Addus HomeCare Corporation Aktie

Hello, everyone. Thanks so much for joining us for the conference and for this session. My name is Joanna Gajuk, I cover healthcare providers at Bank of America. It's my pleasure now to host this session with Addus -- Addus HomeCare, that sounds even better. And today, with us, we have an entire team. So I'm happy to have Dirk Allison, the Chairman and CEO; and Brian Poff, CFO; and Heather Dixon, President and COO. So thanks so much for agreeing to just go right into Q&A.

All right. So there's, I guess, a lot of things to cover. But maybe first, I'd like to start in terms of your volumes, right? And I guess the first quarter, while you saw some volatility around weather and such, but I guess trends were pretty good when it comes to the volumes, especially exiting the quarter, sounds like it. So can you kind of talk about maybe the progression through the quarter to kind of get a sense of how things were going through the quarter, and then as you exited, and maybe any updates in terms of how the April or maybe even early May is tracking when it comes to census?

Sure. I'll jump in on that. You're right. As we moved from Q4 into Q1, we had a little bit of an impact from weather. And that was really the end of January -- right at the end of January, it was a prolonged impact of weather, and it was across a lot of states that aren't really used to having that kind of winter weather. We saw that. And then as we came out of February moving into March, we saw census growth. And so that sequential growth from February to March is exactly what we're focused on, focusing on a month-by-month sequential growth. So we exited the quarter in a really good spot versus where we had sort of expected to be.

We felt good about where we were exiting. And actually, as we've -- to your question, as we've moved into Q2, we're still really, really pleased with what we're seeing as far as the trajectory for our census numbers there. It's probably little too early to talk about May, but certainly thinking about the quarter. It's -- what we're seeing is really exactly what we thought we would see as we exited Q1. So that sequential growth on a month-by-month basis is what we're focused on, that will lead to, obviously, year-over-year growth, but we're -- right now, we're focused on each month showing improvement.

And I want to say that on the call, you talked specifically about Illinois experience being pretty good. Can you flesh out maybe your other key markets when it comes to census?

Yes. We called out Illinois because there have been questions about Illinois and certainly, it's our largest market, and we [ took ] questions about it. We were pleased with what we saw there as well. We actually saw across the board -- in our 3 largest markets, we saw that same trend of moving from February to March, we saw improvement. We added a little bit more color in terms of Illinois and talked about our starts of care exceeding our discharges from census during the quarter, and that was just a little bit more just to give an indicator because it is our largest market on how it's going. We are seeing positive trends similarly whenever you think about New Mexico. New Mexico has been 1 of our markets -- largest markets for a while. And obviously, Texas is a little bit newer, but seeing the same trend of census improving as you move throughout the quarter.

But I want to say in Texas you said something about some softness in January. So is there something to call out? Was it weather? Was it something else happening in that market?

Yes. If you think about Texas, Texas was certainly one of the recipients of that winter weather and Texas as a rule are not used to having that type of winter weather for such a prolonged period. We're based there, and we know that there were -- there was probably a good period of about a week in many locations where people just really couldn't get out because of the ice basis that was there that didn't melt.

Right. And then when we think about volumes, right, you always kind of bring it back because you talk about like 2 drivers, right? So 1 is the more hours per consumer, right? And then the census we just talk about. So I guess can you frame for us how we should think about as you exit Q1 on these 2 metrics and kind of how much more there is in terms of these hours per consumer or your customer?

Sure. And I'll make -- focus around those 3 largest markets as well because they typically tell the story. And as they go is really going to drive the outcomes that you'll see. In terms of hours, we did see nice hours growth. We saw about 2.2%, and that's another consistent quarter of very nice growth right in the range that we have messaged that we would be targeting right in the middle of that 2%, 2.5% range of growth that we'd like to see. We did see that continue. Now part of that, from an hours perspective is based on some of the very intentional work that we've been doing, focused specifically on the technology of the app that we've put in place, the caregiver app that is out there. That app has been out in Illinois for over a year now, and we're seeing some maturity with that. We're seeing very good uptake. We're seeing consistent utilization of that by our caregivers. And that is really helping us to drive an improvement in the percentage of hours that we actually use and build versus the authorization for the hours. And that, of course, drives the year-over-year growth in billable hours that we report.

If you think about where we're going next with that, we've been talking about deploying it in Texas and New Mexico as well. We did that during Q1. We deployed in Texas towards the end of Q1. So it's a little early for you to see anything actually coming through in the numbers. That said, we can see the uptake of that. So the app was available. We saw a measurement of ours is to look and see how many of our caregivers downloaded the app, registered for it and are actually interacting with it on a regular basis. And we saw almost 10% of our caregivers pull that up and actually start to interact with it within the first week that it was available. So we're expecting to see some benefit there in Texas as well, similar to what we've seen some trends in Illinois.

We also deployed for a portion of New Mexico. Part of New Mexico is required to use a specified aggregator. And so the app needs to interact differently there. So we haven't deployed that part yet. But for the rest of New Mexico, we have deployed it, and we'll have some benefit from that uptake as well.

And to that end, how long does it take to see like a material impact of that app from the, I guess, time when you launch or maybe kind of there's probably some phases, right? So maybe talk about the experience in Illinois and kind of is there a way to measure sort of the ROI on this app, like how much, I guess, it generates in terms of incremental, if there is a way to think about it?

Well, it's hard to directly tie the impact of it because, obviously, we don't know which hours came from someone specifically using the app to reschedule or to identify how many hours they have left. That said, we know that over the period of the first 12 to 18 months of utilization in Illinois, we took our utilization rate from low 80s on a percentage perspective to high 80s. And so that's an indication of what we believe is being driven by, in large portion by the utilization of this app. Because if you think about it from a caregiver's perspective, they can interact with the app. They can see how many hours they have left to work to serve their clients for that specific week. And for them, that is -- that's money for them in their paycheck. And so they can see how many hours they have, they can see what their paycheck is going to be, and they can see how many hours are left. And in Illinois, they can actually go in and reschedule those visits on their own or schedule those visits on their own. So you have fewer missed visits as well.

Well, because there's a couple of different things, right? So I wrote it down. So there's like that. The fill rate, right, the hours per caregiver, then there's the caregiver attention, you also mentioned that the app kind of helps to keep people engaged and kind of stay and also like scheduling, productivity improves. Is there any way to kind of maybe without the ability to quantify each, but kind of from the most important to the least important or the most, I guess, material improvement that you see from the app among these different, I guess, pieces?

Yes. I would say the first is for the caregiver to go in and say, actually, I have 5 more hours left this week that I can work. So that is direct money left on the table, so to speak, if they don't have line of sight to that. There are other ways that we can get that information to caregivers, but it's more of a manual process and it relies on us being able to call and form them. So that I would say is number one, closely followed by the ability to reschedule a visit, because that is the avoidance of a missed visit from a billing perspective, but those happen less frequently. So I would say that is probably the second there.

And then the third, we're seeing efficiencies if I were ranking sort of the top 3 in our office staff and the interactions that they need to have with caregivers because if you need to interact, if you need to reschedule, the caregiver needs to call in, then we have to call them back. You have to get in touch with the client to see if they're available at that time, and all of that happens sort of self-service by the caregiver, which is a really good efficiency benefit for us.

I think 1 of the things that's very important is as we came through COVID, as you know, most of our organic growth on the PCS side was rate-driven. And we knew that, that was eventually going to change. States weren't going to continue to push Illinois over a 5-year period push from $10 minimum wage to $15 with dollar increments every year. So we benefited from that. But we knew we had to get back to a more naturalized balance between hourly growth and rate growth. And so 1 of the things we looked at in COVID, we got down probably mid-70s as far as authorized hours versus worked hours versus those that were authorized, which was down quite a bit prior to COVID. So how are we going to build that back up. And that's when we -- the team got together and came up with the idea of the app to do a number of things that Heather just described. But 1 of the real critical aspect was to drive volume is to really get our hourly growth back. We would like to see -- hypothetically, if we say we want to grow organic growth 5%, we'd like to see 2% to 2.5% of that hourly in 2%, 2.5% thereabout rate. So we'd like to see it more 50-50 than the unbalanced amount it was. And it's proven to be the case. It's really been a really nice app.

As she said, we've driven our hours in Illinois from low 80s to high 80s. We've driven our overall hours from mid-70s to 83%. And so we still have the room. Now you've got New Mexico, now you've got Texas. Both of them have different challenges than Illinois did. But you're going to see some similar -- might not be exactly the same, but you're going to see some similar improvement in their ability to drive worked hours for that authorized hours, too. And we can't give you exactly how much of that's the app, but we do know it's been very effective.

Right. And also with this app in combination with, you guys being a well-established provider of the services and the compliance kind of protocols you have in place, is this also creating maybe like a tailwind with the payers, where the kind of look at this, okay, like this company does things well. And plus now they have this technology and efficiencies and all these things. So is that kind of -- when you look at things, you're saying, hey, like this should drive more of the maybe preferred provider networks kind of arrangement with payers or I don't know, anything else you would highlight in terms of like anything else that this app could create in terms of...

Not the app itself, but I will say that I think a couple of things that have helped drive volume and will continue to be working for us is kind of a tailwind is the fact that as we've grown and gained density in markets, we become more important to the payers. And that's very important because the payers have certain qualifications they have to establish with the states enabled for them to win the RFP. And they need a company out there that can make sure it's a quality provider, it's showing up on time. It's doing a lot of the different things that the states look for, for that program to be successful. And so as we've grown, especially to be honest, with our Gentiva acquisition in December of 2024, we became a really nice payer of size in Texas, which means if you look at the big 3 providers in Texas calling one out, they're all very important, but calling out United, we're a very big provider to United today. So that allows us in markets -- most markets we don't negotiate, right? So what we try to negotiate is volume. If we can give you statewide coverage, if we can give you compliance, if we can make sure that we're doing the things for your members that need to be done to make you look good, we would like to believe that you're going to drive more volume our way. And that's proved to be very effective also as we grow.

And since you mentioned the kind of more normalized growth going forward, volumes versus rate. So kind of where are we now when it comes to rate updates? I know we have visibility this year for Illinois and I guess, Texas, and I'm still waiting for New Mexico rate or just...

With the app...

No, no, as in the rate updates...

With the rate update?

Yes. Maybe talk about the pricing that's switching a little bit...

We've had a very interesting problem. And that is every time we start getting our volume percentage up, these states give us a real nice rate increase. And so we're not going to complain about that. And so up until recently, our rates have still been heavily weighted, our growth heavily weighted toward rates. Now we started to see midpoint of last year, our growth getting into that 2.4% growth each quarter. In the fourth quarter, we were pretty balanced. We were almost 50-50 between rate and volume, a little more on rate, but very much close to where we want it to be.

In the first quarter, we dipped from 2.4% to 2.2%. So it's a little more balanced toward rate than it was the quarter before. But I think we're making nice progress, and hopefully, over the next few quarters, you'll see us really be in that 50-50 balance between rate and volume.

Right. And as we think about going forward, the state budgets, rate and the OBB coming with those changes. Are you guys worried at all about the states, your states that you're in that they might be faced with it, how are we going to balance the budget, where are we going to find the money essentially to fill that hole and maybe some things are missing from the federal government. So kind of help us understand how you guys are thinking about this beyond obviously, the fiscal '26 because you have visibility, but I'm thinking going forward after that.

Yes. We obviously, when the Trump administration started talking about OB3 there was a lot of rhetoric around Medicaid and some of the things we think were unfairly stated about people that are involved with Medicaid as OB3 went through what we saw is a much more balanced approach. It wasn't what they had talked about it first. And so really, if you look at today, we're not affected directly by OB3. There are going to be in the next couple of years some reductions in provider taxes for certain markets. That could be an effect if you're a provider in that state. However, if you realize what we are from Addus' standpoint, we are the low-cost provider for a high cost population. Our elderly population realistically, if they cannot stay at home through our care, they're going to go to a nursing home. And from a state standpoint, if I just saw my provider taxes cut, and I'm having to look at where do I spend my dollars in Medicaid. I think I would prefer to spend my dollars in a home setting that's 1/3 of the cost of a facility-based care for that same population base that has to qualify for our facility-based care in order to qualify for our service. So we don't view it as a negative. We believe it could be a tailwind to help us grow down the future. But we're also not going to sit here and tell you that every time the federal government talks about Medicaid, we don't start looking and say, okay, how do we overcome what they may be talking about? So far, it's not been an effect. But we're always, I don't want to use the word worry, because that sounds -- but we're always aware of what they're talking about and how we can work with our states because remember, Medicaid is a state-based program. So we try to work with our states to make sure that they understand the value we're providing.

Yes. No, that's exactly what I was getting at as in like how will the states respond to the pressure? Because yes, to your point, there is nothing in the bill that suggests there's going to be specific pressure to personal care, but I'm just thinking in the states going to be faced with how we're going to balance the budget, if there's some funding, so is there a risk that some provider reimbursement could be under pressure. So that's what I'm thinking. Like is there a risk that maybe some of the benefits will be taken away or reduced or any changes that we should be looking out for? And are you seeing any early indication that this is happening?

All I can really do is talk about the 15 years I've been involved with, 10 of which is CEO, and then before that on the Board. I've seen maybe 1 or 2 instances where a state tried to reduce the hours of care per new clients coming on board. And typically, that doesn't last very long, and they kind of move back up to the norm, which is about 60 to 70 hours a month. I think I've seen 2 states. I think probably since Brian and [ Brad ] both have been here, over that 10-year period, we saw 2 states try to reduce by 3%, 4% their personal care rates that lasted less than 90 days because people realize that if you can't hire people to take care of those folks and keep them in their home, they are going to go to a higher level of care. So again, I do want to -- I don't want to be -- I want to bury our head and say we don't worry about things around the federal government, but our relationships are deeply developed with the states.

And maybe quickly because there was acquisition that was announced and there was one about to close pretty soon. And this is a new state for you, right? So anything that's different with that state in terms of what I was just talking about in terms of rate updates and outlook for the budget, any way to kind of frame this market specifically?

Yes. I think if you think, Joanna, about the type of states that typically we're interested in if it's a new market, fiscally responsible, typically manage Medicaid and has shown good support for the program. And Indiana for us, kind of checked all of those boxes. In addition, it kind of sits right in the middle of where we have a good concentration of services today, obviously, right next to Illinois. We're in Michigan, we're in Ohio, it sits right in the middle of that. But we saw good rate support and updates from the state over the last 2 to 3 years. I think there's a fewer number of providers in that state than you would typically see, which we think is probably a positive for somebody like us.

I think the ability to do 2 deals simultaneously that are going to be complementary to each other, it gives us a good footprint in the state. I think we always talked about when we enter a new market, we want to have some form of size, scale and density. And I think this achieves that for us. And again, all the large managed Medicaid providers are in the state as well, and we have good relationships with them. So you kind of put all that together, I think the valuations on these obviously were very attractive for us. These are both 2 smaller providers. So in personal care, typically, those valuations are pretty low. So it will be nicely accretive for us, and we can kind of tuck that into our regional operations and leadership as well. So it was a nice fit.

And when it comes to capital deployment, right, as kind of on that topic. So any change in your priorities to how you're thinking about capital deployment going forward and between the different segments and also maybe the size or types of asset you're looking at?

Yes. I think we'd love to do deals in all 3 segments. I think, obviously, we want to be a provider of all services in the home. Obviously, PCS is probably going to be the largest opportunity for us. A lot of -- it's a very fragmented industry, a lot of small providers out there similar to what we're doing in Illinois -- I mean, sorry, Indiana. I think we have line of sight into some larger personal care assets that we believe are going to be either in market or coming to market over the next several months that we're kind of excited about. We'll be in good geographies for us. We'd love to do more hospice, if we could. I think it's probably a little less likely for us there just based on the valuations that are kind of still being commanded in that space today.

If we saw things on the smaller side in hospice and markets that we like that had reasonable valuations, those are things that we would be interested in looking at. And I think Home Health is the smallest segment we have today, really kind of 3 primary markets, but we think is complementary, particularly where we have personal care hospice, we talked a lot about kind of our Home Health feeding admissions into our own hospice program. So there's a nice revenue synergy opportunity there. Valuations, I think, are still very reasonable in Home Health. Dirk talked a little bit on our call most recently about our thoughts around reimbursement. It feels like maybe that environment is becoming a little more favorable. We'll see coming up here in the next few months with the proposed rule. But I think we'd like to continue to be active. So capital deployment and M&A is definitely our priority.

And we also spoke about or you spoke about on the call about the heightened scrutiny, right and specifically, some of the, I guess, in CMS and in government or Congress highlight personal care as one of the areas because of the Medicaid, I guess, as a payer. But it seems like you guys are thinking this could be actually a positive for someone like Addus, right? So maybe help us understand -- are you seeing anything in terms of more deals because of this? Or are you seeing states looking for different solutions or maybe the payers looking to you to kind of fill the hole that maybe they expect to kind of occur because of the scrutiny of some of the smaller providers out there?

I can start that one, and Dirk, you have some color. I think, yes -- I think as a large scale provider with a pretty robust compliance department, I think we feel very good about where we sit when you start thinking about some of the audit, fraud, waste and abuse type scrutiny. We think that probably is going to put some pressure on people maybe that don't have those capabilities. We want to be helpful there. I think we want to make sure that anything that comes through wouldn't be an administrative burden to everyone in the industry, but would be more specifically targeted. But could that be a benefit to us in certain markets, could there be market share opportunities, we think that's definitely possible. But Dirk, I don't know if you want to add any kind of color to our thoughts around that as well?

Yes. I think as there's more focus on fraud and abuse -- some of the issues are right around that. Some of the bigger companies that have the ability to really have a very strong compliance program, I think, are going to make a lot of sense, not just for the states but also for the -- when the state outsources the managed Medicaid payers, they want to deal with somebody too that they know is compliant, is taking care of their patient. And it's not going to cause a problem with the state. And so I think that's where you're going to see the real focus is as we go into those markets as we have in Indiana, Illinois, Texas, where we're really dealing with these bigger payers. I think our compliance program is going to be a real benefit to our relationship with those folks.

And maybe switching gears, so we can touch base on your other segment. I mean Home Health is very small, so I'm thinking of Hospice. So in that segment, census growth was pretty good but obviously decelerating from some numbers in prior period. So how should we think about the growth in that segment going forward in terms of census because obviously, the rate is really just driven by Medicare, but just thinking about your ability to execute or where you think the long-term growth is for Hospice?

Yes. I mean I think we've always said, long term, we think Hospice is going to be, for us should be probably pressing upper single-digit growth overall. So if you think about kind of the rate updates we've been getting pretty consistently from CMS being 2.5% to 3%, we would expect, obviously, as a proposed rule that's out there, we'll see how it comes out, final later this year, but the remainder of that we think should come through ADC growth and volume. So good, strong admissions in Q1. I think having the right mix of patients is always important. I think it's a big focus for everybody in the industry as well. We don't have any kind of cap issues. I think some providers have struggled with that a little bit where maybe their patient mix has slanted a little bit the wrong way. I think we've been in a really good spot and continue to be going forward. But I think the rest of that is going to come through just continued volume growth.

So high single digits should -- so high single digits is...

High single digits long term as I think was our expectation.

As since you mentioned the Medicare cap, so kind of what gives you confidence you have the right mix? Maybe if you can quote a couple of starts in terms of your long stay versus short stay. Because I know the length of stay you report is kind of misleading a little bit. So kind of help us understand what gives you confidence that you have enough room? And if you can quantify how much you may have under the cap.

Yes. We typically don't just -- we don't talk about like what exactly our cap cushion is, but we have pretty robust monitoring systems in place in each of our programs. So I think our sales teams, particularly are pretty focused on making sure we have a good mix of who we're looking for from a referral perspective. So we monitor that month-to-month, quarter-to-quarter. We never really have had issues in the past. We have some of our locations also have some IPUs as well, which is shorter length of stay, which helps with cap in those geographies. But something we monitor pretty consistently, as you know, a lot of our management team has a long breadth of experience in Hospice. We understand cap very well, but know the right places to look to make sure that we're managing that appropriately.

And since you mentioned Hospice acquisition multiple seems to be sort of out of reach. What about de novo. Like is that part of the growth strategy here trying to kind of grow that way instead of buying existing providers?

We've done a couple of small de novo in Hospice over, I'd say, the last several years. I think we have not had a program to do, I would say, multiple at one time, but it is something that we have looked at as opportunities if there's the right geographies where we see there's some expansion that could be done through de novo. We have done this in the past. But I think it's pretty minimal for us at this point, probably not part of our broader large portion of our strategy.

Okay. So when you think about the high single digits, that's really just same store without any...

Same-store. Plus, if you think about, we've done a couple of deals over the past couple of years where they were mixed assets where there was some Hospice involved. So maybe they had some personal care, maybe a little Home Health, and some Hospice at a good blended reasonable multiple. So maybe there's some opportunities to pick up some Hospice there, not pure-play, mid-teen valuation type acquisition targets. But I think there's some opportunities. But yes, I think our sense is high single digit is our expectation on a same-store basis, correct.

And lastly, on the Home Health front, very small part of your business, but you did mention that's part of the strategy to have the 3 sort of service lines being offered. And with this latest reg, there's some discussions still out there in the industry. How it's going to play out? Kind of, what is your view? How will CMS go about these recoupments? Do you expect some outsized proposal, then they pull back, do you expect kind of like to see [ plain ] rate out there and they just keep that recruitment in the rate and they will keep it, I guess, for a decade or so. Kind of, any thoughts around that, right? And the outlook for reimbursement in Home Health.

Yes. I think we don't have, I think, a view or any insight out of CMS on exactly what we would expect this year. I think the feeling coming off of last year's final and some of the conversations around that from the industry. I think most of us feel like maybe CMS is understanding a little about what we're saying on where maybe some of the pressure has come from. So I think a big piece for us, and we've talked about it is the clawback. Part of that was part of the rate update last year. I think all of us in industry would love to see just, if anything, just some clarity on what are they planning. We don't have any insight into that today. Are they going to eliminate or are they going to implement it, if they are going to implement it through what process and over what period of time, I think we would definitely all benefit from that. I don't have any insight if they plan to do that or not. And I think our expectation, I would say, broadly is we would expect the proposal this year to obviously be better than the proposal from last year, which is a low bar, but we would expect to see something a little more reasonable, we would hope out of the gate this year.

All right. That's all the time we have. Thank you so much. Thanks, everyone, for joining.

Thank you, Joanna.

Thanks. Appreciate it.

Good morning, and welcome to the Addus HomeCare's First Quarter 2026 Earnings Call.

[Operator Instructions]

Please note, this event is being recorded. I would now like to turn the conference over to Drew Anderson. Please go ahead.

Thank you. Good morning, and welcome to the Addus HomeCare Corporation First Quarter 2026 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 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 2026 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 and 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 first quarter 2026 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.

I would now like to turn the call over to the company's Chairman and Chief Executive Officer, Mr. Dirk Allison. Please go ahead, sir.

Thank you, Drew. Good morning, and welcome to our 2026 First Quarter Earnings Call. With me today are Brian Pop, our Chief Financial Officer; and Heather Dickson, our President and Chief Operating Officer. As we do on each of our quarterly earnings calls, I will begin with a few overall comments, and then Brian will discuss the first quarter results in more detail. Following our comments, the 3 of us would be happy to respond to any questions.

As we announced yesterday afternoon, our total revenue for the first quarter of 2026 was $363.6 million, an increase of 7.7% and as compared to $337.7 million for the first quarter of 2025. This revenue growth resulted in an adjusted earnings per share of $1.62 and as compared to adjusted earnings per share for the first quarter of '25 of $1.42, an increase of 14.1%. Our adjusted EBITDA was $44.5 million compared to $40.6 million for the first quarter of 2025, an increase of 9.7%.

