Addus HomeCare (NASDAQ:ADUS) Corporation (NASDAQ: ADUS) has announced robust financial results for the third quarter of 2024, with a 7% increase in total revenue reaching $289.8 million. Adjusted earnings per share rose by 13% to $1.30, while adjusted EBITDA improved by 11.1% to $34.3 million. The company also disclosed plans to acquire Gentiva Personal Care operations, which is expected to significantly expand its market presence and add $280 million in annualized revenues.
Key Takeaways
- Total (EPA:TTEF) revenue for Q3 2024 stood at $289.8 million, a 7% year-over-year increase.
- Adjusted earnings per share were $1.30, marking a 13% increase from the previous year.
- The acquisition of Gentiva Personal Care is expected to make Addus the largest personal care provider in Texas and expand its operations into several other states.
Company Outlook
- Addus HomeCare targets a minimum annual revenue growth of 10%.
- The company is actively seeking strategic acquisition opportunities.
- There is optimism surrounding the potential Medicare expansion of personal care services.
- Addus intends to maintain conservative leverage and financial flexibility.
Bearish Highlights
- There were no specific bearish highlights mentioned in the earnings call.
Bullish Highlights
- Personal Care segment showed strong revenue, comprising 74.3% of total revenue.
- The company is experiencing positive hiring trends and improvements in the clinical labor environment.
- Reimbursement rates for personal care, hospice, and home health services are increasing.
Misses
- There were no specific misses reported in the earnings call.
Q&A Highlights
- Dirk Allison expressed confidence in the growth opportunities for home-based care.
- The Gentiva acquisition is anticipated to close in Q4 2024, with excitement about integrating the new markets.
- Brian Poff anticipates rate increases to return to a historical norm of 3% to 5% growth.
In the earnings call, Addus HomeCare's Chairman and CEO, Dirk Allison, conveyed a strong belief in the growth potential of home-based care, which is expected to remain a significant opportunity for the industry. The company's CFO, Brian Poff, also shared expectations for rate increases to normalize in the coming years, contributing to steady growth rates.
Addus HomeCare's strategic move to acquire Gentiva Personal Care operations is poised to make it the largest personal care services provider in Texas and expand its presence into six additional states. This acquisition aligns with the company's growth strategy and is expected to close in the fourth quarter of 2024, adding a substantial amount to its annualized Personal Care Services revenues.
The company's financial health is further bolstered by strong hiring trends, particularly in the Personal Care segment, where Addus achieved 79 hires per business day in the third quarter. Additionally, the clinical labor environment is showing signs of improvement, and the company is effectively utilizing American Rescue Plan Act (ARPA) funds for caregiver recruitment and retention.
Looking ahead, Addus HomeCare is poised to benefit from upcoming reimbursement rate increases across its service segments. Illinois is set to implement a 5.5% increase for personal care services in January 2025, while Medicare Hospice and Home Health reimbursements are also on the rise. With these positive developments, the company is targeting a minimum annual revenue growth of 10% and is optimistic about the potential expansion of Medicare coverage for personal care services.
Overall, Addus HomeCare's third-quarter performance and strategic initiatives indicate a strong trajectory for growth and expansion in the home care industry.
Full transcript - Addus HomeCare Corporation (ADUS) Q3 2024:
Conference Operator: Good day, and welcome to the Addus HomeCare's Third Quarter 20 24 Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Drew Anderson.
Please go ahead.
Drew Anderson, Investor Relations, Addus HomeCare: Thank you. Good morning, and welcome to the Addus Home Care Corporation Third Quarter 20 24 Earnings Conference Call. Today's call is being recorded. To the extent any non GAAP financial measure is discussed in today's call, you will also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP by going to the company's website and reviewing yesterday's news release. This conference call may also contain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Addus' expected quarterly and annual financial performance for 2024 or beyond.
For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward looking statements. Without limiting the foregoing, discussions of forecasts, estimates, targets, plans, beliefs, expectations
Brian Tanquilut, Analyst, Jefferies: and
Drew Anderson, Investor Relations, Addus HomeCare: the like are intended to identify forward looking statements. You are hereby cautioned that these statements may be affected by important factors, among others, set forth in Addus' filings with the Securities and Exchange Commission and in its Q3 2024 news release. Consequently, actual operations and results may differ materially from the results discussed in the forward looking statements. The company undertakes no obligation to update any forward looking statements whether as a result of new information, future events or otherwise. At this time, I would like to turn the call over to the company's Chairman and Chief Executive Officer, Mr.
Dirk Allison. Please go ahead, sir.
Dirk Allison, Chairman and CEO, Addus HomeCare: Thank you, Drew. Good morning, and welcome to our 2024 Q3 earnings call. With me today are Brian Poff, our Chief Financial Officer and Brad Bickham, our President and Chief Operating Officer. As we do on each of our quarterly calls, I will begin with a few comments and then Brian will discuss the Q3 results in more detail. Following our comments, the 3 of us would be happy to respond to any questions.
As we announced yesterday, our total revenue for the Q3 of 2024 was $289,800,000 an increase of 7% as compared to $270,700,000 for the Q3 of 2023. This revenue growth resulted in adjusted earnings per share of $1.30 as compared to adjusted earnings per share for the Q3 of 2023 of $1.15 an increase of 13%. Our adjusted EBITDA was $34,300,000 compared to $30,900,000 for the Q3 of 2023, an increase of 11.1%. During the Q3 of 2024, we continued to experience consistent cash flows. As of the end of the Q3 of 2024, we had cash on hand of approximately $223,000,000 This cash, along with our line of credit, will be used to fund our previously announced acquisition of the Gentiva Personal Care operation.
