March 1st Update

Quote of the Month:

“We are extremely pleased to announce the combination of WillCare and Almost Family. We have known Todd and Dave Brason and WillCare for a very long time and have been very impressed with the strong company and brand they have built. We are honored to have the opportunity to combine with a company of WillCare’s stature.”

William B. Yarmouth, Chairman and CEO for Almost Family, Inc.

Our Congratulations to Almost Family and WillCare. Nice Job!

The Stoneridge Partners Home Health Index (HH Index) is updated monthly and measures the performance of these three publicly traded home health companies, all listed on the NASDAQ:

  • Almost Family (AFAM)
  • LHC Group (LHCG)
  • Amedisys (AMED)

The Stoneridge Partners Home Health Index (HH Index) takes off….up over 11%.

After slumbering for the month of January, February saw a big change. When Almost Family announced their acquisition of WillCare, their stock took off, pulling our entire index with them. (More on this acquisition later.). After ending both 2013 and 2014 each with gains of over 30%, our index is now up over 11% in just two months. The S&P 500 is up 2.2% YTD.

The all-time high for our HH Index was set in September, 2008 at 41.75. Our low since then was set in October, 2011 at 11.65. Two years ago we were at 17.42. We now rest at 29.42. (This month our HH Index discontinued using Gentiva, who was acquired by Kindred at the end of January.)

Here are the results for the past two years:

Company 2/28/15 1 mos change YTD change 1 yr change 2 yr change
Almost Family 35.62 +17.33% +23.04 +21.91% +73.00%
Amedisys 30.17 +8.94% +2.79% +77.89% +165.60%
LHC Group 33.80 +13.73% +8.40% +43.46% +66.34%
HH Index** 33.20 +12.92% +11.30% +46.58 +90.60%
S&P 500 2,104.50 +5.49% +2.21% +13.18 +38.94%
Addus 21.90 -1.26% -9.77% -23.85% +148.58%

Gentiva stock closed at $19.19 on February 2 at 4:00 pm, at which time Gentiva ceased public trading due to its acquisition by Kindred. As a result, beginning February, 2015, after twelve years of tracking, Gentiva will no longer be included in our HH Index.

Our HH Index for 2013 and 2014 was calculated without Gentiva for purposes of comparison.

As you can see, Almost Family stock was up over 17% with most of that increase coming after the announcement of the execution of a Definitive Agreement for the acquisition of WillCare.  Both LHC Group and Amedisys were also up nicely.

Addus continued a slide now down close to 10% for the year, but when looking back two years their results are impressive. Addus is not included in our index because the majority of their revenue does not come from Medicare reimbursement.

See It to Believe It

This first graph 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. And what a great two year trend. Note that by placing your cursor over a point on the graph it will give you the percentage increase.

This second graph shows the price of the HH Index going back to 2002.  Note that by placing your cursor over a point on the graph it will give you the price

This third graph compares our HH Index to the price of Addus stock (non-Medicare).  A nice trend for our Index….not so good for Addus.

This tfourth 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, 2015.

PERCENT OF REVENUE & MULTIPLE OF EBITDA:

Selling Price (Enterprise Value) as a Percent of Revenue.

Company 3/1/15 3/1/14
Almost Family 79% 65%
Amedisys 93% 35%
LHC Group 91% 69%
HH Index Average 87.6% 56.3%
Addus 77% 108%

Multiples of EV/EBITDA.

Think of this as selling price as a multiple of EBITDA. Take a look back just one year:

Company 3/1/15 3/1/14
Almost Family 14.02 10.06
Amedisys 21.47 6.68
LHC Group 11.15 7.32
HH Index Average 15.55 8.02
Addus 11.55 14.40

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 March 3. 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 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.

Saying Goodbye to Gentiva

On February 2 Gentiva ceased to trade as an independent public company, and is now owned by Kindred Healthcare, Inc. (NYSE:KND).

Gentiva was founded in 1999, when Olsten Corporation split off its healthcare assets to form an independent, public company. Olsten Corporation was founded in 1946 by William Olsten….a long history.

IN THE NEWS!

Almost Family Signs Agreement to Purchase WillCare:

Last week Almost Family (Nasdaq:AFAM) announced that they have signed a Definitive Agreement to acquire the stock of WillCare, with approximately $72 million in home care revenue. The purchase price is expected to range from $46 million to $53 million based on earnings prior to closing. Almost Family expects to close the Ohio portion in early March, and the New York portion in the second half of 2015.

