Addus HomeCare Reports Fourth Quarter 2011 Results

PALATINE, Ill., March 1, 2012 /PRNewswire/ -- Addus HomeCare Corporation (Nasdaq: ADUS), a comprehensive provider of home-based social and medical services focused primarily on the dual eligible population, announced today its financial results for the three months and year ended December 31, 2011.

Fourth Quarter Review

Total net service revenues for the fourth quarter of 2011 were $68.6 million, a 2.1% decrease compared to $70.1 million in the prior year quarter.  

Net income for the fourth quarter was $2.5 million, or $0.23 per diluted share, compared to $1.5 million or $0.14 per diluted share, in the prior year quarter.  

Net income for the fourth quarter was $3.8 million, or $0.35 per diluted share, before considering the change to the annual effective tax rate resulting from the goodwill and intangible asset impairment charge (described below).  Net income for the fourth quarter of 2011 included a $2.3 million payment, or $0.14 per diluted share, received from the State of Illinois as an interest payment for delays in payments of invoices (prompt payment interest) for the State's fiscal year ending June 30, 2011 and a gain of $0.5 million, or $0.03 per diluted share, from the revaluation of contingent consideration related to the acquisition of CarePro.  On a pro forma basis, reflecting the exclusion of the asset impairment charge, the prompt payment interest and the revaluation of contingent consideration described above, earnings for the fourth quarter were $0.19 per diluted share.

Home & Community segment net service revenues for the fourth quarter of 2011 were $56.2 million, a 0.8% decrease from the prior year quarter.  Excluding locations closed and select program eliminations totaling $0.7 million in revenue, same store sales increased 0.5%.  Home & Community operating income, including depreciation and amortization but excluding corporate expenses, increased 40.1% to $8.1 million, or 14.4% of revenue, in the fourth quarter, compared to $5.8 million, or 10.2% of revenue, in the prior year quarter.  This improvement was primarily due to a decrease in workers’ compensation costs and lower bad debt expense as a result of improved accounts receivable collections as well as a continued focus on cost control.

Home Health segment net service revenues for the fourth quarter of 2011 were $12.5 million, a 7.8% decrease over the prior year quarter, which included a reduction in Medicare revenues estimated at $0.4 million as a result of the rate cut enacted in 2011. Home Health operating income, including depreciation and amortization but excluding corporate expenses, was $0.1 million, or 0.5% of revenues, compared to $1.6 million, or 11.5% of revenues, in the prior year quarter. The lower performance in this business unit was primarily a result of increased contractual allowances, bad debt and consulting expenses offset by a slight improvement in workers compensation expense.  

Full Year 2011 Review

Total net service revenues for the year ended December 31, 2011 were $273.1 million, a 0.5% increase over the prior year period. The acquisition of CarePro contributed approximately $13.4 million in net service revenues in 2011.

Net loss for the year ended December 31, 2011 was $(2.0) million, or $(0.18) loss per diluted share, compared to net income of $6.0 million or $0.57 per diluted share for 2010. Net income for 2011 was $7.7 million, or $0.72 per diluted share, before considering the impact of the goodwill and intangible asset impairment charge.  Net income for 2011 included the $2.3 million, or $0.14 per diluted share, prompt payment interest received from the State of Illinois and a gain of $0.5 million, or $0.03 per diluted share, from the revaluation of contingent consideration related to the acquisition of CarePro.  On a pro forma basis, reflecting the exclusion of the above items, earnings for 2011 were $0.56 per diluted share.

Home & Community segment net service revenues for the year ended December 31, 2011 were $221.5 million, a 0.3% increase over the prior year.  Home & Community segment revenues included approximately $9.6 million from CarePro operations.  Excluding locations closed, program eliminations in select states, and the impact of the CarePro acquisition, same store sales increased by $ 0.3 million, or approximately 0.2%.  Home & Community operating income, including depreciation and amortization but excluding corporate expenses, increased 15.7% to $26.2 million, or 11.9% of revenue for 2011, compared to $22.7 million, or 10.3% of revenue in 2010.

Home Health segment net service revenues for the year ended December 31, 2011 were $51.6 million, a 1.3% increase compared to the prior year.  Home Health segment revenues included approximately $3.8 million from CarePro operations.  After adjusting for the Medicare rate reduction in 2011 of approximately $1.5 million, same store sales increased by $0.2 million, or 0.5%.  Home Health operating income, before considering the effect of the impairment charge, and including depreciation and amortization but excluding corporate expenses, was $1.8 million, or 3.4% of revenues, for 2011, compared to $5.3 million, or 10.4% of revenues in 2010.

Cash flow from operations was $15.9 million for the year ended December 31, 2011, compared to $10.7 million in 2010 due largely to the improved payments received from the State of Illinois, combined with an overall improvement in collections from all other payors.

Goodwill and Intangible Asset Impairment Charge

The Company performed its annual assessment of the fair value of its two reporting units and determined the fair value of the Home & Community reporting unit was greater than its book value indicating no initial impairment.  However, the assessment of its Home Health reporting unit confirmed a preliminary assessment conducted in the 3rd quarter indicating that the estimated fair value was less than the net book value of the business.