Once this transaction is closed, we will remain in a conservative leverage position allowing us to continue to evaluate larger strategic acquisition opportunities. With respect to our ongoing acquisition activities, I'd like to provide an update on the JunTiva transaction we announced on June 10 this year. Recapping our strategy, we believe our Personal Care segment benefits from both scale and project graphic coverage in the states where we operate. This is particularly true in managed Medicaid states and as a result of the final Medicaid access rule if and when it may be implemented. This scale and coverage allows us to spread our cost over a larger revenue base and provides Addus with the opportunity for meaningful advocacy with the states in which we operate, while also promoting a more favorable hiring and retention environment.
This strategy led us to pursue the acquisition from Gentiva. As we have previously stated, upon the close of this transaction, Addus will be the largest provider of personal care services in the state of Texas, which is primarily a managed Medicaid market. In addition, this transaction will give us a larger presence in Arkansas, strengthen our California and Arizona private pay and veterans affair businesses, and will add a location in Eastern Tennessee to our existing operations in the state and provide entry into both Missouri and North Carolina. We have spent the last several months working with members of the Gentiva Personal Care team preparing for the close and transition of this business into Addus. I believe we have done a very good job of planning for the changes that will occur once this acquisition closes.
Our planning has been focused on minimizing the impact on frontline staff and ensuring the continuation of the provision of quality services to our customers as we go through the integration process. We are appreciative of the efforts of the Gentiva Personal Care team as they continue to provide quality services to its customers. We look forward to the many new team members who will be joining the Addus family once the transaction is closed. As we stated on our last call, we believe this closing will occur in the Q4 of this year. Now let me discuss certain areas of operations.
During the Q3 of 2024, we continued to experience solid results related to our ability to hire caregivers, especially in our Personal Care segment. In the Q2 of this year, we achieved 86 hires per business day. When adjusted for the disposition of our New York operation, that second quarter number was 79 hires per business day. During the Q3 of 2024, we saw our Personal Care hiring numbers continuing in this strong trend at 79 hires per business day, while our turnover rates have remained at historically low levels. In addition to our strong hiring numbers, we have continued to see consistent momentum in our starts per business day over the past few quarters, which continues to be a focus of our operations team.
With respect to our clinical service lines, we continue to see improvements in the overall clinical labor environment consistent with the last few quarters. As we have over the past few years, we continue to utilize the funding we received from the American Rescue Plan Act or ARPA. During the Q3 of 2024, we received an additional $3,200,000 in funding and utilized over $2,500,000 leaving approximately $13,000,000 remaining in accessible funds. These funds are continuing to be used to help with caregiver recruitment and retention efforts as well as other opportunities to enhance our caregivers' experience and training. In our Personal Care segment, our services continue to receive favorable reimbursement support for many of the states in which we operate.
We continue to believe that our states remain in good financial position as the economy seems to be stable at this time. We are confident that personal care services continue to deliver real value to state Medicare programs as well as our managed care partners through a reduction in the overall cost of care. Let me remind you that effective January 1, 2025, Illinois, our largest state for personal care services, will enact a 5.5% increase for personal care services. Brian will give you more information on how this increase will positively impact our personal care performance for 2025. As for our clinical segments, effective October 1, 2024, Medicare Hospice reimbursement was increased by approximately 2.9%, largely consistent with what we have seen over the past few years.
This increased rate will be reflected in our 4th quarter results. We are pleased with the support from CMS for this valuable end of life care. On Friday of last week, CMS announced a final healthcare rule effective January 1, 2025, which including all adjustments results in a 0.5% rate increase versus a previously proposed reduction of 1.7%. While we are appreciative of the final rate adjustment being slightly more positive than the proposed rate, we are disappointed that CMS continues to pursue both temporary and permanent reimbursement reductions from home health providers, which we believe limits patient access to this valuable and much needed service. Although the current Medicare home health rate remains challenging and appears will also be in 2025, we continue to believe that traditional Medicare home health reimbursement pressures are likely to moderate over the next few years in response to well documented patient access issues.
Now let me discuss our same store revenue growth for the Q3 of 2024. For our Personal Care segment, our same store revenue growth was 6.8% when compared to the Q3 of 2023. During the Q3 of 2024, we saw personal care same store hours increase by 0.6% as compared to the same period in 2023. This growth was negatively impacted by the Medicaid redetermination process, which appears to have slowed the approval of new personal care clients. We believe that all of the states we currently operate in will have completed this redetermination process by the end of Q4.
It is encouraging that we will continue to see improvements in our percentage of hours served compared to authorized hours. This improvement along with the completion of the Medicaid redetermination process in our stage should help us return to our target same store personal care hours growth rate of approximately 2%. Turning to our clinical operation, our hospice same store revenue increased 3.5% when compared to the Q3 of 2023. Our same store average daily census increased 2.1% when compared to the same quarter last year. As of the Q3 of 2024, our hospice medium length of stay was 31 days as compared to 29 days for the Q2 of 2024.
While we have seen our same store admissions decrease the last couple of quarters, we have implemented changes to our operation, which we believe will have a positive impact on our ongoing admissions trend. Overall, we are pleased by the steady improvement in our hospice segment this year. Our Home Health segment same store revenue decreased 1.7% when compared to the same quarter 2023. This decrease was primarily due to the implementation of a standardized intake and scheduling process in our acquired Illinois and Tennessee markets that we believe will ultimately lead to an increase in our referral conversion rate, reduce our administrative costs and allow our clinical staff to increase their focus on providing outstanding patient care. The implementation of these process changes should be complete by the end of the Q4, after which we expect to see our same store revenue growth improve.
