Addus HomeCare Corporation (NASDAQ:ADUS) Q4 2023 Earnings Call Transcript
Addus HomeCare Corporation (NASDAQ:ADUS) Q4 2023 Earnings Call Transcript March 2, 2024
Addus HomeCare Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, everyone, and welcome to the Addus HomeCare's Fourth Quarter and Year End 2023 Earnings Conference Call. [Operator Instructions] Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Dru Anderson. Ma'am, please go ahead.
Dru Anderson: Thank you. Good morning, and welcome to the Addus HomeCare Corporation fourth quarter and 2023 earnings conference call. Today's call is being recorded. To the extent any non-GAAP financial measure is discussed in today's call, you will also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP by going to the company's website and reviewing yesterday's news release. This conference call may also contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including statements, among others, regarding Addus' expected quarterly and annual financial performance for 2024 or beyond. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, discussions of forecasts, estimates, targets, plans, beliefs, expectations and the like are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by important factors, among others, set forth in Addus filings with the Securities and Exchange Commission and in its fourth quarter 2023 news release. Consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. I would now like to turn the call over to the company's Chairman and Chief Executive Officer, Mr. Dirk Allison.
Please go ahead, sir.
Dirk Allison: Thank you, Dru. Good morning, and welcome to our 2023 fourth quarter earnings call. With me today are Brian Poff, our Chief Financial Officer; and Brad Bickham, our President and Chief Operating Officer. As we do on each of our quarterly calls, I will begin with a few overall comments and then Brian will discuss the fourth quarter results in more detail. Following our comments, the three of us would be happy to respond to any questions. Yesterday we announced our results for the fourth quarter and full year of 2023. These results highlight another strong year of financial performance by Addus. This performance is made possible by the hard work and dedication of all of our employees as they continue to provide quality care to our clients and patients by helping to fulfill our mission of taking care of people in their homes.
I am both amazed and thankful for all of them that our employees do for our company. As we announced yesterday, our total revenue for the fourth quarter of 2023 was $276.4 million, an increase of 11.9% as compared to $247.1 million for the fourth quarter of 2022. This revenue growth resulted in adjusted earnings per share of $1.32 as compared to adjusted earnings per share for the fourth quarter of 2023 of $1.11, an increase of 18.9%. Our adjusted EBITDA of $34.3 million was an increase of 21.3% over the fourth quarter of 2022. Our total revenue for 2023 was approximately $1.1 billion, an increase of 11.3% as compared to $951.1 million for 2022. This revenue growth resulted in adjusted earnings per share of $4.58 as compared to adjusted earnings per share for 2022 of $3.73, an increase of 22.8%.
Our adjusted EBITDA of $121 million was an increase of 19.3% over 2022. During 2023, we continued to experience strong cash flow from operations as our states and other payers have continued to pay in a timely manner. This allowed us to reduce our debt balance to approximately $126 million inclusive of the funding of our acquisition of Tennessee Quality Care on August 1, 2023. At year end, our cash balance was approximately $65 million, which together with $335 million of availability under our existing credit facility continues to give us the financial flexibility to be opportunistic as we anticipate seeing additional acquisition opportunities coming to market over the next several quarters. It remains our primary focus to use our financial capacity to acquire strategic operations that align with our overall growth strategy of offering all three levels of home-based care in our personal care markets.
Let me provide you with some thoughts related to the Medicaid Access Proposed Rule that was introduced last year. Many comments were submitted expressing concern toward the proposed 80% compensation requirement to be implemented by states within a four-year period. A final rule concerning this issue was sent to the Office of Management and Budget on January 26 for their review and clearance. Based on this timing, we feel that the rule is on track to be finalized in April of this year. The contents of the final rule are unknown at this time and could be significantly different than the proposed rule. While we are unsure whether this rule will contain the 80% requirement, a different percentage requirement, or ultimately be implemented, we would not be surprised to see the four-year implementation period extended.
We do believe that a key for personal care providers to be successful with any minimum requirement for direct wages is to have scale in each state in which they provide care. This will not only allow those providers to spread their cost over a larger revenue base, but also will provide more opportunity for meaningful patient advocacy within the state in which they operate. As for Addus, we are currently in the process of looking at personal care opportunities which would give us a larger presence in a number of our current states. We are also looking for opportunities where we can enter new states in a material way. Personal care is a valuable service that is being provided to our elderly and disabled population and we are optimistic that states will evolve their programs to be viable regardless of how this rule is finalized.