For the first quarter of 2026, cash flow from operation was $52.4 million as compared to $18.9 million for the same period in 2025. As of March 31, 2026, we had cash on hand of approximately $103 million. With our strong cash flow in the first quarter, we reduced our bank debt to $94.3 million, leaving us with the financial flexibility to consider larger acquisitions as we continue to pursue expansion of our market reach and creating geographic density.

During the first quarter, we saw an impact on revenue due to the widespread weather event that occurred towards the end of January. Our team did a good job of rescheduling affected personal care visits where possible. However, we could not make up for every weather-impacted miss visit. While the amount of the revenue was immaterial to our company overall, we did see a loss of revenue of approximately $1.5 million as a result of these storms. However, February and March returned to our normalized revenue expectations.

As we announced on May 1, we closed on the acquisition of the Personal Care operations of home court home care based in Fort Wayne, Indiana. This acquisition marks our entry into an attractive state, which is adjacent to our largest personal care market of Illinois. We have been interested in Indiana for some time as over the past 3 years, they increased rates and worked to eliminate client wait lists. I'm excited to welcome all of our new team members from home court home care. We have also entered into a definitive purchase agreement for an additional personal care operation in Indiana, which will complement HomeCourt home care. We anticipate that this additional Indiana acquisition should close in the coming months subject to customary regulatory approvals. These 2 acquisitions continue our strategy of entering new markets with scale and where we have the ability to expand our services.

As we mentioned on our last earnings call, the State of Illinois increased our rates in personal care service effective on January 1, 2026, adding approximately $17.5 million in annualized revenues. This most recent rate increase continues to show the important support we are receiving from our state partners as we continue to provide these much-needed services to our elderly and disabled clients. We also understand the New Mexico legislature included increased funding of $10 million for home and community-based services in the budget for the upcoming fiscal year.

We are waiting for communications from the New Mexico Medicaid department regarding how and to which programs the funding will be extended. As we have stated before, we continue to believe that the 80-20 provision of the CMS Medicaid access rule will be eliminated in the near future. While implementation is still several years away and has no current impact on our business or financial performance, we believe this outcome would be an encouraging development for both our industry and our company. All our recent communications indicate that this part of the Medicaid access rule is expected to be eliminated this year.

During the first quarter of 2026 we continued to experience positive current trends in our Personal Care segment. Our number of hires for [indiscernible] in the first quarter of 2026 was 108, up sequentially from 103 hires per day in the fourth quarter of last year and consistent with the first quarter of 2021. We achieved this number in spite of the impact of the weather event I mentioned earlier.

As we have mentioned in the last few quarters, our clinical hiring remains consistent and has been mostly stable outside of a few of our urban markets. However, even in those markets, we have been able to staff our operations appropriately. Now let me discuss our same-store revenue growth for the first quarter of 2026. For our Personal Care segment, our same-store revenue growth was 6.5% compared to the first quarter of 2025. During the first quarter of 2026, we saw personal care same-store hours increased by 2.2% compared to the same period in 2025 and while our percentage of authorized hours served in the first quarter remain consistent with what we experienced in the fourth quarter of 2025.

On a sequential basis, Personal Care same-store census was down slightly, partially due to the weather we mentioned before. However, during the first quarter, we saw growth in clients served in Illinois, our largest market, which is something we had anticipated for a while. This is important as we look to achieve year-over-year census during 2026.

Turning to our clinical operations. Our hospice same-store revenue increased 7.7% compared to the first quarter of 2025. Our average daily census increased to 3,804 for the first quarter up from 3,515 for the same period last year, an increase of 8.2%. For the first quarter of 2026, our hospice medium length of stay was 23 days as compared to 25 days for the fourth quarter of 2025 and 19 days for the first quarter of 2025. We are very pleased by the continued growth in our hospice segment over the past several quarters. While our home health same-store revenue decreased when compared to the same quarter of 2025, our home health operating income improved over last year's first quarter and sequentially versus the fourth quarter of 2025. It is also important to understand that over 25% of our hospice admissions in New Mexico and now in Tennessee are coming from our own Addus Home Health operations, which overlap in these 2 markets as we continue to focus on our bridge program.

We are pleased to see more patients receiving the benefit of the full continuum of post-acute home-based care and anticipate seeing similar clinical teamwork developed in Illinois, where we also have both home health and hospice operations. We continue to believe that size and scale are important to health care services and have been the focus of our strategy for the past 10 years. We continue to evaluate opportunities, which will increase both density and geographic coverage as well as seek to further strengthen our relationships with states and managed care organizations. Recently, we have begun to see an increasing number of personal care opportunities.

Due to our focus on maintaining a conservative balance sheet, we have the ability to actively pursue these transactions. Recently, there appears to be more optimism around home health care due to the final home health rule for 2026 being more favorable than was originally proposed. While there is still some uncertainty about the future rate increases, there does seem to be more potential activity in home health care. While we will be open to home health opportunities, we will continue to be diligent as we evaluate possible transactions to further our strategy.

Before I turn the call over to Brian, it is important that I thank the Addus team for the care they are providing to our elderly and disabled consumers and patients. We all have come to understand that the majority of this population prefers to receive here at home, which not only remains one of the safest but also the most cost-effective places to receive this 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 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.

Thank you, Dirk, and good morning, everyone. The first quarter of 2026 marked a solid start to a new year for Addus. The results for the quarter reflect our continued ability to execute our strategy and deliver consistent growth. Results were highlighted by a 7.7% increase in top line revenue to $363.6 million and a 9.7% increase in adjusted EBITDA to $44.5 million when compared with the first quarter of 2025.

Our Personal Care Services segment, which accounted for 77.3% of our revenues, was a key driver of our business. Revenues for the segment grew to $281.1 million, an increase of 8.8% overall and an increase of 6.5% on a same-store basis compared to the same quarter last year. We are continuing to see contributions from our acquisition of Gentiva's Personal Care operations in late 2024 and the acquisitions of Helping Hands home care services and [indiscernible] Home Care, both of which were acquired in the back half of 2025. The revenues of Gentiva's Personal Care operations are included in our same-store numbers for the first time this quarter. In addition to higher volumes, we are continuing to benefit from rate support in some of our key state markets including our 2 largest in Illinois and Texas. Our first quarter results included the impact of the 3.9% rate increase in Illinois, which became effective on January 1, 2026, and as well as the 9.9% rate increase in Texas that became effective on September 1, 2025.

Our hospice care business continued to perform well and accounted for 18.1% of revenues for the first quarter. Our hospice revenues were $65.8 million, with a same-store increase of 7.7% over the same period last year and year-over-year improvement in average daily census. For the period, Home Health Services, our smallest segment, accounted for 4.6% of first quarter revenue at $16.7 million. We continue to look for ways to support and expand our home health service line, including through acquisitions, as we believe important synergies can be realized by offering multiple levels of home-based care in the markets we serve.

Yesterday, we announced 2 transactions in Indiana, HomeCourt Home Care based in Fort Wayne which closed on May 1, and the signing of a definitive agreement to acquire additional operations of a similar size in the state. Currently, HomeCourt serves approximately 240 clients with annual revenues of approximately $9.7 million. We anticipate our second acquisition in the state will close later this year. We believe our announced expansion into Indiana, a new market for Addus is aligned with our strategy of broadening our geographic coverage with density and scale. Our team looks forward to welcoming the clients and caregivers to the Addus family.

We intend to provide additional details on the second acquisition when regulatory considerations permit. Strategic opportunities will continue to play a role in our long-term growth planning. Our primary focus will be on identifying opportunities where we can leverage geographic coverage and density providing us with a competitive advantage. We will also seek opportunities to add services to meet our ultimate objective of offering multiple levels of care in the markets we serve.

With our size and expanding scale and the support of a strong balance sheet, we are well positioned to execute our strategy. As Dirk noted, total net service revenues for the first quarter were $363.6 million. The revenue breakdown is as follows: Personal Care revenues were $281.1 million or 77.3% of revenue, Hospice care revenues were $65.8 million or 18.1% of revenue and home health revenues were $16.7 million or 4.6% of revenue. Other financial results for the first quarter of 2026 include the following: our gross margin percentage was 31.9%, consistent with the first quarter of 2025. As usual, our gross margin was affected in the first quarter by our annual merit increases and the annual reset of payroll taxes.

Looking forward, we anticipate our gross margin percentage will remain relatively stable and consistent with our historical annual pattern. G&A expense was 21.4% of revenue compared with 21.7% of revenue for the first quarter a year ago. Adjusted G&A expense for the first quarter was 19.6% and compared with 19.9% a year ago as we continue to generate leverage from our growing revenue base. The company's adjusted EBITDA for the first quarter of 2026 was $44.5 million compared with $4.6 million a year ago, an increase of 9.7%.

Adjusted EBITDA margin was 12.2% compared with 12% for the first quarter of 2025. Consistent with 2025, we anticipate our adjusted EBITDA margin percentage for the full year will remain above 12%. Adjusted net income per diluted share was $1.62 compared with $1.42 for the first quarter of 2025. The adjusted per share results for the first quarter of 2026 exclude the following: acquisition expense of $0.06 and noncash stock-based compensation expense of $0.20, including the impact of accelerated vesting for the previously announced retirement of our former President and COO. The adjusted per share results for the first quarter of 2025 exclude the following: acquisition expenses of $0.13 and noncash stock-based compensation expense of $0.13.

Our effective tax rate for the first quarter of 2026 was 22.7%, benefiting from the excess tax benefit related to our stock compensation. For the full year 2026, we expect our tax rate to be in the mid-20% range. DSOs were 63 days at the end of the first quarter of 2026 compared with 38.2 days at the end of the fourth quarter of 2025 with DSOs for the Illinois Department of Aging at 47.4 days compared with 54.7 days at the end of the fourth quarter of 2025. As expected, we saw a resolution in some of the normal timing differences in payment cycles we experienced around year-end. Our net cash flow from operations was $52.4 million for the first quarter of 2026, a strong start to the year. As of March 31, 2026, the company had cash of $103.1 million with capacity and availability under our revolving credit facility of $650 million and $547.8 million, respectively.

Total bank debt was $94.3 million at the end of the quarter a reduction of $30 million from the end of the fourth quarter of 2025. We have continued to reduce our revolver balance in the second quarter of 2026, with $10 million paid to date. We have a capital structure that supports continued pursuit of our strategic initiatives. Looking ahead, we expect to maintain our disciplined capital allocation strategy and continue to diligently manage our net leverage ratio while also focusing on enhancing shareholder value.

This concludes our prepared comments this morning, and thank you for being with us. I'll now ask the operator to please open the line for your questions.

[Operator Instructions]

And our first question comes from Brian Tanquilut from Jefferies.

Maybe I'll start, Dirk, when we think about the caregiver app rollout, I know that's something that you're working on in Texas. How do we think about the progress there? And what it will take to get it to where you want it to be as quickly as possible?

And then what are the expected benefits for that? I mean, how do we think about the P&L translation of this app rollout and why it's important.

Brian, I'll start, and then Dirk can add to anything [indiscernible] that I say. So I'll start with just the progress that we're seeing. With that Caregiver app, we now have deployed it in all 3 of our 3 largest states, Illinois, as you know, has been deployed for a while, and we're continuing to see really good utilization and uptick of that utilization throughout the state. In New Mexico, we have deployed it for a portion of our branches. We have some special nuances associated with the state EVV system there. So we're going to roll it out in 2 tranches. But we have deployed it, and we expect to be deploying to the rest of the branches soon in the coming quarters. And then finally, in Texas, we rolled it out during Q1, and we're seeing some really positive momentum in the utilization of that and caregivers actually downloading that app.

We saw even in the first few days to a week, we saw up over 10% of our caregivers had already adopted that app. So we're seeing really good momentum. And as we think about where we go from here, there are a couple of things. One, continue to roll it out to other locations, and that's really going to enable our caregivers and help us focus on increasing our service percentage. And then two, we can use that to really drive communication and really create a good engagement -- positive engagement with our caregivers.

Yes, Brian, and I think what Heather just mentioned, there are the 2 aspects that we really focus on and why we invested in the caregiver app. You've seen positive momentum in Illinois for the percent of hours served that we believe a large part of that is directly attributed to the fact that there's the caregiver app at the allows to be particular career to see how many hours are left on the authorization and make sure that we're serving to an appropriate amount.

Also, we think it can allow us to be a little more sticky, as Heather said, with our caregivers, make it easier for them to know what their paycheck is going to be to know their hours served and now also the ability for them if they want to pick up additional hours we have this app out there that allows them to be able to do that in an effective manner. So those are really the benefits that we're looking for from this app.

That makes sense. And then maybe my follow-up, Heather, for you or maybe for Brian. As I think about the length of stay on the hospice side, you just gotten questions on cap risk and how you're thinking about that. So just anything you care with us just on the hospice cap concern.

Yes, Brian, right now, we don't really have any cap consideration. We actually are managing, I think, our referral mix and our patient base pretty well. Discharge length of stay was a lite here this quarter. But again, those are just a factor of the people that actually discharged during the quarter and probably not indicative of you would pick a cap. Our median length of stay, as Dirk mentioned, was 23 days, which actually is probably a little bit low for us. I think we've got a really good mix and no cap concerns for us at the moment.

Our next question comes from Raj Kumar from Stephens.

Maybe just a date on the kind of from each states. I'm curious kind of Indiana, more specifically. I know when you guys went into Texas with Gentiva, that was kind of on the front of the state passing or kind of in the process of passing a rate update. So curious on the kind of Indiana rate backdrop and any commentary there?

Yes. I think in India, specifically, I mean we talk about some other states as well, Raj. Indiana, as Dirk mentioned, we've seen some nice rate support from that over the past several years. I think if you went back about 5 years ago or so, I'm not sure it would have been probably quite as attractive for us, but we've seen nice support for them, a nice margin and that stay pretty consistent with where we are on a consolidated basis. I think the ability for us to do 2 acquisitions simultaneously or in close proximity gives us really good coverage. I think we've always wanted to have a pretty good footprint when we go into a new market.

I think if we were to do one the other, it probably wouldn't have been quite as attractive, but I think doing both gives us a nice -- a nice place to start in Indiana and the ability to continue to add either additional services or more density there. So we're more placed on the map where we have opportunities. I think just thinking about it from a budgetary standpoint, Obviously, Texas is every other year. So they're not going to meet this year. So nothing to really report on that in our kind of reference New Mexico, we just finalized their budget. There are dollars allocated for home and community-based services. We're just trying to determine it gets the information on the logistics of how that will pass down to providers.

Indiana -- I mean, I'm sorry, Illinois, is our largest market is still [indiscernible] has not been finalized our budget this year. Our understanding is there's conversations from the union as we would expect every year about our services and rates, but nothing to report. We would expect them to probably finalize their budget over the next few weeks. So we'll know more then. But those are probably the 3 largest obviously, that we keep our eye on.

Got it. And then maybe looking at home health, I guess there was a shift in the payer mix trend higher Medicaid year-over-year. I guess maybe anything to call out on that front, I guess, more intentional or just kind of how it played out. And I guess, has it been paying better than MA if it is intentional. I'm just kind of curious on the payer mix trend for home health in the quarter.

Yes. I think [indiscernible] quarter probably a little bit of a mile, we had some rate updates, some positive rate updates in one of our programs that kind of falls into that other bucket that you saw in our press release yesterday. So we saw that in the quarter, we'll probably revert back to more historical norms next quarter. Nothing intentional. I think, obviously, we're focused on making sure we try to get the best rate possible in the business that we take in home health. I'm trying to make sure that it's profitable. Our guys on the payer side are having conversations consistently with folks on trying to get as many episodic rates as we can and looking at taking cases that makes sense for us from a profitability perspective.

The next question comes from Matthew Gillmor from KeyBanc.

Maybe following up on some of the census comments for Personal Care. I think I saw the census was down a little sequentially you mentioned Illinois was up, which is encouraging. I just wanted to confirm I heard that correctly.

And then maybe more broadly, I know census for personal care, oftentimes is lower in the first quarter. And if Illinois was stronger, does that imply there was weakness elsewhere? Or would you just sort of categorize it as sort of normal seasonal trends. Just wanted to see if there's any other details to share on this topic.

Sure. I'll take that. So as Dirk mentioned, we did have some weather impact of the quarter. and that impacted our sequential census growth. That's what you saw as a slight sequential decline. But you did hear correctly, we had census improvements throughout the quarter, and we saw gains as we exited the quarter. And I think, very importantly, March since this exceeded January and February census. So we're focused on those sequential gains. And going forward, that should lead to year-over-year gains as we move through the next couple of quarters.

And then specifically in Illinois, we were very pleased to see that start the care exceeded discharges throughout the quarter, and that led to sequential monthly improvement there as well. And so as we exited the quarter for Illinois, we saw a nice trajectory, and frankly, overall with census, and then we saw that trajectory really continue as we moved into the second quarter as well. There is nothing to point to. It's not that Illinois is masking anything else. It's just as our largest state and one that we're very focused on. We wanted to be sure that we shared the positive improvement that we've seen there.

That's great. Appreciate it. And then maybe following up on some regulatory topics. CMS has made some comments that have been skeptical of the self-directed care model within personal care and sort of home and community-based services. broadly, especially with some key states like New York, which I know you don't have exposure to I was curious if the skepticism on the self-directed care model created opportunities for Addus more broadly, given your focus on the agency directed model?

Self-directed care does have an issue. You don't have anybody in between the patient and the caregiver and the patient to make sure that the surface is actually being performed. So it's -- the state has a little more responsibility on themselves to do that. So we saw in New York that it was a program that was probably in our mind, going to have issues and not really sustainable. That's why we left New York. There's also issues out in California. There is a large issue out there because it's self-directed care. We don't participate in medical out there, most of the business we have is VA and private pay.

But as you look at it, we've been saying for years, Personal Care is a great service and much needed and saves the states a lot of money but it needs to be done in the right way. And one of the things that is an advantage to having the companies like Addus and others sit out there hiring the caregiver and matching them with the patient is that we have responsibilities to do a lot of extra things to make sure that service is being provided. Whether that's supervisory visits, actually in person calls on the telephone, we have EVV. We have to make sure that the client shows up. I mean the caregiver shows up and stays the amount of time when they leave so that we're billing a proper number of hours. So there's a lot of compliance issues that are placed on companies like Addus as opposed to the self-directed care where there's very little, if any, of those. So we think it's a real encouragement to our industry. From our standpoint, we agree with the fact that there needs to be a look and make sure that when you're paid for services, those services are being rendered. We think that will benefit a company like Addus.

The next question comes from Sean Dodge from BMO Capital Markets.

It's Chris Charlton on for Sean here. Maybe back on Personal Care. You've again driven strong growth in same-store a billable hours even amid a declining census. Can you just share some more detail on some of the dynamics behind the strength here and continuing to fill a strong percentage of the authorized hours and kind of how you anticipate that evolving throughout the year as you expect to return to some census growth?

Sure. Sure. I'll take that. Chris, I'll start with talking about billable hours and sort of what we're doing that really fuels that growth in billable hours. A couple of things specifically. One, we're working on refining our operational processes from the support center and then also from the branch perspective, and that's particularly with scheduling and utilization of our authorized hours. And then as we talked about just a couple of minutes ago, we've been focused on creating tools and deploying them that will help our providers, actually, the caregivers have access to those hours as well, and that's in the form of the app.

What we have seen is improvement in that service percentage or fill rate. So the hours that we are posting are really a higher utilization of the authorized hours. We're seeing that in most of our states, and we're seeing that specifically where we have deployed the app and we've had some really good usage. And we would expect for that opportunity to improve the service percentage to improve as we move throughout the year, particularly as we deploy the app in Texas, one of our largest states.

If you think about from Q4 to Q1, your question about even though census is down just a bit sequentially, billable hours are up. I think that's just a function of the weather that we saw earlier in the quarter and nothing else really to point to there.

Let me jump in on census because I know everybody is focused on that number, and it is an important number. It's not one that we get paid on billable hours. So we really focus on making sure we get the proper amount of hours per census as opposed to just census per se because you got to get the right census. You got to get the right hours from that patient coming on board to make sure that it's something we can serve appropriately and profitably.

That being said, we do understand that people are looking at that. And I think the important thing this quarter that's very exciting to us is Illinois made the turn. And Illinois is one we really worked on the last 4 quarters to get it back into a growth mode. It just so happens this month, Texas was a little soft coming out in January, really. And so we saw a little bit of effect in Texas for the census for the quarter. But by the end of the quarter, Texas was back. Illinois was continued to grow.

So the important thing is we believe most of our states now are in the situation where starts of care are exceeding discharges. Sometimes you're going to have a little bit of issue in a state maybe during a quarter. But the general trend is we think we've seen that change. And now we think all 3 of our big states are in that particular situation where we should grow census.

Okay. That's helpful. And then on home health, obviously, there was some encouraging adjustments to the final rate from CMS there last year. As you kind of come up on their initial proposal for 2027 rates in the coming months. Maybe just qualitatively, can you just share some thoughts on the backdrop and kind of what you would like to see initially just kind of give everyone some clarity that the environment might be starting to stabilize and might be looking just to be a more favorable backdrop for some opportunities there?

Yes. I think I can take that one, and Dirk can add some color as well. I think in Dirk's comments, I think, obviously saw some positivity in the final rule last year. I think we're interested to see what the rule will look like this year. It feels like maybe there's more appreciation coming out of CMS for what the industry has gone through the last few years, I think, in kind of focusing on some of the areas where there might have been some issues that might have impacted the way that they've looked at reimbursement in the last few years.

And the industry, I think, has been lobbying for some time for them to see that in the way that some of the things in the fraud, waste and abuse area potentially have been used in the calculation. And with those kind of maybe out of the mix and maybe identified, I think we're hopeful that, that means maybe there'll be more positivity in the rate that we'll see coming up this year. So a small segment for us. We think there's a lot of synergies of having multiple lines of care. So something that we'll watch closely, but things that we're still interested in looking at.

The next question comes from Andrew Mok from Barclays.

This is Jeffrey on for Andrew. So I appreciate all the color around the Personal Care segment, but maybe I just wanted to better understand Addus' exposure to self-directed personal care and the impact that's had on recent Personal Care segment results.

Yes. We don't really see an impact from self-directed care in most of our states. As we mentioned, there was some issues in New York. We left that state. California, we used to -- if you go back 10, 15 years ago, we did business in California, and California really decided to go self-directed care, and it wasn't something that we provided. So we focused on states that really understand the difference between sub-directed care and agency care. And that really goes back to what I said a few minutes ago, was what you get with agency care is a compliance program. You get companies like Addus that are making sure that, that care never who may or may not just because it's called family caregiver. It may not actually be a family caregiver or a family member. It may be somebody that knew the patient and is willing to serve in that market.

So for that aspect, we still do all the things. We do all the training. We make sure that EVV is in place. We go through our complete compliance program to make sure that we are being paid appropriately and that we're providing the appropriate care that per the plan of care. So really from us, the self-directed care does not have a direct impact, but we are glad to see that they're looking at self-directed care to make sure that it is following the rules just like agency care.

Okay. And maybe on the hospice side, I think revenue per patient day growth was negative for the first time while could you help us better understand the dynamics there? -- including any trade-off with average length of stay?

Yes. I think there's 2 elements to that this quarter. I think primarily, we talked last year that we had some positive impact from the implicit price concession or revenue adjustment, whichever term you want to use. And I think we had indicated we expected that revert back to kind of historical norms. And I think that's where we were this quarter. So that definitely was part of the consideration between last year and even Q4 rated into Q1.

I think there's a little bit of probably impact from just mix as well, but nothing really material there, but those are really the 2 factors.

