April 1st Update 2

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.

Quote of the Month:

Given that we have just finished up Masters’ weekend (congratulations Bubba), I thought it would be a good time to go back to the 1968 tournament with, what I believe is one of the classiest quotes in all of golf.  After Roberto DeVicenzo came in with the winning low score, it was discovered that he had signed an incorrect scorecard that had been prepared by his playing competitor, Tommy Aaron, and therefore he lost the tournament.

“I had to admit the mistake as is correct and proper for a sportsman, gentlemanly, but with great affliction. It’s my entire fault, how stupid I am.  However had I complained or condemned Tommy Aaron, I would have lost my prestige.”  Roberto DeVicenzo

And how did he, an Argentinian with English as his second language, in a pressure filled moment, come up with the phrase “with great affliction”?

Now at age 90 he says it is the best mistake he ever made.  “Money is easy to make, it is difficult to make a good name.”

Something to think about this spring, perhaps a time of renewal.

The Stoneridge Partners Home Health Index (HH Index) drops over 12%

After ending 2013 at a 2 1/2 year high, our HH Index dropped over 4% in January,  then dropped 1.2% in February, and now drops 12% in March.  We are now off over 17% for the year, while the S&P 500 is up a little over 1%.  What is going on…..see earnings reports for the year 2013 below.

Our Stoneridge Partners Home Health Index (HH Index) now sits at 17.07.  The high for our HH Index was set in September, 2008 at 41.75.

On a continued positive note…..our HH Index is still up year over year….up 8.3% from one year ago, however the S&P 500 is up over 19%.

Here are the results:

Company 3/31/14 2/28/14 Mos % Change YTD % Change Year Ago % Change
Almost Family 23.1 27.42 -15.75% -28.55% +13.07%
Amedisys 14.89 16.96 -12.21%  +1.78% +33.9%
Gentiva 9.12 10.71 -14.85% -26.51% -15.71%
LHC Group 22.06 23.56   -6.37%  -8.24%   +2.6%
HH Index 17.29 19.66 -12.05% -17.07%   +8.3%
S&P 500 1872.34 1859.45   +0.69%   +1.3% +19.32%
Addus 23.05 28.76 -19.85%   +2.67% +74.75%

As you can see, all stocks in our index were down for the month with Almost Family leading the charge, now off over 28% for the year.  After their Suncrest acquisition their stock shot up like a rocket from 19 to over 33 in just two months.  It now sits at 23, yet still up over 13% from one year ago.

Only Amedisys is up for the year.

Addus took the biggest hit, off close to 20% for the month.  In October 2013 they set their all time high at over 32, and they now sit at 23…..still up 74% from a year ago.  Because they have very little Medicare revenue, they are not included in our index.

 GRAPHS:  This first graph shows the HH Index compared to the actual prices of the individual companies that make up the chart through March, 2014.

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

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 for over 11 years,  going back to November, 2002.  It has been quite a ride. [iframe_loader src=”http://stoneridgepartners.com/hhi/hhi-vs-sp.html” height=”450″ scrolling=”no”]

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 March, 2014. [iframe_loader src=”http://stoneridgepartners.com/hhi/hhi-12.html” height=”450″ scrolling=”no”]

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

EARNINGS:

Almost Family:   Year over year their revenue gained about 4.5% to $357.8 million up about $15 million, with traditional Medicare admissions up 4.4%.  $10.6 million of that revenue increase came from their two significant acquisitions.

Organic growth in their Visiting Nurse segment (93% Medicare) declined by 1% with organic Medicare admissions down about 5.9% primarily in Florida where there was overlap with SunCrest.

EBITDA for year 2013 was $18.9 million compared to $32.2 million for 2012, down 41.5%, yet their stock price is up 13% over one year ago.

Amedisys:  Amedisys’ CEO William Borne stepped down in February and they are now looking for a new CEO.  As was noted by Rahm Emanuel, Mayor of Chicago….“Never let a good crises go to waste” .  Point being, with change there is often great opportunity.  Perhaps this is a time of great opportunity for Amedisys.

KK&R makes an impact:  On March 27 it was announced that Nathaniel Zikha, a member of KK&R, was appointed to Amedisys’ Board of Directors.

Total revenue for the year 2013 was $1.25 billion down 13.3% from one year ago and, perhaps more interesting, down 12.5% from their 2009 revenue.

They were down in revenue in both home health and hospice:  home health revenue was down 14.3% and hospice revenue was down 9.4%.  Total gross profit percent fell from 43.7% to 42.5%, unfortunately this is very typical for our industry.

They recently announced that they will be closing 29 care centers (23 home health and six hospice) and consolidating another 25 care centers (21 home health and four hospice) with care centers servicing the same markets.

The market must be looking at these past and upcoming events in a positive manner….their stock is up 34% over one year ago.

Gentiva:  In October 2013, Genitva completed its acquisition of Harden Healthcare with revenues of approx. $476 million, therefore fourth quarter numbers were impacted.

