November 5, 2014

LHC Group announces third quarter 2014 results

LAFAYETTE, La. (November 5, 2014) – LHC Group, Inc. (NASDAQ: LHCG), a national provider of home health, hospice and comprehensive post-acute healthcare services, today announced its financial results for the three months and nine months ended September 30, 2014.

Financial Results for the Third Quarter

  • Net service revenue for the third quarter of 2014 was $187.7 million, compared with $164.7 million for the same period in 2013.
  • Net income attributable to LHC Group for the third quarter of 2014 was $6.2 million, compared with $5.3 million for the same period in 2013.
  • Diluted earnings per share was $0.36 for the third quarter of 2014 as compared with $0.31 for the same period in 2013.

Financial Results for the Nine Months

  • Net service revenue for the nine months ended September 30, 2014, was $540.3 million, compared with $493.0 million for the same period in 2013.
  • Net income attributable to LHC Group for the nine months ended September 30, 2014, was $16.3 million, compared with $17.4 million for the same period in 2013.
  • Diluted earnings per share was $0.94 for the nine months ended September 30, 2014, compared with $1.02 for the same period in 2013.

Commenting on the results, Keith G. Myers, LHC Group’s chairman and CEO, said, “I am extremely proud of the strong and well-balanced operating results our team delivered during the third quarter of 2014 and with our continued ability to execute our long-term growth strategy. In 2014, we have acquired 57 locations in 15 states, which consisted of $105 million in aggregate trailing twelve month revenues at the time of acquisition. As we look ahead to the remainder of 2014 and beyond, we are well positioned to continue increasing shareholder value by focusing on growing revenue, improving efficiencies and reducing costs.”

LHC Group is in the final phase of its company-wide conversion to point of care technology, which is anticipated to be completed during the fourth quarter of 2014. In conjunction with this final phase of its point of care conversion, LHC Group is in the process of eliminating certain general and administrative expenses, consolidating a limited number of locations in service area overlap markets and closing three underperforming providers during the fourth quarter of 2014. These initiatives are estimated to yield annual cost savings of $7 million to $8 million when fully implemented, beginning in 2015. As part of these efforts, LHC Group expects non-recurring costs in the fourth quarter of 2014 of $3 million to $4 million.

Myers added, “In the third quarter of 2010, we began our strategic and systematic conversion of all of our home health and hospice agencies to point of care technology. We are confident point of care will enhance our efforts in the areas of disease management, clinical decision support, medication management, transitions in care, quality measurements, compliance and clinical care improvement. We also expect it to expand our capability to electronically exchange key clinical information with hospitals, physicians and other providers of care.  In the fourth quarter of 2014, we enter the final phase of the conversion, which demonstrates our commitment to continuously improving quality while becoming more efficient and reducing costs. We expect the completion of this plan will have a positive, material impact on our results of operations for 2015 and beyond.

“In closing, I would like to congratulate and thank the LHC Group family for their unwavering commitment to excellence. Their ability to consistently deliver high-quality care to the growing number of patients, families and communities we serve is a testament to the collective talent, work ethic and experience of the Company’s healthcare professionals.”

Guidance

The Company is raising its full-year 2014 guidance for net service revenue, which was issued on August 6, 2014, in the range of $720 million to $730 million, to a range of $725 million to $735 million due to the Life Care Home Health acquisition that was completed on September 1, 2014. The Company is reaffirming its full-year 2014 guidance for fully diluted earnings per share in the range of $1.25 to $1.35. This guidance includes the negative impact from the Medicare Home Health Prospective Payment System for 2014 of approximately $0.17 per diluted share. This guidance does not take into account the estimated impact from the non-recurring costs in the fourth quarter of 2014 of $3 million to $4 million, future reimbursement changes, if any, future acquisitions or share repurchases, if made, de novo locations, if opened, or future legal expenses, if necessary.

Conference Call

LHC Group will host a conference call Thursday, November 6, 2014, at 11 a.m. Eastern time to discuss its third quarter 2014 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 Thursday, November 13, 2014, by dialing (855) 859‑2056 (international callers should call (404) 537-3406) and entering confirmation number 11054087. 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 after the conclusion of the live broadcast.

 

About LHC Group, Inc.

LHC Group, Inc. is a national provider of post-acute healthcare services, providing quality, cost-effective healthcare to patients within the comfort and privacy of their home or place of residence. LHC Group provides a comprehensive array of healthcare services through home health, hospice and community‑based services agencies in its home-based and hospice-based divisions and long-term acute care hospitals in its facility-based division.