The next question comes from Constantine Davides from Citizens.

Dirk, you highlighted your balance sheet strength and ongoing debt reduction both in the quarter and post the quarter and I guess can you just comment a little bit on the size of the opportunities in the M&A pipeline, whether that's starting to skew up a little bit more in recent months?

Yes. What we're starting to see this year, and there's already 2 or 3 opportunities out there that are upside that we're looking at. I think it's really something that changed probably in the last 3 months or so where we're seeing processes begin on these larger opportunities. And that's one of the reasons, I think, constant team that we've worked very hard to keep our balance sheet clean. It's the reason we were able to do Gentiva very quickly and bring it on board. So we're looking at some of these bigger opportunities that because of our balance sheet, we could do and bring on fairly rapidly without having to stress our balance sheet. So again, they are out there. They're in a process, and we're more looking at them.

And when you say of size something along the size of -- or scale of Gentiva.

Yes, they're similar concise to Gentiva. That's correct.

Great. And then a quick follow-up on India. You talked about that being -- that state being attractive and good rate momentum, I guess, in recent periods. Where do rates kind of compare to either other states you're in or your blended average?

The rates are a little higher than some of the Midwestern states. I mean, obviously, Illinois is going to be our highest market. But Indiana, if you look around the other states around there, the rates now are very -- there are nice rates. There are rates that we can operate in very effectively. Also, there seems to be a little less competition in Indiana in the number of providers of our care. So it's a state that we've been looking at. And with -- I think it was in like 2023 time frame is when they really raise their rates to make them more competitive. Ever since then, we've been looking for opportunities to get into a state. And this [indiscernible] home court home care brought to us and the other acquisition that we announced allow us to that state and start looking for other opportunities to grow.

The next question comes from Ryan Langston from TD Cal.

Maybe just dovetailing off Indiana. Obviously, strategy to enter states the size and scale. Do you know if you combine the 2 assets where that would put you in terms of market share in the state. And I just caught your comments on decent rates and competition dynamics. But anything else in particular that made Indiana attractive?

Yes. I can start and Dirk could add some color on. I don't know that we have a detail of exactly where we stand. I think it's going to be a good footprint for us from just a coverage standpoint. All in, the other acquisition is going to be similar size. So we're going to be just under $20 million in revenue, which is a pretty good start for us in the state. I think one of the things that made it attractive for us in addition to what Dirk had kind of referenced is the managed Medicaid component. Obviously, a lot of the larger players there, I think United and those folks, we have good relationships with all of those guys, as everyone knows kind of nationally. So I think it is a good fit for us as it's always been something that's been part of the profile that we like as we get into states that have managed Medicaid where we can have those relationships in place. So I'm excited about that.

Okay. And then I appreciate the commentary and response to Matt's question, but maybe just more broadly, obviously, this administration is really focused on fraud, waste and abuse and have made some statements to that quite a bit over the past several months to a year plus. Like I guess, just in general, what do you think any of that could mean for Addus? Is that potential benefit because you're so large and sophisticated maybe versus some of your smaller competitors in your markets? Just maybe more broadly, what do you think this administration sort of stands on FWA, how that could affect that?

Yes. One of the things that Addus as did, we participated with the alliance in talking to the current administration about the fact that front abuse is out there, and it causes companies that are legitimate providers. It causes issues with various things you can talk about. And so from the standpoint of Addus, we're glad to see the administration focus on fraud and abuse. We spend a lot of money on compliance. We have for the last 10 years, we want to make sure that when we operate in a state that we're following the rules and we're doing what's proppant. And at times that you find that maybe something was built in properly, we pay it back very quickly to stay in compliance with the state.

So the fact that we are large, we spend millions of dollars into the compliance aspect, we think -- bodes very well for what the administration is trying to do, and that is take out the players -- mostly smaller players, but take out the players that aren't doing the right thing. They're just billing and not following through with what they need to do to make sure the rules are being followed.

And more importantly, the most important thing is that the care is being given to the patient. There's a reason that patient has a plan of care that has stayed approved, and that is they need that care. And so for us, calling out personal care, we'd rather than just call out home care and talk about the fact that there's a lot of fraud and abuse in home health. There seems to be an in hospice. From a personal care standpoint, we believe that we're a leader in the industry, and part of that being a leader is to lead the compliance effort. And so we're pleased with the fact that we're focused on that. And we believe long term, it will be a benefit to our company.

The next question comes from Jared Hasse from William Blair.

Maybe just one for the model. I appreciate all the detail you guys have given as far as hiring and some of the initiatives you have going on like the caregiver application. That hours per se a month metric has been about 70% for a couple of quarters now. I guess, is there anything structurally that would cause that decline? I think the typical seasonality would have that sort of continue to grow sequentially over the rest of the year. But I just want to make sure that's sort of the right expectation to level set how we're thinking about things for the model, just given the moving parts as it relates to sort of census and volume trends.

Yes, Jared, I wouldn't expect to see that. There's nothing structurally that's going to cause that to decline. I think you're always going to have a little bit of ebb and flow in mix in the states. But with the efforts that we're using in the caregiver app and that rollout and thinking about our full rate, we would actually probably expect that longer term to actually continue to grow because we think there are hours that are available for clients under their care plan that we are currently not serving. So no, I wouldn't expect from [indiscernible] I would not expect to see that decline for any structural reason.

Okay. Got it. That's helpful. And then maybe just another one on Indiana as a market for you guys. I'm just curious do you get any sort of regional leverage in a market like Indiana, just given obviously the proximity to your largest market, Illinois. I don't know if there's any sort of infrastructure that you're able to leverage that would help you scale up and extract synergies a little bit more quickly than normal.

Yes. If you look at it from where we have markets around India, obviously, we're very large in Illinois. We're in Michigan, we're Ohio. So Indiana is kind of right in the middle of that geographically. So if you think about from just a regional or leadership perspective, there's not going to be a need for us to add any additional layers there. They should be able to just talk under kind of what exists for us on the infrastructure today. Obviously, you'll have people in those branch locations. But really that should be the limit of it. So from a -- just from a lift perspective on G&A, that definitely should slide right into the operations that we have that kind of surround the state.

Next question comes from Clarke Murphy from Truist.

I had a follow-up on labor. I appreciate all the commentary that you guys have around the caregiver app and hiring trends. But I wanted to see if you guys are seeing perhaps any benefit on labor availability, even some of the macro concerns that seem to have amplified over the last couple of months and the impact that, that's had on kind of a broader consumer environment.

I'll take that. The short answer is that we're seeing positive hiring trends and we are seeing some of the leading indicators in terms of wage inflation and availability of candidate full trend in the right direction. And frankly, with wage inflation, we're back to sort of that normal roughly 3% base, a little -- some are a little higher, some are a little lower. But in terms of candidates, we're seeing really good candidate flow across our markets. As Dirk mentioned, we're always going to have small kits where it's a little bit more difficult to staff, but that is really limited to mostly rural locations and frankly, just a couple of skilled categories in those rural locations, but we continue to [indiscernible] though those so that we can make sure we're hiring the right staff to drive growth and to serve our patients and clients. So really seeing some good trajectory there.

Now whether it's attributable to the macro environmental issues, that's really hard to say, of course, but I can tell you that we are seeing positive trends.

Got it. And then just switching gears to capital deployment. The other question I had was just if I think about your current pace of debt paydown relative to your debt balance suggests absent M&A be kind of largely paid off by the end of the year. Just wanted to see absent any large-scale M&A, how that would potentially impact your capital deployment priorities going forward?

We spent a lot of time talking about this at our Board meeting, as you would expect with the company in our position. I think the thing we see that maybe is not as apparent to outsiders is the number of deals that are now starting to come on board. We're starting to see some larger transactions as we mentioned. And remember, with those large transactions, there still are a number of smaller transactions that we just announced that are out there that we consider in most cases, backfilled. And in this case, it was entering into a new market.

So we believe that before our data is paid off, we will put to work, a great deal of our capital in these opportunities that are out there. So it led us to decide that that's really what we understand we're going to use our cap for today. Now if that didn't [indiscernible] over the next year, you would see us maybe come up with a different decision on how we use our capital. But we believe right now that with the opportunities that are there for us, and we'll be able to use our debt and our cash and debt to grow the company.

The next question comes from Ben Hendricks from RBC Capital.

This is Michael Murray on for Ben. You saw some pretty good leverage on adjusted SG&A even with the weather headwinds. Are there specific cost initiatives driving this improvement? Do you think the caregiver app is helping there? And how should we think about SG&A ratio as we move through the year?

Yes. I would say, first, the caregiver app probably isn't going to really have an impact on G&A. I think what we continue to see is kind of ongoing leverage, particularly on our corporate G&A as we grow our revenue base as we would expect. So we're not having to obviously add incremental cost there. On the labor side, as we kind of mentioned earlier, this year in this cycle, we're back to kind of a 3-ish percent kind of default rate there, so kind of back to norm. I think kind of going forward, we do give our merits on March 1. So we think sequentially into Q2, there's going to be a little bit of additional dollars in G&A in Q2 as those kind of flow through for the full quarter. But nothing else really from a seasonal perspective.

So I think we would expect it to maintain a pretty stable percentage of revenue and continue to see additional leverage as we grow.

Okay. And then just shifting gears to home health. Organic revenue declined 6.6%. I think you previously indicated a return to growth in the second half of this year against some easier comps. So just wanted to get an update on admission trends, the impact of your new leadership and your confidence in achieving that time line.

Sure. Michael, I'll take that one and talk about home health. Just start by reminding everybody, it's less than 5% of our business. But that said, we've made changes from a leadership perspective and then also from a sales perspective and how we go to market for that business recently.

In Q1, we saw our margins really where we want them to be. And so our focus is now on volume. We did see some positive trends in Q1. In fact, in Q1 2026 new admissions, total volume and total visits, all improved sequentially versus Q4 2025. So that is the trend that we would like to see. That's part of what we're focused on seeing and we continue to think that certainly later this year and feel good about that statement.

Just to just step back a little bit at a higher level picking up on something that Dirk said earlier, the real value in our home health business is the interconnecting care that we provide and the correlation that we see in markets where we have multiple lines of service there and different levels of care between those lines of service. So for example, I think it bears repeating in New Mexico and also Tennessee, where we have what we call the bridge program in place, and we really focus on creating referrals and admissions from home health into hospice for patients where that's appropriate, we've seen those rates exceed 25%. And we've also now begun that program in Illinois. Obviously, Illinois Home Health is a little bit earlier for us, but there is great opportunity there and opportunity to continue that pattern

And our next question comes from A.J. Rice from UBS.

First, I think at one point, you were -- had said that you thought in the second quarter, you'd still see above average growth in personal care and hospice and then it would moderate in the second half. Just wanted to give you a chance if there's any update. Are you thinking about seasonality, what that might be or if there's any comments on thinking about the seasonal layout of the business for the rest of the year.

Yes, A.J., this is Brian. I think maybe not so much seasonal, but I think you started thinking about comps over prior year and some of the rate impact, particularly in Personal Care. I think our prior comments that we expect it to be probably toward the high of our kind of normal 3% to 5% range, if not above. So starting this year, obviously, at 6.5% same-store basis. We would still expect that to be the case for the remainder of this year. I think once we kind of get confirmation on New Mexico and that flowing through as well, that will obviously benefit the back half of the year. So I think we still feel pretty comfortable with that commentary thinking about kind of where we'll be on a same-store basis for each quarter going forward in [ BCS ].

Home health -- I mean, sorry, hospice has been double-digit plus in same-store. I think we had guided people to think that's probably not long-term sustainable. Our ultimate expectation is probably upper single digits, so we're just under 8% this quarter. I think we've seen some nice trajectory in ADC coming out of the quarter. We were a little bit softer coming off of the holiday. So I think that sets us up pretty well. I think going forward to be in really good shape to continue to meet that as well for the remainder of this year.

Okay. And then I guess your comments about M&A and the pipeline and so forth. Obviously, these deals are more in the personal care arena. You sound like you're feeling a little better about the home health backdrop. Would that be something you would now sort of lean into again on M&A? Or is it still too early to do that?

I think we would look at home health deals today as opposed to maybe a year ago. As you can understand, we'd be very careful in what we did, make sure it's strategically met. For us, the overlap with our hospice and personal care so that our [indiscernible] bridge program can work. But yes, we would start looking at home health care opportunities today.

The next question comes from Joanna Gajuk from Bank of America.

Full of questions here. So on personal care same-store hours per business day, I think grew, call it, 2%, 2.2% -- so what was it excluding weather? I know you gave a revenue, I guess, impact from that? And what was it as you exited the quarter? So essentially what I'm trying to get at is kind of what was your growth in March? And do you expect sort of the acceleration and a little bit higher over the rest of the year on that metric?

Yes. I think, Joanna, I think our target has always been and we've been talking about it for some time now. We can keep that same-store hours per business day between 2% and 2.5%, we're probably going to be in a pretty good spot. We've been 2.4% each of Q3 and Q4 [indiscernible], but we were a little bit softer as we kind of mentioned in Heather -- with some of the weather we saw in January. So we're probably not going to go into kind of a month-by-month metric on that. I think we feel pretty comfortable coming out of the quarter with where we were from just a census perspective in hours in March and going into that 2% to 2.5% range still feels very, very solid for us going forward.

It's great. 2.5%. And then the gross margins, so Q1 is seasonally low, right? But can you help us kind of call out anything as we think about Q2 from Q1?

Yes. I think yes, seasonally is usually always our low watermark of the year with the reset of payroll taxes and our merits. I think traditionally, what we see is -- usually you see a little bit of improvement with some of the payroll tax caps getting Q1 into Q2. So usually, there's a little bit of benefit into Q2. Q2, Q3, usually pretty flat. I think Q4 usually is the best quarter for us from a margin perspective, just with some additional benefit from payroll tax caps but also our hospice rate increase kicks in, in that quarter as well.

I think if you look at the mix of our business, personal care was a little over 77% this quarter. As a comparison, you think about that versus hospice and home health, hospice and wealth have a higher gross margin. So if that mix gets back more to 75-25 on skilled and non-skilled that would benefit as well, but mix is going to potentially play in as well. So I think we feel really good coming out of the quarter on the track for [indiscernible] ADC. So if that were to be a bigger part of our mix going forward, that would benefit our gross margin percentage as well.

And the last one on the quarter. The stock comp was higher sequentially from Q4. Is there -- was there something kind of onetime in nature? Is the $5 million a good run rate? Or is this something outside of [indiscernible]?

Yes. That's not a run rate. I mentioned in my comments. So with our former President and COO, retiring, there was some accelerated vesting as part of this retirement that impacted the quarter, but should be onetime and would not be continuing going forward.

This concludes our question-and-answer session. I would like to turn the conference back over to Dirk Allison for any closing remarks.

Thank you, operator. I want to thank each of you for taking the time to join us today on our call, and we hope that you have a great week. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Addus HomeCare's Fourth Quarter and Year-End 2025 Earnings Conference Call. [Operator Instructions].

Please note this event is being recorded. I would now like to turn the conference over to Dru Anderson. Please go ahead.

Thank you. Good morning, and welcome to the Addus HomeCare Corporation Fourth Quarter and 2025 Earnings Conference Call. Today's call is being recorded. To the extent of 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 and including statements, among others, regarding Addus' expected quarterly and annual financial performance for 2026 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 and the like are intended to identify forward-looking statements.

You are hereby cautioned that these statements may be affected by important factors, among others -- the fourth in Addus filings with the Securities and Exchange Commission and in its fourth quarter 2025 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.

I would now like to turn the call over to the company's Chairman and Chief Executive Officer, Mr. Dirk Allison. Please go ahead, sir.

Thank you, Dru. Good morning, and welcome to our 2025 fourth quarter earnings call. With me today are Brian Poff, our Chief Financial Officer; and Heather Dixon, our President and Chief Operating Officer. As we do on each of our quarterly earnings call, I'll begin with a few overall comments, and then Brian will discuss the fourth quarter results in more detail. Following our comments, the 3 of us would be happy to respond them to any questions.

As we announced yesterday afternoon, our total revenue for the fourth quarter of 2025 was $373.1 million an increase of 25.6% as compared to $297.1 million for the fourth quarter of 2024. This revenue growth resulted in adjusted earnings per share of $1.77 as compared to adjusted earnings per share for the fourth quarter of 2024 of $1.38 and an increase of 28.3%. Our adjusted EBITDA was $60.3 million compared to $37.8 million for the fourth quarter of 2024, an increase of 33.3%.

For 2025, our total revenue was approximately $1.4 billion, which is an increase of 23.2% as compared to approximately $1.1 billion for 2024. This revenue growth resulted in adjusted earnings per share of $6.23 as compared to adjusted earnings per share for 2024 of $5.26, an increase of 18.4%. Our adjusted EBITDA for 2025 was $180 million as compared to $140.3 million for 2024 in an increase of 28.3%.

For the fourth quarter of 2025, cash flow from operations was $18.8 million as of December 31, 2025, and we had cash on hand of approximately $81.6 million. We ended the fourth quarter with bank debt of $124.3 million, leaving us with a net leverage of under 1x adjusted EBITDA, allowing us flexibility, we continue to evaluate and pursue acquisition opportunities that meet our ongoing strategy of creating geographic density and scale while focusing on the full continuum of home care.

As we mentioned on our last earnings call, both the states of Texas and Illinois have recently increased our rates in personal care services. The Texas rate increase was effective on September 1, 2025. The Illinois rate increase went into effect on January 1, 2026, and will be reflected and our 2026 first quarter results. While there are potential future changes to Medicaid due to OB3, we believe that our value proposition for personal care services is recognized by the states where we operate. We believe that we can be a cost-effective partner to both our states and managed Medicaid payers as they look for potential savings as home-based care is substantially less costly and facility-based care. We will continue our legislative efforts in states where we operate to emphasize the benefits generated by their continuing support of these services.

As we've stated before, we continue to believe that the 80-20 provision of the Medicaid access rule will be eliminated in the near future. While implementation is still several years away and has no current impact on our business or financial performance, we believe this outcome would be a significant and encouraging development for the industry and our company.

During the fourth quarter of 2025, we continue to experience positive powering trends in our Personal Care segment. While the holiday cyclically slow our hiring, we are still able to achieve 101 hires per business day during the fourth quarter. As we began 2026, our hiring numbers for the first 2 weeks of January increased to 107 hires per business day. However, we saw a slight slowdown in hiring due to -- superior in certain of our markets over the last couple of weeks of January. We have seen hiring rebound in February as the winter storms have dissipated. As we have mentioned in the last few quarters, our clinical hiring remains consistent and has been mostly signal outside of a few more challenging urban markets.

Now let me discuss our same-store limited growth for the fourth quarter of 2025. As a reminder, these calculations exclude our Gentiva acquisition as they were not part of our business for the entire fourth quarter in 2024. For our Personal Care segment, our same-store revenue growth was 6.3% compared to the fourth quarter of 2024. During the fourth quarter of 2025, we saw personal care same-store hours increased by 2.4% compared to the same period in 2024 while our percentage of authorized hours served in the fourth quarter remained consistent with what we experienced in the third quarter of 2025.

On a sequential basis, Personal Care same-store billable census was down slightly although we continue to see census growth in the majority of our key dates. This should positively impact our billable census during 2026. During the fourth quarter, our Personal Care same-store growth was more evenly divided between volume and rate as we have been expecting.

Turning to our clinical operations. Our hospice same-store revenue increased 16% compared to the fourth quarter of 2024. Our average daily census increased to 3,885 for the fourth quarter, up from 3,472 for the same period last year, an increase of 11.9%. For the fourth quarter of 2025, our hospice median length of stay inclusive of our Illinois Journey Care operation was 25 days as compared to 22 days for the third quarter, again, including Journey Care. We are very pleased by the continued growth in our hospice segment over the past several quarters as a result of operational improvements.

While our home health same-store revenue decreased [ 7.54% ] when compared to the same quarter of 2024, it is important to point out that over 25% of our hospice admissions in New Mexico and Tennessee are currently coming from our Addus HomeCare operations, which overlap in these 2 markets. We are pleased to see more patients receiving the benefit of the full continuum of post-acute care and anticipate seeing similar clinical collaboration and support, develop in Illinois, where we also have both home health and hospice operations.

Our development team continues to focus on both clinical and nonclinical acquisition opportunities, which would increase both density and geographic coverage. We will continue our disciplined approach to identify strategic personal care service transactions as well as to evaluate smaller clinical transactions. That said, while there is more optimism around home health care due to the final health rule for 2026 being more favorable than was originally proposed. Questions remain about potential future rate increases and the uncertainty of the retrospective payment adjustments.

Before I turn the call over to Brian, I want to thank the Addus team for the care they are providing or elderly and disabled consumers and patients. We all have come to understand that the overwhelming majority of this population refers to receive care at home, which remains one of the safest and most cost-effective places to receive this 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 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.

Thank you, Dirk, and good morning to everyone. The fourth quarter of 2025 marked a strong finish to another year of growth and progress for Addus. Our results for the year reflect the continuing execution of our strategy, which allows us to both deliver consistent organic growth and realize the benefit of our recent acquisitions. Our results were highlighted by 25.6% top line revenue growth and a 33.3% increase in adjusted EBITDA compared with the fourth quarter last year.

Our Personal Care Services segment was the primary driver of our business with a solid 6.3% organic revenue growth rate over the same period last year above our normal expected range of 3% to 5%. Our results were supported by stable hiring trends favorable rate support for personal care services in some of our larger markets, including a 9.9% rate increase in Texas that was effective September 1, 2025.

State of Illinois, which represents our largest personal care market had previously approved a 3.9% increase that became effective January 1, 2026, and is expected to add approximately $17.5 million and annualized revenue whereas margins consistent in the low 20% range. Our Personal Care results include the Gentiva personate operations, our largest acquisition to date, which we completed on December 2, 2024. The results also include, Great Lakes HomeCare acquired on March 1, 2025, Helping Hands HomeCare services acquired on August 1, 2025, and the first care operations of Dell's Yellow HomeCare acquired on October 1, 2025.

Additionally, during the fourth quarter, we had a benefit of approximately $1.9 million related to accounts relievable settlements from our previously divested New York operations. This was reflected as a positive revenue adjustment and has been excluded from our adjusted results and same-store metrics.

We continue to see solid performance in our hospice business, which accounted for 18.9% of our revenue for the fourth quarter. The operational improvements we have made over the past year resulted in solid 16% year-over-year organic revenue growth supported by increases in admissions, average daily census and revenue per patient day. We also benefited from an approximate 3.1% increase in the 2026 Medicare hospice reimbursement rate that became effective October 1, 2025.

Our home health services represent our smallest segment, accounting for 4.6% of fourth quarter revenue. We continue to look for ways to support and expand the service line, including the acquisitions, and we believe there are synergy opportunities associated with offering all 3 levels of home-based care in the markets we serve.

In addition to the consistent organic growth achieved in 2025, we have also benefited from our recent acquisitions. Last year was the first full year to include acquired personal care operations of Gentiva which we completed in December 2024, adding approximately $280 million annualized revenues and significantly expanded our market coverage.

In 2025, we completed 3 other acquisitions, the operations of Great Lakes HomeCare in Michigan on March 1, Helping Hand HomeCare Service in Pennsylvania on August 1 and the personal care operations of Dell's Yellow HomeCare Services in Texas on October 1.

We will continue to source and evaluate additional similar acquisitions that are strategic for Addus. Our primary focus will be on markets where we can leverage our strong personal care network as we believe having geographic coverage and density provides us with a competitive advantage. We will also look for opportunities to add clinical services in pursuit of our goal of offering the full continuum of home-based care in the markets we serve. With our size and expanding scale and the support of a strong balance sheet, we are well positioned to execute our acquisition strategy.

