Addus HomeCare Corporation Aktie

Good day, and welcome to the Addus HomeCare Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to hand the call over to Brandon Cox. Please go ahead.

Good morning, and welcome to the Addus HomeCare Corporation Third 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 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 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 its third 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 like -- I would like to now turn the call over to the company's Chairman and Chief Executive Officer, Mr. Dirk Allison. Please go ahead, sir.

Thank you, Brandon. Good morning, and welcome to our 2026 third quarter earnings call. With me today is Brian Poff, our Chief Financial 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, we will be happy to respond to any questions.

As we announced yesterday afternoon, our total revenue for the third quarter of 2026 was $387.7 million, an increase of 7% as compared to $362.3 million for the third quarter of 2025. This revenue growth resulted in adjusted earnings per share of $1.83 as compared to adjusted earnings per share for the third quarter of 2025 of $1.5, an increase of 17.3%. Our adjusted EBITDA was $51.2 million, compared to $45.1 million for the third quarter of 2025, an increase of 13.5%.

For the third quarter of 2026, cash flow from operations was $40.9 million, with cash on hand on September 30 of just under $100 million. During the third quarter, we reduced our bank debt to $24.3 million, which provides us the financial flexibility to close on our previously announced AccentCare Personal Care service acquisition while still considering additional large acquisition opportunities as we continue to pursue expansion of our market reach and increased geographic density.

As we announced on September 14, we signed a definitive agreement to acquire the personal care assets of AccentCare. This acquisition excludes AccentCare's New York operation and is expected to add approximately $280 million in annualized revenue. It furthers our strategy of creating density in our current markets while also enhancing our private pay home care business.

Last week, the federal antitrust review period for the transaction expired. We are now waiting on additional customary regulatory approvals needed to complete the transaction. We anticipate closing on this acquisition in the first quarter of 2027.

On July 1 of this year, we received an approximate 4% rate increase from the state of New Mexico, our third largest personal care market. This was an important development showing that states recognize supporting personal care services, save states money in caring for the elderly and disabled population covered by Medicaid. We continue to have discussions with other states concerning potential rate increases for 2027 as part of their normal state budgeting processes. We still believe that we will see additional rate support from other states while also realizing that we are returning to a more balanced environment for same-store growth between rate and volume.

As we mentioned on our last quarterly call, CMS published the final fiscal 2027 hospice rate, which was effective on October 1, 2026. This increase continues the consistent federal rate support we have seen for hospice services over the past few years. Currently, we are awaiting the final home health rate announcement from CMS for 2027.

Based on the preliminary rate announcement, which was made this summer, we expect to see a positive adjustment for our home health services, which would be an encouraging sign for this segment of our business, considering this state pressure, the rate pressure the industry has experienced over the past 3 or 4 years.

During the third quarter of 2026, we continue to experience positive hiring trends in our Personal Care segment. Our number of [ hires ] per business day in the third quarter of 2026 was 105, up slightly from the prior period and within our target range. Our team continues to do a nice job of producing hiring numbers at the level needed to meet our organic growth targets. As for clinical hiring, we continue to see a more normalized labor environment as has been the case for the past couple of years.

Now let me discuss our same-store revenue growth for the third quarter of 2026. For our Personal Care segment, our same-store revenue growth was 6.9% compared to the third quarter of 2025. During the third quarter of 2026, we saw personal care same-store hours increased by 1.6% compared to the same period in 2025, while our percentage of authorized hours served in the third quarter stayed in the mid-80s. While our same-store average daily census per PCS was down 0.4% over the prior period, in the third quarter, we saw 7 of our 10 largest markets achieved positive year-over-year growth, with Texas and Illinois slightly negative for the quarter. Based on what we see to date in the fourth quarter, we currently believe we can achieve flat to slightly positive census growth in this current quarter.

The slight decline in our personal care census over the prior year has primarily been in our lower hour cases as our higher hour cases have increased year-over-year. This, along with the continued improvement in our service percentage has contributed to our year-over-year increase in same-store personal care hours.

Turning to our clinical operations. Our hospice service same-store revenue increased 4.1% compared to the third quarter of 2025. As discussed last year, our 2025 third quarter had a positive impact from implicit price concession. And excluding that input, our same-store hospice revenue growth for the quarter was 8.8% at the high end of our targeted goal for hospice.

We were pleased to see our same-store average daily census increased to 4,031 for the third quarter, up from 3,866 for the same period last year, an increase of 4.3%. Our growth in hospice has continued in October with our average daily census exceeding 4,100. For the third quarter of 2026, our hospice median length of stay was 25 days as compared to 22 days for the third quarter of 2025 and 24 days sequentially. Overall, our hospice segment has continued to generate consistent growth over the past several quarters.

Our home health same-store revenue increased 2.5% when compared to the same quarter in 2025. Also, same-store admissions in home health for the third quarter of 2026 grew 13.8% as compared to the third quarter of 2025. This is the first positive year-over-year revenue quarter we have had in a couple of years for home health as we are seeing the impact made by our new leadership team. Importantly, we also saw sequential improvements in revenue and admissions.

As you can see with our pending AccentCare and previous Gentiva acquisition, we continue to believe that creating size and scale are important in post-acute health care services. This has been the long-term focus of our development strategy. Our development team continues to evaluate opportunities, which will increase both the density and geographic coverage as we seek to further strengthen our relationships with states and managed care organizations. Going forward, we anticipate being more aggressive in looking at various clinical opportunities, which we believe will present themselves over the next 2 quarters. While we will still actively pursue PCS opportunities, we believe it is time with recent market changes to consider adding more clinical acquisitions in both home health and hospice.

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 most of this population prefers to receive care at home, which not only remains one of the safest, but also the most cost-effective place to receive this care. We believe the heightened awareness of the value of home-based care has proven to be 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 our other employees who worked 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. Addus had a solid financial and operational performance in the third quarter of 2026. We generated a 7% top line increase in net service revenues to $387.7 million compared with $362.3 million in the third quarter of 2025. Our focus on cost discipline and operating leverage drove bottom line growth to outpace revenue gains, driving a 13.5% year-over-year improvement in adjusted EBITDA to $51.2 million, up from $45.1 million in the prior year period.

Our Personal Care Services segment remains the core driver of revenues, generating $301 million or 77.6% of total net service revenues for the third quarter. The segment achieved a solid 6.9% organic revenue increase year-over-year. Performance in this segment was anchored by steady organic volume gains, continued contributions from the integration of our [ Home Core Home Care ] acquisition and ongoing benefits from historical favorable rate enhancements across key state markets, including Illinois, Texas and New Mexico.

We continue to see solid caregiver hiring momentum and year-over-year improvement in our service percentage, driven by the ongoing rollout and adoption of our internally developed caregiver app across our major markets.

Our hospice operations delivered continued steady performance, accounting for 17.8% of our revenue for the third quarter and a 4.1% organic revenue increase year-over-year. As Dirk mentioned, exclusive of the differences in the implicit price concession from the prior year, our organic revenue growth was 8.8%.

This steady growth was driven by 2 key factors: higher reimbursement per patient day and healthy volume gains in our organic average daily census, which rose 4.3% year-over-year. As anticipated, our ongoing focus on case mix kept Medicare cap exposure within normal limits for the third quarter with no further cap adjustments recorded.

Looking ahead, the fiscal 2027 Medicare hospice reimbursement rate update has been finalized with an aggregate 2.3% net increase that became effective October 1, 2026. We expect the benefit to our hospice business to be just under 2% based on our geographic mix and related wage indices.

Our home health services represent our smallest segment and account for 4.6% of third quarter revenues. Home health continues to show positive momentum with solid clinical intake and emission trends and an increase of 2.5% in organic revenue over the prior year quarter.

Maintaining all 3 levels of care remains an essential component of our value proposition, helping us deepen relationships with our managed care and value-based partners. In key overlapping markets, such as New Mexico and Tennessee, our clinical bridge program continues to yield significant value with over 25% of our hospice admissions originating directly from our home health operations. We anticipate this program to have a positive impact in our Illinois market as we work to implement it in those operations.

Looking at our financial position. We continued to generate strong cash flow from operations through the first 9 months of 2026, which leaves us very well capitalized. Our disciplined balance sheet management and low leverage profile provide us the financial flexibility to pursue targeted acquisitions designed to deepen market density and expand regional reach. In line with our strategic growth initiatives, during the quarter, we announced a definitive agreement to acquire the Personal Care division of AccentCare outside of New York for $275 million. This acquisition aligns with our strategy to scale our core nonclinical platform in markets where we can leverage geographic coverage and density.

The acquired operations will bring an average daily census of approximately 13,700 clients across a 10-state footprint and are expected to generate roughly $280 million in annualized personal care revenue, which represents an approximate 19% increase to our revenue base. Importantly, it significantly deepens our market density across Texas, Illinois, California and Arizona, while also adding operations in 6 additional markets. We intend to fund the purchase price through a combination of cash on hand and borrowings under our revolving credit facility.

Given the complementary operational footprint and financial profile, we expect the transaction to be accretive to our overall financial results while enhancing our collaborative capabilities with managed care organizations and value-based care partners.

As Dirk noted, total net service revenues for the third quarter were $387.7 million. The revenue breakdown is as follows: Personal Care revenues were $301 million or 77.6% of revenue, Hospice care revenues were $69 million or 17.8% of revenue, Home Health revenues were $17.7 million or 4.6% of revenue.

