Mertz Taggart follows the publicly traded home-based care companies and reports on their earnings calls each quarter. As a group, public company performance and share price serve as a proxy for industry performance and investor sentiment, respectively. Historically seen as the “ultimate consolidators”, the publicly traded home-based care trading multiples have a downstream effect on lower middle market home-based care M&A.
Addus Homecare (Nasdaq: ADUS)
Highlights
Addus’ top line growth continued as revenue in Q1 2024 increased 11.6% compared to Q1 2023.
Despite continued revenue growth, ADUS’ profitability in Q1 2024 decreased slightly when compared to Q4 2023 – gross profit margin decreased ~2%, operating income margin decreased ~1.5%, and EBITDA margin decreased ~3%. This was due to “annual merit increases and the annual reset of payroll taxes as well as compression from certain collective bargaining negotiations”, Brian Poff, CFO.
Comments on the final Medicaid access rule:
Disappointed that the rule maintained the proposed 80% requirement.
Welcomed that the implementation period increased from four to six years.
Encouraged by the positive technical adjustments made – for example, training, mileage, and PPE will be deducted from total payments before calculating the 80% requirement. Compensation will also include PTO, retirement, insurance, workers’ compensation, and tuition.
In Q1 2024, ADUS began using its new value-based care management system, which is expected to develop payor relationships and assist in reimbursement rate negotiations.
Key Financial Figures
M&A Activity
ADUS expressed that the Medicaid access rule will lead to an active M&A market as it encourages scale and impacts small providers.
Dirk Allison, CEO, expressed that “acquisitions will continue to be an important part of our growth strategy at Addus.”
However, the acquisition strategy is different for the personal care and clinical segments:
Personal care: Allison commented, “With the Medicaid access rule finalized, we are focused on opportunities that will help us obtain the needed scale in our current personal care markets to operate more efficiently.”
Clinical: Allison mentioned “We are focused on home health opportunities, which operate in certain of our personal care states where we have the opportunity to continue our growth in value-based care and to complement existing hospice operations.”
Guidance
For 2024, excluding M&A, ADUS expects its gross margin percentage to remain stable and adjusted EBITDA margin to remain above 11%, consistent with 2023.
Aveanna Healthcare (Nasdaq: AVAH)
Highlights
Revenue in Q1 2024 increased 5.2% in comparison to Q1 2023. Private Duty Services (PDS) was responsible for ~90% of this increase.
Gross profit margin decreased ~2%, however operating margin increased ~1% and EBITDA margin increased ~0.5%.
AVAH grew revenue and EBITDA growth by focusing clinical capacity on preferred payers.
Aveanna continues to work on its strategy to successfully negotiate reimbursement rate increases. For 2024, the goal is to improve rates in GA, MA, and CA, which represent ~15% of PDS revenue.
In Q1 2024, Aveanna made progress on its goal to increase the number of PDS preferred payer agreements from 14 to 22 as it added four new preferred payer agreements.
AVAH introduced a new KPI called “PDS volume indicator”. The metric will report current PDS preferred payer volumes against the total MCO opportunity. This will define the opportunity for AVAH to continue shifting clinical capacity and efforts towards preferred payors. Currently, the 18 PDS preferred payors account for 40% of the total PDS MCO volumes.
With regards to preferred payor agreements in home health, AVAH achieved its goal of having an episodic payor mix > 70% with an episodic payor mix in Q1 2024 of 75%.
AVAH continued to highlight the fact that there is no demand problem for its services, and that top-line growth is constrained mostly by shortage of caregivers. That said, the company expects to increase its ability to attract caregivers over the next few quarters as it negotiates acceptable reimbursement rates.
Key Financial Figures
M&A Activity
AVAH is not in a position to pursue a growth strategy through acquisitions as it has $1.48B of debt in its balance sheet. This is high relative to EBITDA (TTM Mar. 2024 EBITDA was $128M). On a positive note, no material portion of this debt will mature until July 2028, which gives AVAH a few more years to continue to positively shift operations and increase FCF.
Guidance
Based on Q1 2024 results, AVAH expects revenue to be greater than $1.97B, compared to the $1.96B – 1.98B range provided in Q4 2023 earnings call, and adjusted EBITDA to be greater than $150M, compared to the $146M – $150M range provided in Q4 2023.
