LHC Group announces first quarter 2018 financial results


Reports Diluted EPS of $0.28 and Adjusted Diluted EPS of $0.63


Affirms 2018 Guidance and Expected Double-Digit Accretion from Merger with Almost Family

LAFAYETTE, La. (May 2, 2018) – LHC Group, Inc. (NASDAQ: LHCG) announced its financial results for the three months ended March 31, 2018.

Financial Results for the First Quarter of 2018

  • Net service revenue increased 19.2% to $291.1 million compared with $244.2 million in the first quarter of 2017.(1)
  • Net income attributable to LHC Group’s common stockholders was $5.0 million compared with $9.5 million in the first quarter of 2017, or $0.28 per diluted share compared with $0.53 per diluted share in the first quarter of 2017.
  • Adjusted net income attributable to LHC Group’s common stockholders was $11.3 million, or $0.63 per diluted share, compared with $9.5 million, or $0.53 per diluted share, in the first quarter of 2017, for an increase of 18.9%.
  • Adjusted results for the first quarter of 2018 exclude merger and other costs of $6.3 million after tax, or $0.35 per diluted share.(2)
  • Total organic growth in home health admissions was 6.7%.
  • Total organic revenue growth in home health was 9.0%.
  • Total organic growth in hospice admissions was 4.6%.

    (1) See “Reconciliation of Revenue After Adoption of ASU 2014-09” on page 9.
    (2) See “Reconciliation of Non-GAAP Measures – Adjusted net income attributable to LHC Group” to GAAP results on page 9.

Operational and Strategic Highlights

  • LHC Group quality and patient satisfaction results continue to exceed the national average with 98% of its same store locations having CMS Quality Star ratings of four stars or greater.
  • Completed the merger with Almost Family, Inc., creating one of the largest and highest quality providers of in-home healthcare in the country with an expanded geographic service territory which now includes 37 states, covers over 60% of the U.S. population aged 65 and over and the only national home health, hospice and personal care provider with a long track record of successfully partnering with hospitals and health systems.
  • Entered into a new $500 million five-year senior secured credit facility on April 1 led by JPMorgan Chase Bank, which includes an additional $200 million accordion expansion feature.

Commenting on the results, Keith G. Myers, LHC Group’s chairman and Chief Executive Officer, said, “As the partner of choice for leading health systems and hospitals across the country, we are proud to continue our record of outstanding quality measures as we fulfill the critical needs of our communities and partners for in-home healthcare. The attention to detail we bring daily in a clinical setting is evident in our quality scores as well as the preparation and diligence we have demonstrated with the ongoing integration of over 780 locations across the country. We have only begun to tap into the true potential of a much larger national in-home healthcare platform, and I am confident we will continue to see much more in the way of execution, service delivery, the capturing of synergies and the scaling of relationships with our provider partners.”

Mr. Myers concluded, “Our acquisition and joint venture pipeline remains robust. Based on the early success with the Almost Family integration and the ability to seamlessly integrate other acquisitions, we remain laser-focused on M&A as a key component of our overall growth strategy. The value proposition enhanced by a full spectrum of post-acute care is an important differentiator we can offer prospective partners. We also expect to generate additional organic growth and expanded capabilities through co-locating our service lines in markets we serve and capitalizing on the relatively untapped potential of our healthcare innovations segment.”

Almost Family Merger

The merger of LHC Group and Almost Family was effective on April 1, 2018. Each share of Almost Family common stock was automatically converted into the right to receive 0.9150 of a share of LHC Group common stock, resulting in approximately 31.2 million total shares of common stock outstanding for the combined company. Over the course of the next 12 to 18 months, the approximately 30,000 employees of LHC Group will be integrated into one “house of brands” with a shared culture based on an aligned vision, collaboration and commitment to quality local healthcare.

Fiscal Year 2018 Guidance

The Company re-affirmed its guidance for fiscal year 2018 previously issued on April 2, 2018 in conjunction with completion of the merger and inclusion of Almost Family’s financial results for the final three quarters of 2018. The guidance now includes the recent adoption of ASU 2014-09 regarding revenue recognition, which has an impact of approximately $22 million to $30 million on previously projected net service revenues but no effect on earnings per share. Net service revenue is expected to be in a range of $1.81 billion to $1.86 billion, and adjusted earnings per diluted share is expected to be in a range of $3.45 to $3.55. The guidance assumes the following:

(1) The Company expects to achieve a total of $25 million in pre-tax synergies with $8 million to $12 million realized in 2018; 
(2) An estimated effective tax rate of 28% to 29%, which reflects the positive impact from passage of the Tax Cuts and Jobs Act of 2017; and
(3) Weighted average diluted shares of approximately 28.0 million.

