Q3 2023 Addus HomeCare Corporation Earnings Call
Speaker 1: transcript
Good day and welcome to the added home Care's third quarter 2023 earnings call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on your Touchtone phone and to withdraw your question.
Speaker 1: transcript
Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Mr. Anderson. Please go ahead ma'am.
Speaker 2: transcript
Thank you good morning, and welcome to the AD is home Care Corporation third quarter 2023 earnings Conference call.
Today's call is being recorded.
Speaker 2: transcript
To the extent that 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 through the company's website and reviewing yesterday's news release.
Speaker 2: transcript
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 add as expected quarterly and annual financial performance for 2023 or beyond.
Speaker 2: transcript
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 forecast estimates targets plans beliefs expectations and the like are intended to identify forward looking statements.
Speaker 2: transcript
Speaker 2: transcript
You are hereby cautioned that these statements maybe affected by important factors among others set forth in <unk> filings with the Securities and Exchange Commission and then its third quarter 2023 news release, and consequently, actual operations and results may differ materially from the results discussed in the forward looking statements.
Speaker 2: transcript
The company undertakes no obligation to update any forward looking statements, whether as a result of new information future events or otherwise.
Speaker 2: transcript
I would now like to turn the call over to the company's Chairman and Chief Executive Officer, Mr. Dirk Allison. Please go ahead Sir.
Speaker 3: transcript
Thank you Jerome.
Good morning, and welcome to our 2023 third quarter earnings call with.
With me today are Brian Poff, our Chief Financial Officer, and Brad Bickham, our President and Chief operating Officer.
Speaker 3: transcript
As we do on each of our earning calls I will begin with a few overall comments and then Brian will discuss the third quarter results in more detail.
Speaker 3: transcript
Following our comments to the three of us would be happy to respond to any questions.
Speaker 3: transcript
Before I turn into the discussion of our results I want to take a moment and bring you up to date on the status of the CMS proposed Medicaid access rule.
At this time CMS continues to review the more than 2000 comments submitted to the proposal before issuing a final rule.
Speaker 3: transcript
Comments submitted to CMS, including those from a broad array of state Medicaid agencies overwhelmingly called for the administration to resent the part of the proposed rule.
Speaker 3: transcript
Requiring that 80% of the Medicaid payment providers go to direct caregiver wages.
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States, along with others, who submitted comments to the proposed rule generally side, both the inherent challenges to a one size fits all approach.
Speaker 3: transcript
The lack of data to support the likelihood of the 80% mandate, increasing access to care for Medicaid and a fifth.
Shares as the reasons for the call to rescind it.
Speaker 3: transcript
Similar calls to rescind the 80% mandate or coming from Congress, including in the House Energy and Commerce House Subcommittee hearing held on Wednesday of last week.
Based on the feedback we have received from industry sources. We believe the final rule might be published sometime late in the first quarter or early part of the second quarter of 2024.
Speaker 3: transcript
Speaker 3: transcript
While the volume and substance of the comment letters might have an impact on the rule. We do not currently have visibility as to whether the proposed rule will be materially changed we.
Speaker 3: transcript
We do however expect that if the rule is finalized as proposed it would most likely be subject to a legal challenge of one or more states.
Speaker 3: transcript
It is important to remind you that there are many unknowns around the proposed rule and its ultimate impact on our operations, even if it were to be implemented as proposed and withstand legal challenge.
Speaker 3: transcript
Among these unknowns, we did not know when the final rule will be issued and therefore when the proposed four year implementation period will begin or if the proposed implementation period might be extended for a longer period of time.
Speaker 3: transcript
Our team will continue to be active on this issue as we attempt to affect changes to any final rule.
Speaker 3: transcript
Yesterday, we announced our results for the third quarter of 2023. These results highlight continued strong financial performance by at Us.
Performance would not be possible without the hard work and dedication of all our employees as they continue to provide quality care to our clients and patients in the home I want to say thank you to each member of our team your efforts are appreciated.
Speaker 3: transcript
As we announced our total revenue for the third quarter of 2023 or $277 million, an increase of 12, 6% as compared to $245 million for the third quarter of 2022.
Speaker 3: transcript
This revenue growth resulted in adjusted earnings per share of $1 15, as compared to adjusted earnings per share for the third quarter of 2022 of 94 cents an increase of 22, 3%.
Our adjusted EBITDA of $30 9 million was an increase of 20% over the third quarter of 2022.
Speaker 3: transcript
Speaker 3: transcript
During the third quarter of 2023, we continue to see strong cash flow from operations, that's our states and other payers have continued to pay in a timely manner.
Speaker 3: transcript
This strong cash flow along with continued management of our balance sheet has allowed us to reduce our debt, while maintaining a cash balance of approximately $80 million at the end of the quarter.
Speaker 3: transcript
Our low leverage gives us the financial flexibility to be opportunistic as we anticipate seeing additional acquisition opportunities coming to market over the next several quarters.
Speaker 3: transcript
It remains our plan to use our financial capacity to acquire strategic operations that align with our overall growth strategy of offering all three levels of home based care in our markets.
Speaker 3: transcript
During the third quarter, we continued to see an improving labor environment, especially as it pertains to our personal care segment.
Speaker 3: transcript
The third quarter of 2023, we experienced solid personal care hiring with 84 hires per business day up from 81 Harriss per business day in the second quarter of this year.
Speaker 3: transcript
In addition to our strong hiring numbers, we continue to see improvement in our starts per business day.
Well, it's important to increase our harsh making sure. These harsh actually start carrying for consumers is a key contributor during the past few quarters to our growth in personal care.
Speaker 3: transcript
Hiring in our clinical care segment has also improved but does remain a challenge and are more challenging than there are personal care segment with certain more difficult urban markets impacting our home health and hospice growth rates in those markets.
As we have in prior quarters, we continued to utilize the funding we received from the American Rescue plan Act or ARPA.
Speaker 3: transcript
Speaker 3: transcript
To date, we have received approximately $26 million of which we have $8 3 million remaining utilized.
Speaker 3: transcript
We anticipate receiving an additional $16 million and ARPA funding beginning in the fourth quarter of this year.
Speaker 3: transcript
These funds have been helpful with our caregiver recruitment and retention efforts to support the delivery of personal care services and should continue to help those efforts in the future as we deploy the remaining funds.
Speaker 3: transcript
In addition to utilizing the ARPA funds for direct recruitment and retention of caregivers. We are also utilizing the funds to improve our caregivers experience through the implementation of enhanced caregiver training and the development of caregiver application that we believe will help our caregiver retention and overall service delivery.
Speaker 3: transcript
And our personal care segment, our services have largely continued to receive reimbursements for the majority of the states. We operate in with our most recent rate increase and our largest personal care market of Illinois effective in the second quarter.
Speaker 3: transcript
While we anticipate future reimbursement increases to enhance access to care and to help mitigate additional wage pressures, we will be negotiating with our union partners over the next few quarters in certain of our markets to update aspects of our collective bargaining agreements.
Speaker 3: transcript
Given rising costs from inflation and certain one time benefits enhancements. We expect we may see lower levels of margin contribution from the near term rate increase in Illinois, as we work to see that our caregivers are compensated appropriately in these markets.
Speaker 3: transcript
The impact of these negotiations May result in a slightly lower overall gross margin percentage in our personal care segment that we anticipate will be offset by volume increases in those markets.
Speaker 3: transcript
We continue to await the released the final rule on the home health rate for 'twenty 'twenty four.
Speaker 3: transcript
We are hopeful that CMS has lessened to the extensive feedback received over the past few months that the proposed rate decrease does not adequately taken into consideration the increase in wages and expenses home health providers have experienced over the past several years.
