Q3 2019 Earnings Call
Oh is being recorded.
To the extent any non-GAAP financial measure, it's disgusting todays call. You'll also find a reconciliation of that measure to the most directly comparable financial measures calculated according to gap by going through the company's website and revealing 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 2019 or beyond for this purpose any statements made during this call.
All that are not statements of historical fact, maybe deemed to be forward looking statements without limiting the foregoing discussions are forecast estimates targets plans beliefs expectations and alike are intended to identify forward looking statements.
You are hereby cautioned that these statements may be affected by important factors among others set forth in Addus filings with the Securities and Exchange Commission and in its third quarter news really.
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 it's a result of new information future events or otherwise.
I would now like to turn the call ever to the company's President and Chief Executive Officer Mr. Dark Allison. Please go ahead Sir.
Thank you Andrew Good morning, everyone and thank you for joining us for 2019 third quarter earnings call.
With me today as Brian Paul Our Chief Financial Officer, and Brad become our Chief operating officer as usual I will begin with some overall comments and then Brian will discuss the third quarter results that we issued yesterday afternoon.
Following our comments, we would be happy to respond to any questions.
As you saw with our earnings release yesterday, we had a very busy third quarter in early September we completed the offering up 2.3 million shares an equity, resulting in atish raising over $172 million.
This offering allowed us to acquire Haas hospice Parkers of America, our previously announced 130 million dollar hospice acquisition, while maintaining a clean balance sheet, allowing us to continue to focus on our acquisition strategy.
With the completion of this offering and after the funding up the H.B.A. transaction, we continue to have a strong cash position with minimal debt.
In addition to our equity offering during the third quarter. We settled the previously disclosed, Illinois keep him suit brought against us in 2015.
This soup related to our previously discontinued home health segment, which was sold in 2013.
A portion of the lawsuit had been previously dismissed and the U.S. government had declined to intervene and the lawsuit.
While we viewed and continue to view the claim against Addus is meritless, our leadership belief that settling this suit at the announce amount we announced was a prudent business decision.
This settlement allowed us to move forward without the ongoing legal expenses that would be required to resolve the matter up to and including an actual trial.
As for the financial results, we announced yesterday, our solid operating performance continued in the third quarter of 2019.
Revenue for the third quarter was $169.8 million compared to $137.7 million for the same period in 2018, an increase of 23.3%.
Adjusted earnings per diluted share for the third quarter 2019 increased to 62 cents, that's compared to 48 cents from the same period in 2018, an increase of 29.2%.
Our adjusted EBITDA for the third quarter, 2019 was $14.9 million as compared to $11.6 million for the same period in 2018, an increase of 27.8%.
As we discussed on our last earning call in the in the fiscal 2020, Illinois State budget. Our industry received two reimbursement rate increases to offset the statutory minimum wage increases experienced in both Chicago and Cook County.
The first rate increase which was expected to be effective on September 1st 2019.
The increase our right to $20.28 per hour.
This increase has been delayed due to the state's need to fall additional information required to obtain approval from the federal government.
This information has now been filed with the appropriate federal department with their approval expected shortly.
Well, we did not have a date ends up today for when this increase will be approved and become effective we do believe this could occur within the next few weeks.
This delay means our third quarter financial results were negatively affected by the lack of reimbursement offset for the required July one 2019 minimum wage increase in Chicago and Cook County.
The federal approval when granted will cover both the increased to 20 $20.28.
As well as the January 120, 20 increase which we'll take our hourly rate to $21.84.
We are appreciative that the leadership at the state of Illinois recognize the need to make adjustments to cover the cost associated with a higher minimum wages mandated by statute and look forward to the final federal approval needed to complete this process.
With our increasing presence in clinical service, primarily hospice. We felt it was time to begin to breakout our same store growth between personal care services and clinical services.
For the last few quarters, our same store growth for personal care services has exceeded our stated target range of 3% to 5%.
For the third quarter 2019, our personal care same store growth was 7.7% driven by our growth in the New York market as the final stages of the state land narrowing the provider network were completed as well as the MCR rate increase in Illinois, which was effective July .
30 Onest.
As a reminder, this mcl business represents approximately 30% of our overall, Illinois business.
