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.
Amedisys (Nasdaq: AMED)
Highlights
Amedisys is merging with Option Care Health (Nasdaq: OPCH) in an all-stock deal. The transaction values AMED at $3.6B and AMED stockholders will receive 3.0213 shares of OPCH for each share of AMED. That’s equal to $97.38 per AMED share based on OPCH’s 5/2 closing price.
Optum has recently made an unsolicited proposal to acquire all of the outstanding shares of Amedisys’ common stock in an all-cash transaction for $100 per share.
EBITDA declined when comparing Q1 2023 to Q1 2022 due to the return of sequestration (-$9M) and the shift in Home Health volumes from episodic to per-visit payors:
Q1 2022: Medicare FFS = 66.8% of total Home Health revenue
Q1 2023: Medicare FFS = 62.7% of total Home Health revenue
Amedisys will leverage their proven high-quality ratings to work with per-visit payors to increase reimbursement rates.
Contessa’s slower-than-projected growth is expected to drag down EBITDA by $30M for FY 2023 (same amount as in FY 2022).
Key Financial Figures
M&A Activity
Amedisys completed the divestiture of their Personal Care business effective 3/31/2023 (sold to HouseWorks for $50M)
Acquired Capital Health Care Network in West Virginia. Mertz Taggart provided exclusive M&A advisory services in this transaction, representing the seller.
The company has a total liquidity of 588.3M, composed by 519.2 available revolver and 69.1 cash on hand.
Guidance (FY 2023)
Addus HomeCare (Nasdaq: ADUS) Highlights
While agreeing with the goal of broadening coverage, Addus HomeCare questioned CMS’s proposed rule requiring that a minimum of 80% of Medicaid payments for personal care and similar services be spent on compensation to direct care workers.
Strong cash flow and conservative balance sheet management put Addus in a net leverage position of less than 1x adjusted EBITDA.
New candidate management tracking system will allow Addus to better engage with potential employees, shortening the time between application and hire, and will be fully implemented by mid-2023.
American Rescue Plan Act (ARPA) funds received has enabled Addus to offer sign-on and retention bonuses. To date, the company has received ~$25M, of which $11.7M remains to be spent over the next 12 months.
Illinois (largest state of operations for Addus) reimbursement rate increased by $1.26/hr. bringing the rate to $26.92 – effective on April 1, 2023.
Key Financial Figures
M&A Activity
As a result of the uncertainty caused by CMS’s proposed rule, Addus will halt acquisitions for personal care services. However, Addus believes that the personal care services market will be ripe for consolidation once there is clarity surrounding the proposed rule.
Addus will continue to pursue acquisitions of home health agencies despite the pending issue related to the payment rates and potential clawback.
The company closed Q1 2023 with $73.5M in cash and $670.8M available under their revolver.
Guidance
Dirk Allison, Chairman and CEO: “In addition to organic growth, we will continue to assess acquisition opportunities in 2023 that align with our overall growth strategy. Importantly, we are well-capitalized to continue delivering value to our shareholders. We are pleased with the operating trends in our business and remain optimistic about our prospects for continued growth in the year ahead.”
Enhabit Home Health & Hospice (Nasdaq: EHAB)
Highlights
Enhabit Home Health & Hospice executed an agreement with a national payor(undisclosed) that became effective May 1 and two agreements with conveners who have national reach.
Revenue decreased year over year by $10M primarily due to the continued shift to non-episodic payers in home health and the resumption of sequestration.
Besides the decrease in revenue, EBITDA decreased due to an increase in G&A expenses of ~$4M from increased employee group medical claims and incremental costs associated with being a stand-alone company.
Non-episodic visits grew to 29% of total home health visits. This is an approximate 7% increase year-over-year and an approximate 3% increase over Q4 2022.
Cost-per-visit increased 2.3% year-over-year.
Enhabit is now at full-time nurse capacity, which will allow the company to reduce the use of contract labor and improve clinical productivity going forward.
Closed out Q1 2023 with a net leverage ratio of 4.2x, 0.55 below the threshold dictated by their credit agreement.
Key Financial Figures
M&A Activity
Closed out Q1 2023 with $107.6M in available liquidity, of which $37.6M is cash on hand.
M&A pace slowed down during Q1 2023 as expected after their three acquisitions in Q4 of 2022.
Guidance
Enhabit expects improvements in its bottom line throughout 2023 due to the expansion of Medicare Advantage contracts, improved rates, and reduced staffing capacity constraints.
Maintained adjusted EBITDA guidance for 2023 of $125 - $140M.
Aveanna Healthcare (Nasdaq: AVAH)
Highlights
Aveanna Healthcare PDS segment falls within CMS’s proposed rule requiring to pass 80% of reimbursement to direct care workers. As a result, the company stands firm with industry peers and highlights the importance of giving CMS feedback during the open comment period.
Expressed belief that demand for home and community-based care services has never been higher.
The labor environment continues to be the company’s primary challenge.
Received a double-digit reimbursement rate increase in OK (applied retroactively to 1/1/2023). This allowed Aveanna to double the number of caregivers hired per week in the state.
Optimism towards a potential double-digit reimbursement rate increase for private duty nursing services in TX that could begin on 9/1/2023.
Secured two additional preferred pay agreements in key markets, bringing the total to nine. Preferred payer volumes increased to approximately 13% of total private duty services.
MCO Medicaid partners are saving an average of $5 for every $1 spent on PDS services. This is due to fewer hospitalizations and fewer hospitalized days.
Key Financial Figures
M&A Activity
Aveanna incurred $70K in acquisition-related costs during Q1 2023, which is 23% decrease when compared to Q1 2022.
Guidance
Jeff Shaner, CEO: “We believe it is important to continue to set expectations that acknowledge our environment we are operating in and the time it will take to transform our company and return to sustainable growth. We believe our outlook provides a prudent view considering the challenges we face with the current inflationary labor environment, and hopefully, it proves to be conservative as we execute throughout the year.”
Confirmed previous revenue and adjusted EBITDA guidance for 2023 of $1.84B and $130M, respectively.
2023’s gross profit margin is expected to stay in line with Q1 2023.
Expect to finish 2023 with private duty services preferred payer volumes in the high teens (Q1 2023: 13%)
The Pennant Group, Inc. (Nasdaq: PNTG)
Highlights
The Pennant Group, Inc achieved an all-time high in-home health and hospice average daily census.
Q1 2023 senior living occupancy was 79.1%, representing a fifth consecutive quarter of occupancy improvement.
Will remain focused on their five key organizational priorities: leadership development (top priority), margin, turnover, growth, and clinical excellence.
Employee turnover was reduced by double-digits year-over-year in both segments (hospice and home health and senior living services).
Home health admissions grew 7.1% over the prior year’s quarter, and hospice admissions grew 9.1% over Q4 2022.
Home care business is exposed to the uncertainty around CMS’s proposed rule requiring that 80% of reimbursement be passed to direct care workers. However, it represents a modest portion of home health revenue ($2M for Q1 2023).
Key Financial Figures
M&A Activity
The company expects to continue to employ the strategy of acquiring and turning around underperforming operations.
The standard for acquired underperforming operations is that they contribute meaningfully to earnings no later than the ninth quarter post-acquisition.
Acquired Robins Landing of Brookfield and Robins Landing of New Berlin, both under the senior living business.
Acquired a home health license in Prescott, Arizona, and a smaller home health agency in Colorado Springs.
John Gochnour, President and COO: “Our home health and hospice pipeline is ripe with opportunities we expect to execute on over the next few quarters.”
Guidance
Pennant expects to see continued growth in the hospice and home health segments throughout 2023.
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