Amedisys CEO: Hospice Acquisitions Remain Top Priority

Despite spending over $340 million on hospice acquisitions in 2018, Amedisys, Inc. (NASDAQ: AMED) says it plans to continue investing heavily even as multiples continue to be at record levels.

“Capital deployment on hospice acquisitions remains our first priority,” CEO Paul Kussarow said Thursday in a conference call.

Amedisys in 2018 became the third largest hospice provider in the United States with its $340 million purchase of Compassionate Care Hospice last year, boosting the company’s combined average daily census of 11,200 hospice patients in 33 states.

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The company also recently announced the acquisition of Tulsa, Okla.-based RoseRock Healthcare, a provider of specialized hospice care to approximately 200 patients daily in northeastern Oklahoma, for an undisclosed sum.

High valuations have not deterred Amedisys from seeking further M&A activity.

“We have plenty of dry powder to spend on mergers and acquisitions,” said Chief Financial Officer Scott Ginn. “There are some things in the pipeline that we hope to announce in the next six months or so that will be very substantial. But the prices we are seeing are crazy from an EBITDA perspective.”

Integrating Compassionate Care Hospice locations into Amedisys’ Home Base Home Health technology platform is a priority for the first quarter of 2019. These efforts could lead to an approximately 3% disruption of Compassionate Care’s services. Amedisys expects this disruption to weigh down Compassionate Care’s 2019 results.

“We will position the business from similar growth trajectories and similar margin profiles to our current hospice business,” Ginn said.

Amedisys intends to continue investing in Compassionate Care locations throughout 2019 to bring its locations to full margin. The unit is growing at approximately one-fifth the rate of other Amedisys business segments. This includes updating technology, integrating Compassionate Care’s current staff, and adding additional business development and administrative staff.

“We believe [Compassionate Care] is a wonderful chassis, but we have to do the work necessary in terms of getting them on the right technology platform and hiring the right people to bring up the [average daily census],” Ginn explained.

In regards to earnings, the Amedisys hospice segment in the fourth quarter of 2018 saw an $11 million increase in revenue over the same period in 2017, coupled with an 11 percent rise in EBITDA. For the year the company’s hospice components saw a 10 percent increase in adjusted revenue, with EBITDA up 27%.

Factors driving these results, In addition to M&A activity, included an increased average daily census, surging admissions, and a $2 million raise in 2018 Medicare reimbursements. Average daily census for the hospice segment was up 9 percent in the fourth quarter, totaling more than 7,800 patients. Hospice admissions were up 12 percent from Q4 2017.

“Hospice continued its stellar performance with another strong quarter and year of growth, completing two acquisitions during the year,” said Kussarow. “This is important as we continue to grow our hospice footprint.”

Company-wide, new service revenue rose in the fourth quarter to $434.4 million, up from $398 million for the same period in 2017. Net income also jumped from Q4 2017, rising to $27.5 million from a loss of $3.8 million the previous year.

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