As demonstrated by the Gentiva Care transaction, acquisition continued to be an important part of our growth strategy at Addus. Our targeted minimum annual revenue growth of 10% remains our goal even with the larger size of our revenue base. For us to meet or exceed these goals, we will continue to be focused on using our capital to find additional acquisition targets that meet our strategic criteria. While we await the closing of the Gentiva transaction, we are looking for potential acquisitions for both Personal Care and Skilled segments, particularly home health. Over the past couple of years, the acquisition opportunities that meet our strategic objectives have been somewhat limited due to some favorable general market conditions.
However, we are starting to see a few more opportunities that could strengthen all three of our segments in markets where we currently operate. We remain committed to making future acquisitions will help us to achieve our overall growth targets while maintaining a conservative approach to our capital deployment. Before I close my remarks, I want to thank our team for the care they are providing to our elderly and disabled consumers and patients. These last few years have shown that the vast majority of clients and patients want to receive care at home, which remains one of the safest and most cost effective places to receive care. We believe the heightened awareness of the value of home based care is favorable for our industry and will continue to be a growth opportunity
: for
Dirk Allison, Chairman and CEO, Addus HomeCare: our company. We understand and appreciate that our operations and growth are dependent on both our dedicated caregivers and other employees who work so incredibly hard providing outstanding care and support to our clients, patients and their families. With that, let me turn the call over to Brian.
Brian Poff, Chief Financial Officer, Addus HomeCare: Thank you, Dirk, and good morning, everyone. Our Q3 financial results reflect the continued momentum in our business throughout this year. With solid execution, we delivered impressive 7% top line growth and an 11% increase in adjusted EBITDA compared with the Q3 last year. Driven primarily by favorable reimbursement trends, our Personal Care segment had another impressive performance with solid 6.8 percent organic revenue growth over the same period last year. This growth trend has consistently tracked above our normal expected range of 3% to 5% this year as we have continued to see strong hiring trends and rate support.
With the upcoming statewide reimbursement increase in Illinois scheduled for January 1, 2025, we expect our same store revenues to remain toward the high end of our normal expected range for the next several quarters. As a reminder, we anticipate the Illinois rate increase to generate approximately $23,000,000 in annualized revenue with a margin in the low 20s consistent with the 77% rule in the state. As we have discussed previously, we anticipated that the divestiture of our New York operations may qualify for sale treatment under GAAP prior to closing. Effective on October 1, 2024, the requirements for qualification have been met and the results of our New York operations will no longer be included in our consolidated financial results beginning in the Q4 of 2024. In the Q3 of 2024, our New York operations contributed $21,200,000 in revenues, which were not included in our same store numbers and no EBITDA contribution.
With the majority of new clients being directed to buyer over the past few months, we have seen some degradation in our top line revenues, client counts and hours, but with no earnings impact. On the clinical side, our 3rd quarter results included the operations of Tennessee Quality Care, a provider of home health, hospice and private duty nursing services, which we acquired August 1, 2023. Tennessee Quality Care will be reflected in our same store revenues effective in the 4th quarter. We saw a steady improvement in our hospice business in the 3rd quarter with 3.5 percent organic revenue growth and higher average daily census, patient days and revenue per patient day compared with the Q3 last year. Sequentially from the Q2, our average daily census grew by 1.6%, primarily due to an increase in our length of stay.
Looking ahead, we anticipate the benefit of our 2025 hospice reimbursement update to begin in the Q4 with an increase in annualized revenues of approximately $6,800,000 Hospice Care accounted for 19.8% of our business, including the operations of Tennessee Quality Care. For our Home Health Services, which is our smallest segment accounting for 5.9% of our business, we saw modest improvement in new admissions, recertifications and total volume compared with the Q3 of 2023. Our mix of episodic service business continues to remain stable, including both traditional Medicare and episodic Medicare Advantage volume. As Dirk referenced, the final rule for home health reimbursement effective January 1, 2025, was published last week. This rule will result in a net 0.5% increase in reimbursement nationally, and we are currently evaluating the impact on our business.
Due to our limited exposure in home health today, we expect this to be immaterial to Addus. Outside of ongoing reimbursement pressures, we believe home health is a valuable service that is complementary to our personal care and hospice services, and we continue to look for opportunities to support and expand this service line appropriately. In addition to organic growth, we have benefited from our recently acquired operations. We remain focused on identifying acquisitions that will be accretive to our operations and support our ability to expand our market reach. Our primary objective is to find operations in markets where we can leverage our strong personal care presence and add clinical services so we can offer all three levels of home based care.
We also look for opportunities to add new personal care markets where we can enter at scale. The pending Gentiva acquisition fits squarely in this strategy and provides an opportunity to add personal care market coverage in 7 states with the majority in Texas. We currently expect the Gentiva acquisition to close in the 4th quarter and will add $280,000,000 in annualized revenues in Personal Care Services. As Dirk noted, total net service revenues for the 3rd quarter were $289,800,000 The revenue breakdown is as follows: Personal Care revenues were $215,400,000 or 74.3 percent of revenue Hospice Care revenues were $57,300,000 or 19.8 percent of revenue. Home Health revenues were $17,000,000 or 5.9 percent of revenue.
Other financial results for the Q3 of 2024 include the following. Our gross margin percentage was 31.8% compared with 32% for the Q3 of 2023 and a decline sequentially from 32.5 percent in the 2nd quarter as expected. As previously indicated, we saw some moderation in the benefit from a lower implicit price concession that we experienced in the 1st and second quarters of 2024 as we return closer to historical levels. Additionally, we experienced some margin compression sequentially from both an additional holiday in the 3rd quarter and the impact of the PTO caregiver benefit in Illinois. However, in the Q4, we anticipate our gross margin percentage to expand sequentially by approximately 40 basis points from the hospice reimbursement update and an additional approximately 150 basis points as a result of the New York divestiture.