Going forward are higher than normal same store growth in the New York market should moderate as the process to narrow the provider network comes to its conclusion.
However, we should continue to see solid same store growth as the expected, Illinois rate increase takes effect.
For our clinical services, our same store growth was 32.3% largely driven by the solid growth we have seen in our amber care Hospice program.
While we have not published as stated same store growth goal for our clinical service segment as of today, we will be looking to provide that cold once we have a quarter or two of history with the H.B.A. operation.
On August Onest 2019, we completed the acquisitions are both alliance home health care, a hospice home health and personal care provider in new Mexico, and foremost homecare, a personal care provider in New York City.
To remind you the alliance acquisition broadened our hospice coverage in markets in New Mexico that we previously did not served.
Foremost home care strengthen our personal care services into New York City Metropolitan area and is now an important part of our VIP operation, which we acquired on June one 2019.
Both of these most recent acquisitions aligned with our strategy of strengthening our coverage in states, where we currently operate.
On October Onest 2019, we closed on our previously announced acquisition of Hospice Partners of America 55 million dollar multistate provider of hospice services.
This acquisition allows us to provide hospice services to six additional states, including four states, where we already have a strong personal care presence.
It also gave US an entry into the Texas market, which has been a strategic called up our company.
With the completion of the HP a transaction Addus now provides hospice services to approximately.
1800 patients in seven states.
With the completion of this acquisition clinical services now represent approximately 15% of our total revenues.
During 2019.
We have acquired four companies with approximately $130 million of annualized revenue.
With all four acquisitions closing in the last five months. Our team has been focused on ensuring that our integration plans are being followed and are on schedule.
I am proud of the efforts of our at his team as we have jointly focused on ensuring smooth integration of these acquisitions, while continuing to effectively operate our growing company.
As discussed on our last few calls we continue to be excited about the opportunities for Addus under Medicare advantage. We are currently contracted with national Medicare advantage plans to provide personal care services to their members. In addition, we are working with several Medicare advantage plans on the development of future.
And if that offerings with the goal of improving quality and reducing overall medical spend.
We believe that these opportunities will expand as M&A plans began to realize the cost savings potential of personal care services through a more integrated care delivery model.
While we anticipate additional M&A plan participants with personal care offerings in 2020.
We feel 2021 and lighter is still the true growth horizon for this additional opportunity for address that being said we are experiencing increased referrals from our current it may partners and we expect this trend to continue.
Before I turn this call over to Brian for a more detailed review of third quarter financial performance. Let me think thank all the employees of Addus.
Our mission.
Providing cost effective care and assistant that gives people the freedom to remain in their homes.
Is one that each of our team endeavors to live each day.
I'm extremely proud of all these efforts and each employee works hard to live our values, while serving our patients.
We have a very important responsibility to the thousands of patients and their families who trust us with their care and I'm very appreciative ongoing efforts of our team.
With that let me turn the call over to Brian .
Thank you Derek and good morning, everyone Adicet, another strong quarter of profitable growth as we produced solid same store revenue growth and personal care services of 7.7% in the third quarter of 2019 compared with the third quarter of 2018. We also reported same store sales for hospice and home Hill, our skilled care segments.
As we hit our first comparable full quarter of results for the prior year period, following the 2018 acquisition of and repair.
Service segments showed a combined 32.3% increase over the same period last year.
These results demonstrate that we are executing on our organic growth strategy with favorable results and we believe we are well positioned to continue this growth.
In addition to solid growth trends at our current operations, we look forward to the incremental benefit of the four acquisitions. We have completed this year with total annualized revenue of approximately $130 million.
We also continue to evaluate and pursue other acquisition opportunities from a robust pipeline of potential transactions.
As Dirk mentioned total net service revenues for the third quarter increased 23.3% to 169.8 million from 137.7 million for the third quarter of 2018.
Personal care revenues accounted for 91% of revenue for the third quarter that increased by 20.6% over last year.
This growth reflected a 9.4% increase in billable hours per business day, and an 8.5% increase in revenue per billable hour.