Or the question upon methodology and assumption used by CMS and calculating the behavioral adjustment and budget neutrality aspects surrounding proposed rate cuts.
Speaker 3: transcript
While the home health rate cut is currently only proposed rule for hospice reimbursement rule was finalized during the third quarter with an overall rate increase of 3.1% effective October one 2023, which is an improvement over the original hospice rate increase of two 8%.
Speaker 3: transcript
We are cautiously optimistic that we will see some incremental improvement in the proposed home health rate reduction with the publication of the final home health rule in the coming days, which were more appropriately reflect our increased cost.
However, as we stated before we believe that these near term traditional Medicare home health reimbursement pressures are likely to moderate over the next few years and as such we will continue to look for home health acquisition opportunities that are strategic to our overall growth.
Speaker 3: transcript
Speaker 3: transcript
Now, let me discuss our same store revenue growth for the third quarter of 2023.
Speaker 3: transcript
Personal care segment, our same store revenue growth was 13, 9% when compared to the third quarter of 2022.
Speaker 3: transcript
During the third quarter of 2023, we saw personal care same store hours per business day, or a poor quite 2% over the same period in 2022 and up slightly on a sequential quarterly basis.
Speaker 3: transcript
We are excited to see our various hiring and scheduling improvement initiatives, taking hold and contributing to our strong sequential how our growth over the past several quarters.
Turning to clinical operations, our hospice same store revenue increased three 1% when compared to the third quarter in 2022.
Speaker 3: transcript
Speaker 3: transcript
While our same store ADC was basically flat when compared to the third quarter of 2022, we did see an increase in same store ADC up 1% over last quarter.
Speaker 3: transcript
During the third quarter, we continued to see an increasing length of stay for patients residing in skilled nursing facilities.
As we anticipated following the end of the public health emergency.
Speaker 3: transcript
As of the end of the third quarter, our hospice medium length of stay was 32 days exclusive of our journey here and recently acquired Tennessee quality care operations.
Speaker 3: transcript
For comparison purposes, we have historically excluded our journey Kerr operations as it has a higher proportion of shorter length of stay patients due to our inpatient units in the Chicago area.
Speaker 3: transcript
We continue to be encouraged by the steady sequential improvement in admissions and census volumes in our hospice segment and anticipate those favorable trends continuing into the fourth quarter.
Speaker 3: transcript
Our home Health segment same store revenue decreased eight 8% over the same quarter in 2022, as we continued to reduce admissions from payers that do not currently reimburse us adequate rates to cover our cost.
Speaker 3: transcript
We did see lower admissions, primarily due to intentionally limiting emissions from these nonstrategic Medicare advantage plans, we did see a sequential increase in home health volume a five 5% as a result of some incremental contract pricing success and improvements in clinical staffing.
Speaker 3: transcript
While we have limited certain admissions due to contract rates, we have seen an increase in our overall episodic admission rate going from 46% in the third quarter of 2022 to a rate of 66, 56% in the third quarter of 2023.
Speaker 3: transcript
With the improvement in episodic admission rate, we have seen an increase in our home health gross margin to 36, 2% in our third quarter of this year compared to 23, 2% in the third quarter of 2022.
Speaker 3: transcript
We remain excited about our home health operation as it complements both our personal care services, particularly where we participate in value based contracting models and our hospice services by allowing us to provide the full continuum of home based clinical care.
Over the past few months, we have continued to see limited strategic opportunities in both personal care and home health.
Speaker 3: transcript
The reimbursement uncertainty that exist in each of these segments.
Speaker 3: transcript
As we have more clarity around these particular issues. We believe that we will start to see increasing acquisition opportunities in these segments that will meet our strategic objectives.
Speaker 3: transcript
We are extremely pleased with our Tennessee quality care acquisition, which has strengthened our overall operations in the state of Tennessee.
Speaker 3: transcript
This is an example of the type of acquisition that is squarely within our strategy of providing all three levels of home care and building density in strategically important states.
As for our value based care efforts, we have been telling you for the past several quarters that we are gathering data to propose troupe, our effectiveness and helping to reduce the overall cost of care for members of our payers that participate in our various value based care programs.
Speaker 3: transcript
Speaker 3: transcript
Now have results in most in our most mature and value based agreements and we have been able to demonstrate a material reduction in both emergency room visits as well as the percentage of patients which were readmitted to the hospital at both 30 and 90 day intervals.
Speaker 3: transcript
In addition, we have been able to help with the improvement of heated scores and the closure of care gaps relating to these patients.
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We believe our success is due to our ability to provide both non clinical personal care services to identify changes in conditions.
And clinical resources as needed for specific skilled patient care interventions.
Speaker 3: transcript
We continue to invest in value based strategies and related technology resources.
Speaker 3: transcript
Investments should give us an opportunity during the next couple of years to accelerate our revenue growth from this part of our operation as we increase the scale of our value based programs.
Speaker 3: transcript
We won't be using this information as part of our conversations with various Medicare advantage payers showing them. How had is can be a part of providing cost effective care to their members.
<unk> significantly reduced the overall medical loss ratio and improve the overall quality of care received by members participating in our programs.
Speaker 3: transcript
Speaker 3: transcript
With the recent addition of Tennessee quality care, we now have three states, where we can offer all three levels of home care. We believe this coverage positions us well to continue to expand in and are value based contracts in these markets.
Speaker 3: transcript
As I say each quarter I'm, so proud of our team for the care they are providing to our elderly and disabled consumers and patients.
Speaker 3: transcript
Speaker 3: transcript
No question that the majority of clients and patients want to receive care in their homes, which remains one of the safest and most cost effective places to receive this care.
Speaker 3: transcript
We believe the heightened awareness of the value of home based care is favorable for our industry and will continue to be a growth opportunity for our company.
Speaker 3: transcript
We understand and appreciate that our operations and growth are dependent on our dedicated caregivers, who worked so incredibly hard providing outstanding care and support to our clients patients and their families.
With that let me turn the call over to Brian.
Thank you Dirk and good morning, everyone.
Speaker 4: transcript
At a set of strong financial and operating performance for the third quarter, reflecting the continued momentum in our business in 2020 threes.
Speaker 4: transcript
Our results were driven by robust demand for our services highlighted by 13, 9% year over year organic growth in personal care services, well above our normal expected range of 3% to 5%.
Speaker 4: transcript
For the year to date period personal care revenue is up 12, 5% compared with the same period last year.
Speaker 4: transcript
In addition to the volume growth, we benefited from the statewide rate increases in Illinois, our largest personal care market that were effective January 1st in April 1st of this year.
Our third quarter results included two months of operations of Tennessee quality care, a provider of home health hospice and private duty nursing, which we acquired on August one 2023.
Speaker 4: transcript
We are pleased with the integration process to date and look forward to the additional growth opportunities. This acquisition offers an attractive market.
Speaker 4: transcript
Acquisitions remain an important area of focus for us with the market somewhat tempered in the proposed rule changes for reimbursement and program structures.
Speaker 4: transcript
We continue to be selective in assessing and pursuing strategic opportunities in the interim.
Yeah.
Speaker 4: transcript
We were pleased to see continued improvement in our hospice business in the third quarter with positive sequential trends in same store revenue average daily census length of stay and patient days with same store revenues up three 1% over the prior year.
Speaker 4: transcript
We have begun to see the early impact from the expiration of the public health emergency, which we expected to lead to an increase in our skilled nursing facility hospice length of stay.
Speaker 4: transcript
The overall results for our hospice business also includes the addition of the Tennessee quality care operations.
Speaker 4: transcript
Same store revenue for our home health services was down eight 8% from the same period a year ago. As we have intentionally limited emissions from payers was less favorable rates and continue to look for ways to more effectively balance our mix of episodic versus not episodic cases. These.
