LOUISVILLE, Ky., Nov. 07, 2017 — Almost Family, Inc. (NASDAQ:AFAM), a leading national provider of home health and related services, announced today its financial results for the quarter ended September 29, 2017. Investors are encouraged to read the Company’s press release dated October 9, 2017, “Almost Family Comments on Recent Developments Including Hurricane Impact”.Third Quarter Highlights (1):Net service revenues of approximately $194.3 million including the third quarter of operations of the CHS-JV, up 21.1% from the third quarter of 2016GAAP net income of $3.2 million(3)GAAP EPS of $0.23(2,3) per diluted share on 33% more shares outstanding than in the prior yearAdjusted EPS of $0.43(1,2,3); including the impact from the Hurricanes which lowered Adjusted EPS by $0.14(3)Adjusted EBITDA of $14.6 (1,2) million; including the impact from the Hurricanes which lowered Adjusted EBITDA by $3.3 million(3)Expect to record the Company’s share of the Medicare Shared Saving Program success fees under ACO contracts for the 2016 performance year in the fourth quarter of 2017 at between $2.0 million and $2.4 millionClifford S. Holtz, COO of American Red Cross added to Almost Family Board of DirectorsYear-to-Date Highlights (1):Net service revenues of approximately $596.3 million including nine months of CHS-JV operations, up 26.9% from 2016GAAP net income of $11.6 million(3)Adjusted EPS of $1.53 (1,2,3)Adjusted EBITDA of $49.6 (1,2,3) millionYear to date operating cash flows of $14.8 millionAs of November 7, 2017, the Company has converted all of its home health branches to the new Homecare Homebase information system. There will be no active patients remaining in the predecessor systems by the end of November 2017. The Company has begun to experience meaningful operational efficiency gains, generally about 120 days after the end of each wave, and expects these gains to be partially reflected in its fourth quarter 2017 results and fully reflected in its results in its 2018 reporting year.
(1) See Non-GAAP Financial Measures below
(2) Note that comparability of EPS between years is partially impacted by changes in shares outstanding as explained further below
(3) Impact of Hurricanes Irma and Harvey are explained further below
William Yarmuth, Chairman and CEO, commented: We are very pleased with the results of our quarter and recent regulatory developments. Over the course of this year we have successfully integrated the largest acquisition in our history. We have also nearly completed, with minimal disruption, the implementation of HomeCare HomeBase in all 110 of our home health branches that were not previously on that system. Lastly, we are pleased to have recovered from the substantial hurricane disruption, all the while continuing to grow our business and creating value for our shareholders over the course of this year.Steve Guenthner, President added: On the regulatory front, we feel we, in collaboration with others in the industry, have made a meaningful breakthrough in our work with CMS and other policy makers. In its final rule, CMS deferred implementation of the Home Health Grouper Model for further consideration in collaboration with stakeholders with a goal of shifting the focus from volume of services to a more patient-centered model. We very much look forward to working with policy makers to help shape the next phase in the evolution of the Medicare home health payment system.Yarmuth concluded: I would like to thank all our employees and management team for their hard work and commitment in taking on the challenges and opportunities of the first nine months and helping to propel us to some very successful results. Additionally, I would like to welcome Cliff Holtz who recently joined our Board of Directors. Cliff brings a wealth of experience and knowledge and is a very welcome addition to what I feel is a very high quality committed group of directors.Impact of Hurricanes on Operating Results
Third quarter operating results for the home health, personal care, hospice and assessment business lines were adversely impacted by Hurricanes Irma and Harvey (the “Hurricanes”). Due to the early warnings and evacuations related to these storms, the periods of disruption started well in advance of each storm actually striking affected areas, while recovery periods were elongated. The Hurricanes impacted operations in Florida, Georgia and Texas, which are the source of approximately one quarter of the Company’s revenue. The hurricanes resulted in lost admissions, visits, assessments and revenue. The Company estimates operating income was lowered by approximately $3.3 million, or $0.14 EPS, in the third quarter of 2017. Due to the proximity of these events to the end of the third quarter, there may be some residual hurricane effect on fourth quarter results. Third Quarter Financial Results (See Matters Impacting Comparability and Presentation below)
