LHC Group Scales Back $1 Billion Pipeline
After revealing an “unprecedented pipeline” anticipated to produce approximately $1 billion in revenue, national home health and hospice provider LHC Group Inc. (Nasdaq: LHCG) scaled back its plans for future acquisitions. However, the company unveiled a significantly more targeted approach to joint ventures (JVs) moving forward, when discussing earnings results for the second quarter of 2016 with analysts Thursday.
Lafayette, Louisiana-based LHC Group reported a pipeline containing 20 active potential transactions, totaling more than $750 million in revenue. That’s down from the 23 acquisition opportunities the company noted after the first three months of the year, which had represented around $950 million in potential revenue.
As the provider previously detailed, it has ramped up its JVs with hospitals and health systems as part of its acquisitions strategy, now announcing that 70% of its pipeline is attached to such deals. At the end of 2015, joint ventures accounted for half of the pipeline.
That approach to further target joint ventures is evidenced by it recent partnership with Northern Arizona Healthcare (NAH) to expand home health and hospice services in Northern Arizona. Two other joint-venture transactions were also closed in the first half of 2016, the company reported.
Additionally, joint-venture admissions are driving increased acuity and reimbursement for the company, suggesting the expansion of these partnerships is an important contributor to the company’s success, according to LHC Group Chairman and CEO Keith G. Myers.
“There’s no question that we’re seeing an unprecedented amount of calls from hospitals and health systems,” Myers told analysts. “We have enough credibility there—that’s driving a lot of it.”
Otherwise, LHC Group’s earnings for the second quarter of 2016 included an increase in net service revenue of 12.9% to $226.0 million for the second quarter of 2016, compared to $200.2 million for the same time period in 2015. This is also up from the $222.6 million in net service revenue reported for the first quarter of 2016.
Adjusted net income grew 1.1% from $9 million in the second quarter of 2015 to $9.1 million in the same period of 2016, or 2.0% on a per diluted share basis from $0.51 to $0.52. Despite this growth, a few factors have negatively impacted net income, the company reported, and one recently announced transaction has been delayed.
For example, LHC Group was hit with a $1.1 million expenditure for the severance of its previous CFO, and $686,000 in transaction-related costs, most notably due to trouble closing on the previously announced acquisition of Professional Healthcare Resources (PHR), a home health care services provider based in Annandale, Virginia, that offers skilled nursing, therapy, personal care services and hospice. The closing of the transaction, which was initially expected to close August 1, has been pushed back.
The delay is related to normal closing conditions, and the deal could close as early as September 1, a source close to the transaction tells HHCN.
An additional source, who spoke on the condition of anonymity due to not being authorized to speak on the issue, indicated there may be ongoing wage disputes within PHR leading to the delay.
PHR has come under fire in the past for issues related to unpaid wages and other complaints; a recent lawsuit over unpaid wages was dismissed in August 2015.
The company’s Washington D.C. office did not answer calls placed by HHCN this week.
LHC Group continues to work with the sellers on satisfying closing conditions, and a news release will be issued when the transaction is completed, amended or terminated, Myers said.