Speaker 4: transcript
These strategies have affected our volumes on a short term basis, but have resulted in improved profitability for home health.
Speaker 4: transcript
We are continuing to negotiate more favorable rates with certain payers that we anticipate will help drive higher patient volumes and saw sequential increases in emissions and total volume for the second quarter of 2023.
Speaker 4: transcript
Our home health results include the Tennessee quality care acquisition as well as the Apple home Health, which we acquired on October one 2022.
As Dirk noted total net service revenues for the third quarter were $277 million. The revenue breakdown is as follows.
Speaker 4: transcript
Speaker 4: transcript
Personal care revenues were 201 $9 million or 74, 6% of revenue.
Speaker 4: transcript
Hospice care revenues were $53 $1 million or 19, 6% of revenue and home health revenues were $15 $7 million or five 8% of revenue.
Speaker 4: transcript
Other financial results for the third quarter of 2023 include the following.
Speaker 4: transcript
Our gross margin percentage was 32% compared with 31, 3% for the third quarter of 2022, and a sequential improvement of 30 basis points compared to 31, 7% for the second quarter of 2023.
Speaker 4: transcript
As expected. The addition of the Tennessee quality care operations, and a higher mix of political services had a positive impact on gross margin.
Speaker 4: transcript
With the most recent reimbursement increase of Illinois, we were not negatively affected by the annual July one minimum wage increase in Chicago as we expected because we had previously adjusted our wage skills.
Speaker 4: transcript
We do anticipate some additional gross margin expansion sequentially in the fourth quarter. Both from the first full quarter of our Tennessee quality care clinical operations as well as our annual hospice rate increase which will be three 1% effective October one 2023.
Operator: Good day, and welcome to the Addus Homecare's 3rd quarter of 2023 earnings call. All participants will be in a listen only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero.
The combined positive impact on our gross margin is expected to be approximately 60 basis points.
Looking ahead to the first quarter of 'twenty 'twenty four we will see the normal negative seasonal impacts from our annual merit increases and the reset of payroll taxes.
Speaker 4: transcript
Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch tone phone. And to withdraw your question, please press star then two. Please note this event is being recorded.
<unk> only 80 basis points and as Dirk mentioned may see some one time slight compression on our margin percentages for more collective bargaining negotiations.
Speaker 4: transcript
Drew Anderson: I would now like to turn the conference over to Mr. Drew Anderson. Please go ahead, ma'am. Thank you.
Drew Anderson: Good morning, and welcome to the Addus Homecare Corporation's 3rd quarter 2023 earnings conference call. Today's call is being recorded. To the extent that any non-gap 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 Gap 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 Security's litigation reform act of 1995, including statements among others regarding Addus expected quarterly and annual financial performance for 2023 or beyond.
Speaker 4: transcript
G&A expense was 22, 3% of revenue a decline from 22, 6% in the third quarter, a year ago, but up slightly from 22, 1% sequentially in the second quarter, primarily as a result of our Tennessee quality care acquisition, I mean, a higher G&A profile.
Speaker 4: transcript
Adjusted G&A expense for the third quarter of 2023 was 26% essentially flat from the same period in the prior year and up slightly sequentially from 24% in the second quarter with.
With the first full quarter of Tennessee quality care and its higher G&A profile in the fourth quarter, we expect our adjusted SG&A percentage to remain relatively flat sequentially.
The company's adjusted EBITDA increased to $39 million compared with $25 $7 million a year ago adjust.
Speaker 4: transcript
Drew Anderson: 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 forecast, estimates, targets, plans, beliefs, expectations, and the like are intended to identify forward-looking statements. You are here by caution 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 3rd quarter 2023 news release. Consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements.
Adjusted EBITDA margin was 11, 4% compared with 10, 7% for the third quarter of 2022, and a 50 basis point increase from 10, 9% in the second quarter of 2023.
Drew Anderson: The company undertakes no obligation to update any forward-looking statements whether as a result of new information, future events, or otherwise.
Speaker 4: transcript
Adjusted net income per diluted share was $1 15, compared with 94 cents for the third quarter of 2022.
Speaker 4: transcript
The adjusted per share results for the third quarter of 2023 exclude the following.
Speaker 4: transcript
Acquisition expenses of eight cents and noncash stock based compensation expense of 12 subs.
The adjusted per share results for the third quarter of 2022 exclude the following.
Speaker 4: transcript
Speaker 4: transcript
Acquisition expenses of eight cents.
Structure and other nonrecurring costs of one set and noncash stock based compensation expense of 14 cents.
Drew Anderson: I would now like to turn the call over to the company's chairman and chief executive officer, Mr. Dark Allison. Please go ahead, sir. Thank you, Drew.
Speaker 4: transcript
Our tax rate for the third quarter of 2023 was 23, 8% in alignment with our expectations.
Dirk Allison: Good morning and welcome to our 2023 3rd quarter earnings call. With me today, our Brian Pop, 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 3rd quarter results in more detail. Following our comments, the three of us would be happy to respond to any questions. Before I turn to the discussion of our results, I want to take a moment and bring you up to date on the status of the CMS proposed Medicaid access rule.
Speaker 4: transcript
For the full year calendar 2023, we continue to expect our tax rate to be in the mid 20% range.
Speaker 4: transcript
Dsos were 41.5 days at the end of the third quarter of 2023, compared with 35 six days at the end of the second quarter of 2023.
Speaker 4: transcript
While we have continued to experience consistent cash collections for most of our payers, we saw more normal payment timing in the third quarter as anticipated.
Dirk Allison: At this time, CMS continues to review the more than 2,000 comments submitted to the proposal before issuing a final rule. The comments submitted to CMS, including those from a broad array of state Medicaid agencies, overwhelmingly call for the administration to rescind the part of the proposed rule, requiring that 80% of the Medicaid payment providers go to direct caregiver wages. States, along with others who submitted comments to the proposed rule, generally cite both the inherent challenges to a one-size-fits-all approach, and a lack of data to support the likelihood of the 80% mandate increasing access to care from Medicaid beneficiaries as the reasons for the call to rescind it.
Dsos for the Illinois Department of aging for the third quarter returned to a more typical level at 41 eight days compared with 22.3 days at the end of the second quarter of 2023.
Speaker 4: transcript
Our cash flows continue to be very strong at 2023 with our third quarter net cash provided by operations of $21 $8 million.
Speaker 4: transcript
Year to date net cash provided by operations was $87 $6 million exclusive of $5 $5 million in ARPA net spending.
Speaker 4: transcript
As of the end of the third quarter, we still have approximately $8 $3 million in ARPA funds outstanding to be utilized and we expect to receive approximately $16 million in additional funding from the state of new Mexico, beginning in the fourth quarter.
Speaker 4: transcript
As of September 30th 2023, the company had cash of $79 $8 million in bank debt of $166 $4 million with capacity and availability under our revolver of $450 million and $275 $6 million respectively.
Dirk Allison: Similar calls to rescind the 80% mandate are coming from Congress, including in the House Energy and Commerce Health Subcommittee hearing held on Wednesday of last week. Based on the feedback we have received from industry sources, we believe the final rule may be published sometime late in the first quarter or early part of the second quarter of 2024. While the volume and substance of the comment letters may have an impact on the final rule, we do not currently have visibility as to whether the proposed rule will be proposed, it would most likely be subject to a legal challenge on one or more states.
Speaker 4: transcript
With our strong cash flow, we continue to prioritize debt repayment in the absence of acquisition activity.
Speaker 4: transcript
As a result subsequent to our borrowing for the Tennessee quality care acquisition, we repaid $25 million on our revolver during the third quarter and have made additional payments of $25 million to date in the fourth quarter.
