Addus HomeCare Corporation Price & Performance (ADUS)

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 will now turn the call over to the company's Chairman, Chief Executive Officer, [indiscernible] Please go ahead, sir. Thank you, Drew. Good morning and welcome to our twenty twenty four fourth quarter earnings call. With me today are Brian Pop, our Chief Financial Officer and Brad Bickem, our President and Chief Operating Officer.

We do on each of our quarterly calls, will begin with a few overall comments and then Brian will discuss the fourth quarter results in more detail. Following our comments, the three of us would be happy to respond to any questions. Before I discuss our earnings, which we announced yesterday, let me express some thoughts related to the potential Medicaid program changes being discussed by the new administration and Congress. It is well documented that the new administration is actively pursuing across virtually all areas of federal spending. This includes healthcare service spending, although I note the press have recently indicated that Medicare and Medicaid would not be touched as part of the cuts. Still, there are many proposals being floated, so I wanted to spend a few minutes sharing our view on As part of the congressional discussions concerning possible cuts to federal spending, the following have been listed among others as potential areas to reduce federal spending on Medicaid, Per capita caps, lowering of the FMAP floor Medicaid FMAP penalty for covering undocumented immigrants with state only money reverse or limit state directed Medicaid payments, limit Medicaid provider taxes, repeal the American Rescue Plan FMAT state incentive Medicaid work requirements, and reversal of certain Biden administration rules such as nursing home staffing ratios and Medicaid access and enrollment rules.

The aggregate federal savings of this list, if implemented, could be as high as $2,300,000,000,000 over a ten year period of time.

However, it is believed that a number of these items on the list cannot be implemented concurrently. Also, the most recent House of Representatives budget resolution As you know, the population at Addus is overwhelmingly older adults and people with disabilities or in many cases [indiscernible] Most of the approaches that I just listed would not directly impact population we serve, But there are a couple of items that I would like to address in more detail. This idea discussed during the first Trump administration would set an annual upper limit on federal payments per Medicaid enrollees. Each state's total federal funding would be limited to the product of the number of enrollees times the capped per enrollee spending amount. The payment spending caps could vary for the different Medicaid eligibility groups in each state. We understand that some proposals under discussion would only apply these spending caps to certain Medicare eligible populations and not across the board. We believe our populations are less likely to be among the cap populations in those proposals. Lowering of the EFMAB floor Currently, the federal government reimburses states no less than 50% of the expenditures related to Medicaid. Some states are paid a higher percentage based on the relative per capita income of the state but all states received no less than the 50% lower payment Reducing the floor to the FMAT funding formula would impact a number of states with relatively higher earning population as they will receive less matching funds.

According to a July 2024 report by the Paragon Institute, the only states we serve that could be impacted by the lowering or removal of the EBITDA-four would be California and Washington, which their combined Medicaid revenue represents approximately 2% of our total consolidated revenue While proposed changes to federal Medicaid funding could shift additional costs to the states, we are optimistic that there is sufficient bipartisan support to avoid significant reductions at the state level I believe it is important to remember that the services we actually we offer reduce the overall cost to state Medicaid programs as the alternative is an increased frequency of Medicaid patients receiving more expensive institutional care Obviously, we cannot predict which, if any of these measures will be implemented or the net effect of any changes. However, we believe passage out of committee and then the House are both tall orders and our government relations team believes passage in the Senate will be daunting even at this level of reduction. In fact, the Senate is pursuing its own budget resolution that contemplates significantly lower spending cuts to Medicaid program Again, with unknown results. I want to be sure you understand our thinking concerning any potential Medicaid reductions.

Medicaid is a valuable state and federal lifeline to the extremely at risk population that we serve, which if cut could lead to much higher total cost of care for both states and the federal government. At Addis Addus, we are focused on our strategy of expanding our services to this population as it relates to home care which we believe remains valuable to both our states as well as Congress and this administration. We are encouraged by the bipartisan congressional comments opposing cut to the Medicaid program. As we continue to work with our contacts in Washington, we believe that as low cost provider to the elderly and disabled, we are in a good position to minimize any effect which may occur from the budget proposal as presented by the House. Now let me talk about the financial results we announced yesterday. Our total revenue for the fourth quarter of twenty twenty four was $297,100,000 an increase of 7.5% as compared to $276,400,000 for the fourth quarter of twenty twenty three. This revenue growth resulted in adjusted earnings per share of $1.38 as compared to adjusted earnings per share for the fourth quarter twenty twenty three of $1.32 an increase of 4.6%.

Our adjusted EBITDA was $37,800,000 compared to $34,300,000 for the fourth quarter of twenty twenty three an increase of 10.3%. This past year has been an exciting one for our company. We continue to be focused on our stated goal goal concerning growth and profitability as we demonstrated with the completion of our largest acquisition to date. For 2024, our total revenue was $1,200,000,000 including just one month of our Gentiva Personal Care acquisition that closed on December 2, which is an increase of 9.1% as for 2023. This revenue growth resulted in adjusted earnings per share of $5.26 as compared to adjusted earnings per share for 2023 of $4.18 an increase of 14.9%. Our adjusted EBITDA for 2024 was $140,300,000 as compared to $121,000,000 for 2023, an increase of 15.9%. During 2024, we continued to experience consistent cash flows As of the end of twenty twenty four, we had cash on hand of approximately [indiscernible] Following the close of Argentina transaction on 12/02/2024, and borrowing of $233,000,000 to fund this acquisition the amount outstanding on our bank line of credit was approximately $223,000,000 as of 12/31/2024. We continue to have a conservative leverage position at just under one times of adjusted EBITDA allowing us the flexibility to continue to evaluate and pursue strategic acquisition opportunities Let me share with you an update on our Following several months of joint planning with the Gentiva PCS team, we took over operations of this large PCS business with minimal disruption.

