Addus HomeCare Corporation to Acquire Ohio Hospice Provider for $192M

Addus HomeCare Corporation (Nasdaq: ADUS) announced Wednesday it has reached a definitive agreement to acquire an Ohio hospice provider for $192 million.

Specifically, the deal is for Queen City Hospice and its affiliate, Miracle City Hospice. The $192 million represents $162.8 million of value, net of the present value of $29.2 million in estimated tax benefits, according to Addus.

The Queen City Hospice acquisition, along with two other closed acquisitions in 2020, brings Addus’ total acquired annualized revenues to about $82 million. Addus expects the transaction to be “immediately accretive” to its financial results.

Frisco, Texas-based Addus provides home care services to about 44,000 consumers through 214 locations across 25 states, while also offering home health and hospice care. The vast majority of its revenue comes from personal care services, however, which makes this investment into the hospice space all that more significant.

“We are very pleased to announce our agreement to acquire Queen City Hospice, a leading provider of hospice services in the state of Ohio,” Dirk Allison, the president and CEO of Addus, said in a press release. “This proposed acquisition is aligned with our strategy of providing hospice and home health care in markets where we already have a significant personal care presence. With this acquisition, Ohio becomes the second state where we have the capability to provide all three levels of home care.”

Addus already has eight home care locations in Ohio.

On its end, the PE-backed, Queen City Hospice operates in the major Ohio markets of Columbus and Dayton. The end-of-life care operator also operates in Cincinnati, where it is based.

The company’s network includes an average daily census of about 900 patients and 600 employees. It has annualized revenues of about $56 million, according to Addus.

“We look forward to working with the experienced operational leadership team at Queen City Hospice and its clinical staff of over 600 employees,” Allison said. “Importantly, we share the same dedication to patient-centered hospice services that allow consumers to receive quality, compassionate care in their homes. We believe this acquisition is a great strategic fit for Addus, and we look forward to the additional opportunities for growth through our combined operations.”

The acquisition marks the start of a strategy for Addus that will be characterized by bolstering its home health and hospice services in markets where it already has a personal care services presence.

It also adds additional fuel to what has been a red-hot M&A fire in recent weeks.

“Acquisitions have been and remain an important part of our growth strategy at Addus,” Allison said. “While our approach to acquisitions has emphasized appropriate caution and additional diligence through the early phase of the COVID-19 pandemic, we are now fully engaged in the process of identifying and pursuing acquisition opportunities in each of our three operating segments.”

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Addus Reignites M&A Engine, Targets Home Health and Hospice Acquisitions

The feeling around the recently expanded Addus HomeCare Corporation (Nasdaq: ADUS) headquarters in Frisco, Texas, is different from just three months ago.

Speaking on its Q2 earnings call in August, Addus leadership said the company was in “rebounding mode,” but also not as affected by COVID-19 uncertainties as they initially expected. Additionally, recruiting had become a pain point for the organization, Addus executives noted at the time.

Their tune was different Tuesday during the company’s Q3 earnings call, as Addus execs reflected on a strong quarter based on year-over-year growth despite harsh economic realities tied to the COVID-19 virus. Instead of more recruiting difficulties, company leaders suggested Addus is now in a successful hiring stretch.

“Our revenues continue to be adversely impacted by the COVID-19 pandemic, with a decline of approximately $6 million dollars from our pre-COVID 2020 run rate,” Addus CEO Dirk Allison said on the call.

Addus is a provider of home health, hospice and personal care services. It currently provides care to about 44,000 clients by way of 215 locations spanning 25 states in the U.S.

In Q3, its net service revenues were nearly $194 million, a 17% increase from about $169 million in Q3 2019. Its personal care services line accounted for $165 million of that figure.

The negative monetary impact tied to COVID-19 is mostly due to the company’s New York personal care market and its New Mexico hospice operations, where it’s having trouble gaining access to patients in facility-based settings.

“We estimate our fourth-quarter revenues will continue to be negatively affected by approximately 3% to 4% as compared to our pre-pandemic run rate,” Allison said. “The majority of this reduction is occurring in our New York market.”

New York state of flux

The state of New York has reduced its Medicaid payments uniformly, dealing a major blow to Addus, which has a large market share in the state and also deals heavily with Medicaid as a payer.

