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Healthcare - Medical - Care Facilities - NASDAQ - US
$ 111.86
1.35 %
$ 2.06 B
Market Cap
25.31
P/E
EARNINGS CALL TRANSCRIPT
EARNINGS CALL TRANSCRIPT 2015 - Q3
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Scott Brittain

Good morning and welcome to this Addus HomeCare Corporation Conference Call. Today’s call is being recorded. This presentation will contain forward-looking statements within the meanings of Private Securities Laws.

Statements regarding future events and developments, the company’s future performance, as well as management’s expectations, beliefs, intentions, plans, estimates or projections relating to the future are forward-looking statements within the meaning of these laws.

These forward-looking statements are subject to a number of risks and uncertainties, including factors outlined from time to time in the company’s most recent Form 10-K or Form 10-Q, earnings announcement or other reports filed with the Securities and Exchange Commission and available at the SEC’s website.

The company undertakes no obligation to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise. I would now like to turn the call over to the company’s Chief Executive Officer, Mr. Mark Heaney. Please go ahead, sir..

Mark Heaney

Thank you, Scott. Good morning everyone and thank you very much for joining us on this call. I’m joined today by Don Klink, our Chief Financial Officer. I have some brief comments to make about our release yesterday evening and then we’ll take your questions.

I want to make clear that that the subject in purpose of this call is to discuss the information in our pre-release from last night. As a pre-release, you will understand that we still have to complete our normal process for generating our quarter numbers, but we are quite confident this is where we are coming out.

So we’d ask that questions regarding other issues be held until our regular third quarter conference call to be held on November 3rd. We are disappointed to announce these expected earnings for the third quarter, but we wanted to get this news to you as soon as we are able to announce our expectations with necessary certainty.

Before going into any detail, let me emphasize that there is nothing in our results this quarter that causes us to doubt our business fundamentals, our growth strategies or our strong market position.

We have some immediate execution issues that we are addressing, but we remain confident in our capabilities, our growth opportunities both in the near and long-term. As our release stated, we expect third quarter net income per diluted share to be in the range of $0.25 to $0.26 compared with $0.29 for the third quarter last year.

This range includes $0.01 in costs from sites we exited in Q3 as announced in our second quarter call; the range also includes a positive Worker Opportunity Tax Credit impact of $0.02.

This performance was driven by slower growth in revenues than we’ve expected and rising D&A costs, which were somewhat offset by 120 basis-point improvement in our gross profit margin to 27.9%. Our revenues increased 3.2% for the quarter and same-store sales increased 0.2%.

Keep in mind that the exited sites generated 2.8 million more in same-store revenue in the third quarter last year than they did in the third quarter of this year. Our revenue growth reflected the slow pace of the transition of state’s dual eligible populations to MCO.

Although we believe that the long-term trend toward managed care is unchanged and as strong as ever. We are encouraged that revenues for our Illinois business, our largest market, grew on both a year-over-year and sequential quarter basis and slightly exceeded our expectations.

Our Tennessee and Ohio acquisitions continue to perform well, although at revenue levels lower than we had hoped. It is important to note that these acquisitions remain accretive to our results and integral to our strategy to position Addus as the homecare provider of choice for managed care.

Third quarter revenues were also affected by underperformance at some other locations, although there were no meaningful concentrations. We are working with each of our underperforming locations to implement steps that will improve their future performance.

Turning to costs, our increased G&A expense for the quarter was due to the costs of our HRIS implementation and increased SOX compliance in addition to some other expense categories. As we mentioned in our second quarter call, we expect our HRIS system to provide us a platform for future growth while increasing efficiency and accuracy.

The higher HRIS costs for the third quarter again related primarily to increasing the functionality of the system and providing us with key operating tools. We believe our HRIS spending has peaked and we’re focused on reducing other G&A expenses.

We did not meet our objectives in this quarter and we are focused on the areas that have negatively impacted our performance. That said, this team is as positive and committed as ever to what we do, our plan for doing more of it right way. Again, I want to thank you for being with us this morning.

