Almost Family’s Big Joint Venture Starts Strong, Shares Soar

A recently-closed joint venture with a major hospital system has paid off for Almost Family (Nasdaq: AFAM), according to first-quarter earnings results. The Louisville, Kentucky-based home health care provider saw a strong increase in revenues and admissions thanks, in part, to its joint venture acquisition of Community Health Systems’s (NYSE: CYH) home health operations.

Almost Family’s share price soared more than 15% on Wednesday following the release of earnings results late Tuesday. Almost Family reported record net service revenues of approximately $201.3 million, up 31% from the same period in 2016. Adjusted net income reached $7.1 million for the quarter.

The deal, which was announced in late 2016, created the largest public hospital-home health joint venture in the nation. AFAM purchased 80% of the home health operations for $128 million.

“Our transitions efforts are well underway and we are seeing very nice performance in the JV operations,” William Yarmouth, Almost Family chairman and CEO, said in a statement. “We’re also demonstrating strong organic growth in our legacy home health operations, with 4.5% episodic admission growth overall, the best we’ve seen in some time. The earnings power of our business is especially evident when viewed in terms of adjusted net income, which increased by almost one-third.”

Quarter Highlights

With the Community Health Systems (CHS) deal completed on Jan. 1, Almost Family now operates 340 branches across 26 states.

In the first quarter of 2017, Almost Family’s home health segment net revenues increased 38% or $41.7 million, to $151.2 million, compared to $109.4 million in the prior year.

Episodic admissions grew 44.8% to 31,290, up from 21,612. This jump was “primarily due to the CHS-JV acquisition,” Almost Family reported.

“The initial integration of the Community Health joint venture seems to be going very well,” Frank Morgan, managing director of health care services equity research at RBC Capital Markets, told Home Health Care News. “It’s pretty much seamless.”

Excluding the joint venture, episodic admissions grew 4.5%, including 2.8% growth in Florida. Within the CHS joint venture, episodic admission grew 4.2% over the prior year.

Joint ventures between hospitals and home health care providers appear to be increasing in momentum in 2017, with several recently announced deals.

“A lot of what you are seeing in the partnerships is preparation for what’s coming down the road: the move to episodic payments,” Morgan said. “It’s about having a quality partner that you trust and can know that when you disagree a patient they won’t be bouncing back, or a lower percentage [will be readmitted]. [The partnerships] are all related to these payment models coming down the road. ….The momentum is picking up.”

Almost Family’s integration with CYH will likely continue to be accretive for the company, and its initial success could move plans to add more locations with CHS hospitals, according to Morgan.

“Certainly, they will continue to need to make progress,” Morgan said of the joint venture. “Things are going so well, there’s even a suggestion that some of the development activity they’ve talked about doing with Community might be even sooner, [such as] adding home health locations in Community markets without home health. So far so good.”

Company Conversion 

Almost Family also reported smooth sailing in its conversion to Homecare Homebase. Compared to another major home health care provider, Amedisys, Inc. (Nasdaq: AMED), Almost Family’s conversion to the Homecare Homebase information system appears to be going more smoothly. Almost Family completed its conversion to the new system at 32 home health branches as of May 9, 2017, and expects to convert of the remaining branches by the end of 2017.

Amedisys, which largely finished its own conversion to Homecare Homebase across the company at the end of 2016, struggled to convert the entire company, executives repeatedly stated in earnings calls throughout last year.

Almost Family’s personal care business did not fare as well as other segments during the quarter, with revenues down $1.1 million, or 2.9%, from the prior year due to lower volumes. Rate cuts and increases in wages in certain states negatively impacted personal care margins.

RBC Capital Markets identified the personal care business as a “weakness” in the company’s earnings, according to a note by RBC Capital Markets.

“While our personal care business presents some near-term opportunities for improvement, the JV’s hospice operations are contributing nicely,” Yarmouth stated. “As we proceed into the remainder of 2017 with an exceptionally strong balance sheet, we’ll work to complete our transition efforts and improve our organic growth rates even further, while also increasing our focus on M&A and other business development opportunities.”

Almost Family’s stock soared following the earnings release, jumping more than 15% on Wednesday, May 10, by end-of-day trading, hovering above $57 per share.

“The stock was [previously] trading at a discount to Amedisys or LHC Group, but now people are not as worried about the integration of the of the Homecare Homebase system and the joint venture is running well,” Morgan said. “The gap is closing and the stock is moving today.”

Written by Amy Baxter