Home health and hospice provider LHC Group (NASDAQ: LHCG) will buy back as much as $250 million of its common stock, using a mix of cash on hand, future cash flow and borrowed funds. The buy back comes at a time when the company is implementing a multifaceted plan to power through the industry-wide labor shortage, which has driven up costs and threatens to limit growth.
Companies often pursue stock buybacks to reduce the number of outstanding shares and raise the price for those remaining. They can also be used to redistribute invested capital back to shareholders.
“The strength of our balance sheet and cash flows enables us to allocate capital to these repurchases on an accretive basis while at the same time prioritizing continued investments in organic and inorganic growth as well as other long-term initiatives,” said LHC Group Chairman and CEO Keith Myers.
LHC Group’s net service revenue was about $556.5 million in Q3, up nearly 5% from $530.7 million in Q3 of 2020. The company’s hospice segment saw revenues grow 38% year over year.
A major headwind for many companies this year has been the workforce shortage. This is driven by a shrinking labor pool as well as the need to quarantine staff following potential COVID-19 exposures.
These factors led the company to engage more contract labor. About 4% of LHC Group’s home visits were done by contracted staff during the third quarter, according to CFO Dale Mackel. This number typically hovers around 1%.
“For about every 100 basis points that we can reduce our dependence on nursing contract labor, that would save us about $1.4 million per quarter,” Mackel said at the Bank of America Securities Home Care Conference. “And that’s a net-savings number.”
The number of LHC Group full-time staff coming out of quarantine is enabling them to start generating some of those savings. Quarantine rates came down from an average 3% in the third quarter to slightly more than 1%, according to the company’s President Joshua Proffitt.
LHC Group has been taking a regional approach to recruitment across each of its service lines. Each service, such as home health or hospice, has dedicated hiring teams that are focused on specific geographic areas. The home health and hospice provider began piloting the strategy during the last two quarters of 2020.
In addition to the regional strategy, LHC Group has reinforced its talent acquisition team during the past year. The number of staff in that area is up 65% to 56 employees, from 34 in 2020. These recruiters are focused on markets in which the labor shortage is at its worst, where they are seeing capacity issues, or where they see the most growth potential that could be accelerated by adding staff, according to Myers.
The company also rolled out an employee referral program in January that is expected to generate more than 2,000 new hires by the end of the year.
In March, LHC Group agreed to provide $20 million in funding during the next 10 years to the University of Louisiana at Lafayette College of Nursing and Allied Health Professions. The investment is expected to finance in-person and virtual degree programs beginning in the nursing school.
In time these dollars will be used to support more than 55 degree programs in each of the university’s schools. This will include post-acute care certifications at the graduate level.
“The nursing shortage situation has to start at the front of the process, getting more qualified nurses coming out of nursing school,” Proffitt said. “And not only do we want to get more people applying in nursing school, but we want to start growing the pool of applicants for ‘in home,’ because, over time, we would like to see more and more of those early nurses be able to come directly into the home environment.”
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