Addus HomeCare Corporation — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; financial statements are unaudited. Addus provides personal care, hospice, and home health services across multiple states.
Financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net service revenue | $236.9 million | $217.9 million | $463.6 million | $423.2 million |
| Gross profit | $75.6 million | $68.8 million | $145.8 million | $130.0 million |
| Gross margin | 31.9% | 31.6% | 31.4% | 30.7% |
| Operating income | $16.9 million | $17.0 million | $30.4 million | $29.2 million |
| Net income | $11.3 million | $11.6 million | $19.7 million | $20.5 million |
| Diluted EPS | $0.70 | $0.72 | $1.22 | $1.28 |
- Q2 revenue grew 8.7%; six-month revenue grew 9.5%. Growth was led by hospice and home health, including acquired operations.
- Q2 net income declined 3.0%, as higher general and administrative costs and interest expense outweighed revenue growth. G&A rose 14.4% in Q2 and was 23.3% of revenue, versus 22.1% a year earlier.
- Six-month operating cash flow was $62.5 million, versus cash used of $3.3 million in 2021. Management attributed the improvement primarily to timing of receivable collections and government stimulus receipts. Investing cash use was $86.0 million, including $84.5 million for JourneyCare; financing cash use was $24.5 million.
- Cash was $120.9 million at June 30, 2022, down from $168.9 million at year-end 2021. Net accounts receivable was $124.6 million; days sales outstanding improved to 46 days from 54 days.
- Revolver borrowings were $199.9 million at a 3.67% interest rate, compared with $224.9 million at 2.10% at year-end. The company reported $168.4 million available to borrow and compliance with financial covenants. Credit facility maturity is July 2026.
Material changes and segment performance
- Hospice: Q2 revenue increased 41.1% to $52.1 million and segment operating income rose 45.0% to $13.5 million. The increase reflected organic growth and the JourneyCare and Armada acquisitions. Average daily census increased 35.5% year over year.
- Home health: Q2 revenue more than doubled to $10.5 million, principally reflecting the Armada and Summit acquisitions. Segment operating income was $0.9 million, versus $0.8 million; gross margin fell to 32.3% from 38.2%, with labor costs cited as the main pressure.
- Personal care: Q2 revenue decreased 1.1% to $174.3 million and segment operating income fell 7.5% to $30.2 million. Billable hours declined 3.6%, while revenue per billable hour increased 4.3%. Wage pressure reduced gross margin to 26.2% from 27.8%.
- JourneyCare was acquired February 1, 2022 for approximately $86.6 million, funded partly with a $35 million revolver draw. It contributed $13.6 million of Q2 revenue and $2.6 million of operating income. Preliminary acquisition accounting recorded $70.8 million of goodwill.
Outlook, risks, and unusual items
- The filing provides no numerical company-wide earnings or revenue guidance. Management said the company’s liquidity position remained strong but gave no assurance of continued covenant compliance or access to future financing on acceptable terms.
- Management cited tight labor markets, caregiver and skilled-staff shortages, wage inflation, and vaccine mandates as risks to staffing capacity and costs. COVID-19 effects and related costs remain uncertain.
- Medicare sequestration returned to a 2% payment reduction on July 1, 2022; a separate potential PAYGO reduction of up to 4% was delayed until 2023. The filing says the timing and impact remain uncertain.
- Illinois accounted for 43.8% of Q2 revenue; the Illinois Department on Aging alone accounted for 20.7%. Personal care also faces New York CDPAP uncertainty: Addus suspended materially all new admissions under the program, although it was permitted to continue contracting with current payors under the state budget provision described.
- At June 30, government stimulus advances were $16.7 million, including $12.6 million of deferred ARPA funds. The company must use certain funds for approved purposes and may have to return amounts not properly spent. A further $4.1 million of deferred payroll taxes was due by December 31, 2022.
- A Medicare contractor sought repayment of $6.5 million relating to historical Ambercare hospice claims. Addus disputes the findings, is pursuing administrative appeals, and has a contractual indemnification right; management said the outcome of pending proceedings was not expected to have a material effect.
- All $199.9 million of borrowings carried variable interest rates. The company estimated that a 100-basis-point increase would reduce six-month net income by $1.2 million, or $0.08 per diluted share.
Most important facts to verify
- Whether hospice growth and JourneyCare integration translate into sustained organic growth and margins.
- Whether personal-care billable hours and home-health profitability recover amid staffing and wage pressures.
- The effect of renewed Medicare sequestration and any potential 2023 PAYGO reductions on reimbursement.
- Progress on approved use and reporting of ARPA funds, and payment of deferred payroll taxes by year-end.
- Developments in New York CDPAP, Illinois reimbursement, and the $6.5 million Ambercare repayment appeal.
- Interest-rate exposure, available borrowing capacity, and continued compliance with credit-facility covenants.