Addus Makes Medicare Advantage Headway, to Acquire VIP Health Care Services

Addus HomeCare Corporation (Nasdaq: ADUS) has signed a definitive agreement to acquire a New York-based home care provider and is positioning itself to fully capitalize on “exciting” new Medicare Advantage (MA) opportunities over the next several years.

Addus President and CEO Dirk Allison discussed his company’s latest acquisition, its MA plans and third-quarter financial results during a Tuesday conference call with investors. The Frisco, Texas-based company announced both its acquisition agreement with VIP Health Care Services and third-quarter financials on Monday.

“Our strong operating performance continued into the third quarter of 2018, leading to our solid financial results,” Allison said. “We are very excited that the team at VIP will be joining the Addus family.”


Addus is primarily a home care services company, but it has started to expand into the hospice space as well, a point epitomized by its $40 million acquisition of Ambercare that closed at the beginning of May. Addus and its more than 33,000 employees currently provide home-based care services to tens of thousands of consumers across two dozen states, with particularly strong market presence in Illinois and New Mexico.

Overall, net service revenues for Addus were $137.6 million in the third quarter of 2018, a more than 26% increase over the same quarter last year.

Personal care services account for more than 90% of Addus’ revenue mix.


Addus CEO details future, ongoing acquisition plans

Following the end of the third quarter, Addus announced it had signed a definitive agreement to acquire the assets of VIP Health Care Services, a home care provider that serves about 1,250 consumers across all five New York City boroughs, Long Island and two additional counties.

VIP Health Care Services is based in Richmond Hill, New York.

“This acquisition is an important step to further our strategy of developing strong operations in our states,” Allison said. “Together with our South Shore operation on Long Island, VIP will give us the coverage we need to offer full-market services to our [managed care organization] partners.”

VIP Health Care Services, which has annualized revenues of about $50 million, is a “great strategic fit” for Addus that will help the company remain competitive in a consolidating New York market, Allison said. Upon completion of the deal, Addus and VIP Health Care Services will have combined revenues of more than $110 million in New York.

Addus has not yet disclosed the purchase price for VIP Health Care Services. As far as a multiple, Addus “paid around 7 times [EBITDA], maybe slightly lower,” Allison said.

The acquisition is expected to close in the first or second quarter of 2019, Allison said, adding that Addus’ other recent acquisitions of Ambercare and Arcadia remain on track. Addus has closed Arcadia’s former corporate office, a move that should lead to fully realized savings during the first quarter of 2019.

Addus had cash of $147.5 million and bank debt of $103.2 million at the end of the third quarter of 2018, while availability under its revolving credit facility was $88.6 million. Net cash provided by operating activities was $4.5 million for the third quarter of 2018.

In addition to its acquisition plans, Addus also announced Monday that is had completed a new senior secured credit facility for $269.6 million, including a $250 million revolver and a $19.6 million delayed draw term loan. Capital One served as the agent, joint lead arranger and sole bookrunner for the new facility, which replaces Addus’ previous one.

The new facility doubles the size of Addus’ available revolving credit line and will be used for organic growth and acquisitions.

With ample cash on its balance sheet and a full pipeline of M&A opportunities in the personal care and hospice segments, Addus is likely to “aggressively deploy capital” over the next six months, according to a research note from investment firm Jefferies.

“Given deal valuations in the 6 to 7 times EBITDA range, as well as management’s proven track record in sourcing high quality assets, upcoming M&A announcements should act as positive catalysts for earnings upside and stock momentum throughout 2019,” the Jefferies note stated.

Addus forming MA relationships in 2019, sees upside in 2020

In April, the U.S. Centers for Medicare & Medicaid Services (CMS) opted to make non-skilled in-home care services allowable as supplemental benefits in MA plans starting in 2019. The CMS decision opens the Medicare Advantage door to home care agencies like never before, but the size and immediacy of the opportunity has been debated.

Only 3% of MA plans will offer in-home support services such as personal care and housekeeping in 2019, according to a recent AARP analysis

Addus sees 2020 as a more realistic timeframe for when MA plans start to expand their supplemental benefits, Allison said.

In the meantime, Addus will begin building and testing out those relationships, he said. In fact, Addus is in ongoing negotiations with at least two large Medicare Advantage plans to provide personal care services to members starting Jan. 1, 2019.

“We are excited about the possibility of working with these partners to gather the appropriate data, which will allow Addus to help Medicare Advantage providers as they continue to expand their offerings around personal care,” Allison said. “While it is too early to tell what the potential impact could be for Addus, this is another positive step toward expanding the availability of our home care services under a value-based payment system and an indication of increasing awareness by the federal government of the value of personal care services in improving the quality and lowering the cost of health care.”

Emergency room visit and re-hospitalization rates will be two key metrics during those data collection efforts.

Additionally, Addus announced Monday that Jean Rush has been named to its board of directors, a leadership change that will also help Addus succeed in the MA environment.

Rush previously served as executive vice president of government markets for Highmark Inc., one of the nation’s largest health insurance companies. In that role, Rush oversaw Medicare Advantage, Medicaid and other related business lines. Prior to Highmark, Rush served in various executive roles with Centene Corporation in operations focused on Medicare, Medicaid and dual-eligible populations.

More on Addus’ Q3 results

For the third quarter of 2018, Addus’ personal care net service revenues climbed about 18% over the third quarter of 2017, growth attributable to increases in billable hours per business day and in revenue per billable hour.

Personal care, hospice and home health revenues checked in at about $128.1 million, $7.1 million and $2.4 million for the quarter, respectively. Addus did not record any hospice or home health revenues in 2017.

Average daily census for Addus’ emerging hospice stands stands at about 520, with average length of stay at about 145 days.

Jefferies analysts are bullish on Addus moving forward, given the increasing demand for personal care services and the company’s position to capture further market share from smaller competitors.

Addus’ stock was up 8.04% midday Tuesday, trading at $70.15.

Written by Robert Holly

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