Both teams did an excellent job of preparing for the December closing understanding that Addis would need to provide most back office services from day one. While we normally have additional time following the closing of a transaction, to transfer certain back office systems, We did not have the runway in this case. However, with the detailed planning I just mentioned, we experienced a smooth process of moving this business into our Addis corporate structure. Recently, I had the opportunity to spend the day with Brad and the leadership team from our acquired Gentiba operations. The focus of the day was to help orient this new leadership team with the systems and methods of the legacy Addis operation. I was encouraged by both the enthusiasm and deep experience that our new team brings to Addis. It gives me a great deal of confidence in our ability to continue to take care of the many new consumers we added as a result of this acquisition while also meeting the financial goals we developed during the due diligence and transition planning process. I want to officially welcome all of our Gentiva teammates to Addis. Before I discuss our labor and operations, let me talk about the corporate office leave write off we included in our results announced yesterday.

Just prior to the twenty twenty pandemic, we had doubled the size of our corporate office footprint to support our corporate team and our potential future growth. After going remote for a number of weeks during the pandemic, our leadership team made the decision to utilize a modified remote work schedule for our Dallas team going forward as many companies have, In addition, we found that after an acquisition, we were better able to key leadership if we allowed certain new members of our team to remain in their current location, as opposed to requiring them to relocate to Dallas. With our company's operation being spread over 20 plus states, it has allowed leadership to be closer to our field operations. We've seen this change in approach worked extremely well for our corporate and operations [indiscernible] For this reason, we concluded there was excess space at our corporate office. After researching the limited opportunities in the sublease market, we determined it made sense to take a one time write off of approximately $4,900,000 in our fourth quarter of twenty statements in order to accelerate the remaining cost related to this excess space Now let me discuss certain areas of our operation.

During the fourth quarter of twenty twenty four, we continued to experience solid caregiver hiring success especially in our Personal Care segment. During the fourth quarter of twenty twenty four, we saw personal care hiring at 76 hires per day up two hires per day when compared to the fourth quarter of twenty twenty three. Please note that the hiring numbers exclude our New York operations, which [indiscernible] as well as the recently acquired GPS Gentiva PCS operation. Hiring is always more challenging in the fourth quarter of the year with both Thanksgiving and Christmas holidays So it is encouraging to see our hiring numbers remain in the mid-70s. Addition to our strong hiring numbers, we continued the momentum in starts per business day which we have seen over the past With respect to our clinical service line, as has been consistent over the past few quarters, we continue to see improvements in the overall clinical labor environment, although we do believe that for the foreseeable future, clinical hiring will remain more challenging and geographically variable in what we see in our PCS segment. As we have over the past few years, we continue to utilize the funding we received from the American Rescue Plan Act or ARPA During the fourth quarter of twenty twenty four, we received a small amount of additional ARPA funding while we utilized over $2,700,000 leaving approximately $11,000,000 remaining inaccessible funds These funds are continuing to be used to help procure improve recruitment and retention efforts as well as other opportunities to enhance our caregivers' experience In training, In our Personal Care segment, our services continue to receive favorable reimbursement support for many of the states in which we operate.

We are confident that personal care service continue to deliver real value to state Medicaid programs as well as our managed care partners through a reduction in the overall cost of care and as we stated earlier, put us in a favorable position as various Medicaid changes are considered. On 01/01/2025, Illinois, our largest state for personal care services, enacted a 5.5% rate increase for personal care services bringing the rate per hour to $29.63 We continue to appreciate the strong from the leadership of this state. Brian will give you more information on how we anticipate that this increase will positively impact our personal care financial performance for 2025. Now let me discuss our same store revenue growth for the fourth quarter of twenty twenty four. For our Personal Care segment, our same store revenue growth was 5.8% compared to the fourth quarter of twenty twenty three. During the fourth quarter of twenty twenty four, we saw per care same store hours increase by 0.7% as compared to the same period in 2023. We saw a slight impact to our same store hours growth due to continued Medicaid redeterminations, primarily in the Northern Part Of Illinois. While this process has taken longer in Illinois, we believe this is nearing an end.

It is encouraging that we continue to see improvement in our Compared to authorized hours, as we showed nice improvement over the fourth quarter of twenty twenty three. This continued improvement along with the completion of the Medicaid redetermination process should help us as we focus on returning our same store personal care hours growth rate to over 2%. Turning to our clinical operations, our hospice same store revenue increased 7.8% when compared to the fourth quarter twenty twenty three, Our total average daily census increased to 3,472 for the quarter up from 3,381 for the same period last year. Our same store average daily census increased 2.7% when compared to the same quarter last year. For the fourth quarter of twenty twenty four, our hospice minimum length of stay was twenty six days as compared to thirty one days for the third quarter of twenty twenty four, as we saw an increase in the number of short length of stay patients in the fourth quarter. Our stated target for this metric is mid to high 20s. Overall, while we are pleased by the improvement of our hospital segment this year, we have recently hired new operations and sales leadership to further accelerate improvement in this sales. [indiscernible] Are in the final stages of an overall sales retaining retraining project, which will conclude this month and we expect to drive continued volume improvements as the current year progresses.