During the fourth quarter, we continued to experience solid results related to our ability to hire caregivers, especially in our Personal Care segment. During the fourth quarter of 2023, our Personal Care hiring was up 3.9% over the fourth quarter of last year at 80 hires per business day. Sequentially, our hires per day was slightly lower than the third quarter of this year, which was not unexpected due to the normal slowdown during the holiday season. In addition to our strong hiring numbers, we saw a 30 basis point improvement in our starts per business day as compared to the fourth quarter of 2022. As we have mentioned on previous calls, making sure that hires actually start caring for consumers has been a key contributor in the past few quarters to our growth in Personal Care.
As for our clinical segments, hiring has continued to improve over what we experienced in previous quarters. As we have over the past couple of years, we continue to utilize the funding we received from the American Rescue Plan Act, or ARPA. Today, we have received approximately $28 million, of which we have $6 million remaining to utilize. These funds have been helpful with our caregiver recruitment and retention efforts to support the delivery of personal care services and should continue to help those efforts in the future as we deploy the remaining funds. In addition to utilizing the ARPA funds for direct recruitment and retention of caregivers, we continue to utilize the funds to provide our caregivers -- to improve our caregivers experience through the implementation of enhanced caregiver training and the continued development of a caregiver application that we believe will improve our retention and overall service delivery.
In our Personal Care segment, our services had continued to receive reimbursement support from the states in which we operate. We believe that states continue to see the value of personal care services we provide, especially with all the broader market disruption that has occurred across the country over the past three years in healthcare services. Although some of the federal financial support to states have been reduced, we feel confident that personal care services continue to show true value to the state's various state Medicaid programs as well as our managed care partners, and we expect the support for our services to continue. As for our Clinical segments, effective October 1, 2023, Medicare hospice reimbursement was increased by approximately 3.1%.
On January 1 of this year, Home Health Medicare reimbursement was increased by approximately 0.8%. Although this year's Home Health rate increase was below what is required to recover ongoing operating increases, we believe that traditional Medicare Home Health reimbursement pressures are likely to moderate over the next few years and we will continue to look for Home Health acquisition opportunities that are strategic to our overall growth. Now, let me discuss our same store revenue growth for the fourth quarter of 2023. For our Personal Care segment, our same store revenue growth was 11.2% when compared to the fourth quarter of 2022. During the fourth quarter of '23, we saw Personal Care same store hours per business day grow 2.7% over the same period in 2022 and also increased on a sequential basis.
Importantly, importantly, over 75% of our Personal Care states showed hourly volume growth over the same period in 2022. We are excited to see our investments in hiring and scheduling optimization initiatives taking hold and contributing to our strong sequential hours growth over the past several quarters. Turning to our Clinical operations. Our hospice same store revenue increased 3.5% when compared to the fourth quarter in 2022, while our same store ADC was down 1% when compared to the same quarter last year, we did see a sequential quarterly increase in same store admissions to 2.7%. As of the end of the fourth quarter of 2023, our hospice median length of stay was 28 days exclusive of JourneyCare and our recently acquired Tennessee Quality Care operation.
For comparison purposes, we have historically excluded our JourneyCare operation as it has a higher proportion of shorter length of stay patients due to our inpatient units in the Chicago area. While median length of stay was lower than the third quarter, we were not surprised due to the expected seasonality from the holiday season. We are, however, encouraged by the steady sequential improvement in admissions volume in our hospice segment and anticipate those favorable trends continuing into 2024. Our Home Health segment same store revenue decreased 17.8% over the same quarter in 2022 as we continued to reduce admissions from payers that do not currently reimburse us adequate rates to cover our cost. As most home health providers have experienced, we continue to be affected by the movement of Medicare beneficiaries from Medicare Fee-For-Service to Medicare Advantage.
We are continuing to work with our Medicare Advantage payers to obtain higher per visit rates as we work in parallel to transition to episodic or case rates, but this process takes time. In the meantime, we have limited certain admissions due to the lower contract rates. Even with this payer shift and the reimbursement pressures in Home Health, we remain excited about our Home Health operation as it complements both our Personal Care services, particularly where we participate in value-based contracting models, and our hospice service by allowing us to provide the full continuum of home-based care. As for our development efforts, we continue to focus on opportunities that help to further our strategy, especially as it relates to value-based care and obtaining much needed scale in our current Personal Care states.