Other financial results for the third quarter of 2026 include the following: Our gross margin percentage was 32.1% compared with 32.2% for the third quarter of 2025. And sequentially, our gross margin percentage stayed relatively stable as expected. Looking forward to the fourth quarter of 2026, we anticipate our gross margin percentage to experience normal seasonality with a benefit of approximately 50 to 60 basis points related primarily to the hospice reimbursement update and lower unemployment taxes.

G&A expense was 20.7% of revenue compared with 21.9% of revenue for the third quarter a year ago. Adjusted G&A expense for the third quarter was 18.9% compared with 19.8% a year ago and down sequentially from 19.2% in the second quarter of 2026. Our continued leverage on our cost structure from our expanding revenue base has driven G&A efficiency across our operations and should continue to benefit us going forward.

The company's adjusted EBITDA for the third quarter of 2026 was $51.2 million compared with $45.1 million a year ago, an increase of 13.5%. Adjusted EBITDA margin was 13.2% compared with 12.5% for the third quarter of 2025 and up 20 basis points sequentially from 13% in the second quarter. We now expect our full year adjusted EBITDA margin percentage to be in the 13% range. Adjusted net income per diluted share was $1.83 compared with $1.56 for the third quarter of 2025. The adjusted per share results for the third quarter of 2026 exclude the following: acquisition expenses of $0.16, noncash stock-based compensation expense of $0.12 and restructuring and other nonrecurring costs of $0.01.

The adjusted per share results for the third quarter of 2025 excluded the following: acquisition expenses of $0.08, noncash stock-based compensation expense of $0.18 and restructure and other nonrecurring costs of $0.06.

Our tax rate for the third quarter of 2026 was 26.9% as expected and consistent with the second quarter of 2026. For full year 2026, we expect our tax rate to remain towards the upper 20% range. DSOs were 39.3 days at the end of the third quarter of 2026 compared with 35.5 days at the end of the second quarter of 2026. We have continued to experience consistent cash collections for the majority of our payers. Our DSOs for the Illinois Department of Aging for the third quarter were 48 days compared with 26.8 days at the end of the second quarter of 2026. And as we experience normal timing differences in payment cycles from the state.

Our net cash flow from operations was $40.9 million for the third quarter of 2026, continuing our strong performance this year. As of September 30, 2026, the company had cash of $98.5 million with capacity and availability under our revolving credit facility of $650 million and $617.8 million, respectively.

Total bank debt was $24.3 million at the end of the quarter, a reduction of $40 million from the second quarter of 2026. We have also continued to reduce our revolver balance with $10 million paid to date in the fourth quarter. Our capital structure and strong balance sheet continue to support our ability to invest in our business and pursue strategic growth initiatives including targeted acquisitions. Looking ahead, as we prepare to fund and close the AccentCare transaction, we will continue to selectively pursue complementary acquisitions that align with our growth strategy. while maintaining disciplined capital allocation and managing our net leverage ratio through ongoing debt paydown.

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 questions.

[Operator Instructions] And our first question will come from Sean Dodge of BMO Capital Markets.

Maybe just on the same-store billable census, Dirk, I know you said you were seeing strength in 7 of your markets. It was -- it sounds like Texas and Illinois that continue to lag a little bit. Just the confidence that those are rebounding and that metric will turn positive in Q4. Have you seen inflections now in both of those markets? When did those happen? And what do you think are primarily driving that?

We saw -- I think we had talked earlier last quarter when we had a conference call, we had seen through July and into August. It was trending towards we were going to be flat to slightly positive in our census. We saw Texas and Illinois in September flatten out just a bit. And that is what really kept us from achieving that goal that we had set for ourselves at the third quarter. I will say that to date, in the fourth quarter, it seems like both of those states have turned back around to what we were experiencing more in the July and August standpoint.

So no real reason why that may have happened in September, but it appears that we're back on track to where we'd like to be, which is really working towards driving. And again, I want to say, appropriate ADC, appropriate census growth in that fourth quarter, and we're certainly looking to try to achieve that this year.

And so maybe -- maybe on the appropriate growth, the kind of the advances we've seen in average billable hours per census. What's the biggest contributor there? Is it kind of being a little bit more disciplined on what kind of referrals or patients you're accepting. I know you're -- you're also making gains in fill rates with the caregiver app. How much of each of those are contributing? And how much kind of further do you think you can drive that metric, the average billable hours per census?

Well, I think you hit it. There's really 2 things that we're looking at to try to continue to drive that number, and that is using our Caregiver app, our technology, which has done a really good job in Illinois, it's moving into Texas. Now we're moving in New Mexico. So we should continue to see some positive improvements in that metric, allowing us to serve more of the authorized hours that have been granted by the state.

I think the other thing we're trying to do. We're just trying to be cautious and direct and trying to make sure that the census that we take are census that we can do the right job on. It's -- when you take a very small hour client on, it's very difficult to staff because more and more caregivers, they want to get closer and closer to that 40-hour time frame, and it's hard to piece together small-hour patients. So what we're trying to do is just make sure we're looking at the patients that give us more hours. We're trying to balance that with our referral sources to make sure that we're doing all things that are necessary. We'll still take patients. We're not saying that at all. But we're trying to do it in the methodologies that realizes that we can staff them appropriately, and we can get the hours we want to give to our caregivers. And that's really what our focus has been over the last few quarters.

The next question comes from Ben Hendrix of RBC Capital Markets.

I just wanted to follow up on some of Dirk's comments around the AccentCare acquisition, particularly the higher mix of private pay, we tend to talk about PC purely and Medicaid terms. So I just wanted to kind of get some of the nuances of the private pay business, specifically kind of the rate profile, the demand backdrop for the private pay and also kind of what you're seeing in terms of census mix dynamics in that business? And then also just what all that looks like on a pro forma basis for AccentCare?

This is Brian. I think on that side, just a few of the kind of the numbers around that piece of that business. I think we traditionally have run around 2% of our ADC has kind of been in kind of the private pay or direct pay constituency. I think looking at AccentCare, I believe they're closer to like the 7% to 8% of their business to be in that kind of private pay arena. They've had a strategy over the last few years of actually pursuing de novo growth in the private pay business.

If you look at some of the smaller states that we're getting in this transaction. That's actually what those offices are just pure private pay offices. So they've had some success there. I think we like the private pay business. Obviously, it's a little different business. You're not exposed to maybe some of the Medicaid reimbursement issues or pressures that we've seen over the last year or so. But it's market to market on kind of what the reimbursement looks like, what folks are willing to bear from a competitive standpoint. But I think they've done very well.

And I think there is a different constituency that you're serving in a private pay business that folks that are not qualified for Medicaid, but still need to care at home to stay there rather than go into an institutional setting. So I think we're excited about seeing a little bit of expansion in our overall portfolio, bringing them on board and probably learning some things from them as well and apply that to our business.

Great. And can you talk a little bit about some of the census mix dynamics as they pertain to AccentCare's markets?

Yes, most of those markets, I mean, obviously, the bigger pieces here are the key 4 really Texas, Illinois, then you get into California and then some in Arizona are really the big 4 states. Texas is going to be very similar to what we run a large Medicaid population. They do have a little more private pay. I think in Texas than we do in [indiscernible] business. Illinois going to be very similar to ours as well, mostly Medicaid-focused. You get into California, still, again, very similar to our business there, which is primarily BA or private pay. They do have a little bit of participation about -- I think about 10% of their overall business in California is through a Callan Medicaid program that they operate in, that we do not, but it's a small piece of the business that we're getting with them. And then Arizona is going to be somewhere well Medicaid-focused.

The next question comes from Andrew Mok of Barclays.

Can you help us understand what's going on with hospice revenue. You noted that there were no further Medicare cap adjustments, but there was a $1.4 million add back to organic revenue in addition to the $1.5 million price concessions. And I guess just taking a step back, how are you responding to the higher average length of stay to the extent that it is putting pressure on some of these items operationally. We would love to hear your thoughts on that.

Yes. Andrew, I think things that we were looking at the reference in kind of the reconciliation on the adjusted kind of same-store revenue. We had an implicit price concession benefit last year in Q3 that was really just related to collection on older AR that had some reserves associated with that. You compare that to what we experienced in the same implicit price concession this year, which was more in line with what we think we would probably typically see. But I think we also have -- in that reconciliation table, there was some acquisition that we did last year as well. They had some hospice business up in Pennsylvania. So there's some revenue base there. That's part of that reconciliation.

But I think on the cap side, we had no further adjustments this quarter. I think the things that we believe we've done to mitigate some of that expense that we took in Q2 and this cap here have been very helpful in that regard. I think if you look at the length of stay or digital length of stay, that was just a factor of those folks that left our service this quarter. I think we're fairly in line, we think, with the industry kind of in that low 100 day range, but no impact there, no concern that we have around cap. I think we still feel very confident going into the fourth quarter that we will have no further cap adjustments this year. In fact, I think we kind of look at the end of the cap here let some of those folks discharge and see where we land ultimately. We believe we'll probably see a little bit of benefit actually in our ultimate cap reserve for this year.

Great. And can you guys help us understand your latest thinking around the 80-20 rule. I think there was some expectation that it would get addressed this year the changing of the congressional composition impact your view at all?

Yes. We were talking to our government relations folks this morning after the results of action. We still have a fleet that CMS plans on changing the 80-20 doing away, but that portion of the rule, while that will probably keep other aspects of that rule, which we actually support. So we'll wait and see. We didn't expect, honestly, after the last 4 or 5 weeks, we were told it wouldn't be done until after the election. Now that the election has happened, and obviously, there is a big change in the dynamics of who will be in the House and the Senate, we will see how the timing. But we still do believe and expect by year-end, we'll see a movement on the 80/20 that it should take -- come out of the rule.

