The leaders of Addus HomeCare Corp. (Nasdaq: ADUS) expressed notable optimism Tuesday in two areas: the upcoming “80-20” rule and their mergers and acquisitions forecasts for the close to future.

These two objects could or is probably not associated. However Addus CEO Dirk Allison and COO Brian Poff reiterated time and time once more that the corporate would actively search acquisition targets, whether or not in residence care or private care.

Whereas Addus has historically been a really disciplined M&A supplier, it seems that this might manifest as disciplined aggression in 2024.

“We count on extra acquisition alternatives to come back to market within the coming quarters,” Allison stated in the course of the firm's fourth-quarter earnings name. “Our major focus stays to make use of our monetary capability to amass strategic companies that align with our general progress technique to supply all three ranges of residence care in our private care markets.”

Primarily based in Frisco, Texas, Addus gives private care, residence care and hospice to greater than 49,000 customers by means of its 217 places in 22 states.

The corporate has been per its technique over the previous two years. That technique is meant to mix residence care and hospice choices with private care in key markets. That, leaders consider, will permit the nation to unlock value-based healthcare contracts in these markets.

For context, private care represents roughly 75% of income, whereas residence care and hospice account for six% and 19%, respectively.

It has already ramped up M&A in residence care, buying Tennessee High quality Care final summer season and buying Chicago-based Apple Residence Healthcare in late 2022.

Apparently there's much more the place that got here from. Particularly, the corporate is in search of corporations with profiles which might be “comparable” to Tennessee High quality Care.

“We consider that stress on conventional Medicare residence care is prone to lower within the coming years,” Allison stated. “And we’ll proceed to pursue residence well being acquisition alternatives which might be strategic to our general progress.”

Whereas Addus leaders' tone round M&A was much more optimistic on Tuesday, the corporate additionally made extra point out of potential private care offers within the pipeline.

“We’re optimistic that we are going to see much more engaging acquisition alternatives in 2024,” stated Allison. “We’re at present exploring in-person care choices that may permit us to have a bigger presence in a few of our present states. We’re additionally in search of alternatives the place we will enter new states in a cloth manner.”

Within the fourth quarter, Addus' complete web companies income elevated 11.9% year-over-year to $276.4 million. For the complete 12 months 2023, web companies revenues have been simply over $1 billion, representing a rise of over 11% from 2022.

Private care revenues rose 11.5% 12 months over 12 months within the fourth quarter. Revenue from residence care elevated by greater than 31%, whereas hospice noticed a rise of 8%.

“We stay optimistic on ADUS and level to the fourth-quarter outcomes that got here in above expectations as affirmation of administration's continued skill to ship wholesome progress and modest optimistic earnings surprises,” stated a Jefferies analyst. “We count on capital deployment to shift to M&A – which ought to drive progress and valuation and ship extra significant EBITDA upside – as soon as regulatory visibility turns into obvious (presumably within the spring).”

The 80-20 rule

Residence and community-based companies (HCBS) suppliers like Addus have been ready for ultimate readability on the proposed rule for “making certain entry to Medicaid companies” proposed final 12 months by the Facilities for Medicare & Medicaid Companies (CMS).

As proposed, the rule would mandate that 80% of all HCBS reimbursement suppliers go towards caregiver wages.

Allison stated he expects that readability in April, a 12 months after the proposed rule was first launched.

“The content material of a ultimate rule is unknown at the moment and will differ considerably from the proposed rule,” he stated. “Whereas we’re not sure whether or not this rule will embody the 80% requirement, one other share requirement, or will finally be carried out, we might not be shocked if the four-year implementation interval is prolonged.”

Whereas Addus has vehemently protested the proposed rule, leaders consider the corporate is basically effectively set as much as deal with wage mandates if they’re carried out.

“We consider the important thing for private care suppliers to achieve success with minimal direct wage necessities is to have scale in each state the place they supply care,” stated Allison. “This won’t solely permit these suppliers to unfold their prices over a bigger income base, however can even present better alternatives for significant affected person advocacy inside the state during which they function.”

Nevertheless, the corporate remains to be making ready for potential ripple results from the rule.

Allison particularly talked about extra environment friendly scheduling as a spotlight for the long run.

Later, an analyst requested Addus leaders in the event that they have been extra optimistic in regards to the 80-20 rule than earlier than.

“We’re extra optimistic in regards to the Medicaid entry rule,” Allison stated in response. “There have been a variety of feedback from varied stakeholders, together with a variety of states, that are Democratic states which might be near the Biden administration. I believe what all of us perceive in regards to the Biden administration is that they’re very supportive of the private care business, they need to guarantee that our aged and disabled folks have better entry to care and never much less care. So we'll proceed to evaluate the feedback on the rule and take a look at our personal scenario when it comes to how we might function if varied points of the rule have been compromised. [forth].”