LHC Group Bullish on Home Health JV Growth After Strong 2018

Despite falling short of analysts’ Q4 revenue estimates, LHC Group Inc. (Nasdaq: LHCG) finished the quarter and 2018 strong, thanks in part to revenue and admission growth in its home health and hospice lines.

Acquisitions and joint ventures, which set overall valuation records in 2018 for LHC Group, played a large role in the company’s success. They will continue to do so in the year ahead, with M&A activity in the home health space leading the way.

“If it’s possible, we’re more bullish on the JV strategy than we’ve been in the past, and we’ve been very bullish on it in the past,” LHC Group CEO Keith Myers said Thursday on a conference call with investors. “I think [we’re] more bullish because we continuously learn and improve our processes.”

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LHC Group’s fourth quarter of 2018 net service revenue was $509.84 million, a 75.1% increase compared to the same period a year ago. For the year, LHC Group’s net service revenue came in at $1.81 billion, a 70.3% bump compared to 2017.

Adjusted net income attributable to LHC Group’s common stockholders per diluted share increased 46.7% to $3.55.

2019 growth

Despite closing 22 unprofitable locations in Q4 2018, the year as a whole was record-setting for acquisitions growth, with $822.6 million in acquisitions.

Similarly in 2019, LHC Groups’ M&A activity will be robust, with 15 to 20 deals being vetted at any given time, company leaders said during the earnings call.

Already this year, JV activity has been hot for Lafayette, Louisiana-based LHC Group, which provides home health, hospice and community-based services to patients in 36 states with more than 32,000 employees total.

The company highlighted its second joint venture of 2019 earlier this week, announcing it had entered into a definitive agreement with Geisinger Home Health and Hospice, plus AtlantiCare Home Health and Hospice.

LHC Group also closed on a JV partnership with Unity Health on Jan. 31, announcing the purchase and shared ownership of two home health providers in Arkansas.

In line with those deals, home health will continue to see the most action for external growth for LHC Group in 2019, Myers said.

“I think the majority [of deals] will be in home health — [that’s] just where a lot of interest is coming from, and that’s typically our lead in new markets,” he said, noting that home health deals sometimes by default come with hospice assets as well, as was the case with the Geisinger joint venture.

“When we’re lucky, we get that,” Myers said. “If we don’t pick up hospice, then hospice moves to a build-out strategy for us. Build-out in our mind is not a startup, but buying a small, regional hospice and bolting it on, potentially rebranding if appropriate.”

Home health admissions were up 7.8%, while hospice admissions were up 9.2%, both coming in above targets of 5% to 7%, respectively.

Almost Family update

Much of LHC Group’s overall revenue growth in 2018 can be traced back to the integration of Almost Family. The merger closed in April, creating the country’s second-largest home health provider.

The integration is six months ahead of schedule and on track to be finalized by Q3 2019.

“We achieved greater cost synergies than we had originally anticipated in 2018 and have increased our target for 2019,” Myers said. “This will help us potentially reach $25 million to $30 million in run-rate cost synergies in the back half of 2019.”

After the merger with Almost Family, LHC Group was able to deliver 14.5% accretion from its previous EPS guidance range prior to the acquisition.

Analysts expect Almost Family’s contributions to increase in 2019.

“LHCG has historically been a beat/raise company, which we expect to be the case in 2019 as it now has nearly one year with [Almost Family] under the corporate umbrella, so visibility should have improved,” Stephens analysts stated in a note after Q4 and year-end earnings were released. “Access to capital is aplenty so we expect LHC Group adds accretive acquisitions with annualized revenue in the $100million to $150 million range ($39 million announced YTD) in 2019.”

Also to note: LHC Group nearly double its number of ACOs under company management, growing from 16 in 2017 to 30 in 2018.

Additionally, LHC Group increased its operating cash flow 235.9% to $108.6 million in 2018 as compared to $32.3 million in 2017.

Myers also reiterated support for and the importance of a new bill that would alter PDGM, which would require the Centers for Medicare & Medicaid Services (CMS) to base Medicare reimbursement rates on observed evidence rather than PDGM’s currently stipulated assumed changes.

LHC Group’s stock was up 3.30% near end-of-day trading on Thursday, trading for $109.69 per share.

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