Ladies and gentlemen, thank you for standing by. And welcome to the Addus HomeCare Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session [Operator Instructions]. I would now like to hand the conference over to your speaker today, Dru Anderson. You may begin.

Thank you. Good morning and welcome to the Addus HomeCare Corporation fourth quarter and year-end 2021 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 Web site 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 2022 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 fourth quarter and year end 2021 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. I would now like to turn the call over to the company's Chairman and Chief Executive Officer, Mr. Dirk Allison. Please go ahead, sir.

Thank you, Dru. Good morning, and welcome to our 2021 fourth quarter earnings call. With me today are Brian Poff, our Chief Financial Officer; and Brad Bickham, our President and Chief Operating Officer. As we do on each of our earning call, I will begin with a few overall comments and then Brian will discuss the fourth quarter results in more detail. Following our comments, the three of us would be happy to respond to your questions. Yesterday, we announced our financial results for of fourth quarter and full-year 2021, and we are extremely proud of our operating performance. Our team was able to produce record results for the quarter despite the pressures from both a tight labor environment as well as increasing employee quarantines due to the Omicron variant of COVID, which I will discuss in more detail in a few minutes. Our revenue for the fourth quarter of 2021 was $224.6 million as compared to $196 million for the fourth quarter of 2020, an increase of 14.6%. Adjusted earnings per diluted share for the fourth quarter of 2021 were $0.97 as compared to $0.82 for the fourth quarter of 2020, an increase of 18.3%. Our adjusted EBITDA for the fourth quarter of 2021 was $26.7 million as compared to $20.9 million for the fourth quarter of 2020, an increase of 27.5%. For the full-year of 2021, our revenue was $864.5 million with an adjusted EBITDA of $97.7 million or 11.3%. This along with our strong operating cash flow during the year resulted in a cash balance of approximately $169 million at December 31, 2021. As has been discussed over the past few months by several companies in our industry, one of the most challenging issues we face today is labor pressure. This not only includes dealing with the…

Thank you, Dirk, and good morning everyone. Addus had a solid financial performance for the fourth quarter, continuing our record of delivering consistent profitable growth for 2021. Our results reflect positive trends in all three segments and the benefit of the advanced Illinois rate increase for personal care. We are encouraged by the continuing improvement in hospice care with a return to positive same store revenues and continued sequential improvement in average daily census median length of stay and patient days. While our media length of stay for hospice segment has not fully returned to pre pandemic levels, we were optimistic this trend will continue to improve in 2022. with the impact of the recent Omicron wave that peaked January, we anticipate our quarter revenues to be negatively impacted by employee quarantine, but believe our track record of managing through the pandemic reflects our ability to adapt to the ever-changing environment. And we expect to continue to produce strong offering results in 2022. As Dirk noted, total net services for the fourth quarter were $224.6 million, an increase sequentially from $216.7 million in the third quarter. Full year 2021 revenues were $864.5 million, up from $764.8 million in the prior year. The revenue breakdown for the fourth quarter is as follows. Personal care revenues were $175.1 million or 78% of revenue, which benefited both from the November 1, 2021 statewide rate increase in Illinois, as well as a retroactive rate increase for Illinois managed care organizations related to the January to March, 2021 timeframe. We have previously received a rate increase for this period for all programs reimbursed directly by the state. Hospice care revenues were $40.2 million or 17.9% of revenue. These results include the addition of [Queen] City hospice, which closed at the end of 2020, and the…

[Operator Instructions] Your first question comes from Scott Fidel with Stephens. Scott Fidel, your line is open. You may ask your question.

First question, just understanding that you don't provide formal guidance and appreciate some of the qualitative commentary that you did give. But just give a few of the different moving pieces that you talked about in the first quarter. And then it's the second quarter with the impacts from Omicron clearly being more weighted to January, but having a significant impact, but then also having the JourneyCare acquisition coming on the line as well. Maybe if you can just talk to either directionally or to the level of detail you're willing to give us thinking about how those revenue trends overall could evolve in the first quarter relative to the fourth quarter, and then maybe thinking about it appropriate run rate maybe as we get to the second quarter where the impacts from Omicron will obviously be much less significant.

I think our expectation, just looking at Q4 going into Q1 and the impacts of Omicron that we've seen to date again, not having full visibility yet into February and March, obviously, but I think our expectation with the impact we've seen from quarantines and those pressures early year is outside of the JourneyCare acquisition. I think our expectation is we should see revenue sequentially probably see 2.5% to 3% reduction from Q4 into Q1 is probably a pretty good proxy for our expectation and, I think, JourneyCare coming on board February 1st will be additive to that. I think as you recall from our conversations, so JourneyCare is about $55 million of annualized revenue, we're going to be spending probably six to nine months really integrating that and keep in mind that was a not for profit organization. So we'll be making some adjustments there. So our expectation is really not to see any real meaningful earnings for the first six to nine months. So, let's see some revenue impact in Q1 but not really much of the way earnings until we get those integration processes well underway.

