Addus HomeCare Corporation (Nasdaq: ADUS) — Q1 2023 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2023; comparisons are with Q1 2022 unless otherwise noted. Addus provides personal care, hospice, and home health services across 22 states through 203 offices. It served approximately 55,000 individuals during the quarter, versus 53,000 a year earlier.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net service revenue | $251.6 million | $226.6 million | +11.0% |
| Gross profit / margin | $78.4 million / 31.2% | $70.2 million / 31.0% | +11.7% |
| Operating income / margin | $18.6 million / 7.4% | $13.5 million / 6.0% | +37.7% |
| Net income / diluted EPS | $12.7 million / $0.78 | $8.5 million / $0.53 | Net income +49.6% |
| Operating cash flow | $18.8 million | $6.0 million | Higher, primarily on timing of receipts and stimulus funds |
| Cash at quarter-end | $73.5 million | $80.0 million at Dec. 31, 2022 | Down $6.4 million during quarter |
Cost of service revenues rose 10.7%; general and administrative expense rose 6.0% to $56.4 million, but declined as a share of revenue to 22.4% from 23.5%. The effective tax rate was 22.0%, versus 27.9%. Capital expenditures were $0.8 million; investing cash outflow was $1.7 million, including the CareStaff acquisition. Financing cash outflow was $23.5 million, reflecting repayment of revolving debt.
At March 31, gross revolving loans were $111.4 million, bearing 6.59% interest; the balance-sheet debt amount, net of issuance costs, was $108.5 million. The company reported $275.7 million available to borrow, $73.5 million cash, and compliance with financial covenants. Debt facility maturity is July 2026. Operating lease liabilities totaled $54.1 million.
Material changes and segment results
- Personal care: Revenue increased 12.0% to $190.0 million; segment operating income rose 26.0% to $35.7 million. Billable hours increased 6.9%, and revenue per billable hour rose 5.7%, mainly attributed to rate increases and improved margins.
- Hospice: Revenue increased 2.8% to $49.1 million, while segment operating income fell 30.0% to $8.8 million. Gross margin declined to 44.4% from 50.9%, principally due to higher employee wage, tax, and benefit costs. Average daily census fell 3.8%.
- Home health: Revenue increased 34.6% to $12.5 million and segment operating income increased to $2.1 million from $0.2 million. Growth included the Apple Home acquisition; total visits rose 19.3%.
Q1 2023 included the approximately $1.0 million CareStaff acquisition in Florida. The prior-year comparison included JourneyCare, acquired in February 2022, and thus a substantial acquisition-related investing outflow.
Outlook, commentary, risks, and contingencies
- The filing provides no quantitative earnings or revenue guidance. Management describes liquidity as strong but gives no assurance of continued covenant compliance or access to future financing on acceptable terms.
- Management cites caregiver and skilled-staff shortages, wage and inflation pressure, and competition for workers as constraints on meeting demand. The company also depends substantially on government and managed-care reimbursement and faces policy, rate, and payment-timing risks.
- Illinois represented 39.1% of total revenue; the Illinois Department on Aging represented 21.5%. Management noted that an approved Illinois personal-care rate increase to $26.92 per hour took effect April 1, 2023, while future offsets to wage increases are not assured.
- New York has not yet awarded CDPAP fiscal intermediary contracts. Addus suspended materially all new fee-for-service admissions through County Social Service Departments in the program, citing current profitability; failure to receive an award could require cessation of operations in the program.
- A proposed federal Medicaid rule would require states to assure at least 80% of certain personal-care payments go to direct-care worker compensation. The proposal remains subject to comment; its ultimate effect is uncertain.
- As of March 31, $11.0 million of ARPA state funding remained deferred as a government stimulus advance, subject to spending plans, reporting, and potential recoupment. The company used $2.4 million during the quarter, primarily for caregiver recruiting and retention. COVID-19-related public health measures were scheduled to change as the federal emergency declaration expired May 11, 2023.
- Management disputes a $6.5 million Medicare contractor repayment request related to hospice claims at Ambercare and is pursuing administrative appeals. The company says it has a contractual indemnification right; the outcome cannot be predicted.
- Interest expense increased 33.7%, primarily due to higher rates; the quarterly weighted-average rate was 6.28%, versus 2.15%. An April 26, 2023 credit amendment replaced LIBOR with term SOFR plus a 10-basis-point adjustment, without changing interest margins.
Important facts for investors to verify
- Progress in hospice profitability and staffing costs, given the decline in hospice margin and segment operating income.
- New York CDPAP contract awards and the resulting effect on personal-care admissions and revenue.
- Illinois reimbursement developments, state and payor concentration, and collection timing; reported days sales outstanding were 44 days.
- Use and recognition of deferred ARPA funds, including compliance with state spending and reporting requirements.
- Revolver availability, variable-rate interest expense, and continued compliance with debt covenants.
- Outcome of the Ambercare repayment appeal and any related indemnification recovery.