Addus HomeCare Corporation (ADUS) Q3 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Addus HomeCare Corporation's Third Quarter 2020 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. [Operator Instructions]. As a reminder, today's program is being recorded. And now, I'd like to introduce your host for today's program, Dru Anderson, Investor Relations. Please go ahead.

Thank you. Good morning and welcome to the Addus HomeCare Corporation third quarter 2020 earnings conference call. Today's call is being recorded. To the extent any non-GAAP financial measure is discussed in today’s call, you will also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP by going to the company’s website and reviewing yesterday’s news release. This conference call may also contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including statements, among others, regarding Addus' expected quarterly and annual financial performance for 2020 or beyond. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, discussions of forecasts, estimates, targets, plans, beliefs, expectations and the like are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by important factors, among others, set forth in Addus’ filings with the Securities and Exchange Commission and in its third quarter 2020 news release. Consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise. At this time, I would now like to turn the call over to the company's President and Chief Executive Officer, Mr. Dirk Allison. Please go ahead, sir.

Thank you, Dru. Good morning and thank you for joining us for our 2020 third quarter earnings call. With me today are Brian Poff, our Chief Financial Officer; and Brad Bickham, our Chief Operating Officer. As usual, I will begin some overall comments and then Brian will discuss the third quarter results in more detail. Following our comments we would be happy to respond to any questions. As you already know the pandemic has created many challenges over the past eight months and I expect the environment to remain operationally difficult until there is a solution to the COVID virus. In spite of these challenges my optimism about the future of the HomeCare industry and Addus's opportunity with in it are as great as ever. I'm especially proud of our dedicated team of leaders and team members that have demonstrated their ability to continue to meet our mission and execute upon our strategy. We continue to provide quality care to consumers and patients with an added focus on safety. We continue to business both organically and through acquisition, and we have continue to generate strong operating performance including the most recently reported third quarter 2020 results. As you saw with the financial results we announced yesterday, Addus continued our solid operating performance in the third quarter of 2020. Our revenue for the third quarter was a $194 million as compared to $169 million for the third quarter of 2019, an increase of 14.8%. Adjusted earnings per diluted share for the third quarter 2020 was $0.76, up from $0.75 for the third quarter of 2019 despite the impact of COVID-19 on revenues during our latest quarter. Our adjusted EBITDA for the third quarter 2020 was $19.5 million as compared to $17.4 million for the third quarter of 2019, an increase of 12.2%. Our adjusted EBITDA margin increased to 10.1% for the quarter consistent sequentially with the second quarter. During the third quarter of 2020, our revenues continue to be adversely impacted by the COVID-19 pandemic with a decline of approximately $6 million from our pre-COVID 2020 run rate. As was the case in our second quarter this year. This reduction occurred the varying degrees in all three segments of our business, but particularly in our New York personal care market and in our New Mexico hospice operation where we still see a number of facilities limiting access, which hinders our ability to work with new patients. As a result of the recent increase in COVID cases occurring across a number of our markets, we estimate our fourth quarter revenues will continue to be negatively affected by approximately 3% to 4% as compared to our pre-pandemic run rate. The majority of this reduction is occurring in our New York market. Operating cash flow in the third quarter was strong at approximately $22 million, increasing our September 30, 2020 cash balance to over $170 million. During the pandemic of the last eight months, many of our states have been diligent in making sure that providers such as Addus have received cash in a timely manner. We are grateful to these states and to our MCO partners who have remained committed to ensuring prompt payments to providers, even with the challenges of this virus. As we previously discussed, effective July 1, 2020, the city of Chicago raised the city's minimum wage by $1 to $14 per hour. A rate adjustment to cover this increase is included in the fiscal year 2021 Illinois State Budget which was passed in May of this year. The increase rate to offset the city of Chicago minimum wage increase will be effective statewide on January 1, 2021, subject to federal approval, which the state has already applied for. Our results for the most recent quarter include an increase in our costs due to this unreimbursed wage increase of approximately $900,000. We will see a similar effect in our results for the fourth quarter of 2020 after which the January 1, reimbursement rate increase should eliminate this temporary negative effect. I also want to update you on certain developments pertaining to the New York State budget reduction which was effective April of this year. The New York State Department of Health announced that all non exempt Medicaid payments would be uniformly reduced across the board by 1%, effective January 1, 2020 through March 31 2020 with an additional 0.5% reduction effective April 1, 2020. Approximately one-third of our New York business is directly with the state and was immediately affected by this reduction. During the third quarter of 2020, we also started to see certain MCO payers begin discussions on their rates to Medicaid service providers. Our managed care team has been successful at maintaining our rates with our MCO Partners with only immaterial changes. We continue to work with our New York State Association to mitigate any future rate reductions and help educate the state leaders of the value of home and community based services. One of our potential challenges over the next couple of years could be the effects of this virus on state