Addus Homecare Corp (ADUS) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2014 Addus HomeCare Corporation earnings conference call. My name is Chris and I will be your conference moderator for today. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. And at this time we are ready to begin.

Good afternoon and welcome to the Addus HomeCare fourth-quarter 2014 earnings conference call. 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 meanings of these laws.

These forward-looking statements are subject to a number of risks and uncertainties including factors outlined from time to time in the Company's most recent Form 10-K or Form 10-Q, earnings announcement and other reports filed with the Securities and Exchange Commission and available at the SEC's website.

The Company undertakes no obligation to update publicly any forward-looking statement whether as a result of new information, future events or otherwise. I would now like to turn the call over to the Company's Chief Executive Officer, Mr. Mark Heaney. Please go ahead, sir.

Thank you, Scott. Good afternoon, everyone, and thank you very much for joining us for Addus HomeCare's investor call for the fourth quarter of 2014. I'm joined today by Maxine Hochhauser, our Chief Operating Officer; Darby Anderson, our Chief Business Development and Strategy Officer; and Dennis Meulemans, our Chief Financial Officer.

I would like to take the opportunity to welcome Maxine to her first conference call as an officer of Addus. At the same time I want to congratulate both her and Darby in their new positions.

I also want to welcome our management and staff listening in to today's call and to recognize them for the outstanding care they and our home care aides provide. The challenging work our caregivers do for our consumers is absolutely essential to our consumers' ability to remain at home.

Today we will talk about growth in revenue and earnings per share and other ways we will measure our performance. The measures we put up are earned in providing critical services to an at risk, older and younger disabled population who, without the continuous care we provide, would be at increasing health risk and ultimately forced to live somewhere other than in their own home.

If we aren't doing our job, often seven days a week, our consumers are going to progress along a healthcare continuum to a much more expensive setting and care level. Therein lies the great opportunity for Addus, especially at this time of increasing integration of the healthcare delivery system.

We had a strong fourth quarter to complete a successful 2014. We are pleased with our 18% increase in net revenues for the quarter. We also benefited from better margins for the fourth quarter which enabled us to produce an increase in adjusted earnings per diluted share of 38.5% for the fourth quarter; earnings per share for the quarter were $0.33 or up nearly 18%.

Our fourth-quarter financial results were primarily driven by a 14.7% increase in total average billable census from the fourth quarter of 2013, which represented a net addition of 4,105 consumers. Our same-store average census increased 6%, contributing 1,644 of these consumers while acquisitions contributed another 2,461.

Our sequential census growth from the third quarter to the fourth was seasonally lower and was affected by a few additional factors. The first and probably the most significant is lower referrals of new consumers in the Illinois managed care locations as the MCOs begin to focus on transitioning their new members from the state program to the managed care program. We think this slowdown is temporary in nature.

Two other factors that do come up for us frequently -- decisions we make routinely to exit low-margin business. We should make those evaluations and we do. And then as often happens at the yearend in some programs, funding lapses especially in smaller state programs. Very often these cases come back after the first of the year.

Severe weather was not a meaningful factor in our fourth-quarter results; although, as we have been hearing for the last couple of weeks, it is having an impact with other service providers in the first quarter to date.

As we look forward into 2015 and beyond we remain confident of the continuing opportunity to grow organically in both our state-funded programs and with our new managed care partners. The transition to managed care provides a significant long-term growth opportunity for Addus. Our industry is already highly fragmented with increasing regulatory pressure, outcomes expectations and reimbursement complexity.

As evident in our recent announcement of the acquisition of Priority Home Health in Ohio, we will continue to pursue strategic acquisitions especially in states that, like Ohio, are transitioning their Medicaid and dual eligible populations to managed care.

We believe the opportunities related to managed care will also favor providers who will utilize technology to complement and further enable their service offerings to lower their cost of delivering care while helping generate positive health outcomes.

Addus is positioning itself as the industry leader in providing services to managed care through our strategic initiatives to reengineer our care delivery system with a strong focus on mobile technology intended to connect our home-based consumers with the rest of the health system.

Early identification leads to early intervention. By using this technology to identify and act on health needs early in the home where disease and help challenges originate, we believe we further differentiate Addus as an important part of the solution.

In this regard we also continue to make progress on development and implementation of the Addus mobile portal, or AMP, and serve more employees and consumers through our 24/7 contact center. The deployment of AMP is primarily focused on our managed care markets.

Our contact center is the technology hub of our new care system through which we increasingly gather, analyze and react to the data generated during consumer visits. Making us more efficient, the contact center also centralizes the back-office activities historically performed in our branch location, freeing our branch teams to focus on the consumer and our employees in the home where our consumers are and our services are delivered.