Including the Harden acquisition, for year 2013 total revenue was up 1.2%, with home health up 7%, and hospice down 6%.

“The Hospice industry continues to be hammered by regulatory pressures and negative publicity, making growth in this segment extremely difficult.  In particular, the elimination of the adult failure to thrive and general debility admission quotes has created uncertainty and clearly impacted the physician referral patterns compared to recent years.”  Tony Strange, Gentiva CEO

As a result of the impact of home health Medicare reimbursement rate reduction, sequestration, and lower hospice volumes, total gross profit dropped from 46.9% to 45.4%, and adjusted EBITDA dropped from 180.5 million in 2012 to $149.5 million in 2013, off 17%.

The price of their stock is off 26% year to date and is down 15.7% from one year ago….the only stock in our index that is down year over year.

LHC Group: In a recently announced transaction, LHC Group finalized their acquisition of Deaconess HomeCare, which added 32 agencies in four states, with annual revenues of approx. $72 million.

Year over year revenues were up 3.2% to $658.2 million.  New home health admissions grew by 11.7%, while organic home health admissions grew by 3.6%.

Their stock is down 8% year to date and up 2.6% from one yer ago.

What we found most interesting (since we are an M&A firm) was CEO Keith Myers’ comments on the current M&A environment.

“The number of quality acquisition opportunities coming to market continues to increase as the negative impact of the Affordable Care Act is being realized by home health agencies across the country.  Since CMS released its final rule on rebasing on November 22, we’ve seen an even more significant spike in pipeline activity.  With certainty that the home health industry will be hit with an additional 7% cut, assuming an annual market basket adjustment of 2%, more and more home health providers are evaluating alternatives.

We believe that clarity on reimbursement over the next 4 years will serve to bring buyer and seller expectations in line and significantly accelerate consolidation in the industry.  An example is our recent announcement to purchase Deaconess HomeCare and Elk Valley Health Services, with combined annual revenues of approximately $72.6 million.  When you see a nationally recognized provider, with a longstanding reputation for providing quality care, seeking to be acquired, then you get a sense of the reimbursement headwinds causing many providers to look for alternatives.  We’ve worked hard….to prepare for what we believe will be an unprecedented period of consolidation in the home health industry.”

Addus:  As noted above, because Addus has very little Medicare revenue they are not included in our index.

Revenue for year 2013 was $265.9 million up 8.8%.  Gross profit percent  dropped from 26.2% to 25.5%, down 2.7%, so gross profit dollars was only up 5.7%

G&A was up, therefore, year over year, net operating income was down slightly.

But here is the interesting part……the price of their stock is up 75% over same time last year.  Clearly someone knows something.

From CEO Mark Heaney: “We will become a sales organization.  We will position ourselves to be a leading provider to Managed Care.  We will re-engineer our system of care delivery.  We will lower our costs, drive health outcomes and connect our direct care staff and our at risk consumers to the healthcare system. Essentially we will play an important role in the shift to population management.”

“Population Management”…..a phrase to remember.

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.   Selling Price = Enterprise Value = EV
Company EV as % of Revenue
Almost Family 74%
Amedisys 42%
Gentiva 82%
LHC Group 61%
Addus 92%

MULTIPLES OF EBITDA 

Company Multiple of EV/EBITDA
Almost Family 15.1
Amedisys 11.32
Gentiva 10.85
LHC Group 7.04
Addus 13.93

The above calculations are based on Enterprise Value (EV), with data provided by Capital IQ.  EV has been calculated based on stock prices April 1.  EBITDA is calculated using methodology that may differ from that used by a company it is reporting.

MERGER & ACQUISITION ACTIVITY:

We enjoyed the above quote from Keith Myers, CEO of LHC Group:

We’ve worked hard….to prepare for what we believe will be an unprecedented period of consolidation in the home health industry.”

At the end of 2012 there were approx. 14,000 Medicare certified agencies, with about 1/2 of those with revenue under $1 million.  We can’t help wonder what this landscape will look like in the not so distant future.

“As a result of cuts in Medicare reimbursement, 70% of home health providers will be underwater.”  Bill Dombi, Vice President of Legal Affairs, NAHC

Almost Family: In a rather small transaction Almost Family announced that they have entered into an agreement to purchase the assets of the Medicare certified home health agency owned by Caldwell Medical Center in Princeton, Kentucky, with revenue of approx. $1.3 million.

LHC Group

1. Acquired two home health providers and has entered into a definitive asset purchase agreement to acquire one hospice provider. The transactions include a home health and community-based service provider in Tompkinsville, Ky., with a service area covering three counties in the certificate of need (CON) state of Kentucky; a home health provider in Valley, Ala., with a service area covering three counties in the CON state of Alabama and a hospice provider located in New Orleans, La.  Combined annual revenue for these providers is approximately $1.5 million.