budgets. Although this pandemic has reduced state tax revenues, the impact over the last eight months has not been as much as originally expected due to federal COVID relieved about states and the general population. In addition, states are currently receiving an additional 6.2% federal Medicaid match as part of the CARES Act, which will continue through the duration of the health emergency, which currently goes through the first quarter of 2021. Our home-based care is cost effective and significantly safer than having patients in a long-term care facility in today's challenging environments, which we believe the leadership of our state's recognized. For the third quarter of 2020, our personal care same-store revenue growth was 4.8%. This growth rate is at the higher end of our stated expectation, but it's lower than we have experienced in the last few quarters. This slightly lower growth rate is mostly driven by the issues we see in New York. In our third quarter, our New York acquisition of VIP Healthcare Services completed on June 1, 2019 became part of our same store growth calculation for the first time. Our census for the New York market remains approximately 17% below what we saw in the first quarter of this year, as families and caregivers continue to struggle with the impact of the virus. Exclusive about VIP acquisition, our same-store personal care growth would have been 8.5%. In addition to New York, we also saw modest reductions in volumes in our Midwest and Southeast states, which are now experiencing a new wave of the virus. However, we are very encouraged that two of our largest markets, Illinois and New Mexico have seen a recovery in average billable hours per week, which are now running slightly ahead of what we saw just prior to the beginning of the pandemic. With the upcoming rate increase in Illinois on January 1, we should continue to see solid same-store growth in our personal care segment over the next few quarters. On a company wide basis, we continue to see an overall reduction in patients on hold and improvement in our caregivers hiring numbers, which contributed to a sequential 6.5% increase in our personal care same-store census. For the third quarter of 2020, our hospice same-store revenue decreased 5.6%, as we saw our average daily census decreased 6.2% year-over-year, primarily due to continuing facility access issues in our New Mexico hospice program just discussed. With the continued limits on access to facility based settings, such as assisted living facilities and skilled nursing facilities, our sales team has encountered challenges in identifying and working with new patients who need hospice services. However, we did experience sequential same-store hospice admission growth of 5%, due primarily to an increase in our non-facility referral base. Our Home Health same-store revenue decreased by 8.9% year-over-year, but improved approximately 4% on a sequential basis, while our Home Health volumes were up 12.2% compared to last year, our revenue continues to be adversely impacted by an increase of approximately 300 basis points in our non Medicare patient mix, and a reduction in our institutional early Medicare fee for service referrals under PDGM. Our Medicare admission volume did begin to recover late in Q2 of this year and is currently running slightly ahead of our pre-COVID admissions number, which has increased our Medicare patient mix approximately 200 basis points on a sequential basis. As we announced on November 1, we closed on the acquisition of county HomeMakers, a provider of personal care services in the state of Pennsylvania. This acquisition expands our personal care service across the state and is lined with our strategy of creating and maintaining strong geographic coverage in the states where we operate. We're very excited about the completion of this transaction and I want to welcome all the new team members from counting HomeMakers to Addus. As most of you know acquisitions have been and remain an important part of our growth strategy at Addus. We have strategically maintained a strong capital structure, which allows us to take advantage of acquisition opportunities as they occur. While we took a short pause from pursuing new acquisitions during the early phase of the COVID pandemic, we are now fully reengaged in the process of identifying and closing additional acquisitions as we look at opportunities in each of our three operating segments. Our acquisition pipeline and liquidity position remains strong. And while we are being appropriately cautious, we continue to believe that we can close additional acquisitions during the next few months. As we have grown our company over the past four years, we found that we had outgrown our corporate space in Frisco, Texas. While we focus on being conservative with our expenses, it became apparent in 2019 that we needed to increase our office space to allow for the additional personnel that we needed to support our growth. In the fourth quarter of 2019, we negotiated a larger corporate office space near our old headquarters. We finalize this lease in the first quarter of 2020, just prior to the onset of the COVID virus. During the third quarter of 2020, we left our old headquarters and moved into our new location. While we are still mainly working remotely, we are excited about this move. Our new corporate office gives us the ability to support our broader team as we continue to grow over the next few years. This move did require us to write off the remaining terms of our own lease in the current quarter. As I look back over the past eight months, I'm proud to see a team of caregivers and support staff have done a wonderful job of living our mission during extraordinary times. Our team has been willing to serve the needs of our consumers and patients in their homes in spite of all the risks associated with the COVID-19 virus. All caregivers in all segments of healthcare deserve our appreciation for their commitment to patient care. I especially want to thank the Addus team for continuing putting our patients first. Before I turn this over to Brian, I want to remind our team of the value of our service. While the COVID virus is still a challenge for our country, as well as the world, we need to continue to live our mission and values while serving our consumers and patients. Each of these individuals need to be cared for or at home or we can keep them safe from the virus, while providing much needed care. With that, let me turn the call over to Brian.