To summarize, our team produced another quarter and a year of significant profitable growth with demonstrated solid contributions from both our organic growth and acquisition strategies. We made further progress on our strategic initiatives to enhance our care delivery system.

We believe we are well positioned to benefit from changes occurring in our industry and we are focused on leveraging our opportunities to produce additional profitable growth and increased shareholder value. With that let me turn the call over to Dennis who can talk about our financial results in greater detail.

Thank you, Mark, and good afternoon. We had a strong fourth quarter as evidenced by net service revenue increasing 18.3% to $82.6 million, up from $69.9 million for the fourth quarter of 2013. Net income from continuing operations rose 16.6% to $3.6 million from $3.1 million last year while net income from continuing operations per diluted share increased 17.9% to $0.33 per share from $0.28 last year.

The results for the fourth quarter of 2014 and 2013 included legal and consulting expense related to our acquisition activities in both years and the impact of higher than expected work opportunity tax credits in Q4 of 2013. Excluding these items adjusted diluted earnings per share increased 38.5% to $0.36 per share for the fourth quarter of 2014 from $0.26 for the fourth quarter of 2013. We have included a reconciliation of these adjustments in our financial schedules.

Adjusted EBITDA for the latest quarter grew 46.8% to $7.1 million from $4.8 million in the fourth quarter of 2013. Our revenue growth for the fourth quarter was primarily the result of the 14.7% increase in total average billable census that Mark addressed earlier.

In addition, average billable hours per census per month rose 2.5% and revenue per billable hour increased 0.6%. The increase in billable hours per census is reflective of higher authorized hours in our new acquisitions and a targeted reduction in low hour, low margin business in select locations.

Our same-store revenues improved 7.4% for the fourth quarter versus the same period last year, primarily reflecting the 6% increase in same-store average billable census. Our acquisitions accounted for 10.8 percentage points of the increase in net revenues and 8.8% of the increase in average billable census for the quarter.

As we have been saying over the past several quarters, managed care is becoming a larger part of our business with net service revenues attributable to manage care increasing to 15.4% for the fourth quarter of 2014, up from only 2.1% for the fourth quarter last year.

The increase in revenues from managed care over the prior year is due to the shift in managed care in Illinois and to the acquired business in New Mexico and Tennessee. The majority of the increase in managed care revenues from the 9.5% reported in Q3 is attributable to the shift to managed care in Illinois.

Gross margin has improved year over year by 150 basis points, this is driven by improved margins from acquisitions and continued improvements in our worker's compensation expense program. The sequential improvement in gross margin is driven by the seasonal decline in payments for certain payroll taxes.

General and administrative expense declined as a percentage of net revenues to 19.7% from 20.2% as we continue to focus on cost control in our agencies and as we integrate our new acquisitions.

Depreciation and amortization increased $612,000, primarily attributable to the amortization expense related to the intangible assets for our acquisitions and slightly higher depreciation expense related to our new support center.

Our effective tax rate was 27.8%, lower than prior quarters, driven by continue positive yearend performance in our [WOTC] program. We are seeing a trend that we see an increase in yearend processing of these applications and approval of our claims. Our overall tax rate for the year was 31.2%.

As I previously stated, adjusted EBITDA for the latest quarter grew 46.8% to $7.1 million. EBITDA for the year increased 26.4% to $23.8 million or 7.6% of revenues.

Cash flow for the quarter was slightly negative, although improved over last quarter, as collections from our accounts receivable from Illinois, while steady, remained seasonably low in Q4.

In addition, we are seeing delays in the processing of our receivables from the Illinois managed care plans as census, referral and payment process issues are still being worked out with these important payers.

Addus remains well-positioned to fund its growth strategies as we enter 2015. At the end of the year we had $13.4 million in cash and no bank debt. We had $40 million available under our revolving credit facility. This concludes my comments. I will turn this back to Mark for final comments.

Thank you, Dennis. Let me just say this being yearend results discussed here, and on behalf of everybody in this room, to our management listening in, to our -- from our Board of Directors to our -- then to our 18,000 employees, I just want to say thank you for what you do, thank you for doing it with Addus. Well done, let's have a -- let's just keep it up and continue to do good work. With that, Chris, I will turn it over to you for questions.

(Operator Instructions). Mitra Ramgopal, Sidoti.

Just a few questions. First, we saw really nice gross margin closing out the year. I was just wondering as we look out to 2015, I know you don't provide guidance, but is that something you expect to build off of?