Our next question comes from Brian Tanquilut of Jefferies.

Maybe, Dirk, as I think about -- first, when we think of the work requirement from Medicaid that's going to get rolled out in 2027. How are you thinking about the impact on your business from that? And maybe if you can share any insights from some of the states that have rolled out worker requirements earlier where you operate?

Yes. So far, I think 1 or 2 states have rolled out the Medicaid reimbursement requirement or the work requirement, and we've seen no effect on our business at this point in time. We never expected it to really hurt us from a revenue standpoint because I think there's been some clarification around that particular work requirement that most of our folks that are receiving care are going to be qualified to avoiding having to go to work.

I think the bigger aspect we were considering, and we're thinking may be helpful is as states roll out work requirements, will there be opportunities for additional caregivers, folks that maybe are on Medicaid, they're now going to be required, they're younger, they're not disabled, they're going to be required to show a certain number of hours per week or per month. Can we help them meet that goal and remain on Medicaid.

So we're waiting to see that in a couple of states that rolled out, that hasn't occurred yet. It hasn't been a negative on labor, but it hasn't really been a positive. So the only other thing that I think we'll be watching, and something you would expect is to make sure that states are hopeful that states have had enough time to prepare for the monitoring of work requirements. And hopefully, that should not affect the rate at which we get new patients on board. Because again, it's going to be an additional burden on the state. But they've gone through this before with 3 determinations. So we're hopeful that they have that experience and they're going to be prepared for it.

Appreciate it. And maybe, Brian, thanks for flagging the New Mexico rate increase. So when I think of 2027, if you can just walk us through, number one, how you're thinking about the blended rate profile given the different state rate adjustments? And then just broadly speaking, how you're thinking about census growth as we think through 2027?

Yes, Brian, I think on the rate side, obviously, it was nice to see New Mexico come through with the rate increase this year. I know we talked last year, they had a rate increase on the table and with some of the OB3 conversations happen at the time decided to hold flat, and we were -- we were hoping that they would look at this year now that kind of understood the landscape of what that really meant for them as a state that they would look for a rate increase this year, and we were happy to see that come through. So that's in our Q3 number.

I think looking ahead to next year, -- we still expect we're probably going to see some rate updates in some smaller states. Obviously, the bigger states move the needle more for us. And so Texas and Illinois will be the 2 that we'll watch early when they get seated back and go back to into session early next year, will we see some additional movement from them. We didn't get 1 from Illinois in the last session. So does that mean maybe there's going to be some potential that we'll see something that would impact really 2028, if they give us something in their budget, they've typically been doing it midyear for them, which is Jan 1 starts. So our folks will be having those conversations.

We expect we'll get support in the session as we usually do from the union in the state as well. And then Texas, who only meets every 2 years. They've had nice rate increases in the last couple of cycles. We still think there's some headroom, an ability for them to do some additional rate enhancement there based on where the rates are and kind of what we pay in the state. So with some of the shifts in the Texas political landscape, we'll be interested to see how that plays into that process as well when they get seed early next year.

So I think the way we're looking at kind of just thinking about it from a same-store perspective, with some of the rate support in large states, we've been nicely above kind of the 3% to 5% target range for some time now. We anticipate not having one for Illinois particularly, that will go into effect early next year. We'll probably be more in that 3% to 5% range, the first half of next year. We get some rate support from either in Illinois or Texas or 1 of the other larger states or even in New Mexico again next year. Towards the back half of next year, you could see us go back to the top end of that 3% to 5%, if not above. but those are the things that we'll be looking for.

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

Actually, first 1 will just follow up on the question because I don't think you answered the second part of the question, when we think about next year in terms of the stents growth, how we should think about that?

Yes, we expect that next year, certainly, we're moving as a team to try to get to the point where we're seeing low percentage PCS same-store growth in census.

Yes. I think I'd just add to that. We've talked about just on an hour basis, which is really the thing that we're more focused on is can we continue to stay kind of in that 2% to 2.5% same-store hours growth range, census will be a piece of that. But we think there's still additional headroom. I think we talked earlier about the caregiver app and the fill rate. We're still kind of in that mid-80% range. So we still think there's opportunity to increase our fill rate up into that upper 80% range. So we can see that come to fruition. And like Dirk said, some consistent, slight growth in the census as well. Hopefully, that puts us in a good spot going into next year.

Great. If I may add a little bit different topic in terms of your appetite for acquisitions. So you mentioned on prior calls, there could be a couple of larger personal car deals out there in the market. So you just did one. And with that deal by taking that sounds like 12 months, maybe longer to fully integrate. So would you be still willing to execute another transaction of similar size during that period? Or should we expect a more tuck-in acquisition?

Yes. I think we're still open. So we get AccentCare closed, we expect in the first quarter. I think really, it won't be a 12-month integration. I think we'll see some synergy opportunities over kind of the 12 months for closing. But I think a lot of the systems conversions on our payroll system, our benefit programs will happen very quickly. That's usually the larger lift from an integration perspective.

But I think we still expect to be very active in M&A going into next year. I think we still, from a capital perspective, we're in a great position to do larger deals still I think internal bandwidth is going to be there as well to allow us to do larger deals that they're available. So we'll continue to look at some of the larger PCS acquisitions that we expect are still going to come to market. But as Dirk referenced earlier, we think there's going to be opportunities on the clinical side.

If you look at kind of our footprint, particularly in home health, we've got a lot of green space in our portfolio where we can add operations there, but probably good multiples. In hospice, we really kind of just depend on where multiples are next year. It feels like maybe there's some rationalization happening in the hospice area, where maybe they'll be a little more affordable. And if that's the case, those are things we would like to be interested or active in as well.

Great. If I may squeeze on AccentCare. So I appreciate the comment around the integration will be actually faster. So can you help us maybe quantify the ultimate EBITDA margin target here because it sounds like that, that asset actually has higher product pay to higher margins? And also, any color in terms of the magnitude of synergies that we should think about in terms of just realizing things in year 1 versus year 2?

Yes. I think the way we've kind of talked about AccentCare, they operate today probably at a high single-digit percentage EBITDA range in their business in Personal Care, which is a little lower than what we would typically expect to see what we see in our business. So we think there's opportunity to get their operations up into that low double-digit range from an EBITDA perspective, primarily through G&A savings to be fair. And I think the way we look at it over 12-plus months, we'll probably see ratable synergies do we go along. It won't be something that we see that will be backloaded, but we'll probably make those changes over a period of time because we don't want to negatively impact the business in any way. if possible.

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

I know you have talked to some areas, but I just wondered to frame it a little better. I know you're not giving formal 2027 guidance at this point. But when you think broadly about major puts and takes versus the baseline that you'll establish for this year, how would you describe thinking about the swing factors for 2027 at this point?

Yes. A.J., I think the main thing for us really, if you look at it going into next year, mix is obviously going to be a play if you're thinking about just margin profile with AccentCare coming on board, we're going to shift more toward personal care, which is a little lower profile than you see in hospice and home health. So we'll expect to see that have an impact. We think we'll finish this year probably right out of very close to 13% EBITDA margins for the full year. We expect to see that probably come down a little bit next year without any other acquisition activity just due to the mix from AccentCare.

Outside of that, I think we expect to see kind of normal seasonal impacts in our margin profile overall. We should continue to see hopefully some additional leverage on G&A with our top line growth. We kind of talked about it a little bit earlier. I think PCS next year is going to be probably more of that 3% to 5% or maybe not into the upper single-digit range like it's been. So we want to get some of the early rates that we've got in the last couple of years.

But we still expect our hospice division to continue to run in that upper single-digit range from a growth perspective. We're very pleased to see home health back to positive at 2.5% same-store this quarter. We'd like to see that continued momentum into next year as well. But honestly, I think the other big thing will be how successful are we in M&A next year. Do we do some things on the clinical side that adjust that mix. And I think that will be probably a pretty big factor into kind of what you see for us next year.

Okay. And I know Dirk in the prepared remarks referred to some of the pickup in same-store home health and hospice was attributed to the new management team there. I wondered, thinking about from here forward, where is their focus, where are the greatest opportunities to improve performance? Is it just adding external referral sources in sales? Is it focusing on potential deals? Or are there operational things that they're particularly focused on that could be an opportunity?

Well, I think one of the things you're seeing is, again, because it has been our smallest division, it's 1 that probably didn't receive quite as much attention as others. And so bringing on new management has allowed them to look at the overall aspect of our business, home health business operationally and otherwise.

So focusing on sales, focusing on some of the operational improvements recruiting, number of things that they're working on that you're starting to see have positive effect on our growth. So again, I want to be careful. We are not a home health company per se today. We are a company that has a segment of home health and we want to continue to grow that appropriately as we have opportunities. I think what you'll see going forward. The biggest opportunity in home health will be -- are we able to find some acquisitions that we can bring on board to strengthen our overall offering in the states in which we operate, especially in those states in which we have overlap between all 3 levels of care.

The next question comes from Matthew Gillmor of KeyBanc.

On the same-store billable hour metric, I think you said it was 1.6% in the quarter, there was a slight deceleration from where you've been. I was curious if there was anything to call out, maybe that's just normal fluctuation, but I just wanted to see if there was any additional commentary you could provide?

No, there's nothing to really call out. As I said, we had a little bit of softening in September in Illinois and Texas. There's the 2 big markets for us. Those have bounced back in October. So there's nothing really there. Again, it was a small decrease. It fell below our target of 2% growth, but we think we'll be back to that.

