Addus HomeCare Corporation (ADUS) Earnings Call Transcript & Summary

[Audio Gap] Tanquilut, I'm the healthcare services analyst here at Jefferies. Joining me from my team today are Jason Plagman and [ Jeff Levin ]. Thank you for joining us today. And before I proceed, I want to say thank you to the management team of Addus HomeCare. Dirk Allison, the CEO, is on the phone with us as well as Brian Poff, their Chief Financial Officer. Now before I proceed and ask Dirk some questions, I have a couple of announcements to make. Number one, compliance requires us to read a statement. Members of the media and press are not authorized to be in this call. If you are from the media or the press, please disconnect from the call now. The content presented on this conference call is proprietary to and/or subject to the copyrights of Jefferies or third parties. Further as a matter of legal compliance, we remind you that you must not attempt to elicit from any speaker at this event any material nonpublic information or other confidential information. And accordingly, the speaker may decline to respond to any question in his or her sole discretion. You may not publish or otherwise publicly disclose the name of or otherwise identify the speakers unless Jefferies permits it in writing. And by attending this event, you agree to all these restrictions. Then the other announcement I would make is that for Q&A, we are doing this by e-mail. So if you have questions for Dirk or Brian, please e-mail them directly to me, [email protected].

So with that, I'll ask the first question for Dirk. So Dirk, obviously, difficult times, uncharted territory. You guys have a pretty big operation in New York City, where it's epicenter of COVID. If you don't mind just walking us through what you're seeing out there, are your centers open? Are your caregivers going to patients' homes right now? Just give us an update on what's happening on the ground.

Sure, Brian. Thanks. Yes, it is interesting. If you look at our major markets, 3 of our top 4 markets are New York, Chicago, Illinois market as well as Washington state, which all 3 are at the top right now in the COVID-19-related issues going on. From a company standpoint, we are in business in every market in which we operate. We are one of the essential services as defined by the Department of Homeland Security. And each of the states have accepted that definition. And in fact, a number of the states have clarified to make sure that companies like Addus understand that we are on the front lines and we are part of that essential service in the health care industry. What we're seeing in New York specifically, obviously, as being the hotbed of the virus epidemic today -- and we're still relatively new, we are 2 or 3 weeks into in this market. We continue to see a growing base of individuals affected. Now as far as we're concerned, if you think about our business, especially related to personal care services, we're taking care of a patient that is probably 75 to 80 years old that is almost self-quarantined by nature. Most of them are not as ambulatory as some folks. They may get out at times to run errands, go to the grocery store, maybe go to the doctor, but mostly they're homebound. And these are the individuals that if they are exposed to the virus, they're the most likely candidates to need the most intensive care in the facility. And so states understand the importance of companies like ourselves being able to continue to operate and keeping the patients in their home as much as possible. What we've seen, and I'll speak specifically to the New York market because it really replicates itself and starting to see this in Illinois, is at first because personal care business doesn't normally use personal protective equipment, then our need to get PPE for our patients to give everybody comfort is difficult. It's not like the home health and hospice part of our business, where we just continue to order as we have, try to increase our order somewhat, we had to find new sources of supply. So for the first couple of weeks, we've not had that PPE to use with our personal care. Now that's clearly not a problem. Most patients are not infected, haven't been exposed. We have seen cases where the patient has called and said, "I do not want a caregiver into my home at this point in time." We've had a few caregivers, but very limited, call and say, "I don't want to go into a home right at this time." That's very limited. And then we do have some caregivers that because of schools being out have had to call off services because they have no one to keep their children. And so how we are dealing with all of these is, in the first case, with the patients, we're trying to give them comfort by providing masks to our personal care providers. We don't normally use masks, but now we're close to having enough masks to give each of our caregivers a mask as well as our patients a mask, which we believe will help eliminate some of the anxiety of having somebody in your home. Now just as an aside, what we have seen come the second week around in some of these cases, while they may call us off the first week, by the second week, I think they realized that they really need this care. We help them with bathing and making sure they're eating properly, medications are being taken, things such as that. And so they're coming back around and in certain instances, letting us back in that second week around. And so for us, we have seen some reductions in volume, probably stays between the 5% to 10% range on the personal care side, mainly centered around New York and Illinois at this point in time. But by and large, our caregivers are showing up. They're doing their work, and we're able to continue to bill and collect from our states. Now one of the interesting changes we're starting to see and we will continue to look at is, there's probably 2 things related to volume that we'll see if they have a positive effect. First is we're starting to see hospitality workers, whether it's hotel workers or restaurant workers starting to apply to our business to come to work, largely because they've been laid off before and they know we have jobs. And so we've really, within the last 7 to 10 days, ramped back up our recruiting efforts. And we've been helped with this through states giving us waivers on the amount of education we had to do and what education we had to do in person before somebody can take on a case. So that hopefully will help us long term. And now we're also starting to see payroll sources, whether they be MCOs, state or in times, even hospitals reaching out saying, would we take recovering COVID-19 patients that have been in the hospital, have gone through their course of care, they're now ready to be discharged, let somebody else have their bed and would we be willing to provide personal care services to help them recover at home. That's something we're looking at. We're going to have to make sure that if we do that, we get the more beefed-up PPE from the payer source to protect our caregiver, but that is another opportunity. So by and large, I would say while it's not business as usual as most health care companies would tell you, we are continuing to operate on a daily basis very much similar to what we did before the virus showed up.

