June 1st Update

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)

Quote of the Month:

“…..often times, a rising tide will lift all boats in an industry, as there can be broad trends taking place in a segment that are boosting securities across the board. This is arguably taking place in the Medical-Outpatient/Homecare space as it currently has a Zacks Industry Rank of 21 out of more than 250 industries, suggesting it is well-positioned…..”  

Zack’s Investment Research in their positive report of Amedisys.

The Stoneridge Partners Home Health Index gains 3.34%.

After taking a one month snooze, our Home health Index (HH Index) showed a nice gain in May ending at 35.39.  We have not been this high since May, 2010.  Our high was set in September, 2008 when we hit 41.75.

To go with the good news, the market as measured by the S&P 500 hit an all time end-of-month high at 2107.39, up about 10% over a year ago.

Again though we had mixed results.  Almost Family was down for the second straight month, but still up 86% YTD.   Amedisys was up for the 2nd straight month and both LHC Group and Addus were up.  However when looking back one year all stocks are up nicely, with our HH Index up 91%.  What a nice run!

Below in this column is a run down of first quarter numbers.  When combining the numbers from our HH Index stocks the results are impressive.  Revenue up 8.5% and gross margin percentage up 2.2%.

Here are the results of the stock prices for the past two years:

Company 5/31/15 1 mos change YTD change 1 yr change 2 yr change
Almost Family 38.40 -11.28% +32.64% +86.95% +94.23%
Amedisys 31.02 +11.54% -5.25% +113.20% +151.79%
LHC Group 36.76 +16.11% +1.54% +80.46% +67.17%
HH Index** 35.39 +3.34% +14.83% +91.45 +96.34%
S&P 500 2,201.39 +1.05% +1.29% +9.56% +29.23%
Addus 28.01 +4.36% +10.59% +23.07% +55.70%

Although we track the performance of Addus, they  are not included in our HH Index because very little of their revenue comes from Medicare.

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.

This second graph compares our HH Index to the price of Addus stock (non-Medicare).

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 May, 2015.

Enterprise Value (EV)

EV (000s) 6/1/15 5/1/15
Almost Family 403.0 463.3
Amedisys 1,170 1010
LHC Group 666.5 678.8
HH Index Total 2,239.5 2,152.1
Addus 302.7 301.3

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

Company 6/1/15 6/1/14 9/1/13
Almost Family 80% 60% 42%
Amedisys 98% 43% 42%
LHC Group 89% 67% 66%
HH Index Average 89% 56% 50%
Addus 94% 84% 80%

Multiples of EV/EBITDA.

Think of this as selling price as a multiple of EBITDA.

Company 6/1/15 6/1/14 9/1/13
Almost Family 12.36 15.84 5.66
Amedisys 13.18 16.65 7.82
LHC Group 10.11 12.48 6.83
HH Index Average 11.88 15.0 6.77
Addus 12.91 13.07 10.50

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 May 1. 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.

IN THE NEWS!

Shares of Humana jumped 18% on Friday, May 29 after the Wall Street Journal reported that the health insurer is considering a sale.  This may just be the beginning, or, as one insider noted, this just may be the beginning of the beginning in health care insurance consolidation

As the WSJ noted, M&A among health insurance firms has been relatively quiet since 2011 and 2012 when several deals were inked, including Aetna’s $5.7 billion purchase of Coventry Health Care Inc. and Cigna’s $3.8 billion acquisition of HealthSpring Inc.

It has now been several years since Humana entered the home care space through the acquisition of SeniorBridge (now Humana at Home).  Over these past few years they have been very active in home care M&A, and, for now at least,  we have been told no change.

BY THE NUMBERS!

Quarterly earnings reports are out.  What follows is a thumb nail sketch of the results.

ALMOST FAMILY – First Quarter Results

In 1,000s 2015 2014 Change % Change
Revenue 128,399 120,339 +8,060 +6.7%
Gross margin 60,072 54,813 +5,259 +9.6%
Gross Margin % 46.7% +45.5% +1.3 +2.9%
G&A Expenses 52,701 52,495 +206 +0.4%
Operating Income 7,371 2,318 +5,053 +218%
Adjusted EBITDA 9,833 7,239 +2,594 +35.8%

It is interesting to note that, although revenue was up a modest 6.7%, their gross margin percentage  increased from 45.5% to 46.7%, and by keeping a tight watch over G&A expenses they were able to come up with a nice 35.8% increase in AEBITDA.

AMEDISYS:  First Quarter Results 

In 1,000s 2015 2014 Change % Change
Revenue 301,572 298,739 +8,060 +0.9%
Gross margin 130,611 121,731 +8,880 +6.8%
Gross Margin % 43.3% +40.7% +2.6 +6.3%
G&A Expenses* 104,009 126,300 -22,291 -17.6%
Operating Income 26,602 -4,569 +31,171 +680Y%

* Not include in G&A is “Asset Impairment Charges”, which in the first quarter of 2015 amounted to over $75 million.

We note that their gross margin increased from 40.7% to 43.3%, a 6.3% increase.  Also it should be noted that salaries in G&A decreased from $83 million in 2014 to $69 million in 2015. A very nice turn-around.