 

Certain matters discussed in this press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements about the Company’s future financial performance and the strength of the Company’s operations. Such forward-looking statements may be identified by words such as “continue,” “expect,” and similar expressions. Forward-looking statements involve a number of risks and uncertainties that may cause actual results to differ materially from those expressed or implied by such forward-looking statements, including changes in reimbursement, changes in government regulations, changes in LHC Group’s relationships with referral sources, increased competition for LHC Group’s services, increased competition for joint venture and acquisition candidates, changes in the interpretation of government regulations and other risks set forth in Item 1A. Risk Factors in LHC Group’s Annual Report on Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission. LHC Group undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

LHC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
(Unaudited)
Sept. 30,
2014
Dec. 31,
2013
ASSETS
Current assets:
Cash
$      4,876
$    14,014
Receivables:
Patient accounts receivable, less allowance for uncollectible accounts             of $17,463 and $14,334, respectively
99,652
88,964
Other receivables
828
608
Amounts due from governmental entities
990
1,234
   Total receivables, net
101,470
90,806
Deferred income taxes
11,152
9,251
Prepaid income taxes
4,069
Prepaid expenses
8,160
6,966
Other current assets
4,205
4,449
Receivable due from insurance carrier
7,850
   Total current assets
137,713
129,555
Property, building and equipment, net of accumulated depreciation
   of $46,022 and $40,935, respectively
33,798
31,052
Goodwill
242,218
194,893
Intangible assets, net of accumulated amortization of $6,020
   and $4,518, respectively
79,988
62,184
Other assets
1,914
4,542
   Total assets
$  495,631
$  422,226
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued liabilities
$    19,959
$    17,217
Salaries, wages and benefits payable
30,946
31,927
Self-insurance reserve
6,858
5,862
Current portion of long-term debt
247
249
Amounts due to governmental entities
4,242
4,391
Legal settlement payable
7,850
   Total current liabilities
70,102
59,646
Deferred income taxes
31,483
29,060
Income tax payable
3,415
3,415
Revolving credit facility
64,000
22,000
Long-term debt, less current portion
818
963
   Total liabilities
169,818
115,084
Noncontrolling interest- redeemable
11,001
11,258
Stockholders’ equity:
Common stock – $0.01 par value: 40,000,000 shares authorized; 22,002,988 and 21,801,634 shares issued in 2014 and 2013, respectively
220
218
Treasury stock – 4,733,432 and 4,693,647 shares at cost, respectively
(35,638)
(34,715)
Additional paid-in capital
107,497
103,972
Retained earnings
239,837
223,534
   Total LHC Group, Inc. stockholders’ equity
311,916
293,009
Noncontrolling interest- non-redeemable
2,896
2,875
      Total equity
314,812
295,884
         Total liabilities and stockholders’ equity
$  495,631
$  422,226
LHC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share and per share data)
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2014
2013
2014
2013
Net service revenue
$  187,713
$   164,748
$  540,261
$   493,003
Cost of service revenue
113,122
97,966
321,983
288,223
Gross margin
74,591
66,782
218,278
204,780
Provision for bad debts
3,974
2,708
11,699
9,833
General and administrative expenses
58,432
53,047
172,658
158,827
Operating income
12,185
11,027
33,921
36,120
Interest expense
(643)
(430)
(1,861)
(1,555)
Non-operating income
235
54
159
184
Income before income taxes and noncontrolling interest
11,777
10,651
32,219
34,749
Income tax expense
3,924
3,782
11,199
12,236
Net income
7,853
6,869
21,020
22,513
Less net income attributable to
   noncontrolling interests
1,679
1,572
4,717
5,140
Net income attributable to LHC Group, Inc.’s common stockholders
$      6,174
$      5,297
$    16,303
$    17,373
Earnings per share – basic:
Net income attributable to LHC Group, Inc.’s common stockholders
$        0.36
$        0.31
$        0.95
$        1.02
Earnings per share – diluted:
Net income attributable to LHC Group, Inc.’s common stockholders
$        0.36
$        0.31
$        0.94
$        1.02
Weighted average shares outstanding:
Basic
17,260,078
17,083,201
17,213,648
17,035,541
Diluted
17,356,916
17,182,013
17,289,554
17,109,675
LHC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Nine Months Ended
September 30,
2014
2013
Operating activities
Net income
$    21,020
$    22,513
Adjustments to reconcile net income to net cash provided by
   operating activities:
Depreciation and amortization expense
6,874
5,958
Provision for bad debts
11,699
9,833
Stock based compensation expense
3,086
2,879
Deferred income taxes
522
480
Loss on sale of assets
21
17
Changes in operating assets and liabilities, net of acquisitions:
Receivables
(12,868)