G and A expenses were 21.7 percent of revenue compared with 22.3% of revenue for the Q3 a year ago. G and A expenses were also lower sequentially from 22.2% in the Q2 of 2024, primarily due to lower acquisition expenses. Adjusted G and A expenses for the Q3 of 2024 were 20%, a decrease from 20.6% in the comparable prior year quarter. With the divestiture of our New York operations, we anticipate our adjusted G and A expense percentage to increase by approximately 60 basis points going forward as the New York revenues will no longer be included in our financial results. The company's adjusted EBITDA increased 11 percent to $34,300,000 compared with $30,900,000 a year ago.
Adjusted EBITDA margin was 11.8%, an increase from 11.4% for the Q3 of 2023, but lower sequentially from 12.3% in the Q2 of 2024, primarily as a result of ongoing leverage from our revenue growth and lower legal expenses. We expect the divestiture of our New York operations to have a positive impact of approximately 90 basis points on our adjusted EBITDA margin percentage beginning in the Q4 of 2024. Adjusted net income per diluted share was $1.30 compared with $1.15 for the Q3 of 2023, an increase of 13%. The adjusted per share results for the Q3 of 2024 exclude the following: acquisition expenses of $0.08 and non cash stock based compensation expense of $0.12 The adjusted per share results for the Q3 of 2023 exclude the following: acquisition expenses of $0.08 and non cash stock based compensation expense of $0.12 Our tax rate for the Q3 of 2024 was 26.1 percent in the range of our expectations. For calendar 2024, we expect our tax rate to remain in the mid-twenty percent range.
With the divestiture of our New York operations and the related higher tax rate from the state, we anticipate a favorable impact to our effective tax rate of approximately 50 to 60 basis points beginning in the Q4 of 2024. DSOs were 31.7 days at the end of the Q3 of 2020 4 compared with 36 days at the end of the Q2 of 2024 as we have continued to experience consistent cash collections from the majority of our payers. Our DSOs for the Illinois Department of Aging for the Q3 were 32.5 days compared with 37.3 days at the end of the 2nd quarter. Our net cash flow from operations was $48,500,000 for the 3rd quarter and included a one time working capital benefit of $9,700,000 which we expect to revert in the Q4. Exclusive of this one time benefit, our cash flow from operations would have been $38,800,000 During the Q3, we received approximately $3,200,000 in ARPA funding, partially offset by $2,600,000 in ARPA funds utilized.
As of the end of the third quarter, we still have approximately $13,100,000 in ARPA funds outstanding to be utilized, primarily in New Mexico. As of September 30, 2024, the company had cash of $222,900,000 with capacity and availability under our revolving credit facility of $511,500,000 $503,500,000 respectively. As previously disclosed, subsequent to the end of the quarter, we entered into an amended and restated credit agreement to increase our revolving credit facility from $600,000,000 to 650,000,000 dollars expand our incremental facility from $125,000,000 to $150,000,000 and extend the maturity date through July 2028. We appreciate the leadership from Capital One (NYSE:COF) in this transaction and the support from all our current banking partners. Following the expected closing of our Gentiva acquisition, we will continue to have the financial flexibility to invest in our business and pursue our strategic growth initiatives, including acquisitions.
As mentioned, we will continue to selectively pursue acquisitions that align with our strategy. At the same time, we will continue to be disciplined with our capital spending and diligently manage our net leverage ratio. This concludes our prepared comments this morning and thank you for being with us. I will now ask the operator to please open the line for your questions.
Conference Operator: We will now begin the question and answer session. The first question comes from Brian Tanquilut with Jefferies. Please go ahead.
Brian Tanquilut, Analyst, Jefferies: Hey, good morning guys and congrats on the quarter. Maybe Brian just to clarify your comments on margin direction sequentially, am I right in thinking it should be up about 190 basis points on gross margin between Hospice and the divestiture? And then maybe also going forward, how should we be thinking about G and A and just the margins overall?
Brian Poff, Chief Financial Officer, Addus HomeCare: Yes, that's correct, Brian. Combined between the 2, it will be 150 from the New York divestiture, another 40 on top of that from the hospice side. They don't have gross margin line. That is accurate. I think moving ahead, we're going to see some margin expansion bottom line and that 90 basis points from just New York.
You'll see some impact positively from hospice as well fall to the bottom line in Q4. We'll see our normal rate increases in hospice will offset some of that toward the end of Q1 when we give those merits. But I think with New York being out of our numbers going forward, you should see some expansion in our margin profile.
Brian Tanquilut, Analyst, Jefferies: Got it. And then maybe Dirk, as I think about the Gentiva acquisition, it looks like you're expecting it to close here pretty soon. So number 1, how are you thinking about your ability to as you've looked at that asset further through this process, just the ability to grow that business going forward and maybe drive some margin? And then at the same time, where you stand in terms of your appetite or willingness or ability to do further acquisitions as you integrate Gentiva?
Dirk Allison, Chairman and CEO, Addus HomeCare: Yes, Brian. One of the things we've learned by having these months to work together with the Gentiva Personal Care Service team is really get to appreciate what they've done and how they've built their business over the last few years. We're excited about the fact that now them coming on with a company that is truly focused on personal care services and has the history that Addus does that our operation team along with their operation team will be able to drive growth. And Texas is a great state. As you know, it's about 80% plus of the business we're acquiring.