Speaker 4: transcript
Our year to date net borrowing on our revolver as of the end of the third quarter of 2023 was $31 $5 million inclusive of the acquisition of Tennessee quality care for approximately $106 million.
Speaker 4: transcript
We have a capital structure that supports our growth initiatives and acquisition strategy and as previously noted we continue to pursue selective acquisitions as market conditions evolve.
Dirk Allison: It is important to remind you that there are many unknowns around the proposed rule and its ultimate impact on our operations, even if it were to be implemented as proposed and withstand legal challenge. Among these unknowns, we do not know when a final rule will be issued, and therefore, when the proposed four-year implementation period will begin, or if the proposed implementation period might be extended for a longer period of time. Our team will continue to be active on this issue as we attempt to affect changes to any final rule.
At the same time, we will continue to focus on our debt repayment strategy and manage our net leverage ratio, which is currently well under one times net of cash on hand.
Speaker 4: transcript
This concludes our prepared comments this morning, and we'd like to thank you for being with US I'll now ask the operator to please open the line for your questions.
Thank you we will now begin the question and answer session.
Speaker 1: transcript
To ask a question you May Press Star then one on your Touchtone phone.
Speaker 1: transcript
If youre using a speakerphone please pick up your handset before pressing the keys if at anytime. Your question has been addressing you would like to withdraw. Your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.
Speaker 1: transcript
Dirk Allison: Yesterday, we announced our results for the third quarter of 2023. These results highlight continued strong financial performance by Addis. This performance would not be possible without the hard work and dedication of all our employees as they continue to provide quality care to our clients and patients in the home. I want to say thank you to each member of our team. Your efforts are appreciated. As we announced our total revenue for the third quarter of 2023 was $270.7 million, an increase of 12.6% has compared to $240.5 million for the third quarter of 2022.
Speaker 1: transcript
And the first question will come from Scott Fidel with Stephens. Please go ahead.
Oh, Hi Tech sought good morning first question just wanted to just ask about I'm thinking about what the fourth quarter end and recognizing that you don't provide formal guidance, but would be curious if you could give us some of your thinking on sort of directional trajectory of volumes across the three.
Speaker 3: transcript
Dirk Allison: This revenue growth resulted in adjusted earnings per share of $1.15 as compared to adjusted earnings per share of the third quarter of 2022 of 94 cents, an increase of 22.3%. Our adjusted EBITDA of 30.9 million was an increase of 20% over the third quarter of 2022. During the third quarter of 2023, we continue to see strong cash flow from operations as our states and other payers have continued to pay in a timely manner.
Speaker 5: transcript
Our core business lines sequentially for the fourth quarter and any seasonality that that you would think about also influence in that and then also on the cash flow side, which.
Speaker 5: transcript
Which has been very strong throughout the year any working capital items that we should be thinking about when modeling <unk> cash flows.
Speaker 4: transcript
Yes, Scott. This is Bryan I think just looking ahead to Q4 on growth rates I mean, obviously, we've been well ahead of our 3% to 5% this year in personal care.
Dirk Allison: This strong cash flow along with continued management of our balance sheet has allowed us to reduce our debt while maintaining a cash balance of approximately $80 million at the end of the year quarter. Our low leverage gives us the financial flexibility to be opportunistic as we anticipate seeing additional acquisition opportunities coming to market over the next several quarters. It remains our plans to use our financial capacity to acquire strategic operations that align with our overall growth strategy of offering all three levels of home base care in our market.
Illinois two rate increases you have definitely been beneficial you know I think looking ahead to the fourth quarter or are we still expect our growth rate of personal care or too much like we'd be above that 3% to 5% range, maybe not quite to the level. We've seen the last couple of quarters with some of the comps to last year, but still a healthy growth.
Speaker 4: transcript
Growth rate I'm on a same store basis year over year for the fourth quarter I think in the clinical services. We've talked about we've seen some sequential improvement from Q2 into Q3, I think we would expect and anticipate to see you know.
Speaker 4: transcript
Continued positive.
Momentum there and we do have a little bit of seasonality I think just like most folks do when it comes around the holidays and particularly maybe in the hospice segment, but I think that's pretty typical but I would say you know probably not overly material.
Speaker 4: transcript
Speaker 4: transcript
And then just on the question on the cash flow I think you know nothing significant I think from a working cap perspective, I think our dsos have been pretty stable, we talked last quarter about being a little artificially low we came back a little more like a normal range in Q3, we would expect that to be pretty consistent.
Dirk Allison: During the third quarter, we continue to see an improving labor environment, especially as it pertains to our personal care segment. During the third quarter of 2023, we experience solid personal care hiring with 84 hires per business day up from 81 hires per business day in the second quarter of this year. In addition to our strong hiring numbers, we continue to see improvement in our starts per business day. While it's important to increase our hires, making sure these hires actually start caring for consumers is a key contributor in the past few quarters to our growth in personal care.
Speaker 4: transcript
So really nothing towards the end of the back part of this year I think just thinking ahead, a little bit when we get into the early part of next year. You start to think about you know annual merit compensation and things like that that play a little bit of an impact some of your insurance on a prepaid basis, but again, probably nothing overly material there.
Speaker 5: transcript
Okay. Thanks, Brian and then just as a follow up question and appreciate some of the visibility into thinking about gross margins in both the fourth quarter.
Dirk Allison: Calling in our clinical care segment has also improved, but does remain a challenge in our more challenging than in our personal care segment with certain more difficult urban markets impacting our home health and hospice growth rates in those markets. As we have in prior quarters, we continue to utilize the funding we received from the American Rescue Plan Act or ARPA. Today, we have received approximately $26 million of which we have 8.3 million remaining to utilize.
In the first quarter thought it may be helpful. Just to the extent that you can just relative to the specific dynamic that you called out around the renegotiation on the collective bargaining with the P. C. S workers and some effect that may have on gross margin are you know as we try to think about.
Speaker 5: transcript
Modeling that end and I guess in particular, you know sort of as we sort of step in to next year and into the first quarter. I know you talked about like the 80 basis points of other factors.
Dirk Allison: We anticipate receiving an additional $16 million in ARPA funding beginning in the fourth quarter of this year. These funds have been helpful with our caregiver recruitment and retention efforts to support the delivery of personal care services and should continue to help those efforts in the future as we deploy the remaining funds. In addition to utilizing the ARPA funds for direct recruitment and retention of caregivers, we are also utilizing the funds to improve our caregivers experience through the implementation of enhanced caregiver training and the development of caregiver application that we believe will help our caregiver retention and overall service delivery.
Speaker 5: transcript
Is there any type of I guess sort of range or or framing that you can give us on how we should think about tackling the gross margin impact.
Speaker 5: transcript
I guess for the Tcs segment or on a consolidated basis from <unk>.
From I guess some of these revised wage agreements that youre working on thanks.
Speaker 4: transcript
Yeah, Scott I think primarily it's in it's in Illinois, I think the rate increase we're getting on January 1st amusing tied to any kind of step up in minimum wage. So theres no kind of offset wage scale per se that happens that exactly at that time, so in our negotiations with them and we will be you know.
Speaker 4: transcript
Little a little cautious in exactly all detail, we get but you know I think we expect to see some one time as berke mentioned kind of benefit enhancements, so not necessarily hourly rates or wages, but some things that havent been addressed through our negotiations for the past several years that we're taking an opportunity to address now so the way to think about it I think going into next year normally.
Dirk Allison: In our personal care segment, our services have largely continued to receive reimbursements for the majority of the states we operate in with our most recent rate increase in our largest personal care market of Illinois effective in the second quarter. While we anticipate future reimbursement increases to enhance access to care and to help mitigate additional wage pressures, we will be negotiating with our union partners over the next few quarters in certain of our markets to update aspects of our collective bargaining agreement.