We are continuing to see small tuck-in acquisition opportunities which offer us the ability to add to our service coverage in our current market and with the expected timeline for the publishing of the Medicaid Access rule approaching, we are hopeful that we will start to see more personal care acquisition opportunities develop, which should help us to continue adding scale in our current markets. As I had mentioned earlier, we believe that the large providers of personal care services in states will have a significant advantage to continue operating effectively at scale and expanding market share. For value-based care efforts, I noted last quarter we had gathered data over time to be able to demonstrate material reductions in both emergency room visits as well as the percentage of patients readmitted to the hospital at various post-discharge intervals.
In addition, as I noted, we've been able to help with the improvement of HEDIS scores and the closure of care gaps relating to these patients. We continue to believe our success is due to our ability to provide both nonclinical personal care services, to identify changes in condition and clinical resources as needed for specific skilled patient care interventions. We are now using this information as part of our conversations with various Medicare Advantage and commercial payers to demonstrate how Addus can be a part of providing quality, cost effective care to their members that can reduce the overall medical loss ratio while simultaneously improving overall quality of care. During the first quarter of 2024, we also began to use our new value-based care management system.
We are excited about this technology as it will allow us to increase both the scale and efficiency of our value-based programs, which we believe is important as we continue to further develop these type of relationships with our large payers. Before I close my remarks, I want to once again say how proud I am of our team for the care they are providing to our elderly and disabled consumers and patients. There is no question that the majority of clients and patients want to receive care at home, which remains one of the safest and most cost effective places to receive care. We believe the heightened awareness of the value of home-based care is favorable for our industry and will continue to be a growth opportunity for our company. We understand and appreciate that our operations and growth are dependent on both our dedicated caregivers and other employees who work so incredibly hard providing outstanding care and support to our clients, patients, and their families.
With that, let me turn the call over to Brian.
Brian Poff: Thank you. Dirk, and good morning, everyone. Addus had a very strong financial and operating performance for the fourth quarter, marking a strong finish to a record year. Our results were driven by robust demand for our services, led by 11.2% year-over-year organic growth in personal care services revenue, well above our normal expected range of 3% to 5%. For the year, Personal Care revenues were up 12.1% compared with the prior year, a record annual rate of growth for Addus. This impressive growth reflects both higher volumes as well as the benefit of ongoing rate support for our Personal Care services. Our fourth quarter results included a full three months of operations of Tennessee Quality Care, a provider of home health, hospice and private duty nursing services, which we acquired on August 1st, 2023.
The integration process has gone as expected and we are excited about the opportunities to serve more patients in this strategically important market. Acquisitions remain an important part of our growth strategy, especially situations with a profile similar to Tennessee Quality Care where we have the ability to leverage our strong Personal Care presence and add clinical services. We are optimistic that we will see additional attractive acquisition opportunities in 2024, as we gain more clarity on pending reimbursement issues and other regulatory changes that could affect Addus and our industry. We were pleased to see positive year-over-year trends in our hospice business during the fourth quarter with increases in revenue, average daily census, length of stay, patient days, and revenue per patient day inclusive of our Tennessee Quality Care acquisition.
While we did see sequential growth in same store admissions of 2.7% between the third quarter and fourth quarter, our ADC declined slightly between the quarters on a higher number of discharges. Same store revenue for our Home Health services, which was 6.2% of our business, was down 17.8% from the same period a year ago. This volume trend reflects our strategy to intentionally limit admissions from payers with less favorable reimbursement rates as we have seen a 500 basis point shift in our same store episodic, non-episodic mix from the prior year. We continue to look for ways to more effectively balance our mix of episodic cases versus non-episodic cases and are focused on opportunities to negotiate more favorable rates with certain payers.
