December 1st Update

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This Home Health Index (HH Index) measures the performance of four publicly traded home health companies, all listed on the NASDAQ — Almost Family (AFAM), LHC Group (LHCG), Gentiva (GTIV) and Amedisys (AMED). This index is updated monthly.
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Quote of the Month

“If  Congress fails to come to an agreement on the fiscal cliff, the US unemployment rate will go to 9.1% in 2013”

–Congressional Budget Office

UPDATE:  The Stoneridge Partners Home Health Index gains 2.3%.

After dropping 9.6% in October our Stoneridge Partners Home Health Index (HH Index) popped back a little in November.  The general market as measured by the S&P 500 was down 2% in October and up slightly, 0.3%, in November. The S&P is now up 12.6% for the year and our HH Index is up 27% for the year.

Although our Index is now up nicely for the year, that entire increase took place in the first quarter.  On April 1, 2012 the HH Index was at 16.93 and on December 1 it was at 15.0.

This past month’s increase came from only two companies.  Both LHC Group and Gentiva were up about 10% while Almost Family and Amedisys were both down.

For the year, Amedisys is the only stock that is down.

The high for our Index was set in September, 2008 at 41.75.  Since then a huge drop.

The third quarter earnings reports follows these graphs, and will provide a clue as to the reason for this drop.

Here are the results for the month of November and YTD:

Company Stock Price 10/30/12 Stock Price 11/30/12 Change in % Month Change in % YTD
Almost Family 20.73 19.84 -4.29% +19.66%
Amedisys 11.04 10.47 -5.16% -4.03%
Gentiva 9.37 10.30 +9.93% +52.59%
LHC Group 17.52 19.39 +10.67% +51.13%
Home Health Index 14.67 15.00 +2.28% +27.47%
S&P 500 1412.16 1416.18 +0.28% +12.61%

We also note that on November 1 Addus HealthCare’s stock was at 6.78 up a sparkling 24.9% for the month.  They are now up about 90% for the year.  Impressive. They are a public company (NASDAQ:ADUS), but, because they are not heavily dependent upon Medicare revenue, they are not in our HH Index.

GRAPHS:  This first graph shows the HH Index compared to the actual prices of the individual companies that make up the chart through November, 2012.

Note that by hovering your pointer over a spot, you will get the price at that point.  For the past decade, it’s been quite a ride

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Stoneridge Partners Home Health Index vs. S&P 500 Index

This second chart compares the percentage change of the HH index to the percentage change in the S&P 500 index through November, 2012.

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Stoneridge Partners Home Health Index 12 Months Trailing

This third graph is a 12 month trailing chart of the HH Index compared to the actual prices of the individual companies that make up the chart, through November, 2012.

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EARNINGS SEASON – In November all four public companies released their third quarter earnings.  Due to the complex nature of the financial reporting of public companies it is sometimes difficult to make a meaningful comparison of earnings.  We have attempted to simplify matters by comparing only revenue and gross profit.   This clearly points out the headwinds our industry has faced over the past two years.

THIRD QUARTER (in thousands)

Company 2012 2011 2010 2 Year Change 2 Year Change %
Almost Family Revenue 85,128 86,207* 84,897 +231 0.3%
Gross Profit 40,610 42,862 45,766 (5,156) -11.3%
Gross Profit % 47.7% 49.7% 53.9% -6.2% -11.5%
Amedisys Revenue 375,625 370,288 404,680 -29,055 -7.2%
Gross Profit 161,494 168,195 198,378 -36,884 -18.6%
Gross Profit % 43.0% 45.4% 49.0% -6.0% 12.3%
Gentiva Revenue 424,444 449,748 379,681* 44,763 11.8%
Gross Profit 200,555 206,805 194,373 6,182 3.2%
Gross Profit % 47.3% 46.0% 51.2% -3.9% -7.7%
LHC Group Revenue 158,926 153,398 165,672 -6,746 -4.1%
Gross Profit 67,692 65,583 78,445 -10,753 -13.7%
Gross Profit % 42.6% 42.8% 47.3% -4.8% -10.0%
Total Revenue 1,044,123 1,059,641 1,034,930 9,193 0.9%
Gross Profit 470,351 483,445 516,962 -46,611 -9.0%
Gross Profit % 45.0% 45.6% 50.0% -5.0% -10.0%

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*Almost Family acquires Cambridge Home Care in Aug. 2011 with approx. 38M in revenue.

*Gentiva acquires hospice provider Odyssey in Aug. 2010 with over $700M revenue.
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It looks like the current revenue run-rate for the total of all four public companies is about $4.2 billion.  So in spite of the acquisitions over the past two years,  for the third quarter, revenue is up only slightly, while actual gross profit dollars are down considerably….over $43 million…..and down $13 million from just a year ago.

MERGER & ACQUISITION ACTIVITY FOR THE MONTH

“Financial sponsors in general are being cautious and pursuing deals with less risk,” said John Shea, Managing Partner at Berkery Noyes. “Nonetheless, the fear of higher capital gains taxes in 2013, along with the looming fiscal cliff, is having a noticeable impact on M&A activity at the moment. Moreover, many private equity firms are still seeking opportunities to deploy investment funds that they raised before the downturn a few years ago.”

Not much M&A activity reported over the last month.

Nurse-On-Call:  At the beginning of the month Nurse-On-Call (NOC), in a surprise, announced their sale to Emeritus Corporation – Senior Living, the nations largest assisted living and memory care services company.  The sale closed this past month in a purchase 91% of Florida’s Nurse-On-Call for $102 million.  Dale Clift, the CEO,  remains a stockholder and continue in his position as CEO.

NOC operates 28 offices in 47 Florida counties.    Revenue is approx. $140 million with an EBITDA of approx. $17 million.

It is interesting to note that we originally brokered the sale of NOC to Dale Clift toward the end of year 2003.  At that time it was a troubled agency, and was going to have difficulty making its Friday payroll.  Dale visited with the owner on Thursday and closed on the transaction the next day.  Done Deal!

American Companion Care, a non-Medicare pure private pay agency in Kansas City, sold to a national health care provider.  We provided advisory services representing the Seller.

Although November produced few reported acquisitions, we believe December will see many closings as sellers try to get their sale in before larger capital gains take hold.

We also believe that there will be a continuing trend in increased acquisition activity.  There has been little  growth among these public home care companies.  We believe that acquisitions will become the driving force toward future growth.

EBITDA Multiples: 

Multiples of EBITDA from earning results through the 3rd quarter 2012 with stock prices as of November 30, 2012.

Company Multiple of EBITDA
Almost Family 5.3
Amedisys 2.7
Gentiva 1.7

We would be interested in your comments. At the end of this column we have added a section for comments.  These can be sent anonymously.  The return email address can be left blank.  We are interested in what you have to say, or acquisitions that you know about.

WEBINAR:  This past month we held a webinar on the process of selling a home health agency or hospice.  We were very pleased with the attendance and the positive feed-back.  In January we will be giving another webinar on Building the Value of a Home Health Agency.  You will be sent details….look for them.

Something to think about.  If you’re not laughing, look again.

Honey Pot


A repeat of a Favorite Cartoon:

Cartoon Expression

And for additional musings on the state of homecare and what’s going on at Stoneridge Partners, visit our blog, which is updated regularly: stoneridgepartners.com/blog 

Links to Google Finance: Almost Family | Amedisys | Gentiva | LHC Group

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