This appears to be a nice acquisition for AFAM. Regarding geography, the combination provides them with a major entry into New York, where $52 million of WillCare’s 2014 revenues were generated and helps fill out their Northeast cluster. It also fits in nicely with AFAM’s Ohio operations.

In addition their revenue is about evenly split between their Visiting Nurse segment (primarily Medicare), and their Personal Care segment (non-Medicare), which also fits nicely with AFAM.

For WillCare, the synergies that Almost Family is able to bring to the table (and pay for), resulted in a much better price than if the price was based on EBITDA alone. Expected synergies that were announced are substantial ….estimated to be between $5.0 million and $7.5 million.

This is an example of the advantage strategic buyers have in the M&A marketplace, with their ability to use synergies to increase their bottom line, which allows them to pay prices considerably higher than newcomers  can pay.  We note that AFAM used the phrase “agency level contribution” which excludes many home office expenses.

Almost Family Earnings:

In 000s 4th Quarter 12 Months Ending 12/31
2014 2013 % Change 2014 2013 % Change
Revenue
  Visiting Nurse* 95,724 72,055 +32.8% 380,788 263,789 +44.4%
Personal Care* 28,850 24,336 +18.5% 112,497 92,927 +21.1%
Total Revenue 124,756 96,587 +28.8% 495,829 356,912 +38.9%
Gross Profit 58,366 45,007 +29.7% 231,835 166,364 +39.4%
Gross Profit % 46.8% 46.6% 0.4% 46.8% 46.6% .0001%
G&A & Other Expenses 50,415 43,723 15.3% 207,193 151,571 36.7%
Operating Income 7,951 1,284 +519.2% 24,642 14,793 66.6%
Adjusted EBITDA 9,148 6,477 41.2% 35,775 24,017 49.0%
Stock Price March 1 35.62 27.42 +30%

LHC Group (Nasdaq:LHCG):

On February 25, LHC Group  released their 2014 earnings report, followed by their earnings call.

Regarding M&A activity:  “…..we innovated 57 locations at $105 million in trailing revenue last year. Our operations team is poised, ready and excited to top that record-breaking year again in ’15.”

To read the entire transcript, courtesy of Seeking Alpha, go to the following link: 2014 LHC Group Earnings Call

LHC Earnings:

In 000s 4th Quarter 12 Months Ending 12/31
2014 2013 % Change 2014 2013 % Change
Revenue 193,371 165,280  17.0% 733,632 658,283 11.4%
Gross Profit 80,579 70,039 15.0% 298,857 274,819 8.7%
Gross Profit % 41.67% 42.38% -1.66% 40.73% 41.75% -2.42%
Operating Income 11,565 10,617 8.9% 45,486 46,737 -2.7%
Stock Price March 1 33.80 23.56 +43.4%

Amedisys (Nasdaq: AMED)

Amdisys has just released their earnings report……little change on the top line but a huge improvement on the bottom line. To read the transcript from their earnings call click:  2014 Amedisys Earnings Call

In 000s 4th Quarter 12 Months Ending 12/31
2014 2013 % Change 2014 2013 % Change
Revenue 300,528 303,497  -1.0% 1,204,554 1,249,344 -3.6%
Gross Profit 129,153 124,161 +4.0% 513,493 531,348 -3.4%
Gross Profit % 43.0% 41.0% +5.1% 42.6% 42.5% +0.2%
Operating Income 7,951 1,284 +519.2% 24,642 14,793 66.6%
Stock Price March 1 30.17 16.96 +78%

Merger & Acquisition Activity:

Sold by Stoneridge Partners:

Springfield, Virginia: Americare In Home Nursing, Inc., a leading Medicare-certified provider of skilled home health nursing and therapy services, with agencies in Springfield, VA, Ft. Washington, MD, and Washington, DC, sold to a regional home care provider.  Brian Bruenderman, one of our partners, provided sell-side advisory services.

Other Transactions:

Louisville, KY – Almost Family, Inc. (Nasdaq: AFAM), a leading provider of home health nursing services, today announced that it has signed a definitive agreement to acquire the stock of WillCare HealthCare, a provider of skilled home health and personal care services which generated $72 million in revenue in 2014 and currently operates 16 branch locations in three states.