I appreciate that, Dirk. So I guess just kind of taking a step back on a more fundamental basis, I mean if you don't mind walking us through how you guys are reimbursed. I mean so if you miss a visit because a patient says, "I don't want you guys in here," or what happens if one of your caregivers the same day cancels on you, what happens in that situation operationally?

Personal care obviously is different from home health and hospice, where a missed visit doesn't necessarily affect your reimbursement just at that time. We get paid on an hourly basis. So if we have someone call off because of some reason or the patient call us off, we do not get reimbursed for that visit unless we're able to reschedule at a later time under the authorization that we have for the state for a certain number of hours per month. Now to help with trying to make sure that our patients and our caregivers feel comfortable about being together during a visit, one of the things we have done as a company is institute both previsit reviews by our -- both our caregiver and our patients. So we do daily monitoring. Each of our caregivers, before they go into a patient's home, have to answer 4 questions. Do you have fever? Have you had a cough? If they have a yes answer, then generally we will call them off of service for that day and attempt to use somebody else in their place for that visit. If the patient gives a call off or answer is yes to 1 of the 4 questions we ask them, and we do that before we go in to provide the visit, then we have to do to a second level of review. And that -- the reason for that and I think you'll understand it with this explanation, one of the questions you ask is do you have difficulty breathing? And we developed that. And if I'm a housebound personal care visit person -- patient that has COPD, my answer is probably going to be, yes. But you would answer yes whether or not you had the virus or not. So we have to go to a secondary level of review. And in most cases, we were able to clear that and send the caregiver in. So there are issues that if we don't show up, we don't get paid. But there are things we are doing to keep those missed visits as low as possible.

Got you. And then Dirk, so prior to this whole thing happening, right, I mean, one of the limiting factor to your growth was just capacity of clinicians, so -- or of caregivers. So in that case, when one of your employees cancels for whatever reason, right, I mean, it could be child care, it could be their own concerns about this or just symptoms, what is your availability of caregivers to backfill that on an ad hoc basis, kind of like same day if needed?

Well, normally, if you go back prior to the virus, our biggest limiting factor to our organic growth was hiring enough caregivers to take care of the demand. It wasn't generally the fact that we did not have new patients to take care of. We just couldn't fill the slots to do that. And you see that when the unemployment rate gets very low, which we were experiencing prior to this virus. In times where the economy shifts and it moves more to a higher unemployment level, that generally bodes well for a company like Addus in that it allows us to be able to recruit from a higher base of opportunity and to bring more folks onboard. So one of the things we're seeing right now that I mentioned, and we'll see how this progresses now with the unemployment portion of the recent Care Act, but we're seeing a lot of folks that, I guess, they look and say, "Unemployment short term, but I'm looking for something more long term and steady." We're seeing a lot of folks apply to our company. So while we didn't, prior to the virus, have people just sitting around that we could fill shifts with in most cases, we're now starting to try to recruit. And when we miss for whatever reason, whether it's child care or whether it's one of our caregivers not feeling well that day, we're trying to recruit enough additional caregivers to be able to push them in and clean up that schedule at that point in time and making sure we didn't miss -- don't miss the visit for not just the revenue, which is important, but also these patients have been reviewed by the state or by the MCO, and there's a certain number of hours that they've been authorized for because the care is needed, and we need to make sure we're continuing in this care. Because the worst thing that could happen is these patients refuse care for a period of time and then end up in the hospital because something happens because we're not there. So the unemployment rate going up, while you hate to -- you hate that to happen, certainly could give us an opportunity to hire more caregivers going forward.

No, that's very helpful. So Dirk, just to a follow up on that comment that you made, so if a patient says, "Okay, we don't want you in our house today," I guess the two questions would be, what do you do? What sort of education initiatives do you have or conversations you're having with that patient to convince them to change their minds down the road? And then I guess a more fundamental question there is you mentioned about the hours authorized. So how does that work on missed visits? Like is it just one of those where as long as you're within your authorized hours, you can make it up whatever day the patient eventually agrees to it?