As Dirk noted, total net service revenues for the fourth quarter were $373.1 million or $371.2 million, excluding the impact of the New York accounts receivable settlements. The revenue breakdown, excluding the New York impact is as follows: Personal Care revenues were $284.1 million or 76.5% revenue. Hospice care revenues were $70 million or 18.9% of revenue and home health revenues were $17.1 million or 4.6% of revenue.

Sequentially, from the fourth quarter of 2025 revenue of $371.2 million, excluding the New York impact, we expect the first quarter of 2026 to benefit from the Illinois rate increase offset by 2 fewer business days in Personal Care and some seasonal impact from the winter storms we experienced in certain markets. Other financial results for the fourth quarter of 2025 include the following: Excluding the impact of the New York accounts receivable settlements, our gross margin percentage was 32.8% compared with 33.4% for the fourth quarter of 2024, primarily driven by a higher mix of personal care services from the Gentiva acquisition.

As expected, we saw a positive impact sequentially from the third quarter of 2025 from the Medicare hospice rate increase and lower unemployment taxes. Looking ahead to the first quarter of we expect normal seasonality in our gross margin percentage with a negative impact from our annual merit increases and the normal annual reset of payroll taxes. Cumulatively, we expect these items to contribute a decline sequentially in gross margin percentage of approximately 120 basis points compared to the fourth quarter of 2025.

G&A expense was 20.7% of revenue compared with 24% of revenue for the fourth quarter a year ago, primarily due to lower acquisition expenses as well as incremental leverage from our higher revenue base. Adjusted G&A expense for the fourth quarter was 19.1%, a decrease from 20.5% in the comparable prior year quarter and lower sequentially from 19.8% in the third quarter of 2025. The company's adjusted EBITDA increased 33.3% to $50.3 million compared with $37.8 million a year ago. Adjusted EBITDA margin was 13.6% compared with 12.9% for the fourth quarter of 2024 and higher sequentially from 12.5% in the third quarter of 2025.

Adjusted net income per diluted share was $1.77 compared with $1.38 for the fourth quarter of 2024. The adjusted per share results for the fourth quarter of 2025 exclude the following: the impact of New York accounts receivable settlements of $0.07, acquisition expenses of $0.05 and noncash stock-based compensation expense of $0.18.

The adjusted per share results for the fourth quarter of 2024 exclude the following: gain on sale of assets related to the New York divestiture of $0.15, impact of lease impairment of $0.20 and impact of the retroactive New York rate increase of $0.14, acquisition expenses of $0.29 and noncash stock-based compensation expense of $0.11. Our tax rate for the fourth quarter of 2025 was 25.8% within our expected range. For calendar 2026, we expect our tax rate to remain in the mid-20% range.

DSO was 38.2 days at the end of the fourth quarter of 2025 compared with 35 days at the end of the third quarter of 2025. We have continued to experience consistent cash collections from the majority of our payers. Our DSO for the Illinois Department of Ag -- for the fourth quarter increased to 54.7 days compared with 32.5 days at the end of the third quarter of 2025 as we saw some expected timing differences in payment cycles. In the first quarter of 2026, we have seen our DSO in Illinois returned to a level more consistent with what we experienced for the majority of 2025.

Our net cash flow from operations was $18.8 million for the fourth quarter of 2025 and $111.5 million for 2025. And with some negative working capital impact in the fourth quarter, primarily from the increase in Illinois DSO. During the fourth quarter of 2025, we did leave approximately $7.2 million in Phase III ARPA funding from New Mexico with an additional $5.8 million received from the state in the first quarter of 2026 for a total of $13 million. We anticipate these to be the last scheduled disbursements from New Mexico which will leave us with approximately $17.5 million in funds remaining to be utilized.

As of December 31, 2025, the company had cash of $81.6 million with capacity and availability under our revolving credit facility of $650 million and $517.7 million, respectively. Total bank debt was $124.3 million at the end of the quarter, a reduction of $30 million from the end of the third quarter.

During 2025, we were able to reduce our revolver balance by $98.7 million as we continue to experience consistent cash flow. We have a capital structure that supports our ability to continue to invest in our business and pursue our strategic growth initiatives, including acquisitions.

Looking ahead, we will selectively pursue acquisitions in 2026 and that complement our organic growth and align with our strategy. At the same time, we will maintain our disciplined capital allocation strategy and continue to diligently manage our net leverage ratio through ongoing debt reduction.

This concludes our prepared comments this morning, and thank you for being with us. I'll now ask the operator to please open the line for your questions.

[Operator Instructions]. The first question today comes from Ben Hendrix with RBC Capital Markets.

Great. Just a quick question on the rate backdrop. I appreciate all your commentary about receptivity to the PC setting amid the OP BBA headwinds. But outside of Texas and Illinois, can you give a little bit of context to how your rate conversations are going I'm thinking particularly in states like New Mexico and Tennessee?

This is Brian. Yes. I think it's still a little early in the year, but some of the legislative sessions that have already started or states that have midyear fiscals. We've gotten some information. I think probably the key one there being New Mexico, our understanding is there is what we estimate to be probably between a 4% and 5% rate increase has been passed through the legislature, awaiting for the governor to signature we don't have any reason to believe that it won't be signed, but we would anticipate that to benefit us in the back half of this year.

So I think we -- I'd mentioned last year, New Mexico was a state that had considered one kind of held pat with OB3 and kind of some of the noise there, but we were hopeful that they would readdress that this year. So nice to see that it looks like that may actually come through.

Outside of that, I think nothing else really to report on A lot of other states, I know in Illinois governor has kind of put out his initial view on budget currently does not have a rate increase in there for us for next year, but I would point out that's consistent with where he started last year, and we did get something toward the end, not to say that we will necessarily this year, but something that we'll continue to watch as the legislative session goes through their process. But that's probably the 2 that I would flag out for a moment.

The next question comes from Brian Tanquilut with Jefferies.

Congrats on the quarter and the year. Maybe, Brian, just a follow-up on those question on New Mexico. How do we think about the pass-through there in terms of margin flow through? I know New Mexico, I think, if I'm not mistaken, doesn't have a mandatory pass-through rule. So just curious how you're thinking about that.

Yes. There isn't a mandatory pass rule. It's not similar to like in Illinois, Texas where it's formulaic. So I think we're probably still in the early stages of making some decisions on what and where we'll pass through some of that to caregivers in the form of salaries and additional wages. So probably still early that our team is continuing to assess, but I'm fair to say there will be some portion of that definitely will be passed through to caregivers.

Okay. That makes sense. And then maybe as we talk about caregivers, just curious what you're seeing now in the labor market, obviously, things are different today versus a year ago. So just curious what recruiting looks like and retention for your carryovers.

Brian, it's Heather. I'll take that question. Dirk mentioned that our hires per day for Q4 were right at 101, and that's typically what we would expect to see from Q3 to Q4 as we move and see the effects of seasonality because November, December, the holidays impact some of our hiring activities. Dirk mentioned also that in January, we had a strong start to the month as we would expect after we come back from the holiday period. but then some slower volumes for hiring towards the back half of the month when we saw some geographies that were impacted by the weather that passed through the country.

But then so far in February, we are seeing strong hiring trends, and we would expect to finish the month in a really good position for hiring overall. We're not -- to your question about are we seeing any impacts or difficulties hiring, we're not seeing anything to point out. We continue to see stability. The numbers point to that, but also just in our hiring efforts in the market. We always have small pockets here and there, usually in more densely populated urban areas, not all of them, but a couple of them. And those are usually related to specific jobs on the clinical side. but nothing really to call out. We're seeing consistency. We're seeing good progress on the hiring front there.

The next question comes from A.J. Rice with UBS.

Hi, everybody. Just first of all, part of the long-term growth algorithm for Addus has been tuck-in deals. And we had a little bit of a slowdown in the back half of last year. I wonder if you could comment a little further on what you're seeing in the pipeline prospects for transactions, tuck-ins or even bigger transactions where you're seeing opportunities?

Yes, I think where we sit today kind of early this year, we've heard from a lot of folks that I think are optimistic there's going to be more opportunities this year. I think we've said before, we've heard that before as well. But I think where we sit today is probably looking at more things in our pipeline that are comparable to the deals that we closed last year, so probably more mostly in markets that we're in today, maybe some adjacencies to create density. I think our understanding is, and we alluded to this, I think, on some prior calls. There are some potential larger personal care assets that we think will be coming to market and would be available right now, I think our estimate is those are probably midyear toward the back half of the year based on the timing that we're hearing. So obviously, we'll be looking at those. But I think in the interim, we'll continue to focused on the type of deals that we did in 2025. We'd love to have a little more of a cadence on those. Our guys are out working really hard to try to find deals that make sense for us and the right spaces, but hopefully, we're able to be successful in that.

Okay. And then I just wanted to ask you about the adult home care business. Obviously, the industry was geared up that it might have to absorb a 6.5% hit at end getting phase rolled back significantly to 1.5%. I wonder that may be immaterial to you guys, but I wondered if that was a little bit of a tailwind you can look forward to in '26 that you're geared up for a much more significant cut that didn't materialize.

And then the other thing I wanted to ask you about with that was, it does seem like some of the players in the space are seeing whatever CMS is trying to say in the final rule as incremental clarity that allows them to go out and start to look at acquisitions in that area. Obviously, we saw the inhabit the private transaction announced yesterday. I just wanted to put a finer point on it. Are you guys now open to being a little more actively there? It sounds like in your prepared remarks, you're still somewhat cautious.

Jay, I appreciate the question, A.J. Listen, we've always been a little bit cautious as we look at acquisitions out there, we want to make sure that they meet our strategy and we do so thoughtfully as far as the valuation, what we're able to pay. That being said, look, we're encouraged by the final rule that came out. It's kind of interesting to say when it was still a rate reduction, but it was positive movement, and I think it was due to a lot of very strong work by companies in the industry as they worked with the federal government to try to prove that there is real value to home health care services.

And so we agree with that. We support that theory. We will continue to look at opportunities in home health. And if a larger transaction comes up that we think can make sense for us as far as valuation strategy fits geographically, we will certainly look at that. But again, there's still a couple of things out there. We would like to see them finalized. And hopefully, maybe they'll give them a little more clarity this coming year on some potential clawback.

The next question comes from Andrew Mok with Barclays.

Same-store billable census was down 1.1% year-over-year, and you mentioned that it was down slightly sequentially. But I think you also said that you're seeing growth in a majority of your key states. So can you help us understand that dynamic and provide more detail on the geographies and items that are weighing on the portfolio?

Andrew, I'll take that question. Yes, I'll give some color on what we're seeing in terms of volume and census. We've mentioned that same-store hours increased 2.4% and we're roughly in line with Q3 as well. And during 2025, we've mentioned before that we had a focus on serving to authorized hours as well as census. And we've seen some positive movement in terms of the service percentage year-over-year. again, it was essentially flat on a sequential basis just as a result of normal seasonality that we would expect.

And then as we think about census growth, we have seen some trajectory that we like that we're seeing. We've seen sequential census growth. We've been focused on that for 2025, and we have seen that each quarter during 2025. And until the slight tick down in Q4, again from the holidays as we would have expected. We're closing that census gap on a same-store basis. And as we move into the second half of 2026, I would expect that we would start to see positive year-over-year growth, particularly as we continue to consistently see admissions and starts to care outpacing discharges.

Great. And just as a follow-up. There's been heightened attention recently on fraud waste and abuse in the personal care space. Can you talk about how states are approaching this issue and what steps you're taking to ensure that you're aligned with the evolving policy and guidelines?

Yes, Andrew, one of the things that we, as a management team, tried to do 10 years ago now, almost 11 years ago, when we came into Addus at that time, we wanted to really have a very strong compliance program. And so we spend a lot of dollars building this stroke up. We have a leader there. who's very familiar with the various aspects that goes on in both the clinical side and the nonclinical side as it relates to various audits by the state and the federal government.

So for us, when people talk about fraud and abuse, we understand that, that does occur in all levels of care in which we operate. I think the important thing for you to understand is we are -- we like the fact that there is a focus on fraud abuse because we believe we spend extra dollars and extra time and make sure we're trying to comply with what is out there and not -- some of the smaller players may not have that ability to make those investments. So for us, as people look at states look at -- abuse. It may give us the opportunity for our business as maybe some of the smaller mom-and-pops realize that there are things they need to do that maybe they can't afford to do and they look and go out of the business. So for us, we're -- we're pleased with the focus on prod and use and will continue internally to always focus on making sure that we're as compliant as we can be.

The next question comes from Matthew Gillmor with KeyBanc.

You all have done a good job driving penetration of authorized hours, particularly in Illinois as you've rolled out the caregiver app. I was curious how the rollout has gone in New Mexico, just where that stands. And can you help us think through the sort of future opportunity in terms of driving greater penetration of authorized hours as you roll out to New Mexico and other states?

Sure. Matthew, it's nice to hear from you. I'll address that. So you are correct that we are seeing some very nice momentum in terms of service percentage that I just talked about. We are seeing that momentum in Illinois specifically, where we've had the caregiver app rolled out for the entire year of 2025. we have seen that service percentage rate up in the upper 80th percentile consistently. And we believe that is a large amount due to the asset we rolled out. We've also seen utilization by the caregivers in that market of flex hours on a pretty steady basis, which is also very encouraging. You -- as you mentioned, we did begin to roll that out in 2025 to New Mexico, and we're making steady progress there. We are also beginning to deploy in Texas here imminently in and we are aiming to have that complete in Texas by the end of Q2 or early into Q3. And we believe that our greater opportunity to capture momentum will be in that Texas market. just due to some of the market dynamics and how some of the EBV is submitted in Texas versus others in New Mexico or in Illinois. So we are pleased with what we're seeing, and we are still carrying that momentum forward to continue to roll it out.

That's great. And then as a follow-up, I was curious, this may be a Brian question. But as we think about Gentiva rolling into the same-store base, will that be sort of additive to the same-store growth that you report as Gentiva growing sort of in line to below sort of the corporate average? I just want to a sense for how Gentiva in the same store base that influence your same-store growth metric?

Yes, Matt, I think it's fair to say, Gentiva, probably is probably in a fairly similar path to the remainder of our business. So not probably expecting material uptick or downtick from putting Gentiva in that number should be fairly consistent in our view.

The next question comes from Jared Haase with William Blair.

Yes. Maybe just to unpack the comments on the personal care and labor side a little bit more. I'm curious how much of the strong hiring trends that you've experienced over the last couple of months, would you attribute to I guess things Addus can control. So thinking obviously just having a good caregiver experience, maybe some improvement around the onboarding process to get caregivers matched up with patients sufficiently as opposed to maybe just broader macro trends that might be bringing incremental caregivers into the market.

Sure, I'll take that. It's definitely a mix of both. I think maybe starting in reverse order from a macro perspective. we're certainly seeing some trends that are working in our favor that are helping with our results from a hiring perspective. But from our perspective, we are absolutely focused on what we can control, and that includes from beginning to end of the process with how we source and recruit caregivers all the way through to how we can ensure that they are getting a schedule and are ready to go very quickly after they have been through the hiring and training process. to make sure that we capture that momentum. So all of the things in between as well. But I would say it's a mix of both of those things.

Okay. Great. That's really helpful. And then this is maybe for Brian, but I'm just curious, are there any guardrails or sort of puts and takes we should be thinking about relative to your opportunity to expand margins year-over-year in 2026 EBITDA margins, I'm thinking?

Yes. I mean, I think our thesis has always been, as we continue to see consistent top line growth, we should get leverage particularly on G&A. So with everything being said, looking at the landscape right now in '26 would expect to see something similar to occur this year.

So we finished last year in a pretty good spot. I think a couple of years ago, we had maybe some higher wage pressures coming out of COVID with some of the -- ration shortages and the like. We haven't seen that in the last couple of years. Don't expect to see that this year. So I think that's reasonable to think, just from an EBITDA perspective, top line growth should continue to drive some bottom line additional leverage, for sure.

The next question comes from Sean Dodge with BMO Capital Markets.

This is Thomas Keller on for Sean. I wanted to follow up on the caregiver app, and I might have just missed it. But -- are you all able to specifically quantify the volume lift that you've seen that you think is directly attributable to the app?

So I'll point to sort of how we measure it internally. And it's -- I'll start by saying we can't directly attribute specific pieces of growth to the app that's not something a bit possible to track. But what we can see are a couple of different metrics, which are encouraging. The first is the number of caregivers that are utilizing the app. We see that has grown throughout the year in Illinois, and it has stabilized at a rate that, frankly, I think, means most caregivers we've captured, and they are using the app.

The second metric would be the frequency of utilization of the app. So we can see if someone is using the app regularly versus if they just downloaded at once and haven't really been interacting with it. We're actually seeing increasing utilization as well. And then the final thing that I'll mention -- briefly before, is the utilization of flex hours and effectively, that is where a caregiver can go into the app, and they can see incremental hours that they can serve and capture those so that they can make sure they're serving their clients to the authorized level and also for them, it's an opportunity to earn some more hours for the period. So we're tracking that as well, and we're seeing some nice movement and continued utilization at pretty strong rates there. And you see that coming through in the service percentage that we've been talking about. So hopefully, that helps you think or understand how we think about the benefits from that app. But again, it's not possible for us to give you a direct number because of the different moving pieces.

Yes. That's helpful. And then on the Homecare Homebase EMR transition in PCS, is there any update on the time line there? And how soon after the integration should that start to drive more clinical referrals and value-based opportunities?

Yes. I think where we are with HomeCare HomeBase. We've been obviously working with them for quite some time. We've got probably 30 plus of our locations are on the system today over a few different states as we move through it is developing the software. I think we've got a schedule for a more enterprise-wide rollout. But as we've always talked in the past, we're going to take a very measured approach to that. So we'll be working on that over '26 and probably into the better part of '27 before we get all of our personal care business over onto that platform. So again, we'll be looking market to market one at a time to make sure that, that goes very smoothly. But that's kind of the existing expectation on time line today.

The next question comes from Ryan Langston with TD Cowen.

Dirk, you mentioned you believe the 80-20 will ultimately be repealed. And I think you actually said specifically in the near future. Are you hearing anything specific from CMS to your lobbyists that give you the confidence they're going to ultimately repeal that rule?

Well, Ryan, first, I understand that anything we hear is always subject to change, as you know. But yes, we've been hearing good things. Our team has been working with our lobbyists working with CMS, we believe that they're in the process of looking at these rules and making some changes. We've had some indication that the timing will be sooner rather than later.

But again, I want to caution, this is a rule that doesn't take effect for a number of years. So there's not that immediacy to it. However, from what we're hearing, it should be that rule should change, and we're hoping will change in the near future, which we believe will just send the signal to the industry into various additions in the industry that, that is not an issue anybody has to worry about anymore.

The next question comes from Clarke Murphy with Truist.

Just a question on your payer mix in the quarter, specifically in personal care. Shifting a little bit towards managed care. Just kind of wanted to get a sense for was that bad design? Or is that kind of just happenstance? And anything that we should be thinking about as it relates to personal care payer mix would be helpful.

Clarke, that was just a direct result of the Del Cielo acquisition we did in Texas. Texas is a heavy managed Medicaid state. So that is what impacted the mix in the fourth quarter was that acquisition.

Okay. Great. And then just as my follow-up, can you give us an update on the home health and hospice bridging program that you guys have in place? Kind of how much more wood there is to chop on that front and if we could start to see potential return to growth in 2026 on the research side.

Sure. Sure. Let me take those in a couple of pieces. So first, on the bridging program, we continue to have a heavy focus on that program because we do see the benefits First, it's providing the right levels of care to our clients and our patients in sort of the setting and the utilization that they need.

But also because it's a really good source for us to be able to serve patients when they are ready for hospice as opposed to home health. We have seen, as we've mentioned, some nice transitions and referrals coming from home health into hospice in the markets where we have density and where we have been really focused on this program for a bit of time.

New Mexico specifically, we have density. We're co-located in most of our locations there between home health hospice and PCS. And so we have really good opportunities, and we are -- it's just part of the program. And so we continue to see nice results, and we would expect for that to continue as we focus on it with our operations team and sales teams.

Tennessee, we rolled that out in 2025 and began to do the same work there from a bridging perspective. That is a little bit of a newer program, but we're seeing nice returns on what we have been focused on and what we're implementing with the Bridge program in Tennessee. So in order for us to continue to see that program flourish we'll continue to drive it in the markets where we have density. And then as we have opportunities for growth in specific markets for home health and for hospice, I think that's going to become very useful for us to grow the program.

And then secondly, if I turn to the second part of your question about home health and how we are thinking about that, we're driving home health, we're making some changes to really focus on some of the basics. And a couple of things I would point out. The first is admissions growth. We did see admissions growth during the fourth quarter. It picked up slightly from Q2 to Q3 to Q4 with a little bit of a higher tick up in Q4. So we are seeing admissions going in the right direction and we have seen some positive momentum in some of our key markets where we have confidence that we will return to growth.

And just maybe a couple of things to point out in terms of home health. We have -- just to show the focus that we have here. First, we've just hired a new market president to lead the home health business, which is something that we've not had before, but we're focused on the business, and we've hired someone with very specific industry experience to come in and really take the lead on that business so that we can focus on it.

And then second, similarly, we are focused on bringing in the right sales leaders and sales team. there from a home health perspective, and that will work in tandem with this new market president to lead from an operation side. So those 2 changes are things that we are very intentionally doing to focus on the home health business and capture the growth opportunities there for 2026 and beyond. And our goal and what we would expect is that we'll start to see some growth there towards the second half of 2026.

The next question comes from John Ransom with Raymond James.

Hard just to come up with a clever question, 54 minutes into the call. I just want to explain that. So my question is, A lot of companies are getting asked about technology, AI, et cetera. It wouldn't appear from the outside that there's a ton of opportunity there. I know you rolled out the caregiver app, but I'm thinking in terms of back office automation and AI. Is there a technology lever longer term that we're not thinking about that the company is working on?

Yes, John. I think in a couple of places, we see there's some opportunity, and we're working with our vendors to see if there are ways to see some AI implementation. But I think, two, we would flag out. Obviously, you referenced uses back-office rev cycle. There should be some opportunities there that we're looking at. I think the other large one for us is just we think about scheduling and the logistics of our Personal Care business. Can we use some AI there to help automate some of those processes on the front end rather than having to have as many manual interventions. So I think those are probably the 2 big areas. But I would say we've got a AI committee internally across multiple of our disciplines led by our CIO that is looking at ways to implement AI in a way that would benefit and work well for the company, but all things that we're looking at.

Okay. And then just kind of speaking of your rate negotiations, is it different when you're talking to a Medicaid payer versus directly to state, do the payers seem more rational? Or is it kind of the same conversation regardless of where it comes from?

It depends on the state. I think as you know, most states, even if they have managed Medicaid, the payers really have no voice in that because it's a rate set by the state. They're acting more as a TPA. So there's not really a lot of opportunity to talk rates with them. I think the one difference we have is in New Mexico. We actually have the ability there to negotiate directly with the 3 large MCOs. I referenced earlier the state -- be a comment across the board to the MCOs and then we have the ability to go have conversations with the MCOs and get some leverage. But I think we've been very successful in New Mexico. I think we've done well. We're obviously the largest in the state. So have a have pretty good leverage. And I think with all 3 lines of care, I think that's also a benefit for us, but really kind of isolated to that state in those conversations with payers on the personal care side today.

The next question comes from Joanna Gajuk with Bank of America.

Actually, I want to follow up on this last commentary around payers because we actually do here still managed Medicaid plans calling out higher LTSS and that includes homecare spending. It sounds like you have a good relation in New Mexico, but any incremental changes you're seeing there from any of your payers at the state level? I'm thinking anything about denials of just delaying payments or anything else that maybe you're watching?

