August 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:

Regarding Value Based Purchasing:

“In general, we are supportive of its goals. Home health providers that deliver the best quality care should be rewarded. Ultimately, we believe a well designed program like the proposed one will drive consolidation and ultimately benefit providers with scale, capital resources and clinical sophistication.”  Paul Kuserow, President, Amedisys

The Stoneridge Partners Home Health Index Hits All Time High!

Following a nice 11% gain in June, our home Health Index (HH Index) surged another 9% in July bringing our YTD increase to over 40%, and setting a new record at 42.55. Wow!

Our previous high was set in September, 2008 at 41.75.   To say the least its been quite a ride!

We started our HH Index back in 2002, near the beginning of the Medicare PPS reimbursement system.  Believe it or not….at that time our HH Index hovered around 5.  By 2008 our Index had risen to 41.75, but then a quick drop to  21.  Ouch!

One year later we were back to 40, then 18 months later, on December 1, 2011 we went all the way down to 11.  It was from that point that our current bull market began.

See It to Believe It!

This 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 January, 2002. It has been quite a ride.

This 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 July, 2015.  The stock prices converge!

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

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

Company 7/30/15 1 mos change YTD change 1 yr change 2 yr change
Almost Family 43.76 +9.85% +51.16% +86.69% +128.75%
Amedisys 43.63 +12.57% +48.65% +116.10% +248.76%
LHC Group 40.27 +5.50% +29.15% +71.51% +75.54%
HH Index** 42.55 +9.20% +42.67% +90.23% +133.90%
S&P 500 2103.84 +1.93% +2.18% +8.97% +24.80%
Addus 27.14 -2.57% +11.83% +21.98% +38.19

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

Enterprise Value (EV)

For some reason unbeknownst to me, the Enterprise Value for Amedisys was not publicized this month.

EV (in M)) 8/1/15 7/1/15 6/1/15 5/1/15
Almost Family 458 416 403 463
Amedisys NA 1,420 1,170 1010
LHC Group 775 742 666 679
HH Index Total 2578 2,239 2,152
Addus 285.02 311 302.7 301.3

Enterprise Value (EV), aka Selling Price,  as a Percent of Revenue. Note that only two years ago these stocks were selling for 50% of EV.

Company 8/1/15 7/1/15 7/1/14 9/1/13
Almost Family 91% 83% 65% 42%
Amedisys NA 119% 51% 42%
LHC Group 104% 100% 69% 66%
HH Index Average 101% 62% 50%
Addus 88% 96% 82% 80%

Multiples of EV/EBITDA.

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

Company 8/1/15 7/1/15 7/1/14 9/1/13
Almost Family 14.04 12.77 16.96 5.66
Amedisys NA 16.02 19.72 7.82
LHC Group 11.75 11.26 8.60 6.83
HH Index Average 13.35 15.1 6.77
Addus 12.16 13.28 12.80 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 August 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!

Last month we discussed Aetna’s plan to acquire Humana for $37 Billion! We also asked what the odds are of this  transaction actually happening?  Aetna’s purchase price is $230 per share for  Humana.  You can buy that same stock today for about $183.

We also asked if the rumored deal between Anthem and Cigna would be next….and guess what…..three weeks later Anthem announced their plans to buy Cigna Corp. in a deal valued at $54.2 billion.   The deal, valued at $183.36 per share is the biggest ever in health insurance.

The market appeared to yawn.  Cigna shares have continued to drop, and you can buy the stock now for around $145 per share.  It seems that both of these proposed transactions face stiff challenges from the antitrust regulators.

To read the Fortune article go here:  Anthem-Cigna

 Almost Family in the News!

Last week Almost Family issued their earnings report.  One of the headlines read “Almost Family beats by $0.04, but misses on revenue”.  Soon after Zack’s Investment Research issued a recommendation to “Sell”.  The result….their stock leaped from $40 to $48…..now isn’t that interesting.

We note that North Tide Capital, an activist investor, now owns about 13% of Almost Family stock valued at over $55M.  We also note that North Tide also owns about 12% of Amedisys stock valued at over $100M. Several months ago there was a rumor of a possible merger….just saying.

Almost Family Earnings Report – 2nd Quarter

In 000’s 2nd qtr 2015 2nd qtr 2014
Revenue 127,366 125,192
Gross margin 66,343 59,636
GM % 47.9% 47.6%
G&A Expenses 52,433 52,628
Operating Income 8,580 7,008

Also in their press release:

  • The pending closing of their recently announced acquisition of Willcare is the third quarter of 2015 pending final New York regulatory approval. WillCare operations are expected to continue under current management.
  • They announced their acquisition of Ingenios Health Co.  See below our M&A Activity section.

Amedisys in the News!

On July 28th Amedisys issued their 2nd quarter earnings report.

Excerpt:  “We reported revenue of $314 million, adjusted EBITDA of $32 million…. In home health, field level contribution increased $7 million or 22% over the second quarter last year. Same-store Medicare revenue was down 1% on flat admissions. We continue to see strong same-store Non-Medicare revenue growth at 16%, again, driven by our larger contracted relationships. In hospice, we posted our strongest quarterly same-store revenue growth in nearly three years. Same-store admissions continue to increase and cost per day is down more than 5% year-over-year leading to a healthy increase in margin. Hospice field level contribution was up almost $4 million or 28% versus the prior year.”

They also noted that they are moving 33 executives to Nashville.

To read the entire earnings report, courtesy of Seeking Alpha go here:  Amedisys Earnings Transcript

Amedisys Earnings Report – 2nd Quarter

In 000s 2nd qtr 2015 2nd qtr 2014
Revenue 314,152 305,006
Gross margin 138,453 132,486
Gross Margin % 44.07% 43.4%
G&A Expenses* 122,926 119,925
Operating Income 15,527 12,561

A nice increase in revenue, gross margin, gross margin percent and operating income.

