Addus Completes Tennessee Quality Care Deal, Anticipates More Transactions

Addus HomeCare Corp. (NASDAQ: ADUS) has completed the acquisition of the home health, hospice and private-duty company Tennessee Quality Care for an undisclosed amount.

Across all of its business lines, the Franklin, Tennessee-based provider serves nearly 1,800 patients daily from 17 locations that cover 50 of that state’s 95 counties. Addus covered the transaction with a mix of cash on hand and the company’s revolving credit facility.

The deal makes Tennessee the third state in which Addus offers all three of its core services, along with New Mexico and Illinois.

“This is a very strategic acquisition for Addus as it allows us to offer all three levels of home-based care in an attractive market, as well as being a certificate-of-need state,” Addus CEO Dirk Allison said during an earnings call. “With this transaction, we will also be able to expand our home health and hospice services into nine additional counties as we look ahead to de novo locations in the future.”

Tennessee Quality Care is a portfolio company of American Health Partners, which operates companies in the home health and hospice; long term care, senior living and rehabilitation industries, as well as behavioral health care.

The acquired asset is expected to generate close to $40 million in annual revenue as well as foster further growth, Allison indicated.

Demographic tailwinds make Tennesssee an attractive market for Addus. By 2030, 28% of the state’s population will be 60 or older, according to the U.S. Census Bureau. This is a projected 37% increase from 2017.

All told, Addus provides hospice, home health and personal care to an estimated 47,500 patients annually across 203 locations in 22 states.

Compared to Q2 2022, the company saw 9.7% consolidated net service revenue growth during the second quarter of the year, reaching $260 million. However, its hospice revenue took a dip in Q2 at $50.2 million, down from $52 million in the prior year’s period.

Allison attributed the decline primarily to the return of Medicare sequestration.

The company’s financial results reflect consistency and stability, according to Brian Tanquilut, equity analyst for the investment banking firm Jefferies Financial Group.

“While ADUS has been consistent in delivering modest earnings beats and good growth, the core driver of our positive thesis on the name is the predictability and consistency of the company’s results,” Tanquilut indicated in a research note. “With its relatively long ‘length of stay’ and generally stable state-level reimbursements, ADUS’s business model provides high performance visibility, especially in stable labor environments.”

Though the company’s hospice census rose from Q1, it fell short from Q2 of last year — 3,225 patients compared to 3,333.

Addus reported increases in hospice length of stay, particularly among patients referred by skilled nursing facilities.

Going forward, the company is well-positioned to pursue further transactions, according to Allison.

“During the second quarter of 2023, we continue to see strong cash flow from operations as our states and other payers have continued to pay in a timely manner,” Allison said. “The strong cash flow along with conservative management of our balance sheet has allowed us to maintain a net leverage position of less than 1x adjusted EBITDA, continuing to give us financial flexibility, which should enable us to be opportunistic as we anticipate seeing additional transactions come to the market over the next few quarters.”