Commenting on the 2018 outlook, Joshua L. Proffitt, LHC Group’s Chief Financial Officer, added, “Our strong start to the year, with solid organic growth and 19% adjusted earnings growth, is a direct result of a company-wide commitment to delivering the highest quality service to our patients, families and communities we are privileged to serve. We are squarely on pace to achieve the accelerated growth projected for 2018 and the double-digit accretion from our merger with Almost Family.”

The Company’s guidance ranges do not take into account the impact of future reimbursement changes, if any, future acquisitions, if made, de novo locations, if opened, or future legal expenses, if necessary. The adjusted earnings guidance for 2018 is presented on a non-GAAP basis, as it does not include the impact of transaction related costs, integration related expenses or other expenses related to the merger or other acquisitions. Given the difficulty in predicting the future amount and timing of merger related expenses, the Company cannot reasonably provide a full reconciliation of its fiscal year 2018 adjusted earnings per share guidance to GAAP earnings per share.

Conference Call

LHC Group will host a conference call on Thursday, May 3, 2018, at 11:00 a.m. Eastern time to discuss its first quarter 2018 results. The toll-free number to call for this interactive teleconference is (866) 393‑1608 (international callers should call (973) 890-8327). A telephonic replay of the conference call will be available through midnight on May 10, 2018, by dialing (855) 859‑2056 (international callers should call (404) 537-3406) and entering confirmation number 8398673.

A live broadcast of LHC Group’s conference call will be available under the Investor Relations section of the Company’s website, www.LHCgroup.com. A one-year online replay will be available approximately an hour following the conclusion of the live broadcast.

 

About LHC Group, Inc.

LHC Group, Inc. is a national provider of in-home healthcare services and innovations, providing quality, value-based healthcare to patients primarily within the comfort and privacy of their home or place of residence. LHC Group’s services cover a wide range of healthcare needs for patients and families dealing with illness, injury, or chronic conditions. The Company’s approximately 30,000 employees deliver home health, hospice, personal care services, and facility-based services from more than 780 locations in communities in 37 states. Through its healthcare innovations business, LHC Group drives increased utilization of home healthcare and enhances patient and caregiver engagement. LHC Group is the preferred in-home healthcare partner for 76 health systems, consisting of 336 leading hospitals around the country.

Forward-looking Statements

This press release contains “forward-looking statements” (as defined in the Securities Litigation Reform Act of 1995) regarding, among other things, future events or the future financial performance of the Company, or anticipated benefits of the transaction. Words such as “anticipate,” “expect,” “project,” “intend,” “believe,” “will,” “estimates,” “may,” “could,” “should” and words and terms of similar substance used in connection with any discussion of future plans, actions or events identify forward-looking statements. Forward-looking statements contained in this press release include, but are not limited to: our 2018 revenue and earnings guidance, statements about the benefits of the merger, including anticipated earnings accretion, synergies and cost savings and the timing thereof; the Company’s plans, objectives, expectations, projections and intentions; and other statements relating to the transaction that are not historical facts. Forward-looking statements are based on information currently available to the Company and involve estimates, expectations and projections. Investors are cautioned that all such forward-looking statements are subject to risks and uncertainties, and important factors could cause actual events or results to differ materially from those indicated by such forward-looking statements. With respect to the merger, these risks, uncertainties and factors include, but are not limited to: the risk that the businesses will not be integrated successfully; the risk that the cost savings, synergies and growth from the transaction may not be fully realized or may take longer to realize than expected; the diversion of management time on integration-related issues; the risk that costs associated with the integration of the businesses are higher than anticipated; and litigation risks related to the transaction. With respect to the Company’s  businesses, these risks, uncertainties and factors include, but are not limited to: changes in, or failure to comply with, existing government regulations that impact the Company’s businesses; legislative proposals for healthcare reform; the impact of changes in future interpretations of fraud, anti-kickback, or other laws; changes in Medicare and Medicaid reimbursement levels; changes in laws and regulations with respect to Accountable Care Organizations; changes in the marketplace and regulatory environment for Health Risk Assessments; decrease in demand for the Company’s services; the potential impact of the transaction on relationships with customers, joint venture and other partners, competitors, management and other employees, including the loss of significant contracts or reduction in revenues associated with major payor sources; ability of customers to pay for services; risks related to any current or future litigation proceedings; potential audits and investigations by government and regulatory agencies, including the impact of any negative publicity or litigation; the ability to attract new customers and retain existing customers in the manner anticipated; the ability to hire and retain key personnel; increased competition from other entities offering similar services as offered by the  Company; reliance on and integration of information technology systems; ability to protect intellectual property rights; impact of security breaches, cyber-attacks or fraudulent activity on the Company’s reputation; the risks associated with assumptions the parties make in connection with the parties’ critical accounting estimates and legal proceedings; the risks associated with the Company’s expansion strategy, the successful integration of recent acquisitions, and if necessary, the ability to relocate or restructure current facilities; and the potential impact of an economic downturn or effects of tax assessments or tax positions taken, risks related to goodwill and other intangible asset impairment, tax adjustments, anticipated tax rates, benefit or retirement plan costs, or other regulatory compliance costs.

