Addus Homecare Corp (ADUS) 2026 Q3 法說會逐字稿

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 Adduson's 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 facts 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's 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 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 $1.56, 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 the state pressure, the rate pressure the industry has experienced over the past three or four 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 increase 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 for PCS was down 0.4% over the prior period, in the third quarter, we saw seven of our 10 largest markets achieve 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 impact, 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 healthcare 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 few 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 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. 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 HomeCare HomeBase 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 two 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 admission trends and an increase of 2.5% in organic revenue over the prior year quarter. Maintaining all three 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 continue to generate strong cash flow from operations through the first nine 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 non-clinical 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 six 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. Non-cash stock-based compensation expense of $0.12 and restructure and other non-recurring costs of $0.01.

The adjusted per share results for the third quarter of 2025 excluded the following: acquisition expenses of $0.08, non-cash stock-based compensation expense of $0.18 and restructure and other non-recurring 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 toward 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 on Aging for the third quarter were 48 days compared with 26.8 days at the end of the second quarter of 2026 as we experienced 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) Sean Dodge, BMO Capital Markets.

Yeah, thanks. Good morning. Maybe just on the same-store, billable census, Dirk, I know you said you were seeing strength in seven of your markets.

It sounds like Texas and Illinois that continue to lag a little bit. Just the confidence that those are reviving in that metrical 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 on 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 for 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'm going 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 on the appropriate growth, 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 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 two 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 into 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. 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 a methodology 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.

Okay, great. That's helpful. Thanks again.

Ben Hendrix, RBC Capital Markets.

Thank you very much. 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 in Medicaid terms.

So 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 the 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%, 8% of their business is going 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. 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 the 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 applying that to our business.

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

Yeah, most of those markets, I mean, obviously, the bigger pieces here are the key for really Texas, Illinois, then you get into California, then some in Arizona are really the big four 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.

And some VA business, Illinois is 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 VA 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 CalAIM Medicaid program that they operate in that.

Do not, but it's a small piece of the business that we're getting with them. And then Arizona is going to be similar as well Medicaid focused.

Thank you.

Andrew Mok, Barclays.

Hi, good morning. 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'd love to hear your thoughts on that. Thanks.

Yeah, Andrew, I think things that we were looking at, if you're referencing 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 that 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 in this cap year have been very helpful in that regard.

I think you look at the length of stay, our discharged 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 year and 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 position.

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 to this year.

Does the changing of the congressional composition impact your view at all?

Yeah, we were talking to our government relations folks this morning after the results of the election. Now, we still have a belief that CMS plans on changing the 80/20, doing away with 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 four or five weeks, we were told it wouldn't be done till 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 on the timing. But we still do believe and expect by year-end, we'll see a movement on the 80/20 that it should come out of the rule.

Great. Thank you.

Brian Tanquilut, Jefferies.

Hey, good morning, guys. Maybe, Dirk, as I think about first, when we think of the work requirement for Medicaid that's going to get rolled out for 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 work requirements earlier where you operate?

Yeah, so far, I think one or two 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. Going to be qualified to avoid 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 still waiting to see that in a couple of states that rolled out, that hasn't occurred yet, hasn't been a negative on labor, but it hasn't really been a positive. So the only other thing that I think will be. Watching and when 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 redeterminations, so we're hopeful that they have that experience and they're going to be prepared for 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?

I think on the rate side, 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 OBBBA conversations happened at the time decided to hold flat. And 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 two that we'll watch early when they get seeded back and go back into session early next year, will we see some additional movement from them, we didn't get one 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 mid-year 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 and the state as well.

And then Texas, who only meets every two years, they've had nice rate increases the last couple of cycles. We still think there's some headroom and 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 seated 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 from Illinois particularly that will go into effect early next year, we'll probably be more in that 3% to.

Range the first half of next year. If we get some rate support from either in Illinois or Texas or one of the other larger states or even in New Mexico again next year, toward the back half of next year, you can see us go back to the top end of that 3 to 5, if not above. But those are things that we'll be looking for.

Awesome. Thank you.

Joanna Gajuk, Bank of America.

Hi, good morning. Actually, first one, 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 census growth, how we should think about that?

Yeah, 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.

Yeah, I think just to add to that, we've talked about just on an hourly basis, which is really the thing that we're more focused on is 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 and we can see that come to fruition and then 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. Thank you. If I may, on a little bit different topic in terms of your appetite for acquisition.

So, you mentioned. There could be a couple of larger personal care deals out there in the market, so you just did one. And with that deal, by taking -- you said it 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 more tuck-in acquisitions?

Yeah, I think we're still open. So we get AccentCare closed as 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-month closing, but I think a lot of the systems conversions to 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, are 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 as 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. Home health, we've got a lot of green space in our portfolio where we can add operations there, but probably good multiples. And hospice, we're 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 in or active in as well.