Speaker 4: transcript
Speaker 4: transcript
Speaker 4: transcript
We've got to see they don't want a rate increase and this is gonna be about we're getting to be about a 4.2% increase on our current rate.
Speaker 4: transcript
We would see kind of a normal margin pull through I think our expectation is we're not going to see that with this particular rate increase when we make some of these adjustments, Illinois, a decent part of our business. So you know, we'll probably have a very slight impact on the margin rate, but not I would say overly material from a percentage basis, but probably a slight impact.
Dirk Allison: Given rising costs from inflation and certain one-time benefit enhancements, we expect we may see lower levels of margin contribution from the near term rate increase in Illinois as we work to see that our caregivers are compensated appropriately in these markets. The impact of these negotiations may result in a slightly lower overall gross margin percentage in our personal care segment that we anticipate will be offset by volume increases in those markets.
Okay, great. Thank you.
Speaker 1: transcript
The next question, we have is from Ben Hendrix with RBC capital markets. Please go ahead.
Speaker 6: transcript
Great. Thank you very much I appreciate the commentary about the P. C hiring momentum and I was wondering if you could give us some your take on how retention has been trending, especially after the special Illinois rate increase that you saw or the extra Illinois rate increase you saw last year, if that's having an.
Dirk Allison: We continue to await the release of the final rule on the home health rate for 2024. We are hopeful that CMS has listened to the extensive feedback received over the past few months that the proposed rate decrease does not adequately take into consideration the increase in wages and expenses home health providers have experienced over the past several years or the questionable methodology and assumption used by CMS in calculating the behavioral adjustment and budget neutrality aspects surrounding proposed rate cuts.
Any impact on retention than on the hospice side, our ADC up sequentially on a same store basis wondering how that trended through the quarter and kind of what's giving you confidence in and seeing some pick up in the four in <unk>. Thanks.
Speaker 7: transcript
Somebody I Miss Brad with respect to the Tcs are just kind of looking at the turnover and retention rates. There are you know we have.
Dirk Allison: While the home health rate cut is currently only a proposed rule, the hospice reimbursement rule was finalized during the third quarter with an overall rate increase of 3.1% effective October 1, 2023, which is an improvement over the original proposed hospice rate increase of 2.8%. We are cautiously optimistic that we will see some incremental improvement in the proposed home health rate reduction with the publication of the final home health rule in the coming days, which will more appropriately reflect our increased costs.
<unk> seen continued improvement in our our retention our turnover rates spot Tcs side I think a lot of as you know as we pointed out earlier is a lot of the enhanced unemployment benefits ended.
Speaker 7: transcript
Last year, which certainly helps us on the retention side and getting people to work, but then more importantly, I think as you point out somebody's rate enhancements have certainly helped our you know keep people engaged to help with the hiring numbers helped keep them are you know.
Dirk Allison: However, as we stated before, we believe that these near-term traditional Medicare home health reimbursement pressures are likely to moderate over the next few years, and as such, we will continue to look for home health acquisition opportunities that are strategic to our overall growth.
Speaker 7: transcript
We're doing a better job honestly of giving them more hours is one of our focuses as you know we're doing a good job on the hiring front, but what we really need to I think focus on this year and next is really maximizing our existing workforce.
Speaker 7: transcript
Speaker 7: transcript
Because it's a.
You know theres a lot of employees, there that wont more hours and it's really a matter of matching those caregivers with open shifts and that's where we're spending a lot of our efforts now and into next year is really focused on the technology enhancements that would allow us to do a better job.
Dirk Allison: Now, let me discuss our same-store revenue growth with the third quarter of 2020. For our personal care segment, our same-store revenue growth was 13.9% when compared to the third quarter of 2022. During the third quarter of 2023, we saw personal care same-store hours per business day grow 4.2% over the same period in 2022, and up slightly on a sequential quarterly basis. We are excited to see our various hiring and scheduling improvement initiatives taking hold and contributing to our strong sequential higher growth over the past several quarters.
Speaker 7: transcript
Speaker 7: transcript
Which I think one helps us get cases started faster as Dirk alluded to but then more importantly allows us to get more hours.
Hours out of our existing workforce, which helps with the retention.
When you look at our the hospice.
Speaker 7: transcript
The trends we saw pretty good you know hospice numbers when you looked at the July in particularly August tailed off a little bit in September, but then picked up again in October. So I think we've got some good momentum on the hospice front are there still some pockets, where we had some challenges on the staffing side, primarily in some urban markets.
Dirk Allison: Turning to clinical operations, our hospice same-store revenue increased 3.1% when compared to the third quarter in 2022. While our same-store ADC was basically flat when compared to the third quarter of 2022, we did see an increase in same-store ADC of 1% over last quarter. During the third quarter, we continued to see an increasing length of state when patients residing in skilled nursing facilities, as we anticipated following the end of the public health emergency.
Speaker 7: transcript
Chicago and Portland, Oregon, those have improved so I think that gives us some optimism heading into Q4, but as Brian pointed out you typically have a little bit of seasonality around the holiday season, particularly with respect to hospice.
Thank you.
Speaker 1: transcript
The next question will come from Joanna could you with Bank of America. Please go ahead.
Speaker 8: transcript
Good morning. Thank you so much for taking the question here. So I guess my first myself with a follow up question that I have my question, but I want to follow up so I'm just talking about the Illinois rate increases and how you expect a one time I guess impact to gross margin because of Delaware I guess flow through but he.
Dirk Allison: As of the end of the third quarter, our hospice medium length of stay was 32 days, exclusive of our journey care and recently acquired Tennessee quality care operations. For comparison purposes, we have historically excluded our journey care operations as it has a higher proportion of shorter length of state patients due to our inpatient units in the Chicago area. We continue to be encouraged by the steady sequential improvement in admissions and census volumes in our hospice segment and anticipate those favorable trends continuing into the fourth quarter.
Speaker 8: transcript
Also said in the prepared remarks do you expect to see some offset from volume increases in the market. So could you talk about that a little bit more on like when would you see those volume I guess increases materialize like he said he need up anyway. So it's more of a comment also on overtime.
Speaker 7: transcript
Yeah. Julian this is Brad with respect to the volume if you look at Illinois, and this kind of goes back to the previous question.
Dirk Allison: Our home health segment, same-store revenue, increased 8.8% over the same quarter in 2022, as we continued to reduce admissions from payers that do not currently reimburse us adequate rates to cover our cost. While we did see lower admissions primarily due to intentionally limiting admissions from these non-strategic Medicare Advantage plans, we did see a sequential increase in home health volume of 5.5% as a result of some incremental contract pricing success and improvements in clinical staffing.
We pay a pretty good rate in Illinois, because of the some of the rate increases that we've received from the state which has been beneficial.
On caregiver to recruitment and retention. So we've seen some really solid hours growth in Illinois.
I think year over year, they're up almost 6% on an hours basis.
No.
Speaker 7: transcript
Even though were not getting necessarily as much margin out of this the upcoming rate increase I do anticipate that those volume increases should continue which will give us more leverage off of our SG&A, which I think when you talk about margin really focused on the bottom line. It should have a negligible effect that we're seeing a little bit of a you know not as much.
Dirk Allison: While we have limited certain admissions due to contract rates, we have seen an increase in our overall episodic admission rate going from 46% in the third quarter of 2022 to a rate of 66% in the third quarter of 2023, with the improvement in episodic admission rate. We have seen an increase in our home health gross margin to 36.2% in our third quarter of this year compared to 23.2% in the third quarter of 2022.
Pull through them this rate increase.
Speaker 8: transcript
Okay. Thank you and my question around.
The margin commentary. So I. Appreciate you know typically that's Q4 margins are higher but then to your point Q1 tends to be a lower margin quarter.