Let me take the first part of that and then we'll get into the missed visits and what we do with that. But what we're doing, first off, the precertification for caregivers and patients has been a big help. That has really helped a lot of people both on both sides, patients and caregivers, to feel comfortable that we're doing something to make sure that we are not sending anybody into an environment knowingly putting them at risk. I think the other thing that we, as a company, are anticipating will help a great deal is putting masks on both our caregiver and our patient. And we're not necessarily talking about the N95s because we're not knowingly sending anybody in that has any symptoms or has been symptomatic in any way or has the disease and the virus at this point in time. So just a standard ear loop mask for both the patient and the caregiver, we think, will go a long way towards settling this down. And we're probably -- first shipment of that is going out today. We should have this taken care of by mid-next week. So hopefully, that will be a big improvement on just the psychological aspect of someone coming to your home. And also realize that, as we're into week 3 or so of this in New York, people are starting to be, I'm not saying more comfortable because certainly it's an issue and will remain an issue for a long time, but a little more understanding of why we need to let somebody in to take care of them and not being quite as fearful. So we'll continue with the prescreenings as well as trying to get masks on the patients and the caregivers. As it relates to the missed visits and authorizations, that's really a state-by-state issue. Now what we're seeing is more and more states are getting waivers from CMS and becoming much more open during this crisis. They've eliminated educational needs in person prior to starting work. So now we can do a criminal background check, maybe spend an hour on the phone, training somebody and get them into the house. And so we're still working with states at this point in time. Some states allow you, if you've got 50 hours of care in a month and you miss visit, you can make that up at any time as long as it's within that time period. Others, which is more limited, may say if you miss a visit, you can't make it up. But more states are now being open to us being able to move visits around either because we miss it due to the caregiver having to call out and we have to reschedule it, get somebody in the home or something to do with the patient. So we'll continue. That's an evolving change that we'll continue to work with.

Dirk, one of the questions that I've seen in the media and some investors are asking the same question is are home care aides, and I guess home nursing nurses to some extent, I mean, do they increase the risk of transmission from one patient to another as they move from house to house? So I know you have the 4 things that -- the questionnaire. But how do you prevent that, given your PPE? And what are you doing to make sure that, that doesn't happen?

Well, let's, first -- it's worth remembering that 35% to 40% of our caregivers only take care of a family member. So they're not moving from patient to patient. The remainder may have 2 -- many have 3 patients, but most of them don't deal with a home -- a whole lot of different patients just because of the time limits it takes to care for one particular patient. So maybe you take care of 1 or 2 patients. Maybe if you're in a facility-based environment, where maybe a residential facility, maybe you take care of 3 or 4 patients. What we're doing for those that have multiple patients is, obviously, we're insisting on them following the hygiene of washing their hands. We're trying to get gloves where necessary, although washing their hands is probably what we found a better -- a better way to keep the transmission down. But we are making sure our caregivers understand the guidelines from the CDC on trying to keep down any transmission. We do also think while masks are not necessarily required by the CDC at least at this point in time, we do believe that it gives comfort. And maybe it doesn't help the spread, but it gives comfort to the individual and the patient, the caregiver and the patient, to believe that it is at least another avenue of protection. So again, the 35% to 40% that take care of a family member, it's just a family member. We're making sure they're washing their hands and doing all the necessary issues around that. Those that take care of multiple patients, we're also -- we've set up a screening system in our company to know that if anybody is taking care of multiple patients, actually whether they're taking care of multiple or not, but certainly the ones that are taking care of multiple patients, they report to us at any time if they had any signs or symptoms either from themselves, family members or even patients. So if they've been seeing a patient, the patient develops a fever, we immediately put in a process that depending on the exposure, we may pull that caregiver off of service for 14 days and put them in quarantine. So we're being as proactive as we can be under the guidelines of the various local departments of health, making sure we're monitoring symptoms and trying to eliminate any additional exposures if anyone along the chain has issues that arise.

Got it. That makes a lot of sense. I guess the other thing with people sheltering in place and working from home, one other question that we've been asked a lot is, is this one of those services that a family member could do without having to bring you guys in and effectively pushing down demand? Or I get the idea that once the state authorizes it, like why not outsource it to you guys? Or if it's a family member, they get paid for it. But for people who are potentially on the verge of getting approved or getting certified for home care, does it delay that process?

