Addus HomeCare Corporation — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing, not a standalone fourth-quarter report; unaudited Q4 results are noted below. Addus provides personal care, hospice and home health services in 22 states through approximately 214 offices, serving about 66,000 individuals during 2020.
Financial performance
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Net service revenue | $764.8 million | $648.8 million | +17.9% |
| Gross profit / margin | $226.2 million / 29.6% | $179.2 million / 27.6% | Margin +2.0 percentage points |
| Operating income / margin | $44.5 million / 5.8% | $34.8 million / 5.4% | +28.1% |
| Net income | $33.1 million | $25.2 million | +31.3% |
| Diluted earnings per share | $2.08 | $1.77 | Continuing operations: $2.08 vs. $1.81 |
| Adjusted EBITDA | $76.9 million | $58.7 million | +31.0% |
| Operating cash flow | $109.4 million | $12.0 million | Increase of $97.4 million |
Net margin was approximately 4.3%, compared with 3.9% in 2019. Adjusted EBITDA is a non-GAAP measure; the company cautions it excludes items including interest, taxes, capital expenditures and working-capital requirements.
Fourth quarter: Revenue was $196.0 million versus $192.4 million in Q4 2019; net income was $8.4 million versus $10.7 million; diluted EPS was $0.53 versus $0.68. These are unaudited quarterly figures.
Segments and drivers
- Personal care: Revenue rose 11.5% to $647.2 million. Same-store growth was 5.9%; revenue per billable hour increased 8.1%, primarily reflecting rate increases. Segment operating income was $106.6 million, or 16.5% of segment revenue.
- Hospice: Revenue increased 89.0% to $101.3 million, mainly from higher average daily census and acquisitions. Segment operating income was $28.7 million; gross margin rose to 53.4% from 49.2%.
- Home health: Revenue increased 12.3% to $16.2 million. Segment operating income was $1.3 million, approximately 8.2% of revenue.
Growth reflected acquisitions as well as organic activity. The company completed four acquisitions in 2020, including Queen City Hospice for approximately $194.8 million. Management attributed consolidated gross-margin improvement chiefly to the larger contribution from relatively higher-margin hospice operations.
Liquidity, debt and cash flows
- Year-end cash was $145.1 million, up from $111.7 million. Accounts receivable, net, was $132.7 million, down from $149.7 million; days sales outstanding declined to 61 from 72.
- Credit-facility borrowings were approximately $196.6 million before debt issuance costs, versus $62.3 million a year earlier. The stated year-end borrowing availability was $112.6 million. Borrowings carried a 1.90% interest rate at year-end and are variable-rate debt.
- Net cash used in investing was $214.2 million, principally for acquisitions; net cash provided by financing was $138.2 million, including approximately $135 million of revolver borrowings used in part for Queen City Hospice.
- The company reported compliance with its credit-facility financial covenants at year-end. The facility matures in May 2023 and includes leverage and other restrictive covenants. A 100-basis-point increase in variable rates was estimated to reduce 2020 net income by $0.6 million.
- Current liabilities included $32.1 million of government stimulus advances. The balance included Provider Relief Fund amounts, Queen City Hospice Medicare advances and deferred payroll taxes, with stated plans to use, repay or return applicable amounts.
Material changes, outlook and risks
- Acquisition-led expansion: The Queen City Hospice acquisition expanded hospice into Ohio and materially increased goodwill and debt. Goodwill rose to $469.1 million from $275.4 million; no goodwill or intangible-asset impairment was recorded for 2020.
- COVID-19: Management said the pandemic had not materially affected results through year-end, but described uncertainty around future service demand, staffing, PPE and other costs, state budgets, reimbursement and relief-program requirements. Net COVID-related expense was $1.5 million after approximately $7.8 million of expenses were offset by temporary rate increases and Provider Relief Fund use.
- Relief and repayment exposure: Addus received $13.7 million in Provider Relief Fund grants in November and used $1.4 million by year-end; the company expected to use eligible funds through June 30, 2021 and return unused funds. Queen City Hospice also had $10.8 million of Medicare advance payments and unused relief funds subject to repayment; Addus expected repayment in 2021. Addus expected to repay $7.1 million of deferred payroll taxes in 2021.
- Payor and geographic concentration: Illinois represented 37.7% of consolidated revenue, and the Illinois Department on Aging alone represented 23.0%. The company also has significant exposure to New York and New Mexico. Illinois delayed a scheduled 7.1% in-home care rate increase to April 1, 2021; later funding to offset wage increases was uncertain.
- New York CDPAP: On February 11, 2021, New York did not select Addus in the initial lead fiscal intermediary contracting process. Management estimated approximately $52 million in annualized program revenue, expected a 6–12 month transition and said a 2021 financial impact was expected to be immaterial; the ultimate outcome remained uncertain.
- Other risks: Government reimbursement and regulatory changes, Medicare hospice payment caps, labor availability and wage pressure, union negotiations, acquisition integration, billing and collection delays, compliance and cybersecurity risks, and LIBOR transition could affect results. Approximately 47.3% of employees were represented by labor unions.
- Guidance: The filing provides no quantified company revenue or earnings guidance. Management describes continued organic growth, margin improvement and selective acquisitions as strategic priorities, subject to market, reimbursement, staffing and financing conditions.
- Controls and audit: Management reported that previously identified material weaknesses in internal control were remediated and controls were effective as of December 31, 2020; the auditor also gave an effective-controls opinion. The 2020 assessment excluded three recently acquired businesses.
Most important facts for investors to verify
- Whether New York’s CDPAP procurement results in loss, continuation or a different arrangement for the estimated $52 million of annualized revenue.
- Whether Illinois implements the delayed rate increase and provides future reimbursement offsets for minimum-wage increases.
- Actual use, auditability and repayment or return of Provider Relief Fund, Medicare advance-payment and payroll-tax-deferral balances.
- Queen City Hospice integration, subsequent contribution to earnings and cash generation, and the carrying value of acquisition-related goodwill and intangibles.
- Whether operating cash flow remains strong without temporary stimulus advances and the company maintains covenant compliance and adequate borrowing capacity.