So we're very excited about our ability not only to bring it on appropriately, but also about the ability that we can continue to look at all the markets in which they operate and get them in a growth profile, which is very similar to ours, which remains our target of 3% to 5%, same store growth over the next few years. As it relates to our appetite, one of the things we did following the acquisition the JunTiva Personal Care Service was go out and raise some equity to clean up our balance sheet to make sure we were prepared going forward. And so today, as we said, Brian mentioned, over 200,000,000 dollars in cash, we've got the new $650,000,000 lot of credit with expansion capabilities there for a deal. And so our appetite remains strong. And obviously, as we've gotten larger, certainly looking at some of the larger opportunities may arise is interesting to us and will continue to be interesting at us.
I think our key will be looking at deals that need our strategic direction in which we're driving the company and also making sure that it can be accretive and positive to our shareholders. And so from that standpoint, we are still looking, we are still excited, but we do have that criteria as we look at deals.
Brian Tanquilut, Analyst, Jefferies: Awesome. Thank you, Dirk.
Conference Operator: The next question comes from Joanna Gajuk with Bank of America (NYSE:BAC). Please go ahead. Joanna, your line is open. You may ask your question.
Joanna Gajuk, Analyst, Bank of America: Hello. Can you hear me now?
Dirk Allison, Chairman and CEO, Addus HomeCare: Hello?
Conference Operator: Hello, Joanna. You can ask your question.
Joanna Gajuk, Analyst, Bank of America: Hi. This is Joanna Gajuk here. Thank you so much for taking the question. So just follow-up first on the organic census growth. You talk about 0.6% increase and you mentioned where the termination process would be a headwind there.
But I guess was there anything else I guess to call out? What about the New York market being a headwind there? And you also said you expect this to, I guess, reaccelerate to 2% growth, I guess, heading into next year for guiding census growth. So can you give us a sense what gives you the confidence you can grow 2%? Thank you.
Brad Bickham, President and Chief Operating Officer, Addus HomeCare: Hey, Joanne, this is Brad. When you look at the New York, it's actually carved out of our same store growth numbers. So we've already kind of cleaned that up when you look at that number. If you think through the redetermination process, there's certainly been a lot of noise about that this year. I think CMS came out with some guidance probably in the last 30, 45 days to try to help states with how they're handling redeterminations.
Probably would have been better if they would have given that out about 6 months ago. I think it might have helped the process a little bit. But what we're seeing is, I think the states that we operate in are largely done. And I think we'll be wrapped up by the end of Q4. And what we've seen there is, one, we've lost a few clients, nothing material.
It's really been more impactful honestly on getting new clients through the system. If you think about on the state side going through this process, that was a lot of added work. They didn't have additional staff. So the staff is doing new admissions into the program, same staff that was doing redeterminations. And so you can still see a little more bumpiness in the referrals week to week.
I think that's going to steadily get better. So I think optimistic that we kind of get back to more regular cadence going into 2025 where I think that as Dirk alluded to, kind of a 2% target on same store hours is certainly achievable.
Joanna Gajuk, Analyst, Bank of America: Thank you. And I guess a similar question on hospice. So you mentioned that admissions were down, but I guess census still grew because the length of stay keeps improving. But I guess the admission number were disappointing in the quarter and sounds like you're making some changes in that segment. So can you talk about how we should think about the progression into next year when it comes to hospice census growth?
Thank you.
Brad Bickham, President and Chief Operating Officer, Addus HomeCare: Yes. We did we've made some leadership changes on the hospice side, primarily in a little bit in some of the ops positions, but also in the sales leadership positions. We've made some pretty significant changes there. I'm really optimistic about the team that we have on board. Really the sales leader change out middle of September.
So he's just now kind of getting his feet wet. He's been out and met with all the teams. I realize that there's a lot of potential out there for us. We're going through sales training over the next couple of months to just kind of reeducate and work with our on the ground sales team. So optimistic that we'll be back into I think that kind of mid to high single digits on a growth rate with admission volume increasing.
Joanna Gajuk, Analyst, Bank of America: Great. Thank you so much.
Conference Operator: The next question The next question comes from Tao Chu with Macquarie. Please go ahead.
: Thank you. Good morning. I appreciate the comment, Jantiva. Any comment you can provide regarding the reimbursement environment in Missouri and North Carolina, the 2 new states you're getting into? Are these managed Medicaid states as well?
Any initial thought on the potential EPS accretion from the transaction for 2025? Thank you.
Brad Bickham, President and Chief Operating Officer, Addus HomeCare: Yes. So if you look at the new states that we're entering into North Carolina and Missouri, reimbursement environment in Missouri, I think is solid, kind of consistent with what we see in other markets. Now the North Carolina book of business is actually a little different. It's actually case management, very small, good margin business, but it actually gives us an entree into North Carolina and a little bit of different kind of business other than traditional kind of personal care. But again, very small piece of the total pie, but certainly interesting and has good margin business with it.
: Yes. Any comment on EPS accretion? I know you're not providing guidance for 20 5, just any high level insight you can provide there will be appreciated.
Brian Poff, Chief Financial Officer, Addus HomeCare: Yes. Hi, Thao. This is Brian. I think we definitely expect it to be accretive to our numbers. I think we've talked about opportunities probably 12 months to 18 months out for some additional synergies as well that I think is going to be helpful, primarily most of those coming from the system conversion.
Currently, the system they're on today will convert to Home Care Homebase once we get that set up, but that's probably going to be sometime a little bit down the road. So probably not as high level out of the gate, but definitely will be accretive on EPS initially.
: Got you. My follow-up is about some of the policy proposals in the spirit of the Election Day here. Could you talk about the potential impact of the proposed federal minimum wage increase, particularly as it pertains to the Texas market, which follows the federal rate? And also there's been a lot of discussion about the Medicare potential Medicare expansion to cover personal care services. If that were to become the reality, what changes you will make to your long term strategy?