Not that we've seen, Joanna. I think in all the other states where they kind of are acting in that kind of TPA role. We haven't seen any changes in behavior. We haven't seen any shifts in utilization or authorized hours, those are all processes that the state usually has somebody independently go in and assess what the needs are in the patients' homes. So I haven't seen any change or pressure there. That would be something that the state would control, but not today. No changes that we've noticed.

And as it relates to payers in the past, we talked about some opportunities there in managing the dual population because that's more underserved and high cost. So maybe give us an update where you stand there? Are you engaging any specific contracting that targets the dual population? And could this be an opportunity for you guys?

Yes. We've been doing some things, what we call the value-based side, where we are working with managed Medicaid, where they have some high-risk populations that they're responsible for. I think we've shown some fairly compelling results if you're leading with personal care and mitigation to some of the costs for those high-risk patients.

So think New Mexico, obviously, the market where we've been doing that the longest and have some pretty mature data. We've been implementing those as well in Illinois that have started in Tennessee, probably still a little earlier there, but I think early on seeing similar results. So probably isn't going to be something just from a contractor perspective that's going to turn into like a sizable revenue opportunity. But I think the information that we're gathering the data and the savings that we're showing when you lead with personal care, we think is fairly compelling, and it should be helpful in conversations in the future.

And last one, a different topic. I don't know if I missed it, but did you guys talk about the winter storms in late January. Have you seen much of an impact on how I get the rescheduling or catching up on that occurred in February.

Yes. With the storms in late January, kind of coming through the Midwest, we probably saw a little bit of pressure. I think you think personal care, we tried to schedule as many visits as we could in advance. We don't knew the storm was coming. In trying to make up as many as on the other side and variable, you're probably going to miss a few visits just as a result. So again, nothing we think is material, but definitely did see a little bit of impact from those storms coming through in late January.

And any observation in February after this one?

Not that we've noticed. We think about where most of that is sitting, we really don't have a lot of operations up in that part of the country. So nothing that we're seeing at the moment, no.

The next question comes from Raj Kumar with Stephens.

Maybe just kind of focusing on cost base length of stay. 4Q tends to be a seasonal high point. But -- it was a nice sequential bump. So I'm just kind of curious on what were kind of the underlying drivers, maybe kind of referral normalization or further play out of that? And then, I guess, maybe just any commentary around comfortability around kind of cap space on the hospice payment front as well?

Sure. I'll take that, Raj. So we've mentioned before, and I'll just go into a little bit more detail that we are -- we've had a focus for 2025 on really diversifying and ensuring that we have the right mix of referral sources in each market. Each market is a little bit different. As you point out, we have different lengths of stay depending on the patients that we have been caring for. And so we are very intentionally focusing on a market-by-market basis on the correct referral sources there. I think that's driving what we can see some nice trends in the length of stay it's driving nice trends in terms of the mix of patients and also admissions of new patients have grown very nicely throughout 2025, and that will also contribute to the mix that we're seeing.

In terms of cap, we did see improvements in the overall cap position. We actually had a little bit of a benefit, nothing material overall, but it was a material positive movement in terms of its relation to the total cap position that we had seen. And I think that's in large part to the efforts and the refocused efforts of the sales team in terms of diversifying that referral mix.

Got it. And then maybe just one more kind of broader question around kind of labor environment and then potential tailwinds from Medicaid work requirements I guess just thinking about the Arkansas book and how that state has had Medicaid work requirements. Any way to kind of contextualize that kind of labor market in Arkansas in terms of if there has been kind of any benefit -- significant benefit on the hiring and labor front from a statement of Medicaid work clients. As you think about other states start to implement that towards the back half of '26 and the implications around that?

Sure. There's nothing I would point to specifically in relation to Arkansas. I know they've had those in place before, and that's been part of how they operate. But we haven't seen really anything to point out in terms of what our hiring prospects have looked like as a result of that. We actually see the opportunity, I think, as you were alluding to, here for us in terms of the work requirements as being something that could benefit us as people are looking for work, they're looking for incremental work or even flexible or part-time work, we can help with that. And so we don't see it as something that we need to be cautious, and we see it as potentially an opportunity.

This concludes our question-and-answer session. I would like to turn the conference back over to Dirk Allison for any closing remarks.

Thank you, operator. I want to thank each of you today for taking the time to join us on our call. And I hope for you to have a great week.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

I think we'll get going with our next presenter here, Addus Healthcare -- or Home care, rather, very pleased to have them participating in our conference this year. We've got Dirk Allison, Chairman and Chief Executive Officer; Brian Poff, EVP and Chief Financial Officer; and Heather Dixon, President and Chief Operating Officer.

Well, guys, we're about 10 months in -- almost going on 11 into the year. I've been asking companies to just sort of level set us, what's been some of the positives for the company? Has there been any challenges? How should we think about that?

It's an interesting year for companies like Addus where so much of our business is Medicaid. So certainly, as you talk about some of the things we faced this year, the Medicaid access rule and how that was going to affect states and how that affect the company was certainly at the beginning of the year, something we had to deal with as we've told people since and we can discuss more today.

It really has not been an issue for our company because of the personal care service that we're in and being a low-cost provider. So what started out as a little bit of a challenge, I think, has turned into a positive. I think if you look at the rest of the year, one of the things that we were still wondering was state support, again, because 75% of our business is Medicaid.

And our -- 2 of our 3 largest states, Texas and Illinois have both come through this year, even with the Medicaid rule or the Medicaid, the big beautiful bill that passed have come through with very nice rate increases. So I would say 10 months into the year, as we look at it, we're seeing pretty good growth.

We're seeing our growth, and we're also then still seeing strong rate support. So that's been very beneficial to the company.

That's great. I always get the question about long-term growth algorithm and how to think about a company. Maybe just take a minute. I'm sure we've got some people that are new to Addus. How do you guys describe your long-term growth algorithm?

I'll start when we get into detailed growth, Brian will pick up. But really, when we started into the business, we felt like we set a goal out there that we would grow no less than 10% a year in revenue. It started 10 years ago. And to get there, we had 3% to 5% would be organic growth.

The rest would be acquisition growth. And so since we started, we started with just personal care, we've now added clinical services for about 25% of our business. But you can still look at that is that we expect to get about half of our annual growth through organic growth and half through M&A.

And I think if you look at the last few years, we've been pretty consistent being above that 10% range, but that's how we view it long term.

Okay. And we think about it taking it down to an operating income or EPS line, what about the expense side maybe?

Yes. I mean I think at that top line, A.J., is growing kind of at that 10-plus percent that Dirk was talking about, we should get some additional leverage off of G&A. So we would expect operating income to probably be a little ahead of that pace. So to put a little finer point on Dirk's point, just thinking about it from a segment perspective, personal care is probably going to be in that 3% to 5%.

We've been well above the top end of that range in the last couple of years with some of the rate support that Dirk referenced. I think on the hospice and home health probably a little different these days. But clinical, we think more mid- to upper single digits, so kind of blend to get you back to kind of that mid-single digit that Dirk was talking about.

Okay. Great. Then the big question, of course, in November here is what about '26 and the headwinds and tailwinds as you think about '26, you want to spend a minute talking about that perhaps?

I think heading in '26, the company itself is in pretty good shape. We've seen really strong hiring trends. And why that's important, if you really think in terms of personal care, the real growth driver is being able to hire caregivers to take care of the elderly population, which we take.

And if you think about it, there's a lot of elderly people that need help. What the limiting factor is, is finding those folks to take care of them. And so if you look, prior to our Gentiva transaction, we would be in about mid-80s on hires per business day. And if we did that, we were solidly able to handle the 3% to 5% organic growth.

Now with Gentiva, we probably need anywhere from, say, 100 to 105 hires per business day. If you look at this year, I think we were right around 108 the first quarter, 105 in the second quarter and 113 in the third quarter with an upward trend.

So as we get ready to head into '26, we're seeing very strong hiring growth, which should really bode well. The one thing we're going to focus on next year a little more than maybe we did the last couple of years is the census growth in personal care.

If you understand personal care, we get paid by hour. So every hour we operate, we get paid. But there comes a point in time where you've done all you can do with your current base and now you need to grow your base.

And we started the last few months really working towards that to where the last couple of quarters, we've had sequential growth on census, even though we're still negative year-over-year slightly. But that will be our challenge for '26 is to really focus on the census growth.

And on that hiring point, how is the interplay between corporate and the management side versus the local branches? Are they doing the hiring? Or how do you manage that? And do you have an advantage with your scale?

Yes. I mean I think I could start and Heather, if you want to add some color, but I think it's primarily a local level effort on the hiring. So thinking about our branch administrators, our folks down in the field, doing job fairs, they get a lot of support from our corporate or our HR groups, just thinking about web ad placements and things like that, but it's more of a support function from corporate, but it really is a local market-by-market effort on the recruiting, hiring and all of those efforts.

Yes. The only thing I would add on to that is it's more effective to be in the local market and attached to a branch in many instances because it's a community-based service that we provide. We're part of the community.

And so recruitment in the community also is very beneficial, and it tends to work better. So those are largely handled by the branch with support, as Brian said, from corporate for some of the broader perspectives.

And how would you -- this is later, but I'll ask it now. How would you characterize the labor market and the availability of labor at this point? And I assume that largely the increases you can give year-to-year are driven by the rates. But what are you seeing in that?

So we're seeing positive trends from a hiring perspective. Dirk mentioned that the trajectory of the hires per business day has gone up significantly. We were at 113 for the quarter, but our starts per business day were also very nice in Q3. I think they were around 86. And so that's a good trend as well to make sure that those work in tandem and they increase at the same pace.

The labor market that we see is showing the signs of improvement. That's PCS I'm talking about. You always have little pockets, maybe certain geographies or once you get to the skilled side, some specific roles, but those are just little pockets is exactly how I would characterize them. So overall, we're seeing positive movement there.

Right. And if an objective looking into next year is to grow the ADC, is that just a function of hiring people because the demand is there? Or do you -- what does the demand picture look like?

In the vast majority of our markets, the demand is much higher than we can provide care. It just -- it's hard to find caregivers. Now I will say this, there's a couple of states, some of our bigger states, Illinois and Texas, where we can do family caregivers, which is a big benefit in that when a patient comes, we generally bring the caregiver with them being a family member. So that is helpful.

But from the standpoint of our thinking long term, our demand is driven by people getting into their mid- to late 70s. And if you think in terms of the generation we're in now, the baby boomers, 10, 15 years ago, they started hitting 65. They're now aging into this area, which is really our sweet spot as far as our personal care business.

Right. I think in the third quarter, Personal care saw about a 6.6% organic growth. How do we think -- is that sort of the run rate that's above, I think, your stated organic target? As you think about '26, is there any reason to think that would change?

You've got the tailwinds of Texas and Illinois rate increases, I know.

Yes. I mean I think the key for us, A.J., is I think in the third quarter, we saw volume growth being kind of that mid-2% range. We've been talking about that this year. That really is kind of where we would like to see those numbers come in consistently is 2%, 2.5% on volume and then you get rate on top of that.

So I think as we look ahead with Texas kicking in on September 1 this year, we're going to get another rate increase in Illinois, our largest PCS market on January 1. We expect to probably be at the high end or above the high end of that kind of 3% to 5% range probably through middle of next year and into Q3.

We'll wait and see kind of what happens next year with legislative updates and rate updates in the next fiscal cycle. And depending on what that is, will probably give us some clarity further term on where we think about that 3% to 5%.

But yes, I think it's fair to say we should be at the high end or above for the next few quarters based on that.

And I know Texas and Illinois are your biggest states, but are there other states that you're keeping an eye on that could be helpful?

I think the key one that we're looking at for next year is one that considered the rate increase this year, which is our third largest PCS market today, which is New Mexico. So they decided with everything going on with the big beautiful bill to kind of hold status quo this year, but there were conversations about a rate increase.

So I think that's what we're primarily watching for '26 to see if that conversation picks back up and maybe we'll see something from them next year.

Is there a specific time frame in which they would make those kind of decisions based on their legislative schedule and so forth?

Yes, they're at July 1 fiscal. So it would be probably sometime we get into February, March. I think those conversations would start and then probably finalize probably April, May, sometime in that range.

Okay. And one of the other things that you talk about is improving the penetration of hours on your clinicians. Maybe talk a little bit about that.

Yes. So I'll certainly start. And then if you have anything to add, please feel free. So a few things I would point to. So the hourly increase or the increase in the billable hours that we've seen. Brian talked about it was nicely above that sort of 2% range.

There are a couple of things driving that. One, I think very strong driver is the utilization of the app. We're certainly seeing in Illinois, which is where we have rolled the app out to the entire market now, an increase in the utilization by caregivers of the app.

And then we're seeing an increase in billable hours that we believe or the service percentage is probably a better way to put it that we believe is driven by the app. While we can't draw a direct correlation, that's our belief. And the reason for that is how the app works.

So it's useful to the caretaker or a caregiver for their own personal needs to see their schedule, to understand what their pay will be based on the number of hours worked, those types of things. So it's useful for them to use. They start to get used to it.

But then from a scheduling perspective, it's self-service for them. So if they need to make changes to their schedule or reschedule an appointment, they can do it directly in the app, whereas traditionally, they would have either stopped by a local branch or they would have had a phone call that they needed to make into the service scheduler within that local branch.

And now they can just do it online in the app. So that's what we believe is driving an improvement in the service levels there.

So is there a way to point to productivity? Is there a metric or some aspect of when people have the app, they're that much more productive than when they don't? Or how would you characterize it? Because you're going to roll it out, I guess, across the company, it sounds like.

We will. We'll roll it out. We started in Illinois, which is our largest market. We have started -- we've completed that. We've started now in New Mexico. And then next, we'll move to Texas beginning in 2026. So those are the 3 largest markets that we're focused on.

In terms of some sort of a metric or benchmark to see how we're doing, it's a little too early for that because we just completed the rollout this year in Illinois, but it's something certainly that we'll begin to think about and to track.

Probably one important thing to point out is it's not mandatory for caregivers to use the app. It's voluntary on their part. But that's why I led with they have some personal benefits from using the app, and so that encourages them to use it for scheduling as well.

Why wouldn't they use it? Just...

I think some of them have been caregivers for a very long time. Picking up the phone and calling their scheduler in the office or the branch or stopping by, and it's just, I think, pattern recognition for them.

I think in Illinois, we're at a 90-plus percent adoption rate. So most all caregivers in Illinois are now on it. It took a little bit of time to kind of get to that number, but it's a pretty high adoption rate.

And as you roll it out, is there any like short-term disruption that occurs or it's pretty seamless?

It should be pretty seamless for them. So I think it's really intended to be informational for them. So we're not going to necessarily impact kind of our baseline scheduling or things that are kind of day-to-day operations. It's meant to be an enhancement, not a replacement. And so there really shouldn't be kind of disruption as people start to use that to be helpful to them.

Okay. Maybe just a couple of questions on the hospice side. Discharge growth came in very strong, up 19%. You attributed to increase in admissions, ADC, patient days and revenue per patient day. Maybe drill down a little bit on those.

What was the primary driver? It seems like people are across the board reporting pretty strong results in hospice. What's the state of play in the hospice industry at this point?

So I'll start with what we saw. You're right, we saw improvement in many metrics. But I believe that admissions growth is what's driving the rest of the metrics. It's driving patient days, it's driving ADC. And there are a couple of reasons for that. We've started some initiatives within hospice that I'll talk about.

But first of all, just a focus on execution in hospice and really focusing on how we train and onboard our community liaisons there. I think that's making an impact. We've made some leadership changes as well, and we've also put together sales and marketing team specific to hospice that focuses on putting business development plans on a local market basis in place and specifically utilizing the community liaisons.

So I think we're seeing the benefit of some of those things that we put into place, and that's what's resulting in the increased admissions from there.

I think you're right, A.J. I think the industry at large has kind of seen a return to a little more kind of probably pre-COVID normal cadence on referral volumes. So I think we've seen a little bit of that benefit as well. Just industry-wide, I think it's been a little more of a return. So I think that's been helpful to us in addition to some of the stuff that we talked about.

And we talked a little bit about personal care and sustainability going into '26. Maybe the same kind of question on hospice. Any way to think about those volumes and those types of numbers and how we should think about them fourth quarter on into '26?

Yes. I think some of the changes that we made in sales leadership, some of the training we've done, we really kind of started those initiatives late last year. So I think on a comp basis, you're seeing us perform very well against last year. I think as we roll into '26, we probably expect to see that moderate some.

I think the way we've talked about hospice longer term and our expectations is more probably mid- to upper single digits overall kind of organic growth or revenue -- organic revenue growth per se. But we'll probably see that start to moderate kind of probably mid-'26 and we start to roll into some of those comparable periods would be our expectation.

And when you think about labor in that segment, is there -- is it similar to what you're seeing in personal care? Is there anything to call out about availability of the different types of staffing you need in the hospice?

I mean it's obviously a different staffing in personal care. We're talking in RNs, LVNs, CNAs. I think we probably still see certain maybe urban markets where maybe one or so of those positions may still be very competitive. So maybe we're doing a little bit more on the wage side to be competitive in those markets. But I would say, generally, it's been pretty stable.

So 3%, 4%? Is that sort of.

Our baseline is 3%. So maybe in some markets, it might be 4%, a little higher, but I think it's pretty immaterial overall because it's only in certain spots.

Okay. Okay. When you think about home health, we've obviously been dealing with the rate uncertainty unless -- I didn't check the news this morning.

I haven't seen the headline, so no.

It's obviously, for you, it's not a huge portion of your business. I guess that's the first and foremost thing to admit less than 10% of your overall business. How should we think about the growth trajectory of home health and where you're at?

We added home health at this point in our growth at stage as a complementary services to both personal care and hospice. If you think in terms of what it does for us, home health allows us to operate in personal care with value-based care. So there are contracts we enter into mainly with payers who have outsourced Medicaid programs from the state, and they've agreed to be in value-based care approach.

We're able to put clinical services on top of our nonclinical personal care to meet some of the needs of reducing cost for the payers. And that's been very effective in our overlap markets. And also, I think as we talked about at the last call, home health in our 2 overlap -- right now, our 2 big overlap markets, New Mexico and Tennessee.

Home health, our own home health provides about 25% of our admissions into our own hospice. So if you think in terms of it, home health itself has not made a lot of money for us. It's 5% of our business. It's pretty small, but it's been very important for both the other 2 larger segments to allow growth to happen.

So that's today how we envision home health is staying somewhat small today. We put it in markets where we have home health, I mean, where we have hospice or whether we have personal care or whether we overlap, and we'll use that as a growth engine.

Now if we can see some stabilization in how the government thinks about it, if we see rates start going back to what we saw before, 2%, 3% annual increases, and we're not talking about potentially a payback over some things that happened during COVID.

We might be a little more interested in putting home health in some of our overlap markets more than we have today. But again, it's a complementary service from our standpoint.

Yes. Do you have any -- are you handicapping where the rule might come out?

The industry -- I have to give them credit. The industry has done a really good job this last year of coming together and meeting with Congress, meeting with the administration, CMS talking about why we disagree with the formula they're using for these rate decreases. And we found some positive feedback for whatever that's worth.

I think from our standpoint, we don't believe it will be a 6.5% reduction. We believe it will be moderated from that. Whether it will be a slightly negative or neutral, I think that's probably where we're coming out, slightly negative to neutral, but we have no real knowledge of what's going on.

To your comment about -- speaking with legislators, there does seem to be a little bit of movement toward potentially doing something. Any thoughts that, that might get into some kind of year-end package if we have one of these continuing resolution bills or do we know?

Well, you're probably better at this than we are at it. The fact is it seems like the government has had tough coming together for any bill. And so we don't have a lot of hope that there's going to be something coming at the end of the year that they'll be able to put something in a bill that both sides will support.

That being said, there has been some -- as you said, there's been some movement. There's been some legislators that are supporting the fact that we should not be hit like this, and we are a valuable service.

And so we'll continue to work down that road. I do think eventually, there'll be -- you can determine what time frame is for eventually, but there will be an understanding that they can continue to give negative to no rate increases in home health and expect that to be able to be a viable service.

Some of your peers view it if we get the 6.4%, 6.5% cut and then we grow off that lower baseline that, that sort of captures everything that they say they need to capture. It seems like you guys have a little more cautious view on that.

Maybe explain how you look at that. Do you think they might still have other recapture on top of that they would?

Well, if you look at -- from the way we understand the 6.4%, there were about 400 basis points that had to do with the clawback of the amount of funds they say, the billions that are owed. And that only represented about 15% of that. So if you -- if they said to us, we're going to give you a onetime 6.4% reduction and then that's it.

We're going to start from there and build back. I think all of us -- well, I don't know everybody in the industry would be supportive, but we would certainly be so that we get that overhang out and then we can start growing that industry like we think it's necessary to do.

So I think that's probably how we came up with our thinking is nobody said if we do 6.4%, it's all we're ever going to do and we're going to move forward. It's very ambiguous as to what that entails.

And so if -- let's say we got the clarity and they did the 6.4%, but somehow you got indication that was it. Does that automatically clear the decks? Or does it take some time for the industry to shake out and react to that before you could look at opportunities potentially grow?

I think all things, it would probably take a little time to shake out. But I think it would allow some of the folks that want to sell their business and get out of the industry. A lot of people are getting to retirement age and they've had this business for a while, and that's their retirement.

I think if we had some clarity, those opportunities may come up. And certainly, we look at some of those. I think it will take a little bit of time before the industry gets back to a normal cadence of people coming up and being able to have the acquisition opportunities we see in the other 2 segments.

Is it in home health specifically, is it mostly about what the earnings power is given the uncertainty of the reimbursement? Or is there a big divergence of views on what the multiple should be as well?

Well, I think right now, there's both. I think we need some clarity on how the industry is viewed by the government. Are they going to be supportive going forward? I think if we can get that understanding that there's rate support, then I think it's like all things.

The market will eventually determine the multiple, what makes sense. Right now, the multiples would not be very high because there's so much uncertainty that even if it could trade, you'd have to factor that into what you're willing to pay.

I think if we get some certainty, it will probably normalize more to what we've seen in the past with multiples related to home health.

So inorganic growth has been a part of the company's story. I think you would described this year as being a little on the lighter side of what you've historically done. You've done -- had a couple of other years where you had above what you would target.

Maybe just first comment on why would it be -- has been a little lighter? And then what does it look like for '26 pipeline?

Yes. I think it's a fair point. We've had years where we've been a little bit lighter. But last year, we did Gentiva, which is obviously the largest we've done in our history. But I think really, this year, what we've seen has been just more market-driven.

I think a lot of folks coming in this year thought there would be more opportunities, more things coming to market and broker processes. And I think we've seen that be a little slow just because of the universe of prospective buyers that are highly leveraged, some of the rates have stayed pretty high.

They're starting to come down toward the end of the year. So I think that makes people from what we understand, optimistic that maybe next year, there will be more larger or chunkier type opportunities for folks like us to look at.

I think for us, it's finding the right things at the right price. We are, I think, pretty diligent in our process and looking at targets. The geography is very important to us, the service line, the overlap that Dirk was mentioning. I'd say we're disciplined in what we'll pay.

Hospice has continued to be very expensive. So I think as those things come to market, a couple of larger ones were out this year that traded for depending on who you believe, mid- to upper teens, which are fairly expensive.

So I think most of our focus has been more on personal care, maybe some smaller complementary home health at reasonable multiples. But I think that will be our focus probably going into next year. But I think we're hopeful that next year, we'll have more things to look at and more things will be in market that would make sense for us.

