Addus HomeCare Corporation — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; unaudited. Unless otherwise stated, amounts below are in millions of dollars. The company provides home and community-based personal care and home health services through 117 locations in 19 states.
Financial performance
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Net service revenue | $67.924 | $66.842 |
| Gross profit / margin | $18.641 / 27.4% | $19.054 / 28.5% |
| Operating income / margin | $1.471 / 2.2% | $2.006 / 3.0% |
| Income before taxes | $1.067 | $1.293 |
| Net income / diluted EPS | $0.629 / $0.06 | $0.853 / $0.08 |
| Cash from operations | $(1.283) | $11.451 |
- Home and community revenue rose 5.1% to $56.923 million; segment operating income increased 20.6% to $6.420 million. Average census grew 3.0% and billable hours 5.9%.
- Home health revenue fell 13.4% to $11.001 million and the segment recorded an operating loss of $1.163 million, versus $0.698 million of income a year earlier. Medicare admissions declined 4.5%, non-Medicare admissions declined 15.7%, and Medicare revenue per completed episode fell 3.3%.
- Overall revenue increased 1.6%, but operating income declined 26.7% and net income declined 26.3%. Gross margin contracted about 1.1 percentage points. Interest expense fell to $0.532 million from $0.713 million; the company also recorded $0.128 million of interest income, producing net interest expense of $0.404 million.
- The effective tax rate was 41.0%, versus 34.0%, primarily because federal employment opportunity tax credits were suspended for 2012.
Balance sheet, debt and liquidity
- At March 31, cash was $1.319 million, net accounts receivable $73.836 million and current assets $88.997 million. Current liabilities were $40.498 million; the current ratio was approximately 2.2x, with liquidity substantially dependent on collecting receivables.
- Total debt was $31.902 million: $26.750 million outstanding on the revolving facility, $2.083 million on the term loan and $3.069 million of subordinated dividend notes. Current maturities were $5.152 million. The revolving facility rate was 4.8%; reported revolving availability was $14.120 million. The company reported compliance with its covenants.
- Cash declined $0.701 million during the quarter. Operating cash use of $1.283 million reflected working-capital pressure, including delayed collections; financing included $2.0 million of net revolving borrowings and debt repayments. Capital expenditures were $0.288 million.
- Net receivables increased $1.468 million from year-end. Gross receivables were $80.462 million, with an allowance of $6.626 million. Days sales outstanding rose to 96 from 94; for the Illinois Department on Aging, DSO rose to 133 from 125.
Material changes, unusual items and outlook
- Home health revenue included an approximately $0.9 million reduction to estimated accrued Medicare revenue. Management said that excluding this adjustment, the home health operating loss margin would have been 3.4%, rather than 10.6%. The adjustment, lower Medicare rates, fewer admissions, reduced field productivity and higher insurance and administrative costs weighed on results.
- In February 2012, the company sold a Portland, Oregon home health agency for approximately $0.525 million, receiving net proceeds of $0.495 million and recording a $0.495 million pretax gain.
- Illinois is the largest exposure: it represented 60.3% of Q1 revenue, while the Illinois Department on Aging alone represented 47.8% of revenue and 64% of receivables. Illinois receivables increased to approximately $52.2 million by quarter-end. The company reported receiving approximately $16 million in above-normal Illinois payments in April, while noting that state payment delays continued.
- Management stated that cash from operations and available credit were expected to cover working-capital needs for at least 12 months. No specific revenue, earnings or cash-flow guidance was provided. The company expected to pay the remaining approximately $0.683 million Advantage acquisition earn-out in Q2 2012.
- Key reimbursement risks include the 2012 Medicare home health rate reduction and a further scheduled reduction in 2013, possible additional Medicare spending cuts, and state Medicaid budget, eligibility, rate and payment changes. Illinois proposed Medicaid spending reductions, including provider rate changes and utilization controls. The filing also discusses uncertainty around ACO participation and potential effects of health reform.
- Management reported no material expected effect from ordinary-course legal or administrative proceedings. No goodwill or intangible impairment was recorded in Q1 2012; the filing describes significant home health goodwill and intangible impairments recorded in 2011.
Most important facts for investors to verify
- Whether Illinois’s April payments were sustained and whether the large, aged state receivable balance converted to cash; confirm subsequent DSO and allowance trends.
- The nature and final resolution of the $0.9 million Medicare revenue estimate adjustment, and whether home health admissions, episode revenue and segment margins recover.
- Revolving-credit availability as the lender accommodation add-back phases out, covenant headroom, and repayment capacity for the dividend notes due December 2012 and term loan due January 2013.
- The actual effects of Illinois Medicaid proposals and Medicare reimbursement changes on authorized service hours, rates, admissions and profitability.
- Whether the company paid the remaining Advantage earn-out as expected and whether the reported $16 million April receipt materially eased liquidity pressure.