I think I heard you mentioned the interesting additional investment in home health. Does Harry's proposal make you more likely to accelerate investment in clinical businesses?
Brad Bickham, President and Chief Operating Officer, Addus HomeCare: Yes. I think when you look at kind of the election, minimum wage is certainly something that we're always monitoring. Texas does follow the federal rate. But keep in mind, I mean, we're paying way above the federal rate in or we'll be paying way above the federal rate in Texas as well as in the other states that we operate. So I don't see that as being material at this time, but there's a lot to flesh out in what those proposals might be.
And certainly, the election seems to be trending towards more of a split government. So I'm not sure how much of some of the proposals for either candidate will get through. With respect to VP Harris' comments about expanding the benefit to Medicare, very positive. I mean, it's great that there's not a lot of detail around it, but certainly great to see discussions along those lines. I think we think that there's real opportunity and benefit to expanding their services to the Medicare population.
I think we've shown that is certainly where people want to be taken care of. It's also the lower cost setting. So certainly an interesting proposal.
Dirk Allison, Chairman and CEO, Addus HomeCare: Yes. I think also let me add to Brad's comments. One of the great things about where we sit with our company is that regardless of which party wins the presidential election, I think we have benefits on both sides. The Republicans, Democrats have come out and Harris has said that she supports expanding elderly care, which is very exciting, although not a lot of specifics at this point. But at the same time, then President Trump came out and also mentioned supporting elderly care through tax means.
And so for us, we're just excited that both sides have looked at what we do, we being Addus and the industry in which we operate, taking care of the elderly and disabled population in their home and both feel supportive of that. So we believe we're in good shape regardless of how the election ends up tonight.
: Great. Thank you, guys.
Conference Operator: The next question comes from Scott Fidel with Stephens. Please go ahead.
Scott Fidel, Analyst, Stephens: Hi. Thanks. Good morning. First question, just wanted to make sure we've got all the moving pieces for modeling operating cash flow sequentially in the Q4. Brian, maybe if you could just sort of walk us through those.
So we've got I know the $9,700,000 sort of benefit again in 3Q that reverses, but maybe if you could walk us through as well any other moving pieces to operating cash flow in the Q4?
Brian Poff, Chief Financial Officer, Addus HomeCare: Yes, Scott. Outside of that, that's going to be the big piece sequentially Q3 into Q4. I think even without that benefit in Q3, it was still a very strong cash flow quarter for us, which we expected, I think, largely kind of just benefiting from working cap changes. So we were down a little bit in Q2. I think if you look at our DSOs for IDUA specifically, just their payment cycle, they were very strong payer for us in Q3.
And there's always a little bit of timing difference between when we get their payments kind of quarter to quarter. So nothing I would kind of call out or say, hey, it should be definite material impacts into Q4 outside of the 9.7% reversing. So you are going to see a little bit lower as a result of that in Q4, but nothing else that I would flag out that would be unusual.
Scott Fidel, Analyst, Stephens: Okay, got it. And then just my follow-up question, just curious on looking out to 2025, any additional contracts that you're implementing in terms of your preferred payer strategy on home health and sort of maximizing the margin opportunity on the MA business. Then also curious there's been quite a bit of discussion that I would say has probably increased over the last several quarters just around payer sort of friction with providers and sort of gumming up the works, I guess, a little bit around approvals and prior authorizations. And clearly, that's been a lot, I would say, sort of heavily focused on the acute care hospitals. But I'm just curious, as you look at your three lines of business, in terms of the posture of payers, managed care payers, whether you've seen any changes from them around approvals and sort of denials and just sort of level of friction?
Thanks.
Brad Bickham, President and Chief Operating Officer, Addus HomeCare: Yes. I think if you look at it on the payer side, I mean, let's start with PCS, our largest business. We really haven't seen any noticeable changes in our relationships with payers other than frankly with the Gentiva acquisition, certainly a lot more interest in talking to us about looking at some creative value based type of arrangement. So I think there's certainly opportunities to work with those payers, but good relationships on the personal care side. They've also offered to kind of help us on the skill side to making contacts.
So when you switch over to the hospice, there's not a lot of payer activity there. It's pretty minimal. Home health, we have had and are continuing to have ongoing discussions. We've had some wins on the payer front. Typically, it's just really increasing the per visit rates.
Haven't had as much success moving to full episodic payments with some of the larger payers or on a national basis. But certainly, we'll continue to pursue that in 2025. And certainly, if we can get some quick wins, just a base increase in rates per visit rates, we'll start there, but we'll certainly be continuing to push for episodic or some sort of case rates with those payers. Really haven't seen a lot on the prior authorizations with the MA players as far as any changes in the posturing there. So I think it's really has not been that big of a factor for us.
Scott Fidel, Analyst, Stephens: Okay, great. Thanks.
Conference Operator: Next (LON:NXT) question comes from Jared Haas with William Blair. Please go ahead.
Jared Haas, Analyst, William Blair: Yes, good morning and thanks for taking the questions. I appreciate the commentary in the prepared remarks on the Oliver State budget. Maybe I'll just follow-up to that. There's been a lot of noise recently from the larger I guess, managed Medicaid payers on the unfavorable rates that they're currently getting from states relative to sort of risk pools after redeterminations. I'm curious as kind of states update the rates that they're paying for managed Medicaid, does that factor in at all to your outlook for state budgets?
And I'm wondering if that was any impact on, I guess, the availability for funding for clinical services like personal care?
Dirk Allison, Chairman and CEO, Addus HomeCare: I think most of the states in which we operate in the personal care environment understand the value of personal care. It's something that is very important to them. We've seen great support through that. And so as far as their status today, their budgets, we think most of them are in pretty good shape. The ones the biggest state we had concerned about was New York, which we're no longer in.