And just to make sure everybody is on the same page, mid-teens, that's an EBITDA multiple.

EBITDA multiple.

Right. How about the other 2 business lines? Where are you seeing valuations at this point, if you would characterize it?

They've been -- I mean, TCS has been pretty consistent. I think if we're doing small tuck-in type deals, those are as low as 4x and 5x. I think if they get to be a little bit bigger, it could be 7x to 8x. Obviously, we paid low double digits for Gentiva, but that was a very different type asset.

But I think those remain pretty consistently in that range. And I think home health for us, it's similar, probably a little more expensive than personal care, but we've seen smaller home health deals that are kind of in that mid- to upper single-digit range.

If it gets to be a little bit bigger, good quality assets, I think sellers are still pressing for closer to 10x, somewhere in that range, but that's probably been pretty consistent in the last year or so.

I mean it may be indicative of just where the multiples are, but any comment on competitive landscape for deals and how that's changed over the last year or 2. When you're looking at transactions, is there usually other people at the table? Or do you see exclusive deals very often?

It's -- in broker process, I think you still see folks out there, perhaps some of the typicals that we've seen in the past. Usually, it's more private equity-backed companies maybe that have multi-segments that are interested in building some density similar to us.

And we've continued to see them be out there and somewhat active. I think we tried to be creative on our end. I think Gentiva is probably a good example. It wasn't a brokered process. It's something that we had been inquiring about and having conversations for quite some time.

If there are ways where we can preempt processes and have direct conversations, we will always be open to doing that. So I think it's probably a mix for us.

Just to close the loop on the home health rule, because it is pretty small for you, have you sized that in terms of what the headwind would be if you had the worst-case scenario of the 6.4% cut that was proposed?

I mean our modeling shows that it comes through just exactly as proposed with our current business, it would be approximately a $3 million impact for us. So pretty small in the grand scheme of things. I think we think we have some additional work that we can do on visits per episode, we could be more efficient.

So I think we would have probably some opportunity to continue to offset some of that. I think offsetting all of it would probably be difficult. It is a small segment for us. We don't have a lot of infrastructure G&A to really kind of really put pressure on, but there are some ways we can mitigate portions of that.

Okay. Okay. And just to close the loop on the M&A, what is sort of the target year-to-year? What would be a normal year in terms of tuck-in deals. I mean, obviously, if you had a Gentiva, that's way outside the norm. But year in, year out, how much supplement organic growth will come from M&A and development and maybe sort of parameter around the types of deals, size and all.

Yes. I think the way we've been talking about it for the last several years is we kind of have a -- we believe that there should be an opportunity maybe to add $100-plus million in acquired revenue per year, I think would be a really nice goal for us.

I think we've hit that certain years, some years, we've been a little bit shy of that depending upon what the opportunities are. If we hit $100-plus million in acquired revenue, that's going to be nicely ahead of the 5% that we would need talking earlier about our overall 10% goal, that would put us nicely ahead of that.

But it's year-to-year based on what the opportunity is for us to hit that or not.

Yes. Just a couple of things on the expense side further. You run SG&A typically in the 20%, 21% range. Are there opportunities? Is it going to -- as you leverage the revenue growth, does that give you leverage on G&A? Or is this sort of a constant number, any particular expense efficiencies that are out there?

Yes. I think 2 things on that. I think you're exactly right. Our focus has always been as we grow top line, we should get leverage on G&A. So as a percentage, we should see some improvement there. We'd like to see that and have an expectation to eventually get that sub-20% but nothing specific there.

The only thing I would mention just on kind of cost savings opportunity really kind of ties back into the Gentiva acquisition. We've talked about synergies there. One of those that's still yet to come is they're on their existing EMR from when we purchased them.

We probably have some duplicative costs when we move them over to our platform and we move into Homecare Homebase, hopefully, in 2026. we should see some savings from that and should get some synergy there in G&A.

[indiscernible] Have you sized that at all?

It's probably around $1 million a year. Approximately.

And then another miscellaneous one was on personal care. There's obviously some areas you're paid by the managed care. Others it's more traditional fee-for-service. How is that likely to change over time? And do you care about -- is that a headwind, tailwind?

Do you want to start, Dirk?

Go ahead.

I'd say I think the way we've tried to position ourselves today in most markets, when you're managed Medicaid, they're operating basically as a third-party administrator for the state. So the state is still setting the rate. It's an all- willing provider type environment. I think we have one exception to that, but we were able to negotiate rates directly with the MCOs in New Mexico as the only market today.

But I think part of our strategy has been to position ourselves with size, scale and density in states that have managed Medicaid. So if there's an opportunity in the future for them to think about preferred provider networks, ability to negotiate rates and the states start to allow that, we'll be in a position to be a beneficiary of that.

So I don't know, Dirk, if you want to talk a little bit about how you think about that longer term?

Yes. I think one of the things with our size and our multistate platform, we develop strong relationships with the larger payers. And so when they go in and take over a state's Medicaid program, they outsource it, while they may not have the ability to change rates, they do have the ability to direct business.

And the fact that we work with them in various states and then help them with value-based care and other aspects and show we can control cost for them, we think it's an advantage. It's actually somewhat of a tailwind when the larger payers come in to a state and take over that Medicaid outsourced relationship.

Not that the states aren't great, they are, but they probably don't appreciate some of the things we can do because they're only looking within the state. They're not looking around the country that we have with the payers.

Which sort of begs the question. When you think about growth and development and even tuck-in deals, are you looking at new states? Or is it mostly focused on just building out further and further in the states you're in?

Yes. Our strategy is to strengthen geographically the 23 states in which we're in, but we will be open like we did with Gentiva. We entered into Texas with that acquisition, but we did it in a leading market share position, which is what we would prefer to do if we go into a new market.

So there's probably 4 or 5 markets out there that we either were not in or we're not very big in that we would like to grow, and we'll keep looking for opportunities there.

But we want to make sure we can do it with the aspect, especially in a new state where we see the ability to either grow to large density in personal care or 3 levels of care if the market dictates.

Your leverage situation is you're just under 1x, so you're a very strong balance sheet from a leverage perspective. Any thoughts on capital deployment as we wrap up here? It sounds like priority is reinvesting in the business and inorganic growth, but any other thoughts, share repurchases, other things?

I think for now, we still are focused on M&A and using our balance sheet to continue to grow in that respect. So if some of the opportunities that we hope to see in 2026 materialize, that will definitely be our first priority. I think share repurchase for us is probably a secondary consideration. I think we're probably not quite in the range of considering that today.

But down the road, if M&A opportunities and the market is slow, that's something that we probably always consider as a next potential.

All right. Well, that's great. I really appreciate Addus participating in the conference and everyone sitting in. I think next up in this room is Cigna. So have a great day, everyone.

Thank you, A.J. Great to see you guys.

Good day, and welcome to Addus HomeCare's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Dru Anderson. Please go ahead.

Thank you. Good morning, and welcome to the Addus HomeCare Corporation Third Quarter 2025 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 2025 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 and 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 third quarter 2025 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.

I would now like to turn the call over to the company's Chairman and Chief Executive Officer, Mr. Dirk Allison. Please go ahead, sir.

Thank you, Dru. Good morning, and welcome to our 2025 third quarter earnings call. With me today are Brian Poff, our Chief Financial Officer; and Heather Dixon, our President and Chief Operating Officer. As we do on each of our quarterly earnings calls, I will begin with a few overall comments, and then Brian will discuss the third quarter results in more detail. Following our comments, the 3 of us would be happy to respond to any questions.

As we announced yesterday afternoon, our total revenue for the third quarter of 2025 was $362.3 million, an increase of 25% as compared to $289.8 million for the third quarter of 2024. This revenue growth resulted in adjusted earnings per share of $1.56 as compared to adjusted earnings per share for the third quarter of 2024 of $1.30, an increase of 20%. Our adjusted EBITDA was $45.1 million compared to $34.3 million for the third quarter of 2024, an increase of 31.6%.

During the third quarter of 2025, we experienced strong operating cash flow at over $50 million for the quarter. As of September 30, 2025, we had cash on hand of approximately $102 million. We ended the third quarter with bank debt of $154 million, leaving us with net leverage of under 1x adjusted EBITDA, allowing us the flexibility to continue to evaluate and pursue strategic acquisition opportunities.

As most of you know, Heather Dixon became our President and Chief Operating Officer on September 15, with our former President and COO, Brad Bickham, moving to the position of adviser to the CEO until his official retirement in March of 2026. I want to welcome Heather to our team and thank Brad for all he has done for Addus over the past 9 years. This transition has been moving forward over the past several weeks as Heather and Brad have worked closely together to make this change as seamless as possible. I appreciate the efforts of both of them, along with the members of the operations team during this transition. While we will miss Brad, we are very excited to have Heather join us as part of our leadership team.

As we mentioned on our last earnings call, both the states of Texas and Illinois have announced rate increases for our personal care services. The Texas rate increase was effective on October 1 of this year. The Illinois rate increase will be effective January 1, 2026, subject to the standard federal approval process. We believe the Illinois and Texas rate increases as well as favorable reimbursement support from many of the states in which we operate is due to the recognition of the value that personal care services provide to both state Medicaid programs and managed care partners through a reduction in the overall cost of care. We continue to believe these and other benefits associated with home-based care put us in a favorable position as changes to the funding and other aspects of various Medicaid programs are implemented as part of the OR.

We continue to work through our legislative efforts in other states to help them understand the benefits for supporting these services with future rate increases. On July 30 of this year, CMS finalized the fiscal year 2026 hospice wage index and payment rate update, resulting in a 2.6% increase effective on October 1 of this year. This increase reflects a 3.3% market back increase, reduced by 0.7% productivity adjustment. Based on our current geographic and acuity mix, we expect to realize a 3.1% increase in our hospice rates. We are appreciative of this increase as it helps offset a portion of the added costs associated with providing this critical service to patients and their families.

As for our home health, on June 30, CMS released the calendar year 2026 proposed home health payment rule. This proposed rule projects a 6.4% aggregate reduction in Medicare payments to the home health agencies in 2026 compared to 2025. As you would expect, there has been a great deal of advocacy put forth by the home health industry working with CMS to positively affect this potential rate reduction. While we do not have a finalized home health rate for 2026, we are hopeful that these efforts will have a positive impact on the final rate, which we expect to be published in the next few weeks.

During the third quarter of 2025, we continued to experience strong hiring performance, especially in our Personal Care segment. For the third quarter of this year, we achieved hires per business day of 113, which is an increase of 6.6% over the second quarter of this year. In addition to our strong hiring numbers, we saw our starts per business day improved to 86 for the third quarter. Clinical hiring remains consistent with what we have experienced over the last 2 years and has been mostly stable outside of a few more challenging urban markets.

Now let me discuss our same-store revenue growth for the third quarter of 2025. For our personal care segment, our same-store revenue growth was 6.6% compared to the third quarter of 2024. During the third quarter of 2025, we also saw personal care same-store hours increase by 2.4% compared to the same period in 2024. We also experienced incremental improvement in our percentage of authorized hours served. On a sequential basis, personal care same-store billable census was up slightly as we continue to see the impact of Medicaid redeterminations in Illinois near its end. In Illinois, our personal care admissions have started to exceed our discharges, which we expect should lead to census growth by the end of the fourth quarter of this year. As we have stated over the past several quarters, we expect volume growth to comprise a greater percentage of our personal care same-store revenue growth going forward.

Turning to our clinical operations. Our hospice same-store revenue increased 19% when compared to the third quarter of 2024. Our same-store average daily census increased to 3,872 for the third quarter, up from 3,534 for the same period last year, an increase of 9.5%. Our third quarter 2025 same-store admissions were up 6.5% year-over-year. For the third quarter of 2025, our hospice median length of stay was 30 days, up 2 days sequentially.

During the third quarter, we saw an improvement in our Medicare cap cushion as a result of our balanced admissions growth, which resulted in no additional cap liability being accrued during the quarter. We have been very pleased by the continuing growth in our hospice segment over the past several quarters as a result of our operational improvements. While our home health same-store revenue decreased 2.8% when compared to the same quarter of 2024, we have seen year-over-year admissions level out.

I also want to point out that over 25% of our hospice admissions in New Mexico and Tennessee are currently coming from our Addus home health operation, which overlap in these 2 markets. We are pleased to see more patients receiving the benefit of the full continuum of post-acute care and anticipate a similar dynamic to develop in Illinois, where we also have both home health and hospice operations and we will continue to evaluate opportunities in other markets.

In our earnings release yesterday, we announced that on October 1, we closed on our acquisition of the personal care operations of Del Cielo Home Care Services, which operates in the South Texas market, including Corpus Christi, increasing our personal care density in this area of Texas. This transaction continues our acquisition and development strategy of enhancing our geographic coverage and density in Texas. Our team is excited about this acquisition, and I want to officially welcome the Del Cielo Home Care team to the Addus family.

Going forward, our development team will continue to focus on both clinical and nonclinical acquisition opportunities to increase both the density and geographic coverage to our current states. While the proposed home health rule will most likely continue to delay any meaningful home health opportunities, we will be evaluating smaller clinical transactions along with personal care service transactions that fit our strategy.

Before I turn the call over to Brian, I want to thank the Addus team for the care they are providing to our elderly and disabled consumers and patients. We all have come to understand that the overwhelming majority of clients and patients want to receive care at home, which continues to remain one of the safest and most cost-effective places to receive this care. We believe the heightened awareness of the value of home-based care which we are seeing is favorable for our industry and will continue to be a growth opportunity for 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.

Thank you, Dirk, and good morning, everyone. The third quarter marked another strong financial and operating performance for Addus in 2025, as we continue to deliver consistent organic growth and benefit from our recent acquisitions. Our results were highlighted by 25% top line revenue growth and a 31.6% increase in adjusted EBITDA compared with the third quarter last year.

Our personal care services segment was a key driver of our business with a solid 6.6% organic revenue growth rate over the same period last year, including a 2.4% increase in hours per business day. This growth trend has consistently tracked well above our normal expected range of 3% to 5% over the past several quarters, supported by strong hiring trends and favorable rate support for personal care services in some of our larger markets. This includes a statewide reimbursement increase in Illinois, our largest market, which was effective January 1, 2025, and a recent 9.9% rate increase in Texas that was effective on September 1, 2025. With Texas now being our second largest personal care market, this increase will have a positive impact on our business going forward, adding approximately $17.7 million in annualized revenue, with margins consistent with existing Texas personal care business of just over 20%.

State of Illinois, which represents our largest PCS market, has also announced an additional 3.9% increase, which is set to be effective January 1, 2026, subject to customary federal approvals and will add approximately $17.5 million in annualized revenue for Addus, with margins consistent in the low 20% range. Our personal care results also include the Gentiva Personal Care operations, our largest acquisition to date, which we completed on December 2, 2024, and 2 months of operations for Helping Hands Home Care Services acquired on August 1, 2025.

We continue to see steady improvement in our hospice business in the third quarter with strong 19% year-over-year organic revenue growth, driven by increases in admissions, average daily census, patient days and revenue per patient day. Hospice care accounted for 19% of our revenue for the third quarter. Going forward, the 2026 Medicare hospice reimbursement rate update was effective October 1, which will increase our rates by approximately 3.1% based on our current geographic mix.

Our home health services represent our smallest segment, accounting for 4.9% of third quarter revenue. We continue to look for ways to support and expand the service line, including via acquisitions, as it is part of our strategy to offer all 3 levels of home-based care in select markets. In addition to the consistent organic growth we have achieved in 2025, we have benefited from our recently acquired operations. The Gentiva acquisition completed in December 2024, added approximately $280 million in annualized revenues and significantly expanded our market coverage.

In August this year, we acquired Helping Hands Home Care Service, a provider of personal care, home health and hospice services in Western Pennsylvania with annualized revenue of approximately $16.7 million. And yesterday, as Dirk noted, we announced the acquisition of the personal care assets of Del Cielo Home Care Services located in South Texas, adding approximately $12.7 million in annualized revenue and further expanding our market presence in Texas.

We continue to source and evaluate additional similar acquisitions as well as opportunities to add new personal care markets where we can enter at scale, as we believe having geographic coverage and density provides us with a competitive advantage. With our size and expanding scale and the support of a strong balance sheet, we are well positioned to continue to execute our acquisition strategy.

As Dirk noted, total net service revenues for the third quarter were $362.3 million. The revenue breakdown is as follows: personal care revenues were $275.8 million or 76.1% of revenue. Hospice care revenues were $68.9 million or 19% of revenue. Home health revenues were $17.6 million or 4.9% of revenue.

Other financial results for the third quarter of 2025 include the following: Our gross margin percentage was 32.2%, an increase from 31.8% for the third quarter of 2024. This was a slight decrease sequentially from 32.6% in the second quarter of 2025, primarily as a result of one extra holiday during the quarter. Looking ahead, we expect normal seasonality in the fourth quarter of 2025 with the hospice reimbursement update to benefit our gross margin percentage by approximately 40 basis points and a sequential benefit of approximately 20 basis points from lower unemployment taxes.

G&A expense was 21.9% of revenue compared with 21.7% of revenue for the third quarter a year ago and lower sequentially from 22.1% in the second quarter of 2025. Adjusted G&A expenses for the third quarter of 2025 were 19.8%, a decrease from 20% in the comparable prior year quarter and a decrease sequentially from 20% in the second quarter of 2025. The company's adjusted EBITDA increased 31.6% to $45.1 million compared with $34.3 million a year ago.

Adjusted EBITDA margin was 12.5% compared with 11.8% for the third quarter of 2024. Adjusted net income per diluted share was $1.56 compared with $1.30 for the third quarter of 2024. The adjusted per share results for the third quarter of 2025 exclude the following: Acquisition expenses of $0.08, noncash stock-based compensation expense of $0.18 and restructuring and other nonrecurring costs of $0.06. The adjusted per share results for the third quarter of 2024 exclude the following: Acquisition expenses of $0.08 and noncash stock-based compensation expense of $0.12.

Our tax rate for the third quarter of 2025 was 24.7%, in the range we anticipated. For calendar 2025, we expect our tax rate to remain in the mid-20% range. DSOs were 35 days at the end of the third quarter of 2025 compared with 37.7 days at the end of the second quarter of 2025. We have continued to experience consistent cash collections from the majority of our payers. Our DSOs for the Illinois Department of Aging for the third quarter were 32.5 days compared with 38.8 days at the end of the second quarter 2025. Our net cash flow from operations was $51.3 million for the third quarter of 2025 and $92.7 million year-to-date. As of September 30, 2025, the company had cash of $101.9 million with capacity and availability under our revolving credit facility of $650 million and $487.7 million, respectively.

Total bank debt was $154.3 million at the end of the quarter, a reduction of $18.7 million from the end of the second quarter and net of the acquisition of Helping Hands on August 1. We continue to have a capital structure that supports our ability to invest in our business and pursue strategic growth initiatives, including acquisitions. As mentioned, we will continue to selectively pursue acquisitions that complement our organic growth and align with our strategy. At the same time, we will maintain our disciplined capital allocation strategy and continue to diligently manage our net leverage ratio through ongoing debt reduction.

This concludes our prepared comments this morning, and thank you for being with us. I'll now ask the operator to please open the line for your questions.

[Operator Instructions] The first question comes from Matthew Gillmor with KeyBanc.

I wanted to ask about the same-store volume growth on the personal care side. Dirk had mentioned the improvement in the penetration of hours. And I think within that, you've talked about the benefit you're seeing from the caregiver app rollout in Illinois. Can you give us a sense for sort of how much more opportunity there is within Illinois? And then I believe you're rolling that out to New Mexico. And any update in terms of how that's gone and the penetration or the opportunity that would be with New Mexico?

Matt, this is Brian. I'll talk a little bit about just the penetration and Heather can talk a little bit about the schedule for the rollout in additional markets. But I think Illinois, a pretty mature market for us. We have seen some uptick there in our fill rate. I think in our view, going to New Mexico and Texas next. Their fill rate traditionally has been a little bit lower. So I think in our view, a little bit more of an opportunity, a little more headroom there to see some improvement. We saw some total improvement consolidated this quarter from last quarter. I'll let Heather talk a little bit about the rollout coming in New Mexico and Texas on the caregiver app.

Sure. Matt, it's Heather here. That rollout is going very well. We're seeing the caregivers really driving some utilization in a nice way in Illinois, where we have rolled it out. As Brian mentioned, next, we'll go to New Mexico, and then we'll follow in Texas, where we think we have a little more headroom to see some improvements.

That app is really giving caregivers the ability to use the app to gain information that they will find useful to themselves personally, such as their pay expectations, et cetera, but also to just be more efficient. As an example, they can see what the capacity is for their clients. They can actually reschedule a visit directly in the app without visiting or even calling the office. So we're seeing that really drive some of the utilization in a positive way.

If I go back to how you started your question, the growth that we're seeing on a same-store basis in revenue and PCS, that was partially due to the rate increases that we talked about in the script, but also just notably an uptick in the billable hours, which we also mentioned in the script. That's coming in at a very nice rate, and that's partially the focus on hiring and also the fill rate consistency. But we're seeing, of that 6.6% same-store revenue growth, over 1/3 of that is actually coming from the hours, the billable hours increases.

That's great. And then Brian, I was just going to follow up on the cash flow. It was particularly strong in the quarter, and it seems like the Illinois Department of Aging DSOs continue to decline. Is that just normal fluctuation? Or is there any effort on their part to pay in a more timely way?

No. I think traditionally, you're always going to see a little up and down just based on timing, nothing specific with them. I think what we like to see this quarter, Q1 and Q2 probably had a little bit of a headwind from working cap in both of those quarters. We saw that revert in Q3. I think where we sit today, year-to-date, we have, I think, net a little over $5 million benefit from working cap changes. So pretty consistent, but it's all just timing related, nothing specific.

The next question comes from Ben Hendrix with RBC Capital.

Welcome, Heather. Just wanted to follow up on that prior line of questioning in terms of the organic momentum you're seeing. How are you thinking about, especially in light of the strong Texas rate increase and what you're seeing in Illinois, the hiring trend into 2026? Is this strong volume growth that we saw kind of how we should think about a jumping off point for organic growth in 2026?

Yes, Ben, this is Brian. I can jump in. I think what we're seeing really on the hiring front, Dirk mentioned, 113 hires per business day, the highest mark we've seen all year. So I think we've gotten some good momentum on that side. The labor market continues to be pretty consistent. I think to your point exactly, when you get almost 10% rate increase in Texas, margins are going to be pretty consistent. So the caregivers are going to get some increases there.

Well we've seen that in the past in other markets where caregivers are -- with the ability to pay more that traditionally has benefited hiring on the other side of that. So I would anticipate seeing something similar in Texas, which is a big market for us. I think it kind of plays all back into our overall thesis. If the rates are there where we can hire more caregivers, that's always going to help us on the organic volume side. So I think we feel like we're in a good spot here toward the end of '25, headed into '26, have some good momentum on that side. We've been talking about it for a bit. We really are targeting trying to keep above that kind of 2% year-over-year volume growth. We've kind of been at it or just below it early this year, seeing 2.4% this quarter was really nice, and we hope to keep that momentum going into '26.

Great. And just a follow-up also on your commentary about the complementary home health and hospice assets in specific markets. Obviously, a lot of uncertainty in home health, but solid rate update in hospice. How is that kind of changing your appetite right now? What would you expect in the near term in terms of how you're going to allocate capital to those markets where you're looking for that 3 legs of the stool?

