Addus Homecare Corp (ADUS) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2014 Addus HomeCare Corporation earnings conference call. My name is Jackie, and I will be your operator for today. At this time all participants are in a listen-only mode. Towards the end of the presentation we will conduct a question-and-answer session. (Operator Instructions)

I would now like to turn the conference over to Mr. Larry Wyrobek, Corporate Controller. Please proceed.

Thank you, Jackie. Good afternoon. This is Larry Wyrobek, Corporate Controller. And thank you for joining us for the Addus HomeCare Q2 2014 earnings conference call.

Before we begin, I will briefly read the Safe Harbor statement. This presentation will contain forward-looking statements within the meaning of the federal securities laws. Statements regarding future events and developments; the Company's future performance; as well as management's expectations, beliefs, intentions, plans, estimates or projections relating to the future are forward-looking statements within the meaning of these laws.

These forward-looking statements are subject to a number of risks and uncertainties, including factors outlined from time to time in our most recent Form 10-K or Form 10-Q, our earnings announcements, and other reports we file with the Securities and Exchange Commission. These are available at www.sec.gov. The Company undertakes no obligation to update publicly any forward-looking statement, whether as a result of new information, future events, or otherwise.

With that complete, I would like to now turn the call over to Mark Heaney, the Company's Chief Executive Officer.

Thank you, Larry. Good afternoon, everyone, and thank you very much for joining us for Addus HomeCare's investor call for the second quarter of 2014. I am joined today by Darby Anderson, our Senior Vice President; and Dennis Meulemans, our Chief Financial Officer.

I also want to welcome our management and staff listening in to today's call. And while I'm at it, I want to thank that team for generating another good quarter of caring for an increasing number of at-risk consumers while generating solid and growing financial results.

Revenues for the quarter were $77 million, a 17% increase over 2013. Net income was $2.7 million, an increase of 5.7% year over year. Income per share was $0.25.

Today we have over 130 locations in 22 states. We are serving more than 30,000 consumers. We employ over 17,000 caregivers.

After that, our primary and most important focus and responsibility, we continue to focus on growth measured by census development. Our growth is being driven both organically and through acquisitions. We continue to position ourselves for the shift to managed care as that payer assumes increasing responsibility for the dual-eligible population across the country.

Managed care expects us to not only serve their members but to take increasing responsibility for driving positive health outcomes -- and they should. In the quarter not only did we continue to execute on our redesigned technology-based care system, we completed our move to a brand-new state-of-the-art contact center, where the team provides operational support to our sites, freeing our sites to focus on, to visit with, to see, and to monitor our at-risk consumers with a special focus on the most acute.

Darby will report that our managed care population is steadily increasing and is expected to increase even further in the next quarter. We completed a really great acquisition in Tennessee, an important and mature managed-care state. We are assimilating that acquisition and our New Mexico acquisition from Q4. At the same time we continue to actively prospect for and evaluate acquisition opportunities both in key markets and to deepen our presence in our current markets.

I see Q2 as another good quarter where we advanced the ball on each of our strategic objectives. I am excited about our business. I am excited about what we do, and I'm excited about how we are doing it.

With that, let me turn the call over to Darby, who can put a little more color on our performance. Darby?

Thank you, Mark, and good afternoon, everybody. It was a busy quarter, but one in which I feel we advanced the ball on our strategic initiatives and achieved good results. Highlights include continued census growth, completion of the Aid acquisition, effective managed-care business development, as well as good blocking and tackling on our core business.

Average census within same stores was up 581 consumers or 2.1% over Q1 2014 and 2,280 consumers or 8.7% from Q2 of 2013. Including acquisitions, average census growth was 1,026 consumers or 3.5% over Q1 2014 and 4,350 consumers or 16.6% year over year.

We remain pleased with our improving sales program. I attribute a portion of our Q2 census growth to the sales contest I spoke about last quarter. Initiatives like this contest are building enthusiasm and focus in our branch locations. More of our sites this quarter were steady up in census, a trend we have been seeing for a few quarters now. We are never done, but we like the momentum.

We completed the Aid & Assist acquisition effective June 1. We are enthusiastic about our new team in Tennessee under the direction of David Coppeans. David was one of the principles of the acquired entity, and he will be running our business in that market going forward.

We had all of the leadership of Aid & Assist up to our support center for orientation. They are just a super group, and Aid & Assist has earned and enjoys a great reputation in the state of Tennessee and with three managed health plans responsible for the Medicaid long-term services program in that state. We are pleased to have them join our team.

Our work with managed health plans continues to be positive. Our managed-care caseload is growing in New Mexico and Illinois. Our coordinated acquisition in our existing locations in New Mexico had a very good quarter growing census. And based on data from the state of Illinois, we are expecting 20% to 30% of our current Medicaid waiver caseload to transition to managed care under the duals program beginning in September.

We continue to work on our opportunity in California as well as the managed-care demonstration projects begin. As I mentioned last quarter, we have many of the contract relationships we need there, but progress in California has been slower. We are ready, but the state and the plans continue to work out rates and funding.