Well, that's an interesting question, Brian. What we're seeing is, first off, if you're approved by Medicaid for this service, it's not costing the family any money. And in most cases, the caregiver that has been serving that family member has been there for a while and is very well known to both the patient and the family. And so we're seeing most families not having a concern, not wanting to take the place of that caregiver because that caregiver is paid for by the state. There are instances where a family member had been laid off. And so they're now saying, "Well, I have -- don't have a job. Why don't I just take care of mom or dad and just minimize the risk of anybody coming in?" That's fine with us, too, because what we're then doing is reaching out to the family member and saying, "That's fine. Why don't you go to work for Addus?" We can put you through any required certifications, if necessary. We can make sure that we've done the criminal background check. And then you can start getting paid to take care of your family member in the home. And our area directors, our 180 area directors have been very proactive in reaching out in any instances where this occurs. So I see that as not -- I don't see that as a real risk to volume in our business.

That makes sense. I'll pass it on to Jason. Jason has got some questions for you as well.

Yes. So just wondered what you're seeing -- so from an expense standpoint, can you just walk through kind of how your major costs, what you consider fixed versus variable? And your -- what's kind of directly tied to revenue?

Yes. Jason, this is Brian. I can take that. I think just looking at our model and looking at the variable costs that we have, as Dirk kind of alluded to earlier, we're paid by the hour. We reimburse our caregivers by the hour. But about 86% of our total salary wage and benefit cost is variable and related to direct care. So from that perspective, I think you'll see a lot of variability. If there is a volume impact, I think you'll see a corresponding reduction in the expense side.

Yes, that makes sense. And then are you seeing -- in the home health and hospice business, just wondered if you're seeing any impact in referral flows, given that physicians and hospitals have seen significant dropoffs in discretionary or elective procedures. Just wondering, switching gears a little bit, that if you're seeing an impact on admissions to the hospice or the home health business.

We're really not seeing the impact at this point in time on admissions to either of those areas. Our home health is only about $12 million. It wasn't -- it didn't have -- a big part of that business wasn't necessarily elective surgeries coming out. What we are starting to see, we'll see if it has an effect on [ marked ] admissions, we're starting to see some decisions where folks that might have stayed in the hospital for additional chemo treatments towards the end of life or end of where they're -- they think they'll be with their ability with the cancer diagnosis, we're starting to see hospitals need to get them out of the facility and open up a bed for a virus patient. And so starting to send them home with potential of hospice maybe a little earlier than they normally would, that's a thing that we've started seeing the last week or so. I'm not sure how that will play with volume. But other than in that particular aspect of care, we've not seen any real downward trend on admissions in either of those service lines.

Okay. I'll pass it back to Brian.

I guess I'll just follow up, Dirk, on the staffing comments, right? So obviously, with unemployment picking up, your addressable market or addressable pool of potential employees has grown. And prior to this, we always talked about how you're only filling, what, 83% of demand or something like that. And increasing the employee pool should help drive incremental growth. But how do you think about the turnover that comes out on the other side of this? When you're pulling folks who used to work at Walgreens or Walmart or whatever, right, and wherever else restaurants who are doing work for you, but once those jobs come back on the other side of this, do you think that you will lose a lot of those employees right away? And what does that do to your business operationally in terms of potential disruption to patient care?

I don't -- I do think some folks may go to work for us and then eventually decide to go back into the hospitality industry. But I'm not sure that is going to be a negative effect for us. We need them during this period of time where we've got caregivers that -- who want to work for us, cannot work for us because they've got kids at home. Once those kids go back to school, once we're through the pandemic and things return more to normal, those kids are going to back school, we're going to have caregivers that are still part of the Addus team that will come back and start filling shifts. Long term, once we get past this virus, we've got an unemployment rate that has risen. I don't know that it will go back to where it was as low as it was, it may. But as long as it's any above where we were before, that's additional opportunity long term for us to continue to recruit and bring in new caregivers. Now the one thing I don't know, would be interesting to see is, will this pandemic -- will the fact that Addus stepped up and as an essential service stayed open, continue to pay our people, have no layoffs, will this help with our retention going forward so that our turnovers in both caregivers and administrators maybe will moderate a bit due to the fact that they realize that we are a company that is pretty stable?

No, that makes a lot of sense. Let me just remind the audience, if you guys have questions for Dirk or Brian, please e-mail them to me or to Jason, [email protected] or [email protected]. Dirk, I'll keep going down that path, right? So as we think about your employees, we've seen obviously some cities or states put through minimum wage targets, Chicago being one of them. And I think there was a point when earlier this year, when you and I were talking about potentially an acceleration of Chicago's move to increase minimum wage to $15, if you don't mind just giving us an update on where those efforts stand, not just Chicago, but across maybe your different geographies.