The New York State Department of Health announced that all non-exempt Medicaid payments would be reduced across the board by 1% beginning Jan. 1, with an additional 5% reduction taking place beginning April 1 of this year.

“Approximately one-third of our New York business is directly with the state and was immediately affected by this reduction,” Allison said. “We continue to work with our New York State associations to mitigate any future rate reductions and help educate the state leaders of the value of home- and community-based services.”

While headwinds have persisted out of New York, the state’s budget is not the only potential problem moving forward. States nationwide will have to navigate difficult budget challenges due to the ongoing COVID-19 crisis in the coming months and years, which could challenge a provider like Addus.

Addus would argue, however, that with federal relief to states and the general population, states should be able to survive budgetary constraints without undermining home- and community-based service providers.

“States are currently receiving an additional 6.2% federal Medicaid match as part of the CARES Act that will continue through the duration of the health emergency, which currently goes through the first quarter of 2021,” Allison said. “Our home-based care is cost effective and significantly safer than having patients in long-term care facilities in today’s challenging environments, which we believe the leadership of our states have recognized.”

Still, Addus’ New York market census is about 17% below what it was in Q1 of 2020.

But in two of Addus’ largest markets — Illinois and New Mexico — the company has seen a promising bounce-back in billable hours per week.

Those two states have shown promise heading into Q4 for the company.

“With the upcoming rate increase in Illinois on Jan. 1, we should continue to see solid same-store growth in our personal care segment,” Allison said.

M&A strategies

Addus recently acquired home care service providers in Pennsylvania, Montana and New Mexico, as well as VIP Health Care Services, a provider out of Richmond Hill, New York.

“Acquisitions have been and remain an important part of our growth strategy at Addus,” Allison said. “We have strategically maintained a strong capital structure, which allows us to take advantage of acquisition opportunities as they occur.”

Addus “took a short pause” from pursuing new acquisitions during the early phases of the COVID-19 pandemic, but it is now fully reengaged in the process of identifying and closing additional acquisition, he added.

One of the company’s chief M&A concerns remains building density in different geographic markets. Although personal care services dominate the greater portion of Addus’ business, it hopes in the future to build out its home health and hospice segments to complete the “three legs of the stool,” an expression commonly used within the home-based care space.

Addus feels as though it is working toward that goal in New Mexico, in particular.

“We will continue to look in the personal care market, which is obviously the biggest part of our business, trying to fill out states in which we currently have strong operations,” Allison said. “But at the same time, we want to continue to look at the clinical side of our business, adding home health and hospice in those markets.”

Recruiting during COVID-19

After initial bumps in recruiting at the beginning of the COVID-19 pandemic, Addus has rebounded on the recruiting and hiring front.

“On a company-wide basis, we continue to see an overall reduction in patients on hold and improvement in our caregivers hiring numbers, which contributed to a sequential 6.5% increase in our personal care same-store census,” Allison said.

New York still remains a challenge, as there are still enhanced unemployment benefits in place in the state, which can discourage caregivers from coming back to work.

From August forward, however, Addus says that it’s up 2% in terms of caregiver hires per business day.

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In-Home Care Agencies May Look to Cut Costs by Scrapping Brick-and-Mortar Offices

The COVID-19 crisis has raised a complicated question for home-based care executives as they plan for the year ahead: Is the cost of having a brick-and-mortar office location still worth it?

Traditionally, home health and home care operators have maintained a corporate headquarters or local office as a place where administrative staff can come into work on a daily basis and where caregivers in the field can occasionally mingle with peers.

But as the cost of COVID-19 mounts, many agencies are beginning to weigh the possibility of going fully remote, as leasing real estate often comes with a steep price tag. For some, though, the thought of going completely remote feels like a logistical nightmare.

Surprisingly seamless

While Addus HomeCare Corporation (Nasdaq: ADUS) still wants to get its employees back together in its 185 locations, leadership acknowledged during the company’s recent second-quarter earnings call that the switch to a near-100% remote workplace was done with relative ease.

“There’s been some benefits that we’ve all obviously learned from being remote that maybe we can take into the future,” Dirk Allison, president and CEO of the Frisco, Texas-based home health, hospice and personal care services provider, said.

Specifically, Allison mentioned cutting down on travel time as a perk of going fully remote.

For agencies with less financial flexibility, getting rid of the brick-and-mortar office seems like an efficient way to reduce costs.