As far as some of the pressures that the Medicare Advantage or managed Medicaid providers are seeing from the states, We have not seen that affect us. From the standpoint of the state, almost all of our states, but one dictate the price that we get. So it's a stated price and managed Medicare providers when they sign on, they are subject to paying us that rate. So at this point in time, it's really business as usual and we're really kind of excited about where we see our states today as far as financial stability.
Jared Haas, Analyst, William Blair: Okay. I appreciate that. And then maybe as a follow-up, just one on the labor environment. It seems like things have been fairly stable across the board for several quarters now. Do you feel like that's sustainable going into 2025?
I guess is there anything you're monitoring in terms of either the broader economic environment or the industry that could impact hiring trends in your view?
Brad Bickham, President and Chief Operating Officer, Addus HomeCare: No. I mean, I think when you look at our hiring, we've been very solid, particularly on the personal care side for probably a year, year and a half now with some good solid hiring numbers. So I think we're in a good place there. Clinical services, we've certainly seen that improve over the last 6 to 9 months. So I think that trend continues to be favorable.
There will always be some challenges on the clinical side depending on markets, but that's nothing that I think is unusual. I don't see anything going kind of in the future that would materially impact that kind of continued improvement, the solid hiring numbers on the personal care side and continued improvement on the skilled side.
Dirk Allison, Chairman and CEO, Addus HomeCare: Okay, great. Appreciate all the color.
Conference Operator: The next question comes from Matthew Gillmor with KeyBanc. Please go ahead.
Drew Anderson, Investor Relations, Addus HomeCare0: Hey, thanks for the question. I wanted to follow-up on the Personal Care growth metrics. I think Dirk had referenced the improvement in the fill rate, which we see in the hours percentage metric. I was curious what was driving that. Is that more favorability in terms of just the labor dynamic and caregivers' billing hours?
Or is there an operational thing going on behind the scenes that is also helping that? And just overall, what's the sustainability around that favorable fill rate?
Brad Bickham, President and Chief Operating Officer, Addus HomeCare: Yes. I think it's 2 things. 1, certainly the hiring environment has helped on the fill rate. But also from an operational standpoint, we've provided additional tools to our schedulers that I think has enhanced that. And we'll continue to look at opportunities to make the scheduling process better.
So I think there's opportunities for incremental improvement in that number, but certainly very pleased how that number has rebounded. And again, I think it's kind of 2 fold. 1, strong hiring, but then also some of the things that we're doing on the operational front to identify where we have availability with caregivers who want to work more hours, what their hour when they what their availability is during the week and getting that more in real time has certainly helped us increase that fill rate.
Drew Anderson, Investor Relations, Addus HomeCare0: And then I wanted to ask on the value based care topic. I was curious with the close of Gentiva that was serving as a catalyst to move things forward, particularly given their exposure to Texas, which is a stronger value based care market. I mean anything new to report in terms of how you're thinking about value based care with the Gentiva close?
Dirk Allison, Chairman and CEO, Addus HomeCare: Yes. No, we're excited about with the additional size and moving into the Texas market. We'll be able to work with some of the payers in those type contracts. Just realize that from a value based standpoint, it's really about relationships, if you think about it. The value based itself, the revenue, as we've said before, is somewhat immaterial to a company our size.
But what it allows us to do is to prove our ability to help our payers reduce their overall cost of some of the high cost clients or patients that we take care of. So we will continue along those lines. It's exciting. But it really to us really helps us solidify our relationships with these payers.
Brian Tanquilut, Analyst, Jefferies: Got it. Thank you.
Conference Operator: The next question comes from Andrew Mok with Barclays (LON:BARC). Please go ahead.
Drew Anderson, Investor Relations, Addus HomeCare1: Hi, good morning. Wanted to follow-up on the labor comments. I understand there's been some nice hiring trends in the broader home care sector and in your personal care segment. But wage inflation and unit cost inflation still looks like it's running a bit elevated in the 5% to 6% range or so. So we'd love to hear your outlook on wage inflation over the next 15 months or so and what it's going to take to drive unit cost inflation down to more historical levels?
Thanks.
Brad Bickham, President and Chief Operating Officer, Addus HomeCare: Well, when you look at the on the personal care side, we really haven't seen that type of wage inflation. And we've been fortunate in the markets, our larger markets that we've gotten rate increases that have offset that and been able to kind of maintain our gross margin profile on the Personal Care side. So that's 3 fourths of our business there. When you look at the skill side, again, I think it's gotten better. I think we're actually kind of running more in that 3% depending on maybe 3% to 4% wage inflation in markets.
There might be a market or 2 that's an outlier there, but I think overall that has improved on the clinical side. But again on the personal care side, we've been fortunate to get the rate increases that have been able to offset those pressures.
Drew Anderson, Investor Relations, Addus HomeCare1: Right, understood. But the underlying cost inflation is still running in that mid single digits, so you're just getting the higher reimbursement to offset that, correct?
Brian Poff, Chief Financial Officer, Addus HomeCare: It really, Andrew, it depends on the personal care side where we have markets, where we either have a union contract. So those wage rates are largely set in those markets. And those that have minimum wage pressures, what we've seen over the last few years, that could be anywhere from 2%, 3%, 4% depending on kind of what the raises are there for minimum wage, but we've seen corresponding reimbursement offsets for those.
Drew Anderson, Investor Relations, Addus HomeCare1: Okay, great. And then on the hospice side, length of stay seems to be bouncing around quite a bit in recent years. I know M and A skews some of those metrics, but hoping you could provide a bit more color on underlying trends in length of stay. What's driving some of the variability in that line? And where would you expect that to stabilize on a normalized basis?
