Despite taking some hits from the COVID-19 pandemic and rising labor costs in some markets, hospice provider Addus Homecare Corp. (NASDAQ: ADUS) is dipping its toes back into the mergers and acquisitions game.
Addus backed off pursuing acquisitions during the early stages of the pandemic, as did much of the hospice industry in the first and early second quarters. Industrywide, the M&A market started to rebound late in the second quarter and into the third.
“As most of you know acquisitions have been and remain an important part of our growth strategy at Addus,” said CEO Dirk Allison in an earnings conference call. “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.”
Addus provides hospice, home health, and personal care services to nearly 44,000 patients through 215 locations in 25 states. The company’s acquisition strategy hinges largely on building density in markets where it already has a presence, though plans exist to move into new states as opportunities arise.
The company completed a number of deals during 2019 and the early part of 2020, primarily in its home health and personal care business lines. The company’s personal care business is its largest segment.
Allison indicated that acquisitions were on the table for Addus in the near future, possibly during the fourth quarter of 2020 or the first of 2021.
“Our acquisition pipeline and liquidity position remains strong,” Allison said. “While we are being appropriately cautious, we continue to believe that we can close additional acquisitions during the next few months.”
Addus has taken some punches from COVID-19, particularly in its hospice line in the New Mexico market. Restrictions on accessing patients in nursing homes and other facilities put a dent in their ability to take on new patients.
The company during Q3 saw a $6 million decline from their pre-COVID 2020 run rate. The shortfall occurred across all its business lines. Addus saw a 5.6% drop in same-story hospice revenue during Q3 and a 6.2% reduction in average daily census.
Hospice admissions, however, were up 5% largely due to increased referrals from non-facility sources.
The company’s net service revenues for the third quarter totaled nearly $194 million, up 17% from $169 million in the prior year’s quarter. Their personal care business drew in the bulk of that revenue, about $165 million.
The company expects to see an adverse revenue impact from COVID of about 3% to 4% in the fourth quarter, Allison said. They expect most of that impact to occur in the New York market.
Addus also encountered rising labor costs stemming from a $1.00-per-hour minimum wage increase in the City of Chicago. This cost Addus nearly $1 million during the third quarter.
“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 Jan. 1, 2021,” said Addus CFO Brian Poff.