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
Through Q4 2023, ADUS continued to showcase a strong performance regarding its fundamentals.
In Q4 2023, revenue increased 11.9% compared to Q4 2022. This increase resulted from growth in the three service lines: home health, hospice, and personal care.
During the same period, adj. EBITDA was $34.3M, which increased 21.3% over Q4 2022, and adj. EBITDA margin was 12.4%, compared to 8.5% in Q4 2022. Increased adj. EBITDA margins resulted from increased gross profit margins due to a lower implicit price concession requirement in Q4 2023. This is expected to revert in Q1 2024, normalizing gross profit margin to ~31.5%.
Medicaid Access Proposed Rule: the final rule was sent to the Office of Management and Budget on Jan. 26. The final rule is expected to be published this month (Apr. 24’), and it is unknown whether the rule will contain the 80% requirement, a different percentage requirement, or ultimately be implemented.
Key Financial Figures
M&A Activity
While discussing their cash availability, comprised of their current cash balance of $65M and $335M from their credit facility, Dirk Allison, Chairman and CEO, mentioned:
“It remains our primary focus to use our financial capacity to acquire strategic operations that align with our overall growth strategy of offering all three levels of home-based care in our personal care markets”
Per Allison, this will include opportunities within current states and new states:
“We are currently looking for opportunities which would give us a larger presence in several of our current states. We are also looking for opportunities where we can enter new states in a material way”
Brian Poff, CFO, provided additional context relating to their acquisition appetite and underwriting.
“We will continue to selectively pursue strategic acquisitions in 2024 dependent on market conditions. At the same time, we will also continue to diligently manage our net leverage ratio, which is currently well under one times net of cash on hand."
Guidance
During Q1 2024, ADUS began to use their new “value-based care management system”, which the company expects will increase their value-based programs' scale and efficiency.
Aveanna Healthcare (Nasdaq: AVAH)
Highlights
During Q4 2023, AVAH had a relatively flat quarter compared to Q3 2023. However, when compared to Q4 2022, revenue and adj. EBITDA in Q4 2023 increased 6% and 7.6%, respectively.
Gross profit margin for Q4 2023 was 27%, an 8.8% increase over Q4 2022 despite the tight labor market and wage inflation. Higher reimbursement rates from new preferred payor agreements mostly drove this.
AVAH achieved its goal of doubling its PDS preferred payors from 7 to 14 during 2023. The company finalized this during the last quarter of 2023 with the addition of two new preferred payor agreements.
Increasing the number of preferred payors will continue to be a focal point of AVAH’s efforts during 2024, prioritizing programs in California and Texas.
Regarding home health, AVAH accomplished their 2023 objective of improving their episodic payor mix from approximately 60% to 70%. This was done through eight new episodic agreements in 2023, which took the episodic payor mix to 74% in Q4 2023.
Key Financial Figures
M&A Activity
The company made no comments on potential acquisitions. This is likely due to their high focus on organic growth, internal strategic initiatives, and their current balance sheet state.
Guidance
2024 is year two of AVAH’s proposed strategic transformation and the company will remain “focused on the initiatives that created positive momentum in 2023”, Jeff Shaner, CEO. There are:
1) Enhancing partnerships with government and preferred payors to create additional caregiver capacity.
2) Identifying cost efficiencies and synergies that allow AVAH to leverage their growth.
3) Managing the capital structure and cash collections while producing free cash flow.
4) Engaging the company’s leaders and employees in delivering the Aveanna mission.
2024 full-year projections:
Revenue: $1.96 - $1.98B
Adj. EBITDA: $146 - $150M, or 7.36 - 7.65% adj. EBITDA margin depending on revenue.
20% of the full year adj. EBITDA will be recognized in 2024, which means adj. EBITDA is expected to ramp up throughout 2024 as reimbursement rate and caregiver hires increase.
The Pennant Group, Inc. (Nasdaq: PNTG)
Highlights
PNTG increased revenue by 17.1% in Q4 2023 when compared to Q4 2022. However, EBITDA only increased by 1.1% due to a slight gross profit and EBITDA margin erosion.
Overall, PNTG had a successful 2023 , which was a result of executing its five key areas: leadership development, clinical excellence, employee experience, margin improvement, and growth.
Hospice ADC and admissions, increased by 17.9% and 13.1%, respectively, over Q4 2022.
Total home health admissions increased 12.8%, and Medicare home health admissions rose 5.6% over Q4 2022. In addition, higher negotiated reimbursement rates for managed care enabled an 11.3% increase in visits, resulting in a 13.4% increase in revenue.
The senior living segment reached a post-pandemic high of 79%, and average monthly revenue per occupied room rose to $4,093 in Q4 2023, an increase of $423 over Q4 2022.
Key Financial Figures
M&A Activity
John Gochnour, CEO, provided context around PNTG’s continued acquisition strategy:
“We remain focused on our disciplined strategy of acquiring operations at attractive valuations in locations where we have strong peer operating clusters and talented leaders ready to drive results.”
PNTG doesn’t shy away from underperforming assets, as it often acquires underperforming operations to turn them around and provide long-term growth.
During Q4 2023, PNTG acquired Southwestern Palliative Care and Hospice, based in Yuma AZ. This acquisition continues the company’s strategy to serve residents of rural communities in the states where it operates.
On Jan. 1, 2024, the company established a new home health joint venture with John Muir Health, a leading integrated health system in Northern California, where a local tenant-affiliated operating subsidiary will manage and have majority ownership of a new home health agency that will serve the East Bay area.
Guidance
2024 full year projections:
Revenue: $596.8 - $633.7M
Adjusted Earnings Per Share: $0.82 - $0.91
Guidance is based on “compelling momentum in both operating segments, the readiness of local leaders to drive organic and inorganic growth, and the latent potential that remains in our existing operations.
