Addus HomeCare Corporation — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter earnings report; quarterly Q4 results are not clearly provided in the filing text.
Business context
Addus provides personal care, hospice and home health services, principally in consumers’ homes. At year-end it operated in 22 states through approximately 202 offices and served about 66,000 discrete consumers during 2022. Revenue is primarily reimbursed by government programs and managed care organizations.
Financial performance and liquidity
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net service revenue | $951.1 million | $864.5 million | +10.0% |
| Gross profit | $299.7 million; 31.5% margin | $269.8 million; 31.2% margin | +11.1% |
| Operating income | $68.7 million; 7.2% margin | $65.9 million; 7.6% margin | +4.2% |
| Net income | $46.0 million; 4.8% margin | $45.1 million; 5.1% margin | +2.0% |
| Diluted EPS | $2.84 | $2.81 | +1.1% |
| Adjusted EBITDA | $101.5 million | $97.7 million | +3.9% |
Revenue by segment was personal care $706.5 million (+3.0%), hospice $201.8 million (+32.5%) and home health $42.8 million (+62.3%). Acquisitions contributed to growth, particularly JourneyCare in hospice; the company also cited higher personal-care revenue per billable hour and organic growth in home health.
- Margins and costs: Consolidated gross margin edged up, but operating margin declined as general and administrative expenses rose 14.5% to $216.9 million. Direct labor costs weighed on personal care, hospice and home health margins; interest expense increased 53.4% to $8.9 million.
- Cash flow: Operating cash flow was $105.1 million, versus $39.5 million in 2021, with management citing receivable timing and government stimulus timing. Investing cash outflow was $106.6 million, largely for acquisitions; financing cash outflow was $87.5 million. Year-end cash was $80.0 million, down from $168.9 million.
- Debt and liquidity: Revolver borrowings were $134.9 million at a 6.13% rate, compared with $224.9 million at 2.10% a year earlier. The company reported $237.2 million available to borrow after applicable limits and letters of credit, and compliance with its credit-facility covenants. The facility matures July 30, 2026; the maximum total net leverage covenant is 3.75:1.00.
- Other balance-sheet items: Total assets were $938.0 million; goodwill was $582.8 million and net intangible assets $72.2 million. Operating lease liabilities totaled $46.3 million. No goodwill or intangible impairment was recorded.
Material changes and notable items
- Completed JourneyCare hospice acquisition for approximately $86.6 million on February 1, 2022, and Apple Home home-health acquisition for $12.7 million on October 1, 2022. 2022 acquisitions contributed $48.7 million in net service revenue.
- Illinois represented 43.8% of total revenue, up from 38.2% in 2021. The Illinois Department on Aging alone generated 20.7% of revenue, versus 21.4% in 2021.
- New York’s Consumer Directed Personal Assistance Program (CDPAP) contributed approximately $39.2 million in 2022 revenue and $3.0 million in operating income. The company submitted an attestation to continue operating under the revised state procurement process; award letters were anticipated April 1, 2023. The company had suspended materially all new fee-for-service admissions through county social service departments in the program.
- Accounts receivable days sales outstanding improved to 45 days from 54. Net accounts receivable was $125.5 million at year-end, and Illinois Department on Aging receivables were $22.5 million.
- Deferred ARPA state funding was $12.9 million at year-end, subject to spending plans and reporting requirements. Government stimulus advances increased from $4.2 million in 2021.
Outlook, risks and contingencies
- No specific company revenue, earnings or cash-flow guidance is provided. Management said cash on hand, operating cash flow and credit-facility availability should fund anticipated operating and investing needs for the next 12 months and foreseeable future. It intends to pursue organic growth and acquisitions.
- Management cited inflation, elevated interest rates, tight labor markets and caregiver retention as pressures on costs and results. Approximately 51.4% of employees were union-represented; labor is the company’s largest cost component.
- Government reimbursement, eligibility, authorization and budget changes are key risks. Medicare and Medicaid generated substantial revenue, while state and local government agencies accounted for approximately 59.2% and Medicare 22.6% of total 2022 revenue. Illinois, New Mexico and New York are material markets.
- Medicare sequestration returned to a 2% reduction in July 2022; a potential additional reduction of up to 4% under PAYGO was delayed until 2025. Home health payment changes and value-based purchasing may also affect reimbursement.
- The company disclosed a $6.5 million Medicare contractor repayment request concerning hospice claims from 2016–2017. It disputes the findings, is pursuing administrative appeals, and says it has a contractual indemnification right; the outcome is uncertain.
- Hospice Medicare payments are subject to inpatient and aggregate caps. The company recorded a $0.9 million liability for the aggregate cap at year-end 2022.
- Cybersecurity, privacy, regulatory audits, litigation, integration of acquisitions, and the concentration of goodwill and intangible assets are additional risks. Management reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions, while excluding the two 2022 acquisitions from its internal-control audit.
Important facts for investors to verify
- Whether the CDPAP contract award was issued and how any change in participation affects revenue, profit and admissions.
- Whether wage increases and reimbursement-rate adjustments keep pace with one another, particularly in Illinois and other major markets.
- Post-acquisition performance and integration of JourneyCare and Apple Home, including the contingent consideration of up to approximately $2 million for Apple Home.
- Cash conversion and receivable trends, including the timing and collectability of government and Illinois Department on Aging balances.
- Debt costs and covenant headroom if interest rates remain elevated or acquisition spending increases.
- Potential effects of Medicare sequestration, hospice caps, home-health payment rules and government program changes on reimbursement and margins.