How Addus Changed Its Tune to Acquire $230M in Revenue in 15 Months

When Addus HomeCare Corporation (Nasdaq: ADUS) CEO Dirk Allison took the reins of the massive Medicaid-reimbursed personal home care provider in 2016, he pulled them in an entirely new direction.

More than three years and several acquisitions later, his strategy to deepen the company’s footprint rather than widen it seems to be paying off — and bringing in hundreds of millions in acquisition revenue, as well as new business from managed care providers.

“Rather than be a company that wanted to be in 50 states, we wanted to be a company that was very strong in the states it operated,” Allison said during a presentation at the 2019 Baird Global Healthcare Conference Wednesday in New York. “As [managed care providers take over managed Medicaid for many states], they’re looking for companies that are larger, more sophisticated, have technology and can give them outcomes data.”

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After taking over at Addus, Allison brought in a new management team to beef up the company’s clinical know-how, cut millions from its annual run rate to redistribute elsewhere and revamped the company’s payroll and financial systems to prepare for a new acquisition-growth strategy. The company also maintains organic growth targets of 3% to 5%.

One goal was to turn the Frisco, Texas-based home care provider that “maybe historically … had considered itself not a health care company” into one, Allison said.

Another: pursue hospice and home health opportunities, as well as those in the home care space, largely through acquisition.

Today, the path that Allison helped pave seems to be leading in the right direction: In the past 15 months, the company has acquired about $230 million of revenue, he said, with the most recently announced acquisition target being Hospice Partners of America LLC (HPA) for $130 million cash.

Those numbers exceed Addus’s minimum target for growth in acquisitions of 10%, Allison said. On top of that, it helped deepen the company’s coverage in states where it operates.

“New York and New Mexico are probably the clearest examples of why we wanted to change our strategy toward being full coverage in a state and partners with the managed care organizations (MCOs),” Allison told conference attendees.

Allison pointed to the state-mandated narrowing of personal care networks in New York as an example.

The “exciting” move cuts down on the number of certified providers in the state and creates more opportunities for Addus. Already, the company has gotten calls from MCOs asking them to take on patients because their previous providers are no longer in-network.

“That’s great for two reasons,” Allison said. “One: It’s growth, and we’re very excited about that. Two: One of our biggest issues for growth is hiring people, and about 70 to 80% of these people come already with a caregiver. … As you’ve seen that narrowing of the network, our growth in New York the last few quarters has been in the high teens.”

On top of that, MCOs in both New York and New Mexico can pay Addus higher rates for different services, such as providing care in rural provider desserts.

Going forward, Addus’ main focus will remain home care. Despite the company’s recent appetite for hospice, its pipeline will be filled mostly with personal care in the months to come.

“I would characterize it … more personal care than anything,” Executive Vice President and CFO Brian Poff said, also speaking at the Baird conference on Wednesday. “The nice thing there is we continue to see opportunities of different sizes. Our sweet spot has been kind of in that $25 to $50 million in revenue stage, and we continue to see opportunities in that range [and] some smaller tuck-ins.”

The day before the conference, Addus filed a prospectus for a mixed shelf offering. The company launched a public offering of 2.5 million common shares, 2 million from the company and half a million from funds affiliated with Eos Partners.

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