Addus Gains Momentum on JourneyCare Integration

Addus HomeCare Corp (NASDAQ: ADUS) is gaining traction in its integration of JourneyCare as it works to build a larger continuum of coordinated care.

Addus completed its $85 million acquisition of Illinois-based nonprofit JourneyCare last month. Serving 750 patients daily in 13 counties, the organization is among the largest hospice providers in that state.

The deal represents an opportunity to grow for Addus and is anticipated to turn a profit by the end of this year, according to Brian Poff, CFO and executive vice president, speaking at the Oppenheimer 32nd Annual Healthcare Conference.

“JourneyCare was a nice deal for us, [though] it’s a little different profile being a nonprofit,” said Poff. “We thought it was a pretty attractive opportunity for us, especially for a business of that size and scale. We see a lot of opportunity there.”

The transaction builds upon the Addus purchase of Summit Home Health, near Chicago, in October last year. The Summit deal sparked the company’s interest in home health care in that region, with Illinois now representing one of its largest personal care markets, according to Poff. 

The company seeks to coordinate its service lines and stretch further into the market, Poff indicated.

“It’s going to be a very nice fit to have those three businesses working together,” Poff stated.

Texas-based Addus has roughly 211 locations across 25 states. The company provides personal care to more than 45,000 patients and also offers home health and hospice care to upwards of 3,600 patients.

These three services of personal, home health and hospice care are now a core piece of how the company plans to gain growth momentum from its acquisitions.

COO Brad Bickham recently indicated at the conference that its home health presence in the New Mexico market bulked a “steady stream” of monthly hospice referrals and noted that Addus is looking to replicate that capability in other markets, including Journeycare’s home state of Illinois. 

A goal for Addus is greater coordination between its three business lines to allow for timely and smooth transitions of care, according to Bickham.

New Mexico and Illinois are two of the three states in which Addus offers its trifecta of business lines. Addus last year acquired Armada Hospice of New Mexico and Armada Hospice of Santa Fe for $29 million. The transaction also included the affiliated Armada Skilled Home Health of New Mexico.

Demand for hospice care is on the rise in the Prairie State, making it an attractive M&A market. Hospice utilization among Medicare decedents in Illinois reached 49.7% during 2018, according to the National Hospice and Palliative Care Organization. This fell slightly under that year’s national average of 50.3%.

The proportion of seniors in Illinois is anticipated to grow in coming years, pushing up demand for serious illness and end-of-life care. The U.S. Census Bureau projects that by 2030 nearly a quarter (22.3%) of the state’s population will be 60 or older. This is a 28% rise from 2012.

From a pricing perspective, acquiring nonprofit JourneyCare will take some adjustment to fully integrate the business, according to Poff. However, Addus anticipates the gross margin profile to be consistent with expectations of a hospice business that size coupled with its existing operational scale, Poff stated.

The company is also taking stock of Journeycare’s selling, general and administrative expenses.

“Six to nine months out, as we make some of the changes we think we’ll start to see the right level of profitability from that business,” Poff said. “Ultimately in our view [we’ll] turn that deal into just over probably 10x or 11x times deal, which in the market that we’ve been in the last year and a half for hospice seeing a lot of mid- to upper-teens deals.”