LHC Group announces third quarter 2020 financial results

LAFAYETTE, La., Nov. 4, 2020 /PRNewswire/ -- LHC Group, Inc. (NASDAQ: LHCG) announced its financial results for the quarter ended September 30, 2020. Unless otherwise noted, all results are compared with the third quarter ended September 30, 2019.

Third Quarter 2020 Financial Results

• Net service revenue increased 0.4% to $530.7 million.
• Based on improved current and projected future results, LHC Group intends to return the entire $93.3 million in funds it has received from the Provider Relief Fund (PRF) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
• Net income attributable to LHC Group's common stockholders decreased to $14.5 million, or $0.46 per diluted share, due to the reversal of $44.4 million, or $0.87 per diluted share, net of non-controlling interest, of government stimulus income recorded in the second quarter of 2020 related to the general distribution funds from the PRF and $7.7 million, or $0.24 per diluted share, due to COVID-19 related costs and expenses for purchases of personal protective equipment (PPE), supplies, employee related costs and expenses and other categories of costs and expenses incurred in response to the pandemic.
• Adjusted net income attributable to LHC Group's common stockholders increased 29.8% to $51.3 million, or $1.63 adjusted earnings per diluted share, compared with $39.5 million, or $1.26 per diluted share, in the same period in 2019. Adjusted results for the third quarter of 2020 exclude a pre-tax amount of $2.5 million in acquisition and de novo related expenses, $10.5 million in COVID-19 related costs and expenses noted above, and the reversal of government stimulus income noted above.
• Adjusted EBITDA increased 25.0% to $74.5 million compared with $59.6 million in the same period in 2019.

A reconciliation of all non-GAAP financial results in this release appears on pages 12-13.

Operational and Strategic Highlights

• LHC Group's quality and patient satisfaction scores continue to exceed the national average as the Company remains a leader among industry peers.
• Organic growth in home health admissions increased 4.7% in the third quarter of 2020 compared with the same period in 2019. Home health organic admissions increased sequentially by 13.1% over the second quarter of 2020.
• Organic growth in hospice admissions increased 12.8% in the third quarter of 2020 compared with the same period in 2019. Hospice organic admissions increased sequentially by 8.3% over the second quarter of 2020.
• On August 1, 2020, LHC Group finalized a joint venture with Orlando Health to enhance home health and home and community based services (HCBS) in the state of Florida. The joint venture includes six total locations and LHC Group expects incremental annualized revenue from this joint venture of approximately $3.5 million.
• On October 1, 2020, LHC Group finalized a joint venture with University Health Care System to enhance home health and hospice services in Georgia and South Carolina. The joint venture includes ten total locations and LHC Group expects incremental annualized revenue from this joint venture of approximately $8.3 million.
• On October 1, 2020, LHC Group finalized a joint venture with Northeast Georgia Health System to share ownership of SunCrest Home Health in Gainesville, Georgia. LHC Group also closed on the purchase of Santa Rita Hospice in Aurora, Colorado, where it will operate under the At Home Hospice name in a shared space with LHC Group's home health provider in Aurora.
• On November 1, 2020 LHC Group finalized an expansion of its joint venture with CHRISTUS Health with the addition of a hospice provider in San Marcos, Texas. LHC Group expects incremental annualized revenue from this joint venture of approximately $2.1 million.

Commenting on the results, Keith G. Myers, LHC Group's Chairman and Chief Executive Officer, said, "The new normal in healthcare is placing a greater emphasis on care in the home and creating a demand for what we do best, which is treating patients and their families in the safety and comfort of their home and in the most cost-effective setting. The regulatory environment is rapidly moving to better support in-home care, and payors and joint venture partners are increasingly seeing the real-time benefit of working closely with us as well. Focusing on the most important things even in the midst of a public health emergency – the safety of our employees and delivering the highest quality and patient satisfaction to those we are privileged to serve – is naturally driving our strong growth. We expect this growth to continue through the balance of 2020 and position us for the market consolidation we have been anticipating in 2021 and beyond."

COVID-19 Update
The COVID-19 pandemic had an impact on our operations and financial results for the third quarter of 2020 with a continued impact expected in the fourth quarter of 2020, although to a lesser extent than what we have experienced to date. During the quarter, we incurred $10.5 million ($7.7 million net of tax), or $0.25 per diluted share, in additional COVID-19 costs and expenses related to PPE, supplies, employee related costs and expenses, including, without limitation, bonuses, increased wages, and wage supplements for front line caregivers, and other categories of costs and expenses incurred in response to the pandemic.

