September 1st Update

[pl_alertbox type=”info”] 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. [/pl_alertbox]

Quote of the Month

We go back to the perhaps prescient quote a few months ago from Paul Diaz, CEO of Kindred regarding their proposed purchase of Gentiva:

“We will not be deterred.  We are determined to pursue the proposed combination of Kindred and Gentiva and are committed over the long term to achieving our objective.”  

We continue to believe that this deal will go forward.  More on this later in this column.

The Stoneridge Partners Home Health Index (HH Index) continues on a tear, up another 8.8%.

With four straight months of increases,  our HH Index is now up over 46% since May 1st.   These increases started when Kindred made a bid to purchase Gentiva, causing Gentiva’s stock to soar 80% overnight.   But since then all stocks in our index are up substantially.

Since May 1:

Almost Family +30%

Amedisys + 53%

Gentiva  + 140%

LHC Group  +24%

HH Index + 46%

Not since July 1, 2011 has our HH Index been at this level.

The high for our HH Index was set in September, 2008 at 41.75.  We now sit at 23.18, but we’re crawling back.

Here are this month’s results:

Company 8/31/14 7/31/14 Mos % Change YTD % Change Year Ago % Change
Almost Family 27.98 23.44 +19.37% -13.45% +48.28%
Amedisys 20.92 20.19 +3.62% +42.99% +28.42%
Gentiva 18.07 18.10 -0.17% +45.61% +57.54%
LHC Group 25.74 23.48 +9.63% +7.07% +13.74%
HH Index 23.18 21.30 8.80% +11.15% +38.86%
S&P 500 2003.37 1930.67 +3.77%  +8.39% +22.68%
Addus 21.90 22.25 -1.57% -2.45% +3.40%

All stocks in our index are up over one year ago with our HH Index up over 38%.

But more importantly, when checking back one year ago to the multiples of EBITDA and percentage of selling price to revenue we see big changes.

PERCENT OF REVENUE & MULTIPLE OF EBITDA:

Enterprise Value = EV

EV/REVENUE as a percentage. Think of this as selling price as a percentage of revenue.  What a difference a year makes!

9/1/2014 9/1/2013
Almost Family 72% 42%
Amedisys 70% 42%
Gentiva 92% 65%
LHC Group 77% 66%
HH Index Average 77.8% 53.8%
Addus 77% 80%

Note that, perhaps as a result of Kindred’s offer, the price of Gentiva’s stock is now at 92% of revenue, which begs the question: Are the other companies under valued?

MULTIPLES OF EV/EBITDA. Think of this as price as a multiple of EBITDA.

9/1/2014 9/1/2013
Almost Family 17.33 5.66
Amedisys 23.50* 7.82
Gentiva 12.10 6.37
LHC Group 9.54 6.83
HH Index Average 15.62 6.67
Addus 12.69 10.5

The above calculations are based on Enterprise Value (EV), with data provided by Capital IQ.   EV has been calculated based on stock prices August 31.

Enterprise value is defined as market cap plus debt, minority interest and preferred shares, minus total cash and cash equivalents.

EBITDA is calculated using methodology that may differ from that used by a company it is reporting.

* This spike in multiple of EBITDA for Amedisys may be a result of the increased earnings recently announced for the 2nd quarter. It seems that the stock trades on current earnings but the multiple of EBITDA is calculated on a trailing twelve months.

IN THE NEWS:

Gentiva-Kindred: News regarding the potential Kindred – Gentiva transaction continues to provide interesting reading.  Since this was first made public we predicted that this transaction would go forward.  We continue to do so.

As you will recall, Gentiva has two offers on the table, both at $17.25, one from Kindred, and the other from an unknown suitor.  Last month we speculated on four possible candidates, and at the top of our list was Formation Capital, who now, according to Susquehanna analyst Chris Riggs, looks to be the other buyer.

Formation Capital through their platform Genesis however has agreed to merge with Skilled Healthcare (NYSE:SKH) in a stock swap.  According to Riggs it is unlikely that Formation Capital can pursue two major and complex deals at the same time.  “The Genesis deal creates a cleaner path for Kindred’s bid on Gentiva.”

SECOND QUARTER EARNINGS…..

Last month’s issue contained Amedisys’ numbers.  This month we have the remaining stocks in our HH Index, plus Addus. In thousands

TOTAL FOR HH INDEX, including Almost Family, Amedisys, Gentiva and LHC Group.