LHC GROUP – First Quarter Results

In 1,000s 2015 2014 Change % Change
Revenue 193,079 163,681 +29,398 +18.0%
Gross margin 78,653 66,347 +12,306 +18.5%
Gross Margin % 40.7% +40.5% +0.2 +0.5%
G&A Expenses* 64,557 57,941 +6,616 +11.4%
Operating Income 14,096 8,406 +5690 +67.7%

*Includes provision for bad debt

A very nice increase in both revenue, gross profit and operating income resulting in a nice increase in share price.  What is also impressive in that organic growth in home health Medicare admissions was up 6.5%

FIRST QUARTER TOTALS FOR ALMOST FAMILY, AMEDISYS AND LHC GROUP

In 1,000s 2015 2014 Change % Change
Revenue 632,050 582,759 +49,291 +8.5%
Gross margin 269,336 242,891 +26,445 +10.9%
Gross Margin % 42.6% +41.7% +0.9 +2.2%
G&A Expenses 221,267 236,736 -15,469 -6.5%
Operating Income 48,069 6,155 +41,914 681%

Revenue up, gross margin up, G&A expenses down, all going in the right direction and resulting in a very nice performance.

ADDUS HOMECARE – FIRST QUARTER RESULTS:

In 1,000s 2015 2014 Change % Change
Revenue 81,915 71,683 +10,232 +14.3%
Gross margin 21,926 18,668 +3,258 +17.5%
Gross Margin % 26.7% 26.0% +0.7 2.7%
G&A Expenses* 17,153 14,403 +2,750 +19.1%
Operating Income 4,773 4,265 +508 +11.9%

*Depreciation and amortization has been excluded from G&A expense.

Both revenue and gross margin percentages up…..makes a nice combination.

Merger & Acquisition Activity:

SOLD BY STONERIDGE PARTNERS:

  • Phoenix, AZ – Good Life Home Care of Arizona sold to a regional health care provider.  Benjamin Bogan, one of our partners, provided sell-side advisory services.

OTHER SALES FROM AROUND THE COUNTRY:

  • Burnesville, NC – PruittHealth Home Health announced today that it has officially acquired Toe River Home Health Agency in Burnsville, North Carolina.  PruittHealth Home Health, a member of the PruittHealth family of providers, will now offer quality care services and programs to residents in Avery, Mitchell and Yancey County as well as the immediate service area.
  • Kansas City – A pair of area’s most prominent nonprofit hospice organizations plan to merge. NorthCare Hospice & Palliative Care said Tuesday that it has signed a letter of intent to combine with Kansas City Hospice & Palliative Care. If approved, the merger would be effective July 1, according to a release.Plans call for NorthCare Hospice to keep its name and operate as a division of Kansas City Hospice in the Northland. The NorthCare Hospice House, which provides inpatient hospice and palliative care, would remain on the North Kansas City Hospital campus.
  • CVS Health Corp (NYSE:CVS) announced their planned acquisiton of pharmacy services provider Omnicare.  Under the terms of the deal,  CVS will purchase the pharmacy servies provider for $98 a share in cash. The $12.7 billion enterprise value of the deal includes about $2.3 billion in debt.The purchase will help CVS expand its ability to provide prescriptions to assisted-living and LTC facilities, serving the rapidly aging American senior patient population.

Exclusively Listed for Sale by Stoneridge:

  • Minnesota & Wisconsin – $2 million Medicaid & Medicare certified home health agency in MN and WI. Primarily Medicaid with great opportunity for Medicare growth. Well-run with excellent clinical. Stoneridge file S-3002
  • Florida– Clearwater/St. Pete area – $4 million Medicare home health agency. Excellent outcomes, strong clinical programs, excellent management team in place. $700K in adjusted EBITDA. Stoneridge file S-4109.
  • Texas – $5 million East Texas Medicare certified home health agency with diverse payor sources, including Medicare, Medicaid, pediatric and private pay.  Stoneridge file S-3665
  • Washington State – $2 million revenue. This agency has a long history of profitability. Diverse payor sources includes Medicaid programs and private pay. Great reputation in a unique service area. Stoneridge file S-7010
  • Texas $1.2 million Medicare certified home health care agency in the Galveston area. Stoneridge file S-9015
  • Texas – $1.5 million East Texas Medicare certified home health agency, providing skilled care, approx 75% from traditional PPS Medicare.  Last survey was deficiency free. Stoneridge file S-4088
  • Virginia- $4 million Medicare agency located in Northern Virginia. 78% Traditional Medicare. Accredited. Stoneridge file S-6001
  • Texas – $2.3 million Medicare certified home health agency in Houston, Texas. 92% Traditional Medicare. Stoneridge file S-1542
  • North Carolina – $2.2 million Medicaid provider with two locations serving Charlotte, NC and surrounding areas. Service waiver programs include: PCS, PDN, and CAP. Accredited. Professionally run company with outstanding clinical. Great tuck-in opportunity. Stoneridge file S-2999 On Contract
  • Texas – $3.3 million accredited Medicare home health agency. Profitable and still growing with approximately 87% of revenue coming from traditional Medicare. Strong marketing team in place with diversified referral sources. Stoneridge file S-1500
  • California – $2.2 million revenue, JCAHO accredited, Medicare certified home health care agency serving Southern California. Stoneridge file S-1050
  • Texas – $2 million Fort Worth Medicare agency, approx 90% traditional Medicare.Stoneridge file S-2650
  • 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 On Contract
  • Florida – Stable $1 million Florida district 4 Medicare home health agency, management team in place and accredited. Stoneridge file S-5542 On Contract
  • 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 – $2.8 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
  • Oklahoma –  $6 million revenue Oklahoma City Medicare certified home health agency.   90% of revenue from traditional Medicare. Stoneridge file S-3200
  • 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

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 Yorkerhttp://www.technologyinvestor.com/wp-content/uploads/2015/03/Cage.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