Thanks.
Brad Bickham, President and Chief Operating Officer, Addus HomeCare: Well, I think on the hospice, you're actually starting to see those numbers stabilize. I mean, certainly, if you're comparing it to the COVID years, there were we certainly saw a much shorter length of stay. There were things that were in place during the public health emergency that influenced that, that really drove down length of stay, particularly in skilled facilities. Once those left kind of ended, you've actually started seeing length of stay numbers, which revert back to a kind of more normalized basis. So I think where we currently sit is about right, both from an average length of stay and honestly even from a median length of stay.
Drew Anderson, Investor Relations, Addus HomeCare1: Great. Thank you.
Conference Operator: The next question comes from Ryan Langston with TD Cowen. Please go ahead.
Drew Anderson, Investor Relations, Addus HomeCare2: Hi. Maybe back to the PCS rate environment. You keep getting pretty good rates, I think 5.5% in 25% in Illinois. I guess at some point, should we maybe beyond 2025 sort of think about reverting back to more lower single digit rates? Or maybe now are we structurally thinking slightly higher than historical rates?
And might those assumptions kind of change depending on the outcome of today's election?
Brian Poff, Chief Financial Officer, Addus HomeCare: Yes, Ryan. I think with Illinois, 5.5% I think is a good example of some of the markets that we've seen recently that have decided to start giving rate increases for our services, not in necessarily relation to rising minimum wage that we've seen in the last several years, but actually in an effort to expand and increase access to the service. So we've already nicely ahead of even where Chicago minimum wage for instance was in Illinois. The rate increase we're getting Jan of 2025 actually continues to put us even further ahead of the minimum wage scale there in order to try to get more access. And we are starting to see that in a few of our markets that have given us rate increases, which is a little bit of a new dynamic.
I think the last 2, 3, 4 years with minimum wage coming up, that's really been the impetus for a lot of the reimbursement increases. So I think our comments at a high level have been, yes, over the next couple of years, we expect probably the frequency of rate increases to probably go back to more of a historical norm, keeping us kind of in that 3% to 5% overall kind of growth rate. So we kind of talked earlier on our call about targeting a 2 ish percent increase in hours growth. So the rest of that would be from rate. But we expect to see that moderate, but again, still promising to see certain markets that are doing things in order to increase access and actually given us good support in that effort.
Drew Anderson, Investor Relations, Addus HomeCare2: Okay. And then just last one for me on the Jantiva acquisition. Can you remind us if there's any unusual seasonality to cadence of revenues or EBITDA maybe different from your current PCS book? And I know you're not planning to bring them on to your EMR for a little bit, but are you able to overlay any sort of internal technology or planned initiatives in the next maybe year or 18 months until you get them on to a home care Homebase? Thanks.
Brian Poff, Chief Financial Officer, Addus HomeCare: Yes. Nothing else from a seasonality standpoint that would be any different than our kind of normal business. I think the big drivers there obviously in PCS particularly, we see Q1 usually being the lowest margin quarter for us just from the reset of payroll taxes, things like that. Usually see some step up into Q2 and Q3 and Q4 is usually our best quarter in PCS, but more along those economic lines and payroll taxes. But nothing else to note really that's any different in the Gentiva business.
But I think from a perspective of technology, they're going to come on to our payroll system very quickly. So anything that we have and we've implemented in our businesses to kind of support the hiring efforts, onboarding efforts, the caregiver app, things like that, those are all things I think we'll be able to deploy into that population even before going into an EMR or a patient billing system down the road.
Conference Operator: The next question comes from Ben Hendricks with RBC Capital Markets. Please go ahead.
Drew Anderson, Investor Relations, Addus HomeCare3: Hi, this is Mike Murray on for Ben. Hospice same store ADC growth is pretty good, but admissions were a little bit softer. Can you touch on the competitive dynamics in this segment? And do you expect same store ADC growth to continue to improve moving forward?
Brad Bickham, President and Chief Operating Officer, Addus HomeCare: Yes. I think when you look at the same store numbers, I am optimistic that those numbers will continue to improve on a sequential basis. I also think that there's opportunity to move more into that kind of the mid to upper single digit on the same store growth there. So I think we're in a good place. I think with the new sales leadership is going to certainly be helpful there.
It's going to bring some new energies, new thoughts, new ideas around it. But certainly, I think there's continued improvement.
Drew Anderson, Investor Relations, Addus HomeCare3: All right. Thank you. And then just another question. So same store home health stats seem to be trending in the right direction in the last few quarters. Obviously, they took a meaningful setback during the quarter.
I appreciate the commentary on the operational investments in certain markets. Excluding these markets, could you give us a sense of what same store growth would have been? Thanks.
Brad Bickham, President and Chief Operating Officer, Addus HomeCare: Yes. I think we would continue to see actually if you look at one of our larger markets that has went through the process, the operational changes earlier, we actually saw a nice growth there, not quite to the mid upper digits that we'd like to see it, but certainly more in the 2% to 3% range there. So there are certainly opportunities to improve on home health and certainly optimistic that once we get through these operational changes there as far as it's kind of around centralization of admissions and intake and scheduling, I think there's going to be some real opportunities to improve the numbers on the home health side.
Drew Anderson, Investor Relations, Addus HomeCare3: All right. Thank you.
Conference Operator: This concludes our question and answer session. I would like to turn the conference back over to Dirk Allison for any closing remarks.
Dirk Allison, Chairman and CEO, Addus HomeCare: Thank you very much, operator. I want to thank everyone for their interest in Addus today and for being part of our call. We hope everyone has a good day and a good week. Thank you.
Conference Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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