November 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:

“The company needed a clear path forward”   Benjamin A. Breier, at 43, the new CEO of Kindred, speaking of the proposed acquisition of Gentiva.

The Stoneridge Partners Home Health Index (HH Index) up over 14%.

After taking a minor dip last month the Stoneridge Partners’ Home Health Index (HH Index) jumped over 14%, while the S&P 500 was up only 2.8%.

This nice increase may have been the result of another stellar quarter from Amedisys, going from a loss one year ago to over $16 million in operating income in the third quarter.  Their stock is now up 78% YTD.

The high for our HH Index was set in September, 2008 at 41.75.  We now sit at 24.90, a level not seen since June, 2011.

Here are this month’s results:

Company 10/31/14 9/30/14 Mos % Change YTD % Change Year Ago % Change
Almost Family 29.44 27.17 +8.35% -8.94% +53.09%
Amedisys 26.10 20.17 +29.40% +78.40% +60.32%
Gentiva* 19.70 16.78 +17.40% +58.74% +72.50%
LHC Group 24.35 23.2 +4.96% +1.29% +18.20%
HH Index 24.9 21.83 +14.05% +19.40% +47.48%
S&P 500 2018.05 1963.25 +2.79%  +9.18% +14.89%
Addus 19.87 19.60 1.38% -11.49% -23.13%

*The purchase price of the Kindred-Gentiva transaction was set at $19.50 per share.

Almost Family remains the only stock that is down YTD, but looking back one year all are up nicely.

Addus, a company that is not a part of our HH Index, is now down 23% from one year ago.  From the spring of 2013 their stock went on a tear, just about tripling in price.  This is a very well run company that may be under-valued.

Here is a chart comparing Addus and our HH Index over the past two years.  Addus is primarily a non-Medicare company while the stocks in our index are primarily Medicare reimbursed. It might appear that Addus, as a non-Medicare company, if now lagging behind the primarily Medicare companies included in our HH Index

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

PERCENT OF REVENUE & MULTIPLE OF EBITDA:

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.

Selling Price (Enterprise Value) as a Percent of Revenue. What a difference a year makes!

11/1/2014 11/1/2013
Almost Family 75% 43%
Amedisys 82% 42%
Gentiva 95% 65%
LHC Group 74% 60%
HH Index Average 81.5% 52.5%
Addus 69% 93%

Note that the purchase price of the Kindred-Gentiva transaction is approx. $1.8 billion.  Based on Gentiva’s second quarter annualized revenue of about $2 billion this works out to around 90% of revenue.  It appears that the other public companies are slowly catching up.

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

11/1/2014 10/1/2013
Almost Family 18.09* 5.79
Amedisys 18.97** 7.82
Gentiva 12.53 6.41
LHC Group 9.08 6.26
HH Index Average 14.66 6.57
Addus 10.60 12.30

The above calculations are based on selling price being defined as Enterprise Value (EV), with data provided by Capital IQ.   EV has been calculated based on stock prices October 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.

* The spike in EBITDA for Almost Family may be a result of their 4th quarter acquisition of $150M Suncrest.

** The spike in multiple of EBITDA for Amedisys may be a result of recently announced increased earnings. 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:  After last month’s announcement that the Kindred-Gentiva transaction is going forward, there has not been much news on that front.  The final closing to take place in the first quarter of 2015.

The purchase price is $1.8 billion.  They anticipate revenue of combined entities of approx. $7.1 billion with operating income of $1 billion.  Synergies of $70 million in cost savings are expected within two years.

According to their press release, this will make their combined company the largest provider of rehabilitation, home health and hospice services in the country.  They will operate within the “Kindred at Home” division and be based in Louisville, however they will keep a significant regional presence in Atlanta, where Gentiva is based.