Mitra, we would anticipate that our gross margin will remain at those levels going into next year, but you will see quarter to quarter the seasonal adjustments related to the payroll taxes. We do not anticipate further increases in gross margin, however.

Okay, thanks. And I am just trying to get a sense -- clearly you are seeing managed-care as a payer become a really important part of the business. Based on the Illinois projections, I know you are expecting 20% to 30% of the caseload to start transitioning and the process I think goes through another year. How far along are we in that do you think?

Hi, Mitra, this is Darby. It is hard to assess right now. It is kind of a pretty fluid situation as we go through the quarter. But -- plus I would say we are about halfway through those transitions. And in part, as I am sure you are familiar with a lot of the dual eligible initiatives, there's some opt outs from consumers in the Medicare portion.

And right now I do know that the state of Illinois is working on re-enrolling those that have opted out on the Medicare portion back into the Medicaid side. So we will see this transitions continue probably through July and August of this year.

Okay, no, that is great. And I was wondering if you could also give us an update on the pilots you have been conducting and your optimism on that front.

Hi, Mitra, it is Maxine. The pilots are continuing and we -- they were going extremely well. We expect to have a report later in the year.

Okay. And quickly just shifting over on the spending side, I know you mentioned in the release and on the call the internal controls that you had to implement that is sort of behind you. I am assuming the costs are pretty ongoing on that front. But I was wondering on the IT side also if you still have to -- if 2015 is also pretty much a big spending year for you.

Mitra, we will for the most part continue our spending in our IT areas at current levels, but we will keep it within our current cost structure.

Okay. And finally, and I will get back into the queue, I was wondering how the Priority acquisition in terms of integration, etc., is coming along and if you can add any additional color on that transaction?

Sure, Mitra, we are really excited about what is happening with Priority, we are in the process right now of integrating them onto our platform and our model. And we are looking forward to the opportunity with Ohio. As we had said prior, this is a state that has moved their long-term care into managed care so this is a state that we wanted to be in. So things are going as expected.

Okay, thanks.

Brian Hoffman, Avondale Partners.

My first one is on your prepared remarks, you had stated that sequentially from the third quarter to the fourth quarter the census was impacted by decisions to exit low margin business. Can you give a bit more color about that? Thanks.

Sure, this is Maxine. There was some business that was more respite in nature and short hours and we made a decision to exit it because the margin was very low. I think as you look at Dennis' comments, although it had a disproportionate impact on census, we made our revenue numbers. So it was not high revenue business.

Got it. Okay, so when I look at the change or the sequential increase in the billable census it looks like it was an increase of [48], but when you account for some of those businesses that were disposed of can you give us sort of an organic number or same-store number?

Dennis, do we go there?

The census number that we have given you, Brian, relative to the organic growth is fairly consistent. I think the stat sheet that you have does reflect the growth in the billable hours and it is a combination of the census decline. The growth in billable hours and the average billable hours being up, that should be your driver for revenue modeling.

Got it, okay. And then on the G&A line, it looks like 19.7% of revenue. But if you exclude M&A expenses, which I believe that is in there, it looks like it is flat over fourth quarter 2013 and 10 basis points of sequential improvement. Am I looking at that correctly?

Yes, you are.

Okay, great. And then lastly, on the opportunity in California, on the last quarterly call you stated that you had been making some good progress in communicating with managed care plans in the state. So if you have any updates there that would be great.

Sure, this is Darby. We did comment on that and we do continue to have increasing dialogue in developing relationships with the MCOs in California. But I think we also referenced that we do view it as a longer development timeline in California.

This is kind of based on the historical structure of home- and community-based services in California which is somewhat unique from the other states where we operate. But having said that, we are seeing increased dialogue through the fourth quarter and continuing today.

Great, thank you.

(Operator Instructions). Dana Hambly, Stephens.

Back to, Mark, your comments on the sequential move. You first mentioned the lower referrals in Illinois -- and I'm sorry, Darby, if you had explained this already. Could you just walk me back through what exactly is going on there?

Darby, why don't you help Dana?

Sure. So on the sequential census growth there is a number of factors and Mark alluded to them. What we are seeing in the fourth quarter, and we do have somewhat of a historical slowdown overall in our census growth fourth quarter compared to Q3 and Q2 historically.

What we are seeing though is that our assessing case managers, the individuals that go out and actually see new clients and perform initial assessments, are consumed with the managed care companies in making these transitions. And so, we are seeing a slowdown in those new client authorizations. That is really the primary driver in Illinois.

Okay. And you said that was temporary. How long do you think that -- was that the part you think you are back by the mid part of this year?

