Addus Homecare Corp (ADUS) 2022 Q1 法說會逐字稿

Good day and welcome to the Addus HomeCare's First Quarter 2022 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Dru Anderson. Please, go ahead.

Thank you. Good morning, and welcome to the Addus HomeCare Corporation First Quarter 2022 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 in reviewing yesterday's news release. This conference call may also contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements among others regarding Addus' expected quarterly and annual financial performance for 2022 or beyond.

For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing discussions of forecasts estimates, targets, plans, beliefs, expectations, and the like are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by important factors among others set forth and added filings with the Securities and Exchange Commission and in its first-quarter 2022 news release.

Consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. At this time, I would like to now turn the call over to the company's Chairman and Chief Executive Officer, Mr. Dirk Allison. Please go ahead, sir.

Thank you, Dru. Good morning, and welcome to our 2022 first-quarter earnings call. With me today are Brian Poff our Chief Financial Officer, and Brad Bickham our President, and Chief Operating Officer. As we do on each of our earnings calls, I will begin with a few overall comments and then Brian will discuss the first-quarter results in more detail. Following our comments, the three of us would be happy to respond to your questions.

I want to start by welcoming Cliff Blessing to Addus as our new Executive Vice President, Chief Development Officer. Many of you know Cliff from his long tenure leading the development team at Encompass Home Health. With our strategy to build further capability in skilled home health and hospice, along with our strong personal care platform, we were fortunate to be able to add someone with Cliff's background experience in acquiring and developing home health and hospice operations. I know I speak for our leadership team and board in saying how excited we are that Cliff has joined our team.

Yesterday, we announced our financial results for the first quarter of 2022. Especially in light of the challenges we saw in the first quarter, we are proud of our strong operating performance with year-over-year growth in revenue, gross margin, and earnings. Our team was able to produce solid results for the quarter despite the pressures from increased employee quarantines due to the omicron variant of COVID and a tight labor environment, which I will discuss in more detail in a few minutes.

Our revenue for the first quarter of 2022 was $226.6 million as compared to $205.3 million for the first quarter of 2021, an increase of 10.4%. Adjusted earnings per diluted share for the first quarter of 2022 were $0.77 as compared to $0.74 for the first quarter of 2021, an increase of 4.1%. Our adjusted EBITDA for the first quarter of 2022 was $22.4 million as compared to $19.3 million for the first quarter of 2021, an increase of 16.1%.

As we have discussed on our last call, during the first quarter of 2022, we saw the effects of the omicron surge, which began in late December. As the omicron surge continued into January, we experienced the highest caregiver quarantine levels at any time going back to the beginning of the COVID pandemic with approximately 4% of our personal care team impacted. While this most recent surge began to decline at the end of January, it was closer to the second week of February before we saw both our hiring numbers return to a more normal level and immaterial number of caregivers entering quarantine.

As of today, we continue to have a significantly reduced number of caregivers in quarantine, but we are continuing to monitor the prevalence of the BA.2 omicron sub variant. With that many caregivers quarantined in January, in some cases up to two weeks, and personal care billed by the hour of service, we did see an expected reduction in personal care hours served of approximately 6% for January 2022. However, by March, our hours per business day had increased to the level we saw in the fourth quarter of 2021.

Omicron also negatively affected our home health segment in the first quarter. In New Mexico, which has the majority of our home health operations, our revenues were negatively impacted by a number of hospital systems temporarily halting or limiting elected surgical procedures due to the rise of omicron cases. While this impacted our early quarter home health revenues, by March, we saw our admissions and financial results return to normal.

As it been discussed over the past few months by several companies in our industry, one of the most challenging issues we face today is labor pressure. This not only includes dealing with the challenge of hiring enough employees to care for our consumers and patients but also with the reality of increasing wages due to competition in the current labor environment. During our first quarter, we saw continued pressure in both of these areas. Let me give you some color on the labor dynamics for Addus.

As we discussed on our last call, we have seen the biggest impact of recent wage increases in clinical care. In our home health and hospice segments, market pressures resulted in wage increases of approximately 4% to 5% depending on clinical specialty. We have also experienced an increase in turnover in these segments as the demand for the limited number of clinicians increases across various healthcare settings. In March, we began to see improvement in our ability to hire and retain our clinical team. We believe that our upward adjustment in wages, along with a general improvement in the labor market, will potentially help moderate any continuing wage pressures during the remainder of 2022.

