Bolstered by recent acquisitions, Addus Homecare’s (NASDAQ: ADUS) hospice segment is holding its own against labor headwinds and inflation.
For example, the company’s $85 million acquisition of Illinois-based hospice provider JourneyCare Inc., earlier this year added $25 million to its second quarter revenues. Addus also counted its first full quarter of revenue from its 2021 purchase of Armada Hospice of New Mexico and Armada Hospice of Santa Fe for $29 million. That transaction also included the affiliated Armada Skilled Home Health of New Mexico.
Addus plans to stay busy in the acquisitions market in the latter half of the year into early 2023, targeting primarily personal care and home health deals, according to CEO Dirk Allison.
“Over the past quarter, most of our deal flow has consisted of smaller acquisition opportunities across all three levels of care,” Allison said during a second quarter earnings call. “We continue to have conversations with brokers and other third parties, and — based on the feedback we’ve received — we expect to see an increase in potentially larger transactions in late 2022 in early 2023.”
Since 2019, Addus has purchased seven personal care companies and four home health and hospice agencies. They expect to deploy about $100 million annually for acquisitions.
But acquisitions are not the only drivers of the provider’s growth during the first half of 2022.
Addus saw average hospice length of stay rise to 23 days during Q2, up from 17 during the first quarter. Average daily census for the hospice business also got a boost from the Journeycare deal, reaching 3,333 in Q2 compared to 2,460 during the prior year’s quarter. About 2.5% of that growth was same-store and not attributable to an acquisition.
Company-wide revenues were up 8.7% in the second quarter to $236.9 million, with hospice accounting for 20%, CFO Brian Poff reported in the earnings call. The hospice segment brought in $52.074 million, up from $36.9 million during Q2 2021.
The rise in census and length of stay suggests some degree of normalization for the Addus after years of COVID-related disruption that adversely affected those metrics for many hospice providers nationwide.
These wins are helping the company mitigate the impacty of skyrocketing inflation.
“We’re apleased to see more historically normalized trends for hospice care be experienced strong cash flow during the quarter and remain well positioned in the current inflationary environment,” Allison said.
Nevertheless, labor headwinds persist — and, currently, the light at the end of that tunnel is more akin to candle flame than a shooting star.
The recent surge in COVID-19 sub-variants has brought more patients and staff back into quarantine, and hiring for skilled home health and hospice clinicians remains difficult, the company reported. Thus far in 2022, Addus’ personal care business has had better fortune compared to its clinical heath care services.
Allison indicated that hiring had improved somewhat for home health and hospice, and that turnover had seen a “modest reduction.” Recruitment and retention is “moving in a positive direction,” he said in the earnings call.
Despite the industry-wide labor concerns and rising costs, the outlook for Addus is favorable, according to industry analysts.
“We continue to have a positive view on ADUS and view its in-line Q2 results as an indicator of management’s continued ability to execute and deliver results despite a challenging labor environment,” Brian Tanquilut, equity analyst for Jeffries Financial Group, indicated in a note. “While labor continues to act as a limiter to overall growth, signs of improvement in employee recruitment and retention give us optimism that ADUS should see growth accelerate over the next several quarters, especially since demand for their services remains strong.”