2.   Acquired St. Joseph Hospital Home Health and Hospice located in Buckhannon, West Virginia, effective April 1, 2014.  The service area includes seven counties for home health and six counties for hospice.  The Home Health services division is now known as “West Virginia Home Health” and Hospice continues to be known as “St. Joseph’s Hospice.”

3.  Signed a definitive purchase agreement to acquire the assets of Professional Nursing Services, which is expected to close on May 1, 2014.  The acquisition comprises a home health provider and four community-based service providers located near Raleigh, North Carolina.  The service area includes nine counties for home health and four counties for community-based services.

Hospice Advantage:  Hospice Advantage announced the merger of its Birmingham location with Alabama’s Life Care Hospice of Gardendale.

The VNA of Western New York is expanding into Pennsylvania through a partnership with the Upper Allegheny Health System. In early April, the new VNA of Northwest PA is expected to begin operation as a joint entity of VNA and Bradford Regional Medical Center, which operates under the Upper Allegheny umbrella along with Olean General Hospital.

Porchlight VNA/Homecare, in western Massachusetts. Effective April 1, Chicopee VNA and its home care affiliate, Great to be Home Care will be incorporated into Porchlight VNA/Homecare, based in and originally known as Lee VNA.

Lower Cape Fear Hospice & LifeCareCenter is expanding its reach through a merger, the organization announced last week. Effective April 1, Mercy Care, a nonprofit hospice in Myrtle Beach.

Celtic Healthcare announced their acquisition of VNA-TIP Healthcare, with more than 30 home care and hospice branches in over 50 counties in Missouri and Illinois.

Signature HealthCARE announced that they have signed an agreement to acquire the assets of ConfiCare Home Health Solutions.  Conficare has offices throughout Florida, including Ormand Beach.  Conficare has been renamed Signature HomeNow.

ViaQuest, Inc. a leading regional health services provider, announced today that it has acquired the Indiana operations of TriStar Home Health and Hospice, a division of Trilogy Health Services, LLC. of Louisville, Ky. Terms were not disclosed.

The acquisition, effective immediately, includes TriStar operations known as Vibrant Home Health Care, serving 22 Indiana counties from locations in Evansville, Huntingburg and Terre Haute; Care One Homecare Services, serving 11 central Indiana counties from its Muncie office; and Serenity Hospice, serving 25 counties from branches in Lafayette, Fowler and Terre Haute.
 
Stoneridge Partners:  We recently announced the sale of Embrace Hospice of New Castle, Indiana.  Cory Mertz, one of our partners, provided sell-side advisory services.

NEW COMPANIES EXCLUSIVELY LISTED FOR SALE BY STONERIDGE:

  • Home Care & Hospice – Medicare certified & accredited, located in a southern CON state with large urban population.  Over $9 million in revenue. Now on Contract.
  • Diversified, Medicare certified and accredited covering 28 Ohio counties.  $2.3 million in revenue, 54% Medicare, 23% Medicaid, 23% private pay.  Call Rhonda Gronberg and refer to file #S-5258.
  • Medicare certified and accredited home care agency with CONs covering nine Georgia counties.  Current run rate approximately $4 million.  Now on Contract.
  • Medicare and Florida Nurse Registry with over $4 million in revenue, in very dense population area with great room for growth. Established over ten years.  Call Don Cummins and refer to file #S-5247.
  • Medicare home care agency in CON state West Virginia.  $3 million in revenue, growing with new CON territories being developed.  Strong management team, call Cory Mertz and refer to file # S-5261.
  • Medicaid home care agency in Minnesota.  Large and diversified with $11 million in revenue, with unique license that positions it well for growth.  Call Brian Bruenderman and refer to file #S-5268.
  • Medicare certified and accredited home care agency, located in Maricopa County, Arizona.  Medicare census over 100.  Call Rhonda Gronberg and refer to file #S-5262.
  • Diversified Florida Medicare/Medicaid Home Care Agency with revenue of approx. $4 million.  Professionally operated with excellent financial records. Call Brian Bruenderman and refer to file # S-5280.
  •  Medicaid home care agency located in Southeast USA with over $4 million in revenue and approx. $800K in EBITDA.  This is a division of a $10 million  agency, and the owner would consider selling the entire company to the right buyer. Call Brian Bruenderman and refer to file #S-5263.
  • Medicare certified Florida home care agency with $4 million in revenue serving five counties.  Profitable with strong growth.  Call Cory Mertz and refer to File # S-5272.

To see more home care agencies and hospices exclusively list for sale by Stoneridge Partners go to our home page then click tab “Agencies for Sale”

Do you know of any acquisitions that have taken place?  We would be interested in your comments.  At the top of this column is a “Contact Tab” with 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.

Eatenbyacamel

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 

From Don Cummins, Publisher of “The Home Health Index”  don@stoneridgepartners.com

Previous editions of this monthly newsletter can be searched for below.

 

 

 

 

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