During this last quarter, we begin to have more visibility into how our states will be using federal ARPA funding they are eligible to receive for home and community-based service investments. At this time, 18 of our personal care states have approved ARPA spending plans and have either initiated payments or made public comments on the intended use of funds.

A summary of those plans are; eight of our states are providing lump-sum payments. The majority of these funds will be passed through to our caregivers. Even when funds are passed completely through to our team, we intend to design the payments to help us both retain current caregivers and to help with our recruiting efforts. We have identified approximately $21.1 million in ARPA-related funding that we expect to receive from these states. Seven of our states will provide permanent rate increases for our caregivers, averaging $2.22 cents per hour. We expect that we will benefit from a margin on these rate increases. Three of our states will provide a temporary extension of rate increases averaging $2.17 per hour.

We have also seen the finalization of many state budgets for the next fiscal year, including Illinois and New York. In Illinois, Governor Pritzker signed a fiscal 2023 budget on April 19th. We are pleased to have the certainty of a $0.70 per hour statewide rate increase, which will cover the July 1, 2022, Chicago cost minimum wage increase. However, as was the case in previous years, this rate increase will not be effective until January 1st, 2023. As we have experienced the last couple of years, this timing means we will have two-quarters of an approximate cost of living minimum wage increase of $0.40 per hour for our Chicago-based caregivers before we receive the offsetting rate increase. Once we receive the rate increase from the state, we expect to be able to adjust wages for our remaining Illinois employees.

In New York, the governor also signed a fiscal 2023 budget on April 19th. One of the provisions included in this budget, which impacted providers was an amendment to the CDPAP fiscal intermediary RFO process, which we have been discussing over the last year. The amendment authorizes all entities who submitted an RFO application and who serve a minimum number of clients to be able to contract with the department and continue to operate in all counties contained in their application. This amendment favorably impacts Addus and will allow us to continue you providing CDPAP services.

While we are excited to be able to continue our long history of serving CDPAP clients, we expect to continue our strategy of limiting our services to working with payers that have maintained a reimbursement rate, which will allow us to make a reasonable return on our services. The New York budget also eliminated the 1.5% Medicaid rate reduction that we saw in last year's budget.

In addition, Medicaid rates were increased 1% effective April 1st, 2022. Together, this means we will see a 2.5% increase on a portion of our New York business. While this is good news for our current New York business, we will continue to be focused on assuring that our managed care payers properly passed through these positive adjustments. With these changes to New York Medicaid reimbursement, we expect to see our New York operations stabilize.

Now, let me discuss our same-store revenue growth for the first quarter of 2022. Our same-store revenue growth for the personal care segment exclusive of New York CDPAP program and initial ARPA funds was 0.9% when compared to the first quarter of 2021. However, as we stated in our earnings release yesterday, exclusive of the impact of the omicron variant, our same-store growth and personal care would've been within our target range of 3%to 5%. We are happy to see that our March performance showed a strong recovery from the impact of Omicron, which occurred early in the quarter. Our personal care hires per patient day increased to 84 hires in March as compared to 64 hires per day in the difficult month of January. With strong hiring levels, continuing into April, we expect to see our personal care same-store revenue growth return to our targeted range.

Turning to our clinical operations, our home health segment same-store revenue was down 0.5% from prior year as we saw the previously discussed omicron impact on volumes in January and early February. While we were affected by this issue in the early months of the quarter, we saw March home health admissions increase steadily with the overall favorable trend continuing into April. We are excited about our home health operation and it complements our personal care services. We will continue to focus our efforts on expanding these services into our existing personal care markets.

As we had anticipated, our hospice same-store revenue continues to improve and increased 4.4% over the first quarter in 2021 in spite of the omicron challenges. We experienced solid same-store admission growth in the first quarter with admission volume increasing 1.9% over the first quarter of 2021 and 2.4% over the fourth quarter of 2021. Medium length of stay improved to 20 days in the first quarter as compared to 17 days for the first quarter of 2021.