Our Home Health segment same store revenue increased 1.6% when compared to the same quarter of 2023. We are pleased to see this segment of our business return to a positive same store revenue and anticipate this growth will continue in 2025 As we have previously discussed, our home health is an important partner to our hospice and personal care segments in the markets in which we have these overlapping services which allow us to provide our patients with the optimal care continuum to ensure our patients have the access to the right care at the right time. As demonstrated by the Gentiva Personal Care transaction, acquisitions continue to be an important part of our growth strategy at Addis Addus. Our targeted minimum annual revenue growth of 10% remains all gold even with the larger size of our revenue base. Specifically for home health opportunities, we continue to see more small transactions coming to market at this point in time. We feel this dynamic will continue until we know how CMS will handle annual home health rate rulemaking under the new administration along with any visibility we can obtain regarding the potential revenue clawback. We will, however, continue to look for those potential home health transactions that fit our strategy of adding clinical services in our existing personal care markets.

Now that we have a strong presence in Texas, our team has started looking for both clinical and non clinical acquisition opportunities In that state, which will allow us to start the process of statewide coverage in all three levels of home care. We are currently looking at certain smaller transactions with which fit well with this strategy. While there are indications of a number of larger clinical service acquisition potentially coming to market later, in 2025 we remain committed to maintaining our conservative approach to pricing and overall due diligence which we feel has proven to be advantageous for us over the past several quarters. 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 majority of the health Addus safety side table clients patients watch or receive care at home which remains one of the safest and most cost effective places to receive this care. We believe this 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 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. Our fourth quarter financial results marked a strong finish to 2024 as we continue to deliver consistent profitable growth throughout the year. Achieved 7.5% top line growth and a 10.3% increase in adjusted EBITDA compared with the fourth quarter last year.

For the year, revenues were up 9.1% and adjusted EBITDA over 2023. 5.8% organic revenue growth rate over the same period last year. This growth trend has consistently tracked well above our normal expected range of 3% to 5% this year.

These results were supported by strong hiring trends and favorable rates support for personal care services in some of our larger markets. As a reminder, going forward, we will benefit from the statewide reimbursement increase in Illinois effective January 1, 2025 which will contribute approximately $23,000,000 in annualized revenue with a margin in the low 20s consistent with the 77% rule in the state. The consolidated results for the fourth quarter included one month of the personal care operations of JENCEVA acquired on 12/02/2024, and excluded the company's previous operations in the State of New York. As a result of our agreement to divest these operations and exit the state. However, during the fourth quarter, we did receive approximately $3,500,000 in retroactive rate increases from the State of New York as a result of our previous reimbursement rate appeal. This revenue has been excluded from our adjusted results and same store metrics. We saw a steady improvement in our hospice business in the fourth quarter supported by the 2025 hospice reimbursement rate update effective 10/01/2024. We achieved 7.8% organic revenue growth and higher average daily census patient days and revenue per patient day compared with the fourth quarter last year Hospice care accounted for 20.1% of our total revenue [indiscernible] For our home health services, which is our smallest segment accounting for 6.1 we saw a return to positive organic revenue growth of 1.6% over the fourth quarter of last year.

We believe home health continues to be complementary to our personal care and hospice services. In addition to organic growth, we have benefited from our recently acquired operations. And we remain focused on identifying additional acquisitions that will be accretive to our operations and support our ability to expand our market reach.

Gentiva acquisition was the largest in our history adding approximately $280,000,000 in annualized revenues and significantly expanding our market coverage. As we continue to look for acquisitions that align with our growth strategy, our primary objective is to find operations in markets where we can leverage our strong personal care presence, and clinical services so we can offer all three levels of home based care. We also look for select opportunities to add new personal care markets where we can enter a support of a strong balance sheet even after the Gentiva acquisition, we are well positioned to execute our acquisition strategy. As Dirk noted, total net service revenues for the fourth quarter were $297,100,000 or $293,700,000 excluding the retroactive New York rate increase. The revenue breakdown excluding New York is as follows: Personal Care revenues were $216,900,000 or 73.8% of revenue. Hospice care revenues were $59,000,000 or 20.1% of revenue and home health revenues were $17,800,000 or 6.1% of revenue, Sequentially, from the fourth quarter twenty twenty four, revenue of $293,700,000 excluding New York we expect the first quarter of twenty twenty five to benefit from both the Illinois rate increase and two additional months of Gentiva revenue, partially offset by one less business day in personal care and some seasonal impact from the winter storms we experienced in certain of our markets.

Other financial results for the fourth quarter of twenty twenty four Excluding the impact of the retroactive New York rate increase, our gross margin percentage was 33.4% essentially flat from the fourth quarter of twenty twenty three. As expected, we saw a positive impact sequentially from the third quarter of twenty twenty four from the Medicare hospice rate increase and the divestiture of our lower margin New York business. Looking ahead to the first quarter of twenty twenty five, we expect our gross margin percentage to be negatively impacted by our annual merit increases and the normal annual reset of payroll taxes, as well as the mix shift toward personal care from a full quarter of the Gentiva operations and the Illinois rate increase. Cumulatively, we expect these items to contribute a decline sequentially in gross margin percentage of approximately 200 basis points compared to the fourth quarter of twenty twenty four, Although we will see higher gross margin dollars, with the first full quarter of the Gentiva operations and the Illinois statewide rate increase. G and A expense was 24% of revenue compared with 22% of revenue for the fourth quarter a year ago. Primarily as a result of higher acquisition expenses related to Gentiva, which included investment banking and professional fees of approx Adjusted G and A expenses for the fourth quarter of twenty twenty four were 20.5% a decrease from 20.6% in the comparable prior year quarter.