Yes. We are always interested in home health in overlap markets where we can put them together with personal care and hospice. I think you see what we're seeing in New Mexico and Tennessee is validation of the strategy, which we believe where home health plays for this company. As we look to increase our home health segment, we will be careful. Obviously, the rate discussion that's out there now has kind of lowered the temperature for anybody to be able to do anything of size in home health. So we'll continue to monitor that. But again, remember, home health for us is truly an add-on to our personal care and hospice business. And so strategically, just like we've done in this past year, if we find companies that have home health in a market where we have these other 2 services, we're not opposed to going ahead and pull the trigger.

The next question comes from Brian Tanquilut with Jefferies.

Congrats, again, on the quarter. Maybe, Brian, as I think about 2026 -- I know we're obviously not giving guidance, but as I think about your ability to drive margins, I think we can build the building blocks to EBITDA on revenue. But how are you thinking about the margin opportunity as we think about next year?

Yes, I think the main thing to keep in mind as we continue to grow top line and we're continuing to see that kind of consistent growth, particularly in PCS and hospice, we should get some additional leverage on G&A. I think that's been our model all along. We're not going to grow those cost bases at the same rate. So thinking about just bottom line margin year-over-year, we would expect to see some benefit from that in '26, everything else being the same. I think, obviously, what we do in the mix and M&A can play into that as well. If we're a little more active on the clinical side, there's a little higher margin profile. But business as it is, I think it's more leverage on G&A costs with top line growth.

Got it. And then setting aside the fact that we're still waiting for this home health rule, we'll see when it is. But how are we thinking or how are you guys thinking about the home nursing business within your book? I know there are some moving pieces there. So just curious what efforts are being put into place to drive inflection there?

Yes. I'd say, we talked about a little bit, I think, in the last couple of calls, Brian, where we have really kind of 3 key markets in our home health business, New Mexico, Illinois, Tennessee, all through acquisition. We've done a lot of things over the last, I'd say, 9 months or so to really kind of get processes standardized, really trying to get the profitability level straight. I think still on the growth side, we have not kind of seen that take off, I think, particularly in Tennessee. We've got some new leadership in there to really try to kind of get that thing moving in the right direction.

So outside of the rate, we'd like to see that business start to perform a little bit better. We're looking for, probably at a higher level, some leadership to come in and help with that as well. Heather can jump in on that here in a sec. But I think a focus of ours, but really to Dirk's point, a real benefit for us there, not necessarily the operations of that business per se, but the benefit that it provides indirectly into hospice. It's something you don't see on a segment level in the results of home health, but they're definitely benefiting in the hospice area. But I'll let Heather talk a little bit about that as well.

Yes, I'll pick up on that. We're working on several initiatives within that business, and we're seeing admission volumes stabilize on a same-store basis. But what we're seeing is a decline, sorry, in recertifications, which is attributable to what Brian is referencing. So I'll talk about that for a minute. That's the bridging program that we've put in place to make sure that patients are receiving care in the right setting and the right level of care. And that's been in place for a while in New Mexico, and then we rolled it out, as Brian mentioned, within the last 12 months in Tennessee, and we're seeing it really start to take off there. And what we're seeing is an uptick in our admissions from a hospice perspective in those markets from these referrals.

And in fact, as we mentioned earlier, in New Mexico and Tennessee, over 25% of our hospice admissions come from the home health segment and from this program. So we see this as a real benefit in having the 3 levels of service in the markets that we serve and particularly between home health and hospice, where home health is just really a complementary line of service to the other businesses.

The next question comes from Joanna Gajuk with Bank of America.

So maybe first, couple of, I guess, numbers and clarifications. On your comments about fourth quarter gross margins, right, sounds like it implies maybe high 32% or so for gross margin. And then if we assume G&A, call it, below 21%, I guess it implies adjusted EBITDA above 13% or so in Q4. Is that the right way to think about numbers?

Yes, Joanna, I think that's fair. I think if you look at the seasonality of our business and our company, Q4 is always the high watermark for margins for us, and I would expect that to be the case. We've been solidly in the 12s all year. But Q4, based on what we see right now, expectation of being 13% over for that quarter, I think, is definitely reasonable.

And I guess you answered the other question around the margins for next year. So if you grow high single digits or low double digits revenue, right, it's going to be G&A leverage. So growing from, call it, 12.5% or so for this year, adjusted EBITDA, that should be kind of our thinking about next year, right, growing from that level?

Yes. I think that's fair. I think back to my earlier comment, I think top line growth is always going to get us some additional leverage on G&A. So everything else being equal. Obviously, everything can change at any time as we all know, but everything else being equal, that should be the case.

Okay. And my question on the topic of rate updates from your key states, [ that you did great in ] Texas and Illinois. And on your last call, you alluded to the idea that there's an expectation that New Mexico, Pennsylvania might have some rate increase. It doesn't seem like Pennsylvania is in a position to increase rates, right? So is there a risk to a rate cut in that state in particular? And any other states that you're on the lookout for? And maybe give us a little bit update on New Mexico.

Yes. I think New Mexico, when they get into their budget cycle for next fiscal year, which is still early, we're not in that range yet, I think we're hopeful that with their consideration of a rate increase this year, that will be something that they'll consider next year. And obviously, we'll be working with the industry on advocacy for that in the next cycle.

I think on Pennsylvania specifically, yes, I think they had considered a rate increase this past year. I think with everything going on there, I think our most recent intelligence from what's going on in their budget or inability to get a budget would probably put us in a position of thinking we'll probably be flat again. I don't think we're anticipating a rate cut, but probably not as optimistic as we were about a rate increase in Pennsylvania in this next budget.

And any other states that we should be looking out for in terms of any major increases or, I guess, potential for cuts?

No, nothing that we're aware of at this point. I think usually, a lot of those states when they get into session, it's going to be probably more early '26, early the spring time, but nothing that we are aware of that would be worth mentioning at this point, no.

The next question comes from A.J. Rice with UBS.

Welcome aboard, Heather. Maybe just to think broadly about the acquisition and deal pipeline. I know that's an important part, obviously, of your ongoing inorganic growth strategy. Can you just update us on what you're seeing competitively across the main buckets, how pricing is evolving? And what does the pipeline look like, whether it's pretty deep or a lot of things are just on hold right now?

Yes, A.J., I think I'd characterize it that we haven't seen probably a lot of shift from where we have been probably over the last, I'd say, 1.5 years or so. Most of the things that we're looking at or are in our pipeline today are probably on the smaller side, similar to Del Cielo we just closed, Helping Hands that we closed last quarter, in markets that we're in, providing some density, low multiples. PCS on the small end are still going to be -- could be as low as 4x and 5x. Even larger size could be maybe 7x, maybe 8x. That really hasn't moved much.

I think on the clinical side, there's been a couple of large -- very large hospice organizations that traded this year for very high multiples. It seemed like there maybe was a little bit of moderation coming in, but still probably mid-teen type expectations, so still a little pricey on that end. We would always be interested in hospice, but probably at a little lower price point. And then home health, as Dirk kind of mentioned earlier, there is some benefit to us and how that feeds into or works with personal care and hospice. So if there's opportunities on the home health side, it's going to be probably on the smaller side for us in markets that we're in kind of overlapping.

Those are things we'd be interested in, but those tend to still be a little on the inexpensive side. So if they're smaller, it could be upper single digits, maybe it presses closer to 10-plus times if it's more sizable. But obviously, we'll always work into our performance on any home health deal, what might be going on with rates. We're very cognizant of that as well.

I think what we're hearing from folks externally thinking about '26, there could be some things that might be on the larger side that might be available. Some of those might be interesting to us. So early conversations, nothing really to report, but we're hopeful maybe there's a little more opportunity for us to do some larger chunkier things next year.

Okay. And I know you've been asked a couple of times about home health. But if, say, we get the rate noticed and it gives clarity as to sort of the trajectory, is that enough, do you think to maybe step up the pace in home health a bit? Or do we need some time for everything to settle out, assuming we get some kind of a rate action, either the 6.4% is proposed or maybe they happen or something like that. Does it take some time for the market to sort itself out? Or do you think people will react pretty quickly and you might be able to step up the activity in home health there?

Well, I think getting this year's rate finalized will certainly take one of the issues that's on the table as far as doing much in the home health industry. The problem you're going to have, A.J., is that unless they come out with a fix for the potential clawback, which is, what, 400 basis points of this year's potential rate reduction, if they do away with that, are they going to send a signal that, that is passed and won't come back up again? As long as that overhang is still out there on any potential clawback, I think it's going to continue to keep the acquisition in the home health market a little moderated in the future.

The next question comes from Jared Haase with William Blair.

I wanted to ask another one on your comments about the value of having overlapping operations in New Mexico and Tennessee and the impact that has on referrals between home health and hospice. So I'm curious, when you look at the data, do you actually see a meaningful difference? When you have the overlap there, do you actually see a meaningful difference in either patient satisfaction, quality of care, anything to that effect when you kind of have that density of service offerings in a particular market?

Jared, this is Heather. We do -- we see a couple of benefits that are coming from that referral ability from home health to hospice. The first, it's better for the patient and for the family to be in the right setting of care and to be receiving the right level of care. So we see that benefit that comes through. We also see continuity of care from those 2 different settings of care from home health to hospice. So what we're seeing from the patients and from their families, of course, once they're in hospice has been positively influencing some of the decisions that we're making as we see those hospice admissions that are really supporting -- or being supported by home health.

Got it. That's helpful. And then I just wanted to follow up as well on the comments around clinical labor. And it sounds like that's been stable for at least a few quarters now. I think you mentioned outside of a few challenging urban markets, though. Just wanted to understand that a little bit better. So what specifically is sort of challenging in some of those markets? Is that largely just a function of kind of the broader reimbursement environment makes it harder to compete on wages in certain areas or something else we should be thinking about?

No, I think it's really largely just related to some of the larger urban markets. And more specifically on the skilled side, we're seeing better opportunities for hiring than what we have seen in the past. But as pockets are arising out there or continue to be managed through, it's very limited to those skilled hires, I would say, and then the urban market.

Okay. Got it. I guess maybe just a point of clarification then. If we did get some sort of meaningful relief on the reimbursement rate in the home health space, do you feel like the labor market is such that you would be able to kind of attract the folks that you need to return to more consistent organic growth there?

Yes.

The next question comes from Raj Kumar with Stephens.

Maybe just kind of focusing on hospice. I know the company has kind of talked about making key investments in the team over the past few quarters. And maybe just kind of want to break down what they've been able to identify, clearly strong results organically this year. And have they been able to reconcile all what they've identified in 2025? Or should we expect a kind of multiyear opportunity in terms of being able to display kind of above targeted same-store revenue growth for that segment?

Well, maybe I'll start with some of the initiatives that we have that are driving the results, and then Brian can talk about sort of how we think that will develop from a future perspective. But you're right, we're seeing very nice volume growth in that hospice segment. And I think there are a few things that I would point to. The first is just a focus on better execution. That includes a focus on our onboarding and training efforts across the board, but specifically related to the utilization of community liaisons.

We've mentioned that we've made some leadership changes there, and we've invested in a sales function that is focused on structured sales efforts and developing local market strategies for business development, including a better utilization of those community liaisons. We've mentioned we're seeing success from that bridge program that we put in place to drive the right referrals from home health into hospice, and we've talked about that, that that's really been something positive that we're seeing. And so we do see a lot of positive momentum in that hospice business that we've seen through the quarter. We've seen that building and that we would expect to continue.

Yes. And Raj, I think, obviously, 19% organic growth is probably not something we would expect to have into perpetuity. But I think we've said for a long time, everything else being equal, we would expect our hospice business to have an opportunity to grow in the kind of mid to at least upper single-digit range. So I think all the changes that we've made, I think the comps that we're seeing over the last year is probably driving some of the percentage increase. But as we get settled into a nice trend, I think that upper single-digit range is probably still fair. So our business, we're going to get the benefit of a little over 3% on rate. So if you think about what that leaves for ADC growth, I think we feel pretty comfortable that we could continue in that range.

Got it. And then maybe just on home health, kind of fee-for-service mix trended kind of lower sequentially and year-over-year. I know there's been progression on the margin front with that business as you kind of case to optimize the whole book. But trying to get a better picture of kind of how margins did trend in this quarter given the mix shift dynamics. And there was kind of higher MA mix. So maybe trying to gauge also if there's any incremental case rate or episodic reimbursement wins on the MA side in the quarter.

Yes. I think we continue to make a little headway on just getting better rates and working with MA plans and moving to more episodic. That's really our focus, not necessarily Medicare fee-for-service versus MA, but really episodic versus non-episodic. And I think we've made some progress there. I think in this quarter's numbers, you're seeing a little bit of impact. It's small, but Helping Hands was largely MA's a little bit of home health business up there. And I think in Tennessee, we've got contract changes that we've gotten done down there that have helped kind of shift a little bit of that business in that Tennessee market. But nothing, I think, on a high level that I would flag out as being material overall.

The next question comes from Constantine Davides with Citizens.

Just a quick one on Del Cielo. Their website says they also offer other levels of service. So I just wanted to confirm that the only thing you're getting is just the pure personal care business.

That is correct. We only purchased the personal care assets of that business.

Great. And then just a follow-up on this 25% figure, New Mexico and Tennessee in terms of impacting growth in hospice. You've obviously got a PC footprint that's multiples bigger than what you have in home health. And I was just wondering if you could articulate some of the benefits of being in personal care as it pertains to maybe the growth algorithm in both home health and hospice.

Yes. Thanks. That's a great question. It's part of our overall strategy that we've been following for a number of years now. We believe that everything starts with personal care. That is something that we have stated before and we will continue to state. The problem with getting a bridge program today as strong as we see from home health to hospice from personal care up to other levels of care is the EMR in which we operate today.

So if you look at today, we've got Homecare Homebase in the home health and the hospice. So everything can be done from an electronic standpoint where we can use systems to kind of look at our patient base and recommend levels of care and changes that may need to happen in the future. The problem we have today with personal care is it's on a different system. So everything from a bridge process is much more manual. And so that is why 3 or so years ago, we started working with Homecare Homebase to develop a strong personal care system that we could put in place and then use going forward to have one EMR, so that we could start a bridge program all the way through our levels of care.

We are early in that transition. We are still working with Homecare Homebase. There are still some things we need to finalize. I think today, we have 5 small states that are using that today, and we're learning from that. But the whole plan going forward is to get this on one system, so that then you will start to see the same sort -- in our minds, the same sort of bridge results that we currently get between home health and hospice, you can then start with personal care. So that, again, kind of encapsulates our entire strategy that we've been applying for the last 4 or 5 years.

The next question comes from Christian Borgmeyer with TD Cowen. [Operator Instructions].

I had a question about the hospice side. Revenue per patient day was really strong in the quarter, and you also cited an improvement in the Medicare cap cushion. I was curious if this was a tailwind to revenue per PD in the quarter? If there may be a similar dynamic in 4Q? And then just curious what sort of clinical dynamic drives this Medicare cap liability.

Yes. I think -- this is Brian. On the Medicare cap side, Dirk mentioned we had no liability this quarter. We actually took a little bit of a charge in Q2. So I think sequentially, you saw a benefit of that flow through the revenue per patient day. I think the other thing that impacted this quarter, I think just on a year-over-year basis, we did see some positive effect from the good old implicit price concession or revenue adjustment or whatever you want to call it. But we had some positive experience in collecting some older aged AR, and I think that benefited a little bit in this quarter, but nothing that was, I think, overly material.

I think just going forward, just talking about cap, I think we feel like we're in a pretty good position. I think we've had a lot of focus in a couple of locations where we had that issue creeping in. We have done a lot there to make progress on our referral mix, and balancing that out is a highlight for us. So I think if you look at us historically, we've always had probably 1 or 2 locations every year that might slip a little bit into cap. It's nothing new for us. It's something that we manage kind of day-to-day, but I think we feel pretty good where we are coming out of Q3 into Q4 that we're in a good spot.

The next question comes from Andrew Mok with Barclays.

This is Jeffrey Song on for Andrew. Medicaid payers have been under a lot of pressure recently. Can you help us understand the nature of the dialogue between payers and providers in the home health space in recent months?

Yes. If I understand your question and what you're trying to get to, I do think the OBRA out there has put some pressure on states with their Medicaid programs. They're having to look at how do we take the dollars we're continuing to receive from the Feds and apply that effectively to our Medicaid program. And I think that's where that puts Addus squarely in an important seat in that discussion, because if you think of our service, when people are qualified for first care services, they also would be qualified for nursing home services if we cannot keep them in their home with the amount of hours that the states are giving us.

So we have demonstrated to a number of states and a number of our managed care partners through value-based care contracts that by following certain protocols, keeping them in the house, we're able to reduce various aspects of other costs related to those patients that would be covered by Medicaid, whether that's emergency room visits, whether that's readmits to the hospital, or quite frankly, SNF, where people would end up in 24-hour SNF care, which is much more expensive to the state.

So it's our job as an industry, it's our job as Addus to continue to work with the states to show them the value proposition of if they are looking where to put their dollars for the Medicaid program to be the most effective to make sure that they put it into the personal care business, which is going to save them money overall.

This concludes our question-and-answer session. I would like to turn the conference over to Dirk Allison for any closing remarks.

Thank you, operator. I want to thank each of you for taking the time to join us on our earnings call today, and I hope you all have a great week.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, and welcome to the Addus HomeCare Second Quarter 2025 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Dru Anderson. Please go ahead.

Thank you. Good morning, and welcome to the Addus HomeCare Corporation Second Quarter 2025 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 2025 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 and 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 second quarter 2025 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.

I would now like to turn the call over to the company's Chairman and Chief Executive Officer, Mr. Dirk Allison. Please go ahead, sir.

Thank you, Dru. Good morning, and welcome to our 2025 second quarter 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 earnings call, I will begin with a few overall comments, and then Brian will discuss the second quarter results in more detail. Following our comments, the 3 of us would be happy to respond to any questions.

As we announced yesterday afternoon, our total revenue for the second quarter of 2025 was $349.4 million, an increase of 21.8% as compared to the $286.9 million for the second quarter of 2024. This revenue growth resulted in adjusted earnings per share of $1.49 as compared to adjusted earnings per share for the second quarter of 2024 of $1.35, an increase of 10.4%. Our adjusted EBITDA was $43.9 million compared to $35.3 million for the second quarter of 2024, an increase of 24.5%. During the second quarter of 2025, we continued to experience consistent cash flows. As of June 30, 2025, we had cash on hand of approximately $91 million. During the second quarter, we reduced our bank debt by $30 million, leaving a balance of $173 million at quarter end. This gives during the second quarter of 2020 position with no one to experience consistent cash flows. As of June 30, 2025, we had cash on hand of approximately $91 million.

During the second quarter, we reduced our bank debt by $30 million, leaving a balance of $173 million at quarter end. This gives us a conservative net leverage position at under 1x adjusted EBITDA and allowing us the flexibility to continue to evaluate and pursue strategic acquisition opportunities. Now let me discuss certain areas of operation. During the second quarter of 2025, we continued to experience strong hiring performance, especially in our Personal Care segment. During the second quarter of 2025, we began to include our Gentiva PCS operation in our hires per business-based statistics. During the first quarter of this year, we saw our hires per business day at 108 when we include Gentiva. For the second quarter of this year, we achieved hires per business day of 105.

In addition to our strong hiring numbers, we continued our momentum in improving starts per business day, which we have seen over the past few quarters. With respect to our clinical line, as we have been consistent over the past few quarters, we continue to see improvements in the overall clinical labor environment. However, we do believe that for the foreseeable future, clinical hiring will remain more challenging and geographically variable than what we see in our PCS segment. On May 31, 2025, the State of Illinois finalized its fiscal 2026 budget with an inclusion of a 3.9% increase in the base hourly reimbursement rate to $30.80 per hour to sustain a minimum wage of $18.75 per hour for direct in-home care service workers. The company expects this rate increase will add approximately $17.5 million in annualized revenues for Addus, with margins consistent with our existing Illinois Personal Care business in the low 20% range and in compliance with the state of Illinois 77% requirement for caregiver wages and benefits.

The Illinois rate increase will be effective January 1, 2026 subject to the standard federal approval process. In addition, on June 3, 2025, the state of Texas finalized its fiscal 2029.9% increase in the base hourly reimbursement rate to $17.13 per hour. The company expects to generate approximately $17.7 million in additional annualized revenue, assuming implementation consistent with historical precedent of the Texas Health and Human Services Commission and Texas managed Medicaid health plans with margins expected to be largely consistent with our existing Texas Personal Care business at just over 20% after caregiver wages are adjusted. The Texas rate increase will be effective September 1, 2025, again, subject to the standard federal approval process.

In our Personal Care segment, our services continue to receive favorable reimbursement support from many of the states in which we operate. We are confident that personal care services continue to deliver real value to state Medicaid programs as well as our managed care partners through in the overall cost of care. As we stated earlier, we believe these and other benefits associated with home care home-based care put us in a favorable position as changes to funding and other aspects of various Medicaid programs are considered. As for our clinical segments, on August 1, CMS issued the 2026 final rate for hospice providers, which will be effective on October 1 of this year. The final rate increased 20 basis points over the earlier proposed rate, leading to an average 2.6% increase for hospice providers. While we appreciate CMS slightly increasing this final rate, we are disappointed that this increase does not more fully reflect the increasing cost of care for this service.

Earlier, on June 30, the Centers for Medicare and Medicaid Services released the calendar year 2026 home health proposed payment rule. This proposed rule projects a 6.4% aggregate reduction in Medicare payments to home health agencies in 2026, amounting to an estimated $1.1 billion decrease compared to 2025. The proposal includes a 2026 Market Act payment update of 2.4% and reduced by a 3.7% decrease from the permanent behavioral adjustment as well as a first-time 4.6% decrease from the temporary adjustment which is the result of the CMS determination that a clawback of past payments is warranted to maintain budget neutrality. It is our view that this clawback is improper and results from an incorrect belief that home health providers have received unjustified rate increases in the last few years.

We, along with others in the industry, believe that this reduction will have a significant negative impact on the availability of home health care and will potentially lead to many individuals having to access skilled post-acute services in a more expensive facility-based setting. Addus will continue to work with our leading home health providers, along with the national alliance for Care at Home, our industry trade group, to advocate for a final rule that more appropriately reflects the true cost of care for home health providers.

Now let me discuss our same-store revenue growth for the second quarter of 2025. For our Personal Care segment, our same-store revenue growth was 7.4% compared to the second quarter of 2024. During the second quarter of 2025, we also saw Personal Care same-store hours increased by 1.6% compared to the same period in 2024. On a sequential basis, Personal Care same-store hours and billable census increased by 1.7% and 0.3%, respectively. As we have stated over the past several quarters, we expect volume growth to comprise a greater percentage of our personal care same-store revenue growth going forward. In that regard, it is encouraging that we continue to see incremental improvements in our percentage of hours served compared to authorized hours. We continue to work towards our goal of consistently growing same-store hours at a minimum of 2% year-over-year.

Turning to our clinical operations. our hospice same-store revenue increased 10% when compared to the same quarter of 2024. Our same-store average daily census increased to 3,720 for the second quarter up from 3,477, an increase of 7% compared to the same period last year and an increase of 5.8% on a sequential basis. Our second quarter 2025 same-store emissions were up 2.1% year-over-year. For the second quarter of 2025, our hospice mean length of stay was 28 days as compared to 29 days for the first quarter of 2025. Overall, we are pleased by the continued improvement in our hospice segment over the past several quarters. While our home health segment same-store revenue decreased 6% when compared to the same quarter of 2024, our home health profitability continues to improve as our management continues to rightsize our expense base. We have new leadership in our Illinois and New Mexico home health operations that are focused on returning this segment to profitable same-store revenue growth.