Home Health (HH) segment net revenues increased by 31% or $33.3 million to $141.4 million from $108.1 million in the prior year and episodic admissions grew by 35.6% to 28,148 from 20,751 as the CHS-JV acquisition more than offset the impact from the Hurricanes. Net revenue and episodic admissions in the CHS-JV acquisition were $40.4 million and 7,665, respectively. Home Health segment contribution before corporate expenses increased $4.3 million, or 34.2%, to $17.0 million, from $12.7 million in the prior year period. Home Health contribution margins as a percentage of revenue increased slightly to 12.0% from 11.7%, despite the hurricane effect partially due to synergies obtained from the Homecare Homebase conversion. The Company estimates the hurricanes lowered third quarter 2017 revenue and contribution by $3.0 million and $2.6 million, respectively in the HH segment, resulting in a 1.6% reduction in contribution margin as a percent of revenue.Other Home-Based Services (OHBS) segment net revenues increased $4.4 million or 10.5% to $46.4 million in 2017 from $42.0 million, primarily as a result of the 15 hospice facilities acquired in the CHS-JV transaction. Hospice revenues were $7.8 million for the quarter. Personal care revenues were down $3.1 million or 7.5% from prior year on lower volumes. Additionally, mix changes combined with rate cuts and increases in wages influenced by increases in statutory minimum wage rates in certain states negatively impacted personal care margins. Overall OHBS segment contribution before corporate expenses increased $1.1 million, or 43.1% to $3.6 million from $2.5 million for the same period last year. Healthcare Innovations (HCI) segment net revenues and operating income were $6.5 million and $0.8 million in 2017 as compared to $10.3 million and $5.1 million in 2016, respectively, largely due to the prior year including $4.3 million of ACO shared savings payments. We expect to record ACO payments in the fourth quarter of 2017 ranging from $2.0 to $2.4 million. Corporate expenses as a percentage of revenue increased to 4.8% in 2017 from 4.3% in 2016, primarily on higher information systems costs. Deal, transition and other costs were $4.5 million, primarily due to the ongoing conversion of the HH segment to the Homecare Homebase information system. Such training and related costs are expected to continue through the end of 2017, but not be significant in 2018. The effective tax rates for the third quarter of 2017 and 2016 were 40.8% and 37.3%, respectively. Increased average shares outstanding from the Company’s late January sale of common shares reduced Adjusted EPS of $0.43 for the third quarter of 2017 by $0.14. The third quarter is fully reflective of the dilutive effect of this offering.Year to Date Financial Results (See Matters Impacting Comparability and Presentation below)
Home Health segment net revenues increased by $113.1 million or 34.5% to $441.0 million from $327.9 million in the prior year and episodic admissions grew by 40.9% to 89,199 from 63,295 in 2016, primarily due to the CHS-JV acquisition. Net revenue and episodic admissions in the CHS-JV were $125.2 million and 24,607, respectively. Excluding the CHS-JV, episodic admissions grew by approximately 2%.Home Health segment contribution before corporate expenses increased $14.1 million, or 32.9%, to $57.1 million, from $43.0 million in the prior year period. Home Health contribution margins as a percentage of revenue decreased to 12.9% from 13.1% in the prior year, due to the combined impact of a 1% Medicare rate cut and an annual cost of living wage rate adjustment of 2%, both effective January 1, 2017.Other Home-Based Services (OHBS) segment net revenues increased $16.6 million or 13.6% to $138.5 million from $121.9 million, primarily as a result of the 15 hospice facilities acquired in the CHS-JV transaction. Hospice revenues were $22.1 million. Personal care revenues were down $4.7 million or 3.9% from prior year on lower volumes. Additionally, mix changes combined with rate cuts and increases in wages influenced by increases in statutory minimum wage rates in certain states negatively impacted personal care margins. Overall OHBS segment contribution before corporate expenses increased $2.2 million or 24.1%, as compared to the same period of last year.Healthcare Innovations (HCI) segment net revenues decreased $3.5 million to $16.9 million from $20.3 million, while operating income before corporate expenses decreased $4.3 million, largely due to prior year period including $4.3 million of ACO shared savings payments.Corporate expenses as a percentage of revenue was unchanged from the prior year period at 4.5%. Deal, transition and other costs were $17.1 million, due to the CHS-JV acquisition and the conversion of the HH segment to the Homecare Homebase information system. Borrowings related to acquisitions increased interest expense to $5.8 million from $4.7 million in the prior year period.Net cash from operating activities of $14.8 million was generated in the first nine months of 2017. Accounts receivable days sales outstanding were 60 at the end of the third quarter of 2017, as compared to 57 days in the second quarter of 2017 and 53 days at the end of the fourth quarter of 2016. Increases in days outstanding were largely driven by backlogs in final claims