Now, Abigail, would you please open the floor for any questions..

Operator

[Operator Instructions] And our first question comes from the line of Dana Hambly with Stephens. Your line is open..

Dana Hambly

Good morning, thank you.

Mark, just on Tennessee and Ohio, just on the revenue becoming in lower than expectations ,could you just provide a little more color on what’s going on there and how you plan to rectify that?.

Mark Heaney

We acquired these two small businesses. They’re good business; they give us state-wide coverage in the states which are important, because these are managed care states.

The businesses that we acquired, they have characteristics and in one case one may have been flat, one may have actually been trending slightly down on a census basis, not grossly but just trending down. You look at -- what we wanted to do is stabilize any decline. And then we said we can grow this business at a particular rate.

We have not increased revenue in at least two of those acquisitions at the rate at which we expected. They remain utterly accretive, undoubtedly accretive but not to the level, Dana -- the growth is not at the level we wanted; we will get it there. We’ve done it before..

Dana Hambly

With acquisitions being pretty integral to the story, now I just want to make sure that going forward that you feel pretty confident in your ability to integrate these acquisitions; certainly there is a big one pending in New York.

Can you just give us -- tell us why you are confident that -- or that you are confident that you’d be able to integrate more effectively going forward?.

Mark Heaney

Yes, let me address integration first. Ultimately we do integrate these businesses. The bigger issue is in these two cases, is that we didn’t get them to grow at the rate that we expected. It wasn’t in those two cases an integration issue..

Dana Hambly

Okay..

Mark Heaney

Now, let me also say if I’m not -- I’ve been here a while. We’ve done a lot of personal care acquisitions, I’m not aware of one that we have done that wasn’t accretive, that wasn’t and isn’t accretive. I’m aware of not very many that didn’t come in ultimately at about the projected multiple.

Now, the integration, we have a big business coming in, in New York; and by the way it’s doing real well without us, thank you..

Dana Hambly

Okay..

Mark Heaney

The COO here, has hired an integration frankly expert to not only manage the integration of the New York business but to complete the integration of our -- any of our -- the three more recent acquisitions and to handle those that we will be doing; and we will be doing more acquisitions..

Dana Hambly

And then last one for me on the HRIS spending, it’s peaked some of the other G&A costs and just trying to think now going forward, is that something that probably persists through the end of the year and we see that taper down starting next year; is that something you’ve taken immediate action?.

Mark Heaney

I’m going to ask Don to answer that..

Don Klink

We have taken some action already on that and what I mean action in some regard is some of the work just finished, so that will not continue in Q4. And we are going to take additional steps in Q4 to reduce some of our G&A spending..

Operator

Thank you. Our next question comes from the line Mitra Ramgopal with Sidoti. Your line is open..

Mitra Ramgopal

I know on those margin you indicated you certainly benefited from the positive impact of the improve workers’ comp and I was wondering if you had a sense to how much it might help, margins or is it too early?.

Don Klink

No. Mitra, this is Don Klink again. It helped quite a bit; it was really the majority of the increase in gross profit percentage from year-on-year was due to workers’ comp. We continue to manage that.

And while we are not sure that we’ll always get that increment, we do -- we will stay active in managing that to make sure that we keep that at a good level..

Mark Heaney

Mitra, I’d like to -- this is Mark, I want to add a comment to that, talked about this yesterday and I wanted to -- pointed this out to the team and I want them to hear it. Yes, the gross profit has improved; that’s great; that’s true. There are factors influencing it that I think the investors need to understand and frankly will appreciate.

Workers’ comp to this quarter helped us, that’s great. By the by the reason that workers’ comp helped us this quarter is because for the past three years, we have been actively managing and 10 years frankly but to affect this quarter, you got to affect workers’ comp three years ago and have a compound.

An important part of managing our -- making our business successful is in the last such [ph] the area of managing and holding costs and direct cost of sales.

And one of the reasons our gross profit can improve is because we are really good at watching and holding the line on the most expensive cost category which is all cost related to delivering direct care.