The remaining growth in revenue was attributable to our hospice and home health services Hospice care revenue continues to grow and reached 10.9 million a 52.8% increase from 7.1 million last year.
Home health contributed approximately $4.3 million in revenue.
Bind our hospice and home health skilled business segments contributed 15.2 million in revenue for the third quarter of 2019, 33.2% sequentially from 11.4 million for the second quarter. This year.
Our gross margin percentage remain relatively consistent sequentially at 27.1% for the third quarter and compared with 26.7% for the third quarter last year.
For the year to date period, our gross margin improved to 27% from 26.5% for the first nine months of last year, primarily due to the higher margin profile of our skill business.
DNA expense was 21.2% of revenue for the quarter compared with 20.5% last year, primarily due to higher acquisition and severance costs. Adjusted Gionee expense was 18.3% consistent with the prior year on a higher mix of skill business with a higher gene a profile sequentially adjusted.
DNA expense was lower by 20 basis points from the second quarter, primarily from leverage on our corporate costs from our revenue growth.
The company's adjusted EBITDA increased 27.8% to 14.9 million for the third quarter of 2019 compared to 11.6 million to the third quarter of 2018.
Adjusted EBITDA margin was 8.8% inclusive of the net negative impact from the partially reimbursed Chicago minimum wage increase compared with 8.5% for the third quarter of 2018.
While the expected, Illinois state wide reimbursement increase was not effective during the quarter. The state's managed Medicaid programs were required by Governor Crist grew to honor the new higher rate effective July one and revenue from these programs currently constituted approximately one third of our volume in Illinois.
Combined with increased to $13 per hour, Chicago minimum wage and the wage increase or non Chicago business for managed Medicaid we experienced a net negative impact of approximately half a million dollars in profitability during the quarter.
Once the reimbursement rate increase becomes effective state wide, we will realize the full impact of the expected additional revenue and related positive margin from the first of the two budgeted rate increases.
Adjusted net income per diluted share grew 29.2% to 62 cents for the third quarter from 48 cents for the third quarter 2018.
The adjusted per share results for the third quarter of 2019 exclude the following.
Interest income from Illinois of two cents.
M&A transaction expenses of 10 cents.
Severance and other nonrecurring cost of eight cents, a noncash stock based compensation of eight cents.
As previously reported our adjusted per share results for the third quarter of 2018 exclude M&A transaction expenses of 11 cents severance and other nonrecurring costs of two cents and noncash stock based compensation of seven cents.
Our tax rate for the third quarter of 2019 was 24.4% within the range of our expectation for the full year 2019, we continue to expect or tax rate to be in the low to mid 20% range.
As <expletive> mentioned during the quarter, we entered into a settlement agreement that resolved our historical QEPM litigation and a reflected the amount of the settlement and related legal cost as discontinued operations net of tax as this related to our previously divested home health business.
Dsos were 75 days at the end of the third quarter of 2019, compared with 81 days at the end of the second quarter of 2019.
During the quarter, we saw increased payments from the Illinois Department of aging as anticipated with their Dsos declined to 65 days at the ended the third quarter of 2019, compared with 82 days at the end of the second quarter of 2019.
While we were pleased with this improvement the state has also begun to further shift of clients to managed Medicaid plans, which hindered a further reduction or overall dsos number as those plans complete the transfer process.
We anticipate this activity to continue in the fourth quarter and intend to were diligently with both the state and Ms. managed Medicaid plans to ensure a smooth transition as possible.
Our third quarter net cash provided by operations totaled 12.2 million and at September 32019, we had $239.6 million in cash on hand prior to the completion of the hospice partners acquisition on October one.
We continue to have substantial capacity to support our acquisition strategy with only 60.2 million of bank debt at quarter end, and 134.1 million and availability under our revolver.
This concludes our prepared comments this morning, I want to thank you for being with US on I'll ask the operator. Please open the line for your questions.
Thank you, ladies and gentlemen to asked a question you would need to press Star then one your telephone.
To withdraw your question you May press the pound.
Again, it's star wanted to ask the question.
Please standby power culinary roster.
Our first question comes from the line of Scottsdale with Stephens.
Line is open.
Good morning.
First question just as you get those two incremental rate increases that you're expecting in Illinois.
