing provides no specific company-wide revenue or earnings guidance. Management said COVID-19’s ultimate effects remain difficult to predict and caregiver hiring remains challenging amid increased competition and enhanced unemployment benefits.
- COVID-19 expenses in personal care were $11.4 in Q2 and $13.3 for the first half; use of Provider Relief Fund amounts offset $10.4 and $11.3, respectively. The company also recognized $3.1 of temporary personal care rate increases in Q2 and $4.8 for the half-year, including a $3.0 Illinois bonus expected to be collected in September. Unused relief funds may need to be returned, and required reporting is due by March 31, 2022.
- The company expects to repay $7.1 of deferred employer payroll taxes in Q4 2021. A possible federal PAYGO sequestration could reduce Medicare spending by up to 4% in fiscal 2022 absent congressional action; the impact is uncertain.
- New York did not initially select Addus as a Lead Fiscal Intermediary for its CDPAP program. Management estimated 2021 program revenue of $52 and operating income of $4, and was pursuing protest and alternative arrangements; the ultimate impact was uncertain.
- Revenue and receivables have geographic and payor concentration: Illinois represented 38.9% of Q2 revenue, and the Illinois Department on Aging represented 22.6%. Hospice revenue was 93.3% Medicare-funded in Q2.
- Palmetto requested repayment of $6.5 related to hospice claims at Ambercare. Addus disputes the findings and is appealing; it reports a contractual right to full indemnification from the former owner and said the outcome could not be predicted.
- On August 1, 2021, Addus acquired Armada for approximately $29.1, funded through its revolving facility, expanding New Mexico home health and hospice services.
Key facts for investors to verify
- Whether revenue and margin growth can continue as acquisition contributions, rate changes and organic service volumes evolve—particularly the labor-cost and margin trend in hospice.
- Cash conversion and receivables collection, including Illinois Department on Aging payment timing, and the company’s cash needs for payroll-tax repayment and future acquisitions.
- Availability and covenant headroom under the amended $600 revolving facility after the Armada acquisition, and the cost and terms of variable-rate debt.
- The outcome of the New York CDPAP selection and protest, and whether replacement arrangements or cost reductions mitigate potential lost revenue and operating income.
- Resolution of the $6.5 hospice repayment request, Provider Relief Fund compliance and return obligations, and any Medicare sequestration changes.