in our Home Health segment, a portion of which was due to the timing of Hurricane Irma in Florida, which delayed payments from Medicare into the fourth quarter.The effective tax rates for 2017 and 2016 were 33.0% and 39.3%, respectively. The Company’s lower effective income tax rate in 2017 was due to a change in accounting rules for excess tax benefits from the exercise of stock options and vesting of restricted shares as a result of the prospective adoption of Accounting Standards Update 2016-09 as of the first day of fiscal 2017. Under previous accounting rules these benefits were recorded in “additional paid-in capital” rather than in the current period tax provision. Future periods with option exercises or restricted stock vesting could lower or raise the Company’s tax provision in those periods. Excluding these items, the Company expects its effective tax rate for 2017 to be 39.5%.Increased average shares outstanding from the Company’s late January sale of common shares reduced Adjusted EPS of $1.53 for 2017 by $0.46. Medicare Program Developments
On November 1, 2017 the Centers for Medicare and Medicaid Services (CMS) released the final rule for FY2018 home health reimbursement. Among other things, the rule also finalizes proposals for the Home Health Value-Based Purchasing (HHVBP) Model and the Home Health Quality Reporting Program (HH QRP). CMS did not finalize the Home Health Groupings Model, but instead elected to “further engage with stakeholders to move towards a system that shifts the focus from volume of services to a more patient-centered model”. The FY2018 impact table included in the final rule suggests the final rule is in line with the preliminary rule published earlier this year. On September 25, 2017, the Company submitted a comment letter to CMS which provides an alternative course of action that we believe better protects Medicare beneficiaries and their right to access appropriate and necessary home health service. The comment letter to CMS entitled “CY 2018 Home Health Prospective Payment System Rate Update – September 2017” can be found at http://www.almostfamily.com/pdf/AFAM_2018_HHPPS_Rule_Comments_and_Attachments.pdf. Additionally, a series of responses to various other stakeholder requests from the Senate Finance Committee, the House Ways and Means Committee and CMS dating to 2013 and including AFAM executive testimony before the Congress can also be found at the above website. Matters Impacting Comparability and Presentation – CHS-JV and Segment Presentation
On the first day of fiscal 2017, the Company acquired an 80% controlling interest in the entity holding the home health and hospice assets of Community Health Systems, Inc. (NYSE:CYH) (“CHS-JV”). Community Health Systems, Inc. (“CHS”), one of the largest publicly-traded hospital companies in the United States and a leading operator of general acute care hospitals in communities across the country, retained the remaining 20%. In the first quarter in 2017, the Company redefined its reporting segments to include a) Home Health (HH) formerly Visiting Nurse, b) Other Home-Based Services (OHBS) which includes all other home care services outside of Home Health services and c) the Healthcare Innovations (HCI) segment. The OHBS segment consists of the historical personal care (“personal care”) operations plus hospice services. Prior year segment information has been reclassified to conform to new segment definitions. In management’s opinion, this approach provides investors clarity for the largest segment, Home Health, and best aligns with the Company’s internal decision-making processes as viewed by the chief operating decision maker.Financing Activities
On January 25, 2017, the Company completed a public offering of 3.5 million shares of its common stock for gross proceeds in excess of $150 million. The net proceeds of $144 million were applied to the Company’s revolving credit facility, which increased credit available under the facility from approximately $78.6 million at December 30, 2016 to approximately $204.1 million after the offering.Acquisitions
On July 14, 2017, the Company’s CHS-JV purchased assets of a Medicare-certified home health agency and related private duty company for Island Home Care in Key West, Florida. The purchase price was $1.2 million. Post-acquisition operating results are reported in the Company’s HH and OHBS segments.The Company noted that it will continue to pursue quality acquisitions of in-home health care service providers consistent with its stated strategy and the types of services its segments currently provide.Addition of New Director
On November 6, 2017 the Company added Mr. Clifford S. Holtz as the newest member of its board of directors. Mr. Holtz currently serves as the Chief Operating Officer of the American Red Cross where he has been instrumental in that organization’s growth and development since 2011. Prior to his Red Cross experience Mr. Holtz has enjoyed a long and successful business career in key roles at AT&T, Nortel Networks and Qwest Communications. He is a graduate of the University of Chicago Graduate School of Business.
