Addus HomeCare Corporation (ADUS) Earnings Call Transcript & Summary

Good morning, everyone. Thanks so much for joining the Bank of America Health Care Conference. My name is Joanna Gajuk. I cover health care providers and payers here at Bank of America alongside Kevin Fischbeck. And it's now my pleasure to host this session with Addus, which is one of the largest providers of personal care services in the U.S. And today with us is Dirk Allison, Chairman and CEO; also Brian Poff, CFO; and Brad Bickham, President and COO. So to the audience, I guess one comment, please submit any questions that you might have for the team in the box next to the webcast that you see there. So I'll start with some questions for the team here.

Can you maybe start and talk about any updates you have in terms of the impact of the pandemic on the personal business -- personal care business? And also separately, I guess, on the hospice business?

Yes. So when you look at the impact of the COVID virus on the pandemic with respect to home health with personal care and with hospice, personal care, what we said that back in Q4 with respect to what Q1 was going to look like is probably going to be in that kind of 2% to 3% down from our February of pre-pandemic highs. We came out actually a little bit better than that on the personal care side. When you look in terms of hours, we actually have pretty decent revenue same-store growth on the personal care side. And what we saw is December was a tough month for us on personal care from the standpoint that kind of mid-December, we really peaked with numbers of employees, numbers of clients that were on quarantine, that were on COVID holds, that number started ratcheting down in the last couple of weeks in December, continued through January. We've seen the favorable trends all throughout the first quarter and continued into April. So those numbers have come down significantly. So we've got a pretty good tailwind there on the personal care side. When you look at the hospice piece, it's a little more challenging there. That is the one segment that has probably been hit the hardest. And what we saw, interestingly enough in kind of Q4 was really starting to see a pretty significant decrease in median length of stay. That continued into January. We actually hit our low point in January and got down to roughly about 15 days when we're normally running kind of pre-pandemic in that mid-20s to upper 20s on a median length of stay. Now the good news there is we've also seen that improve in February and March and continued into April. So that median length of stay has started to come up. I think April we probably finished about 18 days. So some nice improvement there. And we also saw good admission growth. If you look at just admissions year-over-year and particularly sequentially, Q1 had some solid admission growth. It's just going to take a while, I think, for that length of stay to build and really start seeing those strong admissions kind of carry over into ADC.

Oh, go ahead.

No, I agree that we saw the hit of the COVID virus really kind of come back in the fourth quarter, as we've talked about on our call. But as Brad has said, we really started to see that turn probably mid-January up until where even now through April, we're seeing a positive trend all the way across.

Great. And on the last point, I would ready to ask on the hospice length of stay. Can you kind of -- you mentioned that you're seeing the length of stay improving. And can you kind of remind us your exposure to the SNF and senior housing -- the nursing homes and senior housing settings? Because it seems like that's where kind of the majority of the headwind is. And kind of to that end, what the outlook is for those sources for you specifically in terms of the improvement in length of stay? And I guess then the census.

Yes. So certainly, having patients typically that are in a nursing home or assisted-living environment have a longer length of stay. I think the one kind of silver lining, if there is one with the pandemic is the fact that we've broadened our referral base. So our reliance on SNFs and ALFs is not what it was pre-pandemic. But I think there's some significant opportunities to start building some momentum in those buildings. I think when you look at kind of our portfolio, and let's say, on the hospice side in the states that we operate in, New Mexico is probably the area that we've been hit hardest and it's the one that's kind of the slowest to come back. But we are starting to see some increase in our SNF referrals actually and ADC in those facilities, the ALFs are a little slower to come back. But I think as occupancy ramping or ramps up in those facilities. And again, I think we've kind of characterized this as really kind of a back half of 2021 that we'll start seeing really kind of a return to normalcy in those facilities, but there -- with occupancy starting to come back up.

And it's interesting, Dirk, you mentioned you changed the mix of your referrals. So can you talk about that? So is it just mathematically just fewer patients coming from these settings? Or have you done something proactively, I guess, to reach out to other referral sources I guess, the community physicians and whatnot. So can you talk about that a little bit and the traction you're getting? And also, I guess, when we think about it, what has been competitive environment in their respect from other hospice providers because they're seeing the same trend. So can you just kind of flash it out for us?