We continue to invest in creating the safest environment possible for our employees, patients and communities we serve. The robust employee pre-screening, patient and employee protection protocols and other infection control procedures we implemented in March in accordance with Centers for Disease Control recommendations for all 32,000 employees remain in place, and we have also secured adequate par levels of PPE to ensure we are able to continue providing care in the home setting. In addition, we have implemented a number of programs to support our employees, including a special COVID-19 pandemic grant program as part of our 501(c)(3) LHC Group Purpose Fund that supports employees experiencing financial hardships, retirement plan amendments, special cash-in opportunities for accumulated paid time off, expanded offerings in our employee assistance program, a wage supplement program designed to restore certain lost wages for frontline direct patient care-giving employees that qualified, and a PTO replenishment program designed to restore certain hours of paid time off for front line direct patient care-giving employees that qualified and for any employees who previously donated their PTO hours to these front line direct patient caregivers.

LHC Group has also implemented a number of cost containment initiatives, including eliminating non-essential travel and expenses and other measures. We continue to have strong access to capital with over $598.3 million of available liquidity from cash and our revolving credit facility net of the $317.9 million liability associated with the Medicare Accelerated and Advance Payments.

Since April 2020, we received funds totaling $317.9 million under the Medicare Accelerated and Advance Payment Program as provided for by the CARES Act. The accelerated Medicare payments are interest free and the program currently requires that the Centers for Medicare and Medicaid Services (CMS) recoup the accelerated payments beginning 12 months after receipt by the provider, by withholding 25% of future Medicare fee-for service payments for claims for 11 months and then withholding 50% of future Medicare fee-for service payments for claims for an additional six months. An interest rate of 4% will be assessed on any outstanding balances after 29 months from the date of the initial advance but we intend to repay the full amount before any interest will accrue. Cash flows from operations for the nine months ended 2020 included $317.9 million of accelerated Medicare payments, all of which remains deferred on the balance sheet at September 30, 2020.

As of September 30, 2020, we have received funds totaling $93.3 million related to the Provider Relief Fund as provided for by the CARES Act. During the three months ended June 30, 2020, we recognized $44.4 million ($27.2 million net of non-controlling interest and tax), or $0.87 per diluted share, in government stimulus income in our condensed consolidated statements of income related to general distribution funds received from the Provider Relief Fund. During the three months ended September 30, 2020, we reversed $44.4 million such that we recognized no funds for the nine months ended September 30, 2020. The full amount received, $93.3 million, was recorded as a short-term liability in government stimulus advance in our condensed consolidated balance sheet. It is our intent to return the funds to the government.

COVID-19 Trends
Please refer to the supplemental information that can be found under Financial Results on the Company's Investor Relations page to access more detailed statistics on pre-COVID-19 and post-COVID-19 trends. 

Full Year 2020 Guidance
The Company is increasing its full year 2020 guidance, which it withdrew on May 7, 2020 and subsequently reinstated on August 5, 2020. Full year 2020 net service revenue is expected to be in a range of $2.06 billion to $2.07 billion, adjusted earnings per diluted share is expected to be in a range of $4.90 to $5.00, and Adjusted EBITDA, less non-controlling interest, is expected to be in a range of $232 million to $237 million.

The Company's guidance ranges reflect a number of assumptions that are subject to change based on uncertainties related to the impact of the COVID-19 pandemic. The Company's guidance ranges do not take into account the impact of future COVID-19 related costs and  expenses, reimbursement changes, if any, future acquisitions, if made, de novo locations, if opened, location closures, if any, or future legal expenses, if necessary.

Joshua L. Proffitt, LHC Group's President, added, "The sequential month by month improvement we have experienced in our organic growth in home health and hospice since April has outpaced our expectations, and the increased visibility in the strength in all of our service lines led us to raise both the top and bottom end of our guidance ranges for the full year. The implied sequential and year-over-year growth in the fourth quarter positions us well for another strong year in 2021. The headwinds caused by the pandemic and some of the initial support smaller agencies received from government stimulus temporarily forestalled the historic market consolidation we had been expecting this year, but we have instead captured that growth organically with increased referrals and market share gains. Recently, we have seen these headwinds abate, resulting in accelerated joint ventures and acquisitions and a very active and robust M&A pipeline in both home health and hospice opportunities." 