Thank you, Dirk, and good morning everyone. Addus had a very solid financial performance for the third quarter of 2020 demonstrating consistent profitable growth in this challenging conditions. As Dirk noted, total net service revenues for the third quarter were $194 million. The revenue breakdown was as follows. Personal Care revenues were $165.9 million, or 85.5% of revenue, hospice care revenues were $24 million or 12.4% of revenue, and HomeHealth revenues were $4.1 million or 2.1% of revenue. These results demonstrate our ability to continue executing our organic growth strategy with favorable results. While we are still facing a dynamic environment with the ongoing impact of the COVID-19 pandemic, we saw some improvement in volume sequentially during the quarter. We have a strong business model in place and believe we are well-positioned to meet expected demand with additional safety protocols in place and will continue to support our patients with the care they need in the face of a rising number of cases across the country. Our results also reflect the incremental benefits of the four acquisitions we completed in 2019 and the one acquisition we completed earlier in 2020, with combined total annualized revenue of approximately $140 million. We continue to evaluate and pursue other acquisition opportunities and have a pipeline of potential transactions. As Dirk mentioned, on November 1, we closed on the acquisition of county homemakers, a personal care operator in Pennsylvania, with 2019 revenues of $14.8 million, and we expect this acquisition to be immediately accretive to our 2020 financial results. Other financial results for the third quarter of 2020 include the following. Our gross margin percentage was 29% compared to 26.7% for the third quarter last year. During the quarter we saw an impact of approximately 40 basis points from the increase in minimum wage in Chicago, effective July 1, without a corresponding reimbursement increase, which is expected to be effective on January 1, 2021. G&A expense was 21% of revenue for the quarter, a slight increase from 20.8% last year. Adjusted G&A expense was 19% for the third quarter, it increased from 18.2% for the prior year quarter, but lower sequentially from 19.7% in the second quarter of 2020. The company's adjusted EBITDA increased to $19.5 million for the third quarter of 2020, compared to $17.4 million in the third quarter of 2019. Adjusted EBITDA margin was 10.1%, it increased from 9% for the third quarter of 2019, excluding $2.5 million from revenue and EBITDA related to the impact of the Illinois retroactive rate adjustment. This is the fourth time in the last five quarters where we have achieved a margin of over 10% [ph]. Adjusted net income per diluted share was $0.76 for the third quarter, up from $0.75 in the prior year quarter. The adjusted per share results for the third quarter of 2020 exclude the following. Covid-19 expenses of $0.02, M&A transaction expenses of $0.02, restructuring other costs which includes our lease write-off of $0.08 and non cash stock-based compensation of $0.07. As Dirk referenced during the third quarter, we relocated our corporate headquarters in Frisco Texas and as a result incurred a write-off of the remaining lease term on our prior office space of approximately $1 million, which was the primary component of our restructuring and other costs in the period. Are adjusted per share results for the third quarter of 2019 exclude interest income from Illinois of $0.02, the impact of the retroactive Illinois rate increase of $0.12, M&A transaction expenses of $0.10, restructuring and other costs of $0.08, and non cash stock based compensation of $0.08. Our tax rate for the third quarter of 2020 was 23.6% sequentially consistent with the second quarter and within the range of our expectation. For the full year of 2020, we continue to expect a tax rate in the low to mid 20s. DSOs were 55.8 days at the end of the third quarter of 2020, compared with 61.8 days at the end of the second quarter of 2020. We continue to see consistent payments from a majority of our payers with home and community based service providers being prioritized in many of the states in which we operate. Our third quarter net cash provided by operations total $22.4 million, and at September 30, 2020, the company had cash on hand of $170.3 million, $61.7 million of bank debt and $219 million in availability under our revolver, leaving us well capitalized to continue pursuing our acquisition strategy. This concludes our prepared comments this morning. We want to thank you for being with us. I'll now ask the operator to please open the line for your questions.