And then maybe similarly, just on the personal care dynamics obviously, you had a strong print there in the 4Q for the same-store with the benefit of our rate increase. Any sort of framing that that you'd want to give us in terms of how you're thinking about same-store growth for personal care? Obviously you did give us that detail on from the impact of the hours in January from the caregiver quarantines. But as we think out more over the full-year how you're thinking about same-store growth for personal care against the long-term 3% to 5% target?

I still think at least that we've benefited the last couple years from nice rate increases that have kept us above that 3% to 5%. I don't think our expectation we got this rate increase Illinois that will bake in for the first part of ‘22. But I think, outside of back from any kind of additional COVID waves or volume pressures from that regard, our expectation is still 3% to 5% organic and personal care. So I think, volume's going to be a key for us this year. I think we got several things we're doing in tight labor market, but we've made some adjustments to how we're onboarding employees, et cetera. So if we can get the right amount of focus coming on board with us, and we mentioned [Technical Difficulty] in his script, our hiring numbers are looking pretty good into February. We still think 3% to 5% is the right way to think about long-term organic growth in personal care.

And then just one last quick one for me. Brian, you have thoughts on operating cash flow expectations for 2022 relative to 2021?

Yes. I think 2021 was a good proxy. If you look at our net cash flow provided kind of compared to EBITDA, we run right at 69% close to 70% conversion. I think with the way we've seen our payment trends from our payers over the last couple years of been pretty steady far expect will be a similar profile in 2022.

And your next question comes to the line of Brian Tanquilut from Jefferies.

Just a few quick questions for me. I guess, Dirk, as I think about the inflationary environment that we live in today, we're talking a lot about labor. But how are you guys thinking of or what are you hearing from your clients in terms of the ability of the states or willingness of the states to rates to match broader inflation right now?

This is probably interesting enough. One of the strongest markets we have with our states, I think with all the help they've received from the federal government, we're seeing a number of states either consider raising rates and allow us to pass that through somewhat to our caregivers, so that we can help with recruiting or to cover costs that we previously incurred as we tried to keep people employed and meet the markets that are out there. So I'd say we're very comfortable, and competent in our market states today. With this 10% money that's out there a lot of them are looking at new ways to use that money over the next year or two. And so we're excited to see those programs come about over the next few months. So we're pretty comfortable right now with where we sit.

And then just to follow up, the M&A environment. What are you seeing out there in terms of competition for deals or anything you can share with us in terms of the pipeline of acquisition opportunities that you're looking at today?

Brian, I don't think we've seen any increased competition per se. I think what we are hearing is maybe there are some folks with Omicron pressure wanting to kind of hold off and then come out on the other side of that. But no real change from our perspective. I think from a multiple standpoint, we think there could be some compression with the current environment, but otherwise we're pretty focused strategically on still looking for things that are good fits for us either in additive to personal care, adding clinical services in our key markets. I think that'll be a consistent focus for us this year.

And then Brian, one last question for me, just modeling. Any comment you can make on the tax rate and any other callouts you want us to think about as we model for 2022 and ‘23?

Yes, I think on tax rate, I think our expectation is we'll be probably in that 25% to 27% range. I think in prior years we've seen it be a little bit lower, part of that is the benefit is our stock prices appreciated. We get some benefit from that. We don't really where we are trading today, not expecting to see that probably continues. So I would expect to see us in 25% to 27% range for this year.

Your next question comes from the line of Matt Larew from William Blair.

A couple of things on labor. One I was curious if you tracked any metrics in personal care, like the time from interview to first paycheck and how that has trended and maybe how you've been working to improve that. And then you alluded to some turnover, I think, more on the administrative side. So I was curious if you could quantify that at all and maybe indicate how that stabilized since Omicron [spread] out?

With respect to tracking the metrics, from basically application to hire, we do track that. Now there are some things that kind of way into that, that are state specific regarding, kind of background checks and timing there. So I will say, when you have a virus surge, you have a little bit of a delays in hiring, just because kind of folks on the other side that we rely on to kind of push through background checks and that sort of thing, they struggle a little bit. But that is an area, I will say that, we are getting even more focused on. We are actually looking to add some additional IT resources to better track those metrics. So there’s certainly an emphasis for us. With respect to service coordinators, as we mentioned, as Dirk mentioned in his comments, we did see a tick up in turnover with service coordinators. I think we have taken some steps, recently. We have got rate increases that are going out that should help stabilize some of that workforce. We have added additional recruiting resources, primarily on the clinical side but also some on the kind of admin side, if you will. And I think a lot of that, on the service coordinator turnover, some of it is tight labor market, they have options out there. I think some of it was just kind of COVID with some of those individuals. We've asked a lot of them over this past year and I think it's kind of caught up with some of them. But, I'm seeing light at the end of the tunnel that we are making some progress filling those positions. We certainly have some initiatives out there to work on getting that turnover rate back down to where it was that kind pre-COVID.