Conference Call
LHC Group will host a conference call on Thursday, November 5, 2020, at 10:00 a.m. Eastern time to discuss its third quarter 2020 results. The toll-free number to call for this interactive teleconference is (877) 870-4263 (international callers: (412) 317-6011). A telephonic replay of the conference call will be available through midnight on Thursday, November 12, 2020, by dialing (877) 344-7529 (international callers: (412) 317-0088) and entering confirmation number 10148535.

The Company has posted supplemental financial information on the second quarter results that it will reference during the conference call. The supplemental information can be found under Financial Results on the Company's Investor Relations page. A live webcast of LHC Group's conference call will be available under the Investor Relations section of the Company's website, www.LHCGroup.com. A one-year online replay will be available approximately one hour following the conclusion of the live broadcast.

About LHC Group, Inc.
LHC Group, Inc. is a national provider of in-home healthcare services and innovations for communities around the nation, offering quality, value-based healthcare to patients primarily within the comfort and privacy of their home or place of residence. The company's 32,000 employees deliver home health, hospice, home and community based services, and facility-based care in 35 states and the District of Columbia – reaching 60 percent of the U.S. population aged 65 and older. As the preferred joint venture partner for almost 400 leading U.S. hospitals and health systems, LHC Group works in cooperation with providers to customize each partnership and reach more patients and families with an effective and efficient model of care.

Forward-looking Statements
This press release contains "forward-looking statements" (as defined in the Securities Litigation Reform Act of 1995) regarding, among other things, future events or the future financial performance of the Company, or anticipated benefits of the transaction. Words such as "anticipate," "expect," "project," "intend," "believe," "will," "estimates," "may," "could," "should" and words and terms of similar substance used in connection with any discussion of future plans, actions or events identify forward-looking statements. Forward-looking statements contained in this press release include, but are not limited to: our 2020 revenue and earnings guidance, statements about the benefits of the acquisition, including anticipated earnings accretion, synergies and cost savings and the timing thereof; the Company's plans, objectives, expectations, projections and intentions; and other statements relating to the transaction that are not historical facts. Forward-looking statements are based on information currently available to the Company and involve estimates, expectations and projections. Investors are cautioned that all such forward-looking statements are subject to risks and uncertainties, and important factors could cause actual events or results to differ materially from those indicated by such forward-looking statements. With respect to the acquisition, these risks, uncertainties and factors include, but are not limited to: the risk that the businesses will not be integrated successfully; the risk that the cost savings, synergies and growth from the transaction may not be fully realized or may take longer to realize than expected; the diversion of management time on integration-related issues; and the risk that costs associated with the integration of the businesses are higher than anticipated. With respect to the Company's  businesses, these risks, uncertainties and factors include, but are not limited to: changes in, or failure to comply with, existing government regulations that impact the Company's businesses; legislative proposals for healthcare reform; the impact of changes in future interpretations of fraud, anti-kickback, or other laws; changes in Medicare and Medicaid reimbursement levels; changes in laws and regulations with respect to Accountable Care Organizations; changes in the marketplace and regulatory environment for Health Risk Assessments; decrease in demand for the Company's services; the potential impact of the transaction on relationships with customers, joint venture and other partners, competitors, management and other employees, including the loss of significant contracts or reduction in revenues associated with major payor sources; ability of customers to pay for services; risks related to any current or future litigation proceedings; potential audits and investigations by government and regulatory agencies, including the impact of any negative publicity or litigation; the ability to attract new customers and retain existing customers in the manner anticipated; the ability to hire and retain key personnel; increased competition from other entities offering similar services as offered by the  Company; reliance on and integration of information technology systems; ability to protect intellectual property rights; impact of security breaches, cyber-attacks or fraudulent activity on the Company's reputation; the risks associated with assumptions the parties make in connection with the parties' critical accounting estimates and legal proceedings; the risks associated with the Company's expansion strategy, the successful integration of recent acquisitions, and if necessary, the ability to relocate or restructure current facilities; and the potential impact of an economic downturn or effects of tax assessments or tax positions taken, risks related to goodwill and other intangible asset impairment, tax adjustments, anticipated tax rates, benefit or retirement plan costs, or other regulatory compliance costs.

Many of these risks, uncertainties and assumptions are beyond the Company's ability to control or predict. Because of these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements. Furthermore, forward-looking statements speak only as of the information currently available to the Company on the date they are made, and the Company does not undertake any obligation to update publicly or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this press release. The Company does not give any assurance (1) that the Company will achieve its guidance or expectations, or (2) concerning any result or the timing thereof. All subsequent written and oral forward-looking statements concerning the transaction or other matters and attributable to the Company or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements above.