Great. If I may on AccentCare. So I appreciate the comment around integration will be actually faster.

So can you help us maybe quantify the ultimate EBITDA margin target here? Because it sounds like that asset actually has higher private pay, so 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 one versus year two?

Thank you.

Yeah, I think the way we've kind of talked about AccentCare, they operate today probably in 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 and 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 as 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.

Great. Thank you so much.

AJ Rice, UBS.

Hi, everybody. 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?

Yeah, Jay, 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 or 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 that 3% to 5% or maybe not into the upper single-digit range like it's been.

So we will get some of. Rate than 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?

I think that will be probably a pretty big factor in kind of what you see for us next year.

Okay. And I know Dirk and Praya's 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 and 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 one 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. Overall offering in the states in which we operate, especially in those states in which we have overlap between all three levels of care.

All right. Thanks so much.

Matthew Gillmor, KeyBanc.

Hey, thanks for the question. 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. Those are two 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 MCOs. 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 MCOs?

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 state we have where we actually do negotiate rate directly with the plans.

It's not a state-mandated rate. So we had to go through that process and so our teams, I think, did a really good job of working with the MCOs there to effectuate the rate that kind of came back to an aggregate basis, kind of right out or just above that kind of that 4%, which is. The state had allocated to the services as an increase.

So I think we landed exactly where we would expect to.

Great. Thanks a lot.

(Operator Instructions) Raj Kumar, Stephens.

Hi, good morning. Maybe just one on 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 utilization dynamics in terms of the deadline of utilizing those funds for the remaining amount that you guys have?

Yeah, Raj, most of the ARPA funds are really all the ARPA 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 those funds as well, and we've done that historically. I think where we sit today, we still have a pretty substantial balance on our balance sheet from New Mexico that we'll 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 is also seen pretty. Substantial mixed gains.

So it 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?

Yeah, 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 at rates that make sense. I think a lot of folks in industry have really kind of drawn 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 or 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. Experience and are very helpful in having those conversations. And I think that's benefited our home health business.

So we've been probably relatively stable from a mix perspective recently 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, the growth that we see is in the right places.

Constantine Davides, Citizens.

Thanks. Good morning. Just a couple of questions on Indiana.

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 follow suit?

Yes, Constantina, 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 processes 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. Talk a little bit about the moratorium and impact there.

One of the things as a company and as an industry we talk about is an appropriate moratorium can 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 two or three years, a number of new folks come in the business with very limited hours, which causes the states to have a lot of additional work, whether it relates to fraud and 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. 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're 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.

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? Aside from a rate wage, rate versus wage dynamic, what are the other considerations when you look at the effectiveness of entering a new 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 the our type of program?

Are they fiscally responsible as a state? I think that's very important because as being a Medicaid program, states have to. Also be a financial participant in that along with the federal government, so it's important the 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 two or three things we look at when we're looking to go into enter into other states.

Thanks. 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? Thanks.

Yeah, we are in the middle of our home care home care HomeCare HomeBase 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 the 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. A system that is being supported and is not giving 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 them all into one system.

Ryan Langston, TD Cowen.

Great, thanks. Good morning. On PCS census growth, Dirk, 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?

Yeah, we continue to experience the growth. I think I had mentioned in my script that we had seven out of our top 10 states experienced growth in 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. Hopefully, we'll continue to see that.

We're coming up into those 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 is our target for next year or for the fourth quarter, excuse me.

Got it. On the hours per census metric in PCS, 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?

Yeah, right. I think most of the times when we do smaller acquisitions, I mean, typically those patients are going to be fairly comparable. There might be a little bit of a 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 states that we operate in, there's some disparity even within those states on kind of what the averages are based on how that state treats authorizations. They're more clustered, I think, today. If you look at like work, which we were in a few years ago, was probably way outsized from an hours per client perspective, but I think we expected.

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 AccentCare profile, their Texas business, California business, Illinois business is very similar to ours, so it's going to be very comparable.

Great. Thanks.

(Operator Instructions) Clark Murphy, Truist.

Morning guys. Thanks for squeezing me in here. 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.

If you guys have any expectations given that that's slated to expire next week?

Yeah, 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 health 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 if they're not covered by the moratorium, then 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 and for the rest of the year and if the cash flow generation profile of the business changes at all once AccentCare comes into the fold next year?

Yes, Clark. 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're at $25 million year-to-date, which has been pretty nice to see, but I would expect some of that is 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 or 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 that should be very consistent with how we see our business and our cash flow velocity.

Andrew Cooper, Raymond James.

Hey, guys. I've been covered. Thanks for squeezing me in.

I'll maybe just ask one 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 scale 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.

Yeah, 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. You saw that with Gentiva.

We've seen 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 two or three years in looking at the clinical size, not because 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. 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 two.

I'll leave it there given the time. Thank you.

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 is now concluded. Thank you for attending today's presentation, and you may now disconnect.