Another influence is growth, because as we grow, we give new work to employees, God love them, who come on to us at the lower end of the pay rate and we hope they stay with us for as long time until they’re earning at the highest wage category.

These influence our gross margin better than any other specific thing that might happen quarter-to-quarter..

Mitra Ramgopal

I just wanted to quickly follow-up on early questions on the acquisitions and sluggish revenue you saw there. I know you mentioned also that the ongoing slow pace of transition by states also impacted revenue.

I was just trying to get a sense when you look at the acquisition to some of the other locations, how much of that would you say is really specific to the business itself versus maybe the transition?.

Mark Heaney

Okay. Mitra, I want you ask me that again because I want to make sure answer that question correctly..

Mitra Ramgopal

Right. Trying to get a sense regarding -- I guess, if you look at the revenue, two things affected it; I think you mentioned acquisitions and other locations that were underperforming.

I was trying to get a sense if the underperformance there was really tied largely to the slow transition you’re seeing in terms of the dual eligible and managed care?.

Mark Heaney

If I don’t answer this satisfactorily, come back at me. There are two influences on revenue generation; one is the transition to managed care. These things are -- we’ve been using the word lumpy -- I don’t even know if that means. So, we’ve been using the word lumpy, I guess that makes sense to people.

It is -- what’s occurring is that the same state systems for referral historically have we’ve been working with and have caused the consistent growth record at this company. That same infrastructure is being used to transition those states to managed care. So the case manager is managing a patient under the old system that duties there.

And by the way now they have to revisit the client and do paperwork to get them over into the managed care system. These things have a slowing effect on referral. So, there is -- the transition to managed care has an impact on the historical flow of patients through the system. The second part of -- however I want to make one other point.

The transition to managed care is important to us in the long-term because as we told you and our investors we have every evidence this is true.

Managed care is taking over this population; managed care is not going to do business with 20,000 HomeCare companies and they’re going to do business with a larger more sophisticated, data driven, tech driven, outcomes oriented and ultimately risks taking organizations and that is how we are positioning ourselves.

There is a lumpiness in this transition but we celebrate that the transition is occurring at all and we believe it’s going to continue. The second part of our growth problem is -- occurring in this quarter is basic organic growth. Nock on the door and ask somebody to give us the case, which still makes up 80% of our business.

Chief Operating Officer, Darby Anderson been here a while. We haven’t taken our foot off the gas. We’re going to do a better job, more intense, we brought somebody to help us with organic growth, we’re not taking foot off the gas, and we’re going to continue to win at organic growth. We’re not making any excuses. Those are the two influencing factors..

Mitra Ramgopal

No doubt that was exactly I was looking for.

Finally, I don’t know how much you can say on this, but I was wondering, outside of Illinois which obviously met your expectations, were there any other markets in particular that might have done the same for you?.

Mark Heaney

Yes, several. We celebrate those offices all the time. Let me just tell you about -- and then don’t follow-up, because I’m not going to answer any more specific questions about specific sites, but I’ll tell you something. We love our New Mexico business. We’re going to make New Mexico employee of the month.

We love some of the stuff we’re doing and we have lots of Illinois offices. And Illinois is challenged; Illinois is Illinois. Boy, we’ve got some offices that don’t know that Illinois is challenged. I’m going to go COO and going to go down and celebrate in office, who was is in office who just hit a big benchmark for them.

We love the acquisitions that we’re looking at; we love how we’re being received and perceived by managed care. We’ve got a lot of offices that are doing really well. And by the way we have more offices doing well than offices that aren’t. And we track real closely; we track that very, very closely..

Operator

I’m showing no further question. I’d like to turn the call back to Mark Heaney for closing remarks..

A - Mark Heaney

Folks, thank you very much. We are going to be talking again on Tuesday, morning November 3rd, and we look forward to speaking with you then about a more comprehensive look at the Q. Thanks for doing this call this morning. Thank you all very much..

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. You may all disconnect. Everyone have a great day..

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