LHC Group in the News!

Earnings Call Excerpt:  “Keith G. Myers, LHC Group’s chairman and CEO…..I am particularly pleased with our ability to continue with a solid organic growth rate in home health admissions of 4.4% in the first half of 2015 compared with the same period of 2014 and our ability to control and further reduce G&A cost as a percentage of revenue.”

LHC Group Earnings Report – 2nd Quarter

In 000s 2nd qtr 2015 2nd qtr 2014
Revenue 200,172 188,867
Gross margin 83,533 77,340
Gross Margin % 41.7% 40.9%
Provision for Bad Debt 4,805 4,363
G&A Expenses* 60,370 59,723
Operating Income 18,358 13,254

Nice increase in both Revenue and Operating Income.  A solid quarter that produced a nice pop in their share price.

We note that hedge fund Coliseum Capital Management owns about 12% of the stock ($75M).

Addus HomeCare in the News!

Excerpt from 2nd quarter earnings call, Mark Heaney, CEO – “Turning to the second quarter, we are pleased with our financial results for the quarter. We produced double digit growth in revenues, adjusted-EBITDA and earnings per diluted share. Our gross margin expended. We produced these results despite the lower than normal pace of referrals in our largest market, the State of Illinois.”

To read the entire transcript, courtesy of Seeking Alpha go here:  Addus Earnings Call

Addus Earnings Report – 2nd Quarter

In 000s 2nd qtr 2015 2nd qtr 2014
Revenue 85,809 76,965
Gross margin 23,682 20,580
Gross Margin % 27.6% 26.7%
G&A Expenses 17,423 15,399
Depreciation/Amort 1,161 1,083
Operating Income 5,098 4,098

A nice increase in revenue, gross profit, gross profit percent and operating income.

We note that Eos Private Equity owns about 36% of the stock valued at over $92M.

Merger & Acquisition Activity:

SOLD BY STONERIDGE PARTNERS:

Kindred divests their Utah home health agencies to a national homecare provider. Brian Bruenderman and Ben Bogan, Partners at Stoneridge, provided sell-side advisory services.

OTHER SALES FROM AROUND THE COUNTRY:

  • Louisville, KY –Almost Family, Inc. (NASDAQ:AFAM) announced the acquisition of Jacksonville, FL based Ingenios Health Co. (Ingenios). Ingenios is a leading provider of technology enabled in-home clinical assessments for Medicare Advantage, Managed Medicaid and Commercial Exchange lives in 7 states and Washington, D.C.
  • Lafayette, LA – EPI Group, LLC and Lafayette-based Heart of Hospice, LLC have acquired the hospice operations of Lakeshore Hospice Acquisition, LLC in Hammond and Heart of Hospice of New Orleans, LLC which together serve approximately 140 patients in southeast Louisiana.
  • Dallas/Ft. Worth – Village Health Partners has announced a deal with The Legacy at Home, bringing home health services to its patient pool of 75,000 residents.Legacy at Home is a Plano based home healthcare agency, the largest such nonprofit provider in Dallas-Fort Worth. Village Health Partners is a family medical practice made up of 31 providers that operates out of two care sites in Plano. Under the arrangement, the Legacy at Home will relocate its headquarters to the Independence Medical Village in Plano, where Village is an anchor.

Join Us in Texas:

Join us this week for a great time August 12 -13 in Galveston for TAHC’s 46th Annual Meeting…..and meet Joe Lynch, one of our partners, who manages our office in Dallas.  TAHC Annual Conference.

Exclusively Listed for Sale by Stoneridge Partners:

  • Rhode Island – $2.5 million Medicare agency.  Accredited in CON state.  Stoneridge file #S-1100
  • Florida – $4 million in pure private pay.  15% bottom line.  Accredited on the central east coast.  Stoneridge file #S-3250.
  • Illinois – $5 million plus Medicare agency with four offices. Strong management with excellent clinical.  Stoneridge file #S-6550
  • Kentucky – Certificate of Need for 3 counties in Northern KY, rare opportunity to establish or expand services in populous CON service area. Stoneridge file S-1121
  • Illinois – $3 million hospice in Chicago area.  Average census 58.  Stoneridge file #S-5325
  • 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
  • Pennsylvania – Approx. $4 million Medicaid home care agency located in central PA. Accelerated and profitable growth trajectory with continued opportunity for future growth. Professionally run with outstanding clinical and excellent staff in place.  Stoneridge file S-1000
  • Illinois –  $2.3 million Chicago area Medicare agency, clean surveys, excellent clinical reputation.  Stoneridge file #S-4300
  • Massachusetts – $5 + million home health agency, primarily Medicaid, but also private pay and commercial insurance, plus Medicare certification. Zero deficiencies on last survey.  Stoneridge file #S-9300
  • 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 ON CONTRACT
  • Florida – $5 million Medicare agency located in the Tampa – St. Pete area.  Accredited, with solid bottom line.  Stoneridge file S-4109 ON CONTRACT
  • Texas – $8 million East Texas agency, Medicare certified with deficiency free survey, no audits, and top-of- the line software.  Stoneridge file S-3001
  • 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
  • Texas – Houston $1.6 million revenue, pure private pay with strong bottom line.  Stoneridge file S-2766.
  • 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
  • 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
  • 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.
  • 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
  • Texas $1.2 million Medicare certified home health care agency in the Galveston area. Stoneridge file S-9015

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 cartoon…..

http://www.technologyinvestor.com/wp-content/uploads/2015/08/GreeceRuins1.jpg

And from the New Yorker

StThomas

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