Addus HomeCare Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with the three months ended March 31, 2021. Addus provides personal care, hospice and home health services across multiple states.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net service revenue | $226.6 million | $205.3 million | +10.4% |
| Gross profit / margin | $70.2 million / 31.0% | $61.2 million / 29.8% | Margin +1.2 percentage points |
| Operating income / margin | $13.5 million / 6.0% | $12.2 million / 5.9% | +11.0% |
| Net income | $8.5 million | $8.9 million | -4.8% |
| Diluted EPS | $0.53 | $0.55 | Down $0.02 |
| Operating cash flow | $6.0 million | $(18.4) million | Improved $24.3 million |
Revenue growth was driven largely by hospice and home health acquisitions and higher personal-care revenue per billable hour. Higher G&A, interest and income-tax expense more than offset operating-income growth at the net-income level. The effective tax rate rose to 27.9% from 19.0%, including a discrete excess tax expense in 2022 versus an excess tax benefit in 2021.
Segment revenue was $169.6 million in personal care (+2.9%), $47.7 million in hospice (+32.2%) and $9.3 million in home health (+113.7%). Hospice growth reflected acquisitions and organic growth. Home health segment operating income fell to $0.2 million from $0.7 million; the company cited higher clinical labor and training costs.
Liquidity, debt and balance sheet
- Cash was $124.8 million at March 31, down from $168.9 million at year-end. Current assets were $276.2 million and current liabilities $104.4 million.
- Net cash used in investing was $85.6 million, primarily the $84.5 million cash outlay for JourneyCare. Financing cash flow included $35.0 million of revolver borrowings.
- Reported revolving loans were $259.9 million, at a 2.46% interest rate; long-term debt net of issuance costs was $256.1 million. The facility matures July 30, 2026. The filing reports $109.6 million available for borrowing and covenant compliance at quarter-end.
- Operating cash flow benefited from timing of receivable collections and government stimulus funds. Days sales outstanding declined to 52 from 54 at December 31, 2021.
Material changes, outlook and risks
- JourneyCare was acquired February 1 for approximately $85.0 million, expanding hospice in Illinois. It contributed $9.5 million of revenue and $2.0 million of operating income in the quarter. Purchase accounting valuations remained preliminary.
- Management provided no numerical earnings or revenue guidance. It described liquidity as strong, while noting uncertainty around the pandemic and its financial effects.
- Management cited tight labor markets, caregiver shortages, wage pressure, inflation and supply-chain disruption. These pressures may constrain the ability to serve demand and increase costs.
- Personal care billable hours fell 6.2% and average billable census fell 4.6%, while revenue per billable hour rose 8.7%. New York CDPAP uncertainty led Addus to suspend materially all new patient admissions in the program; the company was assessing its future participation.
- Illinois represented 42.4% of company revenue, and the Illinois Department on Aging accounted for 20.7%. This creates meaningful state and payor concentration exposure.
- Medicare sequestration reductions were scheduled to resume at 1% from April through June 2022 and 2% from July 2022; a separate potential PAYGO reduction of up to 4% was delayed until 2023. The company said the eventual impact was uncertain.
- A Medicare contractor sought $6.5 million repayment related to hospice claims at Ambercare. Addus disputes the findings and is appealing; it reports contractual indemnification rights from the prior acquisition and says the outcome cannot be predicted.
- The filing records $1.2 million of operating lease asset impairment and $0.3 million of JourneyCare acquisition costs in Q1. It also reports $5.9 million of deferred COVID-19 payor reimbursements subject to expense-incurrence or repayment conditions.
Important facts for investors to verify
- Debt disclosure: The filing reports $259.9 million of revolving loans and $109.6 million available for borrowing, but its market-risk section describes $109.6 million as outstanding borrowings. Reconcile this apparent inconsistency with the company.
- Track whether acquisition-driven growth converts into sustained organic growth and whether hospice and home health margins improve as integration and staffing costs evolve.
- Monitor caregiver availability, labor costs, and personal-care volumes, especially the effect of the New York CDPAP developments.
- Assess exposure to Illinois reimbursement and payor concentration, Medicare payment changes, and the disputed $6.5 million hospice repayment request.
- Review cash generation and borrowing capacity after the JourneyCare acquisition, alongside compliance with credit-facility covenants.