Got it. And then on the New Mexico rate update. I think last call, we knew that the funds had been allocated, but it was a little unclear how it would work through the [indiscernible]. I was curious if you could provide some comments in terms of how that ultimately shook out and what enabled you to get access to that fund through the MCO?

Yes, Matt, we actually had to go to the different MCOs that run the managed Medicaid business in the state and have those conversations with them directly. I think as you guys probably know, New Mexico is the one that we have where we actually negotiate rate directly with the plans. It's not a state-mandated rate. So we had to go through that process. And so our team, I think, did a really good job of working with the MCOs there to effectuate the rate. That kind of came back to on an aggregate basis, kind of right out or just above that kind which is what the state had allocated to the services as an increase. So I think we landed exactly where we would expect to.

[Operator Instructions] The next question will come from Raj Kumar of Stephens.

Maybe just one on the ARPA funds and maybe just what was the utilization of those funds in the quarter? And then would be helpful to kind of remind us on maybe the kind of the utilization dynamics in terms of the deadline of utilizing those funds for the remaining amounts that you guys have?

Yes, Raj. Most of the funds are -- really all of the funds that we have left on the balance sheet are related to New Mexico. So from a timing basis, they had a deadline in order to get those funds out to providers, but there's no deadline on utilization for us. So we don't have a ticking clock on that. We had a very low utilization this quarter. I think we've looked at using those in ways to continue to enhance opportunities in the state for us and our caregivers from hiring bonuses, retention bonuses, things along those lines, some technology advancements that benefit the caregiver that is allowed to be used in these funds as well, and we've done that historically.

I think where we sit today, we have a pretty substantial balance on our balance sheet from Mexico that we'll have access to over the next few years, but no ticking clock on that.

Got it. And then maybe kind of looking at home health and seeing inflection in volume there. Also, it seems like your other payer mix there has also seen pretty substantial mix gain. So would be helpful if -- what's kind of driving that? Is it VA? And then it would be just also helpful on kind of how those reimbursements for those cases stand relative to fee-for-service?

Yes. I think on the Home Health side, I think we've had a focus of trying to make sure that the cases that we take are our rates that make sense. I think a lot of folks in the industry have really kind of draw that line over the last couple of years with some of the reimbursement pressure, particularly on the Medicare Advantage side. I think we've been really no different.

I would say we've gotten some wins, I think, in some of our negotiations with those folks of either getting per visit rate enhancement are actually moving to an episodic rate over the last couple of years. I think some of the leadership changes that we made early this year have paid some dividends as well. So we brought in some folks that are very experienced and are very helpful in having those conversations. I think that's benefited our home health business.

So we've been probably relatively stable from a mix perspective recently in the last few quarters. It feels like some of the days of really just MA penetration have really slowed. But we'll continue to be focused on that and making sure that the business that we do and the growth that we see is in the right places.

The next question comes from Constantine Davides of Citizens.

Just a couple of questions on Indiana. Have you -- first, have you been able to close that second transaction yet? And then on a related note, can you talk about the decision in the state to implement a moratorium on new providers and what you're expecting in terms of potential for other states to maybe fall a suit?

Yes, Constantine. I'll talk about the closing and let Dirk talk a little bit about the moratorium. We haven't been able to get that second one done just yet through some of the regulatory approvals that we need inside of the state. It's not necessarily related to the moratorium, but I think working through some of those back channel approval process has taken a little bit longer than we had anticipated. We still think we're going to get that one closed hopefully in the near future, but I'll let Dirk talk a little bit about the moratorium and impact there.

Yes. One of the things as a company and as an industry, we talk about is an appropriate moratorium could make sense. One of the things with PCS, it's a business fairly easy to enter into. And so we've seen over the last 2 or 3 years, a number of new folks come in, in the business with very limited hours, which causes the states to have a lot of additional work, whether it relates to from abuse issues, supervisory visits, other things that they need to do to make sure that there are appropriate operations going on in the state.

So we certainly have had discussions with various states talking to them about what we would term an appropriate moratorium, which should be beneficial to those of us that are in the state that are working hard to make sure that we are very compliant with the state and we're following through with all the rules and regulations. So it's something we'll continue to talk about and we believe could be an effective opportunity for the industry, but certainly for Addus if we're able to get some moratoriums through various states.

And then Dirk, in your prepared remarks, you used the word density a couple of times. And I'm just wondering sort of on a bigger picture basis, based on where you sit today, which is having a PC presence in 24 states, how many more states do you think you'd ultimately find attractive to expand into? And aside from a rate wage -- rate versus wage dynamic, what are the other considerations when you look at the attractiveness of entering in the market?

Well, if you look at our 24 states, we're right now really more focused on taking those states and giving more density into those markets. Now it doesn't mean just like we took the opportunity with Gentiva. They had a hot market presence in Texas. We were not in Texas. It allowed us into the state. Now with AccentCare, we continue to get much bigger in that market. And so we'll always look at opportunities that may be out there if it's in a market that we're not in, if we can enter with size to allow us to grow from there.

I think the things we look at when you look at various new states, how supportive have they been in history to our type program, are they statistically responsible as a state, I think that's very important because as you know, being a Medicaid program, states have to also be a financial participant in that along with the federal government. So it's important to state finances can support it.

Also the growth in the elderly population, another big aspect we have to look at because if you think in terms of our population, our average personal care client is in the mid-70s or above. And so again, as you've seen, baby boomers a few years ago, start coming and growing. We're looking at those markets where those folks are now into their mid-70s and could be another impetus for growing the PCS market in that area. So those are really the 2 or 3 things we look at when we're looking to go into -- enter into other sites.

That's helpful. And then last one for me. Can you just update us on the latest and greatest with respect to the Homecare Homebase rollout?

Yes. We're in the middle of our home care home care home-based home care rollout, excuse me, we've been pretty busy with it. So sometimes we get a little tired. We should have the majority of our states done by the end of this year. Now the big state of Illinois, obviously, a big market for us will be first quarter of next year, and that will be followed right after that with New Mexico. So probably by April or May of next year, we should have all of our major markets that we're converting to Homecare Homebase first off the old Horizon system, which we've been operating on for a number of years.

The one other large state, Texas, that we have acquired, they're operating on a system that is -- still system that is being supported and has not given us pressure to convert. That will flow into the end part of next year. So by the time you get to December of 2027, we will hope to have all of the operations that we have on board today converted over to Homecare Homebase and on the PCS business so that then we'd have a model into 1 system.

The next question comes from Ryan Langston of TD Cowen.

On PCS census growth, Dirk, I appreciate you saying Texas and Illinois in October moved back to July and August growth levels. Any insight into what October looked like for the non Texas and Illinois markets?

Yes, we continue to experience the growth. I think I had mentioned in my script that we had 7 out of our 10 top states experience growth and PCS census, we continue to see that. So realistically, if you think in terms of the appropriate census growth for us, you have -- all your markets are important, don't be wrong, and it's good to see all of those growing. Getting Illinois and Texas back to growing is key for us, and that's been a real focus of our team. And -- so again, in October, it's looking good. Looks like they're back to what we said was July and August. And hopefully, we'll continue to see that.

We're coming up into this time. Obviously, every year, you have the holidays -- that come up, but our team is preparing for that. And hopefully, we'll be able to show, again, year-over-year growth as our target for next year -- or for the fourth quarter, excuse me.

Got it. And then on the our percents metric in TCS, can you remind us what that profile typically looks like on some of the smaller acquisitions you've completed recently? And do you happen to have that KPI for what AccentCare is currently running at?

Yes, right. I think most of the we do smaller acquisitions. I mean, typically, those patients are going to be fairly comparable. There might be a little bit of mix shift in there as well, but it's going to be pretty in line with what we would see in our markets in the state. As you can imagine, even within the 24 sites that we operate in, there's some disparity even within the states on kind of what the averages are and based on how that state treats authorizations. They're more clustered, I think, today, if you look at like New work, which we were in a few years ago, was probably way outsized from a from an hours per client perspective. But I think we expected that, that was probably going to be addressed and has obviously been addressed through some of the things that they're doing up there. But I think from an accident care profile, their Texas business, California business, Illinois business is very similar to ours, so it's going to be very comparable.

[Operator Instructions] Next question comes from Clarke Murphy of Truist.

Just had a question on home health, you guys have put together a couple of strong quarters, and I know that you've got a lot going on in terms of some leadership changes and other changes that you guys have made in the segment. But I can't help, but notice that the strength has also kind of coincided with the Medicare moratorium that went into effect in May. Just kind of wanted to see if that has had any positive impact on your business and if you guys have any expectations given that, that's slated to expire next week?

Yes, I don't think it's had a material impact on our improvement in home health. I think we really had some work to do internally to get home help where we wanted to be. And I think our new leadership team has done a great job doing that. I mean, obviously, just like in PCS, we are not a de novo based business. So most of the moratoriums that are out there do not really affect our growth profile or how we operate as long as we can continue to look at certain acquisitions in the state and as if they're not covered by the more turn than we should be fine.

Perfect. And just my last question. the cash flow generation of this business continues to be really strong. Can you just kind of talk to us about how you guys are thinking about cash flow in the fourth quarter into the rest of the year and if the cash flow generation profile of the business changes at all once AccentCare comes into the fall of next year?

Yes, Clarke. I think this quarter was another strong quarter for us. I think we had just over $5 million in working cap benefit. I think we were up $25 million year-to-date, which has been -- been pretty nice to see, but I would expect some of that's just going to be some timing differences. So I would expect a little bit of a reversion back to kind of normal in Q4. But I think we've been very consistent in our collections on the AR side, particularly on the PCS side, have been very consistent.