Well, Dana this is Maxine. We are seeing -- in Q1 we are seeing some of it easing up. So it continued into Q1, but we are starting to see it ease up.

Okay.

This is pretty -- we have seen the same experience in other states during their managed care transition. So other states are a little more mature in the managed care process.

Okay, so this is not something that really terribly concerns you at this point?

No, no. And I want to be clear, Dana, when I was talking about the transitions that will occur later in the year, that is just sort of a -- that is the state's issue around the Medicare opt outs getting re-enrolled in the Medicaid portion of the managed care initiative, not related to the census issue.

Okay.

Dana, I think it is also -- this is Mark -- it is also important to point out that in the sites that are not affected by the managed care shift in Illinois, their historical growth trends continue. So it is pretty clearly pointed at it is what happens when you transition processes you -- these things happen.

Okay, no, that's fair. And then my understanding is that your state budget finances are not in great shape. I am just wondering if you expect a big bump in your receivables from Illinois and if that would have any impact on your ability to make acquisitions or just the way you are thinking about that?

Dana, first off our relationships with the controller's office are extremely good, and I am talking about the people that run the office, not just the controller. They recognize that our program saves money for the state. They acknowledge that our cost structure is very labor intensive and, quite frankly, we pay taxes to them before they pay us our fees.

That said, we are anticipating some uptick in AR from the state as a result of their shortfall. But that is going to be offset somewhat by how quickly this all shifts to managed care. Because the percentage of our receivables that are state-based are changing to people like Aetna and Centene and others.

Okay. And then sticking to Illinois, the Governor put out a pretty Draconian budget and I know there were some cuts in there for the Department of Aging. Is there -- one, does this have any teeth? And two, if it does, what would be your expectation for your business?

So it is a great question, Dana, and anticipated. But obviously given the significant presence we have in Illinois the state budget is a high priority for us. About a month ago the governor issued his proposal, now it goes to the general assembly and we will see what happens over the next couple of months before we get to a final budget.

If you are not aware, there is a Democratic supermajority in both chambers so they will have significant input into the final product and the budget. We are participating in and taking an active role in an advocacy effort that will continue throughout the rest of the session.

But just to be clear and answer your question directly, worst-case scenario, if the governor's budget as proposed is adopted none of our current clients are impacted from his proposals. So the eligibility changes and whatever will not impact any current clients, but we could see a slow rate of growth in the latter half of 2015 if, again worst-case scenario, the governor's proposed budget is adopted.

Okay, that's helpful. Lastly, Dennis, what is not in the same store at this point? Is it just revenue from Aid & Assist or is there something else in there?

Well, through the end of the year -- at the end of the year we had one month of our New Mexico business in the numbers last year, so that got normalized in our comments here. Going forward all of that will become same-store and the MSA acquisition, which we did in Ohio, will become same-store. And what will be at least for the first part of the year will be the Tennessee acquisition and the Priority acquisition will become the acquisition activity.

Okay, thanks very much.

[Paul Carose], Whitebox Advisors.

Would you mind just for us, letting as -- kind of giving a sort of a sales pitch? Like when your people are out either talking to the state or MCOs, what Addus has compared to your competition let's just say? And then how do you see the competitive environment? Thanks.

We have been doing this a while and we haven't gotten a question like that, so thank you for that. The big differentiator we think is that we think that our aids are on the front. They are the people that see these consumers on a day-to-day basis. These persons are at risk or they would not be in the programs.

Our objective is to not only deliver the care that we are required to provide to keep these folks at home and safe in the community, but it is also to train the aide, expect the aide, and then provide a technology so that the aide can observe and report changes in condition as early as possible so that the health systems can intervene as early as possible. And so, we hold ourselves to the higher standard.

How about the competitive environment, what are you seeing out there? And how do you stack up versus the competition and what is the competitive environment like now?

Paul, this is Maxine. The environment is competitive. We are probably the only large geography footprint throughout the United States in terms of the home and community-based side. We tend to see a lot of smaller organizations. As Dennis referenced before, there are state mandates relating to electronic visit verification and technology that we have been able to absorb.

We think some of the smaller organizations are going to have some issues (technical difficulty) that. And the ability to do, as Mark is saying, train the staff to be able to identify changes in condition earlier, we do think we have a competitive advantage in that way and that is how we've used the technology that Mark had referenced before to differentiate ourselves in the market.

Okay, great. Thanks.

And we have no further questions at this time. I will now turn the call back over to Mr. Heaney for any closing remarks.

Chris, thank you very much. I don't have any other closing remarks other than thank you all very much for your attention to us and your support of us and we look forward to talking to you and reporting on our first-quarter results. Thank you all so much.

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