In the Washington, D.C., area, for example, office space costs $595 per square foot, on average, according to Statista. In Pittsburgh, it costs $140 per square foot, on average.

The telehealth boom has already forced on-the-ground workers to deliver care differently. It’s doubtful that trend is going away, Mark Kulik, managing director of M&A advisory firm The Braff Group, told Home Health Care News.

“The situation has forced people to have more open minds about how to do business and how to provide care,” Kulik said. “From an expense perspective, economically, it makes all the sense in the world to not have offices dotting the landscape.”

Apart from having a central hub for workers, the conventional wisdom in home-based care was that agencies needed to have local visibility and be on as many corners in a given area as possible. The goal: to win referrals and build relationships within the community.

Remote work and COVID-19 have changed that.

To some extent, that evolution was already taking place beforehand, Kulik said.

Generally speaking, having a physical office means keeping it secure and stocked with supplies. Accomplishing that could mean hiring additional employees, something that’s not always easy to do in a normally tight labor market.

“Everywhere you have an office, you have to have someone there responsible for the office and staff, and it’s [generally] hard to find staff,” Kulik said. “Beyond just the economics of the facility and related expenses — copy machines, phone systems, utility bills and other repair costs — it’s also the challenge of finding that quality staff. And maybe that allows you to have [fewer] open positions because you’ve been able to consolidate your operations.”

By the numbers: working remotely

Market research and education firm Home Care Pulse analyzed remote-work trends in its 2020 Home Care Benchmarking Study, released in June.

In response to the public health emergency, about 67% of home care agencies that participated in the study said they shifted sales and marketing functions to remote status. Another 72% and 51% said they shifted team meetings and payroll to remote status.

Many agencies similarly shifted office-based tasks like caregiver interviews, caregiver training and scheduling to remote status, the Benchmarking Study found.

Less than 10% of the agencies that participated in the study said they had staff working remotely prior to the COVID-19 virus.

Now, more than half said they’ll likely continue working remotely even after the virus goes away.

A smaller footprint

If home-based care operators believe they should keep brick-and-mortar offices, they’ll have to make a compelling case as to why.

That’ll be difficult to do if months of remote work went relatively smoothly.

“I think what we’ll find is that the more progressive companies and agencies will begin to adopt a smaller footprint,” Kulik said. “Especially if the lease is coming up, it will really put the issue front and center: Do we renew our lease for next three or five years or do we just go ahead [remotely]?”

The only problem is that each state’s licensing requirements are different.

For example, in Pennsylvania, a home health agency has to have an office within one hour or 60 miles of the patient’s home. Agencies looking to downsize in states such as those will obviously have less flexibility.

In some states, home care companies are bound by the same restrictions.

In a state like Michigan, however, there are no such rules — at least for home health agencies.

“Technically, you’re able to provide care for the entire state via one office,” Kulik said.

Office perks and remote drawbacks

For all of the cost savings that remote work has to offer, there are plenty of home-based care executives who still believe in the power of the office.

“I think that a brick-and-mortar office is very important,” David Savitsky, the CEO of CareBuilders at Home, told HHCN. “[For one thing], recruiting is a constant thing — we’re always recruiting and always talking to people who want to work in the home care business. And I don’t think there’s really any substitute for having someone sitting down across the desk from you and having a conversation with them.”

CareBuilders at Home — the home division of ATC Healthcare — is a national network of private-duty home care agencies. It’s currently targeting a growth plan that would bring the brand into Michigan, Illinois, Texas, Pennsylvania and New Jersey, along with parts of California.

Savitsky plans to open up new offices in the locations CareBuilders at Home is expanding into.

“When it comes to caregiver interviews, you’re sitting across the desk from someone who wants to be a caregiver, and you get a sense of whether or not they are a caring person,” Savitsky said. “Are they that person who is going to make a good impression on a client? That’s so important because it’s not just a matter of capability when it comes to home care.”

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Addus COO: Recruiting Has Been ‘a Little Bit of a Struggle’ During COVID-19

Addus HomeCare Corporation (Nasdaq: ADUS) is rebounding from coronavirus-related disruption in its personal care and home health segments, company leadership noted Tuesday during a second-quarter earnings call.

But the Frisco, Texas-based company also acknowledged there are still significant challenges on the horizon.

