Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Addus HomeCare Corp (ADUS, Financial) reported a 10.4% increase in total revenue for Q2 2024, reaching $286.9 million compared to $260 million in Q2 2023.
- Adjusted earnings per share rose by 26.2%, from $1.07 in Q2 2023 to $1.35 in Q2 2024.
- The company successfully completed a secondary stock offering, raising approximately $176 million in net cash proceeds.
- Addus HomeCare Corp (ADUS) experienced record hiring in its Personal Care segment, with 86 hires per business day.
- The acquisition of Gentiva's personal care operations is expected to make Addus the number one provider of personal care services in Texas and expand its presence in several other states.
Negative Points
- There was a slight slowdown in the speed of new consumer authorizations for care in some personal care markets due to the Medicaid redetermination process.
- The company anticipates some margin compression in Q3 2024 due to the return of implicit price concessions to historical levels.
- The Medicare home health reimbursement environment remains challenging, with a proposed reduction of approximately 1.7% for 2025.
- The acquisition opportunities have been somewhat limited due to unfavorable general market conditions over the past couple of years.
- The divestiture of New York operations is expected to have a negative impact of approximately 60 basis points on G&A expenses in each full quarter until the transaction qualifies for sale treatment or closing occurs.
Q & A Highlights
Q: Could you clarify the volume implications of the slowdown in new consumer growth in personal care services due to Medicaid redeterminations?
A: The slowdown is not widespread but specific to certain markets. Some states are struggling with resources allocated to redeterminations, delaying new consumer authorizations. However, this is expected to normalize soon. The impact has been immaterial overall.
Q: Are you seeing any further improvements in hiring and retention in the third quarter, particularly in clinical labor and attendant care?
A: Hiring trends in Q3 have been consistent with Q2, which saw record hiring numbers, especially in personal care. Clinical service line hiring has also improved steadily since mid-last year.
Q: What percentage of your home health contracts have been repriced to preferred rates, and how does this affect your allocation of resources?
A: We've had some wins moving payers closer to LUPA rates, though not necessarily episodic. Some contracts still have insufficient rates, but the situation has improved over the past few quarters.
Q: Can you provide an update on Medicare Advantage trends for personal care services, particularly regarding authorized hours?
A: The supplemental benefit for personal care services remains low in authorized hours and challenging to staff. We have minimal business from this benefit, so it doesn't significantly impact us. We are focusing more on value-based care arrangements.
Q: How does the current economic environment affect your recruiting success and the defensiveness of your business?
A: Historically, Addus has performed well in recessionary environments. Our demand is recession-proof, and economic downturns often help us hire more caregivers, driving growth in our personal care business.
Q: What are your thoughts on interest expense or income for Q3 and Q4, considering the Gentiva deal?
A: We've paid off our revolver and invested a large portion of our cash in interest-bearing accounts, expecting a good return until the Gentiva deal closes. Our weighted average interest rate is close to 5%.
Q: How do you see the supply and demand of transactions in personal care, home health, and hospice, and what are the current trading multiples?
A: The market has been slower, with fewer smaller deals. Valuations have remained steady. We are prepared to handle competition from private equity if rates come down, focusing on strategic acquisitions that fit our long-term goals.
Q: Can you provide more details on the Gentiva acquisition, including the diligence process and synergy opportunities?
A: The Gentiva deal came about through strategic discussions and a thorough due diligence process. We are confident in our ability to integrate Gentiva, with weekly meetings and transition planning underway. Synergies will come from expanding our presence in key markets like Texas.
Q: How do you prioritize deploying capital across different segments, and are you looking to diversify or lean into personal care?
A: We prioritize building density in personal care markets and adding clinical services where we have a strong presence. We are also open to select new markets and strategic acquisitions in home health and hospice.
Q: What are the minimum wage trends in new markets from the Gentiva acquisition, and how receptive are state legislatures to rate adjustments?
A: States have been supportive of rate adjustments, recognizing the value of our services. We believe states will continue to support appropriate reimbursement rates to ensure the sustainability of personal care services.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
