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 continues to show strong fundamentals as observed in the trend graphs below for revenue, gross profit, and operating income. Despite this, their stock price took a 28% tumble due to risks from CMS’s Proposed Medicaid Access Rule. The stock has since recovered 8% of the original price.
Proposed Medicaid Access Rule update: Addus and multiple other stakeholders, including various trade associates and states, submitted over 2,000 comments to CMS expressing serious concerns with the proposed rule requiring 80% of reimbursement to be spent on compensation for direct care workers. There is no set date for when the final rule will be issued.
Revenue ($260M) and EBITDA ($28.3M) increased 9.7% and 12.7%, respectively, over Q2 2022.
New candidate management and tracking system is now fully implemented and has shortened the time between application and hire by approximately 10 days.
Hospice same store revenue was flat over Q2 2022, when removing the effects of sequestration.
Home health same store revenue decreased 10.9% over the same quarter 2022 as a result of a reduction in admissions from payors that do not currently reimburse adequate rates to cover costs.
Key Financial Figures
M&A Activity
Despite the reimbursement headwinds, Addus remains optimistic with their acquisition's strategy:
“We believe these reimbursement pressures are lot likely to moderate over the next few years, and as such, we will continue to look for acquisition opportunities that are strategic to our overall growth” – Dirk Allison, Chairman and CEO.
Closed the acquisition of Tennessee Quality Care, a provider pf home health, hospice, and private duty nursing services for approximately 1,800 patients through 17 locations covering a service area of over 50 counties in TN.
The net leverage position of less than 1x adjusted EBITDA gives Addus the financial flexibility to capitalize on anticipated additional transactions that will come to the market over the next two quarters.
Guidance
Expects a slight gross profit margin improvement into Q3 and Q4 as a result of the Tennessee Quality Care as it is a medical care business.
Aveanna Healthcare (Nasdaq: AVAH)
Highlights
As demand for home and community-based care has never been higher, the labor environment continues to be the primary challenge that Aveanna is aggressively addressing in 2023. Despite the challenges, the company made positive updates to 2023’s guidance as they remain optimistic with their progress:
“We are encouraged by our 2023 rate increases and subsequent recruiting results and believe our business can rebound quickly, as we achieve our rate goals previously discussed” – Jeff Shaner, CEO
Revenue was up 6.5% and adjusted EBITDA was down 3.2%, respectively, when compared to Q2 2022. The decreased adjusted EBITDA was due to costs associated with the current labor environment.
Year-to-date 2023, Aveanna has secured rate increases in 17 states. This represents approximately 50% of their PDS footprint and includes double-digit rate increases in six key states. The majority of the rate increases are effective in Q3 and Q4 of 2023.
Aveanna increased preferred payer volumes to 16% from 13% in Q1 2023 – 2023 goal of 20%.
As highlighted by Jeff Shaner, CEO, Aveana’s value proposition is straightforward:
“Preferred payers reimburse us a fair rate, and we pay market competitive wage rates, while also earning value-based payments for achieving positive clinical outcome sand improved staff hours.”
Key Financial Figures
M&A Activity
Aveanna has made no acquisitions during 2023 and this will likely remain the case through the end of the year given their net debt to TTM EBITDA July 2023 leverage ratio of 16.0x.
Guidance
Based on the strength in performance in the first half of 2023 and the rate increases effective for the second half of the year, Aveanna raised its 2023 revenue guidance to $1.85-$1.86B and adjusted EBITDA to $132-$135M.
Expected to further update guidance if the positive trends observed in the second quarter continue along with additional rate increases.
25-26% of full year guided adjusted EBITDA to be recognized in the third quarter and then further ramp into Q4 2023 as Aveanna realizes benefits from the cost savings initiatives.
The Pennant Group, Inc. (Nasdaq: PNTG)
Highlights
Pennant’s steady top-line growth continues as the company remains locked in on the five key focus areas highlighted in Q1 2023: leadership development, top- and bottom-line growth, clinical excellence, and employee experience.
Revenue and adjusted EBITDA of increased 13.7% and 32.3%, respectively, over Q2 2022
The senior living segment has had a huge turnaround – revenue increased 20.3% over Q2 2022 and 5.3% over Q1 2023, and adjusted EBITDA increased 277.4% over Q2 2022 and 58.5% over Q1 2023.
Home health and hospice segment grew revenue 11.3% over Q2 2022 and 4.4% over Q1 2023 and increased adjusted EBITDA 9.2% over Q1 2023.
Hospice growth over Q2 2022 – 18.3% revenue, 9.6% admissions, and 9.1% in ADC.
Home health growth over Q2 2022 – 5.4% revenue and 3.6% admissions.