We did have to see a slight decrease in minimum length of stay on a sequential basis. Medium length of stay increased in March 2022 to 22 days with this improvement continuing in April. Overall, our hospice ADC increased to 3,320 for the first quarter of 2022, inclusive of our JourneyCare acquisition completed during the quarter as compared to an ADC of 2,400 for the first quarter of 2021.

As I mentioned, we close on our acquisition of the operations of JourneyCare Hospice, a not-for-profit hospice with an excellent clinical reputation and one of the largest hospice operations in the Chicago Metro area. We now provide all three levels of care in our Northern Illinois market and will continue to look at opportunities to increase our home health and hospice coverage throughout the state. Our team has been working diligently on the integration of JourneyCare into Addus.

While there are a number of integration items remaining, I'm happy to report that we are on track with this process and within our expected timeline and budget. The JourneyCare team has been a great addition to add, and I'm excited about the potential for growth in this historically strong personal care market for Addus. With the addition of Cliff Blessing to lead our development efforts, we are reaffirming that acquisitions remain an important part of our growth strategy.

While we remain interested in all three levels of care, our current focus is on acquiring additional companies that operate in our personal care markets and in the home care segment. We continue to believe that acquisitions will remain an important part of achieving our 10% minimum annual revenue growth target, which we had had for the past few years. Over the past year, we have been participating in a number of projects with managed Medicaid payors to demonstrate our ability to help them improve outcomes for high-cost high-risk members. We have now begun to collect and analyze data, demonstrating that our efforts engage both personal care and clinical services are having a positive impact on overall health costs and outcomes. These projects have primarily focused on efforts to limit hospital readmissions, unnecessary emergency room visits, and closing of care gaps.

I'm excited to report that we are now ready to move to the next phase in our value-based care efforts. Over the next 12 months, we will begin investing in additional technology and analytics that will enable us to scale these activities and increase the number of our patients who are covered under a value-based approach. As we continue in this process, these advancements will in enhance our ability to effectively use the data we are collecting to improve clinical outcomes and better manage the cost associated with these patients. While we still believe that any material increase in our revenues from these efforts is two or three years away, we are excited about the potential of our value-based care approach.

The COVID pandemic has reaffirmed the value of taking care of elderly and disabled consumers and patients in their home. Home remains one of the safest and most cost-effective places to receive care and is also the place where most elderly individuals and their families prefer to be. Over the past two years, we have continued to invest in planning, preparation, and materials to assist us in safely and effectively fulfilling our role as an important care provider, allowing these consumers and patients their wish to stay at home. We believe that this heightened awareness of our value of home-based care is favorable for our industry and will continue to be a growth opportunity for our company.

We also understand and appreciate that our operations and growth are dependent on our dedicated caregivers who work so incredibly hard, providing outstanding care and support to our consumers, patients, and their families. I am thankful for each of our team members and am proud of the job they have done in the past and continue to do each day. It is important that we all focus on achieving our mission by putting our patients first. With that, let me turn the call over to Brian.

Thank you, Dirk. And good morning, everyone. As Dirk noted, Addus had a solid financial performance for the first quarter despite the challenges related to the pandemic and a higher caregiver quarantine rate to start the year. Our results reflect positive volume trends in all three segments compared to the first quarter of last year, as well as improved direct margins. Personal care benefited from the most recent rate increase in Illinois, and we are also encouraged by the continued progress in hospice care with improved revenue trends and sequential growth and admissions.

While our median length of stay for hospice care is not fully returned to pre-pandemic levels, we are optimistic that this trend will continue to improve in 2022. Our home health segment volumes were impacted by the reduction in elective procedures during the omicron wave, where we saw strong upward volume trends exiting the quarter. As Dirk referenced, total net service revenues for the first quarter were $226.6 million. The revenue breakdown is as follows; personal care revenues were $169.6 million or 74.8% of revenue. Hospice care revenues were $47.7 million or 21.1% of revenue. First-quarter 2022 hospice care revenues include the addition of the hospice division of Armada, which we acquired as of August 1st, 2021, and two months' results of the acquired operations of JourneyCare, which closed on February 1st, 2022.