In the Fourq, you and then the one Q.
Update on what's the incremental revenue impact is that you're expecting from those two rate increases that date.
Fully move into the run rate.
Yes, thats going to be just under the total of what we have not receive today, we'll be right at 40 million Scott and revenue.
Perfect.
Then.
Good question just on.
Proven in the DS Dsos, Brian sounds like.
With the shifts to more managed Medicaid patients in Illinois that that could continue to be a bit of a tailwind in the for Q, so any expectations on.
Sort of where youre expecting dsos to trend to in the fourth quarter. Then maybe also just related to that just in general what what you're thinking about operating cash flow expectations for the Fourq you as well.
Yes keep in mind, we have experienced this before with Illinois whenever they go through this transition phase. It typically has a negative impact on cash flow during that transition as they move those patients and authorizations over to the plan. So we typically see you know a lag during that transition and then there is a catch up once those patients are fully incorporated into the managed Medicaid plan. So that's what we would kind of expense.
To see in Q4 as the say continues that push ultimately, though we do see it as a positive as they continue to to increase the MTO presence, but there will be a cash flow impact in that transition period.
Okay and then just one last question for me.
Just as we're thinking about 2020 at this point interested and maybe just your update on sort of high level headwinds and tailwinds.
The Illinois rate increase would seem to be tailwind as you sort of fully capture that I know you mentioned.
Expected normalization and the growth rate in New York.
In terms of what else, obviously of the Annualization of the EPA deal as well, but just some general other sort of headwinds and Tailwinds that you want.
All right as we think about modeling 2020.
Thats It for me thanks.
Yes, Scott I think.
Clearly the Tailwinds for the company.
As you know the Illinois rate increase is going to be big deal for us is going to take care of the two minimum wage increases that we've given to our Illinois employees over the last couple of years, So thats very exciting.
We've seen as far as a tailwind the consolidation into New York marketplace now, we're starting to see that come to an end.
So that process is going to be complete there are challenges in New York. It's a state that has budget challenges going forward. We'll continue to work hard in that state sold I would say as far as somewhat of a headwind that maybe a little bit of one there, but understand to all states have ups and downs with their budgets and we've been able to effectively operate to that.
Matt.
Over the last three years I think the continuing headwind.
As it relates to just an overall part of the company relates to recruiting.
It's still difficult to recruit it's difficult to retain its a tough market with the unemployment as low as it is so I think thats going to continue to be a challenge.
Okay.
Thank you.
Our next question comes from line of Matt Larew with William Blair. Your line is open.
Hi, Good morning, Thanks for taking my question I first wanted to ask.
So with acquisitions.
Obviously, some closed intra quarter announced its first full quarter with VIP. So can you maybe an update on how those have arrived relative to expectations what they contributed.
In the quarter to the extent you can break them out and then where you stand in terms of integration process the persistent conversion.
And I like that went with each of those thanks.
Yes, again and I could take that this is Brian I think all all of the integration activities for the acquisitions. We've completed so far are on track it I mean expectations financial performance as well as they.
He coming onboard and June obviously, most of that transition is complete.
Alliance and Formosa came under in the quarter is going very well and is on track still working through the conversion to homecare homebase for four lines, but that is as scheduled and then I think initially one month into that HP acquisition through October .
That leadership team is working very well with ours I think that also is on track for us. So no surprises to date I know theres been a lot of activity. This year, but our teams are working very diligently with all of those that we have acquired and have.
What we've expected.
Yes. This is Brad I agree with Brian on that the integration activities are going well, we're actually in New York working on consolidating our south shore and VIP operations in certain markets.
So that'll go kind of Q1, a couple of small office.
Mergers there and then also moving or Southshore.
Hi Tech platform to the VIP platform. So there will be on a common platform for management purposes.
Okay got it and then Derrick was asking about some of the comments around.
Medicare advantage opportunity FC you're seeing some additional referrals now, but the new opportunities.
We're seeing are those potentially changes in contracting changing the way they are structured with respect to risk sharing with respect to additional responsibilities potentially mixes of skilled and non skilled services.
Add capabilities, just how do you involved how do you expect the next couple of years of growth in may to maybe differ or be similar to the growth you've experienced in the past 24 months.