But I think AccentCare coming on board again, most of those payers and the business there is going to be very similar to ours. Our teams are very experienced in working with those payers and those billing processes. So the systems that they're on, while we won't convert them over to home care, home base immediately, but the systems that they're on from AR side are systems that our teams have worked in or are working in and know very well. So we would not expect to see any real impact. It should be very consistent with how we see our business and our cash flow velocity.

The next question comes from Andrew Cooper of Raymond James.

I'll maybe just ask 1 on M&A. As you talk about maybe being a little bit more aggressive on the clinical side. Do you think about the sort of need for scale and kind of the ability to digest a larger sale asset any differently in the clinical side relative to PCS where obviously you've got a little bit more kind of under your belt in terms of tucking those in and kind of doing so pretty seamlessly?

Yes. Yes, I think what I wanted to know is if we would be willing to look at some of the larger maybe clinical acquisitions out there and our ability to tuck those in. Listen, one of the reasons we kept our balance sheet as clean as we tried to do over the last few years is to be prepared for when larger opportunities come about. And you saw that with Gentiva. We're seeing that now with AccentCare. We are currently looking at other large opportunities on the clinical side.

I think the big impediment to us over the last 2 or 3 years and looking at the clinical side, not come, we didn't like the business with the exception of home health rate needing to get that finalized a little bit from the federal government. It was the price of those transactions and the fact that it's difficult to get a return for our shareholders at that price. It does seem that some of the price is moderating. And if that's the case, then we are in a prime position with our balance sheet to look at larger deals in the clinical side, and we'll be willing to do that, again, subject to the fact that we can get them at a price that makes sense from a return on investment calculation.

So yes, we will be -- we're going to be looking clinical small and large, we're going to be looking at PCS, continue to look at that. So it's our goal to continue to be very active with our balance sheet and M&A over the next year or 2.

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

Thank you, operator. I want to thank everyone for taking their time today to join us. We hope you have a great week. Thank you.

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

Good morning, and welcome to Addus HomeCare's Second Quarter 2026 Earnings Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Dru Anderson, Senior Partner, FINN Partners. Please go ahead.

Thank you. Good morning, and welcome to the Addus HomeCare Corporation Second 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 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 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 second 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, Dru. Good morning, and welcome to our 2026 second quarter earnings call. With me today is Brian Poff, our Chief Financial Officer. As we do on each of our 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, we would be happy to respond to any questions.

As we announced yesterday afternoon, our total revenue for the second quarter of 2026 was $377.4 million, an increase of 8% as compared to the $349.4 million for the second quarter of 2025. This revenue growth resulted in adjusted earnings per share of $1.73 as compared to adjusted earnings per share for the second quarter of 2025 of $1.49, an increase of 16.1%. Our adjusted EBITDA was $49.2 million compared to $43.9 million for the second quarter of 2025, an increase of 11.9%.

For the second quarter of 2026, cash flow from operations was $40 million as compared to $22.5 million for the same period in 2025. As of March 31, 2026, we had cash on hand of approximately $100 million. With our strong cash flow in the second quarter, we reduced our bank debt to $64.3 million, leaving us with the financial flexibility to consider larger acquisition opportunities as we continue to pursue expansion of our market reach and increasing our geographic density.

As we announced on May 1, we closed on the acquisition of the personal care operation of HomeCourt 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 we look to enter new markets that fit our strategic profile.

As we announced last quarter, we have also entered into a definitive purchase agreement to acquire certain operating assets of a similarly sized personal care provider based in Indianapolis, Indiana area, which will complement our HomeCourt Home Care operation. We anticipate closing this acquisition subject to satisfaction of customary closing conditions, including regulatory review and approval. These 2 acquisitions continue our strategy of entering new markets with some scale and the ability to expand our services.

On July 1 of this year, CMS issued a proposed 2027 home health payment rule. CMS proposed to increase payments to home health agencies by 2.4% or $420 million, which reflects the impact of a 2.1% update in payments due to the statutory required annual payment update and a 0.3% increase in payments related to the proposed update to the fixed dollar loss ratio used for outlier payments. CMS is also proposing to implement a negative 3% temporary adjustment, the same as was applied last year. The net result is a proposed payment rate increase of 2.1% compared to last year's rate decrease of 1.3%.

While we are pleased with a positive rate increase for 2027, we are concerned about the continuing effect of the temporary adjustment, and we support the industry's ongoing efforts to eliminate these adjustments. Comments on the proposed rules are due by August 31, 2026, with the final rule expected around the end of October 2026.

On July 30, CMS published the final fiscal 2027 hospice rate, which will be effective on October 1, 2026. The final rate equates to a 2.3% increase versus the 2.4% proposed rate increase. While we are appreciative of this increase, it does reflect an approximate 30 basis point decrease from the fiscal 2026 final hospice rate increase of 2.6%.

While as of today, there has been no additional movement to announce, we continue to believe that the 80/20 provision of the CMS Medicaid access rule will be eliminated in the near future, potentially by year-end. 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. Our team continues to work with CMS to eliminate this portion of the Medicaid access rule.

During the second quarter of 2026, we continue to experience positive hiring trends in our Personal Care segment. Our number of hires per business day in the second quarter of 2026 was 104, which was down modestly from the prior quarter, but approximately the same rate we saw in the second quarter of 2025. Our team continues to do a nice job making sure we keep our hiring numbers at the level needed to meet our organic growth targets.

Now let me discuss our same-store revenue growth for the second quarter of 2026. For our Personal Care segment, our same-store revenue growth was 6.8% compared to the second quarter of 2025. During the second quarter of 2026, we saw Personal Care same-store hours increase by 2.2% compared to the same period in 2025, while our percentage of authorized hours served in the second quarter saw incremental improvement into the mid-80s as expected.

On a sequential basis, personal care same-store census increased 1.2% as we are seeing growth in the majority of our markets. During the second quarter, we saw growth in clients served in Illinois, our largest market, which is something we had anticipated for several quarters. This is important as we look to achieve year-over-year same-store census growth during the last half of 2026.

Turning to our clinical operations. Our hospice same-store revenue increased 11.1% compared to the same quarter of 2025. We did experience some impact from Medicare Cap this quarter, primarily in our Ohio market, which, as previously noted, is excluded from our same-store calculation. We continue to focus on maintaining a balanced mix of patients and operating within the Medicare Cap. We typically have some marginal cap exposure in a few provider locations each year and consistent with our approach, have mitigation strategies in place to reduce the ultimate impact. We are pleased to see our same-store average daily census increased to 3,964 for the second quarter, up from 3,720 for the same period last year, an increase of 6.5%. Our growth in hospice has continued in July with our average daily census exceeding 4,000.

For the second quarter of 2026, our hospice median length of stay was 24 days as compared to 23 days for the fourth quarter of 2025 and 22 days for the second quarter of 2025. Overall, our hospice segment has continued to generate consistent growth over the past several quarters. While our home health same-store revenue decreased 2.8% when compared to the same quarter of 2025, it was an improvement from the decrease of 6.6% we saw in the first quarter of this year. Importantly, we also saw sequential improvement in revenue, operating income and admissions. We continue to focus on upgrading leadership, conversion of referrals to admissions and focusing on timeliness of admissions.

We continue to believe that creating size and scale are important in post-acute health care services. And as you know, we have been focused on the development strategy for the past 10 years. Our development team continues to evaluate opportunities, which would increase both density and geographic coverage as we seek to further strengthen our relationship with states and managed care organizations. Recently, we have begun to see an increasing number of personal care opportunities, which we will be actively pursuing.

Since the announcement of the 2027 proposed home health rule rate, there is more optimism around potential deals in skilled home health care. While there is still some uncertainty around the temporary adjustment and its impact on future rate increases, there does seem to be more potential activity in home health care. While we will be open to considering 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 to thank our Addus team for the care they are providing to our elderly and disabled consumers and patients. We have all come to understand that the overwhelming majority of the population prefers to receive care 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 our 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 company continued its trajectory of solid growth and consistent operational execution during the second quarter of 2026. We delivered an 8% top line revenue increase, bringing total net service revenues to $377.4 million, alongside a strong 11.9% year-over-year rise in adjusted EBITDA to $49.2 million.

Our Personal Care segment accounted for 78.4% of revenues, achieving a 6.8% organic revenue increase compared to the second quarter of last year. Growth was bolstered by higher volume trends with an increase of 2.2% in same-store hours per business day within our target range of 2% to 2.5%. The second quarter also included 2 months of the operations of HomeCourt Home Care, our Indiana acquisition, which closed on May 1. Additionally, we continue to realize positive contributions from state level rate support, including the 9.9% reimbursement rate enhancement in Texas enacted late last year as well as a 3.9% increase in Illinois that took effect January 1 of this year.

Our hospice operations delivered steady performance, representing 17% of overall second quarter revenue with an 11.1% organic revenue increase over the same period from last year. The steady expansion was powered by favorable year-over-year metrics across our average daily census and revenue per patient day.

Turning to home health. Our operations accounted for 4.6% of second quarter revenues, and we are encouraged by strengthening volume and admission trends. As we have noted previously, home health remains an important component of our comprehensive care continuum strategy, allowing us to offer all 3 levels of care to patients in select markets, which strengthens our value-based care capabilities and our relationships with payers. We continue to generate strong cash flow from operations through the first 6 months of the year, which leaves us very well capitalized.