Yes. Most other geographies -- let's take Chicago to the side and we'll handle that in just a minute. Most other geographies are on a normal trajectory for raising minimum wage. And the states have done an excellent job of covering the cost, including giving us our administration -- administrative money on top of just the wage increase. So we're not sitting here believing that there's markets that we are in potential issue that state didn't follow up, unlike 2 years ago, where we knew that New York was still in the process of moving the minimum wage up, Chicago, Illinois -- all of Illinois had started. Some of the West -- Northwestern states, Washington, Oregon, were moving up. Most of those have hit the levels where they will be, unless they decide to start taking it above $15. Illinois is at about a $13 rate at least in the Chicago in South Cook area. The state has a schedule to get to $15 statewide by 2025. And the governor who put that in, Governor Pritzker, has said he will fund it. So we weren't really having any concerns about that. Most of our downstate workers are making much more than the downstate minimum wage today just because as we've gotten statewide increases, we've raised those employees. Chicago came through under their new mayor. And she passed a bill through the council to move the -- to $15, so to move from $13, what they are today, to $15 by the middle of 2021 instead of waiting until '25. So the next step-up to $1, that's at July 1 of this year, and then is scheduled to step up additional $1 in Chicago in 2021. Governor Pritzker put out his budget. This, obviously, was before the virus but put out his budget about 2 months ago. And for the first time, certainly, that I can remember, and I've been with the company in various aspects since 2010, first time that an increase was put in the budget and didn't have to be negotiated by the legislature after the fact. And what the governor agreed to do was to cover that $1 increase in Chicago and the administration fee to go along with it, so keep us whole. But he put a caveat on it, which is interesting. He's trying to get a graduated income tax passed in the state of Illinois in the November elections. Right now, there is a flat tax of a certain percent, no matter what amount of money you make in the state, and he wants to go to a graduated tax rate. So he has made this increase, along with a number of other things he's put out there, it's not just our increase, contingent on the fact that the graduated tax rate passes. And so I think he's doing that so that he can hopefully get the unions behind his drive to get the graduated tax rate. So the way we believe it will work, and it's not -- we don't know yet because the legislature hadn't chimed in, is that effective July 1, there would be an increase to the Chicago employees. On November, if it passes, there would be a retroactive payment to all providers to make them whole from July 1 forward. So that's the way we understand it today, but it is still not final.

So I guess for either you or Brian, so if I'm thinking about all the moving parts in revenue and rates, right, so you've got a Chicago effective rate increase that went effective, what, January 1 of this year, is that right? And then this could -- if this passes, this budget passes, you get an incremental increase on top of that. Is that the right way to think about that?

Yes. That's correct. January 1, we got the scheduled step-up as you indicated. And then in the governor's budget, you have a step-up in minimum wage in Chicago, specifically July 1, hopefully with a corresponding rate increase that Dirk just alluded to. That's correct.

Okay. And then I guess the other big state for you is New York. So New York implemented the narrowing of the provider network. There was a second wave in October, if I'm not mistaken. So for most of this year, you should still get that benefit. But then obviously, New York has had some budget issues and they put through a 1% cut earlier this year. And then I guess they were supposed to pass budget yesterday or propose a budget yesterday. So what is the latest on New York rates?

Yes. What -- it's very much in flux. I will say this, that the MRT II group that the governor had asked to make recommendations came out. And I think really what would have affected us, they proposed a potential additional reduction of 1.8% for a total of 3% or just under 3% as well as some tightening up of the requirements for the long-term care part of personal care. Since then obviously, with the virus coming up and with the recent Care Act, the state now has access to an additional 6.2% match from Medicaid, which I understand, I believe, after reading this is worth just right at $5 billion additional monies, the -- which is much more than they would save by doing the reduction. However, obviously, the reduction is every year, and this goes for just a period of time. It appears now what the state is going to do. At first, the governor came out 2 or 3 days ago and said, "Well, we're just going to have to give up the matching money to make the changes we need to make. And by the way, the changes that we're making doesn't -- it isn't just personal care, it's everything related to Medicaid, including hospitals and others." As we understand it now, they've now reconsidered that and they decided that they classified certain changes they would make to Medicaid as to they can do it, they can't do it and Medicaid can't do it. And there's about 50% of the changes they don't believe they can do, including wage reductions and limitations on qualifications. So I believe what's going to happen is the budget will pass with those potentially in it but won't be effective until they can determine if it passes federal muster. It won't. And so for a period of time, there won't be any additional reductions or limitations on our services until we get through this pandemic, at which point in time, they'll have to see what happens to the states. Now long term, we have a number of states, not just New York, but this pandemic -- the virus is going to cause a lot of additional cost to the states. And there's certainly a belief by most [indiscernible] that the federal government will come up with an additional bill that will help the states out because of falling tax revenues and other things that they're going to see as a result of this particular disease and staying sheltered in place. And so that's something we'll be looking at is long term, making sure that hopefully the federal government supports some of the states to make sure their budgets that are impacted minimally for a period of time, not forever, but for a period of time, can get through this and continue with no problem. So I think as it relates to New York, the virus has probably put any additional changes on hold for 6-plus months.