[Operator Instructions] Our first question comes in the line of Brian Tanquilut from Jefferies. Your question, please.

Good morning, guys. Congrats on a good quarter.

Thank you.

Dirk, I guess my first question for you. Obviously, you've done a couple of deals already. One in Montana and then this one in Pennsylvania. But we have investors asked me about your deal appetite in terms of geographies and size. Are you focused primarily on deals kind of in this size range? Or would you be open to larger deals? I just wanted to ask, how we should be thinking about your strategy on M&A going forward?

Yes. Concerning our acquisition strategy, one of the things we have said and continue to try to do is to build density and geographic markets. And that would include not only personal care service, but also looking to try to add say, HomeHealth and hospice in other states as opposed to what we mainly have in New Mexico today. So, I think what you'll see, Brian, going forward, we will continue to look in the personal care market, which is obviously the biggest part of our business trying to fill out states in which we currently have strong operations. But at the same time, we want to continue to look at the clinical side of our business, adding Home Health and hospice in those markets, because we find that as we have all three legs of the stool, so to speak all three levels of care in a market, that is something that our managed care providers, managed Medicaid providers, there that's something that they're very interested in. So right now, I would tell you that the personal care assets we think, tend to be in the sizes. So we were glad to be able to close both of the ones we've done this year. Some of the clinical care deals we're looking at are somewhat larger.

Got you. Okay. And then shifting gears. So as I think about -- obviously elections today, Supreme Court review of the ACA. Can you just remind us what your exposure is to Medicaid expansion. I know, obviously, your payer mix is very heavily tilted towards Medicaid. But how should we be thinking about the risk? If the ACA is invalidated by the Supreme Court?

Yes. If you look at the expansion of Medicaid across a number of the states that occurred over the last four or so years -- four or five, six years, it didn't really affect us positively or negatively. Most of our consumers and patients that we take care of our average age on the Medicaid side is around 75 plus. And so most of our, a large, very large percentage of our patients are bill eligible. And so they qualify for Medicaid prior to the expansion through ACA. So for us, I mean, obviously, we like having ACA out there. It is certainly something that we think helps. But it is not something that if there was a change to that it would not affect our company much at all.

Last question for me. You touched on the moving parts of New York reimbursement. So I guess for Brian, as we think about the different moving parts, New York reimbursement changes, Illinois, rate increase in January. And then I'm guessing there's another Chicago minimum wage increase in July of next year. If you don't mind us giving us some quantification around those moving parts for modeling purposes? Thank you.

Yes, Brian, I can handle that one. So on New York, as Dirk mentioned in his comments, we've seen the 1.5% reduction across the board to Medicaid providers, which is about a third of our business, which is not really material to us. We haven't seen any other real material moves in the non-state Medicaid payers at this point. So it's kind of hard to put a quantification around that what we would expect going forward. I think everybody knows that New York has been a fairly fluid situation, and they've done a lot of work to try to look for ways to save money, but really, nothing concrete has come out of those discussions as of yet. So we'll wait and see kind of where they land. On Illinois going forward, I think rate increases is going to be similar to what we saw last year with the timing delay. So I think our impact from Chicago and our weight scale was a little above, so we didn't take necessarily a full $1 per which is why I think the impact for us this year was a little less than it was last year, but the rate increase is going to be very similar to what we saw previous. So I guess the answer kind of those two moving components.

Brian, just a follow up on that. So like for example, the Chicago increase, it's about $1, translating to roughly $4 million to $5 million of increased cost. Is that on an annual basis? Is that the right way to think about that?

Yes. What we saw in Q3 was just about $900,000, just under a $1 million. So it's about going to be that on a quarterly basis. That is correct. So right now, you are correct. We are going to see $1 increase in minimum wage one more time in Chicago next July. And that will be addressed through the state's budget for the next year.

All right. Got it. Thank you.

Thank you. Our next question comes from the line of Matthew Gillmor from Baird. Your question, please.

Hey. Thanks for the question. I guess I wanted to first ask about the -- I think, Dirk mentioned sort of a 3% to 4% impact in terms of the revenue dynamics around COVID relative to where you were pre pandemic as we're thinking about the fourth quarter. I guess I was, I was kind of curious. Where did that -- where did you end up in terms of like the exit with the third quarter in terms of the revenue impact? And are you -- does this outlook you're providing, does that anticipate some additional disruption that you haven't seen yet? Or is it reflective of sort of the current dynamics that you're seeing on the ground?