As expected, we saw increased sequential as a result of the divestiture of the New York operations and the respective revenues no longer included in our financial results. The company's adjusted EBITDA increased 10.3% to $37,800,000 compared with $34,300,000 a year ago. Adjusted EBITDA margin was 12.9% an increase from 12.4% for the fourth quarter of twenty twenty four and higher sequentially from 11.8% the third quarter of twenty twenty four. As expected, the divestiture of our New York operations had a positive impact of approximately 90 basis points on our adjusted EBITDA margin percentage sequentially from the third quarter of twenty twenty four. Adjusted net income per diluted share was $1.38 compared with $1.32 for the fourth quarter of twenty twenty three. The adjusted per share results for the fourth quarter of twenty twenty four exclude the following: Gain on sale of assets related to the New York divestiture of $0.15 the impact of lease impairment of $0.2 the impact of the retroactive New York rate increase of $0.14 acquisition expenses of $0.29 and non cash stock based compensation expense of $0.01 The adjusted per share results for the fourth quarter of twenty twenty three exclude the following: Impact of retroactive collecting bargaining agreements of $0.07 acquisition expenses of $0.07 and non cash stock based compensation expense of $0.12 Our tax rate for the fourth quarter of twenty twenty four was 25.5%, sequentially from the third quarter as a result of our New York divestiture, as expected.

For calendar 2025, we expect our tax rate to remain in the mid-twenty percent range. DSOs were thirty four point nine days at the end of the fourth quarter of twenty twenty four excluding the Gentiva acquisition, compared with thirty one point seven days at the end of the third quarter of twenty twenty four. Have continued to experience consistent cash collection from the majority of our payers. Our DSOs for the Illinois Department of Aging for the fourth quarter were a more normalized forty days compared with thirty two point five days at the end of the third quarter. [indiscernible] Our net cash flow from operations was $10,400,000 for the fourth quarter and $116,400,000 for the full year 2024. As expected, we saw a lesser benefit from working capital changes in the fourth quarter sequentially from the third quarter. During the fourth quarter of twenty twenty four, we received hundred and $20,000 in ARPA funding which we believe is our last currently scheduled disbursement, We utilized approximately $2,700,000 in ARPA funds during the fourth quarter and we have approximately $11,200,000 of funds remaining to be utilized. As of 12/31/2024, the company had cash of $98,900,000 with capacity and availability under our revolving credit facility of $577,700,000 and $346,600,000 respectively.

As previously disclosed, during the fourth quarter, we entered into an amended and restated credit agreement to increase our revolving credit facility from $600,000,000 to $650,000,000 and extend the maturity date through July 2028. With our consistently strong cash flow, we have already been able to make payments on our revolver subsequent to the Gentiva acquisition with a $10,000,000 reduction in late December, and an additional $10,000,000 reduction to date in the first quarter of twenty twenty five. We have a capital structure that supports our ability to continue to invest in our business and pursue our strategic growth initiatives including acquisitions. We will continue to selectively pursue in 2025 to complement our organic growth and align with our strategy. At the same time, we expect to maintain our disciplined capital allocation and continue to diligently manage our net leverage ratio through ongoing debt reduction. A current net leverage of just under one time, we are well positioned as we head into 20 please open the line for your questions. Thank you.

We will now begin the question and answer session. Today's first question comes from Joanna Gayeux with Bank of America.

Please go ahead. Hi, how are you? Thanks so much for taking the question here. So I guess maybe first, on the quarter, a couple of number of questions. In terms of the average revenue per hour in the quarter, if you right? It was down sequentially. So I assume that the Gentiva deal impact there So as we think about kind of the run rate including for Egentiva for three months, We're coming up with, call it, dollars 25, dollars 25, dollars 50 per per hour versus the legacy Addus 28. So is it in the ballpark because I understand that Texas Our Average hourly rate is much lower. So I just want to confirm kind of the math. We [indiscernible] Yes, Joanna, I think that's right. Texas is a lower bill rate. We had one month in Q4. We'll have a full quarter in Q1. So I definitely wouldn't anticipate that to impact that and bring that just average per hour down. So reimbursement rate in Texas is a little under $17 an hour. So it definitely is a little different profile as we've talked about previously. Now we will see a little bit of offset to that because we are getting the 5.5% increase in Illinois, which is our largest state.

So net net, there will be kind of a plus and minus there. So I would expect to see it probably slightly down as a result of that. But that's to be the progression Q4 into Q1.

Okay. Thank you. And another, I guess, number question here. So in the quarter, you said or [indiscernible] I guess, volumes in your personal coverage. Did I get that right? Was it up slightly Could you I guess, remind me that number? And I guess, how does it compare versus your third quarter because I think in third quarter the growth was maybe comparable like 0.6% or something like that organic versus Yes.

I think if you look at just personal care hours, quarter over quarter, we were up slightly. Our year over year, we were up just under 1%, down slightly sequentially is basically flat And if you look at just kind of volumes and piece in Q4 and what impacted there, we've talked about the redeterminations. We saw a spike in discharges in October.