Home health revenues were $9.3 million or 4.1% of revenue. These results include the operations of two acquisitions, the home health division of Armada and Summit Home Health, which closed October 1st, 2021. We have a strong business model in place across the care continuum and believe we are well-positioned to meet anticipated increasing demand in all of our operating segments.

In addition to our organic growth, we added approximately $30 million in acquired annualized revenues in 2021 and $55 million of acquired revenues to date in 2022, with the acquisition of JourneyCare. We continue to evaluate and pursue acquisition opportunities from a pipeline of potential transactions that meet our investment and strategic criteria.

As expected, we believe there is positive momentum in the number of opportunities coming to market as provider volumes recover from the omicron surge, and we are well-positioned to be active in the M&A arena. Other financial results for the first quarter of 2022 include the following; our gross margin percentage was 31% compared with 29.8% for the first quarter of 2021 as we continue to benefit from a higher mix of clinical services, including the JourneyCare acquisition completed in the first quarter. We also saw a full quarter of positive impact from the most recent Illinois rate increase in personal care, which was effective November 1st, 2021.

These margin increases were partially offset by our anticipated unemployment tax base reset on January 1st. While we expect to see our payroll tax burden lighting in the second quarter, we will have, or begin to see the effect of the Medicare sequestration holiday expiration with a 1% cut restored on April 1st and the additional 1% cut restored effective on July 1st. We anticipate these changes to negatively impact our gross margins by approximately 20 basis points in the second quarter and additional 20 basis points in the third quarter.

G&A expense was 23.5% of revenue, slightly higher than the 22.1% of revenue a year ago, primarily due to a higher level of acquisition expenses and a higher proportion of clinical services with a higher G&A profile. Adjusted to G&A expense was 21.1% of revenue up from 20.4% for the same period last year. The company's adjusted EBITDA increased to $22.4 million compared to $19.3 million a year ago, an increase of 16.1%. Adjusted EBITDA margin in the first quarter was 9.9% compared with 9.4% for the first quarter of 2021 and reflects the impact of our higher proportion of clinical services, which are now 25% of our revenues.

Adjusted net income per diluted share was $0.77 compared with $0.74 for the first quarter of 2021. The adjusted per-share results for the first quarter of 2022 exclude the following; acquisition of De Novo expenses of $0.13 and non-cash stock-based compensation expense of $0.11. The adjusted per-share results for the first quarter of 2021 exclude the following; COVID-19 expense benefit net of $0.03, acquisition of De Novo expenses of $0.08, restructuring and other costs of $0.02, and non-cash stock-based compensation of $0.12.

Our tax rate for the first quarter of 2022 was 27.9% up from 19% for the first quarter last year. This increase is primarily due to the change in the excess tax benefit generated by our stock compensation. For calendar 2022, we continue to expect our tax rate to be in the 25% to 27% range. DSOs were 52.4 days at the end of the first quarter of 2022, compared with 53.9 days at the end of the fourth quarter of 2021. We continue to see consistent payments from the majority of our payors and expect to see this trend continue, especially in our key markets where the states currently have budget surpluses.

Our DSO for the Illinois department of aging for the first quarter of 2022 was 43 days consistent with the end of the fourth quarter of 2021. Our first-quarter net cash provided by operations totaled $6 million. While cash collections were strong, we were negatively impacted during the quarter by the timing of certain payroll-related payments. We expect to see the benefit from these timing differences in future quarters. After funding of our JourneyCare acquisition, which closed on February 1st, 2022, and as of March 31st, 2022, the company had cash of $124.8 million, $259.9 million of bank debt, and capacity and availability of $377.6 million, and $109.6 million respectively under our revolver.

With the ability to fund a significant portion of our acquisitions through cash flow and a strong commitment from our banking, we remain well-capitalized to continue our targeted acquisition strategy in 2022. This concludes our prepared comments this morning. We would like to thank you for being with us. I'll now ask the operator to please open the line for your questions.

(Operator Instructions) The first question comes from Scott Fidel with Stephens.

Wanted to ask just my first question, just around the macro dynamic and the market's starting to think a little bit more around the potential of an economic slowdown, ultimately starting to play out at some point, particularly given what's happening with rising rates and interested in how you guys actually think about the impact of a slowing economy on your businesses certainly reflecting that your businesses aren't necessarily as economically sensitive. Just your thoughts on whether that can actually possibly even open up the hiring environment somewhat relative to what you guys have been experiencing over the last year, obviously.

