August 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:

“Get big or get out”

For years this has been a catchphrase of the Great Plains farmer, and most small farmers have gotten out.  Philip Caputo, The Longest Road

The Stoneridge Partners Home Health Index Hits 16 Month High!

What a way to end the month.  Our headline last month was that the Stoneridge Partners Home Health Index (HH Index) hit a one year low.  Talk about surprising news.  In July our index hit 16.33, a 16 month high, going back to March of 2012 (I had to use my fingers to count the months).  Sure, the whole market was up with the S&P 500 gaining 5%, but our Index was up 8.5%

What a turn around, and a surprise to us, given all of the bad news out there.   More on this turn of events later in this column, but for now here are the results:

Here are the results for our HH  Index:

Company Price 7/31/13 Change in %,  Month Change in %,  YTD Price 7/31/12 Change in %, year
Almost Family 19.13 .21% -5.77% 22.01 -12.89%
Amedisys 12.51 7.84% 2.56% 12.19 2.57%
Gentiva 10.74 7.83% -0.90% 6.66 58.87%
LHC Group 22.94 17.16% -10.14% 17.89 29.78%
Home Health Index 16.33 8.45% -5.01% 14.69 11.20%
S&P 500 1685.73 4.95% 12.63% 1379.32 22.49%
Addus 19.64 -0.51% 176.08% 4.43 309.78%

Last month all of the stocks in our index were down.  This month all were up with LHC Group leading, up over 17%.

However when looking back one year it is hard to generalize.  Gentiva is up over 58% from one year ago, while Almost Family is down close to 13%.

The high for our HH Index was set in September, 2008 at 41.75, and then, within five months it dropped to $21.  It now sits at about $16.33.   As a comparison, since 2008, the S&P 500 is up about 75%.

GRAPHS:  This first graph shows the HH Index compared to the actual prices of the individual companies that make up the chart through July, 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 going back to November, 2002.

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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 July, 2013.

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Regarding stock market performance over the past year, clearly the big news continues to be Addus HealthCare.  Because they have very little Medicare revenue, they are not included in our HH Index  (NASDAQ:ADUS), but talk about a stock on a tear….up over 300% from one year ago.

Under their trademarked program called Addus Dual Advantage, they are focusing on the  dual eligible population, which they state is the top 5% in terms of resource and expenditures.

[iframe_loader src=”http://stoneridgepartners.com/hhi/hhi-addus.html” width=”604″ height=”450″ scrolling=”no”]

At the close of July Amedisys, Gentiva and Addus released their 2nd quarter numbers.  Here is a thumbnail sketch compared to the 2nd quarter of 2012 and the 1st quarter of 2013.  We will follow up next month with the results of Almost Family and LHC Group.  As a note this is the first quarter that has included the 2% Medicare sequestration cut.

Amedisys 2nd Qtr 2013 1st Qtr 2013 2nd Qtr 2012
Revenue
 Home Health 248,600 79.4% 272,300 80.3% 290,600 80.0%
 Hospice 64,500 20.6% 66,900 19.7% 72,500 19.5%
   Total Revenue 313,100 100.0% 339,200 100.0% 363,100 100.0%
Gross Profit
% of GP
 Home Health 106,600 42.9% 115,200 42.3% 125,300 43.1%
 Hospice 30,400 47.1% 31,500 47.1% 35,200 48.6%
   Total Gross Profit 137,000 43.8% 146,700 43.2% 160,500 44.2%
G&A Expenses 133,278 42.6% 142,531 42.0% 145,100 40.0%
Operating Income 3,722 1.2% 4,169 1.2%  15,400 4.2%
 
Gentiva 2nd Qtr 2013 1st Qtr 2013 2nd Qtr 2012
Revenue
  Home Health 235,200 56.8% 236,100 56.8% 235,700 55.1%
  Hospice 179,200 43.2% 179,500 43.2% 192,000 44.9%
    Total Revenue 414,400 100.0% 415,600 100.0% 427,700 100.0%
Gross Profit % of GP
 Home Health 115,600 49.1% 114,800 48.6% 117,500 49.9%
 Hospice 79,900 44.6% 79,200 44.1% 87,500 45.6%
   Total Gross Profit 195,500 47.2% 194,000 46.7% 205,000 47.9%
G&A Expenses 161,900 39.1% 159,900 38.5% 163,900 38.3%
Operating Income 33,600 8.1% 34,100 8.2% 41,100 9.6%
 
Addus 2nd Qtr 2013 1st Qtr 2013 2nd Qtr 2012
Revenue 65,755 100.0% 62,998 100.0% 60,440 100.0%
Gross Profit 16,613 25.3% 15,739 25.1% 15,807 26.2%
G&A Expenses  12,092 18.4% 11,510 18.3% 11,959 19.8%
Operating Income 2,582 3.9% 2,687 4.3% 1,835 3.0%

Results:  Both Amedisys and Gentiva show a substantial drop in profit from one year ago.  What is interesting to note is that both stocks are up from one year ago.

What is further surprising is that, with all of the bad news, the sequestration cuts and the proposal for 3.5% rate cuts each year for the next four years….all stocks were up for the month.  It is enough to make one wonder what the market telling us….that things are not as bad as we think, or that these companies will be left standing while many of their smaller competitors go out of business.

We go back to our quote of the month…”Get big or get out”.  This phrase has appled to many businesses, with the mom & pop drug store an example.  Is this the direction we will be going in home care?

Selling Price as a Percent of Revenue:  For many years the selling price of good Medicare agencies was generalized at about 100% of revenue.  Clearly that is no longer the case.  These public companies are now selling for considerably less.  The following percentages are based on Enterprise Value (EV), with data provided by Capital IQ.

Company EV as % of Revenue
Almost Family 43%
Amedisys 30%
Gentiva 65%
LHC Group 68%
Addus 81%

Multiples of EBITDA which are based on Enterprise Value (EV).  Data provided by Capital IQ.

Company Multiple of EV/EBITDA
Almost Family 5.24
Amedisys 5.34
Gentiva 6.09
LHC Group 6.96
Addus 10.86

MERGER & ACQUISITION ACTIVITY – In all of the following transactions we were the exclusive merger and acquisition firm.

  • Almost Family announced their acquisition of the assets of the Medicare-certified home health agencies owned by Indiana Home Care Network, or IHCN, for $12.5M.  IHCN dba  Innovative Home Health, a provider of home health services that operates six home health locations, primarily in northern Indiana.  Our group at Stoneridge Partners provided brokerage/advisory services.
  • Cole Home Health, a large Texas Medicare home care company sold to a large regional home care provider.  Our group at Stoneridge Partners provided brokerage/advisory services.
  • Virginia based All Heart Home Health Agency & Hospice, a Medicare provider, sold to a large national health care provider. Our group at Stoneridge Partners provided brokerage/advisory services.

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.

Presentation:  On September 10th in Columbus, Ohio we will be giving our presentation titled “Selling a Home Health Agency….how to successfully value, structure and execute a merger or sale  of a home health agency”.  Go to our home page for further information.

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

Final Note:  I am writing this from Sun Valley, Idaho where I am escaping Florida’s heat, humidity and rain.  If any of our readers happens to be here give me a call…..I’ll buy you lunch.  Don Cummins  239-980-7456

Cartoon of the Month, from The New Yorker
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Links to Google Finance: Almost Family | Amedisys | Gentiva | LHC Group