Non-GAAP Financial Measures
The information provided in some of the tables in this release includes certain non-GAAP financial measures as defined under SEC rules. In accordance with SEC rules, the Company has provided, in the supplemental information, a reconciliation of those measures to the most directly comparable GAAP measures.Adjusted Net Income and Adjusted Earnings Per Share
Adjusted net income and adjusted earnings per share is not a measure of financial performance under accounting principles generally accepted in the United States of America. It should not be considered in isolation or as a substitute for net income, operating income, cash flows from operating, investing or financing activities, or any other measure calculated in accordance with generally accepted accounting principles. The presentation of adjusted net income and adjusted earnings per share provides investors with pertinent information to enable comparison of financial performance between periods by excluding certain items that the Company believes are not representative of its ongoing operations due to the nature of the items. The following table sets forth a reconciliation of net income attributable to Almost Family, Inc. to adjusted net income:Adjusted EBITDA
Adjusted earnings before interest, income and franchise taxes, depreciation and amortization, amortization of stock-based compensation, deal, transition and other (Adjusted EBITDA) is not a measure of financial performance under accounting principles generally accepted in the United States of America. It should not be considered in isolation or as a substitute for net income, operating income, cash flows from operating, investing or financing activities, or any other measure calculated in accordance with generally accepted accounting principles. The items excluded from Adjusted EBITDA are significant components in understanding and evaluating financial performance and liquidity. Management routinely calculates and communicates Adjusted EBITDA and believes that it is useful to investors because it provides a common analytical indicator within its industry to evaluate performance, measure leverage capacity and debt service ability, and to estimate current or prospective enterprise value. Adjusted EBITDA is also used in certain covenants contained in the Company’s credit agreement.The following table sets forth a reconciliation of net income to Adjusted EBITDA:Forward Looking StatementsAll statements, other than statements of historical facts, included in this news release are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current plans, expectations, projections, forecasts and assumptions about future events that involve risks and uncertainties that could cause actual outcomes and results to differ materially. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “could,” “would,” “estimate,” “project,” “forecast,” “intend,” “expect,” “plan,” “anticipate,” “believe,” “target,” or similar terms, variations of those terms or the negative of those terms. While forward-looking statements reflect good faith beliefs, assumptions and expectations, they are not guarantees of future performance, and the Company undertakes no obligation to update or revise its forward-looking statements. The forward-looking statements in this news release are based on a variety of assumptions that may not be realized and that are subject to significant risks and uncertainties, including the impact of further changes in healthcare reimbursement systems, including the ultimate outcome of potential changes to Medicare reimbursement for home health services and to Medicaid reimbursement due to state budget shortfalls; changes to the Medicare Shared Savings Programs; the ability of the Company to maintain its level of operating performance and achieve its cost control objectives; changes in our relationships with referral sources; unanticipated difficulties or expenditures relating to acquisition transactions, including, without limitation, difficulties that result in the failure to achieve expected synergies, efficiencies and cost savings from a transaction within the expected time period (if at all); government regulation; health care reform; pricing pressures from Medicare, Medicaid and other third-party payers; changes in laws and interpretations of laws relating to the healthcare industry; the ability of the Company to integrate, manage and keep secure our information systems; changes in the marketplace and regulatory environment for Health Risk Assessments and the Company’s self-insurance risks. For a more complete discussion regarding other factors which could affect the Company's financial performance, refer to the Company's various filings with the Securities and Exchange Commission, including its filing on Form 10-K for the year ended December 30, 2016, in particular information under the headings “Special Caution Regarding Forward-Looking Statements” and “Risk Factors.”About Almost Family, Inc.Almost Family, Inc., founded in 1976, is a leading national provider of home healthcare services, with 332 branch locations in 26 states, including its joint venture with Community Health Systems, Inc. (CHS) (NYSE:CYH). Almost Family, Inc. and its subsidiaries operate Home Health, Other Home-Based Services and HealthCare Innovations segments.
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