Yeah, thanks, Scott. Let me try to take that one. Really, if you look at the economic issue out there in the industry, whether it's slowing down or not, and as it does slow down if it does, there are two things that will be affected. One, you think in terms of revenues, which as you mentioned, we're really not quite as sensitive of. The big issues in past years that we've had to be aware of is the state budgets in which we operate being is that 75% of our revenue still comes from the Medicaid programs. The good part of where we sit today is that with all the money that has been given to the states through the federal programs, our states probably are in the best financial position they've been in for a long time. So, even entering into a slowdown, we feel fairly confident that our state's budgets are in good shape and should continue to be able to handle the cost associated with Medicaid plans like ourself.

On the other side, you mentioned is labor. One of the things that we have found over the past number of years is that when the economy is slowing down, it tends to be beneficial for us, especially on the non-clinical side. As we look to hire caregivers, if you look at the caregivers we hire for us, not having as many potential opportunities elsewhere has always been something that we have looked forward to from a company in that when we're looking for hiring a caregiver -- Again, a lot of ours are minimum wage caregivers and have opportunities elsewhere that seems to modify somewhat when we see an economic slowdown. If history is a precursor or what we would see if the economy continues to slow, we would expect our ability to hire to continue to improve as we have seen in the last couple of months that we mentioned as we were discussing the quarter. So, we would expect an economic slowdown to have minimal effect on our company at this time.

Okay. I got it. And then, just a follow-up, maybe just looking a bit more near term and interested if Brian maybe you can give us a little framing on 2Q relative to just how the street has positioned things right now. Street's got around 6% sequential revenue growth in an EBITDA margin of just around 9.9%. You guys did mention several of the tailwinds around the ARPA funding, and obviously, you have the closed deals, and just as we think about the margins that the street is anticipating. Just hoping to get some of your comfort level with how consensus is modeling the next quarter.

Yes, Scott. I can give some general comments just as we're going to exit in Q1 and into Q2. We had indicated on our last call, what we expected the impact of Omicron to be in Q1, sends a longer-term surge or another surge, we expected things to return more back to normal headed into Q2. Our expectation remains the same today. Exiting the quarter, we're back to our pre-Omicron surge numbers, hiring numbers have been pretty strong. It's still a little early in Q2, but we're optimistic that you'll see the quarter return back to a more normal base into April, May, and June.

I think I mentioned a couple of other aspects thinking about it from a margin perspective, but those we're more offset if you think about sequester coming in. It's a small piece of our business overall, but we'll get a little bit of lightning from the payroll tax burden will offset that into Q2. I think getting in Q3, you see another 1% cut on sequestration. We'll have a little bit of an impact and headwind from the Chicago (inaudible). Not to the same level, we saw the last couple of years. It's a much smaller increase this year, but we'll see a little impact there. But otherwise, I think you were fairly comfortable with our trajectory heading out of Q1 into Q2.

And Scott, let me just comment on the ARP funds because I want to make sure people understand. While we are going to receive a lot of ARP funds from the various 18 states and some of the others that we have, most of that will not be revenue if any. The way it'll be handled because a lot of it'll be a direct pass-through to our caregivers. And so, the benefit of that as the company standpoint will be the way we tailor those funds. We will tailor those funds to the caregiver to help us retain the caregivers we have today and recruit new caregivers. And so, understand there may not be a direct financial bottom-line impact on the vast majority of those funds, but there should be a long-term improvement in our ability to hire and retain people because of them. So I just wanted to clarify that.

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

Actually, on this last point in terms of the state's accessing the federal funding, so I appreciate the $21 million that you expect to receive from the eight states so that will just flow through to the caregivers. But you also mentioned seven states that will implement rate increases. So I guess the question here is the timing for this. It sounds like this would be the one piece where you might expect benefit too much is just having the higher rates and there's I guess three states with temporary rate increases. So I just want to clarify for how long those temporary rate increases will be in place.

