Addus HomeCare Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless noted. Addus provides personal care, hospice and home health services in 22 states through 214 offices, serving approximately 57,000 individuals during the quarter.
Financial results
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net service revenue | $280.7 million | $251.6 million | +11.6% |
| Gross profit / margin | $88.2 million / 31.4% | $78.4 million / 31.2% | Margin +0.2 pp |
| Operating income / margin | $23.6 million / 8.4% | $18.6 million / 7.4% | +27.1% |
| Net income | $15.8 million | $12.7 million | +24.9% |
| Diluted earnings per share | $0.97 | $0.78 | +$0.19 |
| Operating cash flow | $38.7 million | $18.8 million | +$19.9 million |
Gross margin improved slightly, while G&A declined to 21.8% of revenue from 22.4%. Net interest expense was $2.3 million, broadly flat year over year; interest expense alone rose to $2.8 million, primarily reflecting higher rates. The effective tax rate increased to 25.7% from 22.0%.
Segments and period-over-period changes
- Personal care: Revenue was $208.0 million, up 9.5%; segment operating income was $40.0 million, up 12.1%. Rate increases drove revenue per billable hour 9.5% higher, while average billable census declined 1.7%. Segment gross margin eased to 26.7% from 27.2%, reflecting higher direct payroll and benefits costs.
- Hospice: Revenue was $55.9 million, up 13.8%; segment operating income increased 52.9% to $13.5 million. Improved direct-cost performance and administrative efficiency supported margin expansion; growth also reflected the Tennessee Quality Care acquisition completed in August 2023.
- Home health: Revenue rose 35.2% to $16.9 million, substantially reflecting Tennessee Quality Care. Segment operating income fell 38.4% to $1.3 million; gross margin declined to 34.4% from 39.7% as direct labor costs rose, and G&A increased.
Consolidated revenue growth also included $18.0 million of personal care growth, which management attributed to organic growth. The company acquired Upstate Home Care Solutions in South Carolina for $0.4 million in March 2024.
Cash, debt and liquidity
- Cash was $76.7 million at March 31, versus $64.8 million at December 31, 2023. Current assets were $191.8 million and current liabilities $141.6 million.
- Revolver borrowings were $101.4 million, down $25.0 million from year-end; the stated borrowing rate was 7.18%. The facility matures July 30, 2026. The company reported $377.5 million available to borrow and compliance with financial covenants.
- Operating cash flow of $38.7 million was attributed principally to timing of receivable collections and government stimulus funding. Investing cash outflow was $1.8 million; financing cash outflow was $25.0 million, mainly revolver repayment.
- Net accounts receivable fell $10.8 million from year-end; days sales outstanding improved to 35 from 39. The filing also reports $13.5 million of deferred government stimulus advances at quarter-end.
Outlook, risks and unusual items
- The filing provides no specific company revenue, earnings or cash-flow guidance.
- Management cited tight labor conditions, inflation and elevated interest rates as ongoing pressures that may constrain staffing, costs, reimbursement and collections. Federal, state and local government programs and managed care organizations are important payors; Illinois Department on Aging revenue represented 20.8% of consolidated revenue in Q1.
- New York’s planned transition to a single statewide CDPAP fiscal intermediary, with a stated April 1, 2025 deadline, could negatively affect Addus’s New York CDPAP business. Management said the overall company impact was not expected to be material, but selection or subcontracting prospects and terms remain uncertain.
- CMS’s Medicaid access rule includes an 80% direct-care-worker compensation requirement for certain services, with compliance required by mid-2030. Management said the ultimate effect is premature to assess given the long implementation period and potential changes.
- Medicare sequestration reductions of up to an additional 4% under PAYGO were delayed until 2025; the company could not determine the eventual impact. ARPA-related funds may be subject to reporting requirements and recoupment if not used for approved purposes.
- Variable-rate debt exposes earnings to rate changes: management estimated a 100-basis-point increase would reduce quarterly net income by $0.2 million, or $0.01 per diluted share. No interest-rate hedges were reported.
- Management said pending legal and administrative proceedings were not expected to have a material financial effect. Disclosure controls were assessed as effective, with no material change in internal control reported.
Important facts for investors to verify
- Whether personal care rate increases and revenue-per-hour growth can offset labor-cost pressure and the decline in average billable census.
- Whether hospice growth and margin improvement persist, and whether home health labor and overhead costs stabilize.
- Cash-flow quality: how much of Q1 operating cash flow reflects sustainable operations versus collection timing and stimulus funding.
- Revolver availability, covenant compliance, variable-rate exposure and debt repayment needs ahead of the July 2026 maturity.
- Implementation and financial consequences of New York CDPAP restructuring, the Medicaid 80/20 rule and potential 2025 Medicare payment reductions.
- Concentration in government reimbursement and major markets/payors, including Illinois, and the status of deferred ARPA funds and related requirements.