Yes. It was certainly proactive. When the facilities were really shut down, lockdown where you couldn't -- it was hard enough to get clinical staff into the facilities, much less trying to get a sales rep, or a liaison into the facilities. They started having to make calls to physician practices that started opening up sooner than the facility. So it was definitely purposeful to expand the referral base. And I think it's -- those are more challenging because you're not going to necessarily get the density of the referrals that you might in a facility. So it takes a little longer to kind of build those relationships. And you don't quite see the, like say, a facility you might be able to pick up 7, 8, 9 patients, whereas a physician's office, maybe 1 or 2. But that being said, I think it's good to get kind of one of the things in hospice is you need to make sure that you have a balanced patient mix. And so in some respects, it was helpful from addressing that certainly gives us more cap cushion with respect to length of stay and just having a more balanced length of stay long term.

And I guess to kind of close that, I guess, topic is that we jump right into hospice. But clearly, the company strategy, right, has been focused on adding these other, I guess, services to your kind of core personal care. So can you talk about that strategy in terms of adding hospice? And now I guess you also talk about more home health. How do you -- how -- what's your kind of target sense of these businesses? And then also more importantly, kind of flash it out to us how you plan to leverage owning the 3 assets in a market?

The strategy that we developed 2 or 3 years ago was starting with our personal care base, which is very important to us, and we believe is kind of the starting point because we're in the house up to 50, 60, 70 hours a week -- a month, excuse me. So 15, 20 hours a week, we're seeing that elderly patient in a nonclinical setting. So we understand how they're doing, where they might be seeing changes, whether it's aging, things they can or cannot do, even potentially their health, things that might be changing there. And so what we wanted to do, we believe very strongly that we wanted to offer additional services in the home to that particular patient. And so that led us to the belief that we needed to add clinical services into those markets where we have personal care. We did that starting in New Mexico, where we bought a business that had both home health and hospice, which ended up -- our management team was somewhat more familiar with hospice in that we had come from the Odyssey Healthcare many years ago where we had large hospice business. What we saw as we got into the New Mexico business is why hospice is still very important, and it is a service we wanted to offer to our patients and their families as they got near end of life, there was also a real need for that mid-level of care, the acute care and the home health, that was a clinical services we didn't have on the personal care side. So we saw all 3 levels of care start to have synergies. We saw patients on personal care and home health, that may be on personal care and hospice. And so because of our ability to offer those services all the way across the spectrum in that state, it also led us the ability to do things that we recently announced with Presbyterian Health, which is a large payer out in the New Mexico market where we're doing value-based care, working with their high cost patients that we have overlapped with. So that strategy is starting to prove itself. And so that's when we decided we wanted to take that and try to replicate it in other markets where we were strong in personal care. It doesn't mean that we will be able to do that in all 22 states in which we operate. However, we do believe there's probably 5 to 7 markets that we can continue to grow. So we've added a large hospice provider in Ohio that we closed December of last year, and that's working very well. So we have a large personal care, a large hospice in Ohio. And we do have a home health license. We do a small amount of business. That's an opportunity for us to continue to grow through acquisitions in that state through home health. We'll continue to look in other markets, Pennsylvania. We're strong there. We'd like to do some more things in Virginia, Texas. So going forward, strategically, what you will see us look for is opportunities to add on those additional levels of care to the personal care market so that we encompass all things in the home that we're looking for.

And on that partnership you mentioned with Presbyterian, that sounds very interesting there. So can you kind of -- sounds like it's very, very new. So I don't know if you can share any initial kind of experiences of how has that been performing versus what the expectation has been on your side and on the side of the Presbyterian?