Yeah, Joanna. Thank you. Let me clarify what I said about the rate increase so you understand. There's two aspects. There's permanent rate increase and there's temporary rate increase. So let's talk about the permanent. Even with permanent rate increases, some states are dictating that all of that go to caregivers. Other allow us to retain some part of that, a very small part. We do believe there will be a small margin gain on the permanent rate increases, although it probably won't be to the level that you would normally see us as far as our margins for those types of services.

On the temporary rate increases, those are the ones we've always excluded from our numbers due to the fact that they are temporary in nature and that in a lot of cases, those go completely to the caregiver also. So, I think in terms of ARPA funds, what we're seeing and what's you should expect is, it's not a lot of bottom-line impact, really, not a lot of top-line impact, but it's money that's flowing through our company from the states directly to our caregivers, which should, again, based on the way we're going to try to design it, help us with recruitment and retainage.

Joanna, this is Brian, just one quick follow-up on that too. Just breaking that down. Some of our larger markets, if you're thinking about New Mexico, New York, and the like, those are the ones that are giving us more the lump sum payments. The rate increase that Dirk is mentioning, really a lot of those come from our smaller states, so it's not going to be as material on Addus. Just wanted to clarify that as well.

That's very helpful. Thank you for that. But I guess, when it comes to timing, are we talking about these starts to flow through next quarter, I mean this quarter or this year?

Yeah. We're expecting to start seeing some of those payments being made early this year into second-quarter into Q3. That the money, we definitely will see a lot of the plans that we've seen will start to see some of those funds in 2022, for sure.

One more follow-up. You also mentioned investments that are needed to move forward toward the value-based care models, so it's good to hear, and I appreciate the comments in terms of the scene, the benefits could be still a couple of years away. Just try to get more color on these investments. How meaningful would they be? Are they also coming in lump amount of spending? Any incremental call you might give on those and the timing of those where those are coming this year, that's why you're filing them now.

The investment in the value-based care that we're talking about is basically going to be improving our ability from a software standpoint to gather data and then review that data. It will be immaterial in the overall nature of our business. It will affect operational numbers slightly but in an immaterial basis and will be spread out over the next 12-plus months, so shouldn't have a material effect to our numbers.

If I may last question in terms of the comment that you made on the M&A, and I guess the new hire of Cliff that come came over from Encompass. Good to see that team being built out. Can you talk about are you seeing more assets on the block or you pretty much have to wait for the sequestration to fully come back to see deals on the home health side to pick up?

This is Brian. With Cliff on board, we're very excited about is, obviously, his breadth of experience, particularly in the skilled sectors, which have been a large focus of our M&A over the last couple of years, as we've indicated. So we're excited about that. But I think, and I mentioned a little bit in my early comments. I think we expected to see a little more increase in volume and inbound deals come in the spring as people got further away from the Omicron surge and volumes are covered. I think it's fair to say we are seeing a higher number of inbound calls recently. So I think that is coming to fruition. We'll see if that continues into this year. I think a lot of us had expected more of the skilled home health assets to be coming to market in the last couple of years and just hasn't really materialized, but we're hopeful that we'll see more opportunities in 2022. With Cliff coming on board and his experience in that area specifically, we're feeling very opportunistic.

The next question comes from Matt Larew with William Blair.

This is actually Madeline Mollman on for Matt Larew. On hiring, we were wondering, have you seen much interest in your CNA training program and what percentage of new nursing hires are coming through that program, and where do you see that trending long term? Like how much of your new nursing hires would you like to come from personal care employees being trained as CNAs as long term?

This is Brad. So in our CNA program, it's really designed to elevate our caregivers who come in. We actually offer a scholarship program. They apply. They have to meet certain criteria as caregivers and then we'll prepay their fees that they need to get their certification, their CNA education. So we've seen a pretty good pipeline. I mean, it's in a fairly limited number of states. We're doing it in New Mexico, primarily a little bit in Ohio, but starting to see some pretty good traction there. And these individuals tend to either stay with our personal care segment and work on our higher acuity VA-type clients, veterans administration clients or move into either our home health or our hospice. It's really a primarily working with our personal caregivers and elevating them to be able to practice at a higher level and give them opportunities to work in not just personal care, but also in our home health and hospice segments.