And then just thinking about, again sort of that target growth range moving forward. I think the last two years, organic billable hours have actually been down, I think for the first time, at least, since I've been fond to the company and I'm sure, mostly related to the COVID surge we have had limited capacity, but obviously that's been aided by strong reimbursement. So, I guess as we think about '22, '23 moving forward, are there any items to call out from a reimbursement perspective that you haven't already discussed maybe on a state specific level, and should we be assuming that, that organic billable hour metric starts to flip back positive moving forward?

Yes, I think, when you look at some of the potential tailwinds on the reimbursement front, we've mentioned that we got the Illinois rate increase that will be built into 2022. But we also have, as Dirk mentioned, with some of the additional 10% FMAP, the ARPA funding that will provide some tailwinds for. So, we are waiting, frankly on seeing more details around those plans at the various states that are looking to provide us with some rate enhancements, a lot of it'll be in fashion of increased reimbursement, that will be passed on to caregivers to help with the recruitment and retention. So that should help actually drive just the hours volume.

Your next question questions comes from the line of Mitra Ramgopal from Sidoti.

First, I'm just curious if tight labor environment. Do you see that affecting your growth strategy, at least in near-term in terms of how aggressive you'd like to be?

Mitra you talking about as far as M&A?

Yes.

No, the environment doesn't affect what we want to do as far as growth. One thing we would constantly said and we will continue to be is, is that we tend to be somewhat disciplined buyers. So we are in the market looking for opportunities today. But if multiples remain higher than we feel justified, the return we'll get for our shareholders. And we're not opposed to stepping back and waiting for something such as JourneyCare. JourneyCare was something we found, great operation, great people not for profit environment, which needed us to come in and gave us the opportunity to come in and make some changes in the expense structure. While we acquired that at a reasonable certainly a fair and reasonable price, and so those are the type things we'll be looking for, but we are not slowing down our opportunities that we're going to look at.

Mitra, just to add a real quick. With that said, I think obviously when we're looking at potential deals, we are -- part of our diligence processes to be cognizant of the trends in the labor market on the local and state level. So that is definitely something that we evaluate as we're looking at deals [Technical Difficulty] consideration, but I think it -- the labor market today is not kind of put us back seat as far as our strategy overall.

And then when I look the peer mix I think managed care is probably at the end of this last quarter the highest you've seen. Just curious in terms of if you're having increased conversations with managed care now given the environment and how do you expect that to turn over the next few years?

I think one of the great things about our strategy is it allows us to develop size and geographic coverage in certain markets. A lot of these markets we have great relationships with managed care providers. The fact that we're able to provide services across a geographic area, which maybe some of our competitors in the market cannot do, allows us to sit across the table from these MCOs and develop pricing, which we're comfortable with. So at this time, we have a team that that's all they do. They've done a great job of maintaining and increasing pricing as we need. So we're very comfortable with our relationships with our MCO and the pricing environment.

[Operator Instructions] Your next question comes from the line of Ben Hendrix from RBC Capital Market.

Quick question about with JourneyCare and Summit now, now in the portfolio and having all three levels of care in that key Illinois market. can you give us an idea of kind of the sources and magnitude of upside that you can expect when you get all three levels of care to market, whether it’d be revenue synergies or margin synergies kind of once you have those wrapped up and in place?

When you look at having three levels of care, we can look at a little bit towards to what we've accomplished in the New Mexico market with our home health, hospice and personal care. There's certainly significant opportunity where you have clients or patients that are actually receiving multiple levels. They could be receiving home health and personal care or hospice and personal care. We also generate a pretty steady stream of referrals from home health to hospice. We have implemented metalogics in New Mexico, and New Mexico will be implementing that in Illinois as well. That will help identify individuals that are on home health that have probably in a position that they should transition into hospice. So you can start having those conversations with the family. So we're very excited about having those opportunities. And then when you see our personal care that's kind of the untapped piece, and you look at the Illinois market, I mean, that's our largest single personal care market out there. And the opportunities to one to cross market, cross referral is a significant I think there's a lot of work we need to do in order to really maximize that. And that's one of the reasons why we've reached out to home care, home base work with them to develop a system that would allow us to have utilize home care home base for personal care so that we'd have all those records in one system, and then also opportunities to do some data mining there similar to what we do on the home health hospice with metalogics.

There are no more phone questions. Mr. Allison, back to you.

Thank you very much operator. I want to thank everyone for your interest in Addus and for being part of our earnings call today. Hope you have a good weekend. Thank you very much.

This concludes today's conference call you. You may now disconnect.