Yes.
One of the things we're doing now is we are working with.
Certainly made plans different from the ones were currently contracted with.
To look at value based offerings, whether it's mainly going to be.
A program our process around can we save them dollars.
Through things, we've discussed before emergency room visits hospitalization readmissions.
The two we're working with have a little different structure, but they're both basically an opportunity for us to get our per diem rate. While at the same time, then sharing in potential cost savings going forward. So we're very excited about that those should start probably in the first quarter of 2020. So by the end 2020, we'll have those results.
So for our long term aspect for US we do believe we're going to be moving towards cost sharing eventually a risk based approach which were excited about.
We're probably looking at that being 2021 2022.
Okay. Thanks, and then just the last one would be.
Whether you've got any discussions with other states beyond New York about.
More aggressive network narrowly.
Any time kind of here the next year.
Yes.
No. We at this point, we Havent had any conversations or no of any state that are going to go through similar process. I think obviously our strategy of trying to become strong and have a solid presence and stays in preparation for that they play as well as play well in New York, but at this time to other states that were aware of.
Have indicated a similar process to sir.
Alright, thanks for taking my questions.
Thank you. Our next question comes from Milan of Matthew Borsch with BMO capital markets. Your line is open.
Hi, Thank you maybe I could just ask.
On the question.
Just two dressed regarding the narrow networks.
Are you finding.
That is something that comes with the demand for.
Lower reimbursement.
There are a trade off that's involved there I mean, if you look ahead do you think this is something that's going to play significantly to your advantage given.
A year ability to meet the whatever complex requirements might be demanded of these plans.
I think the narrowing of the networks at to date, if not come.
Within with a reduction in fee as of yet we've been able to negotiate strong rates in the New York marketplace, even while the networks, we are narrowing and.
I think thats, partially due to our size our coverage and are really strong relationships with AMC owes. However, you know in the future there are always going to be situations, where the state's get into.
Budget issues, where theyre going to be looking at how did they control cost and we believe our size and ability at times, maybe to take a little lower increasing the rate.
While at the same time, taking on more new patients makes a lot of sand. So thats all part of our strategic focus on getting sides in a market. So that we can partner.
Across the table with these themselves.
And you touched on one of the Tailwinds or sorry headwinds next year, possibly being.
The.
Budget constraints in New York is is there anything specific that you would point to there.
Okay.
You know.
That the budget itself has gotten tight now the state was looking at a way to reduce one of the programs called CD path and they were looking at whether it was narrowing the network or redoing the way they priced it we're working with the state now as an industry to try to make sure that.
Whatever comes through its good for both sides. So I think.
Like all States New York is one of those will continue to work with and hopefully have strong relationships. So that we can help them and help us determine what's the best way moving forward. So that we can control the cost of this service that we provide.
Okay. Thank you.
Thank you.
Our next question comes from a lot of Matt Gamble with Baird. Your line is open.
Hey, Thanks for the question I wanted to ask about the same store growth metric.
Sort of how that shook out.
By geography, so can you add on.
To be overly specific I certainly appreciate that but could you maybe at least rank sort of your major markets in terms of that the growth rate and if you had any indications are our views in terms of how that would trend as you look into 2020 that would be helpful as well.
Yeah. This is Brad I can take that what I think probably the top four markets. So we had that really contributed to the stronger at this quarter in a couple that we've talked about New York. Obviously is an area that were Illinois partial rate increase also was helpful. But as we talked about previously we've done well in new Mexico with our rate negotiations there.
There.
On a comp basis that continues to provide meaningful impact to our same store numbers. So those three I think you know Alternatively, you don't have other larger states, Washington State had some really good volume growth, but also some some positive rate impact that contributed so between those I think that was what really drove to the high end of where we ended for the quarter.
Okay fair enough.
And then on the acquisition pipeline I know you've had a busy year with 130 million of acquired revenue.
And you also mentioned to focus on integrating some of the recent deals should we still think about the annual target being 75 to 100 million.
As far as we're moving into 2020 and then could you also then just give US an update in terms of that the mix of what's in the pipeline, if thats weighted to personal care or two hospice right now.