Started seeing that number decrease steadily through the remainder of the fourth quarter and into November and December, January, again saw a little deceleration there in discharges. So we believe that the redetermination process is largely done, if not completely done. And we're starting to to see admission volume start to tick up at least we did in January. So optimistic that when we look at just volume growth in PCS for 2025, we talked about our long term goal of 3% to 5% revenue increase. I think we'll be at kind of the high end of that range again.

I'm sorry. So you're talking about for the full year '25 to be towards the higher end?

Correct.

Right. Okay. And then, so I guess, you alluded to like growing volumes maybe 2%. So I'm just trying to bridge you're going to get from, let's call it, a little bit less than one, I guess, 2% to 2%? Because I want to say you also talk about PBC about using your new scheduling app and I guess improving utilization there and average fill rate. So can you Walk us through maybe kind of the build how you're going to get to the 2% Organic Yes. I mean, I think if you see one, we see that the redetermination process is largely done. So we're not seeing the discharge rate coming down to a more normalized level. We're also starting to see admission volumes tick up, which tells me that the referral sources are now more focused on new clients rather than looking in redetermination. So think just on the volume side from the referral side, we're starting to see that number come up. As you point out, we have done a lot of things with our caregiver application. We're [indiscernible] began to rollout in New Mexico. And optimistic that we'll see some continued growth through that process. Helping us with our service percentage.

So I think, optimistically, we're shooting for 2% to 2.5% hours growth.

And I think Brian alluded to in his comments that we saw a little bit of challenges volume wise in Q1 related to weather in January. That's kind of normal. It's kind of depends on when a snowstorm hits. If it's a weekend, good. If it's a Monday, not so good. So we saw a little bit of challenges there early in January, but again, January numbers look pretty good in spite of that.

Thank you. And if I may, thank you for the comments at the start of the call around the potential reforms, which we don't know what which items that is going to be finalized and you mentioned two of them. Our interpretation was there's some support for the work requirements as well. So can you talk a little bit about how that would, if at all, impact your business if that was to happen nationwide? Thank you.

Yes. I mean, we just don't see any direct impact from that. If you think about the clients we serve, they're majority elderly, in many cases also disabled. So So work requirement would have a negligible direct effect If anything, it might actually potentially add some caregivers availability to us. So we don't see any negative to our kind of primary clients that we take care of.

The next question comes from Brian Hendrix with RBC Capital Markets. Please go ahead.

Hi, this is Mike Murray on for Ben. Thanks for taking my question.

I wanted to drill down a little bit more into the Texas market.

There's a sizable difference between healthcare minimum wage and the state minimum wage.

You've obviously had a lot of success driving volumes with [indiscernible] do you think you could outgrow your long term personal care growth target of 33% to 5% given this delta and the attractive demographics and [indiscernible] Well, I think as you as we have said many times, entering into the state of Texas was a a goal of ours for a long period of time due to the growth in the state. Both in just general population and the elderly growth. So what we really believe will happen is it can allow us to remain near the top of that 3% to 5% this point in time.

Now whether or not we're able to exceed that due to the Texas market, we'll have to wait and see because we're still relatively new to it. But we do think it is a very much a positive for our same store growth.

Thank you. I just had a quick follow-up or a different question. So cautious saw continued admission pressure, which led to sequential decline in census. I appreciate that you're putting in a new operations and sales leadership in this segment. I wanted to see if you could walk us through the drivers of the softness Are you seeing lower admissions from certain referral sources? Are you seeing increased Yes. On the admission volume, not overly concerned. We did as we mentioned, we've really revamped our sales and marketing team. We been going through ongoing sales training that started up in Q4 actually by the tail end of Q3. We're wrapping that up or just wrapped it up this past week. So sales team has been fully trained. This new sales leadership. I feel optimistic. And if you look at really our January numbers were actually pretty strong from an admission standpoint. So not real concern there. You do have in hospice traditionally kind of pre COVID there was a little bit of seasonality when you looked at admission volumes in ADC, Q4 tended to be kind of one of your your tighter or more challenging quarters just because of the holidays.

And then you come out of that and your Q1 looks pretty good. So optimistic that the changes that we made in the sales leadership will pay dividends for Addus. In 2025 and that's when when we look at kind of where we think we'll land, we talked about 5% to 7% '25.

Awesome.

Thank you so much. The next question comes from Brian Tanquilut with Jefferies.

Hey, good morning. Maybe Dirk, just a follow-up on the questions on policy. As we think about the potential for changes to the FMAP How are you thinking about how that could impact you given, number one, the geographic footprint that you have? And then maybe the flip side of this, any case studies that you can point to where in states where maybe they've block granted Medicaid, kind of like what have the states done in terms of adapting to that, maybe using more home health and just measures like that that you can point us to so that we can frame how to think about your exposure to Medicaid risk, if Congress changes the program? Thanks.

Yes. Well, if there's a reduction in FACT or quite honestly, the FACT match or block grants, we believe and have consistently believed and stated that Addis is in their right place in the Medicare environment. We are the company, we're the low cost provider in the home. We're not in the institutions. We have demonstrated four or five years with our value based care approach in two or three of our markets. That we're able to lower the cost to the state or to the particular Medicaid payer in that market, whether it be fewer e room visits whether it be readmeds to hospitals, trying to keep patients out of hospitals and quite frankly, as you're aware, we're much less expensive for our general population base if we're able to keep them in their home as opposed to them ending up in a nursing facility, which is going to have to be paid at that higher cost by the state. So again, we're watching all of the issues I mentioned earlier as it plays to Medicaid. We've been working very closely with our state and federal lobbyist as to what may happen But at this point, we're pretty positive on the fact Whatever change may or may not happen through Medicaid Addus is in the right place and we believe we'll be able to handle those changes.