2014 2013 Difference % Change
Revenue 1,116,850 983,086 +133,764 +13.61%
Gross Profit 499,866 443,223 +56,643 +12.78%
% GP 44.75% 45.08% -0.33 -.74%
G&A Expenses* 425,347 389,061 +36,286 +9.33%
Operating Income 74,519 77,632 -3,113 -4.01%
HH Index 6/30 18.81 15.06 +3.75 +24.90%

ALMOST FAMILY (AFAM)

2014 2013 Difference % Change
Revenue
Visiting Nurse 99,438 66,000 +33,438 +50.66%
Personal Care 25,499 20,400 +5,099 +25.00%
Total Revenue 124,937 86,400 +38,537 +44.60%
Gross Profit 59,350 40,253 +19,097 +47.44%
% GP 47.50% 46.49% +0.91 +1.95%
G&A Expenses 52,342 35,809 +16,533 +46.17%
Operating Income 7,008 4,444 +2,564 +57.70%
Stock Price 6/30 22.08 19.09 +2.99 +15.6%

Revenue up 45%, gross profit up 47%, operating income up 58% and stock price only up 15.6%.

Note for comparison purposes:

In December, 2013 they acquired SunCrest HealthCare with reported revenue of $150 million. In their earnings report it was stated that this acquisition added a total of $35.1M per quarter to revenue ($30.8 to visiting nurse & $4.3 to personal care), which annualizes out to $140.4M.

In July, 2013 they acquired Indiana Home Care Network with reported revenue of $13.3 million. It was stated that this acquisition added $2.6M per quarter to revenue. which annualizes out to $10.4M.

Backing these revenue numbers out it would show that same store sales were up about $837,000 or 1%.

GENTIVA (GTIV)

2014 2013 Difference % Change
Revenue
Home Health 269,068 235,216 +33,852 +14.39%
Hospice 172,322 179,208 -6,886 -3.84%
Community Care 56,650 56,650
Total Revenue 498,040 414,424 +83,616 +20.18%
Gross Profit 230,690 195,477 +35,213 +18.01%
% GP 46.32% 47.17% -0.85% -1.80%
G&A Expenses* 189,103 161,937 +27,166 +16.78%
Operating Income 41,587 57,010 -15,423 -27.05%
*Excludes interest
25,322 22,790 +2,532 +11.11%
Stock Price 6/30 15.06 9.96 +5.10 +51.2%

For comparison purposes note that in October, 2013 Gentiva purchased Harden Healthcare with revenue of approx. $412 million, 40% of which came from hospice with the remaining revenue primarily from community care programs such as Medicaid waiver.To read the entire earnings transcript go to the following link: Gentiva Earnings Report

LHC Group (LHCG)

2014 2013 Difference % Change
Revenue
Home Health 154,260 132,638 +21,622 +16.30
Hospice 17,068 13,906 +3,162 +22.74
Facility Based Services 17,539 19,758 -2,219 -11.23
Total Revenue 188,867 166,302 +22,565 +13.57
Gross Profit 77,340 69,293 +8,047 +11.61
% GP 40.95 41.67 -0.72 -1.73
G&A Expenses* 63,977 57,365 +6,612 +11.53
Operating Income 13,363 11,928 +1,435 +12.03
Stock Price 6/30 21.37 19.58 +1.79 +9.14%

LHC Group, Insider Trading: We note that, perhaps as a result of increased share price, there has been considerable insider trading taking place. Beginning on August 20th, Coliseum Capital sold 158,011 shares of stock for a total of over $4 million.

That was followed by CEO Keith Myers, in three separate transactions, selling 170,000 shares for a total of $4,317,482. He continues so hold 239,821 shares at a current value of approx. $6.2 million.

ADDUS (ADUS)  (Not included in our HH Index)

2014 2013 Difference % Change
Revenue 76,965 65,755 +11,210 +17.05
Gross Profit 20,580 16,613 +3,967 +23.88
% GP 26.7 25.3 +1.4 +5.53
G&A Expenses* 16,482 12,633 +3,849 +30.47
Operating Income 4,098 3,980 +118 +2.96
Stock Price 6/30 22.48 19.74 +2.74 +13.8%

GRAPHS: This first graph shows the HH Index compared to the actual prices of the individual companies that make up the chart through August, 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 13 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 August, 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”]

MERGER & ACQUISITION ACTIVITY:

From Stoneridge Partners:

  • Nashville, TN:  We recently completed the sale of Nashville based Willowbrook Home Health Systems to Five Points Healthcare.  Started in 1981 by June Baldini,  Willowbrook is a Medicare certified home health agency and hospice licensed in over 20 counties throughout central Tennessee.  Congratulations to June for building such a great company.  Stoneridge Partners provided sell-side advisory services to June.
  • Kissimmee, FL:  We recently completed the sale of Phoenix Home Care, a large Medicare agency with five offices covering 17 counties and four Florida districts.  Started in 2009, this is an amazing story of  growth in a professional manner.  Congratulations to the partners for building such a great company.  Cory Mertz, one of our partners, provided sell-side advisory services.