(18,462)
Prepaid expenses and other assets
280
(1,114)
Prepaid income taxes
4,005
4,262
Accounts payable and accrued expenses
(1,283)
645
Net amounts due to/from governmental entities
95
(631)
Net cash provided by operating activities
33,451
26,380
Investing activities
Purchases of property, building and equipment
(4,872)
(5,997)
Cash paid for acquisitions, primarily goodwill and intangible assets
(73,194)
(26,920)
Net cash (used in) investing activities
(78,066)
(32,917)
Financing activities
Proceeds from line of credit
72,000
64,500
Payments on line of credit
(30,000)
(60,000)
Proceeds from employee stock purchase plan
575
570
Proceeds from debt issuance
1,138
Payments on debt
(147)
Noncontrolling interest distributions
(5,086)
(6,286)
Payment of deferred financing fees
(900)
Excess tax benefits from vesting of stock awards
124
11
Redemption of treasury shares
(923)
(794)
Purchase of additional noncontrolling interest
(359)
(1,879)
Sale of noncontrolling interest
193
Net cash provided by (used in) financing activities
35,477
(2,740)
Change in cash
(9,138)
(9,277)
Cash at beginning of period
14,014
9,720
Cash at end of period
$      4,876
$         443
Supplemental disclosures of cash flow information
Interest paid
$      1,827
$      1,523
Income taxes paid
$      6,946
$    18,123
LHC GROUP, INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Amounts in thousands)
(Unaudited)
Three Months Ended September 30, 2014
Home-
Based
Services
Hospice
Services
Facility-
Based
Services
Total
Net service revenue
$  152,648
$    17,071
$    17,994
$  187,713
Cost of service revenue
91,506
10,431
11,185
113,122
Provision for bad debts
3,753
269
(48)
3,974
General and administrative expenses
48,591
4,756
5,085
58,432
Operating income
8,798
1,615
1,772
12,185
Interest expense
(515)
(64)
(64)
(643)
Non-operating income
190
35
10
235
Income before income taxes and noncontrolling interest
8,473
1,586
1,718
11,777
Income tax expense
3,034
521
369
3,924
Net income
5,439
1,065
1,349
7,853
Less net income attributable to
    noncontrolling interests
1,185
292
202
1,679
Net income attributable to LHC Group, Inc.’s common stockholders
$      4,254
$         773
$      1,147
$      6,174
Total assets
$  424,780
$    34,622
$    36,229
$  495,631
Three Months Ended September 30, 2013
Home-
Based
Services
Hospice
Services
Facility-Based
Services
Total
Net service revenue
$  132,739
$    14,171
$    17,838
$  164,748
Cost of service revenue
78,307
8,775
10,884
97,966
Provision for bad debts
2,333
318
57
2,708
General and administrative expenses
44,002
3,967
5,078
53,047
Operating income
8,097
1,111
1,819
11,027
Interest expense
(348)
(39)
(43)
(430)
Non-operating income
33
3
18
54
Income before income taxes and noncontrolling interest
7,782
1,075
1,794
10,651
Income tax expense
3,028
394
360
3,782
Net income
4,754
681
1,434
6,869
Less net income attributable to
    noncontrolling interests
1,077
202
293
1,572
Net income attributable to LHC Group, Inc.’s common stockholders
$      3,677
$         479
$      1,141
$      5,297
Total assets
$  351,804
$    27,536
$    34,693
$  414,033
LHC GROUP, INC. AND SUBSIDIARIES
SEGMENT INFORMATION (Continued)
(Amounts in thousands)
(Unaudited)
Nine Months Ended September 30, 2014
Home-
Based
Services
Hospice
Services
Facility-
Based
Services
Total
Net service revenue
$  435,588
$    49,361
$  55,312
$ 540,261
Cost of service revenue
258,173
29,479
34,331
321,983
Provision for bad debts
10,475
467
757
11,699
General and administrative expenses
142,747
13,994
15,917
172,658
Operating income
24,193
5,421
4,307
33,921
Interest expense
(1,489)
(186)
(186)
(1,861)
Non-operating income
103
40
16
159
Income before income taxes and noncontrolling interest
22,807
5,275
4,137
32,219
Income tax expense
8,763
1,397
1,039
11,199
Net income
14,044
3,878
3,098
21,020
Less net income attributable to
    noncontrolling interests
3,329
828
560
4,717
Net income attributable to LHC Group, Inc.’s common stockholders
$    10,715
$      3,050
$    2,538
$  16,303
Total assets
$  424,780
$    34,622
$    36,229
$  495,631
Nine Months Ended September 30, 2013
Home-
Based
Services
Hospice
Services
Facility-
Based
Services
Total
Net service revenue
$  394,453
$    40,988
$  57,562
$ 493,003
Cost of service revenue
229,466
25,458
33,299
288,223
Provision for bad debts
8,009
787
1,037
9,833
General and administrative expenses
131,048
11,860
15,919
158,827
Operating income
25,930
2,883
7,307
36,120
Interest expense
(1,268)
(136)
(151)
(1,555)
Non-operating income
94
21
69
184
Income before income taxes and noncontrolling interest
24,756
2,768
7,225
34,749
Income tax expense
9,993
1,069
1,174
12,236
Net income
14,763
1,699
6,051
22,513
Less net income attributable to
    noncontrolling interests
3,417
677
1,046
5,140
Net income attributable to LHC Group, Inc.’s common stockholders
$    11,346
$      1,022
$    5,005
$  17,373
Total assets
$  351,804
$    27,536
$    34,693
$  414,033