Great. And then, in terms of value-based care, I know you mentioned that you're working on building out value-based care through your software improvements. But we are just wondering, have you seen an increase in interest from managed care plans wanting to incorporate personal care and their offerings wanting to partner you as if you work through these pilot programs?

Yes, we are. It's interesting. We've always taken the approach that personal care along with clinical services are what's really valuable in the value-based care setting. We believe we've demonstrated that with our managed Medicaid pilots out of New Mexico. And as I mentioned in the call earlier that we're starting to get data proving that we're able to help lower the cost of care. We believe that we are seeing MCOs that are interested. They do understand the value of personal care. In fact, we have some opportunities to move outside the state of New Mexico and enter into efforts with other MCOs in other markets. We'll continue to look at that. We believe long-term, that having both personal care and home health and having hospice also, but mainly person care and home health is valuable in the value-based care.

The next question comes from Brian Tanquilut with Jefferies.

Dirk, my first question for you guys, anecdotally we're hearing that recruitment or inbounds for a lot of companies has picked up probably because of the pickup and inflation and also employees willing to take more hours. Just any color you can share with us may be on what you're seeing so far in terms of applications and new hires?

Yeah, Brian. This is Brad. We started actually seeing a nice pickup in candidate flow in January. Unfortunately, with the Omicron variant, we weren't able to seize on that opportunity as much as we'd like just because of quarantine numbers with internal staff, but that trend continued into February and March on the applicant side. And on the hiring front, we exited with March hiring numbers that were the highest we've had at 84 per business day, and that trend has continued into April as well.

Okay. That's awesome. And then, I guess, as I think about the hospice side of the business, right, I mean obviously length of stay is still a good bit lower, and I know some of that's just drags from some of the new acquisitions. But how are you thinking about the pace of recovery for hospice length of stay and ADC?

Yeah, I mean it's been slow and steady is how I would characterize it. We actually saw our hospice median length of stay, which really drives ADC to a large a measure decrease a little bit on a sequential basis from Q4 to Q1. However, we exited back at 22 days, which is where we finished in Q4 and April actually was 22 days on median length of stay as well. I think we're going to see a slow steady recovery there. We're seeing our ALF referrals admissions, both ADC start to build since the early days of the pandemic. Seems like a good trend.

(Operator Instructions) The next question comes from Mitra Ramgopal with Sidoti.

Just wanted to follow up some more on the M&A front. First, do you expect the higher interest rate environment to alter your acquisition strategy? And also, maybe comment a little in terms of maybe changes you might be seeing in valuations, especially on the hospice side and personal care.

Yeah, Mitchell. This is Brad. Just on the interest rate side, yeah we've seen a hike and I know there's more expected later this year. I don't think that materially plays into our acquisition strategy. I think if you look at us today, we've done a few deals, but I think net of cash on hand, we're still just all over one times leverage. So I think we're still in a very favorable position to continue to be acquisitive. I think Our expectation is well depending on the size of the deals that we do. JourneyCare here is a good proxy. We were able to use a pretty significant amount of cash on hand over that deal, so our borrowing actually is fairly limited. I think moving forward with our ability to potentially fund a lot of our acquisition strategy through cash flow, although it mitigates that potential overhang on the entry side, even though rates are going up.

But I think deal flow, as we mentioned, has started to improve on just the inbound side. We've always had a focus on sourcing our own internally as well, but early indications that it's still early, but multiples being where they are just broadly in the sector compared to last year. I think we are starting to see a little bit of compression. So it might take a little bit of time for sellers to come around to the rationalization that they are a little bit lower, but I think early on this year, we are seeing a little bit of compression and expectations on multiples.

Okay. Thanks. Then, also, just quickly in terms of when you look at your mix in terms of caregivers, what percentage you would say is related to the family versus no relation?

It's around 35% relation of family caregivers to total caregivers.

Is that number been fairly stable or you see it, given the environment right now, changing or being skewed more towards family?

It's been pretty stable really. Over the last several years, we just really haven't seen that number change primarily because Illinois is such a large market for us, and that's where we have a higher presence of family caregivers.

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

Thank you, operator. I want to thank you all for your interest in Addus and for being part of the earnings call today. We hope you have a great week.

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