The Pennant Group, Inc. (Nasdaq: PNTG)
Highlights
PNTG reported revenue of $156.9M for Q1 2024; this represents a 24.1% or $30.5M increase over Q1 2023.
Adj. EBITDA of $11.2M grew $3.2 or 41.8% when comparing Q1 2024 to Q1 2023.
Pennant reported on its strategy to focus on five key areas: leadership development, clinical excellence, employee experience, margin improvement, and growth. PNTG highlighted progress in the following:
Leadership development: There are now 44 CEOs and 42 CCOs, or close to 50% progress towards the goal of developing 100 local CEOs and 100 CCOs.
Clinical excellence: Q1 2024’s average CMS-reported home health star rating of 4.1 and acute rehospitalization rate of 13.4% are well ahead of national averages.
Margin improvement: YoY adjusted EBITDA margin improved 90 basis points (6.4% to 7.3%).
Growth: This is a two-front effort involving organic growth and strategic acquisitions. On the organic front, PNTG had double-digit percentage growth YoY in same-store home health admissions and hospice ADC. Acquisitions were responsible for ~14% segment revenue growth in hospice and home health.
Key Financial Figures
M&A Activity
Home health and hospice segment:
PNTG initiated Muir Home Health, a JV with John Muir Health on 1/1/2024.
Acquired a home health license and a CON in King County, Washington on 4/12/2024.
Acquired South Davis Home Health and Hospice in Bountiful, Utah on 5/1/2024.
Senior living segment:
Acquired Capitol Hill Senior Living, a 113-unit community in Salt Lake City, Utah, including the RE.
Acquired Southgate Senior Living, a 75-unit community in St. George, Utah, including the RE.
Acquired, through a long-term lease agreement, the operations of Veranda Senior Living at Paramount, a 73-unit assisted living and memory care community in the Boise area.
Guidance
Brent Guerisoli, CEO, said that Q1 2024 was a very strong quarter, which puts PNTG on pace for the top end of their guidance. As a reminder, PNTG guided 2024 full year revenue of $597M - $634M and adjusted EPS of $0.82 - $0.91.
Enhabit Home Health & Hospice (Nasdaq: EHAB)
Highlights
“After the evaluation of a full range of strategic alternatives with the support of external financial and legal advisors, our strategic review process has concluded” said Barb Jacobsmeyer, CEO.
EHAB did not receive any formal proposals to acquire the company and will, therefore, remain a standalone entity. EHAB believes this was mainly due to macro headwinds, including uncertain regulatory developments such as Medicare reimbursement policies.
Revenue of $262M in Q1 2024 decreased 1% when compared to Q1 2023.
Q1 2024 adjusted EBITDA was in line with Q1 2023.
The growth strategy in home health involves stabilizing Medicare admissions, progressing with the payor innovation strategy, and increasing the utilization of clinical resources.
Medicare admissions: EHAB’s Medicare mix has steadily declined over the last year. Medicare admissions declined 11.4% in Q1 2024 compared to Q1 2023. However, this decline should slow down as EHAB’s Medicare mix is now in line with its peers.
Payor innovation strategy: Shifting volume to preferred payors has been successful – admissions on historically lower-paying contracts declined from 42% of total admissions in Q1 2023 to 29% in Q1 2024.
Utilization of clinical resources: EHAB reported that patients have become more receptive and are beginning to understand the benefits of virtual encounters, which is why the company is exploring how implementing virtual care strategically can increase care efficiency.
The main priority for hospice continues to be growing census to gain operating leverage against the fixed cost structure associated with the case management staffing mode.
While EHAB did not report any material acquisitions, it did report progress on its de novo strategy with the opening of two hospice locations in Q1 2024. Additionally, EHAB is targeting ten more de novo locations for the remainder of 2024.
Key Financial Figures
M&A Activity
EHAB did not provide any updates on its M&A efforts.
Guidance
Enhabit maintained the 2024 full year guidance provided in the last earnings call of:
Net service revenue of $1.076B – $1.102B
Adj. EBITDA of $98M – $110M (or an 8.8% – 10.2% margin)
BrightSpring Health Services, Inc. (NASDAQ: BTSG)
Highlights
Revenue in Q1 2024 was $2.6B, a 27% increase over Q1 2023 and exceeded expectations.
Pharmacy Solutions accounted for $2B of the total revenue and increased 35% over Q1 2023.