Many of these risks, uncertainties and assumptions are beyond the Company’s ability to control or predict. Because of these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements. Furthermore, forward-looking statements speak only as of the information currently available to the Company on the date they are made, and the Company does not undertake any obligation to update publicly or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this press release. The Company does not give any assurance (1) that the Company will achieve its guidance or expectations, or (2) concerning any result or the timing thereof. All subsequent written and oral forward-looking statements concerning the transaction or other matters and attributable to the Company or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements above.

 

LHC GROUP, INC. AND SUBSIDIARIES,
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
 
 
Mar. 31,
2018
Dec. 31,
2017
 
(Unaudited)
 
ASSETS
Current assets:
 
 
Cash
$          9,345
$          2,849
Receivables:
 
 
Patient accounts receivable
168,079
161,898
Other receivables
4,377
3,163
Amounts due from governmental entities
830
830
    Total receivables
173,286
165,891
Prepaid income taxes
4,548
7,006
Prepaid expenses
12,868
13,042
Other current assets
8,302
12,177
Total current assets
208,349
200,965
Property, building and equipment, net of accumulated depreciation of $46,195 and $43,565, respectively
46,249
46,453
Goodwill
396,642
392,601
Intangible assets, net of accumulated amortization of $13,482 and $13,041, respectively
134,842
134,610
Other assets
19,241
19,073
Total assets
$      805,323
$      793,702
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
Accounts payable and other accrued liabilities
$        51,803
$        39,750
Salaries, wages, and benefits payable
56,497
44,747
Self-insurance reserve
13,598
12,450
Current portion of long-term debt
222
286
Amounts due to governmental entities
4,008
5,019
    Total current liabilities
126,128
102,252
Deferred income taxes
25,540
27,466
Revolving credit facility
125,000
144,000
    Total liabilities
276,668
273,718
Noncontrolling interest – redeemable
13,888
13,393
Stockholders’ equity:
 
 
LHC Group, Inc. stockholders’ equity:
 
 
Preferred stock – $0.01 par value: 5,000,000 shares authorized; none issued or outstanding
Common stock – $0.01 par value; 40,000,000 shares authorized; 22,820,431 and 22,640,046 shares issued in 2018 and 2017, respectively
228
226
Treasury stock –  4,947,276 and 4,890,504 shares at cost, respectively
(45,716)
(42,249)
Additional paid-in capital
126,348
126,490
Retained earnings
369,396
364,401
    Total LHC Group, Inc. stockholders’ equity
450,256
448,868
Noncontrolling interest – non-redeemable
64,511
57,723
    Total equity
514,767
506,591
            Total liabilities and equity
$      805,323
$      793,702
 
 
LHC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share and per share data)
(Unaudited)
 
 
Three Months Ended
March 31,
 
2018
2017
 
 
 
Net service revenue
$     291,054
$     244,249
Cost of service revenue
188,618
154,370
Gross margin
102,436
89,879
General and administrative expenses
92,031
72,011
Operating income
10,405
17,868
Interest expense
(1,450)
(780)
Income before income taxes and
    noncontrolling interest
8,955
17,088
Income tax expense
977
5,173
Net income
7,978
11,915
Less net income attributable to
    noncontrolling interests
2,983
2,448
Net income attributable to LHC Group, Inc.’s common stockholders
$          4,995
$          9,467
 
 
 
Earnings per share attributable to LHC Group, Inc.’s common stockholders:
 
 
Basic
$           0.28
$           0.54
Diluted
$           0.28
$           0.53
 
 
 
Weighted average shares outstanding:
 
 
Basic
17,789,863
17,643,463
Diluted
18,039,345
17,817,880
 
 
LHC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
 
 
Three Months Ended
March 31,
2018
2017
 
 
 
Operating activities:
 
 
Net income
$          7,978
$       11,915
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization expense
3,293
3,190
Stock-based compensation expense
1,601
1,581
Deferred income taxes
(1,926)
475
(Loss) gain on disposal of assets
(187)
152
Changes in operating assets and liabilities, net of acquisitions:
 