Yesterday, we announced that on August 1, we closed on our acquisition of Helping Hands Home Care, which is based in Western Pennsylvania. This acquisition increases our personal care density in this area of Pennsylvania, while also adding home health and hospice operations. This transaction continues our strategy of developing geographic coverage in the states where we operate while adding clinical services to our network of personal care locations. Our team is excited about this acquisition, and I want to officially welcome the helping hands team to add us. As we have with this most recent acquisition, our development team will continue to focus on both clinical and nonclinical acquisition opportunities that increase both the density and geographic coverage to our current states.

While the proposed home health rule will most likely continue to delay any meaningful home health opportunities, we will be evaluating smaller clinical transactions along with personal care service transactions that fit our strategy. Before I turn the call over to Brian, I want to thank the Addus team for the care they are providing to our elderly and disabled consumers and patients. We all have come to understand that the overwhelming majority of clients and patients want to receive care at home, which remains one of the safest and most cost-effective places to receive this 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 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.

Thank you, Dirk, and good morning, everyone. We delivered another strong financial and operating performance in the second quarter with our results reflecting consistent organic growth and additional support from our most recent acquisition. We achieved 21.8% revenue growth and a 24.5% increase in adjusted EBITDA compared with the second quarter last year. These results include the second full quarter of the Gentiva Personal Care operations, our largest acquisition to date, which we completed on December 2, 2024.

Our Personal Care Services segment was the key driver of our business with a solid 7.4% organic revenue growth rate over the same period last year. This growth trend has consistently tracked well above our normal expected range of 3% to 5%. These results were supported by strong hiring trends and favorable rate support for personal care services in some of our larger markets. including a statewide reimbursement increase in Illinois, our largest market, which was effective January 1, 2025.

Going forward, we expect to benefit from additional rate increases in Illinois and Texas. Both states legislatures recently finalized their fiscal 2026 state budgets, each of which included reimbursement rate increases for personal care services. Illinois included a 3.9% increase, which is set to be effective January 1, 2026, and will add approximately $17.5 million in annualized revenue for Addus with margins in the low 20% range, consistent with the state's 77% pass-through requirement. The state of Texas included a 9.9% increase in its fiscal 2026 budget which is set to be effective September 1, 2025. We expect this to add approximately $17.7 million in annualized revenue for Addus with margins consistent with our existing Texas Personal Care business of just over 20%. Both rate increases are subject to customary federal approval.

With the acquisition of the Gentiva operations, Texas now represents our second largest state for personal care operations behind Illinois. Following the organizational changes we made late last year, we continued to see steady improvement in our hospice business in the second quarter. We achieved 10% organic revenue growth and higher average daily census, patient days and revenue per patient day compared with the second quarter last year, with average daily census up 7%. As Dirk mentioned, the 2026 hospice reimbursement update of 2.6% has been finalized, and we will see this increase beginning October 1, 2025. Hospice care accounted for 17.8% of our business in the second quarter. For our home health services, which accounted for 5.2% of our business, organic revenue was 6% lower compared with the second quarter of last year.

Over the past several quarters, we have seen significant improvement in our operating margin profile as we work with payers to improve our reimbursement rates and streamline our processes. While this is our smallest business segment, we believe home health is an important clinical partner to our personal care and hospice services, and we continue to look for appropriate acquisition opportunities to support this service line. In addition to organic growth, we have benefited from our acquired operations, and we remain focused on identifying acquisitions that will be accretive to our operations and support our ability to expand our market reach.

The Gentiva acquisition completed in December of 2024 was the largest in our history, adding approximately $280 million in annualized revenues and significantly expanding our market coverage. Yesterday, we announced the acquisition of Health Enhance Home Care, a provider of personal care, home health and hospice services in Western Pennsylvania with annualized revenues of approximately $16.7 million. We believe this acquisition is a great fit for Addus as it expands the density of our personal care operations while also adding clinical capabilities in both hospice and home health. For the remainder of 2025, we will continue working to identify additional similar acquisitions as well as opportunities to add new personal care markets where we can enter at scale as we believe having geographic coverage and density provides us with a competitive advantage.

With our size and expanding scale and the support of a strong balance sheet, we are well positioned to execute our acquisition strategy. As Dirk noted, total net service revenues for the second quarter were $349.4 million. The revenue breakdown is as follows: Personal Care revenues were $269.2 million or 77% of revenues. Hospice care revenues were $62.2 million or 17.8% of revenue and home health revenues were $18 million or 5.2% of revenue. Other financial results for the second quarter of 2025 include the following: our gross margin percentage was 32.6% compared with 32.5% for the second quarter of 2024. As expected, we saw the normal sequential expansion in our gross margin percentage from the first quarter primarily as a result of meeting certain payroll tax thresholds.

Looking forward, we continue to expect typical seasonality with gross margin percentages remaining fairly consistent in the third quarter and some expansion in the fourth quarter due to the impact of the hospice rate increase as well as additional benefit from a reduction in payroll taxes. G&A expense was 22.1% of revenue compared with 22.2% of revenue for the second quarter a year ago. Adjusted G&A expenses for the second quarter were 20%, a decrease from 20.2% in the comparable prior year quarter and a slight increase sequentially from 19.9% in the first quarter of 2025. The company's adjusted EBITDA increased to $43.9 million compared with $35.3 million a year ago, an increase of 24.5%. Adjusted EBITDA margin was 12.6% and compared with 12.4% for the second quarter of 2024 and an increase of 60 basis points sequentially from the first quarter of 2025.

Adjusted net income per diluted share was $1.49 compared with $1.35 for the second quarter of 2024. The adjusted per share results for the second quarter of 2025 exclude the following: acquisition expenses of $0.11 and noncash stock-based compensation expense of $0.18. The adjusted per share results for the second quarter of 2024 excluded the following: acquisition expenses of $0.13 and noncash stock-based compensation expense of $0.12. Our tax rate for the second quarter of 2025 was 26.4% and within our expected range. For calendar 2025, we continue to expect our tax rate to remain in the mid-20% range. DSOs were 37.7 days at the end of the second quarter of 2025 compared with 36.9 days at the end of the first quarter of 2025. We have continued to experience consistent cash collections from the majority of our payers.

Our DSOs for the Illinois Department of Aging for the second quarter were 38.8 days compared with 47.6 days at the end of the first quarter of 2025. Our net cash flow from operations was $22.5 million for the second quarter of 2025. As of June 30, 2025, the company had cash of $97 million with capacity and availability under our revolving credit facility of $635.6 million and $44.6 million, respectively. Total bank debt was $173 million at the end of the quarter, a reduction of $30 million from the first quarter. We have continued to reduce our revolver balance with $50 million paid through the first half of this year. Importantly, we have a capital structure that supports our ability to continue investing in our business and pursuing our strategic growth initiatives, including acquisitions. As mentioned, we will continue to selectively pursue acquisitions in 2025 and that complement our organic growth and align with our strategy.

At the same time, we will maintain our disciplined capital allocation strategy and continue to diligently manage our net leverage ratio to ongoing debt reduction. This concludes our prepared comments this morning, and thank you for being with us. I'll now ask the operator to please open the line for your questions.

[Operator Instructions] Our first question comes from Steven Valiquette from Barclays.

This is Andrew Mok from Barclays. I think you mentioned in your prepared remarks an effort to increase reimbursement from payers but nearly all the national Medicaid payers called out HCBS home health as a pressure point. to their margins in the quarter. So just curious how you're thinking about the overall reimbursement environment and how you expect this to unfold over the next few quarters?

Yes. Andrew, I think we've continued to see pretty strong support over the last couple of years from most of our larger markets. I think coming out of COVID, I think we would have expected probably the cadence of rate increases in personal care to mitigate some. We've actually been pleasantly surprised to see states really appreciate the value our services provide and give us rate increases not in response to minimum wage, but in conjunction with trying to increase caregiver wages to provide access to service. So seeing Illinois and Texas, but through new rate increases in their budgets this year, there were a couple of other of our larger states that were considering rate increases that table those conversations for the moment with some of the overhang from the reconciliation bill still not finalized at the time.

So we are optimistic maybe we'll see something from them in the next cycle. But I think longer term, I think our comments continue to be pretty consistent, and we would expect the cadence to probably mitigate some over the next couple of years, probably not see the same rate, but we think there's a real value in our services and states are appreciating that.

Great. And then maybe just a follow-up on volumes. Same-store revenue was strong in the quarter, but the same-store census looks like it was down about 5% or so, which implies very strong rate. Can you elaborate on what's driving the negative volumes on a negative comp in the second quarter? Are you seeing a reacceleration in redeterminations or anything of that nature?

Yes, we are. And I mean what you're seeing is that the 5.5%, that's actually inclusive of New York, which we disposed of. So that is why the comparison kind of isn't really apples-to-apples. So if you look at where we are today, you actually saw a sequential increase in same-store census between Q1 and Q2. So it's moving in the right direction.

So just to be clear, you continue to report New York in the same-store numbers?

It's included, Andrew, in our prior year number. It's not in this year. I think next month, we'll -- or next quarter, I'm sorry, we'll spike that out. So it's a little more clear. I think it's not a closed location. So it's in our existing legacy operations, but we'll spike that out going forward in Q3. .

And the next question comes from Matthew Gillmor from KeyBanc.

I wanted to circle back on the personal care hiring and labor comments. Dirk had mentioned some favorability with trends in the press release also spoke to systems and tools that have been rolled out. Can you talk about where you are with that rollout? I think maybe that started in Illinois, but just where you are in that journey, how that's impacting performance? And if you had any comments on retention, that would be great.

Yes, so we've rolled out our caregiver application, I think, is what you're referring to. And that doesn't necessarily impact the hiring numbers. The hiring numbers come through actually kind of a different system. But what the [indiscernible] does is it helps us with our fill rate and increasing fill rates by giving caregivers greater visibility into their schedules, also the ability for a caregiver to flex their schedule if there it looks like they're going to underserve a client during the month. So we've gotten really good adoption in Illinois. I think we've got about 90% of our caregivers that are registered on the caregiver application.

We are in the process of rolling it out in New Mexico. So and as soon as we get New Mexico up and running good, we'll look at other states where we have an opportunity to implement the application. The challenge is being -- when you talk to Medicaid, the application has to be customized for every state that you roll it out to. So we've selected Illinois, our largest market, New Mexico, third largest market. we'll probably look at Texas down the road as a place to also implement that. But seeing good adoption by caregivers.

Got it. And Brad, just as a follow-up to that. Do you find that, that improves your retention because then the folks can get as many hours as they want or more hours than they otherwise would be able to.

We think it will. I mean, I think it's a little too early to tell for sure because there's just so many other factors that go into retention, just looking at kind of overall economy and that sort of thing. But when we've done -- conducted surveys of caregivers, one of the reasons why they talk about leaving is because they're not getting enough hours. So Intuitively, we think it will help in the long run with the turnover. It's just hard to kind of isolate it and give you kind of an update today. I think over the next year, 1.5 years, we should be able to glean from the data, whether this is making an impact. But just looking at the surveys that we've conducted, clearly, hours are a big thing. So this certainly helps address part of that challenge.

The next question comes from Jared Haase from William Blair. .

Maybe I'll ask another one around labor, but a bigger picture question. I'm curious how you're thinking about immigration policy changes and the impact that, that could have on the home care workforce over the next couple of years. Obviously, been a lot of media coverage about kind of the prevalence of immigrates in the health care workforce and especially in home and community-based settings. So just curious to hear your perspective and how you're thinking about that over the next couple of years.

Yes. I mean right now, we're not seeing any impact from it. We don't have a large workforce that is kind of green card or work eligible. I think we -- roughly about 600 caregivers out of our workforce of $50,000. So it's a pretty small number for us. We haven't seen any instances where they're not getting those renewed. Now we'll say, I mean, long term, it could make it more competitive. If you have a smaller workforce, our pool of employees that you're trying to pull from or candidates that you're trying to pull from. But we're not seeing any impact right now certainly not seeing it in the hiring numbers. And again, we don't have a large workforce that is susceptible to those challenges.

Okay. Got it. That's helpful. And then maybe a little quick on the hospice segment and nice to see another good quarter of about 10% same-store growth. Is that the right level of organic growth we should look for going forward? Obviously, you got the final rate rule for 2026, which I know you mentioned maybe a little bit disappointing relative to cost trends. But just curious how you double set sort of the right way that we should be thinking about same-store growth for hospice going forward?

Yes. We've talked about long term. I mean I think it's really probably more in the 5% to 7% range when you factor in rate plus sort of the volume increase over. I think hospice is doing very well. I think some of it is coming out of COVID, I think the industry has rebounded. But then also, we made some additions on the operations and the sell side that I think have really helped drive same-store growth for us. But I think long term, more in the 5% to 7% range. .

The next question comes from Raj Kumar from Stephens.

I just have one on the kind of follow-up on the labor piece. It seems like there's like a provision there from the Department of Labor rule, just kind of maybe carving out companionship services out of like the federal minimum wage and overtime provisions, which on the mid wage front, kind of relevant, but thinking about over time and how you've talked about scheduling being the most prevalent piece of turnover as caregivers aren't getting the hours that they need. Maybe just kind of thoughts on that provision and maybe if any states are moving towards creating their own versions of overtime provisions based on this proposed rule?

Yes. I haven't seen anything moving on the -- at the state level yet. It is an interesting proposal. If you think about impact on us, there's some nuances in that rule that would make it a little challenging to implement across our services because some of the services we provide wouldn't qualify for that exemption. So it becomes a little challenging. And plus, we have collective bargaining agreements for sizable portion of our workforce that would cover overtime rules anyway.

Now where it could have some potential is more on a private pay side of the business, a much a smaller business for us. We'll certainly keep an eye on it. And it's interesting to kind of read through and give some guidance on how that would actually work. But I think minimal impact for us, except maybe a little bit on the private pay side.

Got it. And then just on the hospice portion. I know some of your peers have called out cap issues. Maybe if Addus saw any of that in the quarter. And then another on the policy front, it seems like with the big beautiful bill and like the increase in federal deficit, there might be an automatic trigger to the sequestration to increase? And I guess, for that to be waived, there need to be like a Senate vote on that. Maybe any movement on that part, not have the sequestration go from like 2% to 6% based on the automatic trigger.

I'll start with the cap -- so on the cap -- having a balance like referral base is important. We do have a little bit of cap that we booked this quarter, a little over $1 million. But that's kind of part and parcel. I mean we also have -- if you think about it, we have opportunities, one, to look at changing our -- improving our referral mix in a couple of programs to get out of cap but certainly manageable. We also have opportunity in other programs that we have a very short length of stay, and we need to diversify our referral base to get long, some longer to say patients to kind of balance that out.

So really, when you think about cap, it's been around forever since the benefit was implemented. I think where it's running into some challenges right now is there's a little bit of a disconnect between the wage index and CAP. And so it's not wage index for individual markets. I don't know if I really want CMS to do that, frankly, because I'm not sure how that would work for rural providers, but it's certainly manageable for us. And then on the sequestration front, I'll let Dirk.

Yes. I think, look, sequencer, we expect Congress to handle this like they have in the past. The Trump administration has been very clear that they're not going to cut Medicare. This would obviously be a cut to Medicare so our thinking is and what we've been hearing is it will be addressed in time. So that's kind of our thinking today.

The next question comes from Brian Tanquilut from Jefferies.

Congrats on the quarter. Maybe, Brian, as I think about your original commentary at the beginning of the year, I think EBITDA margin is above 12% for 2025. Just curious how you're thinking about that now given this acquisition coming out of the Texas rate increase that kicks in September 1.

I think our expectation for margins, Brian, for the rest of this year, are still pretty consistent. So starting in Q1 at over 12%, obviously, saw the normal kind of expansion into Q2. We'd expect to remain pretty static in Q3 and then see additional expansion at the end of the year. So I think for the full year, I think we're still going to be squarely between 12% and 13%. And I think the Texas rate increase coming in at kind of just right or just above 20% margin, probably it's not going to move the needle much. The new acquisition is about 84% Personal Care in Pennsylvania, a little bit of clinical.

So not enough really to kind of probably move the needle up much, but it will be nice to have those abilities through the services to PA, but probably still pretty consistent with our prior commentary for the rest of this year right now.

The next question comes from Ryan Langston from TD Cowen.

Maybe related to Matt's question, it sounds like hires per business day continues to run pretty strong. But Dirk, I think I heard you say clinical hiring is going to be more challenging. Is that just sort of a tight labor market dynamic or changes in competitor behavior or anything else you'd call out there?

No. I mean, this is Brad. I think really, it's just not enough nurses out there. It is more a challenge in certain markets. So I think it's just going to be long term, just more competitive -- right now, it's not putting any type of pressure on being able to accept patients or volumes or anything like that. I just think that, that's going to be a little more challenging, certainly than our personal care side. .

The next question comes from Constantine Davides from Citizens.

Just last quarter, I think you talked about some larger clinical assets coming to market. Just wondering if you can talk about that part of your M&A pipeline? And should we expect more transactions along the lines of what you're doing in Pennsylvania? Or are there some larger assets out there we could see some movement on?

Well, I think when we were talking about there could be some larger ones. There was some talk about some hospice opportunities coming out. We have heard some of those are still looking at it. I understand it may be the multiples have come in just a bit on those than maybe what people were expecting from last year. So again, we have been a main player in the hospice market for the last 2 or 3 years, just because of that very high valuation expectations. Most of them had our focus has been more on the larger personal care, which we saw with Gentiva. And then even the home health.

Right now, some of the things that we're hearing is with this potential 6.4% reduction, which we all believe should be somewhat moderated by the -- when the final rule comes out. But even so, this is a change, and this is an unknown that I think has caused some of the players that might have been looking to come out and see what might be out there from the standpoint of acquisition opportunities. I think it's probably delayed some of those folks coming out. So really, from our standpoint, we're going to be very focused on somewhat what you saw with our most recent Helping Hand acquisition, finding markets where it strengthens our personal care markets, it can add some clinical services, smaller deals that probably are not as much affected by this potential reduction in home health or potentially even what you may be seeing valuations with hospice.

Great. And then if I could just sneak one more in. Any other states that you're monitoring with the potential for a favorable rate movement in the next 12 to 18 months?

Yes. I think, Constantine, a couple that we referenced earlier that we're considering rate increases this year ended up holding kind of steady and maybe look to next year or New Mexico and Pennsylvania, I think were 2 that we were watching pretty closely this year. Both had conversations. Again, no guarantee that we'll see something next year potential for maybe both of those next year. So I think defense acquisition we just did, would fit in nicely if we got something from them next year, but we'll keep monitoring the states and see maybe what some chatters going into the next budget cycle next year. .

The next question comes from John Ransom from Raymond James.

Just a couple for me. Dirk, first of all, what are your public advocacy priorities now and other than obviously, the home health final world, what are some of the things that you and your government affairs folks are working on, either at the state level or the federal level that we should keep an island. And then secondly, just to kind of go into the question about payer contracting. Have the contracts gotten any more, I guess, the word interesting in terms of some kickers and some value base? Or is it still kind of very much the traditional structure that you've always had?

I'll talk about the public efficacy. What's really interesting, if you look at our 3 segments of care, we've been very consistent over the last number of years with our state advocacy. We've had great success. We have good relationships with most of really all the states in which we operate. And I think we've been able, along with others in the industry to continue to discuss the value proposition of the personal care service as it relates to maybe some facility-based care. And so we've had great success. You saw that with Illinois. You saw that with Texas. Brian mentioned a couple of other states that we're working with.

So we're pretty comfortable with our state advocacy. We started about I don't know, 2 or 3 years ago, really with some federal advocacy, especially as we were getting more 20% plus in clinical services. And as you will probably expect, right now, the majority, if not all, of our efforts on the clinical side are in home health. I think this most recent proposed rate reduction the industry and the alliance, which we work with, we all have concerns about the way that was calculated, the need for any kind of clawback over the last 4 years since the pandemic. So certainly, from our standpoint, we're doing a lot with the industry trying to get our story out to those that matter in the administration, telling them about the real effect we can have on cost in the home health segment.

So really, that's what we've been focused on, on the federal side. And there's a lot going on, but I wish I could tell you we had some information today that would possibly help us with the final rule. But right now, it's still very deep into working with trying to get that changed.

Yes. And I'll talk about the payer contracting. In the personal care side, we're still having the discussions on the value base. The structure is largely similar to what we've been doing in the past. I will say that the nuance is we're now talking to payers and the payers are talking to us about how do we get more volume into those plans and into those arrangements because we have been able to show that we can address the overall cost of care through those arrangements. So I would say that's probably the kind of the newer discussions now is just how do you drive volume into those plans or into those arrangements. .

On the home health side, we continue to talk to payers about implementing a case rate or an episodic type payment, have had a couple of wins there and continue to have positive discussions on that front.

And our next question comes from Joanna Gajuk from Bank of America.

So maybe if I may, first follow up on the commentary around the acquisition you just announced today. Can you give us -- you gave the breakdown of the revenues. Any comment you can provide us in terms of the margins? Is it sort of comparable to your PC business and also, I guess, in Pennsylvania, a good market for personal grade. That's the reason why you were kind of adding on in that market?

And I'll talk about the margin profile real quick and I'll let Brad talk about Pennsylvania market. But it should be pretty comparable to our Personal Care business. But obviously, this being a smaller acquisition, we're not going to have to add much in the way of anything really on the kind of thinking about corporate and back office type. So it's going to be 13%, 14% EBITDA margins. Gross margins will be consistent with our business there, but should be somewhere in that range. So I'll let Brad talk a little bit about the -- just the Pennsylvania market.

Yes. I think when you look at the Pennsylvania market, really, where this asset is located in Western Pennsylvania, we like that area. It's not quite as competitive as maybe a Philadelphia and one of the really urban markets. So I feel good about the personal care business here interest that we have there. It certainly is complementary a little bit to our Ohio hospice operations. So excited to see what we can do there. Also, when you look at Pennsylvania, I think Brian alluded to that, that is a state that we're looking at possibly some rate increases. They did a wage study. They were pretty far along in this past legislative session, looking like they were going to do something rate-wise on personal care.

But because of some of the budget uncertainty with around the Medicaid cuts that have not been finalized, they backed off of that. but we think there's an opportunity in next year or certainly in the next few years to be able to get some additional rate from the states in Pennsylvania.

Okay. And I guess it's tied to your last commentary around the rate increases because my question is about just against the policy changes that are coming under the [indiscernible] not targeted for cuts, right? But their cut to enrollment in Medicaid to the different and so that highly likely especially on state budgets, right? So can you maybe talk about how you're thinking about how this might play out and impact personal care business? Because I guess maybe talk about in the prior cycle. So would budget pressure seems like some states did reduce personnel for spending since this is a voluntary service?

So how do you expect space to respond to budget pressure this time around? And would it be different, I guess, versus, say, 2008, 2009?

Yes. I think, I mean, if you look at the impact on budgets, keep in mind, a lot of these provisions don't come into play until 2028. So we're several years away from seeing those actual cuts impact state budgets. I think we feel good about the services we provide, primarily services to an elderly and disabled population. Politically, that's a tough population to cut. We haven't really seen states do that in the past where states have -- we had a couple of states that years ago tried to implement some rate cuts pretty modest. Those didn't stick. They quickly came back and adjusted those rates back up. .

So I think in the near term, over the next couple of years, you think about there's not going to be a lot of impact -- negative impact on the state budgets come 2028, there could be some, but I do think we're in a favorable position by the nature of the population we serve and the fact that I think we've established pretty well that it's more expensive to take care of these individuals in an institutional setting and there's a lot of research and data analysis out there to that effect. So cutting access to our services actually could exacerbate state budget pressures.

This concludes our question-and-answer session. I'd like to turn the conference back over to Dirk Allison for any closing remarks.

Thank you, operator. I want to thank each of you for taking time to join us today on our earnings call and hope that you all have a great week. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.