Growth in this segment was further broken into the infusion and specialty business ($1.5B), which grew 44% YoY in the quarter, and the home and community-based pharmacy business ($511M), which grew 15% YoY in the quarter.
Provider Services accounted for $600M of the total revenue and increased 7% over Q1 2023.
Growth was driven by “strong home health care performance as well as continued strength in our rehab business” mentioned Jon Rousseau, President and CEO.
Adj. EBITDA of $130.5M in Q1 2024 represented a 13.2% growth over Q1 2023.
Pharmacy Solutions: Adj. EBITDA in Q1 2024 grew 7% YoY for Q1 2024.
Provider Services: Adj. EBITDA in Q1 2024 grew 25% over Q1 2023 due to cost efficiencies, economies of scale, operational quality, and volume and revenue growth.
From a quality standpoint, BrightSpring highlighted the following for each operating segment:
Pharmacy Solutions: Net promoter scores greater than 90 in infusion and specialty, patient satisfaction scores of 95% in the infusion business, and Continue CareRX demonstrated a 73% reduction in hospitalizations when utilized together with home health.
Provider Services: The home-based primary care team demonstrated an 84% reduction in readmission for IDD patients and seniors and dual patients experienced ~50% less hospitalization than the national average for similar patients. The rehab business received a 99% customer satisfaction score. The personal care business had a customer satisfaction score of 4.4 out of 5. The hospice business was rated in the country’s top 5% of all hospice providers.
Key Financial Figures
M&A Activity
BTSG referenced two transactions in the prior earnings call. One closed in 12/31/2023 and the second one has not closed yet.
Looking into Q2, Rousseau, CEO and President, said that the “M&A pipeline remains active” and that “we’ll have a few smaller deals that will close in Q2.”
Guidance
BTSG increased 2024 guidance provided in the previous earnings call:
Revenue: Original guidance $9.35B – $9.5B compared to the revised guidance of $10.3 – $1.08B.
Adj. EBITDA: Original guidance $550M – $564M and the revised guidance is $555M – $570M.
Option Care Health, Inc. (NASDAQ: OPCH)
Highlights
Patient satisfaction for Q1 2024 was 93%, and the Net Promoter Score was 76.2.
On 3/14/2024, OPCH disclosed the potential impact from a Change Healthcare cybersecurity incident that occurred in late February. The incident meant teams had to find workarounds to continue operating, which has resulted in certain inefficiencies and incremental costs. However, at the time of the earnings call (4/23/2024), OPCH has been able to return to the traditional ways of doing business for the most part.
The most significant impact on the financials from the cybersecurity attack was the inability to submit claims to payors (from the date of the attack to the end of Q1 2024, OPCH was unable to submit more than half of their claims). This has resulted in a detrimental impact on cash flow for the quarter, but the effect will be temporary, and OPCH has not changed 2024’s guidance on CF.
Gross profit increased ~$10M, but the margin decreased by 2.7% in Q1 2024 compared to Q1 2023 due to three reasons: 1) inefficiencies related to the Change Healthcare cybersecurity incident, 2) supply chain disruptions for certain acute drugs compounding inputs that led to higher-than-expected therapy costs, and 3) revenue mix as a significant component of chronic therapy revenue growth was driven by newer therapies that carry lower initial gross margins that OPCH believes can expand upward over time.
Key Financial Figures
M&A Activity
Due to the impact to cash flow from the Change Healthcare, particularly from the inability to submit claims, “preservation of liquidity or preservation of capital was an important aspect” when it comes to capital allocation decisions, mentioned” John Rademacher, President & CEO.
Additionally, Rademacher commented “the ability for us to think about capital deployment as we had before, as we get through the disruption will be something that we'll continue to put in the mind space that Mike and I are spending time and looking at where the opportunities sit and where opportunities may exist to drive strategic and economic value for our shareholders.”
Mike Shapiro, CFO, added “as we go forward, I think we go back to our capital allocation policy which we've been consistent with which is we think that there are a number of M&A opportunities… there are some opportunities that are being shaken out of the tree”.
Guidance
OPCH revised the lower range of their 2024 guidance:
Revenue: Original guidance of $4.6B – $4.8B, and the revised guidance is $4.65B – $4.8B.
Adj. EBITDA: Original guidance of $425M – $450M compared to the revised of $430M – $450M.
CFO guidance for the full year remained the same at $300M.
Comentarios