Here. So I guess you know this year I guess tracking for the full year margin EBIT margin I'm talking about 11, a change maybe 11, 1% for the full year. So so he's got a good starting point when thinking about the full year of 'twenty 'twenty four I understand you don't give specific oh, okay, but I guess in light of the call.
Speaker 8: transcript
Dirk Allison: We remain excited about our home health operation as it compliments both our personal care services, particularly where we participate in value-based contracting models and our hospice services by allowing us to provide the full continuum of home-based clinical care. Over the past few months, we have continued to see limited strategic opportunities in both personal care and home health due to the reimbursement uncertainty that exists in each of these segments. As we have more clarity around these particular issues, we believe that we will start to see increasing acquisition opportunities in these segments that will mean our strategic objectives.
So Q1, I think it will be helpful. We're talking about so you know kind of a four quarter period.
And it could play out and as you talk about that you know I guess any puts and takes in terms of the volumes and rates, obviously volumes have been improving and I S. T E. P. C. S M right.
Speaker 8: transcript
Very strong weight and how you see this and normalizing until into next year. Thank you.
Speaker 4: transcript
Yeah, Joanne I think you know for 2023, you know what I think we are trending towards finishing the full year above back above 11%, which is where we were a couple of years ago. I think we had talked about coming into this year, we expected our margins to remain somewhat stable compared to last year. We saw a lot of wage pressure I think we've actually over performed a little bit this year I think adding a <unk>.
Dirk Allison: We are extremely pleased with our Tennessee Quality Care Acquisition, which is strengthened our overall operations in the state of Tennessee. This is an example of the type of backquisition that is squarely within our strategy of providing all three levels of home care and building density in strategically important states. As for our value-based care efforts, we have been telling you for the past several quarters that we are gathering data to prove our effectiveness at helping to reduce the overall cost of care for members of our payers that participate in our various value-based care programs.
Speaker 4: transcript
Additionally, tenant quality care and clinical it's helpful with that as well, but I think our expectation looking forward to 2024 on the margin perspective, as we would expect to again be back above 11% and stay in that range. I think you know we're talking a little bit of piggybacking on Scott's earlier question about growth rates I think our long term growth rate in personal care three to five.
Dirk Allison: We now have results in most, in our most mature value-based agreements, and we have been able to demonstrate a material reduction in both emergency room visits as well as a percentage of patients which were re-emitted to the hospital at both 30 and 90-day intervals. In addition, we have been able to help with the improvement of heat scores and the closure of care gaps relating to these patients. We believe our success is due to our ability to provide both non-clinical person care services to identify changes in conditions and clinical resources as needed for specific skilled patient care interventions.
5% I think we're still comfortable with I think getting to four plus percent increase in Illinois, or just thinking about the topline and not necessarily the pull through it was very helpful. In that regard going into next year. So I think we would expect you know to be you know nicely into that range and maybe toward the top end of next year and I think our clinical services you know, we anticipated we'd like to see those get back to that.
Speaker 4: transcript
Speaker 4: transcript
Normal growth rates of kind of the mid single digits.
Speaker 4: transcript
So with that again.
Seven plus percent you know bottom line margin expectation for next year.
Speaker 8: transcript
Thank you with that and if I can just follow up on that so I guess.
It sounds like are you talking about maybe higher end of that three to five for a P. C and so how would you break it down the volume, especially the suites. So I guess, Illinois, you just mentioned a 4% increase in how are I guess the the.
Dirk Allison: We continue to invest in value-based strategies and related technology resources. These investments should give us an opportunity during the next couple of years to accelerate our revenue growth from this part of our operation as we increase the scale of our value-based programs. We will be using this information as part of our conversations with various Medicare advantage payers, showing them how attest can be a part of providing cost-effective care to their members that can significantly reduce the overall medical loss ratio and improve the overall quality of care received by members participating in our programs.
The rest of the P. C. A S markets trending when it comes to weight increases into next year. Thank you.
Dirk Allison: With the recent addition of Tennessee quality care, we now have three states where we can offer all three levels of home care. We believe this coverage positions us well to continue to expand and add our value-based contracts in these markets.
Speaker 4: transcript
Yes, I think Illinois, obviously, there's going to be the most impactful one for US next year. So there you go for about 40% of our business and in personal care. So at four plus percent. That's a good start on the 3% to 5% consolidated.
Speaker 4: transcript
Speaker 4: transcript
For the year I think we've seen good rate support over the last couple of years from a lot of our markets. We've seen a lot of you know a corresponding increases offset some minimum wage step up if you don't have you know many of those things scheduled for next year. So I think our expectation is you know outside of Illinois, not probably a lot on the rate side next year I think we are getting as Brad mentioned really good.
Speaker 4: transcript
Speaker 4: transcript
So that volume on the volume side and you have an expectation that our markets will continue to grow you know both in number of clients, but also you know where we can maximize the fill rates for more authorizations were making some some headway there we have some opportunity there on the volume side, we believe.
Dirk Allison: As I say each quarter, I'm so proud of our team for the care they are providing to our elderly and disabled consumers and patients. There's no question that the majority of clients and patients want to receive care in their homes, which remains one of the safest and most cost-effective places to receive this care. We believe the heightened awareness for the value of home-based care is favorable for our industry and will continue to be a growth opportunity for our company. We understand and appreciate that our operations and growth are dependent on our dedicated caregivers who work so incredibly hard, providing outstanding care and support to our clients, patients and their families.
Great. Thank you so much.
Speaker 1: transcript
This concludes our question and answer session I would like to turn the conference back over to Mr. Dirk Allison for any closing remarks. Please go ahead.
Speaker 3: transcript
Thank you operator I want to thank you for your interest in Edison for being part of our call. Today, We hope you have a great week.
Speaker 1: transcript
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker 9: transcript
Okay.
Brian Poff: With that, let me turn the call over to Brian. Thank you, Durk, and good morning, everyone. Addus had a strong financial operating performance for the third quarter, reflecting the continued momentum in our business in 2023. Our results were driven by robust demand for our services, highlighted by 13.9% year over year organic growth and personal care services, well above our normal expected range at 3 to 5%. For the year-to-date period, personal care revenue is at 12.5% compared with the same period last year.
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Speaker 9: transcript
Yeah.
Yeah.
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Yes.
Yes.
Brian Poff: In addition to the volume growth, we benefited from the statewide rate increases in Illinois, our largest personal care market that were effective January 1st and April 1st of this year. Our third quarter results included two months of operations of Tennessee Quality Care, a provider of Home Health, Hospice, and Private Duty Nursing, which we acquired on August 1st, 2023. We are pleased with the integration process today and look forward to the additional growth opportunities this acquisition offers in an attractive market.
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Yeah.
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Brian Poff: Acquisitions remain an important area of focus for Addus with the market somewhat tempered and the proposed rule changes for reimbursed investment and program structures. We continue to be selective in assessing and pursuing strategic opportunities in the interim. We were pleased to see continued improvement in our hospice business in the third quarter with positive sequential trends in same-store revenue, average daily census, length of stay, and patient days with same-store revenues up 3.1% over the prior year.
Yeah.
Brian Poff: We have begun to see the early impact from the exploration of the public health emergency, which we expected to lead to an increase in our skilled nursing facility, Hospice, Length of Stay. The overall results for our hospice business also include the addition of the Tennessee Quality Care Operations. Same-store revenue for our home health services was down 8.8% from the same period a year ago, as we have intentionally limited emissions from payers as less favorable rates and continue to look for ways to more effectively balance our mix of episodic versus non-epicetic cases.