Pennant credits its solid quarter to success in their leadership development area of focus:
“Our local leaders and dedicated resource partners continue to push on ever facet of the business, which is showing in the financial results” – John Gochnour, President and COO.
Key Financial Figures
M&A Activity
Acquisitions play an essential part within Pennant’s growth strategy:
“With the growth of our leadership bench and a robust pipeline of attractive acquisitions, we are poised to unlock the potential of our future leaders through our disciplined growth strategy” – Brent Guerisoli, CEO.
In May, acquired Benefit Home Health Care and Benefit By Your Side, a home health and home care agency in Colorado Springs, Colorado.
In June, acquired Bluebird Health, a home health, hospice, and home care provider in Boise, Idaho.
At quarter end, Pennant had $60.5M in their revolving line of credit and $2.8M in cash on hand.
Has a 1.57x net debt to adjusted EBITDA leverage ratio.
With plenty of dry powder available through cash generated from operations and a revolver, Pennant will continue to stay active within the mergers and acquisitions scene.
Guidance
Targeting adjusted EBITDA margins of 18% and 15% for the home health and hospice segment and the senior living segment, respectively.
On track with 2023 guidance.
Enhabit Home Health & Hospice (Nasdaq: EHAB)
Highlights
Due to underperformance and perhaps by a pressing letter from the hedge fund AREX Capital Management (which owns 4.7% of the common shares outstanding), Enhabit has officially begun a review of strategic alternatives. Ultimately, the review could lead to a sale, merger, other strategic transaction, or no action.
Enhabit’s strategic initiatives have not been fast enough in 2023 to meet initial guidance. A faster-thananticipated shift from Medicare fee-for-service to Medicare Advantage has hindered Enhabit’s progress.
Barb Jacobsmeyer, CEO highlighted: “Last summer, CMS data pointed to 50% of Medicare eligibles enrolling in a Medicare Advantage plan by 2030. We reached the 50% mark in January 2023.
Revenue of $262.3M and adjusted EBITDA of $23.9M were down 2.1% and 40.7% from Q2 2022.
Non-episodic visits grew to 31% of total home health visits. This represents an approximate 8% increase year-over-year and a 2% sequential increase over Q1 2023. Every 50 basis points decrease in Medicare fee-for-service volume negatively impacts adjusted EBITDA by approximately $2 million annually or 8.4% of its Q2 2023 adjusted EBITDA.
Enhabit’s payer innovation team, established last summer and responsible for negotiating better Medicare Advantage contracts, has established a total of 37 new contracts, including 10 new regional agreements in Q2 2023
A record-breaking, quarterly net new full-time nursing hires of 203 will enable Enhabit to eliminate substantially all contract labor by the end of Q3 2023, which will reduce costs.
Key Financial Figures
M&A Activity
As of end of Q2 2023, Enhabit had approximately $90M in liquidity, including $34M of cash on hand.
Net leverage of 4.75x EBITDA – under the 5.25x required by their renegotiated leverage covenant for 2023.
Guidance
Guidance is most sensitive to episodic admissions, the transition of non-episodic admissions to new national and regional payer contracts, and clinical productivity in hospice.
Generated approximately $39M in free cash flow during the first half of 2023 and expect to generate between $49 - $69M of adjusted free cash flow for 2023.
2023 Home health cost per visit now expected to increase 1-3% over 2022 rather than the 4-5% provided within initial projections.
Amedisys (Nasdaq: AMED)
Highlights
Due to the pending merger between Amedisys and UnitedHealth Group Incorporated, Amedisys did not have a quarterly earnings call to discuss Q2 2023 performance and did not provide guidance on 2023 financial performance.
As a result of the pending merger, which will give Amedisys’ shareholders $101 in cash in exchange for each share of common stock, the stock price has been hovering around low the $90s. This price behavior is typical in this scenario as there is still risk tied to the completion of the merger, such as antitrust scrutiny or potential due diligence issues.
Revenue decreased 0.9% to $553M when compared to Q2 2022, although this is due to the divestiture of its personal care segment to HouseWorks. Revenue increased 2.2% over Q1 2023 when muting the effect of the divestiture of personal care.
Home health growth compared to Q2 2022: revenue 2% and admissions 2.4%
Hospice compared to Q2 2022: revenue 3.1%, admissions -7.2%, ADC -2.4%, and revenue per day 3.0%.
High acuity care compared to Q2 2022: revenue 48.15%, admissions 54.78%, full risk revenue per episode -17.51%, and limited risk revenue per episode 14.71%.
Adjusted EBITDA was flat at $74.6M when compared to $74.4M in Q2 2022.
Key Financial Figures
M&A Activity
Pending merger between Amedisys and UnitedHealth Group Incorporated.
Guidance
No guidance provided due to the pending merger.
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