Our balance sheet management and low leverage profile provide us the flexibility to strategically pursue targeted nonclinical and clinical acquisitions designed to deepen our market density and expand regional reach. As Dirk noted, total net service revenues for the second quarter were $377.4 million. The revenue breakdown is as follows: Personal Care revenues were $296 million or 78.4% of revenue. Hospice care revenues were $64.2 million or 17% of revenue. Home health revenues were $17.2 million or 4.6% of revenue. Other financial results for the second quarter of 2026 include the following: our gross margin percentage was 32.2% compared with 32.6% for the second quarter of 2025. Sequentially, our gross margin percentage reflects an expansion of 30 basis points from the first quarter of 2026.

As expected, we saw improvement in our gross margin percentage as employees begin to meet annual payroll tax thresholds and anticipate our gross margin percentage will continue following our historic annual pattern. G&A expense was 20.8% of revenue compared with 22.1% of revenue for the second quarter a year ago. Adjusted G&A expense for the second quarter was 19.2% compared with 20% a year ago as we continue to generate leverage on higher revenues and maintain cost discipline.

The company's adjusted EBITDA for the second quarter of 2026 was $49.2 million compared with $43.9 million a year ago, an increase of 11.9%. Adjusted EBITDA margin was 13% compared with 12.6% for the second quarter of 2025. We continue to expect our full year adjusted EBITDA margin percentage to remain between 12% and 13%.

Adjusted net income per diluted share was $1.73 compared with $1.49 for the second quarter of 2025. The adjusted per share results for the second quarter of 2026 exclude the following: acquisition expenses of $0.06, noncash stock-based compensation expense of $0.17 and restructure and other nonrecurring costs of $0.01. 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.

Our tax rate for the second quarter of 2026 was 26.9%, slightly higher than our historical average, primarily due to the lack of an extension for the Work Opportunity Tax Credit or WOTC program, which expired at the end of 2025. While traditionally, this program has been extended as part of broader legislation retroactively if necessary, without a further extension, we expect our tax rate to be in the upper 20% range.

DSOs were 35.5 days at the end of the second quarter of 2026 compared with 36.3 days at the end of the first quarter of 2026. 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 26.8 days compared with 47.4 days at the end of the first quarter of 2026, as we saw strong collections at the end of the second quarter.

Our net cash flow from operations was $40 million for the second quarter of 2026, continuing our trend of consistently strong performance. As of June 30, 2026, the company had cash of $99.6 million with capacity and availability under our revolving credit facility of $650 million and $577.8 million, respectively. Total bank debt was $64.3 million at the end of the quarter, a reduction of $30 million from the first quarter of 2026. We have also continued to reduce our revolver balance with $10 million paid to date in the third quarter. Our capital structure and strong balance sheet continue to support our ability to invest in our business and pursue strategic growth initiatives, including targeted acquisitions.

Looking ahead, we will selectively pursue acquisitions that complement our organic growth and align with our strategy while maintaining our disciplined capital allocation and managing 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 questions.

[Operator Instructions] The first question comes from Raj Kumar with Stephens.

I appreciate all the color on the census commentary for PCS. Maybe kind of thinking about the back half here, kind of maybe thinking about the big 3 states, Illinois, New Mexico and Texas. Just curious on what you're seeing quarter-to-date there on that trajectory. And then also specifically towards New Mexico and Texas, I would appreciate any additional color on the caregiver app rollout and what inning you guys kind of see that being in right now?

Raj, I'll start first on the first part of the question. I think we're seeing nice momentum so far, I think particularly Illinois and New Mexico on just patient census. I think Texas, for us, has been not declining, but it has been kind of holding steady. So I think we're trying to see if we can get that accelerating at the same level that we're seeing in Illinois and New Mexico. I think both of those states are performing very well.

And I think on your question around the fill rate and the caregiver app. So we actually saw a nice uptick this quarter. Our fill rate on a consolidated basis was between 84% and 85%, so up a little bit from kind of the lower 80s where we've been lately. I think the big driver of that has been Texas. So we've rolled out the caregiver app. We talked about it last quarter, probably expected it to take a few months to really see some traction. I think that actually is actually ahead of schedule, has ramped a little quicker than we probably even expected. So Texas has gotten up in kind of that mid, sliding toward the upper 80% range and fill rate. New Mexico, as we kind of expected with that rollout, having to work through the state's EVV app has been a little bit slower. We've seen a little bit of progress there, but not to the same level so far that we've seen in Texas.

Great. And as my follow-up, as you kind of think about the margin profile of the business kind of trending towards the upper end, it seems like towards the 12% to 13% kind of guide. I guess it would be helpful to kind of go through the color commentary on sequential movements in the back half. And then ultimately, also kind of thinking about the Gentiva integration and synergies there. I think you spoke more to that in the back half of this year. So curious on progress on that front as well.

Yes. I think on margin profile, I think we typically see Q3 -- sorry, Q2 to Q3 remaining pretty consistent. So somewhere in a similar range. Q4 is usually a higher percentage quarter for us to get the hospice rate increase. We don't have additional costs to go with that. So that's usually impactful. Plus we see, I think, some additional relief on payroll tax thresholds being met. So our expectation would be Q2 to Q3, probably pretty consistent, maybe a slight tick up and then a higher jump going into Q4.

I think you kind of put all that together, that's probably going to put us toward the higher end of the 12%, pushing to 13% for the full year. I think really nice for us to see 13% in Q2. I think it sets us up well to be at that or above that for the remainder of this year, which we really like to see.

I think on Gentiva and synergies, I think the one thing that we've kind of consistently talked about there is kind of some duplication of costs in their EMR. I think right now, we always talked about that as being a transition that we'll probably see in 2027. Right now, we're in the midst of doing our conversion of our legacy business into Homecare Homebase. That's going very well so far, but that will probably get us into early '27. We'll probably see the Gentiva business come off their EMR into that system sometime in that year. But we've always, I think, kind of indicated we expect to see probably close to probably $1 million in synergy as we eliminate some of those duplicate costs at that time.

I do think -- let me just add what Brian said. I do think the fact that the true transition of Gentiva has occurred. We're very comfortable with where we are in that process. I think the interesting thing in Texas right now is the rollout of our app. And as we have great hope that as we continue to roll that out and more people use that app, we'll continue to see growth in that particular market.

The next question comes from Ben Hendrix with RBC Capital Markets.

I wanted to jump over to hospice real quick and talk about the cap issue. I was wondering if you could elaborate a little bit more on kind of what your target balance is for long and short-stay patients and types of referrals in your Ohio and other markets? And if there are any impediments or competitive pressures that are kind of impeding you reaching those -- that balance?

Ben, yes, I think as Dirk kind of mentioned in his comments, we did have some cap this quarter that we recorded primarily in our Ohio market. I think we feel pretty comfortable that we're not going to have any additional exposure to cap for the remainder of this year. I think we've got some mitigation strategies in place that hopefully actually will help us mitigate some of the expense that we've taken to date as we get closer to the end of the cap year. But for us, I think it's always the key just operationally to make sure we have a good balanced mix of patients and making sure we're calling on the right referral sources.

We typically have some programs, you're trying to kind of maximize ADC growth, but also making sure that you're operating within the cap. And we typically have some programs every year that might slip in slightly, but we kind of saw that in Q2. So I think we feel pretty comfortable with where we are going forward the rest of this year. I think for us, the key is just making sure we maintain kind of that balanced kind of mix. But to the second part of your question, we're not necessarily seeing any operational or competitive pressures that are maybe limiting certain type of admissions. That's not really a factor that we're seeing.

Okay. And just a follow-up to one of Dirk's comments. You mentioned the final rule of 2.3%, a little bit below your expectations there, a little less than what you've seen prior. Just wondering how that 2.3% translates to the actual rate update you'll see in your markets and if that is going to create any incremental cap cushion or going into fourth quarter and into fiscal 2027?

Yes. I think initial modeling for us based on kind of wage index and where we operate, we'll probably be a little bit less than the 2.3% national average. We're kind of waiting for the finalized calculation through Homecare Homebase typically models that for us in a pretty detailed fashion. But initially, I think we'll be a little under that. But I don't think it really impacts kind of our view on where we think we'll be with cap through the end of this year. Again, I think we don't anticipate having any additional cap expense exposure through the end of this year.

And I think one of the things we did, we always have our leadership working on trying to make balance between, as Brian said, long and short-stay patients to manage your cap. Right now, our focus is on Ohio. Our team is working on that. They have a plan. And so as Brian said, we don't expect any more cap. In fact, there could be some mitigation before the end of the cap year. So we'll continue to work on that. There's nothing that should keep that from occurring.

The next question comes from Matthew Gillmor with KeyBanc.

I wanted to follow up on some of the M&A comments. Just seeing if there's any more details to share. And more specifically, I was curious if there's anything causing the uptick that Dirk mentioned in terms of personal care opportunities and some of the optimism around home health as well. So any additional details on the M&A front would be great.

Well, I think part of what we're seeing is that in the personal care segment, people are getting used to the fact that the changes that the administrative make on Medicaid is not really affecting our business or our industry near as much as people thought. So I think owners are now comfortable in considering putting their business up for sale. We've seen a number of businesses out there we're looking at. And we continue to be very active. It's just -- sometimes it takes a while to get some of these things over the finish line.

As it relates to the home health, realistically, probably starting about 4, 5, 6 months ago, there started to be optimism in the industry. If you listen to people, they started talking about we feel like the proposed rate coming out will be better than what we've seen in the last few years. I think that optimism actually increased when the proposed rule came out. The fact that some of the issues we were fearful of were not there. So really, the real issue out there is still the temporary adjustment. But I think people have gotten comfortable with that to believe that, that's going to be handled in the next year or 2. And so that's why I think you're seeing some of the opportunities in the home health starting to come about.