As Dirk noted, total net service revenues for the fourth quarter were $276.4 million. The revenue breakdown is as follows. Personal Care revenues were $204.5 million, or 74% of revenue. Hospice Care revenues were $54.7 million, or 19.8% of revenue. Home Health revenues were $17.1 million, or 6.2% of revenue. In addition to Tennessee Quality Care, these results include the operations of Apple Home Health, which we acquired in October of 2022 and is included in our same store numbers for the first time. Other financial results for the fourth quarter of 2023 include the following. Our gross margin percentage was 33.4% compared with 31.9% for the fourth quarter of 2022 and a sequential improvement compared to 32% for the third quarter of 2023. As expected, the addition of the Tennessee Quality Care operations created a higher overall proportion of clinical services and had a resulting positive impact on gross margin.
We also benefited from the 3.1% annual hospice rate increase effective October 1st, 2023. Exclusive of the retroactive positive impact from collective bargaining negotiations, our gross margin percentage was 33% for the fourth quarter of 2023, an increase of 100 basis points sequentially and slightly above expectation. As we continue to experience strong cash flows, particularly in our Personal Care segment, we have benefited from a lower implicit price concession requirement and saw this impact us positively in the fourth quarter, which contributed to our higher gross margin. For the first quarter of 2024, we expect our gross margin percentage to be negatively impacted by our annual merit increases and the normal annual reset of payroll taxes, as well as the expected compression we previously discussed from certain collective bargaining negotiations.
Cumulatively, we expect these items to contribute a decline sequentially of approximately 140 basis points compared to the fourth quarter of 2023. Additionally, we anticipate our implicit price concession to return to a more normal level in the first quarter, resulting in an additional 30 basis points of compression from the fourth quarter of 2023. G&A expense was 22% of revenue, consistent with 22% of revenue for the fourth quarter a year ago, but it declined sequentially from 22.3% in the third quarter of 2023. Adjusted G&A expense for the fourth quarter of 2023 was 21%, up slightly from 20.4% in the same period of the prior year. The Company's adjusted EBITDA increased to $34.3 million compared with $28.2 million a year ago, an increase of 21.6%.
Adjusted EBITDA margin was 12.4% compared with 11.4% for the fourth quarter of 2022 and an increase sequentially from 11.4% in the third quarter of 2023, primarily as a result of the expansion in our gross margin percentage. Adjusted net income per diluted share was $1.32 compared with $1.11 for the fourth quarter of 2022. The adjusted per share results for the fourth quarter of 2023 exclude the following, The retroactive impact of collective bargaining negotiations of $0.07; acquisition expenses of $0.07, and noncash stock-based compensation expense of $0.12. The adjusted per share results for the fourth quarter of 2022 exclude the following, Acquisition expenses of $0.06; restructure and other nonrecurring costs of $0.01, and noncash stock-based compensation expense of $0.13.
Our effective tax rate for the fourth quarter of 2023 was 22.8%, in line with our expectations. For calendar 2024, we currently expect our tax rate to be in the mid-20% range. DSOs were 39.1 days at the end of the fourth quarter of 2023 compared with 41.5 days at the end of the third quarter of 2023, as we have continued to experience consistent cash collections from the majority of our payers. Our DSOs for the Illinois Department on Aging for the fourth quarter were 49.5 days compared with 41.8 days at the end of the third quarter of 2023. Our cash flows were very strong throughout 2023 with our fourth quarter net cash provided by operations at $30 million. For the year, net cash provided by operations was $119.8 million, exclusive of $7.6 million in ARPA net spending.
As of the end of the fourth quarter, we still have approximately $6 million in ARPA funds outstanding to be utilized. As of December 31st, 2023, the company had cash of $64.8 million with capacity and availability under our revolver of $470 million and $335.6 million respectively. With our strong cash flow, we have continued to pay down debt in 2023 and reduced our revolver balance by an additional $40 million in the fourth quarter. Net of borrowings to fund our acquisitions during the year, we still lowered our revolver balance by $8.5 million from the end of 2022. We continue to have the financial flexibility to invest in our business and pursue our strategic growth initiatives, including acquisitions. As we mentioned, we will continue to selectively pursue strategic acquisitions in 2024 dependent on market conditions.
At the same time, we will also continue to diligently manage our net leverage ratio, which is currently well under one times net of cash on hand. With another record year in 2023, we look forward to our future opportunities and ability to increase shareholder value. This concludes our prepared comments this morning and thank you for being with us. I'll now ask the operator to please open the line for your questions.
See also 12 Best Battery Stocks To Invest In Before They Take Off and Top 25 Oil Exporting Countries in the World in 2024.
To continue reading the Q&A session, please click here.
