March 1st 2013 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

Regarding Sequestration:

“The only thing I  know for sure (about sequestration) is that the salaries and benefits (esp. healthcare plans) that our congressmen, congresswomen and senators receive won’t be affected one iota by sequestration.”  Harry Newton

“The sky is falling, the sky is falling”  Chicken Little to Foxy Loxy as told by Rebecca Emberley

UPDATE:  The Stoneridge Partners Home Health Index Stabilizes!

The Dow Jones Industrial Average closes at a new all-time high…..it seems the stock market is not only unafraid of sequestration…..in fact the market seems to like it.

While the stock market in general continues climbing in this four year “stealth” bull market, the good news for the Stoneridge Partners Home Health Index is that it now appears to be stabilizing in the 15 dollar area…..very little change over the last six months.

Here are the results:

Company Stock Price 02/28/13 Stock Price 01/31/13 Change in %,  month Stock Price 02/29/12 Change in %, year
Almost Family 20.59 20.02 2.85% 22.88 -10.01%
Amedisys 11.36 11.12 2.16% 12.85 -11.60%
Gentiva 10.52 9.91 6.16% 7.85 +34.01%
LHC Group 20.32 21.36 -4.87% 17.02 +19.39%
Home Health Index 15.70 15.60 0.61% 15.15 +3.61%
S&P 500 1514.68 1498.11 1.11% 1365.88 10.91%

Both LHC Group and Gentiva are up nicely over this past year with Gentiva leading the pack…..up over 34% from one year ago.

The high for our HH Index was set in September, 2008 at 41.75.  It fell all the way down to 11.77 in December, 2011 and now sits at 15.70.   Its been quite a ride.

We also note that on March 1,  Addus HealthCare’s stock was  at 8.81 up a sparkling 144% from one year ago.  Impressive. They are a public company (NASDAQ:ADUS), but, because they are not dependent upon Medicare revenue, they are not included in our HH Index.

On March 1 Addus announced the sale of  substantially all of the assets of its home health division to LHC Group.  See our notes on this sale below under M&A activity.

GRAPHS:  This first graph shows the HH Index compared to the actual prices of the individual companies that make up the chart through February, 2013.

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 February, 2013.

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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 February, 2013.

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INDUSTRY GROWTH – In a recent column we showed a chart with third quarter results for the previous three years showing virtually no revenue growth while actual gross profit dollars, due primarily to unfavorable Medicare rate cuts, actually decreased by 9%.

Based on year-end results from two of the public companies in our HH Index, this same trend seems to be continuing, with stagnant growth and significant gross profit percentage declines.  Results from Amedisys and LHC Group will be in next month’s column.

(In Thousands) Year 2012 Year 2011 Change % Change
Almost Family
   Revenue       348,524      339,853    +8,671     +2.6%
   Gross Profit       167,700      172,787    -5,087     -2.9%
   Gross Profit %          48.1%         50.8%       -2.7     -5.3%
    EBITDA        32,595       38,799   -6,204    -16.0%
 Gentiva
   Revenue   1,712,804   1,798,778   -85,974      -4.8%
   Gross Profit     804,063      850,323   -46,260      -5.4%
   Gross Profit %         46.9%          47.3%        -0.4    –  0.8%
   EBITDA        1,638        -4,836    +6,474       NA

In addition to Medicare rate reductions, Genitva’s drop in revenue was also the result of the sale or closure of a number of branches.  We can’t help but notice a nice increase in both its EBITDA and stock price.

MERGER & ACQUISITION ACTIVITY

After a very busy year-end, there has been very little in announced sales.

We completed sell-side representation on the Ohio branch of Covenant Home Health Care, however the big news in the industry was the sale of the home health service line of Addus HomeCare to LHC Group.  In a portion of the locations that were sold, Addus retained 10% ownership.

Revenue on the locations that were sold was $36.7 million and the purchase price was $20 million.  The following is from LHC Group’s press release:

LAFAYETTE, La. (Feb. 28, 2013) – LHC Group Inc. (NASDAQ: LHCG) has completed the previously announced acquisition of the home health service line of Addus HomeCare Corp.  (NASDAQ: ADUS). The closing will be effective at 12:01 a.m. on March 1, 2013.  All conditions to closing have been satisfied.

The acquisition encompasses 19 home health agencies and two hospice agencies in five states.  Specifically, LHC Group acquired 100 percent of the assets of three home health agencies in Arkansas, one home health agency and two hospice agencies in South Carolina and one home health agency in Nevada.  The company also acquired 90 percent of the assets of eight home health agencies in Illinois and six in California, with Addus retaining a 10 percent ownership interest in those locations.  Both Arkansas and South Carolina are certificate of need states.

The estimated 65 and older population in the acquired service area totals 2.6 million.  Annual revenue is approximately $36.7 million.  Purchase price for the transaction was $20 million.  LHC Group, a national provider of post-acute care, now operates more than 300 locations in 23 states nationwide.

Mark Heaney, President and CEO of Addus HomeCare, in his press release said, “We are pleased to complete the sale of the home health assets and will focus our attention on our growing home & community business, which benefits from a significant opportunity by serving a large and growing, high cost elderly dual eligible population.”

Again, no further announcements on M&A from the public companies

Multiples of Economic Value EBITDA from earning results through the 3rd quarter 2012 with stock prices as of March 1, 2013.

Company Multiple of EV/EBITDA
Almost Family 5.6
Amedisys 5.4
Gentiva 7.9

Do you know of any acquisitions that have taken place?  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.

Cartoon of the Month:

And for your general amusement….. on differences between men and women.

ARGUMENTS
A woman has the last word in any argument.
Anything a man says after that is the beginning of a new argument.

THOUGHT FOR THE DAY
A married man forgets his mistakes. There’s no use in two people remembering the same thing!

MORE:  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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