Yes. I mean -- and I think you hit on the point. I mean, it is relatively new. So we don't have a lot of data yet. That takes a little while to kind of get some apples-to-apples comparisons to really kind of see how we're doing on hospital readmits. I'll tell you, it's coming out better than what we had originally modeled on our end. So I think there's a lot of opportunity there. I think Presbyterian Health has been very pleased with the results so far. But hopefully, we'll have kind of more data related to that. But I think the exciting thing about it is it really shows the synergies between home health, personal care and to an extent also hospice care because some of those patients have transitioned to hospice where it is appropriate. But you certainly see where you can really kind of do some interesting things when you have that non-skilled level of care in the home and combine it with a skilled level of care when they come out, patient comes out to prevent that unnecessary hospital readmission or maybe that trip to the emergency room. And then in New Mexico, we also have the ability to -- we provide nurse practitioner services in the home environment. So to have that of the ability, whether it's by an actual physical visit or through telehealth of some sort, makes it also very interesting and something that I think will translate to other markets and other payers.

Right. And then just coming back a little bit to the topic we discussed before about the pressure in the hospice business because then on the flip side, when you think about it, does this pressure create, I guess, the pressure -- the institutional setting that this create opportunity for the personal care business, have you seen sort of new referrals or new types of patients or kind of new activity because of the pressure in the institutional setting?

Well, certainly, there's kind of a push to be at home. And so as you've seen occupancy levels decrease in the facility sector, it certainly translates to more people seeking care in the home environment. And personal care certainly there to support it. I think -- and the nice thing about personal care, the demand is there. I think our bigger challenge is just finding enough workers to be able to meet that demand. Retention is a big issue for us that we continue to focus on. So the nice thing about the personal care is, is a sector that doesn't lack for demand for services.

Yes. And on that end, I was also thinking, if you can frame for us kind of how are you thinking about the building blocks for growth for the company, I guess, now with the hospice and potentially home health businesses becoming bigger? Because in the past, right, you used to talk about kind of 3% to 5% organic growth, right, for the personal care business? And then, I guess, how do you think about that range currently and after the pandemic? And would that -- is that combined with these other assets or does that changing that growth profile for the company?

Yes. I mean, I think the long term, I mean, we're still kind of comfortable with that 3% to 5% now. I will say in the near-term because of the Illinois rate increase will be kind of towards the upper end of that, if not a little above because of Illinois, the rate increase when you look at Q2. But the home health has actually grown a good bit of traction. We really are focused primarily in New Mexico. And as Dirk pointed out, we'd like to expand into other states. But there's certainly a level of synergies between the 3 lines of business. I mean, if you look at in New Mexico, again, going back there, where we have a solid platform in all 3 areas, There's -- clients can be on home health. They can be on personal care at the same time, they can be on personal care and hospice at the same time. There's referrals that are coming from personal care into home health and personal care into a hospice and then, of course, home health into hospice as well. And we're using metalogics in New Mexico. They scrub our OASIS state on the home health side to identify patients that might be ready to transition to hospice. And certainly, where we can maybe start having those discussions with families. I think where the kind of big opportunity for us is, frankly, to leverage some technology on the personal care side to do something similar. We have change in condition pilots that we've been operating in several states, trying to identify where personal care that we're providing non-skilled services, might need some sort of intervention. But I think there's a lot of potential there to add some synergies to the -- in greater synergies to the home health and to hospice, again from the personal care population.

And just one thing I'll add, Joanna, just on that front, and Brad and Dirk have both referenced that in the short term, we're going to see some comps to last year that I think should -- and at least a few of our segments should see higher than kind of normal growth rates that we've talked about historically, but still feel good about those numbers, what we've seen in the last few years in organic growth. But I think there's opportunities in projects like we're doing with Presbyterian and value based, but also in Medicare Advantage. Today, that's largely been used as a marketing tool by those plans. They really start to see the value proposition of some of the projects that we're doing and be able to provide some of that data, then it could be helpful to them to move that into, hey, there really is a large cost savings opportunity here. And I think that is a separate market that we haven't baked into our kind of 3% to 5% in personal care targeted growth rate.

But to that end, would you say that these other segments growing faster than the 3% to 5%, so the kind of the all-in organic growth for the entities should be faster than that?