I appreciate that. And then maybe just as a follow-up to Joanna's question on on volumes. Are we right in thinking that you're still there's still supply demand imbalance here and that you're not filling essentially every order. So as you ramp up hiring that We should see some volume growth that gets at least to that 2% number that you mentioned that?

Yes.

I think in most of our markets, we have that impact. Balance. And so there is just there is an opportunity extent that we're better able to leverage our existing workforce to give them more hours, which is really where a lot of our focus is on now. I think we're in a pretty good spot hiring and where I really want to see our teams do better is actually getting more hours out of our existing workforce. So It's a lower cost way to do business. It also should help with turnover rates. Because that's really the number one reason why caregivers leave us is ironically that they can't get all the hours that they they won't. And so that's where we're really focusing our attention. And I think there's opportunity to help us get to that 2%, 2.5% hours growth consistently. Awesome. Thanks, Brad.

The next question is from Tao Teo with Macquarie. Please go ahead. Hi, good morning. Thank you for taking my question. Just to follow-up on Medicaid.

Thinking about the mechanics here, if the 2025 budget contains 30 cuts to the federal share of Medicaid dollars, do you think that will hit your state reimbursement? Is it a later 2025 event or more of 2026 event? And I think you also mentioned that state lawmakers could step in to soften the blow. Given the value proposition, curious what are the discussions there today? Yes.

I think as far as when it would hit, I don't think it would affect 2025 at all. It would be years after that, that I think anything that might be changed with Medicaid would come into effect.

I think a lot of states are currently in their budget process. And so so I agree with Dirk. I think really if you saw pressure on state budgets, it's probably more of a 2026 item than a 2025 item.

For them.

Got it. Thanks for the clarity. So Brian, you talked about the expected 200 basis point margin decline from the fourth quarter to the first quarter. How much of that is attributed to Gentiva? I'm wondering what the margin profile is today and how much cost synergies you can extract holding the system integrations that you have?

Yes. I think if you think about it, Tao with Jotiva Texas being the largest piece of that, their gross margins are kind of in that low 20s. So that's definitely going to be impactful as part of the mix with additional two months. We typically are going to see the normal every year annual reset of payroll tax and merits and those kind of things are probably a little over 100 basis points for us just sequentially. So it's probably just under 100 basis points, it's probably just the mix shift overall.

Got you. And lastly, if I may, hospice revenue per patient day grew 5.6 can to that strengthening rate in hospice?

Yes, I think in the quarter, so we got the hospice rate increase, which is obviously the larger component there. Outside of that, we had probably just a little bit of mix shift, but we also had I think a positive impact in the quarter from the implicit price concession in hospice. They performed very well. I think that was the other difference and what you saw year over year in Q4.

Great. Thank you. The next question comes from Andrew Mark with Barclays.

Please go ahead. Good morning. This is Evan on for Andrew. How is the integration of Gentiva progressing Is there any timeline you can share to achieve mature EBITDA margins? Addus this acquisition impact free cash flow conversion and the pace of deals for 2025?

Yes. I'll start with just talking about the pace of integration. As Dirk mentioned, this is not our typical integration, even though it was our largest transaction to date. There were a lot more functions we took over day one the biggest of which was really payroll and benefits. And hats off to the team, both internally at the support center and then also looking at the Gentiva team. They did a remarkable a remarkable job in making that happen and go very smooth, surprisingly smooth. Process on that integration. Really, if you look at just kind of pace of integration, we're steadily working through the other items, not as heavy of a lift as the payroll and benefits. The probably the biggest one that will be out there is converting their billing and scheduling system. We're waiting till we get home care home base that we've been working with over the past several years developing a new product that's personal care focused before we roll that out to the GenTEVA team.

So that's probably more like in eighteen months timeframe before they come on the docket. They'll be kind of back end loaded on that process. So that's probably the biggest remaining integration item, but again, it's pretty far off in the future.

And it's real quick on the cash flow. So I think out of the gate early on we've had a pretty good transition as far as billing practice over into our system. So, as Brad mentioned, we've not changed their billing system. So a lot of that's going to remain pretty static. So no real impact there. I think conversion on cash flow was going to be very pretty consistent. A couple of little things as we kind of reduce some of the enrollment changes, but nothing material. So I think we're actually very pleased with how that's progressed for the first two point five months of the acquisition.

And just a quick follow-up on Gentiva, the $5,600,000 in investment acquisition expenses?

That is included in that $7,000,000 So those are the larger components of why it was $7,000,000 during the quarter and all in acquisition costs.

The next question is from Scott Fidel with please go ahead.

Hi, thanks. Good morning. First question, just wanted to pick up Dirk on some of the comments you had made around still wanting to prioritize pursuing acquisition opportunities where there's scales personal care assets still out there. Can you maybe can the team maybe give us some flavor on sort of that pipeline in terms of how many of those types of properties maybe out there as an opportunity for M and A. And then from a timing perspective, I know you're recommitting to your core M and A strategy with all the comments that you made today and in the press release last night. From a timing perspective though, would you want to see ultimately how I guess the sort of the legislative process does play out in Washington just to get visibility on ultimately if there are changes to Medicaid reimbursement how those could flow through or or would you if an opportunity strikes, I guess ahead of that, would you pursue that still while guess the legislative sausage making is still playing out in Washington?