 
Receivables
(7,111)
2,028
Prepaid expenses and other assets
3,881
(2,413)
Prepaid income taxes
2,458
Accounts payable and accrued expenses
24,859
18,524
Income taxes payable
164
Net amounts due to/from governmental entities
(1,011)
(985)
Net cash provided by operating activities
33,835
34,631
 
 
 
Investing activities:
 
 
Advanced payments on acquisitions
(4,487)
Purchases of property, building and equipment
(2,551)
(2,523)
Cash paid for acquisitions, primarily goodwill and intangible assets
(2,770)
(449)
Net cash used in investing activities
(5,321)
(7,459)
 
 
 
Financing activities:
 
 
Proceeds from line of credit
13,000
5,000
Payments on line of credit
(32,000)
(14,000)
Proceeds from employee stock purchase plan
332
256
Payments on debt
(64)
(65)
Noncontrolling interest distributions
(3,086)
(2,391)
Withholding taxes paid on stock-based compensation
(3,467)
(2,569)
Purchase of additional controlling interest
(55)
Sale of noncontrolling interest
3,322
114
Net cash (used in) provided by financing activities
(22,018)
(13,655)
Change in cash
6,496
13,517
Cash at beginning of period
2,849
3,264
Cash at end of period
$          9,345
$       16,781
 
 
 
Supplemental disclosures of cash flow information:
 
 
Interest paid
$          1,397
$             721
Income taxes paid
$             792
$          4,580
 
 
LHC GROUP, INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Amounts in thousands)
(Unaudited)
 
 
Three Months Ended March 31, 2018
 
Home
Health Services
Hospice Services
Community-Based Services
Facility-
Based
Services
Total
Net service revenue
$     204,187
$       42,626
$       14,091
$       30,150
$     291,054
Cost of service revenue
130,161
28,018
10,790
19,649
188,618
General and administrative expenses
66,289
13,298
3,298
9,146
92,031
Operating income
7,737
1,310
3
1,355
10,405
Interest expense
(1,088)
(218)
(72)
(72)
(1,450)
Income (loss) before income taxes and noncontrolling interest
6,649
1,092
(69)
1,283
8,955
Income tax expense (benefit)
722
111
(15)
159
977
Net income (loss)
5,927
981
(54)
1,124
7,978
Less net income attributable to noncontrolling interests
2,236
417
21
309
2,983
Net income (loss) attributable to
     LHC Group, Inc.’s
     common stockholders
$          3,691
$             564
$              (75)
$             815
$          4,995
Total assets
$     530,197
$     157,338
$       47,819
$       69,969
$     805,323
 
 
 
Three Months Ended March 31, 2017
 
 
 
Home
Health Services
Hospice Services
Community-Based Services
Facility-
Based
Services
Total
Net service revenue
$     180,658
$       35,948
$       10,541
$       17,102
$     244,249
Cost of service revenue
112,086
23,273
7,948
11,063
154,370
General and administrative expenses
53,922
10,406
2,311
5,372
72,011
Operating income
14,650
2,269
282
667
17,868
Interest expense
(585)
(117)
(39)
(39)
(780)
Income from continuing operations before income taxes and noncontrolling interest
14,065
2,152
243
628
17,088
Income tax expense
4,253
659
83
178
5,173
Net income
9,812
1,493
160
450
11,915
Less net income attributable to noncontrolling interests
2,028
286
8
126
2,448
Net income attributable to
     LHC Group, Inc.’s
     common stockholders
$          7,784
$          1,207
$             152
$             324
$          9,467
Total assets
$     447,807
$     126,068
$       32,961
$       35,889
$     642,725
 
 
 
LHC GROUP, INC. AND SUBSIDIARIES
SELECT CONSOLIDATED KEY STATISTICAL AND FINANCIAL DATA
(Unaudited)
 
 
Three Months Ended
March 31,
 
2018
2017
Key Data:
 
 
Home-Health Services:
 
 
Home Health
 
 
Locations
319
305
Acquired
1
22
De novo
Divested/Consolidated
(1)
Total new admissions
53,123
47,285
Medicare new admissions
33,028
29,819
Average daily census
45,156
41,650
Average Medicare daily census
30,362
29,057
Medicare completed and billed episodes
54,320
51,761
Average Medicare case mix for completed and billed Medicare episodes
1.09
1.07
Average reimbursement per completed and billed Medicare episodes
$          2,852
$          2,722
Total visits
1,495,118
1,360,088
Total Medicare visits
1,009,425
950,303
Average visits per completed and billed Medicare episodes
18.0
17.2
Organic growth:(1)
 