This conclusion was based on the current Federal and state reimbursement environments and continued pressure on reimbursement in the Home Health reporting unit, combined with ongoing declines in the market capitalization of the Company and updates to the Company's business projections and forecasts.  Accordingly, the Company recorded a non-cash goodwill and intangible asset impairment charge of $16.0 million for the three months ended September 30, 2011.

This determination represented an estimate and was based on a preliminary evaluation as of June 30, 2011. The Company completed its annual impairment test during the fourth quarter of 2011 and determined that no additional impairment charge or adjustment was required for the year ended December 31, 2011.

As part of the completion of the annual impairment test, the Company has determined that its tax benefit for the third quarter of 2011 should be adjusted to reflect a tax benefit of $(6.7) million for the third quarter.  With the adjustment of the tax benefit, the third quarter of 2011 earnings per share is $(0.62) loss per share. The income tax benefit of $(2.5) million for the full year of 2011 is not affected by the adjustment to the third quarter.

State Efforts to Manage Dual Eligible Populations

In an effort to deal with steadily rising Medicaid costs, states are increasingly shifting their dual eligible populations (individuals covered by both Medicare and Medicaid programs) into long term care programs administered by managed care insurance organizations.  Given its experience and focus on serving this population through its care coordination programs, the Company is in discussions with national and regional managed care organizations to assist them with their efforts to effectively manage this population.  There can be no assurance that these discussions will result in any contractual arrangements.

Anticipated Cost of Increased Regulations

The Company is expecting to incur approximately $1 million of additional expense in 2012 as a result of increases in the state and federal unemployment tax rates.  These costs will be incurred predominately in the first half of the year and affect both operating divisions.  Additionally, the Company is incurring increased contractual allowance expense related to the federal government’s requirements related to face-to-face and billing documentation in home health. The Company incurred approximately a $0.6 million charge in Q4 and anticipates these amounts to be approximately 1.5% of Medicare revenues on an ongoing basis.  These expenses are recorded as a reduction to revenues and are in addition to rate reductions anticipated in 2012.

Non-GAAP Financial Measures

The information provided in this release includes Adjusted EBITDA, a non-GAAP financial measure, which the Company defines as earnings before goodwill and intangible asset impairment charge, revaluation of contingent consideration, net interest (income) expense, taxes, depreciation, amortization, and stock-based compensation expense. The Company has provided, in the financial statement tables included in this press release, a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP measure. Management believes that Adjusted EBITDA is useful to investors, management and others in evaluating the Company's operating performance to provide investors with insight and consistency in the Company's financial reporting and present a basis for comparison of the Company's business operations among periods, and to facilitate comparison with the results of the Company's peers.

Conference Call

Addus will report its 2011 fourth quarter and year-end financial results after the market close on Thursday, March 1, 2012.  Management will conduct a conference call to discuss its results at 5 p.m. Eastern time on March 1, 2012. The toll-free dial-in number is (866) 272-9941 (international dial-in number is 617-213-8895), with the passcode: 64313935. A telephonic replay of the conference call will be available through midnight on March 8, 2012, by dialing (888) 286-8010 (international dial-in number is 617-801-6888) and entering the passcode 85433164.

A live broadcast of Addus HomeCare's conference call will be available under the Investor Relations section of the Company's website: www.addus.com. An online replay of the conference call will also be available on the Company's website for one month, beginning approximately three hours following the conclusion of the live broadcast.

About Addus

Addus is a comprehensive provider of a broad range of social and medical services in the home. Addus' services include personal care and assistance with activities of daily living, skilled nursing and rehabilitative therapies, and adult day care.  Addus focuses on serving the needs of the dual eligible population. Addus’ consumers are individuals with special needs who are at risk of hospitalization or institutionalization, such as the elderly, chronically ill and disabled. Addus' payor clients include federal, state and local governmental agencies, commercial insurers and private individuals. For more information, please visit www.addus.com.

Forward-Looking Statements

Certain matters discussed in this press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may be identified by words such as "continue," "expect," and similar expressions. Forward-looking statements involve a number of risks and uncertainties that may cause actual results to differ materially from those expressed or implied by such forward-looking statements, including the expected benefits and costs of acquisitions, management plans related to acquisitions, the possibility that expected benefits may not materialize as expected, the failure of a target company's business to perform as expected, Addus HomeCare's inability to successfully implement integration strategies, changes in reimbursement, changes in government regulations, changes in Addus HomeCare's relationships with referral sources, increased competition for Addus HomeCare's services, increased competition for joint venture and acquisition candidates, changes in the interpretation of government regulations, the uncertainty regarding the outcome of discussions with managed care organizations, changes in tax rates and other risks set forth in the Risk Factors section in Addus HomeCare's Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 28, 2010, and in Addus HomeCare's Quarterly Reports on Form 10-Q, filed with the Securities and Exchange Commission on August 4, 2011 and November 4, 2011, each of which is available at http://www.sec.gov. Addus HomeCare undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

(Unaudited tables and notes follow)

SOURCE Addus HomeCare Corporation