Brian Poff: These strategies have affected our volumes on a short-term basis, but have resulted in improved profitability for home health. We are continuing to negotiate more favorable rates of certain payers that we anticipate what help drive higher patient volumes and saw sequential increases in emissions and total volume from the second quarter of 2023. Our home health results include the Tennessee Quality Care acquisition, as well as Apple Home Health, which we acquired on October 1st, 2022.
Brian Poff: As Dirk noted, total net service revenues for the third quarter were $270.7 million. The revenue breakdown is as follows. Personal care revenues were $201.9 million or $74.6% of revenue. Hospice care revenues were $53.1 million or $19.6% of revenue, and home health revenues were $15.7 million or $5.8% of revenue. Other financial results for the third quarter of 2023 include the following. Our gross margin percentage was 32% compared with 31.3% for the third quarter of 2022 and a sequential improvement of 30 basis points compared to 31.7% for the second quarter of 2023.
Brian Poff: As expected, the addition of the Tennessee quality care operations in a higher mixed clinical services had a positive impact on gross margin. With the most recent reimbursement increase in Illinois, we were not negatively affected by the annual July 1 minimum wage increase in Chicago, as we expected, as we had previously adjusted our wage scales. We do anticipate some additional gross margin expansion sequentially in the fourth quarter, both from the first full quarter of our Tennessee quality care clinical operations, as well as our annual hospice rate increase, which will be 3.1% effective October 1, 2023.
Brian Poff: The combined positive impact on our gross margin is expected to be approximately 60 basis points. Looking ahead to the first quarter of 2024, we will see the normal negative seasonal impacts from our annual merit increases and the reset of payroll taxes with approximately 80 basis points. And as Dirk mentioned, may see some one time slight compression on our margin percentages from our collected bargaining negotiations. GNA expense was 22.3% of revenue, a decline from 22.6% in the third quarter a year ago, but up slightly from 22.1% sequentially in the second quarter, primarily as a result of our Tennessee quality care acquisition having a higher GNA profile.
Brian Poff: Adjusted GNA expense for the third quarter of 2023 was 20.6% essentially flat from the same period in the prior year, and up slightly sequentially from 20.4% in the second quarter. With the first full quarter of Tennessee quality care and a higher GNA profile in the fourth quarter, we expect our adjusted SGNA percentage to remain relatively flat sequentially. The company's adjusted EBITDA increased to $30.9 million compared with $25.7 million a year ago.
Brian Poff: Adjusted EBITDA margin was 11.4%, compared with 10.7% for the third quarter of 2022, and a 50 basis point increase from 10.9% in the second quarter of 2023. Adjusted net income per duly to share was $1.15, compared with 94 cents for the third quarter of 2022. The adjusted per share results for the third quarter of 2023 exclude the following acquisition expenses of 8 cents and non cash stock based compensation expense of 12 cents.
Brian Poff: The adjusted per share results for the third quarter of 2022 exclude the following acquisition expenses of 8 cents restructure another non recurring cost of 1 cent and non cash stock based compensation expense of 14 cents. Our tax rate for the third quarter of 2023 was 23.8% in alignment with our expectation. For the full year calendar 2023, we continue to expect our tax rates be in the mid 20% range. The ISOs were 41.5 days at the end of the third quarter of 2023, compared with 35.6 days at the end of the second quarter of 2023.
Brian Poff: While we have continued to experience consistent cash collections from most of our payers, we saw more normal payment timings in the third quarter as anticipated. Our DSOs for the Illinois Department of Asian for the third quarter returned to a more typical level at 41.8 days, compared with 22.3 days at the end of the second quarter of 2023. Our cash flows continue to be very strong in 2023, with our third quarter net cash provided by operations at $21.8 million.
Brian Poff: Year to date, net cash provided by operations was $87.6 million, exclusive of $5.5 million in ARPA net spending. As of the end of the third quarter, we still have approximately $8.3 million in ARPA funds outstanding to be utilized, and we expect to receive approximately $16 million in additional funding from the state of New Mexico, beginning in the fourth quarter. As of September 30, 2023, the company had cash of $79.8 million and bank debt of $166.4 million with capacity and availability under our revolver of $450 million and $275.6 million respectively.
Brian Poff: With our strong cash flow, we continue to prioritize debt repayment in the absence of acquisition activity. As a result, subsequent to our borrowing for the Tennessee Quality Care Acquisition, we repaid $25 million on our revolver during the third quarter and have made additional payments of $25 million to date in the fourth quarter. Our year-to-date net borrowing on our revolver, as of the end of the third quarter of 2023, was $31.5 million, inclusive of the acquisition of Tennessee Quality Care for approximately $106 million.
Brian Poff: We have a capital structure that supports our growth initiatives and acquisition strategy, and as previously noted, we continue to pursue selective acquisitions as market conditions evolve. At the same time, we will continue to focus on our debt repayment strategy and manage our net leverage ratio, which is currently well under one time's net of cash on hand.
Brian Poff: This concludes our prepared comments this morning, and we'd like to thank you for being with us.
Operator: I'll now ask the operator to please open the line for your questions. Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressing you, we'll like to withdraw your question.
Operator: Please press star then two, and at this time, we'll pause momentarily to assemble our roster.
Scott Fidel: And the first question will come from Scott Fidel with Stevens. Please go ahead. Hi, thanks. Good morning.
Brian Poff: First question just wanted to ask about thinking about with the fourth quarter and recognizing that you don't provide formal guidance, but would be curious if you could give us some of your thinking on sort of directional trajectory of volumes across the three core business lines sequentially for the fourth quarter and any seasonality that you would think about, also influencing that, and then also on the cash flow side, which has been very strong throughout the year, any working capital items that we should be thinking about when modeling for a Q-cash flow. Yes, Scott, this is Brian.
Brian Poff: I think just looking ahead to take you for on growth rates. Obviously, we've been well ahead of our 3 to 5% this year in personal care. I've been failing away two rate increases this year. I've definitely been beneficial. I think looking ahead to the fourth quarter, we still expect our growth rate in personal care to be above that 3 to 5% range, maybe not quite. So the level we've seen the last couple of quarters was some of the comms to last year, but still a healthy growth rate on a same for a base this year, every year, for the fourth quarter.
Brian Poff: I think in the clinical services, we talked about we've seen some sequential improvement from Q2 and Q3. I think we would expect and anticipate to see continued positive momentum there. We do have a little bit of seasonality, I think, just like most of us do when it comes around the holidays, particularly maybe in the hospice thing, but I think that's pretty typical, but I would say, you know, probably not overly material.
Brian Poff: And then just on the question on the cash flow, I think nothing significant, I think, from a working cap perspective, I think our DSOs have been pretty stable. We talked last quarter about being a little artificially low. We came back a little more to like a normal range in Q3. I want to expect that to be pretty consistent. So really nothing toward the end of the back part of this year. I think just thinking ahead a little bit, you know, we get into the early part of next year, you sort of think about, you know, annual merits, compensation, things like that, that play a little bit of an impact. Some of your insurance on a pre-pay basis, but again, probably nothing, you know, overly material there. Okay, thanks, Brian.
Brian Poff: And then just as a follow-up question, I'm going to appreciate some of the visibility into thinking about growth margins in both the fourth quarter, in the first quarter. I thought it may be helpful just to the extent that you can just relative to the specific dynamic that you called out around the renegotiation on the collective bargaining with the PCS workers and some effect that may have a growth margin. You know, as we try to think about modeling that and I guess in particular, you know, sort of as we sort of step into next year and into the first quarter, I know you talked about like the 80 basis points of other factors.
Brian Poff: Is there any type of, I guess, sort of range or framing that you can give us on how we should think about tackling the growth margin impact, I guess, for the PCS segment or on the consolidated basis from, I guess, some of these revised wage agreements that you're working on. Thanks. Yes, Dan. I think, you know, primarily it's in Illinois. I think the written freeze for getting on January 1st isn't tied to any kind of step up in minimum wage.