Amedisys, third quarter results, in 000s: 

2014 2013 Difference % Change
Revenue
   Home Health 237,200 236,800 +400 +0.17%
   Hospice 63,100 64,500 -1,400 -2.17%
     Total Revenue 300,281 301,285 -1,004 -0.33%
Gross Profit
  Home Health 99,800 96,100 +3,700 +9.18%
42.07% 40.58% +3.68%
  Hospice 30,300 30,000 +300 1.00%
48.0% 46.5% +3.24%
    Total GP 130,122 126,052 +4,070 +3.23%
G&A* 113,875 130,378 -16,504 -12.7%
Operating Income 16,248 -4,326 20,574

* For comparison purposes G&A does not include a $150M DOJ settlement that was made in 3rd quarter 2013.

It is interesting to note that, while total revenue was down slightly, gross profit was up over 3%.  That, along with expenses being slashed by over $16M, resulted in a nice increase in income resulting in a nice pop in their stock price.

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

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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 October, 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:

SOLD….by Stoneridge Partners:

  • Ft. Worth, Texas: Covenant Hospice and Palliative Care merged with a national hospice provider.  Cory Mertz, one of our partners, provided sell-side advisory services.
  • Columbus, Georgia:   Freedom Home Care recently sold to a national human resource provider.  Brian Bruenderman, one of our partners, provided sell-side advisory services.

Other Transactions From Around the Country

  • Atlanta, Georgia: Halcyon Healthcare, a portfolio company of Health Evolution Partners and parent of Halcyon Hospice has acquired Community Hospice of Mississippi, headquartered in Tupelo, MS.
  • Glendale , Calif:  Apollo Medical Holdings, an integrated physician-centric healthcare delivery company, announced the launch of a new subsidiary, Apollo Palliative Services, with the acquisition of majority stakes in both a hospice agency and a home health company.
  • Chicago, Illinois: Accelera Innovations, Inc. (“Accelera”) announced that they have closed on the acquisition of SCI Home Health, Inc (d/b/a Advance Lifecare Home Health) (“SCI”).
  • Livonia, Michigan: Hospice Advantage announced their acquisition of  Sanctuary Hospice of Michigan.

Heard on the Street:

  • In an article from Dow Jones, Cressey & Co.is putting up Hospice Compassus, Inc. for sale which could fetch $300 million, said three people familiar with the situation.
  • In an article in the Wall Street Journal, Amy Or reports that “Cressey & Co is selling Encompass Home Health, Inc. in an auction process in the hope of fetching $700 million for the provider of at-home nursing services.”

How about two for a billion!

COMPANIES EXCLUSIVELY LISTED FOR SALE BY STONERIDGE:

  • Jacksonville, FL – $2 million revenue Medicare home care agency based in Jacksonville.  Well established with strong management team in place.  Diverse referral base.  Stoneridge file S-4159
  • New Jersey – $4 million hospice serving southern New Jersey, well-established with a great reputation for quality care.  Stoneridge file S-1070
  • Utah – $10 million home health and hospice provider with multiple office locations. Good platform or add-on opportunity, motivated seller.  Stoneridge file S-2262
  • Florida – $2.8 million Medicare certified agency serving District 3. Solid operational team in place. 95% Medicare.  Stoneridge file S-9000
  • New Mexico – $2.3 million Medicare provider serving the Roswell area. Clean surveys.  Stoneridge file S-5295
  • Arizona – $2 million hospice located in large Metropolitan area.  Clean surveys and no CAP issues.  Stoneridge file S-6210.
  •  Michigan – $2.2 million revenue behavioral health company providing Medicaid waiver services in group homes. Great relationship with referral sources.  Stoneridge file #S-1066.
  • llinois – 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.
  • 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.  ON CONTRACT
  • Ohio – $11 million Ohio Medicaid Provider.  Experienced management team will stay with new owner.  Stoneridge file S-5283. Under Contract
  • Georgia – Medicaid provider with over $6 million in revenue, 40% gross margin, and approx. $800K in EBITDA.  Stoneridge file S-5263.  SOLD
  • 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.
  • 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.
  • 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.

Finally some good news..From the New Yorker EverythingisCharged

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