Got you. And I guess one question that was sent to us, if you don't mind giving us the status in getting Section 1915(c) Appendix K waivers in New York and Illinois. What's the latest on that?

We did get waivers in both states relating to Medicaid programs, a lot of which were evolved around telemedicine, face-to-face requirements. A lot of times in personal care, we have to do face-to-face supervisory visits, not unlike some of the face-to-face you do in home health and hospice. Those have been waived now. We can either -- they're either waiving supervisory visits in total for the period of the pandemic or we're able to do it, say, with FaceTime and other ways to take care of that limitation or the requirement. Also, one of the other main aspects for us, I believe we talked about earlier, was the fact that they have made changes temporarily to the recruitment process, where you have to -- before, you might have had to bring your entire recruited class in for training. And for us, in a Chicago market, that could be 100 potential caregivers coming together for a day of training. And obviously, with shelter in place and social distancing, that's no longer feasible. But we still have a need for caregivers. And so in a lot of cases, these waivers have allowed us to -- states have allowed us to do away with either educational requirements at all, other than the criminal background check, or limited to a small hour or 2 and allow us to do it online. So I think that probably, Brian, handles most of what we're seeing with those waivers.

No, that makes a lot of sense. I guess, Dirk, just going back to the discussion on New York, you've obviously had a lot of success in Illinois negotiating for rate increases when things are tough, right, using the -- your partnership with the unions. I mean do you think this is something that the unions can help you out with? As New York struggles with this, where could they carve you out as -- do cross-board cuts into the Medicaid program, where personal care could be excluded or it might not be a 3% cut or something like that?

Well, first, understand that half of our business in New York is nonunion with the -- what we call the CDPAP side of our business, which was mainly our South Shore acquisition done in early 2016. That's out on Long Island and that is nonunion business. The VIP acquisition we made in June of '19 is inside the Manhattan area, not only Manhattan, Queens and other parts of the 5 boroughs. And that is a union-based business. It is not the union most people think of New York for health care, which is 1199, the SEIU 1199, it's another smaller union that was there when we got there. So I would say that the unions do have a very big voice with the legislature and the governor in New York and they certainly could help. And we're using them as well as our lobbying efforts. We've tried to have a stronger association in New York. So we're trying to have a seat at the table using all those means to try to make sure we can demonstrate the value of our service. It's one thing to try to cut costs. It's another thing to cut cost and drives it into a higher cost setting, such as nursing homes. We're limited in New York anyway. And that's the risk you run as a state when you start limiting at-home services. So we'll continue to work with all of the constituents we can to try to show the worth of our services to the state. And I believe the state really believes our services are worthwhile. Don't give me that. I think they're just in a tough budget crunch right here, and they're just looking for ways to try to eliminate some of that.

No, that makes a lot of sense. So staying in the state discussion with kind of like work from home mandate and obviously kind of like just all the confusion and disruption happening, are you seeing any delays at the state level with the different agencies on either the collection side or getting patients certified and referred to you guys?

Let me handle the referral and then we'll...

Go ahead, Dirk.

Brian, you talk about the collection, I'll talk about the referral.

Yes. On the collection side, Brian, I think cash flow for us has continued pretty much as normal. We've obviously had a lot of communication with our larger state payers and then our managed care partners as well just to check on their ability to kind of continue to process our claims and kind of a business-as-usual status. So far, all have been able to do that and have that ability. So we haven't seen kind of a slowdown in pacing on kind of inbound cash flow at this point. I'll let Dirk kind of talk about the referral side.

Yes. On the referral side, I do think the first week or so, 10 days when states go remote, there's obviously a dislocation and a slowdown at that period of time. People are trying to figure out. I mean we went through it 3 weeks ago as a company and trying to go home and set up the cadence of how do you keep up with each other, how do you do your job, do you have the technology in place to do that, is something that we probably all did not do as good a job as we should have had in our hip pocket as far as the potential. Of course, we probably all never felt like we would use it. We are now seeing most of the states that have been out doing this for a week, 10 days, 2 weeks, are starting to come around. And so I would say that we're not -- it's not -- we are seeing some lower referrals during that initial period of time. I think the referrals will start to get back to more normal settings and we'll start to see that in some markets now. So that our biggest issue as it relates to lower volumes, I mentioned 5% to 10%, will probably not be so much that it's a big decrease in the referrals we're getting for new patients from the state, maybe as much as it is, but the call-offs due to these various issues we've already discussed. And those are things we're attempting to try to remedy through mask and other issues.

