After numerous challenges with getting paid by the state of Illinois after years of budget woes, Addus Homecare (Nasdaq: ADUS) is now actively seeking to reduce its exposure in the state, executives stated on the company’s most recent earnings call.
Addus, which moved its headquarters from Illinois to Frisco, Texas, earlier this year, is one of the nation’s largest personal care providers, with more than 114 locations across 24 states.
For the third quarter of 2017, Addus reported a 4.9% increase in net service revenues from the same period in 2016, reaching $108.6 million.
For more than two years, Illinois did not have a budget in place—and did not pay its Medicaid bills. It weighed heavily on Addus, but the provider was eventually paid $90 million it was owed in state Medicaid funds this year after Illinois passed a budget.
Now, the company is looking to diversify its business lines and reduce its exposure in Illinois to around 35%.
“While the 2018 budget took positive steps to address the financial challenges faced by the state, there remains a lot of work to do in order to restore solid and long-term financial footing,” CEO Dirk Allison said during the company’s earnings call this week. “Therefore, while we remain committed to serving residents of the state of Illinois, we will continue to pursue acquisition opportunities outside of Illinois to further diversify our revenue, with the ultimate goal to reduce our Illinois business to under 35% of consolidated revenue.”
Some predict Addus will reduce its exposure in the state even further.
“For a public company their size, and serving the individual states’ Medicaid populations, 50% coming from one state is too much exposure,” Cory Mertz, managing partner at health care M&A advisory firm Mertz Taggart, told Home Health Care News. “I expect after they hit their 35% target, they will want to reduce their Illinois exposure even further, likely down below 20%.”
Expanding Business Lines
Executives stated Addus would increase acquisitions and growth in other business lines, including private pay and hospice, and even look to add new markets to its personal care business. Addus recently completed a small private pay acquisition in Arizona and is close to closing another private pay deal elsewhere, according to Allison.
“Today, we generate approximately $8 million in private pay revenue annually,” Allison said on the earnings call. “…These two deals nearly double our overall private pay business, and we believe position us for continued growth in private pay.”
At the same time, Addus will also focus on securing 3% to 5% organic growth at its existing locations. It strategic growth As part of its strategic growth plan, the company will look for geographic areas that have limited threats to mounting wage pressures, Allison said during a presentation at the Stephens Fall Investment Conference in New York City on Nov. 7.
“We want to drive our strength in states where we have limited minimum wage risks, and [where] state finances are secure,” he said.
Addus’ stock dipped slightly in the days following its earnings release, declining from $35 per share to just more than $32 per share as of Thursday.
Written by Amy Baxter