Yes.
I would say that you could continue to expect $75 million to $100 million for the next couple of years as our target obviously, we've been able to overachieve that for the last couple of years and we would expect with our pipeline to continue to do well.
As we look at what's in the pipeline today I would say probably the vast majority of what we're looking at our personal care services, our although there are.
Today, some hospice assets were looking at mainly the smaller assets now that we have amber care and the clients as well as VHP a base of business to grow from going into next year I want to things I want to make sure we point out too is.
We'll be looking at what the even though pdgm effect was reduced appropriately so.
He's still will affect the industry a bit as will the reduction of the wrap payments. So.
As a company we have become very interested in home health.
It's done very well for us in our new Mexico market working with the having all three levels of care.
Brad and his team has done a very good job at and seeing.
Somewhat of the synergies back and forth among service line. So I would say in 2020. In addition to most of our look we'll be at first personal care will also start looking at home health assets and seeing if we can bring them all.
Got it thanks very much.
Thanks Bye thank you.
Our next question comes from the line of Brian .
Coolant with Jefferies. Your line is open.
Hey, guys. Good morning, Congrats on the very good quarter I.
Yes, Brian My first question for you is as I think about the rate increase in Illinois, or the increases to mine just walk us through the mechanics, I know that still pending with CMS when does that get effective as it retroactive to September 1st we've just walk us through how we should think about the how the rate increases will progress if they're approved.
Yes, let me start with that and then we'll I'll, let Brian talk about the mechanics, but from our standpoint, we don't expect expected to be retroactive.
Doesn't mean that it won't be but at this point in time, we're not planning on that.
The process is going through the normal rate increase process. When you have a 10% increase or greater takes a little more paperwork takes a little more Tom.
We are getting close to the estimated time that we should have an answer let me emphasize its estimated we have no from knowledge that it will be by the mid November late November timeframe, but we do believe it is getting close we feel comfortable it will be approved but thats yet to be seen so whether it will be approved in November and AFFO.
Back to November 1st I will be approved an effective December onest is still to be seeing you've talked about the process. Yes. It is just for some clarity so in the quarter keep in mind in Q3, we absorbed the impact of the Chicago minimum wage step up we did get the benefit of the in Seo rate increase and there's also the related.
Each costs in that in the quarter as well so one CMS approves the remainder of the rate increase schedule for this year as the conversations I will have with as you and then we'll see a similar effect Jan one with a reimbursement rate increase and a step up in wages corresponding because one of the things that I think you know, but I want to clarify.
Hi is.
The minimum wages increased in Chicago, and Cook County, but it has not increased anywhere else in the Illinois marketplace and so as we receive rate increases from the state part of our process is negotiate with our partners at the Union what the appropriate rating increases for those employees that hit did.
Not fall under the Chicago minimum wage increase so part of this when we get the first increase will be determining the proper flow through to those employees at other parts of the state and obviously when the January January increased come through the same process at that point with those outside the Chicago and south market.
Got it and then I guess my follow up as I think about 2020 without going I know you don't give guidance, but as I think about the moving parts just like you mentioned Derek.
Potential rate increases or wage increases for your employees in Illinois.
The New York benefit tailwind should carry over probably till September is my guess.
And then the HP comes in how should we be thinking about the moving parts in terms of your expectation for same store and margins next year as the mix shift to a greater proportion of Boston.
Yes, I think I can started that there can can add some comments. While this is Brian I think we we obviously had a couple of things that have impacted us positively in same store, particularly in personal care over the last couple of quarters as we kind of move through those comps in next couple of we would expect kind of still be in that in the higher range.
But I think from our perspective just.
Aggregate sense, we still believe the 3% to 5% guide that we've given overall for organic growth.
Still is what we would expect to see long term.
We tried to start providing more information on hospice unveiled obviously the operational changes that we've made from and recur in the last year really paid a lot of dividends. We would expect them to have been so have a little higher growth profile than than personal care on a long term basis, but they feed coming on board.
We think that mix and being able to cut to put those platforms together as definitely helpful. For US Yes, Let me, let me add to Brian's comments as it relates to personal care and our goal 3% to 5% we set this goal.