While we are focused on managed-care opportunities, we cannot take our eye off the ball of what remains the majority of our business -- state-managed home care services -- and I am pleased with our focus in this area. We moved our corporate headquarters, which we call the support center, over one weekend in the month of May. The new facility is fabulous, and the move came off without a hitch. The move included the opportunity to build a full contact center, which will support our care system model and provides the room for growth needed to expand that model.

We continue to advance our technology and the features of our Addus Mobile Portal application and enhancements to our care system, designed to improve both the effectiveness and efficiency through a better monitoring of alerts and the centralization of on-call functions.

We closed underperforming sites in the state of New Jersey and three affiliated offices serving central Washington State, and we are also pleased that the State of Illinois continues to pay us well. And finally, it's often an overlooked element of our business, but I'm very pleased and, frankly, proud of our human resources department and our branch teams, who together continue to put up improved trends in managing unemployment and workers' compensation claims and our work opportunity tax program.

You may have seen and we have gotten some questions about the recent US Supreme Court ruling on the Harris vs. Quinn case. This case involved an independent provider home care worker in the Service Employees International Union, the SEIU. I want to be clear that this case has no impact on our long-standing and important relationship with SEIU or any of our existing collective bargaining agreements.

In closing, I want to thank our management, supervisory, and direct-care employees, now numbering 17,750 strong, for their enthusiastic support of our mission to make it possible for people to live where they want to live, for as long as they want to live there. And with that, I will turn the call over to Dennis to walk through the numbers.

Thank you, Darby, and good afternoon. As Mark and Darby have said, this was a good quarter. Net service revenues from continuing operations for the quarter increased 17.1% to $77 million year over year and 7.4% when measured sequentially.

Net income from continuing operations was $2.7 million or $0.25 per diluted share, an increase of 5.7% when compared to prior-year results; a 15.9% increase in income when measured sequentially. Net income from same stores was $2.5 million, acquisitions adding $245,000 of that amount.

Revenues were driven by an 8.7% increase in same-store census, with an additional 7% added through acquisitions. Same-store revenues increased 6.7% to $70.2 million. Acquisitions added an additional $6.8 million or 8.8% of our revenues. This included one month of revenues from the recently closed Aid & Assist acquisition.

We are beginning to see measurable shift in our revenues from government payers to managed care and have initiated the disclosure of this key metric. Revenues from managed care are now 6% of our revenue base, up from 1% just last year. As Darby noted, we expect this to grow.

Revenues were driven by census increases combined by a half-hour increase in average billable hours per census per month. This increase in billable hours per average census is primarily a function of higher authorized hours in our new acquisitions. Revenue growth was moderated by a slight decline in average revenues per billable hour.

Gross profit margin percentage on same stores improved by 90 basis points to 26.4% when compared to the prior year. This improvement was largely attributable to positive trends in our workers' compensation program for our same stores. When combined with our new acquisitions, gross profit margin increased 140 basis points to 26.7%, as these acquisitions exhibit higher profit margins.

General and administrative expenses increased $3.3 million over the prior-year quarter. This increase includes $1.7 million attributable to G&A expenses related to all acquisitions and includes approximately $536,000 in one-time M&A expenses related to the Aid & Assist purchase. The remainder is primarily attributable to increased cost for our investments in technology and to our SOX 404 compliance program, which was not required in 2013.

We were able to estimate an increase in our ability to capture Work Opportunity Tax Credits for 2014 in the quarter. This is a process that can take up to one year to complete, and our estimates are based on current expectations for actual approvals in all of 2014. As a result, our effective tax rate has declined to 30.9% for the quarter, which increased our EPS by $0.02 per share. We currently estimate our effective tax rate for all of 2014 to be 32.8%. Adjusted EBITDA for the quarter increased 27.8% to $5.9 million compared to $4.6 million in the prior-year quarter.

Now let's turn to the balance sheet and our cash flow statements. Cash flows from operations were $14.3 million, driven by our operations and substantial increase in payments from the state of Illinois realized in the quarter. Cash increased $2.6 million in the quarter after considering amounts expended for the acquisition of Aid & Assist and our move to the new contact center.

Our accounts receivable, net of reserves, were $48.7 million as of June 30, 2014, representing a $10.3 million decrease from the balance reported on March 31 and a $12.6 million decline since year end. Our payments from the State of Illinois were again strong this quarter. The state tends to increase payments as it nears its fiscal year-end.

At June 30, we had $19.5 million in cash, no long-term debt, and approximately $40 million available under our credit facility to be used for future acquisitions and other corporate purposes.

This concludes my comments. I would like to turn the discussion back to Mark for closing remarks and any questions.

Dennis, thank you very much. So yes, I would like to make a comment. I want to close with my close from my opening statement, which is that -- and I think I speak for everybody in the organization -- that we are excited about our business; we are excited about what we do; we are excited about -- we think what we do is really important. We are excited about the opportunity to do more of what we do for many, many more people.