Yes, Matt. This is Brian. I'll start it and Dirk if he want to add color about. What we saw coming out of the end of Q3 into Q4, is we really kind of flattened out as far as our trajectory on volumes. I think in Dirk's comments in 3%, 4% for Q4, we are seeing a rising number of cases. So I think we're be taking a very cautious view on how that could impact us. I think from a standpoint of being prepared for that from our perspective, obviously PPE is something we've been focused on this year. We're very well prepared for that if cases do continue to rise. And we've got protocols in place to handle that. But we'll see what happens with certain of our markets if they go more into a lockdown or kind of a different type of environment that we've seen over the last three to four months.

That makes the no -- what I was saying that, that that basically means it's somewhat flat to the third quarter where we already saw that impact.

Okay. Fair enough. And then I was hoping you could update us just on sort of labor market dynamics. And I know we had a reduction to the enhanced unemployment benefits. And curious if you've seen that translate into faster hiring or better retention, anything on that front?

Yes. This is Brad. We have seen improvement in hiring, if you look at really kind of from August forward. Overall, we're up probably about 2% when we look at caregiver hires per business day. So that that trend has been favorable. And that's in spite of some challenges in New York, which is still hiring there is still very challenging, they still have some enhanced unemployment benefits that is impacting the New York market. In addition, I think this is being generally locked down. But we have seen some improvement in the hiring numbers, which is encouraging.

Okay, great. Thanks very much.

Thank you. Our next question comes from the line of Mitra Ramgopal from Sidoti. Your question, please.

Yes. Hi. Good morning. Thanks for taking the questions. First, I was just wondering, I think pre COVID you're seeing states like New York, look to shrink their provider networks, and that obviously was going to be a benefit for you. Are you seeing that starting to happen in other states now as a result of COVID, maybe accelerating that move?

Well, one of the things we saw during so far during the COVID is -- with the Care Act, funds coming out to help providers as they kind of went through the pandemic. I think states have been very cautious about doing anything that would affect the employment and the companies out in their state. So no, we have -- that's kind of a long way to say. At this point, we've not seen any additional shrinkage in the networks that the states are allowing to operate. I do know that New York was considering during their budget process some things that might have tightened up the network a bit further. That now has been put on hold. So right now we are not seeing any additional movement because of the COVID virus towards a narrowing of the networks.

Okay. That's great. And then on the acquisition front, again, obviously, there was a nice addition you announced. But just looking ahead any commentary in terms of valuations you're seeing out there or increased opportunities that might not have existed before the pandemic?

Yes. Let me take. One of the things that had surprised us a bit coming out of the pandemic is the valuations that we are seeing. We are seeing valuations being pretty strong, and whether that's the fact that quite honestly that I think the pandemic has really driven on the fact that home-based care both clinical and non clinical are very important to the elderly population of this country. I think that has been something that some private equity firms have seen and other strategic like ourselves has seen. And so the valuations that we have seen in some of the recent transactions are higher than we would have thought potentially coming out of the pandemic. That being said, personal care, we've been able to maintain our valuations much better than we have on the clinical care side. So that's something that is nice to see. We haven't seen a lot of HomeHealth providers yet come out after both PDGM and the COVID virus. We'll be interesting to see maybe early next year, if some of those come out what happens to valuations. Certainly, on the hospice side, I know you've been following that. Those valuations are still pretty high. So that kind of tells you as we come out of it, things have certainly not gotten less expensive. And at times, maybe it gotten a bit more expensive.

Okay. Thanks. And then finally, one thing we've been hearing is nursing home certainly being affected in terms of occupancy. And there was a people more willing to stay at home. Is that something that you can say is maybe perhaps a little benefit to you or just too hard to or too small to quantify it here?

Well, I think right now, it's a little early in the transition or the effect of the virus to be able to quantify anything material. That being said, I do think what's come out of this, our team I think sees it is that there's a real renewed focus in healthcare on taking care of people in their home. And we like that, obviously, that's been our mission for the past 41 years. We believe it's a important place and a very safe place to take care of individuals as they age. And so, that's something that we believe we have seen is a renewed emphasis from states payers and others on the importance of home care.

Okay. Thanks again for taking the questions.

Thank you. Our next question comes from the line of Matt Larew from William Blair. Your question, please.