Dallas, TX – New Century Hospice, one of the fastest growing regional hospices, based in Dallas, Texas, announced today that effective March 1, 2015, it has acquired 100% of the member interests in Legacy Hospice, LLC and Legacy Hospice of Colorado Springs, LLC, with locations in Colorado Springs and the greater Denver MSA in Castle Rock south of Denver.

Brentwood, TN – Hospice Compassus, has acquired Life Choice Hospital, a Pennsylvania hospice company. Though specific terms of the deal were not disclosed, Hospice Compassus has secured $210 million in a senior secured credit facility for the acquisition from CIT Bank.

“The combination of Hospice Compassus and Life Choice creates a leading hospice platform with a national scope” – Jim Deal, Hospice Compassus CEO, said in a statement.

“While the hospice sector continues to be highly fragmented, Hospice Compassus has grown to be a dominant provider” – Will Duke, Management Director of CIT Corporate Finance.

Dallas. TX – Epic Health Services, a portfolio company of Webster Capital and Dallas based provider of pediatric skilled nursing and therapy, announced today the completion of its acquisition of the parent company and pediatric division of Loving Care Agency, Inc. a provider of pediatric and adult home health care services based in Hasbrouck Heights, New Jersey.

The close of this transaction creates a leading pediatric health care company serving patients in 10 states, including Texas, Pennsylvania, Massachusetts, New Jersey, Missouri, Indiana, Delaware, Arizona, Illinois, and Colorado.

Exclusively Listed for Sale by Stoneridge:

  • Florida – $7 million revenue with 80% from traditional Medicare, three offices and three provider numbers, accredited with professional management in place. Stoneridge file S-7324
  • Texas – $2.3 million Medicare certified home health agency in Houston, Texas. 92% Traditional Medicare. Stoneridge file S-1542
  • California – $2.2 million revenue, JCAHO accredited, Medicare certified home health care agency serving Southern California. Stoneridge file S-1050
  • Texas – $2 million plus Medicare certified home health agency providing service to Region 2.  88% of revenue is from traditional Medicare. Stoneridge file S-3650
  • Pennsylvania – $7 million plus, Medicaid provider with multiple locations in southeastern Pennsylvania. Well-run, profitable agency with great year over year growth and reputation for quality services.  Stoneridge file S-8000
  • New Jersey – $4 million private duty agency.  Primary payor is Medicaid, and the agency enjoys very good relationships with many referral sources.  Stoneridge file S-6700
  • Florida – $2.2 Million revenue Medicare agency in District 8, stretching from Naples to Sarasota.  90% of revenue from traditional Medicare, accredited with professional management and sales team in place. Stoneridge file S-6728
  • Utah – Approximately $3.5 million home health and hospice provider with multiple office locations. Good platform or add-on opportunity, motivated seller.  Stoneridge file S-2262
  • Florida – Stable $1 million Florida district 4 Medicare home health agency, management team in place and accredited. Stoneridge file S-5542
  • New Jersey – $4 million hospice serving southern New Jersey, well-established with a great reputation for quality care.  Stoneridge file S-1070 On Contract
  • Florida – $2.5 million Medicare certified agency serving District 8, Naples to Sarasota.  Very well established, good books, experience marketing team and management in place.  Stoneridge file S-6728
  • Florida – $2.8 million Medicare certified agency serving District 3. Solid operational team in place. 95% Medicare.  Stoneridge file S-9000
  • Colorado – $3 million revenue Medicare agency located in SW Colorado, accredited, stable and well run. Stoneridge file S-5542
  • New Mexico – $2.3 million Medicare provider serving the Roswell area. Clean surveys.  Stoneridge file S-5295
  • Texas – $2.3 million Houston Medicare home health agency, 90% traditional Medicare.  Strong bottom line, very well run with good books and records. Stoneridge file S-1542
  • Oklahoma –  $6 million revenue Oklahoma City Medicare certified home health agency.   90% of revenue from traditional Medicare. Stoneridge file S-3200
  • lllinois – 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. On Contract
  • 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
  • New Mexico – Private pay home care and care management agency with annual revenue approaching $1 million.  Stoneridge file S-5450

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.

Another favorite from The New Yorker

http://www.technologyinvestor.com/wp-content/uploads/2014/12/GetStick.jpg

More

For more cartoons and additional musings on the state of homecare and what’s going on at Stoneridge Partners, visit our blog, which is updated regularly: http://stoneridgepartners.com/category/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 at the bottom of the home page of the Home Health Index. Links to Google Finance: Almost Family | Amedisys | LHC Group