No, that makes sense. I guess shifting gears a little bit back to just a little bit of COVID, you talked, Dirk, about rolling out PPE to your employees or your caregivers as a way to protect them and the patients as well. So how difficult has this process been, given widely known shortages in PPE? And then how should we be thinking about the incremental cost that, that brings to your operations?

It's been very difficult. We've not been an industry -- and I'm specifically talking about the personal care side as opposed to home health and hospice. Home health and hospice, we're just like the other big providers of that service. We had PPE that we provided, used all the time. And those orders have continued to come in, maybe not quite as easily as before, but our vendors have been able to continue to ship those. So we've been in fairly good shape there. The real issue for us is trying to go from a division or a segment that uses very little PPE to wanting to put a lot of PPE out there, at least as it relates to maybe not the N95 mask, but certainly, as I mentioned earlier, the ear loop mask, maybe gloves and sanitizers and stuff like that. And that's been very, very difficult. We didn't even have a department really that did that because we just didn't need it. We stood up a team that is our PPE team. They've done an excellent job, very proud of them in finding different sources. I think I mentioned earlier, we got our first shipment of masks, 50,000 masks in this week. We expect another 50,000 in early next week and we've got another 100 multiples on order coming in. And the reason for that is again we want to put masks on our -- if possible on our caregivers, our non-clinicians as well as our patients to help everybody feel better. So I think if you talk about cost, realistically, we're not spending -- I mean maybe it's $1 million of additional cost one time to get us up and through the next couple of months of this. I think the question will be long term, how long does it take, specifically on the personal care side, do we go back to normal where you don't provide gloves and masks to go into the home? Or will it be a situation where going forward, you will provide those? And if so, then that would be an added cost to us of some amount, probably not as material as what we're facing today with buying it because today, you're paying a multiple of cost over what it was in a normal situation. But long term, it would be something that if we needed to have that, say, masks going forward, we would negotiate with our states to see if we couldn't get that covered. So I don't think it's a material cost as it relates to PPE for us today, but it's some. Brian, any addition to that as related to the cost?

No, I think that's right on.

Got you. So I guess I'll shift gears a little bit to Brian. We've gotten a few questions in asking about covenants. And I know you're obviously in a -- you've been in a net cash position for a while. In hindsight, it worked out, right? But with the disruption happening, I mean, if you don't mind just walking us through how you're thinking about cash flows, covenants and credit facilities that you have in place.

Yes. I think from a covenant standpoint, Brian, to your point, obviously, we've been in a pretty favorable position for a while and haven't seen, obviously, any kind of material change in that. I think our cash position continues to remain strong. We've got $125 million to $130 million of cash on hand, only about $60 million in debt, so fairly favorable for us there. And then we still have full access to our credit facility. Coming out of the end of the year, we have over $190 million in availability there. So I think from that perspective, we feel very fortunate to be in a position that we're in. I think seeing that, business kind of continues as usual, which so far it has with some disruption, as Dirk alluded to. I don't see that profile really changing much. But I think it depends on how long this situation goes is something that obviously we'll monitor very closely. As I said, our payers are still -- have the ability to process our claims and continue to make payments kind of as usual. So we'll watch that really closely. Our managed care teams, particularly, are working very closely with our partners on that side just to ensure -- they've got a lot on their plates as well, just to make sure they don't start to get stressed administratively and see a slowdown. But I think for the moment, we feel we're in a pretty strong position.

Got you. And then I guess, Brian, a follow-up to that. Do you have -- you talked about the revolver. So even without the K filed, do you have full access to that revolver?

We do. We have a great bank group that works with us. So we've gotten consent from them for an extension on that filing. So as of today, we've got full access to our revolver as we normally would.

Got you. And then I guess, I'll use that as a segue to the other question, right? I mean, obviously, the K has been delayed. Anything you can talk about on that -- in that regard in terms of how you're thinking about timing? And maybe just to the extent that you can share with us what the discussions are or the disagreements are and how we should be thinking about that as it relates to your audit review with your new and former auditor.

Yes. The audit review we're going through now, so with PwC, they're clearing all of their administrative gates to reengage on '17 and '18 as those are pretty much closed now, they're going to need to go back and re-audit those years. We're working very closely with them to do that as quickly and efficiently as possible, so we can go ahead and move forward and get filed. I think from a timing perspective, our expectation is unlikely to be 60 to 90 days, but it's also just as unlikely to be 5 to 6 months. It's probably somewhere in between. But again, I think we're all working together as quickly as possible to get it done efficiently and making sure that the plan is put in place appropriately. So I think with us being remote as most folks are these days, the advantageous part of this is we have all information electronically. Our teams are stood up, as Dirk alluded to earlier, and are extremely functional. So it's an administrative process we need to work through, but we're working through this as fast as we can.