Got it. And then following up on just the state budget topic. Anything to report in terms of where things have landed across some of your key states, especially Illinois now that we're towards the tail end of the typical budgetary cycle?

I think most states that have finalized their budgets, I think a lot of people had some concerns that, hey, you might see some pressure. I think all the states that have finalized have maintained our rates. In fact, we've had a couple of states, particularly Oregon and Michigan, smaller states, have actually given us increase going into this next cycle. So I think some of the concerns people had about some of the impact of OB3 coming in 2027, at least don't seem to be resonating with states that impact their view of us, our services or our reimbursement at this time.

So I think we feel it's pretty stable. I think we announced on the last call that Illinois has finalized their budget. We're not going to get a rate increase this next cycle, but everything else is going to remain consistent. So just keep in mind, when we don't get reimbursement increases in states, we don't have wage inflation in those markets either. It kind of goes hand-in-hand. So margin profile should remain consistent.

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

Dirk, you mentioned hiring has continued to progress. In the states where the caregiver app has been rolled out the longest, so I guess, primarily Illinois, have you seen that have any impact on retention or churn within those caregiver bases there? Has that had any kind of quantifiable benefit on that yet? And then just what percentage of your caregivers are using the app in Illinois now?

Yes. I'll take the second part, and I'll let Dirk talk about the hiring piece, Sean. But in Illinois, I think we're at probably into the 90%-plus range of people that have downloaded and are using the app. I think we were hopeful to see similar adoption rates as we move into other states, Texas and Mexico. I think we're seeing Texas is not at that level at this point, but like I said, has ramped probably quicker than we had anticipated. So we'll be continuing to roll that out in additional states as we move forward. But I'll let Dirk talk a little bit about kind of just the impact from the app on recruiting and retention.

Yes. I think what we're seeing from the app is that our turnover is down slightly, which I think is exciting because, again, that's part of the aspect of making sure you have enough caregivers to take care of the clients that are out there and needing of care. So our team does a great job, our recruiting team. Our operations team in the field does a great job of making sure they're doing the things to get people on board, narrowing the time between when we actually hire somebody and when they get them their first client.

And so that along with -- and maintaining that mid 104, 105, 106 per business day target that we have, that along with the slightly lower turnover, I think, has certainly helped us as we try to continue to maintain the growth targets that we've given in PCS. And I do think that part of that is the reason why the turnover is slightly lower.

Okay. Great. And then on the bridge program, you've rolled that out in New Mexico and Tennessee. It sounds like putting a little bit more muscle behind it in Illinois now. What's actually involved in rolling that bridge program out? Is it mostly just some type of like technology implementation? Or is there a lot of market education you have to do? And what I want to understand a little bit better is just the lead time from when you roll that out in the market, how quickly you can start to move the needle on volumes toward your clinical assets there?

Well, I think right now, a lot of it is internal marketing to our teams, making sure that they're talking from a standpoint of home health to hospice, it's a lot easier because we're on Homecare Homebase. And so making sure that the leadership of the markets understand the bridge program. We do have some limitations as to marketing outside of our team in certain states. There's things you can and cannot do. So we have to be very careful with that. But we are seeing progress in Tennessee.

As you know, New Mexico has been a great market for us. Now we're moving into Illinois with it. And one of the aspects that's really encouraging to us, Brian mentioned in his comments or one of the answers to the question that we are in the middle of our conversion of our personal care business to Homecare Homebase. That is going very well. We are right now scheduled to be through by the end of the first quarter of 2027. Once that occurs, then the bridge program inclusive of PCS all the way up through home health and hospice, will be much easier because it will be on one EMR. So that's a time frame that we're very excited and something we're looking forward to as we try to expand the Bridge program more into the PCS world at that time.

The next question comes from Brian Tanquilut with Jefferies.

Maybe Dirk or Brian, as I think about some of the headlines we're seeing about the federal government withholding payments on Medicaid to certain states because of audits and whatnot. Just curious what you're seeing and how you're thinking about the states that you operate in, given this environment?

Well, I think there's a very political environment now, obviously, with the fraud and abuse out there, the focus by the current administration. I think the things we're seeing in most of the states. The 2 big states that we've seen are Minnesota and California. And if you look at our business, we don't do business in Minnesota. In California, almost our entire business is VA or private pay. So it really hasn't affected us.

If you think about the other states in which we operate in, we really haven't seen a lot of issues or concerns at least today from the state around the withholding of monies due to fraud and abuse. I do want to make the added statement, Brian, we've always said as a company, we are very supportive of the appropriate focus on fraud and abuse in the personal care and in the clinical side of the business. We believe very strongly that companies need to be focused on making sure that we're following the rules and we're doing everything we can to make sure that we've ourselves taken care of any fraud, waste and abuse. So we're very supportive of the action. But to your main point, we have not seen that in any of our markets to any degree.

Appreciate that, Dirk. And then as I think about your press release and your prepared remarks, it sounds to me like we've really seen this pickup in M&A on the pipeline. So when I think about your appetite for platform deals or bigger transactions, what does that look like today, especially given what we're hearing in terms of assets that are potentially coming up for sale that are very, very well scaled. So just curious how you're thinking about sizing and your appetite there?

One of the things we've done over the last few years, Brian, is we've really tried to maintain that disciplined balance sheet to allow us to take advantage of opportunities like you saw with Gentiva a couple of years ago when we were able to go out and do that. There are some scaled assets out there today. We are very interested in looking at those scaled assets. Of course, we'll always be careful and make sure that we've done our work, our due diligence work beforehand. But you can assume that our appetite for deals, whether they're small or large, that's part of what we do, and we have our team out there really pushing forward to try to get to success in some of those particular opportunities.

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

So a quick follow-up first. Would you be able to quantify the Medicare cap accrual in hospice and where -- and can you talk about the margins in that segment, operating margins?

Yes, Joanna, I think the total accrual we had in the second quarter was a little over $3 million. Again, we don't expect to see any additional expense for the remainder of this year and in fact, hope to be able to mitigate some of that before the end of the cap year. But it definitely was impactful. If you think about from a gross margin perspective, it impacted our hospice segment. I think we would have been in a really nice spot without the cap this quarter, but also obviously would have translated down to EBITDA as well.

Okay. And thanks for the color on the Illinois budget approval. So rates flat there, but wages will be flat, right? And when I think about the next year, right, so we know that Texas, I guess, those rates will be flat through the end of September next year. So can you talk about the New Mexico rate, was this finalized, and also some of these other states? So what I'm getting at is how should we think about the overall sort of average rate increases you would expect next year? And should we expect gross margins to expand a little bit or flattish next year when we think about the rate increases?

Joanna, I'll start with New Mexico first. I think that's the most recent. We had announced or talked about on our last call that they had allocated some additional funds for our services in their budget this year. They are a 7/1 fiscal. So theoretically, that should be beneficial to Q3. We were waiting to see exactly how the state was going to dictate to the plans to pass those dollars through. It seems where they've landed as they literally have left it up to the plans and those states talk individually to providers. So we're having those conversations with the MCOs in New Mexico. So I think at this time, until we finalize those conversations, we're not probably going to talk about a specific number.

But I would say, generally, we feel pretty optimistic that we're going to get our portion of what that rate increase should be for us, which we had indicated before would be around 4% rate increase for us. So we feel we're directionally in that same ballpark, but we'll talk about it more formally once we finish those conversations with the plans. I think ahead, Texas, you're right, they did not meet this year. They meet every 2 years. So any rate increase we would get from them, we'll start having those conversations when they get back in session in early '27. But any rate increase we would be able to achieve through that budget cycle should be impactful starting September 1 of next year.

And what about some other states or kind of what are some of the average sort of rate increase into next year?

Yes. I mean it's going to be state to state. Like I mentioned earlier, we did get some rate support this year in these cycles from Michigan and Oregon. So smaller states, we are seeing some movement there. There are states that we would like to see have been multiple years without a rate increase, that they really need one. Pennsylvania is probably one that's towards the top of that list that the last couple of years, I think has had a very difficult budget cycle overall. It's held pretty consistent.

So there are the states that we're working with and lobbying on to try to see if we can get additional rate support from them. But it's going to be a factor of kind of each state and their budget cycle and timing of when those occur. I think you look back over the last several years, what kind of rate support have we gotten? I mean, Illinois, New Mexico, Texas have all been pretty consistent. So we've been at the very high end. I think we've said for the next few years, we'd expect to see that tempered with not getting one from Illinois this year. It's probably going to be the case. It's kind of hard for us to put a specific number on what we would expect from a percentage increase overall. It's going to be state to state, cycle to cycle.

The next question comes from Andrew Mok with Barclays.

In PCS, you noted growth in the majority of your markets but haven't quite achieved same-store year-over-year census -- organic census growth yet. Can you provide more color on the markets that haven't achieved growth and what gives you confidence that you'll return to growth in the back half?

Yes. If you look at all of our markets, we started seeing New Mexico turn over a year ago, which we were glad to see. It took a little while for Illinois. That was one that was challenging the last few quarters. We did mention a quarter or 2 ago, we thought we were going to see that turn, and it has. So now we're starting to see Illinois add that ADC growth year-over-year.

Texas is the last one. We're starting to see some nice movement in that. So we would believe that we -- it is our hope that during the second half of 2026, we not only will continue to see sequential growth in ADC, but you will also return to the year-over-year growth.