Darby mentioned our new space. It's actually just not new space. It really symbolizes the new and exciting opportunity before us we have, serving the growing at-risk population the right way for years to come. I did not mention it in my comments, but I'd invite folks to take a look at a new website that we have out. And in the website you can also get a look at the new support center.

Folks, thank you very much. Jackie, we will turn it back to you.

(Operator Instructions) Dana Hambly with Stephens.

Very good quarter! Just a couple questions from me. On the closed offices, what was going on there? It looks like you are out of one state. So are you out of New Jersey now? I'm just trying to get some sense of if it's just the markets you were in that weren't good, or something about the particular offices that you had to shut down?

Dana, this is Darby. We routinely look at our businesses on a monthly basis. We are out of New Jersey. We were a small presence there in New Jersey. With the rate pressures from managed care, it just didn't meet our -- wasn't going to meet our expectations. We may take a look at that market again in the future; or we may not, depending on how things to settle out there from a managed-care perspective.

Okay. And you are still in Washington? Was it just that part of the state that the census wasn't there for you?

Yes. The three offices in Washington -- the they are all kind of affiliated, serving the central part of Washington State, which is a huge rural geography, about 15,000 square miles. So the travel and other costs related to serving that area as well as looking at the total available population to serve -- again, just wasn't going to be something that could meet our expectations in the near-term.

Okay, all right. That's helpful. And then, Dennis, on the margins, can you just help me out a little bit? You talked about on the gross margin improvement in workers' comp, and then also the new states that you are in, it's just a higher gross profit profile. Can you tease out in the gain how much came from the workers' comp? How much came from the new acquisitions?

Dana, if you look at our schedules, we breakout the acquisition separately so you can see the amounts for both items. We are seeing positive trends in our workers' comp expense in our same-stores. But that said, this is something we continually work on and manage.

One quarter does not make a long-term trend. But we think that certainly it's a positive sign and, as Darby indicated, a positive comment on our HR team and agency-level team in that area.

Okay, all right. And then were there any extra costs with shutting those offices down or the transition over to the new headquarters in the quarter?

I'll answer to the shutting down the offices: no. And the transition to the new headquarters we absorbed within our normal cost structure.

Okay. Great, thanks very much.

(Operator Instructions) Mit Ramgopal with Sidoti.

Just a couple of questions. I just wanted to follow up on the earlier one. Maybe, Darby, you can give us a sense in terms of going forward with additional offices. Is that something we can probably expect again in the second half of the year? Or is this becoming something you do maybe once a year?

We do it from time to time. I can't comment on looking forward, but it's a monthly financial review process that we go through. And we've got branches on performance improvement plans. But from time to time, you've got to tighten the muscle.

Okay. No, that's great. And then, Mark, I was just trying to get a sense, especially with regards to the Aetna/Centene demos, etc., if maybe you can help us understand how census growth is going in those two areas?

I would be happy to answer, but I'd be lying to you. So I'm going to turn you back to Darby.

Census growth has continued. It has been -- some of it is a transition from other Medicaid programs, but we are -- those pilots are performing well and on schedule.

So in terms of, obviously, the number going from 1% to 6% for managed care, that is something -- when we look at it, is it more just benefiting from volume? Or do you also expect, for example, benefiting from more favorable pricing? Or is that difficult to get?

I will comment to the latter part of your question there on the pricing. It's not a function of higher pricing at this point. The dual demonstrations in the transition to managed care for the most part in our states are coming with rates of reimbursement exactly as we saw them in the traditional Medicaid programs.

To the other part of the question, what is the increase, I will defer a little bit to Dennis here. But I believe we have to factor in the coordinated acquisition adding some significant revenues, which are primarily under the managed care program in Centennial Care.

And I would add to that, Darby, while only one month from Aid, that is predominantly a managed-care business, as well. So it's really at this point, Mitra, growth through the acquisition. But there is growth in our pilot programs, and we are expecting more in the second half of the year.

This is Mark; I'd like to just comment. We want to be tracking and talking about the shift to managed care. We are going to report the number of persons that we are serving through managed care -- if they come from acquisition, if they come organically, I think we would probably tell you that.

But what's important is that managed care is making up a more and more important part of our book. And then within managed care, are we organically growing the business or not, which is -- we hold those offices to that test, also.

Okay, good. And I'm not going to hold you to this, I promise, but if you had to -- based on the trends you are seeing, if you had to look out over the next, say, maybe three years, even five years, where do you see that 6% going to?

Darby just pointed at me and said -- and started to back away. So I'll answer that.

Look, Mitra, we are very clear. We say it in our -- any of the presentations. I've said it at your conference. I can't give you a number on that. I can tell you that we expect that managed care is going to take over an increasing number of these programs across the country.

And over time managed care is going to become an increasingly important payer to us. At some point in time, we believe that the states will get out of this business and convert the management of the dual eligibles to managed care. Now, is that going to happen in three years, five years, six years? We just think it's a mega-trend.

Okay, thanks for taking the questions.

And at this time we have no questions.

Thank you all very, very much. And we look forward to visiting with you in another 90 days. Thank you all. Thank you, Jackie.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect and have a great day.