LHC GROUP, INC. AND SUBSIDIARIES
SELECT CONSOLIDATED KEY STATISTICAL AND FINANCIAL DATA
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2014
2013
2014
2013
Key Data:
Home-Based Services:
Home Health
Locations
283
255
283
255
Acquired
13
4
38
23
De novo
0
0
0
0
Total new admissions
33,962
30,142
98,725
92,185
Medicare new admissions
22,970
20,944
67,086
63,123
Average daily census
35,973
33,429
35,148
34,456
Average Medicare daily census
26,616
25,408
26,217
26,069
Medicare completed and billed episodes
46,633
42,191
136,529
127,761
Average Medicare case mix for completed and billed Medicare episodes(1)
0.99
1.28
0.98
1.27
Average reimbursement per completed and billed Medicare episodes
$       2,392
$       2,489
$       2,375
$       2,425
Total visits
998,533
908,718
2,898,616
2,682,906
Total Medicare visits
739,184
686,295
2,161,516
2,024,478
Average visits per completed and billed Medicare episodes
15.9
16.3
15.8
15.8
Organic growth:(2)
Net revenue
1.1%
-2.4%
1.1%
-2.9%
Net Medicare revenue
-1.2%
1.5%
-0.2%
-0.6%
Total new admissions
2.2%
1.8%
0.6%
3.5%
Medicare new admissions
0.8%
4.2%
0.6%
4.1%
Average daily census
-1.7%
-2.2%
-4.0%
-1.0%
Average Medicare daily census
-3.1%
-0.6%
-4.4%
-0.1%
Medicare completed and billed episodes
2.2%
0.8%
1.6%
0.8%
Community-Based Services:
Locations
13
5
13
5
Acquired
0
0
6
0
De novo
0
0
1
0
Average daily census
972
414
793
416
Billable hours
291,302
37,472
606,600
113,998
Revenue per billable hour
$       30.80
$       21.96
$       30.10
$       20.83
Hospice-Based Services:
Locations
38
34
38
34
Acquired
0
0
6
2
Admissions
1,476
1,252
4,134
3,736
Average daily census
1,404
1,144
1,333
1,125
Patient days
127,832
105,274
362,619
305,962
Average revenue per patient day
$          134
$          135
$          136
$          134
Facility-Based Services:
Long-term Acute Care
Locations
8
9
8
9
Patient days
15,362
15,321
46,763
46,722
Average revenue per patient day
$       1,124
$       1,118
$       1,135
$       1,172
(1)  The Centers for Medicare and Medicaid Services (CMS) updated the Medicare Home Health Prospective Payment System effective January 1, 2014, which reduced the average case-mix weight for 2014 from 1.3464 to 1.0000. To offset the effect of resetting the case mix average to 1.000, CMS upwardly adjusted the national, standardized 60-day episode payment rate by the same factor that it used to decrease the weights from $2,137.73 in 2013 to $2,869.27 in 2014.
(2)  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.