Yes. I think the legislative potential changes on Medicaid. We believe as I said earlier, we'll be able to handle those as a company because of our position. In the market. So we are not changing our strategy or potential timing on deals. Based on that. Now obviously, we'll stay aware of that. We'll continue to look at what that might be, but we are in the process now of looking at opportunities that could further our not only our personal care strength in the various states, but also adding all three levels of care in markets out there that might be available to us. And so as far as the number of things we're seeing, there's a number of smaller deals out there. I think that's what you're going to see probably for the majority of 2025. I do think based on some of the recent discussions we've had, there are some larger transactions coming out potentially at the end towards the end of twenty twenty five. Some of those are in the clinical care area where pricing may be difficult for Addus. But it is something we will continue to look at. So I think overall, I would say our goal with our development, our acquisitions meeting our 10% target is still in effect today and the potential changes from the Medicaid, any Medicaid changes are not a concern of ours day.

Okay, got it. And then as a follow-up question, just wanted to go back to margins and Brian, appreciate some of the color on sequential good guys and bad guys on margin for the first quarter. Thought it might be helpful too just maybe to expand it out in terms of your thinking for the full year and anything you'd want to call out as we think about modeling either from a positive or negative perspective in terms of sort of I guess the integration of Gentiva? Does that provide sort of a ramping dynamic on margins to some degree? Improvements in hospice same store growth that Brad had mentioned, normal seasonal factors. Just thought anything you could throw at us to help sort of provide more details on how you see margins sort of playing out over the rest of the year and then even from a year over year perspective in 2025 versus 2024? Thanks.

Scott. And I'll preface it just thinking about the business that we have today. Obviously, any additional acquisitions particularly in the clinical services space is probably going to change that mix a little bit. But that put to the side, I think our normal seasonality that we expect as we kind of look at gross margins down to EBITDA Q1 is always our low watermark with payroll tax resets and merits and everything like along those lines. We usually see a little bit of lift into Q2. I think it's typically been historically thirty, forty basis points into Q2 improvement. Q2 to Q3 usually pretty flat, nothing really kind of moving the needle there. I think Q4 is usually our best quarter of the year. We get our hospice rate increase then, which is today about 20% of our business. But we also kind of get some additional relief on some of those payroll tax caps in Q4 as well. So it's kind of a step up kind of through the year has been what we typically historically have seen and what we would expect this year again in the absence of any further acquisitions, we might change the mix slightly.

Great. I'm going to try to sneak one more in here if I could. Just appreciate the update just on the debt pay down. Brian, is there any second placeholder? I know obviously this could be contingent on M and A, but if we're thinking about sort of utilizing free cash flow and to pay down debt, any type of marker you'd want to give us on maybe what for $25,000,000 could be a sort of a good bogey for full year debt pay down?

Yes. If you think about just kind of our typical conversion rate from operating cash flow, we usually see that kind of in that mid-70s of GAAP EBITDA. So if you think about projection for this year, that would anticipate us being kind of that $115,000,000 $120,000,000 in free cash flow for this year. So in absence of M and A, and working cap changes, a lot of that would be targeted toward debt repayment. Again, there could be some timing differences quarter to quarter. But that would be kind of how we would see it for the full year. So can break that down and do half to kind of see what the potential is there. So coming out of the year at $220,000,000 in debt, I mentioned we've already paid down $10,000,000 this quarter on the revolver. Obviously opportunities to continue to lighten that load through cash flow in the absence of M and A. But again, our preference and our focus is on on continuing to utilize our balance sheet on the M and A front.

Okay, great. Thank you.

The next question will come from Jared Hawke of William Blair. Please go ahead.

Hey, good morning. Thanks for taking the questions and appreciate all the color thus far. Maybe just on the policy environment, I'm wondering with the backdrop of, let's call it, trying to drive more efficiency in payments do you think that can catalyze an acceleration of value based or accountable care type reimbursement models from for home care looking at your state and managed care partners? Just curious if you see any kind of incremental lift from that?

Well, I think it certainly could. I mean, certainly, as federal government looking at efficiencies, South Korea's departments States may look at that also. And for us, that's one of the reasons why we feel like it puts us in a great position With our value based care approach over the last four to five years, as I mentioned earlier, we have demonstrated that through our abilities, we've been able to work with either the states or with the managed Medicaid providers to reduce their cost. Again, if you're talking about an environment where you're really looking at efficiencies and how do you get rid of waste, That is the way you can do it is in a low cost environment, if we can make sure that we're able to do what we do in a value based approach to reduce cost overall, that should be very valuable to our state partners.

Got it.

That makes a lot of sense. And then maybe just one more follow-up here on the labor environment. I think you alluded to expecting the clinical labor environment to remain more challenging relative to PCS. Just wanted to unpack that a little further in terms of what specifically you're seeing. Is that largely just reflective of the rate environment making it hard pay the wages that you need to pay? Is there any other competitive dynamics that you're seeing from other players in this space? In terms of attracting and retaining talent? Thanks. No, I mean, I think it's really just looking at in this been well documented that there is a shortage and that shortage is continuing to build on clinical staff. When you look at nurses, in particular. So it's really looking at just comp competition with institutional providers, who may be able to be in a position to pay a higher wage The nice thing that we're able to offer to to nurses is one flexibility and that opportunity to have a one on one care.