Great. And then as a follow-up, the same-store new admissions in home health were up 9.8% in the quarter. Can you help us understand what's driving the better results there and where you're seeing traction in the market?

Yes. We hired some new leadership to come into home health. We spent a lot of time focused on it. Even though while it's a smaller part of our business, it's still a very important part as we look at the bridge program and other aspects of value-based care. And so that leadership is now starting to make some changes and reflected in the growth you saw. So we're pretty excited that we will continue to see incremental improvements in that particular segment leading to overall growth as we go through the year.

The next question comes from Ryan Langston with TD Cowen.

Obviously, really strong cash flow over the past couple of quarters. Sorry if I missed this, but how should we think about that trending over the rest of the year, just given the performance in the first half?

Yes, Ryan, I think it's been very consistent, very strong first half of this year, as you indicated. I think we would expect to see it probably temper a little bit. We've gotten some nice working cap credits the first part of the year as well. I think that's probably just under $20 million of working cap changes benefit. Wouldn't expect to see that probably continue at that pace, but we'll still continue to see consistent cash flow through the back half of this year. So overall, DSOs kind of in that mid-30s is probably going to be pretty consistent.

As I kind of indicated, Illinois with kind of the payment cycles were really low coming out of the end of the quarter. I wouldn't expect to see that stay in the 20s. That's probably not a realistic expectation. That will moderate, but still should be pretty consistent through the back half of the year, but probably not quite to the level that we've seen in the first 6 months.

Okay. And then just broadly on billable hours per census per month. I guess that's been a bright spot too. Just where do you see the terminal level you can get on that metric maybe over the next few years, especially with the app rollout and just some other things that you're doing?

Yes. I think the big thing for us and the indicator that we kind of point to that really drives that number is really just the fill rate, which is just the amount of hours that we're actually servicing to the authorized hours we're given by the state or by the plan. I think we mentioned we're kind of in that between 84% and 85% range this last quarter.

I think in our mind, should we be able to get that up at least up into the -- on a consolidated basis up into the upper 80s seems like a reasonable expectation. If you start thinking about 90 plus, that probably gets to be pretty difficult, not that it's not attainable, but we still think there's some room to move up at least into that upper 80s on a consolidated basis. So that's a big focus of ours.

The next question comes from Jared Haase with William Blair.

I wanted to ask another one related to some of the trends you're seeing on the census front with personal care. So I heard you mention Texas is more holding steady while you're seeing growth in New Mexico and Illinois. And I guess I just wanted to double-click on that. Is there anything specific you would call out that makes Texas a little bit nuanced compared to the experience you're seeing in the other states or anything either administratively at the state level, anything in terms of, let's say, competitive landscape or anything along those lines? I know you mentioned the rollout of the caregiver app should be a nice tailwind. But just wanted to understand if there was anything else that you guys are seeing in that market.

Yes. I don't think there's anything systemic with the Texas market. It's why it was a little bit lower growth over the last year or so. I do know from a company standpoint, it's one of -- again, just like we did in Illinois, it's one of the markets we put together a plan. We've talked to our leadership. We're focused on that growth, that ADC growth.

Again, I don't want to be redundant because I know you guys have heard me say this time and time again, you balance billable hour growth, which is what you bill with ADC growth, which is where those billable hours come from. And I think sometimes you get a little out of focus with that balance. We have really gone back and worked with our team to make sure that they understand both are important. And we're starting to see, as I said, New Mexico, Illinois, that result -- we expect the same result in Texas that we've seen coming into the last half of the year.

That's very helpful. And then as a follow-up, so with the visibility that you have now on the hospice rate increase for calendar 2027, I'm just curious any color you'd share in terms of level-setting expectations for what the segment profit margin could look like, either gross margin or operating income going into next year, which I guess is really a comment on what you're seeing in terms of wage expense inflation on the clinical side. But just curious how you would sort of frame expectations in terms of hospice margin going into next year?

Yes. I think generally, Jared, I think we've gotten back into a rhythm where our average rate increase on the wage side has been probably closer to 3%, which is kind of consistent with our historical; wages are a big component of cost, but it's not the only cost. So if we're going to get, say, closer to 2% on overall reimbursement, that's across the board. We're still doing 3-ish percent I don't think it's going to put really a lot of pressure or like to look at compression of our margins.

They might hold a little bit steady. We've done a lot, I think, over the last few years to help mitigate some of the expenses that are non-personnel. So think about as we've gotten larger, hospice has given us some ability to go out and have conversations with our med supplies, DME, pharmacy providers, things like that to help mitigate some costs. So overall, I think our view going into next year for margin profile of hospice, it should remain fairly consistent with where we've been.

The next question comes from Clarke Murphy with Truist.

Just wanted to start on the Indiana acquisition. Just wanted to see how the HomeCourt acquisition has gone versus what you had expected, if there's anything that you've learned from that deal that you could potentially apply to the second tranche of the operations that you're acquiring there and if your strong presence in kind of surrounding states has helped you guys drive that integration?

Yes, Clarke, I think Indiana, the HomeCourt acquisition has actually gotten off to a very good start. I think actually from a volume perspective, it's actually exceeded our expectations slightly. So it's really nice to see. But I think it does help a lot that it is so close to some of our larger markets; pretty easy for us to kind of tuck that under our regional leadership teams that are already operating in Illinois and Ohio and Michigan.

So there's always going to be a period of time where they have to become integrated with Addus and our processes and our culture. But I think it's actually gotten off to a really good start. I think once we close the second acquisition, our intent is to just pull that into the first one that we've already done being HomeCourt. So our expectation is that we'll continue to perform just as well.

Great. And as my follow-up, I appreciate the commentary that you guys made around the 80/20. There were some kind of broader rumblings about a month ago about a potential repeal of 80/20 as part of a broader kind of reform package. Just kind of wanted to see if your conversations with regulators have changed at all on that front or if there's anything that you'd call out that's kind of increasing perhaps your optimism around that?

Yes. I think certainly, it would be nice if it was part of a broader package, but I don't think it's dependent on having a broader package. I think CMS can change their interpretation of the rule as it relates to certain aspects. And 80/20 is one of the things we've talked to them about. Our belief is, again, just based on the conversations our team and the industry has had, we would believe there's a likelihood that the 80/20 portion of the Medicaid access rule will be eliminated sometime this year.

But again, with everything going on, I'll have to explain to you with the various things the administration is having to face right now and then the fact that you've got a midterm election coming up, it just seems to -- we'll see if it gets done by the end of the year as they're indicating to us.

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

Maybe first, just every once in a while, I want to just step back and ask you about the broad drivers of growth in personal care services. Can you just comment on is the demand for the service, the underlying demand, is that consistent with what you've seen in the last few years? Is there any change there? And when you think about gating factors on growth is a need for caregivers, the availability of that, is that a constraint in any way? And then in most of your markets, is reimbursement adequate to attract those caregivers? Just a sense of underlying supply-demand dynamics.

Yes. If you think about the personal care industry, we started seeing a couple, 3, 5 years ago, the baby boomers turning 65, and now they're aging into their 70s and mid-70s, which is really the prime age for the personal care client, which we serve. And so I think -- and this is most markets, there might be an exception or 2, but most of the markets in which we operate, the limitation on growth is not the ability to find the patients that need the care. It's generally finding, as you mentioned, the caregivers to be able to give that care.

And that's why our team has really been focused on doing things or speeding up the way, making it easier for people to apply, making it quicker to get to their first client being covered because, again, the reason they apply with you is they need a job. And so for us, we're pretty comfortable that our biggest issue of growth -- organic growth in most markets relates to the caregivers and being able to hire them. Now in most of our markets, if you think through it, the big markets of Illinois, Texas, New Mexico, Ohio, Tennessee, I can name them.

The state has been very, very supportive in rate. And so we've been able to take that rate and by passing along the appropriate amount to our caregivers, we've been able to continue to bring in those caregivers that we needed. The one state, A.J., that you mentioned, is there a state that didn't support the biggest state that was a -- was difficult for us to be able to support the cost of the caregiver and still stay in business in the state was New York. And that was a very difficult one up there, and that's one of the reasons 2 or 3 years ago, we left the state. But other than that, the remaining states in which we operate, we'd be very comfortable that they are providing enough support from a rate standpoint to allow us to hire the caregivers we need.

Okay. The other thing I wanted to ask about was, I know we focus on the states and the state updates. But obviously, in many states, you're working with the managed care companies. And I wondered in the way you're interacting with them, contracting with them, looking at any kind of value-based arrangements, whatever, is there any change that's going on or any emerging trends that we should be aware of?

Well, I think the change we've seen is as we've gotten bigger, especially with the Gentiva acquisition we made a couple of years ago, we've become much more of an important provider to these large managed care players. So we continue to strengthen that relationship and work with them. And it also allows us to try to look for opportunities to go into new states where they have business and they'd like to see us in.

So I would say nothing has changed really other than the fact that we've become, I think, a more important provider to them, and we're able to speak to them at a level because of our breadth, both from a number of states in which we operate, but also the geographic coverage in those markets. I think that's continued to enhance our ability to work with them. And that's also one of the reasons like Brian mentioned in New Mexico, Mexico is a state that gave a price increase, but basically said that managed care providers are the ones that are going to determine how that is passed through to the providers.

The fact that we're the largest provider of personal care services in that market, and we're a partner to all of the payers in that market, I think, helps us as we sit across the table from them trying to maintain our rates or increase our rates as we go 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 and for your questions today, and we hope that you have a great week. Thank you very much.

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

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.