Got you. And then...

Let me take, Brian -- Brian, let me jump in and give an explanation of what occurred, just so people understand it. We made the announcement that we had about a $10 million to $12 million noncash reserve issue that goes back 10 years. Because we switched auditors from E&Y to PwC this year, then we had to deal with both. Whether it could either be called an error and you would take it back and it's changed each of the years before immaterially or it could be called a change in estimate and you would have just washed the entire $10 million to $12 million noncash through this year. We were willing to do either. The management team and the Board of Directors and Audit Committee, we probably came down to the -- more on the side that it was an error and that it needed to be moved back. The problem is E&Y would not agree to give us consent if they do that. They assessed it was an estimate. PwC being a new auditor said they couldn't agree to that. It wasn't an estimate change, it was an error. And so we got caught in the middle of 2 big 4 accounting firms. And just the way that the accounting literature is and the PCAOB and the way it operates, there was no mechanism that if the national offices of the 2 groups couldn't come to an agreement, there was no mechanism for management to be able to push it either way. So we got caught between those 2 making a decision. And with that, we then had to make the decision that the right thing to do was to just re-audit the years that E&Y had previously audited with PwC, our current auditor. And then we would just need PwC's consent. So that's kind of an encapsulation of what happened.

But Dirk, given that, I mean, how are you thinking about timing?

Well, I think the first quarter numbers will do similar to what we did to fourth quarter, where we'll announce them preliminary numbers. They won't be audited, obviously, or reviewed because you won't have the prior year done. But we'll be able to tell our shareholders, "Here's how we did in the first quarter." Hopefully, we're hoping by the time second quarter rolls around, it's close to the fact that we may could be filed and then be back on track. If not, we would hope to be within weeks after that done. So we're moving as quickly as we can to get that taken care of.

Okay. That makes a lot of sense. Brian, I've gotten a question, just to clarify, because I think in one of your press releases, you talked about the -- how the revolver was unavailable. But you just commented that you have availability in there. So if you don't mind just if you can clarify that one.

Yes. I mean, obviously, in our credit facility, we have a requirement to file or produce our audited financials at a certain time period post year-end. That period actually for us is 120 days. So we technically still haven't kind of quite hit that window. But in the meantime, we've gone back to our bank group and have gotten consent from them to move or extend that requirement out an additional 180 days. So we still have a full availability at this time and will for the duration of that consent waiver. So that was recently announced and we put out a press release this past Monday announcing that we had received that consent.

Got it. Okay. So that was a Monday press release. Okay. And then I guess the last question for us, as I think about M&A, I mean this is something that we've discussed in the past, your interest in home nursing and you had some deals that you were trying to pursue. Where does that stand right now? And I guess since you haven't done the call, maybe just walking us through the strategy of expanding the service lines into home nursing, given opportunities that are showing up, whether it's reimbursement or new rules in some of the states that you operate in?

Yes. One of the things we have found as we put the 3 levels of care together out into New Mexico is how well that works, not only related to being able to provide multiple levels of care to the same patient at certain times, but also with the caregivers out there, some of which take risk on both sides of Medicare and Medicaid. And so as we looked at that, what we've -- we've always thought very highly of hospice and personal care being together and we've come to a greater appreciation that the home health side also makes a lot of sense. So our thinking and strategy is, obviously, we wanted to see what PDGM did prior to this before we went out and did anything. But we -- as we did with HPA on the hospice side, where we got more of a platform for us and we got leadership that came onboard that could help us, same thing would be looking for on the home health side is to get some infrastructure with a deal that we could bring onboard. And then from that spring forward growing home health, maybe with smaller tuck-in acquisitions after that. So that's where we were. And I still state today. Now obviously, with the shelter in place and the travel restrictions that we're facing at least for the next 4 weeks, M&A, it's difficult to do M&A when you can't do really good due diligence and be in front of people. And also as you're just making sure for the first couple of months what is the liquidity requirements of our company going forward, we are -- we've delayed M&A for a couple of months. But hopefully, we'll be back into that soon and can continue with the strategy that we have.

No, that makes a lot of sense. I guess, Dirk, we're close to the top of the hour. I just want to ask you if there are any remarks or any messages you want to send to the investor community that's on the call today.

Well, basically, I want to say, listen, thanks for the support. Addus is a company very proud of the fact that we have liquidity. We have cash. We have availability that we can continue to move through this. And our caregivers are doing a great job out on the front lines, really trying to help do their part to keep this virus controlled as much as possible. So just thank people for the support. It's been incredible.

Awesome. Well, you guys stay safe, and thank you for letting us host this call. Have a good rest of the week.

Thanks, Brian.

Thank you.