Yes. 3% to 5% is our long-term growth goal in the personal care market. However, what you will see probably for the next 3 or 4 quarters we just received a nice statewide rate increase from Illinois, which will cover the minimum wage increase that was made mid last year. So from a revenue -- same-store revenue growth, that's going to factor in our numbers going forward for the next few quarters. And then on top of that, last year, the second quarter of 2020 was the quarter, we really started getting hit with the COVID virus, the call offs. We were in New York, a big market; Illinois, a big market, both got hit hard. So you should see our growth at the top end of that for the next few quarters, which will be reflective of not only the fact we had some issues last year, but also the fact we are growing, and we got a good rate increase from the state of Illinois.

Yes, that's a fair point. And actually, to follow-up on something you mentioned before, there's a question coming from the audience. You mentioned the demand clearly there for personal care, but it's all about finding the labor, right, to provide these services. So the question is, can you talk about which markets you're having the most challenges finding staffing? And how are you evolving the recruiting process to kind of overcome those gating factors to your growth?

Yes. On the recruiting front, I mean, it's fairly widespread as far as challenges in the market. I mean it's a competitive market out there. That being said, if you look at our Q1 hiring numbers, we're actually a nice sequential and even a little bit on a year-over-year increase. Just looking at kind of April numbers, we talked about, they're good, they're solid. They're not -- they're maybe a little behind March, but still pretty good numbers. It's -- what we're kind of really primarily focused on is constantly find look at our ads trying to refresh those ads with the job boards. And when I say refresh, not just kind of refresh and repost ads, we're really trying to look at the content of the ad because you're really needing to sell the service. There's a lot of opportunities, a lot of job postings out there. So we're focused on trying to make sure our job -- our ads are kind of at the top of the job boards, but also that they're attractive to the reader that's going to cause them to click on it to really get their interest and sell them on the job. We really work hard with our teams that -- for the field to understand that when somebody is looking for work, they're generally applying to 3 or 4 jobs that day. So response time is critical. So we really push and track how quickly are people at the field level responding to inquiries about jobs. And then also, of late, don't just rely on the national job boards and the things that we can do and kind of support from a corporate level, but really start -- don't lose sight of the things that we've traditionally done in the community, and that's posting the flyers out there. And that's being out in the community active looking for opportunities to sell people but the good things about being a caregiver on the personal care side. I mean I hate to say it, I mean, you're not flipping hamburgers. I mean you're actually making a difference in somebody's life. And I think it's also a career path that you just look at back in history and then just looking forward, there's a lot of safety in that job. There's a lot of opportunities to -- you're not at risk of being downsized because the demand is there and is going to continue to be there. So really pushing the sales aspect of it. You can't just sit back and try to just catch job inquiries. I mean you need to be proactive and engaged. And in certain markets where we need to put out a bonus, we've looked at that and done that in on occasion. But probably shy away from that a little bit because that generally kind of, I think, just leads to more job hopping. And then the flip side of it is, what can we do to not have to hire as much? What can we do from a retention standpoint? So really working with the teams to do what we can from a corporate level to engage with our caregiver workforce, then also encouraging our local teams that got to engage with local -- with the caregiver workforce. You've got to build those relationships. And then finally, one of the reasons that you allow people -- you have high turnovers they don't get the hours they need. So let's make sure that we're filling the hours of the people that are working for us currently. Let's make sure that if they're working 20 hours and they want to work 28 hours a week, let's find them that extra 8 hours. So it's something that we're going to -- I think with the extra $300 out there, federal unemployment certainly makes it a little more challenging and you hear stories about that. But it's always going to be a competitive market, and we need to sell people on the virtues of being a caregiver and working for Addus and staying with Addus.

Yes. And on that front, I guess, there's been a lot of -- is different proposals out there, right? The bill included 10% matching to SMAs for the home and community base care. And even the Biden proposal could -- there's pretty sizable amount of $400 billion on home and community settings. So can you give us an update or where we really stand on -- from where you sit from actually seeing these benefits? I think the first one in your business, what exactly states need to do to access this funding, right? And then what do you expect to see really, given that this is only what it seems for now as these are just temporary funding increase. So kind of how you think about that?