“Addus had a very solid financial performance for the second quarter of 2020, with volume levels not as heavily impacted by the ongoing COVID-19 environment as we originally thought,” Addus CFO Brian Poff said on the call.

As an in-home care provider, Addus provides a mix of personal care, hospice and home health care services. It currently provides those services to about 42,000 individuals across 25 states and 185 locations.

Addus recently expanded that footprint. Last month, it announced it had closed on a deal to acquire A Plus Health Care Inc., a Kalispell, Montana-based home care provider.

Personal care services accounted for nearly 85% or Addus’s overall Q2 revenue, a total of about $156.3 million. Hospice accounted for about 13% of Q2 revenue, with home health accounting for the remainder.

Overall, net service revenues for Addus were up nearly 24% year-over-year in Q2, jumping to $184.6 million from $148.9 million in 2019.

The road to recovery

Patients shied away from care at the beginning of the public health emergency, Addus leadership noted.

That caused Addus to hit a low point in visit volume for all three of its segments in April, with personal care services contracting from about an average billable total of 39,000 in Q2 2019 to a little over 36,000 in Q2 2020.

But the damage was somewhat contained and volume is trending upward, Addus CEO Dirk Allison said on the call.

“As we see the return of these patients, when they become more comfortable with services provided in their homes, our personal care census should continue to recover,” Allison said.

Home health was actually the hardest hit, but also the quickest to rebound, according to the company. Since then, it has seen Medicare referrals for home health increase to the point of pre-COVID-19 levels.

Addus received $6.9 million related to its Medicare business from the Provider Relief Fund, but decided to return it.

For one, both Addus management and the board felt that the company had a strong capital structure — with little debt — that could sustain itself without the money provided. It also felt like it was the right thing to do.

“[We want to] let others who need these funds have access to the money,” Allison said.

Additionally, it felt uncomfortable not knowing what future federal reporting and audit requirements could come about after accepting money from the fund.

While it hasn’t impacted revenue, Addus is also actively taking COVID-19 patients in each of its segments.

“While the past five months have been challenging, I remain optimistic about the future of the home care industry and Addus, in particular,” Allison said. “We have a dedicated team of leaders and team members that have demonstrated their ability to continue to meet our mission — even if this virus has disrupted the way we have historically operated.”

Forthcoming challenges

Despite a strong quarter, the Addus leadership team was frank about the challenges that the company is currently facing and the ones it will continue to face.

It’s going to have to deal with a slew of state-by-state specific problems, such as minimum wage hikes in Chicago to $14 — and eventually $15. It will also have to consider and adjust to fluctuating state budgets after COVID-19, particularly as it pertains to its Medicaid side of the business.

“[Still], I think one thing to remember is our services are keeping folks in their home and isolated and are one of the best ways to try to protect them from this virus,” Allison said. “It also is an alternative to those folks potentially being in a nursing home setting, which we all know has been a problem during this particular virus. … So we feel that we have a great story to tell.”

Allison added that he believes that the states understand the severity of the situation and the benefits of the home-based care setting versus facility-based care.

Addus is also expecting its personal protective equipment (PPE) expenses, which have been a significant add-on, to be a part of the company’s budget for the foreseeable future.

“We believe this additional expense will be necessary for the next several quarters or until an effective vaccine or treatment is developed and widely available,” Allison said.

The company is also dealing with recruiting issues for the time being, but is hoping that lower unemployment benefits from the federal government and workers transferring to home-based care from other fields will help solve the problem.

“Recruiting has been a little bit of a struggle, I think, primarily due to the additional unemployment benefits that [have been out] there,” Addus COO Brad Bickham said on the call. “We’re getting a lot of inbounds, but frankly we’re also seeing a lot of folks that won’t show up for training or for interviews. So recruiting is honestly a little down, [but] I expect it to improve with the reduction of the $600 [per week in unemployment benefits].”

The company also plans to lure some unemployed workers back to work with some incentives in a few markets, but didn’t specify what those would be.

Historically, hiring has been better for Addus during economic downturns.

“That’s been a better time for us to be able to hire and bring folks on, and we believe that will occur over the next year or two as the unemployment benefits … come to an end,” Bickham said. “We do believe that the recruitment efforts will return to a more historical level and hopefully [get] somewhat better.”

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