Early in 2016, where we were still learning the industry is proven to be I think a fairly.
Accurate.
Reflection of what the industry has grown and what we've been able to do.
We do know now that we're becoming a bigger part of personal care markets and the number of state and with that comes the ability hopefully.
To grow.
Maybe above market. So we'll look at the 3% to 5% growth rate over the next year or so to see if there needs to be adjusted right now we're comfortable with it up knowing that for the next four or five quarters, we're going to probably be at the high end or above that range because of things such as the Illinois rate increase coming through but with the.
With the unit growth that Brad and his team has been saying.
Right now we want to wait before we just has been good unit growth, we want to make sure. We can continue that.
Yes. This is Brad just real quick on the home health hospice side.
With any acquisition that you tend to have a little distraction before maybe before closing in the shortly after closing so I'll say the comps were a little easy easier on the home health hospice side this quarter, they're going to get a little tougher.
As we go into 2020.
Makes sense thanks, guys.
Thank you.
Remodeled ladies and gentlemen.
I wanted to ask the question.
Our next question comes from the line of Mitchell Goepel.
So did your line is open.
Good morning, Thanks for taking the questions.
First I was just wondering obviously you expect a nice tailwind from Illinois.
Relates to.
More favorable reimbursement I'm just wondering if they're on a states you think you could be benefiting from all so difficult to 2020 and beyond.
In terms of.
Reimbursement.
Hey, mature I think I think we've done very well, obviously, we've had a good year with Illinois coming through one of our largest markets very positively sets us up within a couple of years I think our team where we have the opportunities to have re negotiations have been very successful in markets like New Mexico in New York keep in mind most of our other states typical.
We are ready to set by the state and is tied into their budgets. So we've got an incremental increases we've had minimum wage step ups and others, but.
I don't have any on the horizon in 2020 that we would expect to see a similar size increase that we're seeing from Illinois. At this point Yeah. Let me also make a comment around that line that will be in certain of our markets the industry.
It's become unionized.
In most of these are in the Midwest States, New York, and the northwest and and we have a high which.
Classified as a strong relationship with our unions in those particular markets and they have been.
Great partners with us.
As we as a company and industrial worked with the stage to too.
To make sure that state rates.
Mirror the increase the minimum wage our employees deserve these minimum wage increases, but we have to make sure. We funded so those jobs can continue and we appreciate the partnership with the unions and the state.
And looking at those and so we've had very effective history. The last three years of making sure that as racing wage rates increase we've got these larger.
Rate increases going forward now long term once minimum wage moderates towards the 13 to $15 are that month. Most these states. We're talking about we probably will return to more of the historical rate increase year over year, which will be in that 3% to 5% or some targets. We look at so so far we've done well with our partners the last two or three years.
Okay. Thanks for the color there.
And just coming back on the acquisition front, obviously, north you mentioned you'd like to continue on to pace you have seen them ask couple of years I assume.
But we're getting nice pipeline I'm just wondering.
If you're seeing a any competition as it relates to other players coming into the space now.
Potentially changing valuations as you look at deals.
As it relates to our clinical services home health, there's not been much activity as you know as people have waited for the industry to settle out with the change in reimbursement hospice, yes, certainly.
There are there is competition in the hospice market.
As we are looking forward to hospice acquisitions in the future theyre going to be the more targeted probably on the smaller side and probably won't have as much.
Competition is maybe we faced on some of the larger assets. When you go to personal care, that's a really interesting industry because you've seen.
Competitors of ours that have tried to grow that side of their business is hard to do.
We are fortunate in that we have such a strong network across the 26 states in which we operate.
That we're able to acquire some of the smaller operators and fold them into our operations and giving us a good base in that particular area. So I think the cost the difficulty of building a large sized presence in personal care in various states. We at times don't have as much competition on the personal care side is maybe we've seen on the hospice side. So we anti.
Despite going forward that will continue.
Okay. Thanks for taking the questions.
Thank you.
Im not showing any further questions I would now like on the call.
Closing remarks.
Thank you operator I want to thank you all for your interest in Addus and for you being part of our earnings call today have a great week. Thank you.
Ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
Great.