Addus Defends Strategy, Talks ‘Painting States Addus Green’

After partly blaming the performance of acquisitions for its third-quarter revenue miss, Addus HomeCare (NASDAQ: ADUS) is explaining its strategy as “not sexy” but sound.

Company executives spoke on the topic, as well as plans for future growth, during a Dec. 8 presentation at the Oppenheimer 26th Annual Healthcare Conference in New York.

Addus Chief Financial Officer Don Klink addressed the company’s third-quarter performance.

“We saw revenue miss,” Klink explained. “We just didn’t hit our organic growth rate.”

Klink noted that the organic growth problem was limited to a few of Addus’ markets, though it had a profound impact on the company as a whole. The company has since moved to remedy the situation, he assured.

“We’ve subsequently stepped in and put in a lot more robust referral programs to grow those markets and get them back on track,” Klink said. “Structurally, the model’s working fine, we just needed to get organic growth back on track.”

Meanwhile, Addus President and CEO Mark Heaney detailed Addus’ plans for future growth—beginning with the aforementioned organic strategy.

“We’re going to grow our business just being really good at delivering care—organic growth, preferred provider, first choice,” Heaney said. “Be out in the community telling people we exist.”

Addus also plans to grow through acquisitions, according to Heaney.

“Our acquisition strategy—and we’re quite disciplined in sticking to it—isn’t particularly sexy, but it’s the right one,” Heaney said. One part of the plan involves going to states where managed care is, and where Addus “ought to be.”

“States like New York, Massachusetts, Virginia, Florida, Texas and Iowa, of all places,” Heaney said.

“We have states where we cover some of the state, but we need to cover the state,” he added. “We need to fill out some states where we are, and there are plenty of opportunities to buy.”

Klink referred to this strategy as trying “to paint the state Addus green.”

Overall, Addus is reconfiguring itself to better align with what managed care organizations want, Heaney explained.

Managed care is going to be working with the “larger, more sophisticated, data-driven, tech-oriented, outcomes-oriented and ultimately risk-taking organizations, and Addus is in the business of reconfiguring itself to serve that payor,” he said.

Heaney also predicted the U.S. home care industry would see “massive consolidation,” saying that there are currently 20,000 home care agencies, and “managed care’s not doing business with 20,000 of anything.”

In addition, Heaney mentioned a “dormant” element of Addus’ acquisition strategy: acquiring businesses next to it on the continuum. These include home health agencies and adult day care companies.

“We’re looking at businesses next to us on the continuum, so when patients come into our system, they stay in our system,” Heaney said.

When asked, Heaney and Klink seemed hard-pressed to identify any challenges or headwinds the company is currently facing. Klink did say the company is striving to be a good customer service provider, in part to ensure people want to refer the company. To make the point, Klink compared the company to a department store brand well-known for customer service.
“You have to be, for lack of a better term, the Nordstrom of personal care services,” he said.

Written by Mary Kate Nelson