After a major executive shake up, one of the nation’s largest home care companies has pulled a financial thorn from its side and is charging ahead with ambitious growth plans.
Downers Grove, Illinois-based Addus HomeCare Inc. (Nasdaq: ADUS) has recently resolved a significant amount of debt related to a funding holdup in Illinois, and now is back on track with plans to grow 10% annually. Addus executives foresee 4% annualized organic growth and seek to complete another 6% annualized revenue growth rate through future acquisitions. The company currently has an approximate annualized revenue of $400 million, including new acquisitions.
Issues in Illinois
Addus, which has 121 locations across 24 states, has a large concentration of home care sites in its home state of Illinois, which has had its own share of legislative issues over the last year or so, including a budget stalemate. Of Addus’ $400 million in revenue this year, $200 million is within Illinois, which presented a problem when the state didn’t pay its bills for a year.
With no budget in place, the state did not pay Addus for a year’s worth of home care, equating to $60 million or roughly 15% of the company’s total revenue, through a state program. The other $140 million was paid to Addus on time because it stemmed from Medicaid. Fortunately, the state did pass a temporary budget at the end of June, and the state paid Addus this summer in full.
“One of the things that is misunderstood with Illinois is the risk,” Addus CEO and President Dirk Allison said while speaking at the 2016 Baird Global Healthcare Conference in New York this week. “For the last 12 months—July 1, 2015 through June 30, 2016—We were paid every 45 days for the Medicaid. That wasn’t the risky part. The risky part was the $60 million we do with the state that is not through the Medicaid program.”
While the home care provider now is out of debt stemming from the stalement and has approximately $46 million in the bank, according to Allison, the management team is keeping their eye on the situation in Illinois. With a deep partisan divide between Illinois’ Republican Governor Bruce Rauner and a Democratic legislative body, another budget standstill is very possible.
However, as the election approaches, it is possible that Democrats could win a supermajority, which they are currently only short by two house seats, according to Allison. Should the Democrats take control, Allison expects the legislative control would enable a smoother budget process without the Governor’s ability to veto in 2017.
“We believe that after the elections in November, there will either be a lameduck budget in November, or [if the Democrats win a supermajority], probably a late budget for 2017,” Allison predicted. “That is what our lobbyists in Illinois are telling us.”
No matter the outcome of the election and potential budget outcome in Illinois, Addus executives want to be prepared to weather another period of not getting paid, if necessary.
“We do believe in getting bigger and having the financial strength to withstand that in Illinois,” Allison said.
To do just that, Addus is looking to expand into Arizona, Florida and Texas, where rising wage rates and related financial pressures are also currently minimal, Allison said.
Trimming the Fat
Since the company underwent changes with its management team, including a recent CFO appointment and new CEO at the start of 2016, the company has worked on cost-cutting measures. The new team in place has managed to cut some expenses, resulting in approximately $4 million in savings thus far, according to Allison.
Some of the cuts include shutting down the company’s centralized call center, which has since been outsourced in a partnership with Celltrak on a hourly billable rate. The change will ensure that Addus’ management knows exactly how much their costs could rise in this area as the company grows.
“We closed the call center down,” Allison said. “We’re trying to lease that building.We looked at the software system and decided it’s very expensive to create something we are not in the business to create. …We partnered with a company called Celltrak which is going to do that for us.”
Additionally, the company has decided to limit its operations in adult day care, which are mostly centralized in Illinois, and will “eliminate” most of its sites. The home care-focused company may decide to leave “one or two” adult day care sites open that are related to home care sites.
Looking forward, Addus is more likely to work on capturing more business from managed care organizations (MCOs), which currently account for roughly 25% of the company’s current business. However, most of those revenue streams are related to state-run managed care programs.
As more states seek to outsource their managed care, Addus will look to become a partner with more MCOs, Allison said. The company will leverage the data it can collect with Celltrak to become a preferred partner in these organizations.
“As we move to MCOs, there is going to be a different take,” Allison said. “We will look for ways to help [MCOs] control costs, give the information to help their ability to grow. That’s where companies like ourselves have to make investments. … Let us start collecting the data that we can control.”
Written by Amy Baxter