Why don't you take that, and then I'll...

Yes. So on the FMAP, I think the biggest challenge, there's a lot of talk about the additional match. I think the challenge that states have right now is just trying to understand, one, what can they do with those funds. So there's a lot of discussions out there as to how we can -- how the states can utilize those. Also recognizing, as you point out, this is a temporary match. So that's an area that we don't have a lot of kind of concrete plans as far as what states are planning to do other than the fact that we know that they're having those discussions. Certainly, we want to access the money. And then there's talks about some additional monies to be allocated specifically for home base services. But again, I think there's a lot of clarity that needs to come from the administration on how states can utilize those funds.

I think, Joanna, too. I mean, I think we're hopeful, and obviously, there's a lot of tailwinds that are coming out, particularly the Biden administration, being very specific in support for home community-based care. I think through the pandemic, we believe, and I always believe there's a value proposition. But more of a focus on keeping people in their home longer, I think, will be beneficial. And I think part of that, and they've indicated and to Brad's point, just waiting to see exactly how that money will flow through, but does some of that go down to help enhance caregiver wages as long as, obviously, there's a reimbursement increase to go along with that could help us on the hiring front as well. Some of the things Brad was talking about, people were to trickle down to them, does that kind of help in that regard, kind of separate them from more minimum wage workers and allow our hiring to open up a little bit and kind of fill that demand that we know is out there.

So you're saying that still -- it's kind of TBD when we even might hear? Like is there any rush from the states? Or how do you think about the timing of when they're going to hear from administration and then act on that?

Well, they're starting to come out with some of the rules around the money. I think it was some things came out today. So we think it will be fairly quickly that we'll have a better understanding as well the states. And one of the things we are attempting to do, you mentioned the 10% being just for a year being somewhat temporary. First off, we'll see if it's temporary or if it's renewed. But even with it being temporary, we've been talking with some of our states that want to cover minimum wage increases. And it looks like that, obviously, the Biden administration, it wants some of the funds to be used to make sure that the workers are paid correctly or paid in a manner that they feel is needed. So we're working with some of the states to see if we can't take some scheduled rate increases as it relates to them reimbursing us for a minimum wage and moving that up sooner due to the 10% money that's out there. So that's still to be determined, but we are in those discussions.

Okay. So that sounds like things are happening. So that's good. And the last topic that's happening nonetheless, but on M&A, obviously, you guys have been very acquisitive, especially in the hospice side. So can you talk about are you seeing more competition? Do you expect less competition on hospice assets? Where you set on multiples? And I guess the home health, are you seeing more activity now? Or do you think we need to kind of wait for the sequestration to come back to really hit hard the home health small guys to kind of be open to sell?

Yes. I think what we're seeing, obviously, the last year, particularly has been very competitive in the hospice I think, multiples have been pretty high. There's a lot of interest, particularly from private equity wanting to get into the space in just home care in general. So we've done a couple of larger deals one each in the last couple of years that have been, I think, at a premium multiple to what we have traditionally paid for personal care assets particularly. But I think what we're seeing on the skilled home health side is that is starting to open up. I think we expected to see more activity there last year. I think -- but with COVID, some of the relief that was given by the federal government, you just didn't see that. But I think late in 2020, into early '21, we're seeing more of those targets coming to market. So we think that's more of an open landscape for us this year. So from a multiple perspective, I think what we're still seeing is hospice has been leading it more in that kind of low to mid, maybe even in the upper teens, like some people have paid on the private equity side. Home health, I think, it's still -- it feels like it's still firming up, but it still feels like in the lower, maybe up in the middle double-digit range. But personal care assets, we still see sub-10x than what we've traditionally seen over the last few years. But haven't seen as much competition yet in the personal care space. But I think home health and skilled home health and hospice are pretty competitive out there for anything of given its size.

Right. Okay. I guess, we ran out of time. So really appreciate everybody joining us, especially the team, I appreciate, enjoy the rest of the day and hope to see everybody soon.

Thank you very much.

Thank you.