Other Transactions From Around the Country

  • St. Louis:  SSM Healthcare has agreed to purchase Adrian County Health Department’s home health an hospice division.  SSM Health at Home is part of the SSM Health Care System.
  • Overland Park, KS:  Kansas based Phoenix Home Care, Inc.announced that it has reached a definitive agreement to acquire Essential Health Care.   Phoenix Home Care as 13 offices and serves communities throughout Missouri, Kansas, and Colorado.
  • New York:  Reported by Reuters, private equity firm GTCR LLC has hired investment banks to find a buyer for Curo Health Services, a provider of home healthcare and hospice services, and hopes it will fetch as much as $750 million, according to people familiar with the matter.
  • Louisville:  Reuters reported that ResCare is being sold by its private equity owner Onex Corp, in a deal that could fetch more than $1 billion.

COMPANIES EXCLUSIVELY LISTED FOR SALE BY STONERIDGE:

  • Illinois – Profitable $5.5 million revenue Medicare home care and hospice serving the northern Chicago MSA.  Mature management team in place, a diverse referral base and strong outcomes — exceeding state and national averages on 15 of 22 quality measures as measured by Medicare’s “home health compare”.  Stoneridge file S-5288.
  • Arizona – $2 million hospice located in large Metropolitan area.  Clean surveys and no CAP issues.  Stoneridge file S-6210.Michigan.
  •  Michigan – $2.2 million revenue behavioral health company providing Medicaid waiver services in group homes. Great relationship with referral sources.  Stoneridge file #S-1066.
  • Ohio- $2.2 million revenue run rate diversified agency in central Ohio.  Private pay and both Medicare & Medicaid certified to serve both dual eligible and managed care populations.  Excellent outcomes.  Stoneridge file S-5276.
  • West Texas – $3.5 million Medicare agency established in 1995.  Stoneridge file S-5279.
  • Ohio – $2.5 million Medicare agency in Columbus area, 75% traditional Medicare, long history of quality care.  Stoneridge file S-5232.
  • Florida – Orlando area Medicare agency with about $900,000 revenue.  Stoneridge file S-2540.
  • Ohio – $11 million Ohio Medicaid Provider.  Experienced management team will stay with new owner.  Stoneridge file S-5283
  • Georgia – Medicaid provider with over $6 million in revenue, 40% gross margin, and approx. $800K in EBITDA.  Stoneridge file S-5263.
  • Texas – Multi-location private duty home care agency, $3.4 million revenue with a consistent 40% gross profit produces 15% EBITDA.   A quality agency evidenced by their latest survey with zero deficiencies,  Stoneridge file S-4250.
  • West Virginia – Medicare home care agency in CON state.  $3 million in revenue, growing with new CON territories being developed.  Strong management team.  Stoneridge file S-5261.
  • Texas – $3.5 million Medicare & Medicaid provider.  40% pediatric services, Gross margin of 48% and adjusted EBITDA of $400,000.  Stoneridge file S-5231.
  • Minnesota – Medicaid home care agency.  Large and diversified with $11 million in revenue, with unique license that positions it well for growth.  Stoneridge file S-5268.
  • Florida – Diversified Medicare/Medicaid Home Care Agency with revenue of approx. $4 million.  Professionally operated with excellent financial records.  Stoneridge file S-5280.
  • Dallas-Ft. Worth – $1.7 million of pure high-end private pay.  No Medicare/Medicaid. Professionally run and profitable.  Stoneridge file S-5281.
  • California – $8.3 Million Private Duty and Medicare Provider.  Predominately a private duty provider, this agency also operates a small, but significant, Medicare operation, making it a unique opportunity.  Owner will consider selling the business lines separately.  Stoneridge file S-3098.
  • California – Los Angeles Medicare, Medi-Cal and private pay skilled care provider.  They have a long history in the local community and top-notch management that is willing to stay with a new owner.  Stoneridge file S-3000.
  • Ohio – Small Medicaid waiver business in the Columbus area, Medicare certified.  Stoneridge file S-2545.
  • California – $5 million Hospice agency east of Los Angeles, profitable with clean surveys.  Stoneridge file S-3037
  • New Mexico – Private pay home care and care management agency with annual revenue approaching $1 million.  Stoneridge file S-5450
  • California – $3 million Santa Barbara Medicare agency, very motivated seller invites all offers.  Stoneridge file S-3098M

To see more home care agencies and hospices exclusively listed for sale by Stoneridge Partners go to the following link: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.

Favorite Cartoon

Airlinesizing

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 –  800-218-3944

Previous editions of this monthly newsletter can be searched for below.    Links to Google Finance: Almost Family | Amedisys | Gentiva | LHC Group