Enhabit Home Health & Hospice (Nasdaq: EHAB)
Highlights
Revenue and gross profit were $260.6 and $127.1 in Q4 2023; this represents a slight decrease of 1% and 2%, respectively, when compared to Q4 2022.
Operating expenses increased ~$10M, a 9.6% increase, over Q4 2022. This led to a decrease in operating income and EBITDA of 71% and 50% compared to Q4 2022.
Barb Jacobsmeyer, CEO, highlighted the company’s 30-day hospital readmission rate, which is 20.5% better than the national average and provides negotiating leverage with value-based payers.
After a rough year, which was mainly caused by a steeper than expected and than the industry average decline in Traditional Medicare revenue, EHAB expects 2024’s decline to be at a rate consistent with the industry average.
To combat the shifting home health payor mix, EHAB’s payor innovation team negotiated an
additional 11 new agreements with Medicare Advantage payors during Q4 2023. Eight of the 11 new agreements are under an episodic reimbursement model.
The new agreements in Q4 2023 bring the total to 59 since the inception of the payor innovation team in summer 2022.
Approximately 25% of non-episodic visits in Q4 2023 were visits under new payer innovation contracts.
With regards to hospice, EHAB reallocated hospice resources to form centralized admission departments that will increase efficiency in the referral-to-admission process with the ultimate goal of responding faster to referral sources.
Relating to the strategic assessment underway, EHAB commented that it is in the later stages. However, no developments will be disclosed unless and until they determine further disclosure is appropriate and necessary.
Key Financial Figures
M&A Activity
EHAB did not comment on any acquisitions, this is likely to continue until the board’s strategic assessment is finalized.
Guidance
2024 full year projections:
Revenue: $1.076 - $1.102B
Adjusted EBITDA: $98 - $110M
BrightSpring Health Services, Inc. (NASDAQ: BTSG)
Highlights
Q4 2023 marked the first earnings call for the newest public company in the space.
BTSG is centered on servicing complex patients, which constitute 5% of the population, but 50% of the spending in U.S. healthcare. The company’s care model, which services approximately 400K patients daily, includes three key pillars: pharmacy services, provider services, and home-based primary care.
BrightSpring’s strategy includes three areas:
1) Drive organic growth in the core service lines
2) Further coordinate services and care management capabilities to drive integrated care and value-based care.
3) Continue to execute accretive acquisitions to fill in geographies and drive market density and share.
For Q4 2023, BTSG reported revenue growth of 19% and adj. EBITDA growth of 13% when compared to Q4 2022.
Key Financial Figures
M&A Activity
BrightSpring’s strategy, as mentioned in point #3 in the Highlights section, includes acquisitions. This was highlighted by Jim Mattingly, CFO who said:
“ ...while we continue to execute on our growth strategy including funding attractive and tuck-in acquisitions.”
With regards to BTSG’s acquisition pipeline, Jon Rousseau, CEO mentioned:
“Our acquisitions pipeline has been as large as ever, as attractive as ever… Our pipeline has 100 potential deals in it at any point in time. We’re very measured and deliberate about the deals we do.”
Rousseau also commented on historical acquisitions:
“Our average pro forma multiple on acquisitions is 4x EBITDA."
About upcoming M&A activity, Rousseau said:
“We have several deals that we would expect to close in the March, April timeframe. Two in particular are going to be bread and butter, just small tuck in deals and geographies, actually it’s sub 3x EBITDA.”
Guidance
2024 full year projections (excluding acquisitions):
Revenue: $9.35 - $9.5B
Adjusted EBITDA: $550 - $564M
Option Care Health, Inc. (NASDAQ: OPCH)
Highlights
In 2023, OPCH reported revenue of $4.3B and adj. EBITDA of $425M, represents a 9.1% and a 24% increase over 2022, respectively.
Additionally, Option Care expanded its network to 164 infusion suites and +660 chairs nationwide.
As a result of a healthy balance sheet, including a strong liquidity position, S&P and Moody’s upgraded the company’s credit profile to their highest ratings yet.
For 2023, the company generated ~$370M of cash flow, which includes ~$85M from the Amedisys transaction termination fee net of related expenses.
For Q4 2023, OPCH had revenue of $1.124B and EBITDA of $100.3M; this is an increase of 9.5% and 19.5% over Q4 2022, respectively.
With regards to any potential changing behaviors from payors that own infusion companies (such as CVS, Aetna, United, etc.) OPCH relies on its ability to provide a valuable and high-quality service nationwide.
Key Financial Figures
M&A Activity
With regards to potential acquisitions, John Rademacher, President & CEO, highlighted their approach:
“We are continuing to do a lot of work to understand those (M&A) market dynamics and what’s in the pipeline for consideration as we move forward… I think one of the biggest things is being very disciplined in the approach we take.”
With regards to capital allocation, Rademacher said:
“We exhausted the $250M of the original share repurchase authorization. We have an additional authorization of $250M. We will continue to balance that priority of making certain that we’re doing everything we can to maximize shareholder value and whether that’s through deployment for M&A or whether it’s through continued share repurchase as well as from our investments into our business as part of our normal flow of CapEx."
Guidance
2024 full year projections:
Revenue: $4.6 – 4.8B
Adjusted EBITDA: $425 - $450M
Cash flow from operations: $300M
Revenue mix for 2024:
Acute category growth in the low single digits
Chronic therapies growth in the low double digits.
Option Care forecasts continued yearly revenue growth of high-single-digits.
With regards to broader market growth, OPCH sees the infusion therapy industry growing 5-7% per year.