Brian Poff: There's no kind of, you know, offset wage scale per se that happens exactly at that time. So in our negotiations with them and we'll be, you know, a little cautious in the exact amount of detail we get. But, you know, I think we expect to see some one time, as Burke mentioned, kind of benefit enhancements, so not necessarily hourly rates or wages. But some things that haven't been addressed through our negotiations the past several years that we're taking an opportunity to address now.
Brian Poff: So the way to think about I think going into next year, normally we kind of see, and on what our rate increases, this is going to be the amount we're getting to be about a 4.2 percent increase on our current rate. We would see kind of a normal margin pull through. I think our expectation is we're not going to see that with this particular rate increase when we make some of these adjustments.
Brian Poff: You'll always a decent part of our business. So, you know, we'll probably have a very slight impact on the margin rate, but not I would say overly material for a percentage basis, but probably a slight impact. Okay, great.
Brian Poff: Thank you.
Ben Hendrix: The next question we have is from Ben Hendrix with RBC Capital Markets. Please go ahead. Great. Thank you very much. I appreciate the commentary about the PC hiring momentum. I was wondering if you could give us some your take on how retention has been trending, especially after the special Illinois rate increase that you saw or the extra Illinois rate increase you saw last year. If that's having an impact on retention, then on the hospice side, ADC, sequentially on the same store basis, wondering how that trended through the quarter and kind of what's giving you confidence and seeing some pickup in four Q. Thanks.
Brad Bickham: So, Ben, this is Brad. I would respect to the PCS just kind of looking at turnover and retention rates there. You know, we have seen continued improvement in our retention and our turnover rates on PCS side. I think a lot of us, you know, as we pointed out earlier is because a lot of the enhanced unemployment benefits ended last year, which certainly helped on the retention side in getting people to work.
Brad Bickham: But then more importantly, I think as you point out, some of these rate enhancements have certainly helped, you know, keep people engaged, helped with the hiring numbers, helped keep them, you know, I think we're doing a better job, honestly, of giving them more hours. That's one of our focuses is, you know, we're doing a good job on the hiring front. But what we really need to, I think, focus on this year and next is really maximizing our existing workforce because it's, you know, there's a lot of employees there that want more hours and it's really a matter of matching those caregivers with open shifts.
Brad Bickham: And that's where we're spending a lot of our efforts now and into next year is really focused on technology enhancements that would allow us to do a better job, which I think one helps us get cases started faster is very alluded to. But then more importantly allows us to get more hours out of our existing workforce, which helps with the retention. When you look at the hospice, you know, trends, you know, we saw pretty good, you know, hospice numbers when you looked at July and particularly August, tell off a little bit in September, but then picked up again in October.
Brad Bickham: So I think we've got some good momentum on the hospice front. There's still some pockets where we had some challenges on the staffing side, primarily in some urban markets like Chicago and Portland, Oregon, those have improved. So I think that gives us some optimism heading into Q4. But as Ryan pointed out, you typically have a little bit of seasonality around the holiday season, particularly with respect to hospice. Thank you.
Brad Bickham: The next question will come from Joanna Goodjuk with Bank of America. Please go ahead. Good morning. Thank you so much for taking the question here. So this is my first I stop with a follow-up question, then I have my question, but on the follow-up. So I'm just talking about the Illinois rating visa and how you expect a one-time, I guess, impact to growth margin because of the lower, I guess, flow through.
Brad Bickham: But I also said in the program, why do you expect to see some offsets from volume increases in the market? So could you talk about that a little bit more? Like when would you see those volume, I guess, increases materializing? Is it in the U.S.? It's a more of a comment over overtime. Yeah, Joanne, this is Brad. I would respect to the volume. If you look at Illinois and this kind of goes back to the previous question, we pay a pretty good rate in Illinois because there's some of the rate increases that we've received from the state which has been beneficial on caregiver recruitment and retention.
Brad Bickham: So we've seen some really solid hours growth in Illinois. I think year over year, they're up probably almost 6% on an hour's basis. Even though we're not getting necessarily as much margin out of this upcoming rate increase, I do anticipate that those volume increases should continue, which will give us more leverage off of our S-GNA, which I think when you talk about margin really focused on the bottom line, it should have a negligible effect that we're seeing a little bit of, you know, not as much pulpit on this rate increase.
Joanna Gajuk: Okay, thank you. And my question about the margin commentary, so I appreciate, you know, typically this Q4 margins are higher than to your point Q1 tends to be a lower margin quarter in a year. So I guess, you know, this year, I guess tracking for the full year margin, even our margins are talking about 11 in change, maybe 11.1% for the full year. So is that a good starting point thing about, you know, the full year of 2024 and then you don't give specific guidance, but I guess in line of the commentary around Q1, I think you will be helpful talking about, so, you know, kind of a full quarter period how the margins could play out.
Joanna Gajuk: And as we talk about that, you know, I guess any puts and takes in terms of the volumes and rates of the civil and so been improving nicely in PCS. But it's very strong right and how you see this normalizing into into next year. Thank you. Yeah, Joanne, I think you know for 2023, you know, I think we are trending toward finishing the full year above back above 11%, which is where we were a couple of years ago.
Joanna Gajuk: I think we had talked about coming into this year, we expected our margins remain somewhat stable compared to last year. We saw a lot of wage pressure. I think we've actually over perform that low, but this year, I think adding acquisition like kind of quality care and clinical, you know, it's helpful with that as well. But I think our expectation looking forward to 2024 on the margin perspective is we would expect to again be back above 11% and stay in that range.
Joanna Gajuk: I think, you know, talking a little bit of piggybacking on. That's really a question about growth rates. I think our long term growth rate in personal tier three to five percent. I think we're still comfortable with. And then getting to four plus percent increase in Illinois, just thinking about the top line, not necessarily the pull through. You know, it was very helpful in that regard going into next year. So I think we expect, you know, to be, you know, nicely into that range.
Joanna Gajuk: And maybe we're the top end next year. And I think our clinical services, you know, we anticipate we'd like to see those get back to our normal growth rates of kind of the mid single digits. So with that, again, that 11 plus percent, you know, bottom line margin expectation for next year. Thank you that any if I can just follow up on that. So I guess. Sounds like you're talking about maybe higher and over three to five for PC.
Joanna Gajuk: So how would you break it down the volumes versus rates? So I guess Illinois, you just mentioned four percent increase in Howard. I guess the rest of the PC as markets trending when it comes to rate increases into next year. Yeah, I think Illinois obviously is going to be the most impact one for us next year. So they're, you know, about 40% of our business and in personal care. So at 4% that's a good start on the 3 to 5% consolidated for the year.
Joanna Gajuk: I think, you know, we've seen good rate support over the last couple of years from a lot of our markets. We've seen a lot of, you know, corresponding increases to offset some minimum wage step up. We don't have, you know, many of those, I think scheduled for next year. So I think our expectation is, you know, outside of Illinois, not probably a lot. That on the right side next year, I think we are getting, as Brad mentioned, really good momentum and volume on the volume side.
Joanna Gajuk: And we have an expectation that our markets will continue to grow, you know, both in a number of clients, but also, you know, where we can maximize those still rates from our authorizations, we're making some some headway there. We have some opportunity there on the volumes that we believe.
Brian Poff: Okay, thank you so much.
Dirk Allison: This concludes our question and answer session. I would like to turn the conference back over to Mr. Dirk Allison for any closing remarks. Please go ahead. Thank you, operator. I want to thank you for your interest in Addison for being part of our call today. We hope you have a great week.
Operator: The conference is now concluded. Thank you for attending today's presentation.
Operator: You may now disconnect.