Addus to Stay Active in Hospice M&A Market

Addus HomeCare Corporation (NASDAQ: ADUS) is on the hunt for acquisitions. While its 2021 acquisition strategy is heavily weighted toward home health and personal care, the company has its eyes out for hospice assets.

This is evidenced by the recent acquisition of 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. The Albuquerque-based Armada cares for nearly 1,100 home health patients daily, as well as about 100 hospice patients, bringing in annualized revenues of $23 million.

“We continue to focus on acquisitions that meet our goal of creating multiple markets of scale, where we provide all three levels of home care,” Addus CEO Dirk Allison said in an earnings call. “For 2021 our focus has primarily been in the personal care and home health segments of our business. However, we will continue to look at strategic opportunities in all three segments.”

Addus is also nearly finished with integration of its Queen City Hospice purchase in Ohio last year. In December 2020, the company bought Queen City and its affiliate Miracle City Hospice from the private equity firm Stonehenge Partners for a cash purchase price of $192 million.

The company doubled its revolving credit facility to $600 million, up from $300 million during the second quarter, largely to fuel further deals.

Addus provides hospice, home health and personal care services to nearly 44,000 patients through 215 locations in 25 states. Addus’ hospice segment brought in nearly $37 million during the second quarter of 2021, up from $25.5 million during the prior year’s quarter. The company earned $217.9 million for the second quarter of 2021, up 18.1% from $184.6 million for the second quarter of 2020. 

Addus’ personal care business accounts for nearly 80% of its revenue.

Pandemic-related disruption in the senior living and skilled nursing markets continue to plague hospice providers. Senior living occupancy remains lower than historical levels, though widespread vaccination is inching the sector towards recovery.

Senior housing, assisted living and similar facilities have long been a significant source of hospice referrals for many providers. That stream of referrals has diminished during the pandemic as many patients shunned facility-based care due to fears of infection or losing access to family because of safety restrictions. This in turn has a negative impact on length of stay. Patients in facilities tend to receive referrals earlier in the course of their illnesses and receive hospice care longer.

While Addus’ hospice admissions were up to 2,252 in Q2 from 1,339 in Q2 2020, average length of stay dropped to 89.3 days from 103.1 during that same period. Nevertheless, length of stay is very gradually starting to tick back upwards, according to Allison.

“We were at our low point in January, and we have seen a steady increase in median length of stay and a steady increase in [average daily census] each month. That has continued through July as well,” Allison said. “We’re heading back up towards our normal in the mid to upper 20s on the median length of stay, and it looks like that trend is continuing.”