With patients and some nurses will are more than happy to sacrifice a little extra money they might make working a shift at a hospital to have that one on one opportunity and greater scheduling flex working for us. But it's just a dynamic that I think the healthcare for the foreseeable future versus on the personal care side, we feel like we're in a pretty good spot there.

From a labor standpoint.

Okay, great.

Thank you. The next question today comes from Matthew Gillmor with KeyBanc.

Please go ahead.

Hey, guys. I've just got one question left, but it's got two parts. For the improvement in the percent of hours per service in personal care that Dirk mentioned, I believe you made some system and process in metric. But the first part is, can you just give us a sense for how much room there is to go there And then the second part is, as the redetermination impact fades, does the penetration and number of hours just naturally [indiscernible] for new patients. Is this improvement in penetration purely additive to your growth?

Yes. I think if you at the things that we're doing from our caregiver application to help caregivers actually kind of have greater visibility on when they're if they're scheduled to essentially kind of come up short against the authorized hours and it allows them flexibility to work with their client to schedule those hours to make those up. I think there is we have further room to grow in that respect. I mean, I've been very pleased with the buy in from caregivers who have actually downloaded the app and are actively using it. That was of my big concerns was if you build it, will they come? And I think we've made it useful to them as a tool and they see the value in it. So I think there's continues to be opportunity to increase our service percentage, which has the number of hours we serve against the authorization. And when you look at that, I mean, I think that is actually additive to our growth. Because those are hours that otherwise we probably wouldn't have scheduled. So you'd like to think our service coordinators would be kind of all monitoring that closely. But I think having the caregivers actually have that visibility will actually allow us to greater leverage our existing workforce and increase that service percentage, which is capturing hours we otherwise wouldn't serve.

That's great. Thanks, Brad.

The next question comes from Constantine Davittas with Citizens. Please go ahead.

Hi, thanks. Just a couple of quick ones. I guess first, just I just wanted to be sure I heard you right, but it sounded like Dirk in your prepared remarks, you see some continued PCS M and A opportunities in Texas. And I was just wondering if you could expand on that just given you're already the largest provider there Addus obviously the relative rate and margin differential in that state.

Yes. Well, first off, Texas is a profitable state even with the lower hourly rate just due to the rate we pay caregivers, we still have a nice margin in that state. Talking about the size we are the largest, but even the top four providers are less than 20% of the market.

We're about 5% of the market. So we still have a lot of opportunity to grow our coverage across the state. And it's something that when we looked at the Geneva transaction, we knew it was going to be an added benefit to the company. So once that actually was completed and we've got them on board, our development team is now actively looking at other opportunity in all three levels of care in the state and certainly personal care is part of that focus that we're looking at. And do you guys have any visibility into sort of for rate lift in Texas. Just wondering if you can talk about the dialogue there and anything that might happen either this year or next?

Yes. I mean, I think if you look at the rates in Texas and possibilities there, There is a there's discussions right now with the legislative session the legislature is in session. There is a proposal to increase funding for personal care services. So we're monitoring that closely. Not a lot of clarity there yet other than we think that we feel pretty good there might be upside, but don't really have a quantified right now at this point. Still a lot of work to be done in the legislature.

Great.

And then, just one housekeeping on the on the corporate office lease. Is there any lease expense savings tied to that in 2025?

It should be flat. So we've actually had a kind of a full rate sublet for the last couple of years since COVID that's expiring. That's kind of what us in position to go ahead and accelerate to do the impairment. So there shouldn't be any any impact on the P and L side.

Thank you.

The next question comes from Ryan Langston with TD Cohen. Please go ahead.

Thanks.

Thanks for squeezing me in. Just a couple of quick ones. I think you said there was some storm impact maybe in the first quarter. Can you help us maybe think about the quantification of that? And then just wondering, is there any impact in the first quarter we should think about from this elevated flu season that we're seeing either from employees' ability for hours or just hours that you're booking with your clients?

Yes, storm impact. I mean, I think if you think it seems like eternity ago, but it was early January, we had some pretty significant storms that rolled through snow and ice hitting us in some areas that don't handle it as well. So we saw some negative impact there. [indiscernible] we get paid for hours served. And if we miss the visit, we try to reschedule, but there's certainly some challenges there. So there was a little impact in January, but overall feel pretty good about where we stand in February going into March on the personal care side.

From the flu season, anecdotally, there's certainly a lot of people who've been out of the office sick, but haven't heard really any major impacts there. And again, I think we've gotten accustomed to kind of working through those types of issues When you think about it seems like a lifetime ago with COVID and everything else, and we were able to weather those events pretty well.

Okay. Just last one. PCS turnover, maybe I missed it if I did, sorry. But can you remind us where you're running actually on turnover in that division?

And I guess, is it any different just in terms of that side of the business? Thanks. Yes, I mean we run around 50%, 55%, which is a little better than the industry average. And again, I think some of the things that we're doing, we're optimistic that we'll be able to reduce that number further.

With respect to Gentiva, I think don't have their numbers in front of me, but don't see any differences in their workforce than ours. So their turnover rate probably consistent. That being said, they do have a lot of preferred workers. So probably 70% of their Texas workforce preferred workers and you typically see a lower turnover rate there.

At this time, there are no further questions. Would like to turn the call back over to Dirk Allison for closing remarks.

Thank you, operator. We want to thank each of you for taking time to join us today on our earnings call. Hope you all have a great week. [indiscernible] The conference has now concluded. Thank you for participating. [indiscernible] [indiscernible]