Hey, good morning. CMS recently had out sort of a toolkit around various state models, taking care of people at home focused on LTSS. And it was mostly retrospective in nature, but just thought of maybe an opportunity t to ask you about any trends or conversation -- trends you're seeing or conversations you're having with states that kind of reflects, Dirk, as you alluded to this renewed interest in the home and whether that might result in different funding environment or different opportunities set for you?

Yes. This is Brad, I mean, we've haven't seen a lot of discussions around that, specifically, with states looking for different funding opportunities to take care of people at home. I think there certainly is an interest in expanding that keeping people out of a facilities setting, particularly I think the virus impact on facilities, I think people have taken note of that, and to the extent that we can keep them out, the better. But haven't really had any active discussions with states around different funding sources for that.

Okay. Fair enough. And then just wanted to ask about MA plans. I know, there were a couple pilots you had been working on, but those have been paused. And at this point, it's difficult to predict when post COVID will be, but are those two opportunities that you see is realistic for 2021? Or is this more in that 2022 in terms of when you might start seeing some data or progress with those?

Yes. This is Brad. Again, the MA plans and the projects we have there, I mean, I think it's really a 2022 initiative. That being said, we do have some projects that are currently we started up kind of in the September/October time period on a variety of value based projects, which we're definitely excited about, looking forward to starting to collect some data on the outcomes from those projects. But that'll probably as far as data we're six months away from getting some meaningful data on that.

Okay. Thanks, guys.

Thank you. [Operator Instructions] Our next question comes from the line of John Ransom from Raymond James. Your question, please.

Hey, good morning. I'm just wondering as you think about the future of Addus, do you have any markets you could point to where you've been able to integrate the three legs of the stool, meaning, personal care, home care and hospice? And as you formulate M&A, is that like trying to thread to find a needle to find complimentary assets in existing markets or say you have a big personal care presence?

Dirk, do you want to take that?

Yes. We do want to replicate New Mexico in other markets. Now, I don't think any of us believe that if we operate in 25 states, we're going to have 25 markets with all three legs of healthcare in it. But there are probably four or five of our markets, where we're very excited about the potential of being able to add additional market. Some may be that you add one of the clinical side of care, and then from that you grow that third leg more internally. And so we're looking at as a company. We've got two or three markets that we're excited about. We're looking for as you talked about acquisitions would be nice if we could find something in those markets, that would be our desire.

Okay. And then secondly, I know the companies that focus primarily on health. That had to do lots of heavy lifting to get ready for PDGM. Kind of where you're given us a smaller segment for you kind of where are you in the PDGM integration process? And as you look at potential acquisition targets, you feel comfortable you can model it now? Thanks.

Yes. This is Brad. We've made a lot of progress on PDGM front. I will say I think the COVID virus has had a little bit of a disproportionate impact on PDGM as far as I think it makes the numbers look a little worse than what they would be without the virus just because some of the referral sources that you would have received and then from the institutions, dropped off particularly early on in the virus, and we're still seeing some slowness, or sluggishness of the referrals coming from the sniff environment. But as far as working on our cost structure, I think we made some pretty good strides there. If you look our gross margin on the Home Health front, certainly has improved, I think we'll continue to see some incremental improvement there. So I think we're in good shape. And we're certainly looking forward to add some more assets on the Home Health side.

And then just lastly. Have there been any at least pulmonary discussions with MA plans on more models that will move beyond kind of the simple fee for service? So do you think you're going to be in kind of fee for service land for the foreseeable future?

John, I think what we're seeing, probably in the last year is a real interest in value based care and looking at ways in which companies can work with payers in a value based approach. We actually have created a committee, a team to try to work towards developing a model or models that work with us, starting from a paper service basis and moving more into eventually may potentially a risk based model where maybe there's just upside benefit, there might eventually be some full, more risk on both the up and downside. I don't see today that we will be to a global capitation. We will -- we could be a paying party to a partner of -- something that would relate around a global cap. But for us, we're more into looking at our ability to move from fee for service into some sort of bonus spaced or value based payment model. That will not be by the way across the country. That will be in limited market. So we're going to remain a fee for service business mainly in our personal care business. And then we'll move in some markets where we're larger in the ability to look at value based care.

Great. Thanks so much.

Thank you. This does include the question and answer session of today's program. I'd like to hand the program back to Dirk Allison for any further remarks.

Thank you, operator. I want to thank you all for the interest in Addus and for being part of our call today. Have a great week.

Thank you ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.