 
Net revenue
9.0%
8.0%
Net Medicare revenue
4.8%
4.7%
Total new admissions
6.7%
11.7%
Medicare new admissions         
4.3%
7.5%
Average daily census
3.4%
4.0%
Average Medicare daily census
-0.6%
-1.1%
Medicare completed and billed episodes
-0.2%
1.5%
 
 
 
Community-Based Services:
 
 
Locations
16
11
Acquired
De novo
4
Divested/Consolidated
Average daily census
2,102
1,678
Billable hours
478,952
371,673
Revenue per billable hour
$         29.87
$         29.10
 
 
 
Hospice-Based Services:
 
 
Locations
91
73
Acquired
8
De novo
Divested/Consolidated
Admissions
4,054
3,052
Average daily census
3,136
2,821
Patient days
282,220
253,918
Average revenue per patient day
$             154
$             144
 
 
 
Facility-Based Services:
 
 
Long-term Acute Care
 
 
Locations
14
8
Acquired
Patient days
22,560
13,732
Average revenue per patient day
$          1,248
$          1,087
Occupancy rate
77.6%
81.2%
 
  1. Organic growth is calculated as the sum of same store plus de novo for the period divided by total from the same period in the prior year.
 
LHC GROUP, INC. AND SUBSIDIARIES
RECONCILIATION OF REVENUE AFTER ADOPTION OF ASU 2014-09
(Amounts in thousands, Unaudited)
 
 
Three Months Ended March 31,
 
2018
2017
Net Service Revenue, pre-adoption
$  295,980
$  246,618
Less: Implicit price concession(1)
        4,926
        2,369
Net Service Revenue, post-adoption
$  291,054
$  244,249
 
 
RECONCILIATION OF ADJUSTED NET INCOME
ATTRIBUTABLE TO LHC GROUP, INC.
(Amounts in thousands, Unaudited)
 
 
Three Months Ended March 31,
 
2018
2017
Net income attributable to LHC Group, Inc.’s common stockholders
$      4,995
$      9,467
Add (net of tax):
 
 
AFAM merger/acquisition expenses(2)
6,311
Adjusted net income attributable to
    LHC Group, Inc.’s common stockholders
$    11,306
$      9,467
 
 
RECONCILIATION OF ADJUSTED NET INCOME
ATTRIBUTABLE TO LHC GROUP, INC. PER DILUTED SHARE
 (Unaudited)
 
Three Months Ended March 31,
 
2018
2017
Net income attributable to LHC Group, Inc.’s common stockholders
$             0.28
$           0.53
Add (net of tax):
 
 
AFAM merger/acquisition expenses(2)
0.35
Adjusted net income attributable to
    LHC Group, Inc.’s common stockholders
$             0.63
$           0.53
 
(1)     All amounts previously classified as provision for bad debts are now classified as implicit price concessions in determining the transaction price of the Company's net service revenue.
 
(2)   Expenses associated with the merger between LHC Group and Almost Family and other prior acquisitions and joint ventures.

We have included certain financial measures in this press release, including adjusted net income attributable to LHC Group and adjusted net income attributable to LHC Group per diluted share, which are “non-GAAP financial measures” as defined under the rules and regulations promulgated by the SEC. We define adjusted net income attributable to LHC Group as net income attributable to LHC Group adjusted for the AFAM merger/acquisition costs. We define adjusted net income attributable to LHC Group per diluted share as net income attributable to LHC Group adjusted for the AFAM merger/acquisition costs divided by weighted average diluted shares outstanding.

Adjusted net income attributable to LHC Group and adjusted net income attributable to LHC Group per diluted share are supplemental measures of our performance and are not required by, or presented in accordance with, generally accepted accounting principles in the United States (“GAAP”). Adjusted net income attributable to LHC Group and adjusted net income attributable to LHC Group per diluted share are not measures of our financial performance under GAAP and should not be considered as alternatives to net income attributable to LHC Group, net income attributable to LHC Group per diluted share or any other performance measures derived in accordance with GAAP. Our measurements of adjusted net income attributable to LHC Group and adjusted net income attributable to LHC Group per diluted share may not be comparable to similarly titled measures of other companies. We have included information concerning adjusted net income attributable to LHC Group and adjusted net income attributable to LHC Group per diluted share in this press release because we believe that such information is used by certain investors as measures of a company’s historical performance. We believe these measures are frequently used by securities analysts, investors and other interested parties in the evaluation of issuers of equity securities, many of which present adjusted net income and adjusted net income per diluted share when reporting their results. Our presentation of adjusted net income attributable to LHC Group and adjusted net income attributable to LHC Group per diluted share should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items.